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Random Thoughts
The Audacity of Hoax
by
Gaurang Bhatt, MD
It was in Britain that insurance began first in
shipping. Voyages to the Indies were long and fraught with danger. Not
all the ships that sailed returned safely or with undamaged cargo of
value. People of substance formed pools of risk and were substantially
rewarded by the law of averages and reversion to the mean. Some
unfortunate risk taking members of the insuring pool suffered
devastating losses and were ruined. Later life insurance was available
for individuals and actuarial tables were used to calculate premiums.
The Scottish Widows pension fund for the wives of Presbyterian ministers
set up the first statistics based pension insurance firm which is still
one of the large financial behemoths today, as is the Lloyd’s shipping
insurance partnership.
Sometime in the early interim era, it was permissible for anyone to buy
life insurance on any unrelated individual. As is not unexpected in such
an “ethical” land like Great Britain, which pioneered slavery,
colonization, narcotics peddling and genocide, some financially savvy
individuals used insurance as a means of large and rapid profits. Such
persons would take out large life insurance policies on someone and then
hire an assassin to murder the insured and collect a bonanza. The
rapidly rising losses of insurance companies led them to appeal to the
king and parliament to prohibit any unrelated individual from taking out
life insurance policies on individuals whose death would not cause them
economic damage. Such a law was soon passed. A similar thing happened
with the states of Delaware and South Dakota which repealed the laws of
usury and credit card interest rate ceilings in the Carter Reagan
Volcker era to obtain credit card billing centers, oblivious of how it
would shaft all American consumers. In both cases, governments did what
was good for large financial companies with no concern about the common
citizen, a pattern which persists today in bailing out banks and
abandoning the homeowners.
The general public in the US is unaware that Lehman and Bear Stearns
while deserving of demise because of their high leverage, dependence of
daily short term funding for their long term, high risk bets, were
accelerated to failure by many smart speculators who bought credit
default swaps on these companies (a form of life insurance on the
company’s debt) without owning any of it, and then shorted the company’s
stock which they had borrowed. This put them in a vicious downward cycle
as those companies could not obtain short term financing from unwilling
lenders with doubts about their survivability. The greedy officers of
AIG’s credit default writing London subsidiary, earlier had kept on
writing such insurance at unrealistically low and risky premiums,
without sequestered and segregated cash reserves.
AIG subsidiary’s officers collected premiums each year without assessing
future risk and could report huge profits each year which allowed them
to claim millions in year end bonuses, while the company eventually
faced nearly 200billion dollars liability a few years later. Once again
Paulson dumped the liability on the government and ultimately on the
taxpayer to fund AIG, salvage his old firm Goldman Sachs, while driving
its competitors Lehman, Bear Stearns and Merrill Lynch out of business.
He also frightened the Congress and then threatened a meltdown. The
Congress pretended to first vote against the bailout and then reversed
itself in a farce which only fooled the stupid American public. They and
the president whose only interest is in an open spigot for campaign
finance, presidential library donations and obscene speaker fees, used
the 700 billion dollars to recapitalize the big banks, guarantee their
debts and set the stage for future losses for the taxpayer.
Paulson left, but his co-conspirators Geithner, Summers and Bernanke
remained as consiglieris to the new incoming boss. Far from regulating
the big banks, designing new and effective regulations or reducing them
in size so that they cease threatening the economy by being too big to
be allowed to fail , the bank moles in the administration allowed them
to become even bigger by allowing them to take over Wachovia,
Countrywide and others with huge subsidies and guarantees from the
government to be footed by the taxpayer.
Now gold-digging hacks are proposing to buy insurance policies from old
geezers and lumping them into securities for a huge fee to be sold to
investors. Rumor has it that the Cosa Nostra Finance Subsidiary has
shown interest in buying these securities but only if Geithner’s latest
public swindle, the Public Private Investment Trust (PPIT) will finance
the purchase with a 90% non-recourse loan and guarantees them immunity
from prosecution. The Cosa Nostra F–---Company has assured the
government that the PPIT investment is likely to be highly profitable as
they have a collection agency that can expedite the events which will
lead to immediate maturity and termination of the insured. It seems like
de ja vu or re-inventing the old insurance death trap, deserving of a
IgNobel prize in Economics.
The final example of how the old dirty game is the newest mantra of the
audacity salesman selling a hoax. Obama keeps shifting his stance on
healthcare while talking a good game. If he abandons the public option
and mandates health insurance for all, what he is doing is legally and
forcibly delivering additional 50 million (uninsured) sacrificial lambs
to insurance company wolves. They can still cherry pick, keep on raising
rates and fatten their profits by collusion, price fixing and absence of
competition. If he keeps a public option and promises no deficit finance
or government financial support, the insurance companies will cherry
pick the healthy young and dump the costly sick ones and the high
utilizing insured, on to the public option forcing it to have premiums
higher than those of the private insurers, if it is not to run deficits
or obtain government subsidies. This makes Obama’s healthcare reform an
audacious hoax.
We need a non-profit single payer national health insurance with no
overheads for advertizing, low 3% overheads (like Medicare, Medicaid
&VA) for administrative expenses, an upper pay limit of 185,000 dollars
for the highest administrators, and limitation of treatments based on
effectiveness, quality of life and its prolongation and possibly even an
upper limit in the number of dollars spent per person. It may not be
politically possible to institute such a drastic change in one step. We
have to begin with a competing public option with a small seeding
subsidy for the uninsured. It can be obtained by tax surcharges on the
rich high earners and taxing the gold plated employer paid health plans.
To reduce the rising costs of healthcare, later on some rationing and
premium price controls (like PUCs and regulated utilities) may be
necessary.
While I await the ultimate outcome of the audacious hoax, the odds are
that while one can fool some people at all times and all people at some
times, one can fool the large majority of all American people at all
times, when it comes to elections or their economic interest.
September 13,
2009
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