Business Trends: Banks, Cars, Healthcare and Safe Vermont Mortgages

The Strong
The Wall Street Journal’s “Slump Spurs Grab for Markets” reports that strong companies like JP Morgan (JPM), Bed Bath and Beyond (BBBY), and New York Life have used the turbulent market to annihilate their competitors. JP Morgan is stealing cheap deposits from weaker banks, Bed Bath went in for the kill on invalid Linens‘n Things, and New York Life is out selling AIG (AIG), Hartford (HIG) and Lincoln National (LNC) in life insurance and annuities.

All three of the winners cited by the Journal were strong entering the crisis and deserve their outcomes. But do Bank of America (BAC) and Wells Fargo (WFC) now deserve to control nearly half of the mortgage origination market? And does Citicorp (C) still deserve to be the preeminent international transaction banker?

Financial firms differ from all others in that confidence is a matter of life and death. Bloomberg’s “Bank of America Said to Balk at Paying Backstop Fee” reports the government seeks value for its willingness to backstop $118B of Merrill Lynch’s more difficult assets, even though the deal was never consummated. The original agreed fee was $4B. It could be argued that willingness from an institution as strong and powerful as the US government had economic value that was reflected not only in Bank of America’s share price, but in its very survival.

All of the banks that I mentioned are members of the top 19, deemed too large to fail. This group gets added value that should be paid for. The Fannie Mae (FNM), Freddie Mac (FRE) and AIG precedent of protecting all bond holders, including junior unsecured, for full principal and interest has allowed all 19 to access the debt market relatively unencumbered. Even Citigroup will soon be forced to leave the nest of FDIC guaranteed commercial paper and debt.

Equally important with the ability to float debt is the ability to retain large deposits. These 19 banks have implied FDIC deposit insurance beyond $250K for interest bearing accounts. Why shouldn’t they be required to pay for that implied deposit insurance?

The Obama Administration is proposing additional oversight and regulation on financial institutions deemed too big to fail. This would definitely add cost, but that price is not high enough for admission to sit under the government’s protective umbrella.

The Disingenuous
The Wall Street Journal’s “SEC Plays Keep-Up in High-Tech Race” reports that the agency lacks the technical expertise to collect and analyze data on the way financial markets actually function. The SEC is reliant pn the exchanges for alerts and deep data dives. It cannot directly determine the effect of restricting flash orders or dark pools on share pricing.

I say that the SEC does not need proof to determine right from wrong or good public policy. Former Fed Chairman Greenspan never acted to prevent bubbles because he never had any proof they were forming, or that “financial innovation” could cause any serious harm. And former SEC Chairman Cox was too resistant to even look for evidence of potential harm.

The Journal’s “Can Mercedes Keep Its Luxury-Car Edge?” reports manufacturers that sell less than 400K cars per year in the US are exempt from the new tighter fuel economy standards. This neither benefits the specialty brands nor our country. Pricing at the luxury end allows for real leaps in material science and other technologies for true innovation.

Imagine if the Lexus LS were required to get an average 35 miles per gallon. Lightweight large cars would become commonplace, and the technology would trickle down to Toyotas (TM) and Chevys. Instead we’re on the same old path of either small and efficient, or large and inefficient - no real change.

The Journal’s “Vermont Mortgage Laws Shut the Door on Bust -- and Boom” reports that while the state’s restrictions prevented mortgage abuse, the restrictions also kept “qualified” potential homeowners from achieving their dreams and stunted the state’s growth. Vermont’s economy grew 60% over the 10 year period ending in 2008, just 3% less than the national average. Think what Florida could have learned from Vermont.

The New York Times’ “Calm, but Moved to Be Heard on Health Care” reports that Bob Collier (62) believes: “We’ve got to do something about those people who can’t get insurance. There has to be a safety net there. But I don’t want that safety net to catch too many people.” Collier, who gets his news from Fox News, Rush Limbaugh and Matt Drudge, claims that he is genuinely concerned about the federal deficit and lazy freeloaders.

What makes Collier’s protest at Democratic Representative Bishop’s town hall meeting disingenuous is that his wife of 35 years had breast cancer and is uninsurable if he loses his job. But his fear of healthcare rationing during his Medicare years outweighs his fear of losing insurance coverage before he and his wife get there.

Collier’s employer Buccaneer charges him no premium but he pays $509 per month to cover his wife. Their out of pocket costs are rising 15% per year and deductibles are up 400%. $63K of his wife’s treatment was considered experimental and billed to the Colliers. But miraculously Emory Healthcare agreed to write off the charges.

If Collier actually had to write a check for $63K or face bankruptcy would he feel differently about healthcare reform? Would he be more concerned about his grown children and grandchild’s ability to get healthcare than an uncontrolled federal deficit? Collier should know that his wife’s cancer will forever prevent his offspring from getting medically underwritten insurance. (The underwriting process involves medical question about blood relatives.)

Lastly, does Collier think that individuals should be given the same protections as he gets in a group plan?

The Creative
The Wall Street Journal’s “With Money Tight, a Bank Takes Parmesan Cheese as Collateral” reports that an Italian bank watches over its collateral in its own temperature controlled warehouse. The 85 pound wheels are each stamped with the month and location and a certificate is issued to the borrower to secure a loan. The tradition dates back to after World War II.

Disclosure: Author is long BAC, C, FNM, FRE and WFC.

Comments

[markfl:]

"Vermont’s economy grew 60% over the 10 year period ending in 2008, just 3% less than the national average. Think what Florida could have learned from Vermont." They could teach the nation a great deal. Their July unemployment fell www.burlingtonfreepres...- to 6.8 percent, only .7 % above the post-2001 recession national peak of 6.1%, and 1% below the national post-1991 peak of 7.8%.

Aug 26 05:15 AM

[john s. gordon:]

there re people who spend summers in vermont & spend winters in florida. they are called snowbirds. where do they vote?
> jack

Aug 26 08:35 AM

[ain't no fo...:]

wherever we live the longer number of days - in my case FL, by about two weeks... that is determined by my knees, not the electoral process.


On Aug 26 08:35 AM john s. gordon wrote:

> there re people who spend summers in vermont & spend winters
> in florida. they are called snowbirds. where do they vote?

Aug 26 09:17 AM

[Joyful Alte...:]

I wonder who Mr. Collier would like to fall through the cracks. I pay $350 a month for individual health insurance, my knee replacement cost me $9,000 out of pocket, and friends tell me I'm lucky that the insurer didn't drop me for costing them money. Friends in other states tell me I'm lucky to be able to buy health insurance at all. Am I supposed to fall through the cracks?

Mr. Collier obviously doesn't want his wife to fall through the cracks, and how nice for him that they received charity rather than a bill he'd be paying off for the rest of his working life. Should I fall through the cracks if my osteoarthritis makes another joint replacement necessary and I can't come up with the out-of-pocket expense (plus self-employed people don't get sick leave or sick pay!)? Keep in mind that the surgeon wants cash up front; he's had too many patients unable to pay him after he's done his part. Should somebody who makes $15,000/year and can't possibly pay insurance premiums of $350/month, not to mention all those out-of-pocket amounts, fall through the cracks? Is this guy a freeloader if he gets charity, too, when he gets cancer? And keep in mind that his and Mrs. Collier's charity are paid for by higher bills for you and me.

As a long-time self-employed person (and health insurance buyer), I wish I had access to "Medicare for All." I suspect never before in history have so many people looked forward to their 65th birthdays.

Aug 26 09:36 AM

[KirbyJF1:]

George W. Bush – The Dumbest President Ever?

Posted on 21. Jul, 2009 by Josh Ray in Liberal Logic

Thanks for visiting Deconstructing The News. Take a look around, get inspired and than get involved.

I just got this in an email from a good friend who is currently serving in the Marines:

If George W. Bush had given Gordon Brown a set of inexpensive and incorrectly formatted DVDs, when Gordon Brown had given him a thoughtful and historically significant gift, would you have approved?

If George W. Bush had given the Queen of England an iPod containing videos of his speeches, would you have thought this embarrassingly narcissistic and tacky?

If George W. Bush had bowed to the King of Saudi Arabia , would you have approved?

If George W. Bush had visited Austria and made reference to the non-existent “Austrian language,” would you have brushed it off as a minor slip?

If George W. Bush had filled his cabinet and circle of advisers with people who cannot seem to keep current on their income taxes, would you have approved?

If George W. Bush had been so Spanish illiterate as to refer to Cinco de Cuatro in front of the Mexican ambassador when it was the fourth of May (Cuatro de Mayo), and continued to flub it when he tried again, would you have winced in embarrassment?

If George W. Bush had misspelled the word advice would you have hammered him for it for years like Dan Quayle and potatoe as proof of what a dunce he is?

If George W. Bush had burned 9,000 gallons of jet fuel to go plant a single tree on Earth Day, would you have concluded he’s a hypocrite?

If George W. Bush’s administration had okayed Air Force One flying low over millions of people followed by a jet fighter in downtown Manhattan causing widespread panic, would you have wondered whether they actually get what happened on 9-11?

If George W. Bush had been the first President to need a teleprompter installed to be able to get through a press conference, would you have laughed and said this is more proof of how inept he is on his own and is really controlled by smarter men behind the scenes?

If George W. Bush had failed to send relief aid to flood victims throughout the Midwest with more people killed or made homeless than in New Orleans , would you want it made into a major ongoing political issue with claims of racism and incompetence?

If George W. Bush had ordered the firing of the CEO of a major corporation, even though he had no constitutional authority to do so, would you have approved?

If George W. Bush had proposed to double the national debt, which had taken more than two centuries to accumulate, in one year, would you have approved?

If George W.. Bush had then proposed to double the debt again within 10 years, would you have approved?

If George W. Bush had reduced your retirement plans holdings of GM stock by 90% and given the unions a majority stake in GM, would you have approved?

If George W. Bush had spent hundreds of thousands of dollars to take Laura Bush to a play in NYC, would you have approved?

So, tell me again, what is it about Obama that makes him so brilliant and impressive? Can’t think of anything? Don’t worry. He’s done all this in 5 months — so you’ll have three years and seven months to come up with an answer.

No common sense, naive incompetence, uninformed voters did this to themselves. insanity is wide spread. Real Americans are waking up.

Aug 26 01:38 PM

[Tony Petroski:]

Mr. Steinberg:

"Imagine if the Lexus LS were required to get an average 35 miles per gallon. Lightweight large cars would become commonplace, and the technology would trickle down to Toyotas (TM) and Chevys. Instead we’re on the same old path of either small and efficient, or large and inefficient - no real change."

Oh, shucks. Freedom keeps getting in the way of industrial policy. "Imagine if a Lexus were a ...."

Yeah, the Lexus could be a Toyota, Heinz ketchup could be tomato soup and Mike Steinberg could be a writer.

Aug 26 06:55 PM

[Tony Petroski:]

Take that back. Sorry, Mr. Steinberg.

Aug 26 06:56 PM