Power And Dollar

Obamacare Makes Labor Market More Favorable To Small Businesses


Republicans champion capitalism, especially “the pursuit of happiness”.  For that, Republicans consider businessmen to be their safe constituents.  Is enabling small businesses to compete more effectively against the mega corporations something Republican look forward to?  Interestingly enough, Democrats are doing that this time instead of Republicans.  And that is through this Obamacare.

Extending health care to all is the idea of Obamacare.  Having this barrier to health care obviously gives an edge to someone.  In terms of politics (or policy), the question is always about who gets the advantage (or the disadvantage).  Prior the Obamacare days, the advantage is to the employers who can afford the administrative cost of providing a health care insurance to its employees, thus giving them an overwhelming advantage in recruiting and retaining the human resources they need.  This disadvantage suffocates small businesses and self employed.  Ultimately, innovation is sacrificed. 

Plenty of employees make employment decisions based on the health care package.  Many people give up their business dreams and stay as an employee because of the fear of not having health care for their families.  Almost everyone will be covered when Obamacare becomes effective.  Yes, the operating cost is higher for small business owners, however, this increase cost will draw the small business owners much closer to the advantage enjoyed by the mega corporations than if they acquire the health package alone.  In fact, only 38% offer health insurance to employees among the small business owners in 2009 versus 61% in 1993 (read here). 

If America’s small business owners’ talents for success are not willing to move to them and continue to stay in General Motors, ATT and like, then where is the next Google?


March 23, 2010 Posted by | activism, advocacy, america politics, Current Events, 美國, Democrats, economics, Election 2010, health care reform, nonprofits, obama, opinion, politics, Thoughts, US politics, wordpress-political-blogs | 1 Comment

Obama’s Another Banking Show

Taxing on banks is politically convenient since people are angry against the financial crisis.  Thus, it is a populist solution.  Furthermore, a mid-term election is coming up where the incumbent party is expecting to lose seats.  What is interesting about this item is: who will (and will not) get taxed among these banks?  What other options does government actually have to achieve the stated goals?

Community banks will get excluded.  Community bankers are still very influential in the local communities, i.e. they affect a lot of voting behavior in the congressional districts.  The key about this where is the cut-off point for community banks or non-community banks?  There are more than 8,000 banks in the country.  Of those, the top 3 banks take up about one third of the assets, more than $3T altogether.  About 100 banks are over $10B in asset.  If $10B is the cut-off, then we have 100 banks for this tax.  But is it $10B or $1B for a bank to be considered a community bank?  How much room is there?

The government says it wants to not affect consumers and investors.  That is rhetoric.  We all know it will get passed on to consumers AND investors.  It’s just who gets more of it. 

If eliminating fat cat is the goal, are there options?  There are always options.  The only question is: what kind of trade-offs are there?  A company is able to pay huge sum to executives (still employees) is that there are so few companies occupying the market space that investor have no choice but to part the profit to these critical employees.  Making the profit margin among these companies thinner by taxing is only one way to minimize the profit.  The more market oriented approach is to introduce more competitors in the market, for instance,

1)      Enable smaller banks to eat into the market share of the big markets;

2)      Disable banks from entering too many different markets, such as the old law that says a retail/mortgage bank cannot enter investment banking;

3)      Banks cannot perform house trade with depositors’ money.

Are these above new and bright ideas?  No.  These are all recycled ideas America has already tried and ditched or tried in other industries.  The first one is congruent to the anti-trust law.  The second one is Glass-Steagall Act.  The third one is from insurance industry and pension industry.  Obama can achieve the goal without being overly creative.  This creation simply tells us he is on another political show.

January 11, 2010 Posted by | america politics, banking, Barack Obama, 美國, Election 2010, legislation, obama, opinion, politics, Regulation, wordpress-political-blogs | 2 Comments

Want A Solution? Or Want A Political Solution?

Regulations suffocate businesses, so we have been hearing from the right side of the political spectrum.  Can you imagine a case where businesses, big businesses, want to have more regulation? 

Central bank veterans like Volcker (Federal Reserve) and Mervyn King (Bank of England) and politicians like Gordon Brown and Barrack Obama (or Timothy Geithner) are advocating opposing positions.  The first interesting story is that central bankers (or bureaucrats) are advocating less regulation.  The more interestingly part is the affected businesses want more regulations.  What is at heart of this debate?

King advocates that in order to prevent another financial tsunami, we should prevent having banks that are too big to fail in the first place.  To suffice that, we need to break up banks that are big enough to pose systematic risk to the economy.  In this case, they see financing the whole economy as a portfolio.  Diversification is the solution.  It is simple, very simple.  Cost of regulation is minimal.  Markets will regulate and therefore reduce some of the problems.  Easy on the government (read: central banks will not get blamed), easy on the consumers.  Who would have a problem?  Big banks: Citi (NYSE: C), HSBC (NYSE:HBC) etc because they are everywhere.  The market share of big banks is already big.  The top three banks (BOA, NYSE: BAC; Citi, NYSE: C; JPMorgan Chase, NYSE:JPM) in the US take up already 1/3 of the assets in the bank sector.  NYT has an article about how Volcker is doing with this effort.

Another angle to view the cause of this financial tsunami is that some financial institutions carried risky activities that were not lending in nature (i.e. not banking) and relied on government bailouts where the money came from deposit insurance funds when such funds were designed to protect depositor’s money and not to finance the risk of activities unrelated to banking, i.e. lending.  That is why CNN is saying the cost of the bailout will be higher than previously thought.  To suffice that, we can separate lending from the risky activities (trading).  This is actually the Glass-Steagall Act, which got repealed.  Again, who has a problem?  Again, big banks: Citi (NYSE: C), HSBC (NYSE:HBC) etc because they have activities of all kinds, from boring first lien mortgage lending to exotic trading activities that only the math PhDs in that specific department would understand and not even the CEO can speak to them intelligently in any kind of congressional hearings. 

Gordon Brown and Barrack Obama are advocating neither of these.  They want compliance enforcement agencies (Financial Services Authorities in UK and Federal Reserve and others in the States) to create new rules/laws for the governments to check on.  These would involve reserve requirements and so on.  In both countries, central banks will have more oversight powers, which should be what bureaucrats want (more government jobs!).  However, both (and Nobel laureate Stiglitz) argue against it.  Why aren’t politicians listening to their advice?  Since central banks still carry high credibility in the society, central bankers do not typically have aspiration for high political office, elected officials want central banks to mitigate this systematic risk and thus be liable to the failure of systematic risk.  The proposals by central bank veterans are fundraising poisons. 

Why is Alan Greenspan silent?  His position is that this systematic risk a financial tsunami.  Nothing could have prevented it (and thus it was not his fault).  If some compliance enforcement could have prevented this tsunami, then he would take the blame.  Thus staying silent serves his best interests.

October 21, 2009 Posted by | banking, Current Events, 美國, obama, politics, Regulation, US politics, wordpress-political-blogs | Leave a comment

Did Centrists Republicans Just Defeat Obama-Care?

Democratic Senator Baucus is presenting a compromise health care bill in the Senate without public option whereas CNN reports that Obama is finally drafting his own version with a trigger for public option.  The Gang of Six has three Republicans.  They are: Enzi, Snowe and Grassley.  Grassley says in CNN that public option is Obama Care.  Now that Baucus proposal does not have it, Grassley and the like may actually have a way to claim victory that they will have defeated Obama Care.  If so, then health care will pass a giant step. 


With the sections 2701 to 2703 and 2706, 152, Baucus essentially creates an analogous health care version of Equal Credit Opportunity Act.  The impact of this idea will be long lasting, much more profound than Equal Credit Opportunity Act not because of any anti-discrimination, but because insurance business is completely centered on selecting good risks, i.e. choosing the less risky applicants, in any kind of insurance product.  One example is that insurers give a different price of life insurance based on occupation of applicant.  If you are a fireman, then your rate is higher.  If you are in the army, you rate is higher.  That is the reason insurance companies are not allowed to use DNA to determine price of health or life insurance.  Similarly, if you are younger, your auto insurance is higher.  While your age can be a factor in auto insurance application, your age cannot be a factor in your credit application, as prescribed by Equal Credit Opportunity Act.


This piece of legislation is about health insurance.  Therefore, life insurance can continue to legally discriminate life insurance applicants based on existing conditions. 


Health insurance companies underwriting procedures will have to change, industry wide, nationally.  Health insurers are Cigna, Aetna (NYSE:AET), Humana (NYSE:HUM), UnitedHealth (NYSE:UNH) Blue Cross Blue Shield (http://bcbs.com).  Here is an example: Just like some life insurers give better rates for their life insurance policies, some companies may have been marketing well among smokers for health insurance policies.  If Baucus proposal goes through, all health insurance companies may have the same application procedure to underwrite a smoker.  Smokers market is now thinner than before for this smoker specializing insurer.  We do not quite know if discrimination against occupation is covered by Baucus, or age or anything else.  However, a lot of compliance work will get involved in the future. 


How will it enforced?  Is Baucus planning to have Department of Labor to have a stronger role in health care enforcement?  Insurance is completely state regulated, for now.  Will this kind of enforcement be incorporated in Treasury? 


We will know by the time our speech entertainer Obama gives another performance tomorrow.

September 8, 2009 Posted by | activism, advocacy, Barack Obama, Current Events, 美國, health care reform, opinion, politics, Regulation, US politics, wordpress-political-blogs | Leave a comment

USA Election 2000 – Iranian Edition (And Your $$)

The Iranian election becomes another election mess.  The American (the first edition) version requires a Supreme Court to give a final answer.  Iranian one?  A Supreme Leader gives a final say. 

And the Supreme Leader says the incumbent wins.

In a situation like, just like the American original version, a decision made by that few individuals, the decision is ultimately political, whatever the cloak it is actually.  In the American original version, it is under the cloak of law.  In the Iranian version, it is under the religious leader’s cloak.  Note that the Supreme Court Justices are life time appointments just as well.

What ticked?  Not bribe.  As usual, what is the alternative of the decision?  Supreme Leader weighted between incumbent and challenger.  Who is a bigger threat to the Islamic Republic?  Or for that matter, to the power of clergy?

Challenger is always about “change”.  Incumbent is always about “you know what you get.  Don’t rock the boat.”  This applies to any institution (note, not necessarily a country), any selection process (note, not election), any candidate. 

The next question is: what about the protests?  Supreme Leader is confident he can manage the internal crisis.  If the protests get any worse, it will be between a Tiananmen Square (Iranian Edition) and End of Soviet Union (Iranian Edition).  Certainly, Supreme Leader thinks the worst scenario is Tiananmen Square.

Alright, so what does one care about this latest news episode?  Political instability drives up the prices of commodities, in particular, the commodities the geography produces.  So, in this case, oil.

Oil will become more expensive, if this goes on.  The only way oil does not increase further is traders believe the recession is so bad there is no demand for oil anyway, i.e. demand will decrease even if the quantity of supply is not being affected by the political instability of Iran. 

Oil exploration companies’ stocks go down (not up).  The core material of their product gets more expensive, so their profit margins get squeezed.  Consider the following company, BP:


The companies that get affected less so are the American oil exploration companies who have less exposure to Middle East (or think about the Canadian oil companies).  And if you happen to own renewable energy companies’ stock, you should see prices going up for your stocks.  Given today is Friday, one may be tempted to clear their stock inventory just in case the next episode of this Iranian Election comes up and affect the portfolio. 

The things that really distort the prices of stocks affected by Iranian election are: Obama’s announcement on health care and Obama’s announcement on the merger of OTS and OCC.

June 19, 2009 Posted by | activism, advocacy, Current Events, 石油, 美國, election, Electioneering, middle east, opinion, politics, wordpress-political-blogs | Leave a comment

How To Use Swine Flu


This swine flu became a real political event: California declared a state of emergency; Homeland Security is making moves; Obama is making another TV appearance again.  It so far looks like the market is reacting to the Fed statement rather than this health event.  Banks are up for 3%, S&P are 2% and medical supplies are only up 1.7%.  It is almost a drag in the market today. 

With this swine flu, manufacturers and distributors of over the counter medical supplies are of interests for products like hand sanitizers, wipes, over the counter drugs, surgery gloves, masks, etc.

Certainly, vaccine makers should go up.  However a lot few of those.

Also related industries would be hotel and tourism interests.  Retailers and mall operators which have a heavier geographic exposure in the southern states would get affected (Tex/Mex cuisine chains who have more sites in California and Texas, say).  This issue will fuel more talks around border control. 

Having a tighter border control can be used to divert the attention from gun control once people move their attention back to border violence (if there will still be), drug territory dispute.  We are more connected than before.  However, this forces lobbyist to be more creative to exploit the issue of the day.

April 29, 2009 Posted by | activism, advocacy, Current Events, 美國, obama, wordpress-political-blogs | Leave a comment

Is Obama To Re-Start The Nuremberg Trials Next?

Is Obama ready to re-start the Nuremberg Trials?  Or forget Dufar trail in ICC?  His decision of not prosecuting CIA officers employs the “I am only following orders” argument which is the exact defense employed during the Nuremberg Trials.  Obama’s goal is to protect the civil servants, i.e. to preserve their loyalty to his administration, future Democratic presidents, future presidents in general.  Obama transferred a legal issue (defending the officers in court) to a political issue and may in fact undermine these officers’ defense.

During the Nuremberg Trials, war crime defendants like Wilhelm Keitel  used this “following an order” line.  However, Allies pre-empted those arguments by Nuremberg Charter, created before the Nuremberg Trials. 

Obama’s interests are to assure the civil servants to work for him.  Therefore, Obama is spending his political capital to shield the legal liability of those officers.  Employing the “following an order” line now gives legitimacy of the war crimes, thus weakening the authority of Nuremberg Trials.  Is Obama increasing the doubt from the Jewish voters? 

Obama is eroding his extreme left base.  Will Obama gain any votes from the defense hawk voters in 2012 as a result of this?  If not, he is making an electoral loss out of this.

Obama is also weakening the International Criminal Court since ICC mainly prosecutes war crimes.  A legal event is now not only an electoral factor, but also a political risk premium to the international community, which Obama claimed during campaign to want to. 

Obama could have chosen to use state resources to defend them in United States courts.  Does Obama consider the defense to have a poor chance?  By not prosecuting, Obama cedes the initiative to choose the court of battle.  The federal government can still provide defense wherever the trail will take place since the officers’ conduct were by the state.  Any country can choose to prosecute them in any court, whose legal proceedings will be unfamiliar to the defendants.  Would arguing the case in an American court provide better legal defense than in a foreign court for these officers? 

Obama probably does not gain any vote from defense hawk voters, alienate his left base, make Jewish voters more doubtful, breaks his promise to mend the international community’s trust toward the States, weakens ICC and future trials (say Sudan’s Dufar trial), weakens the defense of the officers by provoking the case to be argued in a foreign rather than a domestic court.  All for buying 4 (or eight) years of honest work for Obama?

April 20, 2009 Posted by | activism, advocacy, Barack Obama, 美國, Democrats, obama, opinion, politics, Republican, wordpress-political-blogs | Leave a comment

Anyone Understands Geithner?

Little reaction (criticism, actually) is out there considering the scale of Geithner’s proposal unless everyone is used to the lack of details from Obama Administration and is waiting for the real deal or no one understood what just happened. The financial weapons of mass destructions, along with aggressive and unethical lending practices, lack of regulation in some areas (say appraisal), + many more are to blame. Geithner’s solutions reacted to them. However, no one really asked if Geithner’s way makes sense. I am writing to argue that systemic risk regulation only requires stronger enforcement from or even enhancement of other existing regulation.

The best synopsis of Geithner’s proposal, so far, that I can find is this one from Reuters. However, the best one to articulate the central ideas of the proposal is Times. Four tools are actually these: prevention (safety and soundness regulation), reaction (market insurance, FDIC like), bailout (Federal Reserve) and exit (IndyMac). Please don’t think an article that lists more central themes is a better article to read, like this one.

Two of the four tools a government can have already been deployed: protect and bailout. In fact, the administration already made up the rules as they went along. Prevention and exit require more legislation to make them work (and budget too).

Combating a commercial entity that is too big is the central idea of anti-trust legislation. Anti-trust is tricky for Justice to pursue and tricky to defend. However, it is no more difficult to enforce if one is “too big to fail” or differentiate between “too big to fail” versus “too big”.

This “Too Big” can be applied and extended to every industry. In fact it is being extend to the auto industry. Geithner is creating a framework for the United States to become Venezuela in the north.

Geithner is not purposefully exploiting a political opportunity (Democrats are if they are tucking a truck loads of other reforms in this crisis). He simply believes governments work. Otherwise, he would not be a civil servant for this long. However, politicians love to along on this one since the decisions to bail out and take over are ultimately political. The success of this proposal will extend their powers (and more political contributions). What will really save the risk of extending the power of the government is to re-examine anti-trust.

March 27, 2009 Posted by | Current Events, 美國, politics, wordpress-political-blogs | 1 Comment

Geithner: What Did You ACTUALLY Say?



Geithner had a hearing, not quite an announcement on future regulation framework.  And you cannot get much out of a hearing.  So, if you were looking for a pdf of details that can help you get a feeling if Citi (NYSE:C) will get more oversight versus Northern Trust (NASDAQ:NTRS) or Union Bank of California, then sorry.


This is the best article I can come up with so far: 



This article says merger of regulators is now a lower priority than before.  The consequence for that is the work force continues to be in limbo.  This is not the time to make these regulator employees second guessing where their jobs will be.  The administration would want them to strengthen enforcement.  The impact of this is on banks, not banks regulated by Federal Reserve (largest banks), but OCC and OTS.


Another interesting point is about Mark-To-Market.  Is Geithner really thinking about modifying Mark-To-Market?  This will be a plus for the banks that operate in metropolitans since theirs assets more volatile.  


Securitization: Congressmen maybe simplifying the problem.  However, that can be one of the fixes.  Just don’t believe that is THE fix.


Most of the consumer protections make sense.  However, it looks like one thing is forgotten, unless will be included in the details: education loans got loads of undesirable business practices behind the scene.  This is a good time to take care of that too.


Provision standard:  be careful with this one.  Geithner may end up hurting the small banks as well.  The original intent was to decrease systematic risk, i.e. reduce largest banks’ influence and increase the market share of the small ones.


Credit rating agency: Geithner may as well talk about appraisal firms.


The international settlement part will play well with countries who want more multi-polar settings.


It is now becoming a pattern that Geithner / Obama always gives expectation of a “plan” and then end up with a power point presentation.

March 26, 2009 Posted by | banking, Current Events, 美國, economics, Investment, legislation, politics, wordpress-political-blogs | Leave a comment

Detox Plan: Taxpayers Fund 93%


Geithner announced the Detox plan.  Stocks went up for a great deal.  Investors probably are hungry for any positive headlines and don’t really want to read the content.  AP writes that the taxpayers will actually fund 93% of the purchase.  Krugman of course slams it like the first time he read it when it actually is the same plan half a year ago.  In a way, why does Krugman write as if it were a surprise to him? 


Gergen writes much more succinctly than what I did yesterday (and Eurasia Group): “there is a second question lurking that really only the President and Congress can answer: that is, whether private investors can have confidence that if they do invest, the lynch mob mentality we saw last week in Washington won’t come and plague them in the future. As the managing director of a major hedge fund told me recently, if this plan is good enough, our firm stands to make money. But then why should we invest if Washington is then going to get mad, take 90% of our profits from us retroactively and if I may be hauled up before Congress and vilified?”



March 23, 2009 Posted by | banking, Current Events, 美國, Democrats, opinion, politics, Republican, wordpress-political-blogs | 1 Comment