Friday, January 15, 2010

Leftovers - Radio Show 1/2/2010

Goldman Sachs was deceptive in its marketing of synthetic CDO products according to Yves Smith of naked capitalism. Any company should bear responsibility for their products, but the sellers of synthetic CDO's have access to hidden information, which even the most sophisticated buyers using modeling software cannot reasonably access for evaluation. Other banks such as Morgan Stanley also profited with the assistance of the rating agencies which would assign high investment credit ratings to these synthetic CDO's.  Even more ominous is that banks, such as Goldman Sachs, were on both sides of the transaction by shorting the very products it was packaging and selling.  It has become very hard to get information on the AIG bailout, because the Treasury and the Fed does not want to release information relative to that bailout and the 100 cents on the dollar payments made to Goldman Sachs and other banks to cover CDS positions.  Yves Smith also points to senior advisors to Secretary of the Treasury Geithner who came from firms directly involved in CDO marketing.

The Chinese premier pledged to cool property prices and keep inflation reasonable, while also saying China should anticipate inflation.  He indicated the government will maintain a moderately loose monetary policy and a proactive fiscal position.  Bllomberg.com also had another article indicating China's manufacturing production is cementing recovery.  This substantially begs china's spending bubble, real estate bubble, leverage growth, export tax incentives, peg of the yuan to the US dollar, internal consumption, and the growing rift between the coastal elite and the internal population as I have detailed in the my China's Spending Bubble and Double Dip Probability posts below.

Yves Smith also had a post on ten reasons to kill the Senate Health care bill. I have mixed thought on this issue.  I firmly believe that the United States as the only developed democracy in the world which does not have universal health care needs to provide universal health care to every citizen.  I do not understand why Congress and the the health insurance industry lobbyists are so intent on recreating the wheel and recreating it inefficiently and incompetently.  The present health care bills will not cover everyone, but the are being pushed to establish a program that can be perfected in the future.  If the Administration had had a real plan, the process would not have been so corrupt and incompetent.  The Swiss, Netherlands, and France all have universal health care with private insurance.  France has one of the lowest individual health care costs with the highest rated quality of service in the world while the United States has one of the most expensive health care systems with one of the poorer levels of  quality of care in the world.  Without universal participation, the age bands for insurance, as used in Switzerland, with no discrimination would not be economically sustainable.  If universal health care met or exceeded Medicare services, there be no need for Medicare, Medicaid, or veteran's hospitals.  The three countries I mentioned have accomplished this with private insurance in slightly different ways.  The only real wrinkle in the United States is that the States have the legal right to regulate insurance companies within their borders.  The United States does not need to usurp that State responsibility, but it can require any insurance company which wants to participate in universal health care to be licensed to do business in all fifty states and territories and to meet the Federal minimum requirements or higher State requirements.  Insurance companies want to continue denying health care procedures, denying insurance availability, and practicing medicine while cherry picking which states they want to do business in.

In France, you choose your doctor, the primary care doctor must to go to your home if you cannot see them, the doctor and patient decide what medical procedures and methods are appropriate (no medical procedure or therapy can be denied if recommended by the doctor and agreed to by the patient), there are no waiting lists like Canada, and the government has an active anti-fraud program.  All of this for 1/3 the cost of health care in the United States and with the #1 rating for quality of health care in the world.

The fastest growing part of the municipal debt market is Build America bonds, but the yields demanded by investors are higher than corporate debt with similar ratings. You have to be in the highest tax brackets to gain the most from these tax exempt securities.  They are expected to increase 46.6% in 2010 to $85 billion from an estimated $58 billion in 2009.

Tax free municipal debt issuance  is expected to rise 7.9% to $450.5 billion in 2010 from $418 billion in 2009.

sales taxes nationally are down 9% in Q3.

Credit card write-offs rose to 10.56% in November and is likely to go to 12-13% according to Moody's in 2010.  30 day delinquencies are up to 6.2%

The Chicago Fed Midwest Factory Index is up 1.2% to 84.2 which is the highest since 12/2008; the Automobile component  is up 1.1% within that.

Treasury auctions:
2yr $44 billion  yield 1.089%, bid-to-cover 2,91, foreign 34.8%; large Primary Dealer purchases.
5yr $42 billion yield 2.665, bid-to-cover 2.59, foreign 44.0%.
7yr $32 billion yield 3.345%, bid-to-cover 2.72; foreign 44.7%.






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