Institutional Investors and Corporate Management

Why should mutual fund managers and other institutional investors bother to intimately direct corporate management of the companies they invest in, when they are not adept managers of business. That function is a far cry from their primary job of selecting securities. In that job, they have little time or the ability to attempt to get too close to be involved.

I know that the job of an investment manager is to pick good corporate management. But that can be superficial at best. To get into the trenches to truly evaluate what is good or what is bad management takes lots of on-the-site inspection and knowledge with which fund managers are not equipped. They may say they have that ability, but that would be a facade.

Despite this, there is a constant clamor from groups, usually those with little business acumen, who insist, that institutional investors, including mutual fund managers, micro manage each and every investment they make. That is an impossibility.

It is yet another reason I suggest investment in funds that track indexes. (See the Earl J Weinreb NewsHole® comments.)

Remember: Money is Fungible

Money is fungible. What does that mean?

Funds placed into one pocket, removed and then placed in another pocket of your pants, is the same money. The payment you make is eventually the same, no matter what pocket it comes from.

In the same way, money can be substituted from one pocket of government or payer to the other, to hide the source of funding.

It adds up to the same total outlay.

Its practical use: What the government in Washington called stimulus funds, for the most part, became slush funds. for use by its politically-preferred state governments. These states used the money, to a great extent, to help balance its budgets.

The reason state budgets are so out of hand can be attributed primarily to their public, unionized pension obligations. These have wreaked havoc. It is estimated this is a major, ticking financial time bomb, waiting for more government bailouts under various guises.

Taxpayers who cannot recognize how money is fungible, will be taken as suckers again. And again and again.

The “Green” Sleight of Hand

Finally the Federal Trade Commission has been looking into charges that many products and services purporting to be environmentally friendly are not truly “green.”

A whole profession of “green” experts has arisen, having been trained by colleges, which are now marketing environmental courses and specialties. All this based on the premise that Planet Earth is slowly but surely being denuded and savaged by polluters and greedy merchandisers and their allies.

The FTC has slowly come to the conclusion that many who are promoting these progressive “solutions” to the perceived environmental problems are, themselves, deceiving the public.

Their “green” wares and services have little to do with improving the planet, as advertised.

The College Dropout Fiasco

Only 40% of two million college freshmen graduate in four years; 45% never graduate.

The only conclusion can be that the college system often does more for the colleges, teachers and staff, on balance, than it does for a large portion of their consumers.

What are some of the consumer advantages bought at great cost? Forget about education. But the experience helps parents boast that their kids went to college, and it does the same for the dropouts themselves. They generally never have to mention whether they ever did earn a degree.

Or whether or not their major was medicine or “communications,” or a form of physical ed. Whatever the major, it frequently fails to prepare a student for a job.

The Supposed Value of College For Many Students

Colleges have financial motives to admit even poor high school students. The U.S. Department of Education statistics indicate that three quarters of high school students who graduate in the bottom 40% of their classes still get to attend college.

Moreover, most never graduate, though they may spend as much as eight years, and more, in school. And they often leave school in heavy debt.

What is more, few of these students get jobs that ever require a college education. Their efforts simply wasted precious time and money.

Universal Health Care Myths

An Institute of Medicine study estimates that about 40% of premature deaths in this country are due to bad behavior. Only about 10% are due to poor medical care. Social and physical environments contribute 20% to the premature death figure and genetics 30%.

So why take a wrecking ball to remedy what can be done with a butter knife? Give people without insurance who cannot afford it free insurance. And see that everyone gets insurance, even if being currently not insurable?

And finally, and most importantly, put a cap on insurance payoffs by having malpractice reform.

Private Insurance for the Non-Insurable?

The Obama administration’s health plan has made much of its contention that only government can offer insurance for the non-insurable.

Private insurance for all is possible, if the pool is large enough. To do so, states and the federal government must break down the barriers they place on insurance companies.

Some suggestions:

First, permit the sale of health insurance across state lines. To this very day, despite thousands of pages of federal legislation, it isn’t.

Make private health insurance groups large enough to spread risk. This can be done if my first suggestion is in force.

Three: Immediately institute tort reform, including mandatory arbitration by special courts processing patient claims. This would also eliminate huge legal fees, over and above the reduction of needless tests and MD malpractice premium charges.

Panics Galore

America has always had its unfortunate share of catastrophes and urgent problems, many brought on by special interests. Follow the money or political trail and you get to see the inception of each.

Some examples: DDT poisoning, generically modified foods, global warming, killer bees, mad cow disease, over-population, ozone holes, toxic tampons, y2k disaster, etc. All of these were or are still problematic or ill-conceived, but are media-swept, promoted to produce a frenzy among their proponents.

The Fictional View of Business and Finance

What Hollywood and other fiction writers have to say about business and finance extend beyond entertainment, They have become ingrained education at a time when our formal schooling system has become a farce.

The media’s subtle hype imposed fictional education over the years has, instead, taken over and become extremely effective.

What comes out of Hollywood and fiction is anti-business. It features pro-plaintive lawyers, fighting criminal big business executives, on behalf of “little guys”. The templates may vary slightly but they are pretty much the same.

Left-leaning politicians see their opportunity from all this and orate and legislated accordingly.

Real Health Coverage Tort Reform

Malpractice law suits create defensive medicine that costs a fortune for insurance companies and ultimately you, the public. This is a fact the Obama administration conveniently overlooked when selling its health insurance program.

A Massachusetts Medical Society study found that five out of six doctors order procedures and referrals that amount to about 25% of total medical costs, as a means of doctor protection from lawsuits. According to the Pacific Research Institute, defensive medicine wastes more than $200 billion a year.

Therefore, the entire medical-malpractice system has to be changed. There should be a form of no-fault system, a pool to reimburse those injured from medical errors or accidents. Judges would be medical experts, not inexpert juries, who are swayed by trial lawyers, who get one third of the proceeds. The no-fault pool would be funded by a small tax on health-insurance premiums.

The major problem to this simple solution of making remedial corrections to health insurance, is that over 90% of tort lawyer political contributions go to the Democrat party. This accounts for the fact tort reform is never one of the reforms Congress mentions.

Gasoline Pricing

Gasoline prices appear to be heading up slightly once more, and may go higher with potential inflation, as the U.S. deficit is mounting.

Gasoline stations earn between 10 and 15 cents on a gallon, on average. When prices climb, gas stations see their profit margins shrink in order to remain competitive. So they earn less per gallon.

Further, their credit card fees are about 2 ½% of all purchases. That is always a significant factor affecting their margins.

Moreover, gasoline prices go up faster than they go down. That is the way supply and demand normally influence wholesale and retail gas pricing.

A fact for which gas station operators usually are blamed when high gas prices occur.

Swiss Health Care

The Swiss health care system is a step in the right direction, which the Obama administration and politicians on the Left could learn from. And the American public can use to repair our newly imposed health insurance coverage.

It’s more efficient and will eventually cost less than what we have.

Under the Swiss plan, everyone is covered by private insurance. There is no government-managed or employer-provided coverage. The poor are helped to buy the insurance they cannot afford.

Employees under a U.S. comparable plan could receive in cash, tax free, what their employers currently spend on premiums, provided they used the money for insurance on health care. The poor, including past Medicaid recipients, would get government funds to buy insurance. There would be no discrimination against anyone on account of existing or past illness.

The plan would not socialize medicine as ours’ will eventually do. True interstate competition among insurance companies, hospitals, and doctors, would bring costs down over time.

Patients could really choose the best and lowest cost providers on the basis of published outcomes. Insurance companies and providers would bid for clients and customers, as to needs and cost.

The government's role would merely be to oversee transparency, The government would create an information system, with regard to insurance companies and providers.

Climate Change and Politics

The U.S. Left is still seeing to it that there will be restrictions on industry under the premise of climate control, despite the apparent scientific doubts and the uncovering of the East Anglia hoax.

How much has their position to do with actual climate and how much with the in-gathering of taxes, with which to implement other purposes?

The main goal of the Left is always more control by government, to accomplish whatever the Left wants to achieve.

But other so-called polluters on this Planet won’t agree to do what the U.S. is asking its citizens to do. They say we ought to tighten our pollution belts because of our past industrialization. They, chiefly China and India, are only starting at the industrialization game. They want us to give them some slack.

But the U.S. says they are going to pollute hereafter with a vengeance because their populations and industry are growing much faster.

Apparently our left-leaning politicians will eventually concede to the Chinese and Indian way of thinking.

Government Budget Deficits at War-Time Levels

During World War II, U.S. government spending as a percentage of GDP was about 45%. It is over 20% now, with the Obama administration on a spending spree beyond that. We can become another Greece-like world mendicant.

What does this mean for small and large business? Particularly those who cannot compete with the big government competition, in health insurance and politically-favored industries?

Remember: Government spending displaces funds available for the private sector. When that occurs, firms seeking funds are less likely to get them. Yet, they are the entities which mainly create worthwhile jobs.

Health Care Costs

The administration seems intent on making the U. S. more like the rest of the world when it comes to government-enhanced health care.

Germany leads in universal care. As of 2008, 52% of its employee costs went to government for social services and health care. France was right behind at 49% and Italy at 47%.

That tells only part of the story. Health care operated in a competitive market is a growth industry, and highly productive. That is not the case, when conducted by governments.

The reason why involves rationing of services that keep costs within the government-construct levels. And the number of doctors supplied for that demand.

A Health Care Idea

Here are some health insurance ideas to correct some of the monstrosity coverage being imposed by the new law in the U.S.

If you must have some sort of government system enforced as health care, at least have each state administer its own system. Damages can then be localized.

You can have a central data bank for important medical information, but each state should enforce what it wants for its own citizens.

Ideally, however, the health care system ought to remain entirely private. No Trojan Horse, shadow public plan of any sort should be in the wings as it is now.

Changes must still be made with regard to extensive tort reform and arbitration of malpractice claims.

And most importantly, an arrangement, where citizens get to pay for coverage with direct tax-deductible dollars.

When Will Real Inflation Arise?

The fundamentals for massive inflation are already in place. Enormous budget deficits and heavy government borrowing to meet unprecedented, massive outlays, have accomplished that.

But the present Great Recession will hold the huge inflationary consequences back for a while, perhaps for about as much as three more years, according to many economists. That is, until the economy recovers a bit more.

Despite occasional reassurances from officials, there will be no way to unwind the debt build=up in an acceptable political manner. Therefore, real inflation is inevitable

Creative Entrepreneurs Often Lose

I too often watch highly creative entrepreneurs build a business from scratch and do extremely well quickly, expand rapidly, only to see their business suddenly fail.

There are generally three major reasons for such failure.

Many entrepreneurs are poor planners from the start. They often lack an efficient business plan, to guide them in their financial start-up planning.

And they lack sufficient funds. Because of poor planning many entrepreneurs are clueless about how short of capital they will eventually be.

And reason three, many entrepreneurs are incapable of managing a rapidly expanding business, or getting an adept manager who can.

Increasing the Minimum Wage When Jobs Are Scarce

Gauge how wise a politician is, whenever he or she proposes an increase in the minimum wage. Because research shows minimum wage increases always cost jobs of entry level workers.

Those at lower levels generally leave for higher wages or get raises with time. It’s usually not the same worker remaining at that level. A fact proponents conveniently overlook. The vast majority of folks do not remain at that level forever.

Moreover, minimum wage increases cost jobs. Employers must think twice in estimating the value and affordability of their workers. Especially small businesses who are responsible for the bulk of American employment.

The minimum wage is a ploy of powerful unions whose contracts are then automatically revised up from minimum wage levels.

It is criminal to impose higher minimums during a recession or depression That stymies the possibility of stimulating any increase in job opportunities.

Special Health Insurance For having a Baby?

A health insurance idea that may save money without socialized medicine.

A distinction should be made when buying insurance, for the need for catastrophic insurance and coverage for a probable event. You buy insurance should you have an automobile accident and not for the purchase of gasoline.

In the same way, you buy health insurance in case you get an illness worse than a common cold. If you get married and intend to have several kids, you are not courting serious sickness. You are anticipating having kids and need coverage just for that. It’s not anticipating a catastrophe such as being in an accident or getting chronically ill. Unless childbirth evolves into a medical emergency.

Routine childbirth costs can be reduced under competitive conditions much lower then they are today, without government interference. There ought to be means of separating these two kinds of coverage.

Also, junk-medicine malpractice suits have gotten out of hand with maternity awards. That affects the childbirth factor.

These two coverage-path distortions are now thrown together into a common health insurance package by politicians who skew the numbers.

Measuring Unemployment

Unemployment figures can be very misleading. For instance, they can be adjusted after publication because of errors and short-term occurrences.

Other considerations must be part of the analysis. Such as job creation. Look at that alongside the unemployment figure. Other factors must always be considered as well:

One: The length of time folks are unemployed.

Two: The number of those taking unpaid leave from existing jobs.

Three: People who have given up looking for work.

Four: How many may have taken early retirement.

Five: The possible diminishing size of the average work week.

All of these affect what we see as unemployment.

Future Primary Health Care

A little insight on what prospective Obama administration health care coverage will look like under the recently passed law. Notice I used the word “coverage” because it is not similar to the term “health care” that is what the public really wants.

The new law seeks a clinic environment to save costs. That will also reduce the need to overcome the oncoming severe shortage of primary care doctors. Patients will be seeing more nurses when they visit those clinics, being referred to actual doctors only when in dire need.

As for the physician shortages, they will be imported, as they are not expected to be in ample supply from our schools. They will come from countries where education is cheaper and prospective doctors are willing to work for less.

There will be affirmative action for more minority doctors in this country. A lowering of certification standards is already underway in the U.S., according to some specialists, to get more doctors into practice, despite official denials to the contrary.

Idiots Who Mind the Asylum

The Obama administration is in a big hurry to obtain clean, alternative energy. So it is full steam ahead in an attempt to achieve “green” sources at any cost. Despite the fact we are in the midst of the Great Recession when industry cannot afford added costs that subtract directly from labor funding.

Apart from the financial damage of this mad dash for high-cost, taxpayer-subsidized alternate energy, has anyone considered social burdens? For instance, the fact the commercial windmills used for energy make lots of noise? So much noise that folks living near them find them unbearable? Any residence has to be well over a mile away.

And I am not mentioning the complaints of those residents who consider windmills a landscape eyesore.

Nuclear Power to the Rescue

It may be expensive to build a nuclear plant, but overall, atomic power is cheaper to produce once the plant is built. And the taxpayers do not have to constantly subsidize operations as they do alternative “green” energy sources, such as wind and solar power.

Atomic waste can be used so that it is minimized. We have a vast mountain in Nevada to store what little there is. The bulk of French electric power now comes from atomic plants. They store their relatively little waste in one room in a small town. And it is safe.

Tests tell us a passenger jet at full speed could not dent the walls of an atomic installation. Only past misconceptions cause the prejudice that prevails today against atomic power, particularly on the political Left.

Intended Regulatory Rules

New rules intend to give regulators unlimited powers to do what corporate experts themselves have always found difficult to accomplish. Yet, politically-oriented bureaucrats are attempting to undertake the tasks anyway.

A Treasury committee would first determine which financial entities pose systemic risk to our economic system. This, of course, is impossible in the real world, where risk is hard to identify. The target companies would then be subjected to added regulation by the Federal Reserve.

This cannot be easily done in the political world either. Determining potential systemic risk is 100% conjecture. What steps to take, and when to take them, in order to eliminate conjectured problems, is not a practical matter.

Few experts in the business world have had the foresight to make the decisions for past incidents. Rarely do bureaucrats at the Fed or Treasury have the ability or objectivity.

Besides: The Fed and the Treasury already have done a poor job with the past financial meltdown and bailout function up to now.

Why expect any better of them in the future?

Investment Controls and Athlete Income

Hiring, firing and controlling employee wages by government bureaucracy can be a slippery slope, when you also consider how government stimulus affects even entertainers such as sports stars.

Athletes probably get far too much salary for what they do. Considerably more earnings than top-notch CEOs. But they are under the public’s radar. So the media, in its ignorance, let’s them get away with the notoriety executives must suffer.

Example: Ballparks and ball clubs are subsidized by state and local taxpayers. Each time a new ballpark is built, you can be sure some government body has provided long-term assistance in the financing, via cash, tax abatement or bond funding.

Federal stimulus funds have backed local and state entities. So, in effect, funds were made available to fund ball club pockets, so their other pockets could pay athletes.

Always remember: Money is fungible. The payment does not have to be direct. Money can be substituted from one recipient’s pocket to the other, to hide the source of funding. It all adds up to the same total outlay.

The public complains about an executive getting more than a million or so a year of taxpayer money. What about a ball player who operates no business, and hires no one, who makes up to thirty million, and more a year? And may actually be a loser on the field, at that?

Investment Controls and Corporate Wages

For background, note these facts you almost never get from the media on business:

We have already often noted in these reports how the government sets wages of some employees. Or how they fire some employees, as the feds have done with General Motors and Chrysler. Or how the banks are interfered with. All under the guise of being rescued.

This happens with federal government bailouts, and it is one of the problems encountered in such forms of state socialism. Where government is honest enough to describe it as socialism.

If you think I am exaggerating, look up the discussion of state socialism in an encyclopedia. While you are at it, learn history. Review that of Italy under Benito Mussolini in the 1920s and 1930s. It will be an eye-opener for every American today, who worries about the fed controlling or influencing industry.

A Weak or Stronger Dollar?

Most folks don’t care about a weak or a strong dollar. They care about less esoteric or financial matters. About sports scores and athletic statistics.

Too many are also certain beyond doubt about who in government can offer them more goodies. That’s because they are often influenced by media sound bytes when it comes to political news. It’s sports and other circuses that get their attention.

So a weak dollar that concerns whether foreigners or foreign governments buy U.S. Treasury bonds has no importance to them.

But when they have heavy inflation because the government has to literally print money to balance the budget, they will notice. By then they will blame the wrong folks for their financial woes, taking their cue from the same faulty media sound bytes.

Inflation Ahead

With extraordinary government spending and out-of-hand budgetary deficits. It is only a matter of time before we see frightful inflation. It may take two or three years to really show up, and it may happen by the next presidential term, but it will come.

The Federal Reserve’s primary job is not to protect against systemic financial risk, as is being proposed by the Obama administration. It’s primarily to maintain the value of the currency.

Since 1978 the Fed has to help enforce the Full Employment and Balanced Growth Act, also known as Humphrey-Hawkins. That conflicts with the Fed’s prime stated activity. That’s because the Act’s enforcement creates an inflating bias, not one of dollar stability.

So there is always a conflict of interest being overlooked by financial media comment.

Tort Reform Ways For Cheaper Health Care

It may not be too late for future real health care reform.

I have previously noted a way to make health care cheaper, without ruining the entire system with a socialized version.

A way to cut costs sharply would be to reducing provider costs. Physicians and hospitals tell you this could be done if they would be able to curtail defensive practices.

The accounting firm PricewaterhouseCoopers says that about 10% of medical expense is attributable to medical malpractice lawsuits. Only about 2% is caused by direct lawsuit costs.

Add to that about 5% to 9%, due to MDs having to practice defensive medicine. That is, they add tests in case a plaintiff lawyer asks them in court: Questions such as “Why didn’t you do this procedure…?”

Clunker Government Offers

Here is a basic economics lesson not taught in most expensive colleges. It has to do with the Obama administration’s past failed effort to revive the economy by giving new car buyers a $4500 cash allowance for clunkers when buying a certain type of new car.

It was not successful after the fact, and it was not predicted to be successful, when first proposed, by independent observers.

One: The government mixed an economic stimulus concept with an environmental objective so that it confused the public.

Two: The government, as is usually the case, had no concrete administrative plan for carrying out the program to reimburse dealers.

Three: Cars sold in this manner meant that no cars would be sold normally for a couple of years after the program terminated. The public’s appetite was temporarily stimulated but then held off from future buying.

Four: Because of the way clunkers were being disposed, the used car and parts markets were adversely affected.

In addition, If money of this kind is used for clunker cars, what about clunker washing machines, or lawn mowers, and so on? Or government funds for buying old clothes?