Category: Insurance

Economics Update (a Day Late) (Again!)

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Ambac share prices

MBIA Share price

We are Unbelievably Screwed, H/t The Big Picture


Job Turnaround? Perhaps the End of the Beginning, but Not the Beginning of the End

For a bit of Auld Lang Syne, let’s start with an update on the monoliner insurers…I’ve posted on them just once since May.

Ambac’s share price is collapsing on reports that it will file for bankruptcy, and MBIA posted a $728 million loss, which comes to about $3.50/share, and the shares are trading at about $3.69 right now….ouch.

The monoliner business model is that you create a company, get an AAA rating, and then make money by renting out that credit rating.

Among other things, it’s a way to soften the blow of the comparatively low credit ratings that states and municipalities get, and it allows for another revenue stream for the parasites on Wall Street to tap.

I think think that the entire business is essentially corrupt, and should be outlawed.

In any case, we do have news that might be a cause for optimism, with China’s industrial output and retail sales grew sharply in October, and the US Department of Labor’s Job Openings and Labor Turnover Survey rose slightly in both September and October.

On the down side are the continued fall in retail sales (see 3rd chart down), and the vacancy rate in housing is at a 44-year high.

The recent news does not seem to have effected the price of Treasurys, though which were basically flat.

In energy, we have weather, specifically the fact that Ida was pretty weak by the time that it hit oil producing areas, driving oil down, and China’s gangbuster economic report drove the US dollar down.

D’oh!!!!

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You know, when you are an insurance company, like Blue Cross/Blue Shield, it is not a good idea for you to include a request for your customers to contact their Congressman to oppose the public option along with a notice of a rate increase:

First, they learned their rates will rise by an average of 11 percent next year.

Next, they opened a slick flier from the insurer urging them to send an enclosed pre-printed, postage-paid note to Sen. Kay Hagan denouncing what the company says is unfair competition that would be imposed by a government-backed insurance plan. The so-called public option is likely to be considered by Congress in the health-care overhaul debate.

“No matter what you call it, if the federal government intervenes in the private health insurance market, it’s a slippery slope to a single-payer system,” the BCBS flier read. “Who wants that?”

Plenty of people, it turns out.

Indignant Blue Cross customers have rebelled against the insurer’s message, complaining that their premium dollars have funded such a campaign.

They’ve hit the Internet in a flurry of e-mails to friends and neighbors throughout the state. They’ve called Hagan’s office to voice support for a public option. They’ve marked through the Blue Cross message on their postcards to instead vouch support, then dropped them in the mail — in at least one case taped to a brick — to be paid on Blue Cross’ dime. Or dimes.

(emphasis mine)

As the saying goes, “ない愚かさはない薬です”.*

*Pronounced in Japanese, “baka ni tsukeru kusuri wanai”, which means, “There is no medicine for stupidity.”

House Moves Against Insurance Company

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We have the House Judiciary Committee voting to strip insurance companies of their antitrust exemption, and the the House leadership is aggressively pushing an expansive model for the public option for health insurance.

This may very well be a winner. I would note that 3 ‘Phants crossed aisle in the HJC vote to strip the antitrust exemption, which is an indication of how unpopular the insurance companies have become.

When ¼ of the Republican members committee of the “party of no” vote for this, it is an indication of just how unpopular they are.

I am still not optimistic about the prospect for meaningful healthcare reform, but I am more optimistic, and is largely because the Democrats have largely found their feet, largely on the (largely true) message that insurance companies are evil.

Baucus Piece of Sh%$ Healthcare Proposal Passes Finance Committee

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The vote was 14-9, with President Olympia Snowe voting with Democrats, but she said very clearly that she is only voting this way today.

You know if a couple of Dems had voted against the bill, like Rockefeller, who has been leading the charge for a real public option, and Wyden, who got screwed by Baucus, the measure would still have passed by 12-11, and a shot would have been fired across the bow of morons like Baucus and the Nelson twins.

Of course, now the press is wringing its hands at the likelihood that Snowe may not get Huchison’s position as ranking member of the Commerce Committee, when Kay Baily Hutichison leaves to run for governor against Rick “Goodhair” Perry….My heart bleeds. It’s clear that she has no interest in voting for real healthcare reform.

In the least surprising news of the day, it turns that the insurance industry’s biggest bitch in Congress, Senator Joe Lieberman, is taking the insurance companies’ line, and supporting the status quote.

Economics Update

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Well, if you are a small business that relies on CIT for your credit, you have a problem, because the company’s CEO is resigning as a likely prelude to bankruptcy.

There are over a million small and medium sized businesses that rely on CIT for their credit.

Additionally, the meltdown among the monoliners continues apace, with Fitch downgrading Assured Guaranty from AA+ to AA, which, given the fact that their business is basically renting out their credit rating, they are pretty close to “toast” status.

Meanwhile, on the other side of the pond, investor confidence in Germany has fallen for the first time in 3 months, down to 56 September’s 57.7 and well below the forecast of 58.8.

Meanwhile, we are seeing increased demand for Treasuries because foreign investors think that they have become cheap with the falling dollar, and investors are expecting a rebound in the dollar when the Federal Reserve finally does tighten monetary policy.

It appears that this optimism also pushed the price of oil to $74.15/bbl.

Economics Update

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Well, notwithstanding the “green shoots” that every fool (Ben Bernanke) is crowing about Consumer Confidence fell to 53.1 in September, down from 54.5 (revised) in August, and well below the predicted 57.0.

While this may not effect spending for the Christmas holiday, it does look like it’s putting a crimp in Halloween spending, with consumers planning to spend about 20% less this year.

Of course, we are still seeing some good news, such as the Case-Shiller home price index rising for the 3rd straight month, but, as Barry Ritholtz notes, it’s still down 13.3% for the year.

I would also add, that these are seasonally adjusted numbers, which really make no sense when a market is as out of whack as this one is, it’s YoY that gives meaningful data.

We also have the Chicago Fed’s National Activity index falling in September, to -.90, from August’s -0.54, indicating further contraction.

Overseas, we are seeing more good news though, with consumer confidence in Germany increasing to a 16 month high, and the Brazilian central bank being confident enough that it is starting to clamp back down on credit, which means that they are worried about inflation.

One hopes that the Brazilian bankers are not jumping the gun here.

In insurance, we have a bit of nostalgia, with the monoliner insurers popping up their head again, as S&P cut both MBIA, Inc. and MBIA Insurance credit ratings, to BB-minus and BB-Plus respectively.

Both ratings are below investment grade. (i.e. junk)

In energy, it looks like the consumer confidence numbers have driven oil prices down, to $66.71/bbl, and it looks like natural gas prices are about to fall off a cliff, because the salt domes, depleted oil fields, and aquifers used to story the fuel have reached capacity, meaning that anything pumped has to be sold, and delivered as soon as it leaves the ground.

Gasoline prices are continuing their fall too.

Meanwhile, the dollar is up, largely on increased worries about the economy, though the rate cut by Russia’s central bank has also made the USD more attractive to investors.

Legislation Introduced to End Antitrust Exemption for Health Insurers

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I’m not sure if this is going anywhere, but at the very least, it’s going to have to make the health and malpractice insurers split their resources.

There is no reason at all for an anti-trust exemption. In fact, much of the current problem is that there are local monopolies in insurance coverage over much of the nation.

Official Press release below:

Conyers, Johnson, DeGette Introduce Legislation to End Antitrust Exemption for Health Insurers

For Immediate Release September 17, 2009
Contact:
Jonathan Godfrey (Conyers)
Andy Phelan (Johnson)
Kristofer Eisenla (DeGette)

House Judiciary Committee Chairman John Conyers, Jr. (D-Mich.), Chairman of the Subcommittee on Courts and Competition Policy, Representative Hank Johnson (D-Ga.), and Energy and Commerce Committee Vice-Chair Diana DeGette (D-Colo.) today introduced the Health Insurance Industry Antitrust Enforcement Act, legislation to end the broad antitrust exemption enjoyed by health insurance companies.

Both the House and Senate today have introduced identical language to reduce insurance prices for consumers. This legislation would extend antitrust enforcement over health insurers and medical malpractice insurance issuers, which currently enjoy broad antitrust immunity under the McCarran-Ferguson Act. This immunity can serve as a shield for activities that might otherwise violate federal law.

“This legislation would specifically prohibit price fixing, bid rigging, and market allocation in the health insurance industry,” said Conyers. “These pernicious practices are detrimental to competition and result in higher prices for consumers. Conduct that is unlawful throughout the country should not be allowed for insurance companies under antitrust exemption. The House Judiciary Committee held extensive hearings on the effects of the insurance industry’s antitrust exemption throughout the 1980s and early 1990s. It became clear then that policyholders and the economy in general would benefit from eliminating this exemption.

“The legislation we introduced today is intended to root out unlawful activity in an industry grown complacent by decades of protection from antitrust oversight. In doing so, we aim to make health insurance more affordable to more Americans. I want to thank my friend Senator Leahy for his leadership on the bill and for working with the House on this joint introduction.”

“The average American family already pays an extra $1,100 in premiums every year for a broken system that supports 46 million uninsured Americans,” said Johnson. “The Enforcement Act is long overdue. I am concerned that the shield this industry enjoys have resulted in market consolidation and higher premiums for the people of my district. As millions of Americans continue to go uninsured, we cannot continue to support the insurance companies by providing them with legal cover for anticompetitive actions.”

“As health insurance premiums continue to go through the roof, now is the time to ensure that health insurance companies are not engaging in anti-competitive behavior that make it more difficult for Americans to get health coverage,” said DeGette. “Families across our nation are feeling the pinch in their budgets from having to keep up with rising insurance rates. This bill takes an important step towards making sure our health insurance industry is competitive and is providing consumers with affordable health insurance. Simply put, the bottom lines of the big insurance companies should not be put above the American public’s ability to gain access to health care.”

###

Economics Update (Yesterdays)

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Not much going on, it was labor day, so most of the markets and regulatory announcements didn’t happen.

That being said, it looks like we may have a couple new candidates for bank failure Fridays, with the Federal Reserve imposing restrictions on two correspondent banks, Nebraska Bankers’ Bank of Lincoln, NE, and Midwest Independent Bank of Jefferson City, MO.

Correspondent banks are “banks for banks”, they provide clearing services, participate in large loans, etc. Silverton Bank was a correspondent bank.

We are also seeing more clouds on the horizon with insurance, with the cost of reinsurance increasing.

Reinsurance is basically insurance of the insurance companies, they sell risk to each other in order to spread the risk, and revenues, around.

As an aside, while I have been ranting about how the next crash is CRE, it might be insurance.

We are seeing more optimism among manufacturers, with the Price Waterhouse Coopers survey showing a 27% improvement, which may mean that people are going to start restocking inventories.

In energy, oil was basically flat at $68.05/bbl, while in currency, the Yen rose against both the Euro and the dollar.

Not Enough Bullets

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Just when you thought that the parasites on Wall Street could not come up with a more repulsive way for them to generate commissions, they have created securitization of dead peasant insurance:

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds……

……

Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them……..

Paul Volker was once quoted as saying something like the only financial innovation that has benefited society in the past few decades was the ATM machine.

He’s right.

Financial “innovations” should be treated like the FDA treats (or used to treat, before they started taking pharma money for their tests) drugs. It does not hit the market until proven safe and effective.

Economics Update

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Historical unemployment, courtesy Calculated Risk

Today is Jobless Thursday, and initial jobless claims unexpectedly rose by 15,000 to 576,000, (click pic for full size image) with the 4 week moving average, and the continuing claims were up marginally, to 6.241 million from 6.239 million, but it should be noted that as people move to extended benefits, or lose benefits completely, they are dropped from that number.

Closely related to this is the fact that mortgage delinquencies are rising, to 9.24% of all outstanding loans on 1-4 unit residences in the 2nd quarter, up .12% from the 1st quarter, and up 2.83% from last year, and loans overdue by more than 90 days, which is when foreclosure begins, are at an all time high of 7.97%.

Not surprisingly, “Helicopter” Ben Bernanke is on another buying binge, with Federal reserve assets up by 2.3% this week, buying treasuries, which is an how the Fed pumps up the stock market, and mortgage backed securities, which is how they are trying to cover up the increasing collapse in mortgages.

Still, there is good news, with the Federal Reserve Bank of Philadelphia’s general economic index giving an unexpectedly strong showing of +4.2, well above the predicted -2.0, and this is a real indicator of growth, not just a decline in the rate of decline, and the cost of insuring corporate bonds fell, on the expectation of better growth.

Oil and energy looked at the different numbers, with the dollar falling on the Philadelphia Fed data, which has people feeling less need for a safe haven, and oil falling on the new jobless numbers, which indicates that demand will still remain low for a while.

You Do Not Have Health Insurance

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So says James Kwak, and he is completely correct:

…That’s not insurance; that’s employer-subsidized health care for the duration of your employment.

…

In addition, there is the problem that even if you are nominally covered when you do get sick, your insurer could rescind your policy, or you may find out, as Karen Tumulty’s brother did, that your insurance doesn’t cover the treatment you need.

Just read the whole thing.

Whiskey Tango Foxtrot? Wal-Mart!?!

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Yes, Wal-Mart has come out in favor of an employer mandate on insurance.

This is real end of the world stuff, cats sleeping with dogs and the marshmallow guy appearing in city streets:

Wal-Mart, the nation’s largest private employer, joined hands with a major labor union Tuesday to endorse the idea of requiring large companies to provide health insurance to their workers, a move that gives a boost to President Obama as he is pushing for health legislation on Capitol Hill.

“Not every business can make the same contribution, but everyone must make some contribution,” Wal-Mart’s chief executive, Michael T. Duke, wrote in a letter to White House and Congressional officials, adding that he favored “an employer mandate which is fair and broad in its coverage.”

There are, of course, caveats, there are always are, and Wal-Mart’s top lobbyist is saying that there have to be some sort of strict cost controls.

My guess is that the company has two goals here:

  • To make sure that it’s not required to offer better insurance than it does now, which is at relatively high cost to the employee and has relatively high deductibles.
  • An attempt to forestall unionization efforts at its stores, which are gaining steam.

But I’m a cynic.

Economics Update

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It’s a fairly slow day, with bond prices rising, and yields falling as the markets wait for the non-farm payroll (NFP) and unemployment rates later this week, so investors are concerned about risk, and moving into Treasurys.

This sentiment has also strengthened the dollar today.

Still, we are seeing decreased volatility in the markets, with the VIX volatility index falling to its lowest level since September.

Losses for insurers in the 1st quarter hit a new record, but that should surprise no one who has been watching.

There has actually been a fair amount of news about energy though, with natural gas declining on high stockpiles, and the IEA cutting its 5 year outlook on oil demand because of the economic downturn.

Oil was actually up today, on further violence in the Niger delta, though it appears that retail gasoline prices will hold steady for the July 4 holiday.

Why I’ve Not Been Posting on Healthcare Legislation

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I think that it’s important, and it’s something of direct interest to me, I get my insurance, and pay a lot for it, through MHIP, but I simply do not believe that a meaningful plan is on the way, and so I find it to depressing to write about.

Between the belief that the plan needs some Republican votes, even though meaningful healthcare reform will cut their own throats politically, and the power of the insurance, the AMA, and medical lobbies, I just don’t see anything meaningful happening.

So, I read, and I get depressed, and how often can I call someone like Bayh, or Baucus, or Conrad pig felching rat bastards?

It adds very little to the understanding of the situation.