Day by Day

Tuesday, March 17, 2009

Follow the Money – AIG Executive Bonuses


When the Senate constructed the $787 billion stimulus last month, who added an executive-compensation restriction to the bill providing an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009”? Senator Christopher Dodd, Dem-Connecticut, where one of AIG Financial Products’ largest offices is based (article here).

And who signed the bill into law? President Barack Obama. Of course.

And who were the two largest recipients of AIG campaign contributions? Senator Dodd was no. 1, former Senator Obama was no. 2, and Democrats received 76 percent of total AIG political contributions.

Although Senator Dodd, President Obama, and the Democrats are mad as Hell about the $450 million in bonuses AIG is paying to employees in its financial products unit, Dodd’s amendment exempts the very AIG bonuses that he and the Democrats are now seeking to recover.

Poor AIG. Back in the good old days a company knew that when they bought a Democrat, he would stay bought.

Now the Democrats run to cover their asses at the first sign of trouble.

Sunday, March 15, 2009

Medicare - Bernie Madoff would be proud!

I continually go to the San Francisco Chronicle for inspiration because their far-left orientation ensures a steady supply of foolish articles to debunk. I’m rarely disappointed, and this is an example: When Republicans lose their principles, by David Sirota, Creators Syndicate, Friday, March 13, 2009.

Mr. Sirota challenges Republican principles of competition between government and private suppliers of services, and Republican belief that private medical services are better than government such as Medicare. To further his point, Mr. Sirota chooses his facts narrowly. He reports “that private insurers spend up to 30 percent of their revenue on administrative costs (read: salaries, paperwork, etc.) while government programs spend just 5 percent, and polls show Medicare recipients are far more satisfied with their health care than those in the private system.”

I guess I will accept Mr. Sirota’s statement that “polls show Medicare recipients are far more satisfied with their health care than those in the private system.” They should be. They’re not paying for Medicare. Medicare is an enormous Ponzi scheme, just like Bernie Madoff’s only with an unfunded liability a thousand times greater than the piddling fifty billion Madoff swindled.


Madoff took money from newer investors to pay earlier ones, just as Medicare takes money from current workers to fund the retired. However, Medicare has reached a “Madoff moment” when income from current workers is less than what is paid out. In other words, Medicare is bankrupt, and if Medicare was a private company, the government would shut it down because of insolvency. In its current state, Medicare has an unfunded liability for future retirees of about 45 trillion dollars, which is just about equal the annual World GDP before the recession shrunk it.

But Mr. Sirota’s argument was really about the costs of private insurers compared to government programs.

Where to start? First, the phrase “that private insurers spend up to 30 percent of their revenue on administrative costs” does not mean that private insurers spend 30 percent of their revenue on administrative costs. Technically, if even one private insurer spends 30 percent on administrative costs, Mr. Sirota’s statement is true. However, the average for private insurers’ administrative costs is 14.1 percent, less than half the 30 percent that Mr. Sirota slyly suggests.

As I continued my research, I found support for Mr. Sirota’s claim that the “government programs spend just 5 percent.” However, I suspected that Mr. Sirota was slyly comparing private insurer “lemons” to government “apples.” As a CPA, I knew that private insurers would have to declare all their revenues and the expenses that generated those revenues. As an Air Force financial manager for fourteen years, and an auditor involved with defense contracting for another twelve years (and two years of healthcare auditing at Kaiser Permanente, Oakland), I knew that a lot of government costs are difficult to identify when making cost comparisons.

For an “apples to apples” comparison between private insurers and government programs, are there relevant costs that government does not include in “administrative costs?”

You bet there are, and in my humble opinion (based on over a quarter century of experience in government accounting), if properly identified and measured the government administrative costs would exceed private insurer costs significantly. By how much it would take too much time and effort for me to determine, given my modest resources, but my experiences indicate that the lack of a profit motive (and the desire to amass as many resources as possible to make doing the job easier, but not more efficiently) results in large, bureaucratic, costly, and inefficient government services.


Is Mr. Sirota telling us that government is driven to be efficient, and private insurers aren’t? Might there be some Medicare administrative costs that are ignored in Mr. Sirota’s comparison?
Indeed there are (from the American Medical Association Proposal for Reform):

• Tax collection to fund Medicare—this is analogous to premium collection by private insurers, but whereas premium collection expenses of private insurers are rightly counted as administrative costs, tax collection expenses incurred by employers and the Internal Revenue Service do not appear in the official Medicare or NHE accounting systems and are overlooked
• Medicare program marketing, outreach and education
• Medicare program customer service
• Medicare program auditing by the Office of the Inspector General (which is costly but does little to eliminate the enormity of Medicare fraud)
• Medicare program contract negotiations
• Building costs of the Centers for Medicare & Medicaid Services (CMS) dedicated to the Medicare program
• Staff salaries for CMS personnel with Medicare program responsibilities
• Congressional resources expended each year on setting Medicare payment rates for services

A pair of studies of Medicare administrative costs that included unreported expenditures on the program made by numerous government agencies concluded that Medicare administrative expenditures were at least three times the amount reported in the federal budget in 2003—$15.0 billion vs. $5.2 billion.
(The following are the studies cited above)
(Litow ME. Medicare versus Private Health Insurance: The Cost of Administration.
Milliman Inc. Published January 6, 2006.)
(Matthews M. Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector Council for Affordable Health Insurance. Published January 10, 2006.)

(We can easily relate this information to the statistics cited by Mr. Sirota. The tripling of costs would equate to a tripling of the government administrative cost percentage from 5.2 percent to about 15 percent.)

Advocates of a single-payer system (also known as a government-run health system) frequently cite the Canadian system as an example for the United States. Remarkably, many Canadians don’t rub their system in our faces, because they don’t like its rationed care and long waiting lines. In fact, private medical providers have sprung up in Canada because the Canadian health system often cannot provide adequate health services.
Another administrative cost analysis—possibly the most comprehensive and methodologically rigorous to date—examined a wide array of costs borne by insurers, health care providers, and patients in the United States and Canada, paying particular attention to indirect costs of carrying out basic administrative functions. The study calculated costs, net of associated benefits, of explicit and implicit methods of collecting revenues, curbing use of services and paying providers. For example, longer waiting times in Canada implicitly keep utilization of health care services in check, generating indirect costs to patients from delayed treatment and missed work. The study found that indirect, hidden administrative costs dwarfed monetary expenditures, concluding that true administrative costs are many times higher in Canada than in the United States.
(Danzon PM. Hidden overhead costs: is Canada’s system really less expensive?
Health Aff. 1992;11(1):21–43.)

A final point, one that I’m sure Mr. Sirota would never acknowledge, is that the federal and state governments drive up the costs of private insurers by requiring them to comply with myriad regulations and reporting requirements rather than operating in a uniform and standardized health care environment.
Both overregulation and arbitrary differences in regulation create unnecessary administrative costs and prevent cost-savings from economies of scale. Private insurers also must pay premium taxes, usually counted as an administrative expense, driving up administrative costs as a percentage of total costs and creating the appearance of reduced efficiency.

As I look back over Mr. Sirota’s article, and compare it to information readily available on the Internet, I arrive at some conclusions. The first is that Mr. Sirota thinks that now is the time, with Democrats in charge, to push big government proposals that don’t pass the smell test; i.e., that government programs are more efficient and cost effective than private ones. The second is that, given the liberal bias and the weak financial condition of journalism, Mr. Sirota does not have to worry about the kind of investigative reporting that would leave him red faced in embarrassment.

In conclusion, Mr. Sirota counts on ignorant and apathetic Americans accepting that Republicans are too beaten down to stand up for their principles of supporting competition between private businesses and government programs.

Au contraire, Mr. Sirota, Republicans (like me) welcome the opportunity to have the government compete with private insurers for healthcare resources. Right now the government has a monopoly on health insurance for Americans over 65 and is able to maintain its monopoly only because it does not have to operate within the accounting standards it requires of private companies. Only by privatizing Medicare is there any chance of saving it and preventing future generations from facing ruinous tax increases, means testing of the wealthy (and eventually of the almost-wealthy), and draconian rationing of health services.

By the way, Mr. Sirota, as long as we’re throwing competition between the government and private businesses on the table, why don’t we consider privatizing education?

And Social Security, of course.

Talk about a Ponzi scheme.

The Last Word on Rising Seas Alarmists


A writer to our local weekly newspaper accused me of being like Hitler – apparently the Left’s favorite device for silencing conservatives – because he avows that I repeat lies against anthropogenic global warming over and over until repetition gives them substance. Oddly enough, that’s the way I feel about the global warming activists; no matter the science, one outrageous claim of impending disaster follows another.

The latest was in a front-page San Francisco Chronicle article Report: rising seas could cost Ca. more than $100B, by Jason Dearen, Associated Press Writer, Wednesday, March 11, 2009.


The prediction of a 1.4-meter sea-level rise over the next century is based on international climate change models that predict more land ice melting as warming continues.

On Tuesday, top climate scientists in Copenhagen, Denmark said new research suggests that current international predictions of sea level rise are too conservative, and warned that seas could rise twice as much as previously projected.



Al Gore, of course, predicted that sea levels would rise 20 feet by 2100, over four times the amount of this most extreme current projection and about ten times what the Intergovernmental Panel on Climate Change (IPCC) has led us to expect.

The prediction that sea levels would rise 1.4 meters (4.6 feet) by 2100 really got my attention. The first thing that hit me was that we are already nine percent of the way this century to 2100, so we should have already experienced five inches of rising sea levels – over half of the total for the past century - if we’re going to get to 4.6 feet by 2100. So far sea levels have risen 0.7 inches since 2000, leaving us needing an increase of over 4.5 feet in the next 91 years (or an increase of 19.9 feet to satisfy Al Gore).

Have there been sea level increases in the past as great as 4.6 feet in a century? There certainly have; since the end of the last Ice Age 18,000 years ago sea levels have risen over 400 feet, an average of over two feet per century. Of course the rate was about double the two-foot average during the first 10,000 years following the end of the Ice Age because there was so much ice to melt and warming was much faster than currently.

By the Holocene Climate Optimum, a warmer period than today which lasted from 9,000 to 5,000 years ago, sea level increases of approximately 400 feet had occurred, and in the last roughly 8,000 years sea levels have only risen a total of about 40 feet, or an average of half a foot per century.

Remarkably, given the dire prophecies of sea levels rising 4.6 feet this century, the Holocene Climate Optimum had exceptional warming in northern latitudes and yet sea level increases per century apparently did not exceed one foot. Why would warming of a lesser magnitude now cause melting of a far greater magnitude? It didn’t during the Medieval Warm Period (800 to 1300 AD), when tree lines in the Alps were 300 meters higher than today and Greenland glaciers had retreated much farther than at present.

This last point is significant, because according to Al Gore and his global warming alarmists, Greenland is particularly vulnerable to suddenly melting. Interestingly, scientists who have carefully studied Greenland don’t see how Gore’s or others’ dire prophesies can be fulfilled. There is ample evidence that the Greenland ice cap has withstood longer periods of warmth without significant shrinkage, and there are enormous physical barriers to sudden ice movement and rapid changes that would cause flooding. Very accurate records also show that Greenland was much warmer sixty to eighty years ago than it is now.



Temperatures were warmer in the 1930s and 1940s in Greenland. They cooled back to the levels of the 1880s by the 1980s and 1990s. In a GRL paper in 2003, Hanna and Cappelen showed a significant cooling trend for eight stations in coastal southern Greenland from 1958 to 2001 (-1.29ÂșC for the 44 years). The temperature trend represented a strong negative correlation with increasing CO2 levels.


We must thank Al Gore for drawing our attention to Greenland, where temperatures went down as CO2 increased for half a century. Besides the strong negative correlation between temperatures and CO2 in Greenland, scientists have found a strong positive correlation between temperatures and the Atlantic Multidecadal Oscillation.

That’s right, Al. Scientists have found a strong positive correlation with a natural force, not an anthropogenic one.

Warming in the Arctic is likewise shown to be cyclical in nature. This was acknowledged in the AR4 (the Fourth Assessment Report of the United Nations Intergovernmental Panel on Climate Change (IPCC)) which mentioned the prior warming and ice reduction in the 1930s and 1940s. Warming results in part from the reduction of arctic ice extent because of flows of the warm water associated with the warm phases of the PDO (Pacific Decadal Oscillation) and AMO (Atlantic Multidecadal Oscillation) into the arctic from the Pacific through the Bering Straits and the far North Atlantic and the Norwegian Current.

Polyakov et al (2002) created a temperature record using stations north of 62 degrees N. The late 1930s-early 1940s were clearly the warmest of the last century. In addition, the numbers of available observations in the late 1930s-early 1940s (slightly more than 50) is comparable to recent decades.



The same is true for the Antarctic Ice Cap, which arguably has been increasing and would increase if warmer temperatures cause increased precipitation.

Warmer temperatures are, of course, at the heart of this issue, and I suggest that no one will be able to argue anthropogenic global warming convincingly when confronted by Climate Change: Driven by the Ocean not Human Activity, by William M. Gray, Professor Emeritus, Dept of Atmospheric Science, Colorado State University (Prepared for the 2nd Annual Heartland Institute sponsored conference on Climate Change, New York City, March 8-10, 2009). In his presentation Dr. Gray clearly demonstrates that doubling of atmospheric CO2 will only increase global temperatures about one degree Fahrenheit this century. In other words, there will be no warming engine to drive Antarctic and Greenland melting and concomitant significant rising of sea levels.

Sorry Al. By 2100 you’re going to be stuck with over 19 feet in your mouth, and the more cautious scientists predicting a 4.6-foot rise will come up four feet short.

Wednesday, March 04, 2009

Obama - Thanks for Sharing with Rush Limbaugh

President Obama has a strangle hold on the "bully pulpit." As our first almost-black, almost-native-born American president, every word he stumbles to read from a teleprompter is trumpeted to the four corners of our Al Gore-doomed planet. No utterance or action of The Obama is deemed too banal or ordinary for breathless Chris Matthewsian-type coverage.

It is in this light of the total domination Obama has over news coverage that I must note and applaud his magnanimity, his unselfish sharing of the spotlight with his most articulate opponent, Rush Limbaugh.

The Democrats got what they asked for, and now sound like they bit off more than they can chew (At a White House Press Briefing, Press Secretary Robert Gibbs admitted that the White House Rush Limbaugh strategy is counterproductive).

Plus The Obama now has a direct challenge from Rush to debate him (a highly publicized challenge at that, thanks to a Drudge link)

Rush couldn't be happier, since he's accustomed to paying his own way, including such things as advertising his own show and website. In just a three-day period, Rush has had banner-headline links on Drudge, and daily questions about him at Obama's Press Secretary's press briefings. Who needs to pay for advertising when your opponents are so generous?

Rush also was vilified by Republican National Committee Chairman Michael Steele, then almost immediately received an abject apology from Steele. More Drudge headlines, more involvement of Democrats such as their Congressional Campaign Committee (Rush immediately published the link to their "ImSorryRush.com" website), and speculation by Bill O'Reilly that Rush may be, probably is, more powerful than Steele.

All of this is helping publicize Rush and his message. After all, if the Democrats have organized a group headed by Rahm Emanuel, featuring James Carville and Paul Begala, to attack Rush, doesn't that demonstrate they think Rush is at a level with President The Obama? And Michael Steele clearly demonstrated where he, as the head of the Republican National Party, stands in relation to Rush.

Unfortunately The Obama will never give us the satisfaction of debating Rush, and with good reason: The Obama wouldn't stand a chance, even with half of Rush's brain tied behind his back.

Rush continues to rack up headlines:

The Christian Science Monitor says that until someone else steps up, Rush is the head of the Republican Party, and mentioned his challenge to debate The Obama.
Ditto The Financial Times.
Another day, another Drudge item about the Democrat "brain trust" focusing on Rush.

Sunday, March 01, 2009

Obama's 100% Middle-Class Tax Increase

After promising that he will reduce taxes on 95 percent of Americans, the Obama Administration’s budget establishes a $646 billion energy tax hike that will impact anyone who uses electricity, drives a car, or relies on energy in any way.

A little background on taxes. First, a minority of Americans pay significant income taxes. The bottom 50% of taxpayers only pay a total of 2% of income tax revenues, while the top 5% pay 60% (up from 50% ten years ago, and roughly 40% thirty years ago).

Therefore, Obama's promise to cut income taxes for 95% of Americans doesn't mean much, because little or no taxes will be saved by a majority of "taxpayers."

However, the energy tax hike will be paid by almost 100% of Americans, including almost all non-taxpayers. Just one item in Obama's program, a cap-and-trade system to make manufacturers pay for creating CO2 in a vain attempt to solve a non-existent problem, anthropogenic (man-caused) global warming, will increase everyone's costs for fuel, travel, heating and cooling, and just about every manufactured good or service they buy. Further, it will reduce American global competitiveness, reducing exports and making imports more attractive, while killing American jobs.

After all is done, natural climate change will do as it has for millions of years, never noticing or caring about the puny efforts mankind takes to forestall the inevitable. During the much warmer Medieval Warm Period of only 1,000 years ago, mankind probably prayed for its return as the climate changed to the Little Ice Ages of 1300-1850 AD. Our ancestors would think us daft to be so upset and concerned by natural warming, when they suffered so grievously during the 550-year calamity of global cooling.

Now Obama's Administration is going to extract money from almost all Americans to squander accomplishing nothing, while returning a pittance.

Obama is betting that you will all notice the extra $300 you save on your yearly taxes, and not the $2,400 you pay for the hidden taxes on energy.

Knowing the economic-knowledge level of Americans, Obama is betting on a sure thing.