Category Archives: markets

Obamacare—Finding Out More of What Is In It

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Labor is discovering more about Obamacare that isn’t all that.

the law doesn’t take into account that health benefits have been negotiated by employers and unions over decades, and that rewriting plans to meet new requirements can affect wages and other labor terms.

And

Uncertainty about future costs is also hampering negotiations. One of the biggest looming unknowns is the so-called Cadillac tax on high-cost health plans scheduled to take effect in 2018. The provision imposes a 40% tax on the annual cost of health care above $10,200 for individual coverage and $27,500 for family coverage.

The regional transit system in Philadelphia, Septa, estimates the tax will boost its health-care costs by $15 million a year, or 12.5% of the $120 million it currently spends each year on health coverage.

And [emphasis added]

Another provision of the law that eliminates caps on annual and lifetime health-care costs has forced multi-employer plans to purchase their own insurance to prevent potential runaway costs from bankrupting plans.

Jim Ray, a lawyer who represents the Laborers International Union of North America in benefits negotiations, said these provisions have increased construction-industry health plans’ costs by 5% to 10%, and already resulted in lower wages for some laborers. He said employers are frequently seeking contract language to cap their own liability for future cost increases from the law.

“When we first supported the calls for health-care reform, we thought it was going to bring costs down,” he said.

Hmm….

The State of the Obama Recovery

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…now that we’re in the fifth year of it.

Real gross domestic product—the output of goods and services produced by labor and property located in the United States—decreased at an annual rate of 1.0% in the first quarter according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6%.

It might not get better soon:

Personal consumption—which captures spending on goods and services—fell a seasonally adjusted 0.1% from March[.]

The SEC’s Nanny State

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The excuse here is the existence of so-called dark pools, or off-exchange stock trading in private venues like “banks or other firms.” It’s certainly true that the information exchange concerning companies whose stocks trade in the dark pools is less—often quite a bit less—than that available for exchange-traded stocks.

What the SEC wants to do, though, is push the dark pool trading onto the SEC-preferred stock market exchanges. In applying this pressure—it’s hard, even for this administration, simply to mandate the move—the SEC is proposing a rule that would, in a “pilot program,” force the dark pool to offer a better price for any stock (that the SEC chooses to have) included in the pilot program than is available on the exchange. Because participants in the dark pool mustn’t be allowed to exercise their own judgment outside of government oversight; participants in the dark pool mustn’t be allowed to arrive at their own agreements on suitable exchanges of value. They’re just not as smart as government bureaucrats. Or the participants in the government-preferred stock exchanges.

In March, 37% of all trading occurred away from stock exchanges, up from 33% two years ago, according to Tabb Group.

There’s a reason for this, and it has to do with excessive government regulation of those preferred exchanges. Oh, and the fees not paid in the dark pool on those completed trades. Here is a list of the fees charged by the NYSE, many of which are imposed by the government. On a per-share basis, they don’t look like much, but over the volume of trading that goes on, the fees add up to a handsome sum. The exchanges and the government want “their” money.

The real problem, though, is that the pressure against the dark pool is largely illegitimate.

Don’t understand the trade? Don’t have enough information? Don’t do the trade. Don’t know enough to know whether you have enough information to assess the risk? Don’t do the trade. It’s not that complicated.

Caveat emptor. Personal responsibility. Apparently the SEC thinks Americans are just too dumb to live under those precepts. Instead, they want caveat imperium [sic: most of you get my point. For the scholars who see the grammatically correct meaning, I suggest that’s on my point, also). Government responsibility.

ER Visits Up with the Advent of Obamacare

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Stephanie Armour and Louise Radnofsky pointed this out earlier in the week in The Wall Street Journal.

Among other things, they mentioned

The median ER charge was more than $1,200 for the most frequent outpatient diagnoses in a study of over 8,000 ER visits in 2006-08….

This is right before Obamacare was enacted.

Notice that ER charge. A significant fraction of the deductibles on Obamacare health coverage plans is larger than that—ranging from $2,000 to above $10,000, depending on family size, the specific plan selected, and so on.

Since the ER charge is less than the deductible, even if these ER patients had an Obamacare plan, where is their incentive to see a doctor in his office? He’s still paying those $1,200 out of his pocket. The proud possession of a health plan is irrelevant to that.

Not the Best Move

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According to Spiegel Online International, the European Central Bank intends to introduce a negative rate on cash deposits member banks make into their ECB accounts—a rate of -0.1%. This means that banks would be paying the ECB to deposit their money with the central bank: if a member deposited €100 million with the ECB, the latter would take a €100,000 fee.

The central bank’s motive is to stimulate more lending by those private and commercial banks, to get more money flowing in the EU’s economy. But with loan rates already at historic lows (the ECB itself is only charging 0.25% and intends to reduce that to 0.15%), it hardly seems likely that loan demand is the only impediment to lending—loan quality, borrower quality also are major factors.

Further, with loan rates so low—there’s no room, for instance, for a premium for poor credit risk—the cost to the lender of defaults goes up a lot: only those enormously low rates are there to absorb default losses.

This is a move that can only end badly for the ECB, and at best end indifferently for the banks and the EU’s overall economy. Banks look to make money, not just to let cash sit around twiddling its thumbs. If the ECB is going to charge a fee for making a deposit, look for the member banks to deposit their cash, instead, with each other.

Signs of this will include an increase in the markets for seven-day repurchase agreements, and variations on these. Repurchase agreements are mechanisms whereby banks will lend each other short-term (typically, seven days…) to cover momentary—and expected, even planned—cash flow shortfalls. Repos will make suitable substitutes for deposit accounts in the ECB.

Look, also, for increases in the markets for interest rate swaps—mechanisms whereby banks will trade future interest income streams with each other, typically with one exchanging a variable rate stream for the other’s fixed rate stream. These swaps generally are used to get (slightly) lower interest rates, or because the bank trading for the one stream finds that more useful to it than the stream it’s trading away. But these will make adequate “deposit” arrangements, also.

Look, among other places, for an increase in riskier “deposit” arrangements, too, with the member banks looking again to such instruments as credit default swaps and mortgage-backed securities. These devices aren’t much riskier, if they’re properly constructed and monitored, their negative press during the Panic of 2008 notwithstanding.

All of these, though, will make borrowing at least slightly more expensive, when (if?) borrowing picks up—hence the “at best indifferent” aspect of the ECB’s move from the private market’s perspective. On the other hand, deposits with the ECB are a major source of the funds the ECB loans out. To the extent CDS and MBS (and/or other financial instruments) do go bad, and to the extent the ECB (or its governmental masters) feels constrained to bailout, again, financial instrument market participants, it’ll be hard-pressed to do so. It won’t have the deposited funds to lend on.