Tag Archives: ethics

The Purpose of Medicaid

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State Medicaid programs were created for the explicit purpose of providing health insurance coverage for State citizens on the lower rungs of that State’s economic ladder. The Federal government transfers Federal funds—the tax remittances of all of us citizens regardless of the State of which we might also be citizens—to support those Medicaid programs.

In California’s case, Federal transfers in support of Medi-Cal, that State’s Medicaid program, comprise more than 69% of the program. That amounts to 71.4 billion of our tax dollars.

Now the Progressive-Democrat governor of California, Gavin Newsom, wants Medi-Cal to pay the rent for the State’s homeless.

Newsom has proposed using federal healthcare funds to cover at least six months of rent for homeless California residents and those close to losing their homes.

The foolishness is spreading; California is not the only State pulling this stunt.

California is modeling the program off of similar programs in Oregon and Arizona that have been previously approved by the federal government.

Oregon gets 76%—$8.5 billion—of its Medicaid program covered by the Feds, and Arizona gets more than 80%—$14.3 billion—of its Medicaid funding from the Feds.

Newsom argues—and he’s actually serious—that this will save money in the long run because the State (as JtN cited him)

will not have to pay as much for these people’s expenses in hospitals, nursing homes and prisons.

This is a cynical non sequitur. Nursing homes and prisons aren’t centered on medical care, for all that medical care is a small part of those…services. Those services’ costs also are already factored into their budgets. Too, hospitals aren’t residences—and their medical service costs also are already factored into their budgets, including in part from California’s existing Medi-Cal.

Maybe it’s time to stop sending the Medicaid-related tax remittances of citizens of other States to these States.

Yellen and Law

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The Wall Street Journal editors wrote Thursday about Treasury Secretary Janet Yellen’s…flip-flopping…on making whole, or not, nominally uninsured depositors in the wake of SVB’s failure and the government takeover of Signature Bank. Their subheadline accurately summarized the matter.

Are all deposits insured or not? Only [Yellen] seems to know.

The editors’ lede was this:

Treasury Secretary Janet Yellen on Thursday walked back her comments from the day before that walked back her remarks the day before about providing a de facto guarantee on all US bank deposits.

The editors then asked the question: Who’s on first?

An especially a propos followup came just a bit later in that routine: “Q: When you pay off…who gets the money? A: Every dollar of it.”

Legally, in answer to the subheadline question is no; only deposits of $250k or less are insured. But what’s a law to a Progressive-Democrat? Only a suggestion, to be ignored at convenience.

“The Fed Got Us Into the SVB Mess”

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That’s the headline on The Wall Street Journal‘s Sunday Letters section. There’s also this from a letter by Desmond Lachman of the American Enterprise Institute:

The real lesson from SVB’s failure is that things break when the Fed is forced to raise interest rates at an unusually rapid rate to regain inflation control.

And this, from another Letter-writer in that section:

…the Fed sowed the seeds of the current crisis as SVB stretched for yield in a zero-interest-rate environment and then failed to manage its duration risk. The Fed’s efforts to micromanage the economy creates unforeseen problems that continue to erupt.

No, and no.

There is much to criticize regarding the Fed’s interest rate moves, but they’re irrelevant to SVB’s and Signature Bank’s failures.

The Fed’s interest rate increases may have been done at an unusually rapid rate, but they still occurred over a period of months—12 of them in fact: the first increase in the current series was way back in March 2022. The Fed’s moves were part of the environment in which these two failed banks operated, nothing more. It was the management teams of two failed banks who failed to deal with the environment in which they operated.

The idea that the Fed’s moves—micromanaging our economy or other moves—created unforeseen problems is risible on its face. Any pupil in a high school economics class knows that bond (and other debt instrument) prices move in the opposite direction from interest rates: as rates rise, existing bond prices fall. SVB’s and Signature’s managers surely are high school graduates; they knew full well that their reserve holdings, held almost entirely in long-term Treasuries and mortgage-backed debt instruments, were falling in value for the entire year that the Fed had been raising interest rates. The failure of these two banks to pay attention to their reserves is entirely and solely the fault of those two banks’ management teams.

Whitewash

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It seems the Federal Reserve knew of the risks stemming from SVB management moves as long ago as 2019 [emphasis added].

In January 2019, the Fed issued a warning to SVB over its risk-management systems, according to a presentation circulated last year to employees of SVB’s venture-capital arm….
The Fed issued what it calls a Matter Requiring Attention, a type of citation that is less severe than an enforcement action. Regulators are supposed to make sure the problem is addressed, but it couldn’t be learned if the Fed held SVB to that standard in 2019.
…
Following the 2019 warning, the Fed informed SVB in 2020 that its system to control risk didn’t meet the expectations for a large financial institution, or a bank holding company with more than $100 billion in assets, the presentation to employees at SVB’s venture-capital arm said.

And:

Over time, the central bank issued numerous warnings to SVB, suggesting the bank’s problems were on the radar of the Fed, the bank’s primary federal regulator.

So, what was done by the Fed’s regulators in response to this string of noncompliances?

A central-bank review of its oversight of SVB is due by May.

Will those prior whitewashes be followed up with an official whitewash?

I’m not holding my breath over a favorable outcome, which IMNSHO would include, at the very least, the public firing for cause of the Fed regulator(s) directly responsible for SVB oversight and that individual’s/team’s supervisor. Pour l’encouragement des autres régulateurs.

No Chief Risk Officer

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That’s what Silicon Valley Bank had for the last 8 months of 2022. Much is being made of SVB’s choosing to employ a Diversity, Equity, Inclusion person in an executive position during that time frame, but a more important function is being missed in this kerfuffle. That is the answer to this question:

It is not clear who handled [SVB CRO until April ’22, Laura] Izurieta’s duties in the last eight months of 2022.

SVB has a President, a Chief Credit Officer, a Chief Operations Officer, and a Chief Auditor. Each of those persons are, or should have been, fully capable of assessing the level of interest rate risk involved with the interest risk of the bank’s holdings with the Fed vs the interest rates it was paying its depositors.

Each of those worthies are, or should have been, fully capable of assessing the demand and cash flow risk associated with the concentration of particular categories of depositors—startups and venture capitalists—with intrinsically very high cash flows and so high rates of cash deposits and withdrawals compared with “ordinary” consumer depositors’ rates of deposits and withdrawals.

Each of those persons are, or should have been, fully capable of assessing the amount of cash held in accounts above the FDIC-insured maximum of $250,000 compared with the amount held in accounts smaller than that limit. Each of those persons are, or should have been, capable of assessing the closely related risk from the degree of concentration of those large accounts in the hands of a relative few account holders and so the risk of any one of those holders withdrawing all of their money.

The presence of a CRO on the payroll and on duty would have been the one to concentrate on those risks, freeing the rest of SVB’s management team to concentrate on other areas, but management, for one reason or another chose not to employ one for those critical eight months. And that management team failed to pay attention, chose not to pick up the slack.