Posts Tagged Corporate Governance
When Bill Clinton passed the keys of the Oval Office to George W. Bush, on January 20, 2001, the American Economy was in great shape! Clinton had just balance the Federal Budget for the first time since 1964. The Unemployment Rate sat at 4.40%, somewhat lower than what the Federal Reserve deems “Full Employment,” at 5.00%. (The 5.00% is an assumption for those between jobs, changing jobs, recent lay-offs, etc.)
George Bush then took the Economy and devastated it, in order to accomplish ideological goals. He commenced to take the country into two never-ending wars, first, in Afghanistan, in 2001 and, then, Iraq in 2003. Both wars are still going on, which causes one to wonder what our Mission Statement was. Were they necessary? Will we ever leave?
Also early in his First Term, Bush decided to implement a series of Tax Cuts, which were primarily skewed toward the very wealthiest Americans. Why? Generally, a nation doesn’t lower taxes when it has one war to finance, let alone two! Also, tax cuts for the wealthy do not usually encourage consumer spending. On January 1, 2005, just after he had won his re-election, the Unemployment Rate was 5.30%, and the National Debt had increased from the tax cuts.
That rate began to edge up as the Economy began to stagnate. Banks, which were undercapitalized had been taking undue risks. Sub-prime mortgages were sold to homeowners who could least afford them. Even worse was the packaging of these questionable loans, which were sold to unknowing bond investors as AAA-rated mortgage-backed securities. And in the end, many of the banks, insurance companies, auto makers, etc., had to be bailed-out by the Taxpayers.
That Banking Crisis, which is commonly referred to as “The Great Recession” was first made public in October of 2007, when George Bush forced the very largest banks to take tens of billion of dollars, at virtually no interest. He described the scenario as such: “America is looking down into a Financial Abyss.” If you hadn’t been deeply concerned during the fourth quarter of 2007, when this all began, you certain became so after Bush’s announcement!
The Unemployment Rate of 5.00% at the beginning of 2008 quickly rose to 7.80% at the beginning of 2009. The Bush Tax cuts, coupled with financing two wars caused the Federal Budget to spike, and the interest on the, now higher, National Debt absorbed a larger slice of the budget, as well. Lay-offs reduced the tax polls, consumer spending declined considerably, and many small businesses closed their doors. And credit became virtually non-existent.
Just after Barack Obama took office, on January 20, 2009, the Dow Jones Industrial Average dropped to 6,500, from the prior high of 14,015 in October of 2007. Unemployment continued upward to 10.00% in early 2010.
The Obama Administration did the reverse of what George Bush did by allowing the Bush Tax Cuts to expire; but, he lowered rates for the middle class who, unlike the wealthy, spent their excess cash, thus giving new life to small businesses—the real job creators! Obama’s combination of Monetary and Fiscal Stimulus began the economic recovery, which continues to this day. The Unemployment Rate stood at 4.80%, when Obama left office last January.
Let’s consider how the two prior presidents—before Donald Trump—managed the American Economy. George W. Bush took over a nation, which had balanced its budget, and he ran it into the ground—turning the budget surplus to a deficit, lumping the expense of ineffective tax cuts and two unnecessary wars, doubling the Unemployment Rate and halving the stock market.
Barack Obama took a completely different stance. He almost balanced the budget, allowed the ineffective Bush Tax Cuts for wealthy to expire while lowering taxes for the middle class—the consumer class, put many small businesses back on their feet, tried to withdraw from the two Middle East wars in a gradual and rational manner, and he halved the Unemployment Rate while doubling the stock market.
Donald J. Trump seems dead set on following President Bush’s scenario. Are we ready for another Great Recession?
Secretary of Education Betsy DeVos, and her husband Dick, are primary investors in Neurocore, a corporate partner in Windquest, the DeVoses’ private equity investment firm. Operating from twelve storefront locations, in Florida and Michigan, Neurocore claims to be able to “train the brain” to overcome various maladies.
Mr. Ulrich Boser, wrote about his trip to a Neurocore branch store, in a high-end strip mall, in Palm Beach Gardens, Florida, where he went to investigate what Neurocore was all about. The company addresses such diverse problems as: attention-deficit/hyperactivity disorder, autism, anxiety, stress, depression, poor sleep, memory loss and migraines. The potential magic bullet, which hasn’t been confirmed through peer-review, is “Neurofeedback”—which seeks to help people “optimize” the electrical impulses of their brains.
In a NY Times article about Neurocore, the authors reported that their isn’t any groundswell, within the medical community, to embrace the Neurocore’s treatments.
“(The company)….promotes results that are nothing short of stunning: improvements reported by 91 percent of patients with depression; 90 percent with attention deficit disorder; and 90 percent with anxiety.” There doesn’t seem too be any confirmation, however, within the neurological health care field.
Sandra K. Loo, director of pediatric neuropsychology at the David Geffen School of Medicine, at the University of California, Los Angeles, has written about neurofeedback and quantitative EEG, a brain-wave test that Neurocore performs as part of its diagnosis. She states that the effects are short-term, and haven’t been proven to be any better than a placebo.
Dr. Majid Fotuhi, Neurocore’s Chief Medical Officer, and Timothy G. Royer, the company’s founder, each have good credentials; however, their professional careers don’t appear to have been particularly successful, outside of the DeVos family umbrella. There has also been some reluctance on the part of health insurers to cover Neurocore’s treatments.
Dr. Matthew Siegel, a child psychiatrist at Maine Behavioral Healthcare and associate professor at Tufts School of Medicine, who also co-wrote autism practice standards for the American Academy of Child and Adolescent Psychiatry, has stated: “If there were something out there that was uniquely powerful and wonderful, we’d all be using it.”
NOTE: Unfortunately, this treatment reminds me of the various for-profit schools, which offer hope, which might nor be possible!
NOTE #2: Welcome to my readers from Germany!
In 2015, Mark Carney, Governor of the Bank of England, the United Kingdom’s central bank (like our “Fed”), addressed the fabled Lloyd’s of London membership. Mr. Carney spoke to this consortium of insurers about the future of the financial markets. Namely, the new threat: Climate Change. He knew that insurers, much more than other group would understand the risks, and want to be out ahead of what lies beyond the horizon!
As insurers, Lloyd’s members should be aware of the many hidden costs to our society which, either directly or indirectly, they might have to insure. Economists use the term “Tragedy in the Commons”, which is where any entity uses the communal resources—the air, water, fishing, etc—for their own benefit, while leaving any negative aspects of their actions to society, at large.
Although there are many situations where the Tragedy in Commons may occur, perhaps the best example might be the local electric power utility. The negative aspects of using fossil fuels—coal, oil and gas—to generate power, are not paid for by the utility that reaps the profits. Increased health issues, replacing obsolete plant and equipment, and environmental clean-up, are left to the local residents. And as the air and water flow by, one city’s contagion can spread to other cities—and even continents.
Yesterday, I added a most compelling book to the “Books That I Recommend” tab, on this blog: “Climate of Hope”, by Michael Bloomberg and Carl Pope. Over the past several decades, the ebb and flow of politics, has caused the commitment of many nations to dissipate, with regard to the various global climate change accords. Fortunately, many, many cities have stepped-up to fill-in the void!
Michael Bloomberg discusses the fact that much of a city’s needs fall-on the local government. As the former Mayor of New York City states, when the incidence of asthma spikes, people call City Hall, and not their Congressman. Besides public health issues, cities assume responsibility for: safe streets; police and fire; functional mass transit; basic utilities; schools; parks and recreation; etc. And each of these must by budgeted, and paid-for by the taxpayers.
As Bloomberg and Pope point-out, many of these problems are inter-related. Consider the following: clean air improves health, which provides better attendance at school or work; better-planned cities reduce flooding and expedites the flow of traffic; mass transit improves air quality, and it is cheaper to operate when it is powered by bio- or electric power; updated technology and energy-efficient operations can reduce the business expenses, etc. And in the end, cities must be vibrant to attract residents and businesses!
In addition to considering many of the concerns we’ve heard for several decades—the air we breathe; over-fishing; auto emissions, etc,—Climate of Hope also describes a number of environmental aspects that we might not even be aware of. For instance, a chicken dinner has one-sixth the carbon impact as a (similar-sized) beef dinner; there are a number of other toxic gases, besides CO2, that we emit into the atmosphere; and depending on what we import, and from where, we might be encouraging additional climate change.
Working with some 7,000 cities, Bloomberg and Pope have encouraged businesses to join them, rather than as adversaries. Corporate leaders can better-understand the cause and effect relationship, between up-front investment in plant and equipment, and the long-term stream of lower maintenance costs. And, once the true costs are included in the analysis, corporate partners want their families, and those of their employees, to live in cleaner, healthier, safer cities, as well.
NOTE: Welcome to my readers from Panama and Qatar!
The Russian economy remains in a shambles as the West’s economic sanctions, imposed after the invasion of Crimea in 2014, continue to serve their intended purpose. Obviously the drop in global oil prices, by 50% over the past few years, didn’t help Russia either. Economic, as well as political concerns certainly led to protests marches throughout Russia. That’s where Exxon-Mobil may come in handy–at least, on the economic front.
Some 45 % of Russian Energy production is exported, and that provides 70% of Russia’s overall earnings. Prior to the section imposition, Exxon-Mobil had intended to transfer state-of-the-art drilling technology, for use in both the Arctic Ocean and the Black Sea. Exxon had applied for a sanctions waiver, from the U. S. Treasury, during the Obama Administration. The company, however, has raised the issue again.
As the very recent Chairman and CEO of Exxon-Mobil, current Secretary of State, Rex Tillerson, had been very much in favor of providing the drilling waiver. Although any decision now will be made by the treasury Department, and he supposedly has recused himself, there will always be the suspicion–rightfully or not–than he had plan a finger ion the sale. Remember that, when he left Exxon-Mobil, he obviously receivers an extremely lucrative severance package.
PERHAPS THE REPUBLICANS MIGHT HAVE UNCOVERED MORE THAN THEY HAD WANTED, IN THEIR QUEST FOR AN “OBAMACARE” FIX
As the Republican Party has been delving into alchemy, for almost seven years, in its search to replace President Obama’s Affordable Health Care, it has determined that Americans need to be able to buy health insurance across state lines. And I agree completely. But, there’s more to the overall problem, than just where the insurance is sold!
Upon further consideration, however, their search also reveals certain risks in assuming that each of the 50 states already competently regulate the respective insurance operating companies doing business within their states. The regulatory problems have also become more difficult, especially as the parent companies grow more diverse–and the industry more complex.
Banks and Securities Firms are regulated by Federal Regulators, which enables them to examine, let’s say, Bank of America or Goldman Sachs, both across the nation—as well as across their various product lines. For Allstate or Nationwide, however, different state regulators examine the individual subsidiaries independently, without any coordination whatsoever—especially with regard to self-dealing among other out-of-state subsidiaries.
The idea of buying Health Insurance in Indiana or Ohio, or Homeowners in Texas versus Oklahoma, would be a simple enough change. That’s because the insurance risks, for comparable customers, would not change just because they live on one side of the state line, or the other. If Blue Cross-Blue Shield, for instance, could operate through just one, or perhaps, several subsidiaries nationwide, that would lower some of its redundant expenses, perhaps lowering the premiums, as well. But, the highest risk is at the Home Office–where the buttons are pushed!
A NY Times article, from 2009, described some issues with AIG, one of the very largest insurance companies, which operated through 71 insurance operating companies, that were spread among 19 states, and additionally in many, many foreign countries. Eventually, the Federal Reserve and the Treasury had to provide the largest bail-out in American History—some $182 billion. Otherwise, a collapse by AIG could have brought down the overall American Economy—or even worse!
AIG was playing a shell game with itself: the various operating companies were investing in each other, rather than properly diversifying their similar risks more adequately; some companies were shifting debt to other AIG subsidiaries, making it impossible for the various state regulators to ascertain their respective financial stability; and the parent company (AIG, Inc.) had engaged in “Credit Default Swaps”, the so-called “toxic assets”, whereby it guaranteed Wall Street assets valued at more than its own Net Worth.
But, the final question is: How far will the Republican Party keep searching, if in looking for a replacement for “Obamacare” (as they call it), they might have the Insurance Regulatory Environment to deal with?
The controlling manner with which Donald Trump seems intent on forcing his ideas into all segments of the American Economy, at least to me, is reminiscent of the old Soviet Five-Year Plans. Who knew better than the apparatchiks, in Moscow, the number, size and cut of women’s brassieres that would be needed in Vladivostok, several years hence? Surely, their Command Economy knew better than that Capitalist “Invisible hand of the Markets.”
Just like the micromanagers in the Kremlin, or their counterparts at Beijing’s Central Party Committee, Donald Trump has been using old-fashioned jaw-boning: letting corporate CEOs what how he expects them to manage their companies; apparently offering tax incentives and promises to de-regulate, but only time will tell if it is working.
Surely, when GM committed to attend, Ford showed-up, as well. He started going through the Industries, one-by-one, and then the Unions. But, will smiles and small talk really convert to obedience? I doubt it! So far, all D. J. Trump has accomplished is more photo-ops.
Now, let’s get back to the Real World. If a corporate CEO makes a dumb business decision at the “suggestion” of the President, he or she could be sued by the company’s shareholders. And, assuming that the Board of Directors approved it, they would also be included in that suit! Until we have a Dictatorship, following instructions of the Tenant in The Oval Office doesn’t qualify as a rational business decision.
I have written about my supermarket before; but, the same goes for all, except the very smallest, businesses. Their computer systems, tied to the cash registers, keep track of their sales on a daily, even hourly, basis.
Inventories—by individual locations—are automatically reported to the Regional or Home Office. When required, inventories would automatically be replenished, with shipments from the appropriate warehouses. That even goes for women’s brassieres.
America doesn’t need the slight-of-hand of Donald Trump to keep individual companies, their industries or the overall Economy humming along. And, in case corporate leadership cowers to Mr. Trump’s browbeating, and indulges his ideas, there is still a Court of Law to bring him back down to earth. And Donald, lest you forget, Micromanagement, like Command Economies have never worked efficiently!
ENERGIZED BY TRUMP’S ELECTION VICTORY, THE GOP VOWS TO REPEAL, AND REPLACE, “OBAMACARE”. BUT, WITH WHAT?
House Republicans have voted 50 times already, to Repeal the Affordable Care Act, which they derisively call “Obamacare”. Over the six years, since ACA became Law, they have constantly been attacking it; however, the GOP has never presented a rational plan to substitute in its place. Additionally, looking at the World around us, all 19 of the other most-industrialized members of the OECD have Universal Health Care. Shouldn’t that tell the Republicans something? What do those nations know, that we don’t?
Let me respond to some of the GOP’s fallacious attacks on ACA. Web sites always seem to overload when a new program, that potentially expects tens of millions of applicants, has some problems at the start! Health insurers did cancel some older plans; however, they replaced them with updated ones, in order to qualify under ACA. Many medical conditions, which had been covered, were added—such as Maternity and Pre-natal care for young women! Annual insurance premiums did not rise as much as they would have, had ACA not been in effect! Also, the “Mandate” that required Americans to buy insurance, which might be subsidized if necessary, is necessary to eliminate the potential refusal of coverage, by the insurance companies, for “Pre-existing Conditions”!
It is important for ACA to be retained, and improved when necessary, as it was always expected to be. That “One Payer” system, by the way, does not mean just “One Provider “, as had been suggested by the nay-sayers. For instance, my Wife and I each have Medicare, and we still go to all the same doctors, and facilities, as we had before. When a One Payer system is established, the costs of health care can be reduced considerably. And, that is how ACA had always been intended to work!
When the overall participant pool increases, insurance companies are able to estimate the various medical factors more accurately, across the larger number of participants. That allows for more accurate health care expense projections, as well as a reduction in administrative expenses. For instance, the Medical Loss Ratio, under ACA, requires that insurance companies spend at least 80% of the premiums on Health Care, and no more than 20% on Administration.
Over the past six years, the two alternatives to ACA, which some Republicans have floated, are: a “Voucher” system (Speaker Paul Ryan), which means out-sourcing insurance coverage; and “Block Grants” (Mr. Donald Trump), which distributes funds to each of the states, so each might meet their health care needs, as they wish. Vouchers do not guarantee minimum services, co-pay limits, or maximum percentage used for administration. Block Grants have neither national consistency, nor federal oversight–and they are subject to the vague whims of each state. Neither Vouchers nor Blcok Grnts necessarily works in the best interests of the average consumer.
Lastly, the assumed underlying reason for the GOP’s numerous attempts to repeal the Affordable Care Act, currently enjoyed by some 20 million previously uninsured Americans, is Money. The maximum tax rate for higher income individuals was raised partially to help fund the ACA. Most of those tax-payers, all of whom assumedly have gold-plated health insurance plans themselves, seem to feel that they shouldn’t have to help make life a little safer for those at the bottom of the economic ladder. And apparently, these are the people that the Republican Party prefers to cater to.