I think Abraham Verghese, MD said (subscription) it best this weekend in the Wall Street Journal:
My wife tried to tell me the other day that she had just ‘saved’ us money by buying on sale a couple of things for which we have no earthly use. She then proceeded to tote up all our ‘savings’ from said purchases and gave me a figure that represented the money we had generated, which we could now spend . . .she had me going for a minute.Dangerous and probably incorrect, indeed.
I mention this because I have similar problems with the way President Obama hopes to pay for the huge and costly health reform package he has in mind that will cover all Americans; he is counting on the “savings” that will come as a result of investing in preventive care and investing in the electronic medical record among other things. It’s a dangerous and probably an incorrect projection.
-Wes
2 comments:
About saving money.
The boy ran into the house and said exitedly, "Dad, I saved a dollar today by running home behind the bus." The gruff father gave him the back of his hand. "Stupid child, you could have saved five dollars by running home behind a cab."
Andrew_M_Garland
Easy Opinions
The idea of "too big to fail" is idiotic. Say you have a giant bank that employs 100,000 people and handles transactions and business for 5 million customers. Assume it is losing money, so much that it goes bankrupt. What does that mean, really?
Bankruptcy is a forced change in ownership. In principle, it is no different than a sale to new owners. The new owners are the lenders who took a limited return (interest on bonds) instead of an unlimited return (stock investors). The lenders took a limited return JUST FOR THE RIGHT to take over the company if it couldn't pay them back.
The new owners do not burn down the buildings, fire all the workers, and tell the customers to go away. They sell their losing lines of business to people who know more about those business lines and think they can make a profit. Profit means using resources in a way that creates more value, rather than destroying value in the now bankrupt company.
For a disaster, make the government the new owners. Governments have a long history, like Tony Soprano, of running businesses for political benefit, essentially looting the value.
Our current financial crisis is the result of government control and management of the mortgage lending industry. Only the government could be so stupid and blind as to lose $2 trillion outright ($2,000 billion, or $2 million million) lending money to build houses, the safest and most analyzed type of asset existing. Actually, they set standards for the industry to follow, then guaranteed repayment if anything went wrong, and pressured ratings agencies to stamp AAA on new and poorly understood securities.
We Guarantee It
The government is guaranteeing us into poverty. The story of the housing and economic crisis. Government discovered a loophole in its finances. It could borrow as much as it wanted, off budget and without debate, by granting a guarantee to supposedly private businesses like Fannie Mae and Freddie Mac. Those agencies borrowed as much money as the entire national debt at the time, $5.4 million million. The guarantees go on today
Andrew_M_Garland
Easy Opinions
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