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Apr 10 2009, 12:15 pm by Megan McArdle

Ask the Editors

You ask, we answer.  What do you want to know?

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Comments (16)

Dave

What is your opinion about the proposed plan to allow "Main Street" to invest in toxic assets?

This seems rather stupid to me as "Main Street" has shown themselves unable to understand simple mortgages.

My own thoughts are here: http://www.opinionatedraconteur.com/archives/255

Freddie

Please write something about Tom Geoghegan's story "Infinite Debt" from the latest Harpers magazine and his opinions about the role the dissolution of usury laws played in the crisis.

Dirk

Please comment on projections of a "transparent society" in the near future and how it will affect the economy. Shouldn't everyone's tax returns all be available to the public?

I think that when people know the incomes of their neighbors and co-workers, it will change much about workplace negotiations, buying habits, who marketers target, etc.

Chris (In Philly)

In September, you wrote that the repeal of glass-steagall wasn't a contributing factor in the crisis:

http://meganmcardle.theatlantic.com/archives/2008/09/clear_as_glass_steagall.php

Do you still believe this? The article doesn't seem to address the primary argument made by most people that claim this was a factor: that it effectively created or massively expanded the mortgage-backed securities market by allowing commercial banks to create investment arms.

ChrisB (Replying to: Chris (In Philly))

I actually signed up over here to ask just this question, so I guess I second it, and would possibly expand it to "How much was deregulation in general at fault for this crash?

Dave (Replying to: ChrisB)

Cause and effect are notoriously hard to discern. On the one hand, there was some deregulation, such as the repeal of (part of) Glass-Stegall (recall that legislation also created, among other things, the FDIC).

On the other hand, financial institutions were nonetheless heavily regulated, sometimes to good effect (see again, the FDIC).

"Heavily regulated," though, does not mean "effectively regulated" (see the SEC).

Ken Magalnik

Question:
World reserve currency: What is it good for? Is the world reserve being dollar beneficial or harmful to us? Will changing it over to something else be beneficial or harmful to us? What are the chances of it actually switching over to another currency? What other currency might that be?

Question2:

How do economies of scale apply to banks? How can one large bank operate more efficiently than many smaller banks? What is the banking equivalent to tool costs?

Peter

One of the complaints levied against the Treasury plan is that it has people buying an option on toxic assets rather than the assets themselves, can you explain what this means?

DaveinHackensack

Question 1: Please read and comment on John Hussman's diagnosis of and proposed solutions to the financial crisis ("On the Urgency of Restructuring Bank and Mortgage Debt, and of Abandoning Toxic Asset Purchases").

Question 2: One of the concerns of America's current borrowing binge is that it could lead to much higher interest rates in the future, as bond buyers demand higher interest rates to compensate them for the increased risks of inflation and default. So why are the yields on Japan's government bonds so much lower than the yields on ours, even though its debt is much higher as a percentage of its GDP and its default risk is presumably higher, since its sovereign debt is rated lower than ours?

Question 3: A recap from last week:

Let's assume the government is not going to require banks’ bond holders to eat some losses at some point, as John Hussman has been calling for, and let's assume that all the recapitalization money is going to continue coming from the government. Given that, Geithner's current “Son of TARP" plan raises a question I haven’t seen addressed in the media yet.

Let’s say XYZ bank has a mess of ‘legacy’ assets marked on its books at 85 cents on the dollar. Let’s say further, that the current market price for these assets is 30 cents, but, thanks to the government-provided financing, the new TARP auctions price them at 50 cents. Some might argue that the government will have overpaid for these assets at 50 cents, but here’s my question: assume the government has to provide additional capital to XYZ bank to make up for the write-down on its legacy assets from 85 cents to 50 cents. Would the combination of that additional capital plus the government outlays for TARP cost more or less than providing a bigger capital injection to offset a write-off from 85 cents to 30 cents without TARP?

Janice Doe

(1) I keep reading liberal economists, policy analysts, etc, say that universal health care is the only way of controlling double-digit health care inflation. But then they don't say how or why. Is that because the answer is something they don't want to admit, i.e., the only way to control health care inflation is through rationing, and the only way to impose rationing is through universal health care (and rationing, of course, is the boogeyman that conservatives always raise in response to universal health care plans)?

(2) What is the conservative answer for how to control health care inflation? I don't buy health care savings accounts or getting rid of the middleman because my understanding is that something like 80% of health care costs is spent on only 15% of the population, i.e., most health care costs are spent on those with chronic conditions, rare diseases, etc. Since even health care savings accounts provide for catastrophic insurance (i.e., an individual will pay only so much per year, effectively having a high deductible), it won't be long into the year before high cost individuals reach those limits and then we're back to the current system (middleman paying for insurance). In fact, anyone who knows they'll hit the high deductible in the year (which most of those 15% would know based on hitting it the previous year) won't have an incentive to hold down spending. So, what legitimate conservative solutions for controlling health care costs are there as an alternative to universal health care?

Thanks!

sandtu

I would second Janice Doe's queries. It is hard to have a objective discussion on health care outside the politics and would like to look at "why is our health care so darn expensive compared to the rest of the world" and "what are realistic options to address coverage and cost".

I know very little on the topic hence the question.

Great column BTW Megan, appreciate your insights.

wallyz

As a 15%er with kidney failure, I can speak to my area of experience here.

The biggest thing driving costs for dialysis patients is complications. The Average dialyzor has 2 hospital stays per year. This is significantly higher than other countries, because we have adapted a 3 day a week by 4 hour treatment model that has been shown to be inefficient. Daily home dialysis cuts down hospital visits to less than one per year (I have had no in patient stays form complications this last year on home hemodialysis) So, it make sense to pay more to get people on home dialysis, no? However, insurance companies and Medicare are not allowed to use savings in hospital expenditures( Medicare Part A and similar) to justify expenses in durable equipment usage (Medicare Part B and similar) so, there is pressure to reduce costs in durable equipment, which raises costs in hospital expenses.

If there is a single payer, there is an institutional incentive to do what it takes to save money long term.

We already have rationing, its just done on an ability to pay in stead of need basis. Of course, we have accepted critical care costs, so people are trained to not seek early intervention as they will be turned away. They are instead trained to wait until an issue is critical enough so that they can get much more expensive critical care.

DaveinHackensack

"We already have rationing, its just done on an ability to pay in stead of need basis."

Who is being denied treatment because of ability to pay? I know nurses who treat indigent Medicaid patients, and they seem to get a high quality of care at no expense to them.

wallyz

People are treated for critical care, but say if you are indigent and need treatment for cancer, you are out of luck. Also, most high level care has to do with preventative or rehabilitative care which is not given to indigents. We just wait until they need an ER and spend a lot more money keeping them alive instead of dealing with the underlying medical issue.

Furthermore, the largest group of the uninsured are ineligible for medicaid. The biggest issues are things like bacterial infection, which an insured person would just see the doctor, get scrip and cost the insurance $100, and out of pocket $30. An uninsured person would be charged $200 out of pocket, and so wait until the problem was severe enough to go to the ER. Are they getting care? Yes. However, it is radically inefficient. The average ER visit costs $1500-2000 depending on where you are in the country. If you go into sepsis or have breathing difficulties, the cost go up geometrically. Then you have $10000 costs divided among paying customers, potential bankruptcy on the part of the uninsured (damaging all their other creditors, and their future earning power). Expensive.

DaveinHackensack (Replying to: wallyz)

"People are treated for critical care, but say if you are indigent and need treatment for cancer, you are out of luck."

If you're indigent, why wouldn't you qualify for Medicaid? If you are on Medicaid cancer treatment would be covered.

"Furthermore, the largest group of the uninsured are ineligible for medicaid. The biggest issues are things like bacterial infection, which an insured person would just see the doctor, get scrip and cost the insurance $100, and out of pocket $30. An uninsured person would be charged $200 out of pocket, and so wait until the problem was severe enough to go to the ER."

Listen, I've had bacterial infections at times when I didn't have insurance. It cost me $80 to see a physician and another $20 to fill a prescription at the CVS that has my records on file. If money were really tight, I could have gotten the same generic prescription filled at Pathmark for $4 or at Stop & Shop for $0. There are also lower cost options, depending on where you live. I mentioned one such example recently elsewhere.

Vik

What are your thoughts on the Venus Project and its objectives?