Reread Confidence Men by Ron Suskind published by HarperCollins Publishers Ltd, NY, 2011. The book has 3 main themes – the financial collapse of 2008 and what to do about it; health care reform; and President Obama. When you compare President Obama’s time as the President to the existing President, you are will be reasonably happy so far there has been no crisis in the economy.  At least with President Obama he was able to draw upon the smartest people in the US and know when to take advice and when not to accept the bias of the advice. With President Trump as soon as fellow Presidents of companies tell him what to do he says yes do it. Tax cut for corporations lets do it, now companies can buy back billions of shares which helps existing shareholders (including me) but the deficit is going to be the concern of the next President.

In dealing with the banks, the most important asset they have is confidence. You deposit money, they lend it out and receive more back. The largest banks have a large trading system, primarily in debt or debt like instruments and as long as 99% of the people repay their loans, while you can live another day with money coming into the banks. In the banking crisis of 2008, when the value of mortgage backed securities dropped to almost nothing because too many bad loans – both based on faulty income abilities to pay increasing higher interest payments and declining home prices (when the mortgage amount is greater than the value of the home would you continue to pay?) what should the government do. If the banks sat on the money, the economy does not move because it is based on credit flows. Credit flows are based on confidence to repay loans and losing money means there is no confidence.

It is also true that risk management which is the most important job of the senior management was lapsed because the attitude was securitize the debt and sell it to someone else. What happens when no one buys? One can see there were many problems but remarkably few solutions. The banks are private institutions, does the government go and change management? take the bad debt and hope real estate values go up? what do you do and how do you encourage growth in the economy? While President Obama never got everything right, they made better decisions than other administrations would have or could have.

In terms of health care, a study in Dartmouth revealed not surprisingly if insurance companies or medicare pays more for a procedure, then eventually more of those procedures will be done whether the outcome is positive or not. The idea of health reform should be to reward procedures that make the outcome positive. The problem is hospitals and doctors who are rewarded by the procedures that make money and less about positive outcomes and they tend to have more influence on the health care than regular policy makers because they are seen as the experts. It takes a great deal of effort to affect health reform.

Linking to dividend paying stocks, when companies make money life as it should be is easy to see. When governments want to do reforms, uncertainty becomes an issue. Easy reforms are when procedures can change but companies can still make relative easy profits.

There are more question than answers, till the next time – to raising questions.