Sunday, April 25, 2010

Goldman case comments

Not being a lawyer I can't give an expert opinion about the SEC's civil suit against Goldman Sachs. However a couple of Goldman's arguments seem pretty weak to me. First the fact that Abacus investment had been designed and constructed to perform poorly was obviously material to any potential buyer and Goldman's arguments to the contrary are nonsense. Second the fact that Goldman itself lost money on the investment is not important. Even if Goldman was stupid enough to invest knowing all the facts, this doesn't mean the other investors would have been equally stupid if they had been properly informed of all the material facts. And of course there is considerable evidence that Goldman's loss was due to a failed gamble that they could unload all of their share before the roof fell in and not because Goldman thought Abacus was a sound investment.

On the other hand there have been suggestions that, even if Goldman did not formally inform the buyers of certain material facts, the buyers were aware of them anyway. If this should be established it would certainly damage, perhaps fatally, the SEC's case.

One point I have not seen covered is what the rating firms were told. Presumably Goldman has the same duty to disclose material facts to them. Did they actually rate this stuff triple A knowing it had been constructed to fail?

Saturday, April 24, 2010

Brinton Brook Sanctuary

Saturday I walked in the Brinton Brook Sanctuary , another park with walking trails a few miles from my condo, which I had never visited. It is owned by the same organization which owns the Pruyn Sanctuary where I walked last Saturday.

I thought it was pretty nice. The trails are generally wide and well marked which I like. They do go up and down a bit towards the back (northeast) part of the property. The photo shows Brinton Brook Pond. According to the signs the pond was created so ice could be cut and stored in the winter for use during the remainder of the year

Sunday, April 18, 2010

Supping with the Devil

There is an old proverb about supping with the devil which "[advocates] caution when dealing with dangerous or malevolent persons" which last week's civil fraud suit against Goldman Sachs brought to mind. Without going into the legal merits of the case, it is just an extreme example of what has been long apparent. Namely that Goldman Sachs (and similar big financial institutions) make big profits by taking advantage of naive customers. Given this it is a mystery to me why people voluntarily deal with them. Some dealings are hard to avoid, if you need to sell a million shares of IBM or convert a hundred million dollars to euros you will need to deal with a large financial institution. But this sort of basic financial service is not where the exorbitant profits are being made. They are being made with exotic financial products (like the one which is the subject of the suit) which one could easily do without. So why be the sucker in the game? As I said it is a mystery to me.

Bailout Cost

Last week I was annoyed by this NYT article which attempts to minimize the cost of bailing out the banks. The article is annoying because the accounting is misleading, as the article itself later acknowledges some important costs are being ignored. For example Fannie Mae and Freddie Mac, the government mortgage companies, have been making lots of lousy loans in order to prop up the housing market. This is an indirect means of bailing out the banks and the resulting loan losses should be included in the bailout cost. Similarly for things like the home buyer tax credit. There is no reason for the NYT to be parroting administration propaganda about how little this fiasco is going to cost the taxpayers.

Saturday, April 17, 2010

Pruyn Sanctuary

With the nicer weather I have started taking walks again. Saturday I walked in the Pruyn Sanctuary which is just a bit east of Millwood. Although it is fairly close to the IBM location where I used to work, I had never been there before. I like exploring trails for the first time and since I may be moving out of the area it seems like a good idea to check out local trails which I have not previously visited.

I entered from the Route 133 entrance. Parking appears limited but it was not crowded today. The Sanctuary offers a varied mix of swamp and upland trails in a fairly compact area. The picture was taken from a boardwalk and shows Gedney Brook meandering through Gedney Swamp.

Sunday, April 11, 2010

Taxes done

I finished and mailed my federal and state income taxes yesterday. As I mentioned earlier I used Turbotax for the first time this year. I found the program a bit frustrating. One thing the ads about Turbotax finding deductions and credits that you might have missed ignore is that Turbotax is also quite good at finding taxes and penalties that you might have missed. Apparently my W2 showed IBM had failed to withhold a small amount of Medicare tax. I would never have noticed this myself and I doubt the government would have chased me for the small amount but Turbotax added it right in. And I would never have realized that New Jersey really expected me to pay them $10 if Turbotax hadn't kept trying to sell me their New Jersey state return feature. The rules for people with income from several states are really quite obnoxious. This will be a bigger problem for me this year as I am living in New York and working in New Jersey. I have new sympathy for professional athletes who have to deal with many state returns. Perhaps I should rethink my support for state's rights.

Duke wins

I was rooting for Duke in the NCAA finals and was happy to see them prevail in an exciting game. I thought the Duke strategy of deliberately missing a free throw when up by two with a couple of seconds left in the game was a bit dubious. However the Duke coach apparently explained in effect that he was convinced his team would choke in overtime and he would rather lose to a lucky shot at the buzzer which has a certain perverse logic.

Sunday, April 4, 2010

Spring arrives

As usual the weather improved considerably during March. I was happy to see winter go. I took the top photo last weekend. The yellow bush in the center is one of the first things to bloom in the Spring. The three parallel pipes below the road are new and will hopefully prevent more scenes like in the bottom photo taken a couple of weeks earlier.

Health care costs

I was asked in comments what I meant by my claim that health care costs too much in the the United States. Basically I mean health care providers are paid more than is justified by the services they provide. This overpayment has several causes. Inefficient provision of services, provision of services of little or no real value and overpayment of health care workers like nurses and doctors. This is relative to other advanced societies. See for example figure 4 in this source . The United States spends more (as a share of gdp) than other rich countries on health care but does not achieve notably better outcomes.

Health care and equity

As I see it there are two equity issues with health care. What extra health care assistance, if any, the government should provide to the poor and/or the chronically ill? In both cases I believe some assistance is reasonable but that it should not be an unlimited entitlement.

Poor people have less ability to buy lots of goods and services, food, clothing, housing etc. I don't see why health care should be any different. It may be reasonable for the government to provide a floor but I don't see any reason everybody should be entitled to the best possible health care any more than they are entitled to the best possible food or housing. And I think people should have the same freedom to spend more or less on health care that they have for spending on other things like clothing or cars.

My thoughts about the chronically ill are similar. People are fortunate and unfortunate in many ways and I don't think it is the job of government to attempt to compensate for all misfortune. Particularly when this is an open ended entitlement that can be impossible to fulfill no matter how much is spent. There are many chronic medical conditions that can be alleviated but not cured. I think some government assistance is reasonable for people with costly medical conditions but that it should be subject to a cost-benefit analysis and limited to cases where substantial benefit for reasonable cost is possible. My thoughts here are similar to my thinking about education for "special needs" children. In some cases school districts end up spending more on a single "special needs" child than 100 normal children. I don't think such disproportionate spending is reasonable and I don't think it is reasonable in the case of medical care either.

Note medical care is subject to decreasing marginal returns. In other words the more you spend the less each additional dollar will buy in terms of increased quality of life. So cutting medical spending does not affect outcomes much when you are in the flat part of the curve as we are.