Friday, May 15, 2009

The Scamdemic in Insurers, Autos and Swine Flu

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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While I have often criticized the U.S. government for sloppy and corrupt economic policy, it is really outdoing itself lately to reach news highs on the stupidity meter. Essentially, federal government policy can be described as reward the incompetent. If a choice must be made between rewarding the extremely incompetent versus the very incompetent, reward the extremely incompetent. Better yet still if maximum unemployment and long-term economic damage can result from a policy choice, which should also costs ten times more in the long run. Unfortunately, as the latest news on swine flu reveals, this problem isn't limited to economic policy, but effects life or death health issues for the American public. If there was a movie analogy for the last two U.S. presidential administrations, it would have to be "Dumb and Dumber".

Today's news included bailouts for the life insurance companies and the simultaneous winding down of the American auto industry. The Treasury department has agreed to provide at least $22 billion in TARP funds to six life insurers, including Hartford Financial, Lincoln National, Allstate Corp., Ameriprise Financial, Principal Financial Group and Prudential. Like all bailouts that have taken place so far, expect more to be paid out in the future. While the insurance companies were being saved from their financial profligacy, the auto companies are being allowed to flounder.

Chrysler announced it was closing a quarter of all of its dealerships and GM is eliminating 1100. GM faces a June 1 deadline for bankruptcy. The Obama administration has done everything possible to push GM over the edge. While the costs of a bailout would be minimal compared to the financial companies, the costs of not bailing out the auto companies will be staggering. These will include paying off CDSs (credit default swaps) for GM bonds, unemployment insurance, health care costs, state and local government bailouts, etc, etc, etc. The administrations attempt to get the bondholders to accept worthless equity in the company sets another bad precedent as well. This will damage the ability of all U.S. manufacturing companies to raise capital in the future (especially from foreign sources). It was long term government policy initiatives to build up the FIRE (finance, insurance, real estate) economy at the expense of manufacturing that led to our current difficulties. Is the government trying to fix this mistake? Not at all, they are trying to compound it.

Some more interesting news on the swine flu debacle #2 (the first debacle was in the mid 1970s) came out in the last 24 hours. A report from Bloomberg News stated the World Health Organization is investigating a claim by an top flu researcher and one of the developers of Tamiflu, Adrian Gibbs, that the swine flu virus currently circling the globe may have been created in a medical lab as a result of human error. Presumably, it was accidentally released. In reaction to the report, a spokesperson for the CDC in Atlanta vehemently denied the possibility of swine flu being man made even though the CDC has yet to review Dr. Gibbs data (hmmm, I wonder who could have operated a lab where this could have taken place). Regardless of what may have happened in the past, there is no need to have doubts about whether or not the CDC's operations will be in competent hands in the future. The Obama administration has just announced that it is appointing New York City Health Commissioner Thomas Frieden to head the CDC. In case you have forgotten, Frieden was the one who stated there were hundreds of undiagnosed cases of swine flu in the city (there weren't) when the flu first appeared. While doing everything possible to unnecessarily spread panic, the NYC health department was busy botching the early testing of potential swine flu cases. The extremely incompetent Frieden will be replacing the merely incompetent Richard Besser.

NEXT: Market Meltup in Mumbai

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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