Runaround Turnaround

Being Informed

"If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be"

Thomas Jeffeson

Newspapers are a often mistaken for a public entity sort of like the utilities. People expect them to be even handed and unbiased and for the most part they are. But they are privately held companies that desire to make a profit. It is in their best interests to report the news impartially but they can be motivated in some ways by business practices.

Many times some of the most important pieces of news are buried on page eight as was the article concerning some of the new tactics being used by insurance companies to avoid rules put in place to help manage risk This is what happened with the mortgage business when banks and others were able to sell off mortgages to large institutions who then covered their risk of loss with the credit default swaps, a term unknown to the general public prior to the crash.

Insurance companies are regulated by the states in which they do business and some states are very interested in the fees generated by those companies per transaction. That interest is leading to a softening of rules that require the companies to maintain a certain percentage of capital on hand to be able to handle claims. What the companies are doing and some states are allowing is to create companies to which they can package up insurance policies and sell them. This relieves the insurance companies of the burden of maintaining that cash on hand and makes it available for use as profits in the form of dividends. It seems that it doesn't matter who owns the insurers and it can be that a single entity could own both.

The recent Wall Street Mortgage Crisis that has decimated the economy of our country was caused by a similar device in the mortgage industry. When the insurance companies were revealed to not have enough cash on hand to settle claims the whole thing crashed and it was up to the taxpayer to save their bacon. Without adequate cash reserves insurance companies stand the risk of defaulting to their customers which, if it is large enough, can cause fear and loathing in the credit markets around which our economy revolves. It is a ruse to avoid sensible rules to avoid such a catastrophe.

This highlights a corporate principle that I spoke of last week. Corporate managers do not, as a rule, care a whit about the financial health of the average middle class consumer. In spite of this we continue to assert that controls to prevent this behavior are anti-free market and that they prevent companies from creating jobs. Attempts to require Wall Street Banks and other lenders to shore up their capital resources is meeting with great wailing and gnashing of teeth among the Big Bankers, money managers and TEA Party libertarians. They would just allow anyone unfortunate enough to become involved in these transactions at any level to just suffer the losses and quit whining. Why would we want to allow a situation where monied interests can legally thieve money from Mr. Average Joe when sensible regulations could prevent it? This is what happened in 2008 and consumers nationwide screamed to high heaven but now don't want to enact regulations to prevent it from happening again.

It is now revealed that something like 80% of the big Money Managers are contributing to the GOP during this election cycle. That is a turnaround from last election cycle and they don't do that for no reason. This cycle it is the Democratic Party that has attempted to put the bit in the mouth of Big Money and the GOP (along with the Democratic Senators from Wall Street, Chuck Shumer and Chris Dodd) have loudly protested which, at the very least, is forcing concessions designed to make it easier for Big Money to wrest it from your pockets.

Buried on page eight. To be informed one must make an effort. Television news is so commercial these days. Where I have relied on PBS for news now the defunding of it and NPR are facing are forcing them to pay more attention to the bottom line. Talk radio, left or right, does not exist to inform the curious citizen but, rather, to sell products advertised on that program. Be assured it is not a public service announcement. Newspapers remain one of the best resources for unbiased reporting but a reader has to be aware of what the news is so as to not just accept as gospel what is printed.

That is my take on newspapers and the news. Also, on the attempts to regulate financial concerns and their attempts to avoid regulation. Don't accept what I say as gospel either. Do the research but don't quote the talking heads. Let me know what you find.