Saturday, June 15, 2019

Nineteenth Amendment, the President's Behavior, the Hatch Act and some Economic Thoughts

Poor Anna, Poor Tess

It has been 100 years since the Nineteenth Amendment was added to the Constitution of the United States, giving women the right to vote.  The rights of women have been trampled on throughout history. (It even goes back to the Bible.  Today's clergy bend over backwards to explain that.) 

To get some insight into the way thing were, read about what women had to put up with just fifty years or so before the Nineteenth Amendment became law.  Two monumental novels well make this point.  Both are set outside of the United States, but things were pretty much the same here as they were in late Nineteenth century Imperial Russia or Victorian England respectively, where Leo Tolstoy’s “Anna Karenina” and Thomas Hardy’s “Tess of the D’Aurbervilles” are set.  (For both Anna and Tess, things didn’t end well.  They're both "good reads" if you have the time, which I doubt.  Originally serialized in Russia, "Anna" runs on for 817 pages.)
Jack Lippman

Why He Is Like He Is

Are you puzzled over the behavior of the President of the United States and what he thinks is ethically proper and what is not?  All he is doing is applying the level of ethical morality which is routinely acceptable in the business community to what he does in government.  Why, if such behavior is considered normal in a free enterprise capitalist society, is it not acceptable in running the government which manages that society?  

If a lawyer in the private sector can tell a businessman how to “legally” do something that is otherwise “illegal,” why cannot the President do things that are “illegal” so long as his lawyers and the Department of Justice manage to rationalize those acts, cloaking them with the garb of “legality.”  That is the problem in electing a businessman to public office.  Different ethical codes apply.

And while on the subject of our businessman in the White House, several weeks ago, on this blog, I modified my position on impeaching him.  I had been against it because it would never make it through the Republican whores in the Senate and give the President something about which to brag.  “Hey, they failed to impeach me!”

My modification declared that if court actions and House committee hearings do not bring out enough impeachable documentation by the end of July, sufficient to convince the Senate to change its position or even convince the President to resign as Richard Nixon did, the House should then start impeachment hearings.  I still am of that opinion.  July 31 is the deadline.  After that date, expect things to get nasty.

Kellyanne & the Hatch Act

Kellyanne with spouse

Many years ago, I was active in the South Ward Young Democratic Club in Newark, N.J.   We had a member who had a minor city job of some sort downtown in Newark’s City Hall.  Whenever he was asked to participate in some campaign activity or other, he excused himself by saying the Hatch Act prevented him, as a government employee, from political campaigning.   (Since the Hatch Act pertained to Federal employees, his excuse was an invalid one, but we didn’t know any better and never challenged him.) 

This is the same Act which some are now claiming that Kellyanne Conway violated by doing political campaigning while being paid as an advisor to President Trump.  It’s very difficult to get and hold a government job of that nature without manifesting political loyalties.  I would suspect the Hatch Act is being violated every day in this administration as it probably has been in every administration since its passage in 1939.  Moreover, since the Hatch Act specifically exempts (besides the President and the Vice President), persons whose compensation is paid from the appropriation for the office of the President as well as heads and assistant heads of executive departments, it is extremely unlikely that Ms. Conway’s position would not be squeezable into one of these exempt categories.  My view (and I’m from New Joisey) in regard to the Hatch Act and Kellyanne?  Fuggedaboudit! 

Here's Where I Play Economist

(Those who have read some of my occasional economic thoughts in the past should know that I consider economists to be more like astrologers or alchemists than scientists.  That didn't stop John Maynard Keynes and Milton Friedman from both being held in high esteem while diametrically opposed in theory.)  

The Interest-Dependent Profit Motive in Banks and Insurance Companies as Opposed to Other Businesses

All real businesses exist to make a profit.  Of course, there are some that do not or even operate at a loss, but those are not “real” businesses.  They continue to exist, or fail to go out of business, because their negative bottom lines are useful to their owners for tax purposes.  Forget about them. We are talking about “real” businesses, all of which are structured to make a profit.

Any business, after paying the costs of producing its product or providing its service, its employees’ salaries, its taxes, its rent, its equipment, its accounting, advertising, legal and other operating expenses, hopes to have something left over.  That is its profit for its owners or shareholders.

This is easily understandable when we talk about businesses with tangible products such as manufacturers, restaurants and retail establishments as well as those that deal in necessary services such as delivery companies, dry-cleaners, utilities and such professional services provided in the healthcare, legal, accounting and other professional or quasi-professional areas.

In all such enterprises, more money should come in than goes out.  Otherwise the business ultimately fails, even if the temporary input of cash through loans or investment can postpone that day.  But let’s get to companies whose stock in trade is not a tangible product or service, but the manipulation of money.  We’re talking about insurance companies and banks.

Banks provide services to their retail customers in the form of savings accounts and checking accounts for which they charge either through fees or by the failure to pay the real current interest rate on the money they are holding.  They don’t lose money on their checking and savings customers.  But that is only a tiny part of the business they are in.  

The funds in or moving through these accounts enable them to access further funds (for which they themselves pay interest) from the Federal government, and that is the larger pool of money banks use to make their real profits, which is the interest paid to them for home loans, auto loans, mortgages and most importantly, loans and credit made available to businesses of all sizes to enable them to operate as if they had their anticipated profits already in their accounts. 

Sometimes, a bank may not even bother with the “seed money” provided by retail savings and checking accounts to have a large pool of money to thusly invest.  Their sole customers are those to whom they provide money.  We call them “investment banks (Goldman Sachs is an example)” as opposed to those that still also have retail customers for savings and checking as well (Wells Fargo is an example of such “commercial banks”).  

Of course, ostensibly purely retail financial institutions such as credit unions and savings banks also depend on how they invest the money they are holding to make them profitable, something the profits made from their retail customers cannot alone do.  And for all intents and purposes, “pseudo-banks,” those companies in the venture capital and private equity fields, require that the money they lend or invest produce income at a generous interest rate, just as “real” banks do.  No one goes into the money business with the aim of failing.

Looking at insurance companies, they also provide money for investment and that is where they make their profit.  The products they sell, be it life insurance, health insurance, automobile insurance, homeowners or renters insurance, business insurance, etc. are all cut and dried as calculated by actuaries whose professional skill is to know when and what claims might be anticipated, how much will be needed to pay them, and what premiums to charge in order for that amount of money to be available.  Because these premium payments supposedly accumulate for the possible payment of future claims, the interest rate at which that money accumulates is crucial to the pricing of insurance.  Of course, interest being earned is important in banking as well, but in insurance, it is even more important since long term commitments are always involved.  In any event, insurance companies do not make very much money from the premium payments their policyholders pay.  Those amounts are determined by formulas which dictate how much will be needed to pay future claims, and there is little, if any, profit built into them, remaining after “overhead” expenses are paid.  

The real money insurance companies make is from the interest they earn from the loans and investments they make on the enormous amounts of money they are holding to cover future claims.  (An investment banker I knew once, looking at this pool of money, greedily referred to insurance companies as “cash cows.”) The long-term interest rates plugged into their actuarial assumptions are usually far more conservative than what the insurance companies’ investments actually earn.  Hence, insurance companies usually make a lot of money.  (When an insurance company fails, and it does happen, it is usually because its management has fallen into the hands of sales-oriented marketing people recklessly attempting to increase that pool of money to invest, rather than traditional conservative number-crunchers.)

Federal Reserve Bank's DC headquarters
It should be noted that in the operation of such "money" businesses, interest rates are what it is all about.  Key in the determination of those interest rates is the Federal Reserve Bank, a supposedly independent agency which regulates the availability of money to banks in a variety of ways.  Oversimplifying, the greater the money supply (cheap money), the lower the prevailing interest rate, and vice versa.  The "Fed" controls that spigot. Keeping politics out of the Fed’s decision-making, something the President fails to understand (I doubt that he ever set foot in the Wharton School), is very important.

Banks, insurance companies and other financial institutions mentioned above should not be permitted to operate without careful oversight and regulation by Federal and State agencies.  We have that today, but the trend should be toward more, and not less, such monitoring.
Jack Lippman

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