Finance


While waiting at my bank the other day (they were counting a jar of coins) I picked up a 4-page paper setting next to my chair. The bank is West Coast Bank and the “Economic Forecast” was by William B. Conerly, Ph.D. of Conerly Consulting LLC. The date of the paper was January/February 2010.

I have only a limited understanding of economics, although I did take a year of it while in college ever so long ago. One thing that caught my eye was the comparison of the value of the U.S. dollar side by side with the Oregon and Washington employment forecasts. As the employment numbers rose in the period 2006 into 2008, the value of the U.S. dollar dropped. When employment dropped in 2008 through 2009, the value rose; but then dropped again in the second half of 2009.

The forecast is that both Oregon and Washington employments have bottomed out as of the beginning of 2010 and will rise throughout this year (2010).

The second item that caught my eye was that the 10th largest Pacific Northwest Trading Partner is United Arab Emirates (UAE). It only took me a minute to grasp that this must be because they must have purchased a bunch of Boeing aircraft. A quick look through Google and I came upon this statement on a Boeing website: Emirates, one of the United Arab Emirates (UAE) main airlines, is the largest operator of Boeing’s 777. UAE has also ordered Boeing 6 C-17 cargo aircraft.

Let’s keep that oil money flowing back into our United States industries.

Mr. Conerly has quite a bit of information available on his site which you can get to HERE.

Become used to seeing this phrase: National Health Insurance Exchange (NHIE). It is an integral part of Mr. Obama’s Healthcare Plan. Right now there are basically 2 types of medical coverage in the US, private insurance and Federal government programs. The private programs include regular health insurance, employer (and union) provided insurance, and HMOs. The Federal programs are principally Medicare and Medicaid. The NHIE is somewhat of a hybrid of these two approaches.

If you are serious about learning about Mr. Obama’s program I suggest that you visit the Urban Institute’s web site, specifically to This Link which is an analysis of the program. Be sure and read the pdf file with a “short” review of the program.

The plan is not perfect. No healthcare plan can be. It will still leave about 6% of legal, non-elderly residents uninsured, compared with 17% today. The costs are of course only estimates but currently the estimate is for around $50-60 billion dollars per year. That’s a large amount of money, but remember the Iraq war is costing us around $3 billion per week. That’s over $150 billion per year. See where the money can come from to pay for this program?

Yes, we are in a financial melt-down right now, but with sound fiscal policies coming out of the new Administration, I believe the money will be there.

There may be heavy political opposition to parts of the plan, especially the employer mandate portion, but if you study the plan with a positive attitude I think you will see that it is workable. In fact, it is the only plan that has any chance of becoming law and meeting the expectations of its framers.

Now is the time to ensure that the new Administration brings this to the table very early is its life. The war in Iraq and the financial problems will certainly take a great deal of attention, but there is room for this program as well.

There are 15 departments in the Cabinet. Mr. Obama will be appointing people (subject to congressional approval) in the next few weeks to head these departments. The departments are:

Agriculture
Commerce
Defense
Education
Energy
Health and Human Services
Homeland Security
Housing and Urban Development
Interior
Justice
Labor
State
Transportation
Treasury
Veterans Affairs

I’m going to print off this list and keep track of the nominations and confirmations. As I read this list I was struck by how important each department is. There is no fat here. Each appointment to head these departments is very important. The work that is done in these departments is important to all of us.

When I was a senior in high school, in 1962, the same year as the Cuban Missile Crisis, my civics teach required that all of his students memorize the names of all the cabinet secretaries. So here, 46 years later I will be doing it again. Looks like there were 10 departments during that time. The post office was dropped and 6 others have been added.

I lived in Ketchikan for 2 years in the early 1960s where I graduated from high school, and also spent a couple summers there during college. At that time the airport for Ketchikan was on Annette Island, a few minutes plane ride from the city. The big planes would land on Annette Island; then passengers would transfer to a small plane that would fly them to the waterfront at Ketchikan where they would land in the water. There was no practical place on Revillagigedo Island, where Ketchikan is, to build an airport. Sometime after I left the airport was build on Gravina Island across the channel from Ketchikan. Transit between the airport and the city is via a boat.

In comes the Alaska Congressional delegation. “Let’s build a $389 million bridge between Ketchikan and Gravina Island so the great visitors to and citizens of Ketchikan don’t have to take a boat ride.”

The distance for the bridge would be around 1,200 feet shore to shore or more depending on its placement. One big catch is that there are only about 50 people that live on Gravina Island. But, the airport is there. That’s a lot of money for any bridge. You can compare it to the dollars estimated to replace the I-5 (Interstate Highway 5) bridges between Portland, Oregon, and Vancouver, Washington. Here the estimate is around $4 billion for eight lanes of traffic and two light rail commuter train tracks. That’s only around ten times more for a bridge (or two parallel bridges) nearly twice as long as the Ketchikan Bridge and five times as wide. The Interstate Bridge will carry thousands of vehicles a day.

Whether you agree or not, I don’t think it was unreasonable for the Alaska delegation to seek moneys to build this bridge. If the bridge were built I don’t think it would take long for the development to begin on Gravina Island. Maybe even some large manufacturer would seize the chance to pick up some cheap land and build a factory there.

So let’s dump the references to the Bridge to Nowhere. It would go somewhere and certainly would not be any worse “pork” than a lot of other government spending.

During 1989-1990 I worked at “Transit Casualty Company in Receivership.” At the time, I believe, it was the largest insurance company insolvency to date in the USA. In December 1985, Transit Casualty Company was declared insolvent. When I was there the Receivership had geared up to review every claim or potential claim against the assets of the defunct company.

I had experience in insurance claims and was working in the excess and surplus lines area. Normally what insurance claims people do is evaluate claims against the “insureds,” the people or companies who bought the insurance policies, with the end result of determining what should be paid on any claim. However as employees of the Receivership, we were attempting to evaluate the value of claims to develop assets for the Receivership.

Virtually every insurance policy with a potential large pay-out has reinsurance as a way of dividing and spreading out the risk. Here is a link to information about reinsurance from Wikipedia. Transit Casualty was involved in reinsurance in many levels, which is not uncommon for many insurance companies. The reinsurers of Transit Casualty’s risks were obligated, after the insolvency, by law to pay what they had assumed as part of the risk even if Transit Casualty could not. Therefore that reinsurance represented an asset to the Receivership.

Now to the point of what this posting is about. Transit Causality Company made incredibly bad choices in what they would insure, the risks they did assume. Either directly or through assumed reinsurance they assumed very risky business for inadequate premiums. When the claims came in the company didn’t have enough assets to cover the losses. Bingo! One very large broke insurance company.

Transit Casualty insured medical malpractice coverage for hospitals in Florida and New York City, at the time two high risk areas. They wrote excess liability coverage (umbrellas) for really big manufactures such as American Motors and one Japanese auto company. They wrote products liability coverage for drug companies. This list went on and on!

Now we have the AIG insurance fiasco. This has the potential to be a much larger financial disaster that that of Transit Casualty. Transit’s coverages were manly domestic, that is, insuring risks within the United States. AIG (American International Group) is truly international. If a company that AIG insured gets into trouble because AIG gets into a situation where they could not pay claims, there could be serious international consequences.

We have AIG’s problems and the sub-prime mortgage credit problem, two giant dominoes that could topple and take out a line of linked financial business. This is not to be taken lightly in any way. Our federal government is using its good name and credit to bail these companies out of the pit which they dug for themselves. We as citizens of the USA must back the bail-out efforts. This is not just the case of some fat cat CEOs trying to get fatter. It’s our financial future as stake. But we must watch our government like a hawk to ensure our interests are protected. We must make sure that legislation is passed that protects us from these kinds of problems in the future.