Too Big To Be
Obama administration is finally using anti-trust as a treatment for “Too big to fail”. That is exactly what this blog asked for: http://poweranddollar.com/2009/03/27/anyone-understands-geithner/
Had Bush used this treatment during his time, systematic risk could have been reduced, although not eliminated nor sufficiently managed.
Did Sherman and Clayton (as in Sherman and Clayton Acts, the anti-trust legislations) have systematic risk in mind? Certainly not. However, they were more in the line of if market entry cost is too high due to market makers, then something bad is bound to happen.
Was that line of thinking new at the time? No. That is why monopolies have to be granted by the governments in England, as in Crown corporations. This practice is still in place, just to highlight how much consideration should be given for monopolies.
Interestingly enough Obama administration is trying to enforce tougher antitrust, Obama administration may be guilty of antitrust as well, if Obama administration is in “restraint of trade” or “price discrimination” on health care costs when the administration is trying to “contain cost”. Unfortunately, critics are only concerned with “quality” or “ration care”.
The problem does not need to get that complicated.
AIG The Sacrifice: The Reflection Of America’s Political Risk
I agree quite a few points of this article in regard to the AIG episode.
Of course, nothing is perfect. I would change a word here:
“It will certainly make Mr. Obama’s task much more difficult when he tries to sell the public [my version would be: investors] on his administration’s ability to manage the rest of the bailout, and when he tries to sell private firms on the public-private partnership that will be needed to make the recovery work.”
Obama will have more difficulty to convince investors his future plans work (already stated in the article). Also, Obama will have more difficulty to get troubled entities to take the bailout. Look at AIG. This bailout actually bites!
AIG was politically insensitive. This story alone will make firms in the future to invest more to mitigate political risk or at least reputation risk (branding), which is not a good news.
In addition, a good portion of the reason for these companies to require a bailout is that their valuation (capitalization) fluctuated so greatly they were literally worthless. So, some companies may realize taking themselves off the exchange is not a bad idea, at least they can insulate themselves from the volatility. Is that what we want: fewer choices for mutual fund managers and pension fund managers? If they have fewer options and social security is running out, then what are to do?
Fewer choices on the exchange also means quicker wealth concentration. Gini coefficient will spike up very quickly. Is that what Obama wants?
Who Doesn’t Want This Bloodbath?
The DNC establishment fears (or so we have been reading) an Obama vs Clinton will become a bloodbath, tear the party apart and send the White House to McCain as a complimentary retirement package. Obama and Clinton are doing exactly what the Democrats have failed to do for 4 decades. This is a rare opportunity a lot of small charities never managed to have such an impact in a presidential nomination race.
Even if Victor DiMaio will not file another lawsuit against DNC, this nomination race exposed the problem with staging the primaries at different times.
Nomination and fundraising rules are the two key elements in politics. Nomination process is a product vetting process, no different from any other decision process in a company board room, charity board room or even high school student government. This process has to assure all relevant inputs are included into the process, vetted by participants and competitively assessed. If a process is made to be “not competitively”, it only damages the success of the output in the market place. In the long run, it will damage the brand. All products bearing the brand will get discounted, given the time is long enough for the damage to wear into the minds of the consumers.
Voter turn out increases when there is much at stake. Read this:
http://www.usatoday.com/news/politics/election2008/2008-04-06-voterregistrations_N.htm
This is not only true in this Democratic primary, but also true across all democracies. Voters will go watch a game when a game is competitive. TV stations get a higher viewership for the same reason.
A prolonged primary will force both candidates to build their political infrastructure in the battling states. The beneficiary is actually the local party. The state democrats will have a chance to get a higher voter turn out, a higher voter registration, a higher volunteer participation, a higher donation head count as well as dollar amount, more party membership. A next generation of staffers actually gets more opportunities for training, be they aspiring city councilors, school board district candidates or even nonprofits/charities which have a strong commitment to a cause.
Charities and advocacy groups now have a much more publicized opportunity to reach the general audience, recruit volunteers, generate donations, outreach and build a bigger infrastructure. An election is not only for the candidates, but also for every organized civic cause.
There is more. These late primary states now have much better political access to the candidates than before. Their concerns now get a chance to get exemplified to the level they never experienced before. Even a state legislator can have a chance to talk to the presidential hopefuls via a telephone rather than a staffer (or a receptionist) of the candidate. Every organization that can mobilize voters for voter registration or voter turn out now has a much better chance to influence a presidential candidate than before.
Whom does a newly elected official owe more favours? The king makers. And now these late states get more bragging rights and become a heavier weight in the next presidency. Everyone is now checking their balance sheets of favours owed and favours made to get the biggest block of super delegates. Even organizations which maintain their own balance sheet should check too. And if your organization can manage a small amount of soft money for a House Representative race, you now have a chance to influence this super delegate’s vote in Denver. The super delegates, in particular the super delegates of these final states, should embrace this rare opportunity. So do the voters of these super delegates too.
Is it unfair to a voter among the states of Super Tuesday? Certainly, undoubtedly so. This system was born in 1968. And it took 40 years for Victor DiMaio to file a lawsuit (and got dismissed).
*A lot of progress has been made in political science regarding improving voting systems. The current Democrat system can be found by keywords McGovern-Fraser Commission.
Obama vs Clinton: A Lesson on Fundraising and Advocacy
Clinton’s fundraising figures for March is not released yet. This democrat primary has not been concluded yet. However, Obama vs. Clinton has given a lot of advocacy organizers, fundraisers and non-profits a very good lesson. This primary also demonstrates the effect of the changes on election financing laws.
The news this morning regarding Obama’s fundraising focuses on the $ raised in March. I would like to stress that it is the quarterly fundraising filing, not a monthly filing. And the detailed report illustrates only the donors with total amount >$200.
The donation limit forces candidates to reach a wider donor base than before. And Clinton appears to miscalculate this effect: she never cultivated this group of donors. And since Obama was 1) the underdog; 2) was unable to tap into the bigger donor base than Clinton and 3) had experience in organizing grassroots campaign, he farmed the small donors. And there is an advantage of farming small donors: they are more likely to be your advocates.
Small donors also have less leverage on the candidate (or your nonprofit organization), they cannot assert as much influence as a $100k donors can and do. That gives the candidate more flexibility which can be a good thing as well as a bad thing.
Cultivating these donors also require a different kind of talents. Small donors usually come through direct mail, tele-marketing, online, face-to-face / door-to-door and media buy. Therefore, the message management team has to play a bigger role, which advantage Clinton should have had. However, Obama’s fundraisers managed to overcome this.
Obama obviously had better donor segmentation to achieve this result. For a nonprofit, this is equally important. The knowledge of your donor base can see when your donors will have to exit the donation cycle. Can you see the danger if 70% of your donors are over age 65? Yes, you can certainly start a bequest/major gift campaign. But you still need to worry about the sustainability of your organization 5 years from now. How to create such a campaign anyway? A lot of organizations are very much into major gift and bequest. Very few organizations understood bequest campaigns requires talents that are unrelated to major gift fundraisers.
Obama fundraising team should have had better technology in phone bank management. However, the most dramatic difference between the 2 campaigns is the online advantage Obama had. Obama has web team that is more capable of generating traffic (keyword management, inbound links, etc).
Before the donation limit put in place, all these techniques may have been relevant although lower priorities. Now, they are critical. Small donation limit means the candidate cannot afford to have face to face with donors himself. This turns everything into an industrious enterprise. It’s not about 1 to 1 any more; it is about 1 to N.
This will be the same for the nonprofit industry, anyone who is (wants to be) a strong advocate of a cause. Foundation money is larger, but they assert a much larger influence on your cause. Technology, not only web technology, has made small donor acquisition easier than before and is able to make your cause successful, Obama is a good example of your long ignored cause.
A small donor is also more likely to be more committed to your cause. And they are more likely to donate a small amount over a longer period of time. This makes the financial risk of an organization smaller since financial revenue fluctuation is now smaller. Converting a donor from a one-time donor to a monthly donor is another specialty in fundraising.
A lot of boards have a difficulty in finding board members who are not only committed to the cause, but also has institutional memory with the organization. Well, a good place is to find it among its donors. And so, it is a large number of donors that will help this goal.
A lot of organizations have fundraising plans. They usually have a 5 year plan on what to accomplish. However, they also need to have a 5 year fundraising plan. What is the % of donors who are <age 45 5 years from now (compare to today)? What is the % of monthly donors will it be? How long does a donor stay with the organization (life time value)? Which occupation / industry gives you the most donors? Are you surprised of the amount they give and the occupation they are in? Is this an untapped market or under-cultivated donor base?
From organization development perspective, this pro-longed primary is actually good for the Democrats. They are building up a better donor base, more lists, tapping into markets where they have not been serviced. This will build up their base for 2010 congress election and beyond. Of course, there is a cost for that, i.e. reducing time to fight McCain and win the White House.
Obama’s campaign is actually educating a lot of people who are in the field of fundraising and nonprofit/advocacy.
Some Progress on Taiwan Strait
It seems like a match can finally begin. Hu may not be able concentrate on too many items. He is more inclined to deal with a positive opening (Taiwan) than a hot spot for now (Tibet).Important press releases by both US and China, below. Read the question started by the keyword “Olympics”. And follow all the subsequent questions by the keyword “China”. http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20080327005800&newsLang=en
http://news.xinhuanet.com/english/2008-03/27/content_7865209.htm
What options do they have for Social Security?
CNN has a summary of Social Security proposals among the three candidates here:
The problem with Social Security is similar to any pension plan, GM’s or Chrysler. The fixes are also similar to those too. They all revolve the following, like them or not:
1) Increase the quantity of contributors, i.e. workforce or taxfilers.
2) Increase the amount of each contributor, i.e. increase taxes or increase income (productivity)
If we only consider domestic options, then the increase in contributor can only be done through 5 things:
1) Optional retirement instead of mandatory;
2) Decrease minimum labour age.
3) Increase the amount of immigrants
4) Increase the birth rate
5) Increase the female labour force participation rate
The increase in contribution per contributor can only accomplished through 2 things:
1) Increase in taxes
2) Increase the income of the contributors, i.e. productivity
There are only 7 options. Some of them are not politically viable to any politician, even the Obama type. Some of them are not really political solutions.
US is not China. US is not playing a catch-up game. So, there is no growth of 8% / year to make up the needed funding for Social Security. So, this one is out. Increase birth rate takes too long. Well, it takes at least 16 years for one to join the workforce! Female labour participation has been around the same for years and probably is difficult to get any more lift. Decrease minimum labour age? Out of your mind.
That is why there are always the same options being talked about:
1) Optional retirement instead of mandatory;
2) Increase the amount of immigrants
3) Increase in taxes
4) Increase the income of the contributors, i.e. productivity
Increase productivity will have to involve technology improvement. This kind of things does not come out of a “technology factory”, a gadget / month kind of a deal. This is either about the mode of production so that each worker can produce more than before, or something others cannot produce.
We all know how increase in taxes is like politically. So, do you want immigrants or optional retirement?
Now look at the voter base.
Obama will have a huge black voter base. That may prevent him from enlarging the immigrant pool. That would leave him with either more taxes and/or optional retirement.
McCain will have more white voters, and more voters who will get the biggest impact by tax increase. As long as optional retirement is optional and not affecting their benefits (Go study Canada’s experience since they have a more acute problem), McCain will have to get that option or inaction. Clinton will have the largest Hispanic voter base of the three, she will be the most likely candidate to enlarge immigration pool. Then it will be optional retirement for her.
“A more perfect union” emulates Gettysburg, not Kennedy’s Houston
Some are quick to draw an parallel between Obama’s “A more Perfect Union” speech to other presidents’:
http://www.connpost.com/ci_8619497?source=rss
However, Obama probably emulates Gettysburg Address. The transcripts of “A More Perfect Union”, Gettysburg’s Address and Kennedy’s Houston speech are listed here:
Obama’s is here:
Kennedy:
http://www.npr.org/templates/story/story.php?storyId=16920600
Gettysburg Address:
http://www.americanrhetoric.com/speeches/gettysburgaddress.htm
Houston may have a good context to draw a parallel. Gettysburg is a far better comparson in terms of context (we are facing a challenge, Obama says) than Houston (questions of Kennedy’s independence). The structure is also a better comparson between Gettsburg than Houston.
CNN and Chinese currency
CNN’s story confirms my previous post regarding Chinese currency appreciation and US inflation:
mine:
So, if you republicans really want to have a draw in this election, then better calm the foreign policy hawks.
Democrats are finally sued for not seating Florida delegates
Democrats finally got sued by a Florida resident for not seating the Flroida delegates. I expect this case to go all the way to supreme court. And I want to see how the 2 new justices will write their majority opinion.
http://www.ajc.com/news/content/news/stories/2008/03/14/fladelegates_0314.html
If the Floridian Victor DiMaio wins, then DNC will not be able to control any kind of scheduling in the future. Similarly, Republicans will be unable to control their schedules. So, we may even see Republicans to be Friends of Court in this case! 
Even if DiMaio loses, as long as there will be more similar cases coming, then defending these lawsuits maybe so costly that there will be no more centrally controlled schedules. In fact, by having primaries of different states held at different times, the later states would get very little say into this presidential nomination process. Therefore, one may argue the rights of citizens’ political participated are compromised. One remedy would be no centrally controlled schedule. Another remedy would be all states to have their delegate selection at the same time.
That will directly result in 2 things:
1) Only candidates who are well funded right at the beginning will have a real chance.
2) There will be a much higher probability that the nomination gets determined on the convention day, where there will a lot of horse trading exercises among the candidates.
3) The influence of super-delegate will significance in this nomination even if this lawsuit is not brought up. However, this lawsuit will definitely increase their influence in the future even more so than without this lawsuit.
4) The lost candidates will also be more important than ever in a run-off process and encourage horse trading on that very convention day.
5) If parties (DNC and RNC) will want to avoid horse trading exercises, then a sequential run-off on the convention day or a preferential ballot will have to be implemented.
Preferential ballot has the least social costs to the members. Unfortunately many organizations claim it is too complicated to implement.
This lawsuit will also have election financing implications as well, which I will write.
Implications of 2008 Election on Health Insurance Industry and Big Pharm
What arre the implications of this presidential election on health insurance industry and big pharms?
CNN says McCain has the best healthcare plan:
http://money.cnn.com/2008/03/10/news/economy/tully_healthcare.fortune/
CNN here explains why
1) Wall Street industries watchers are not paying attention to this election;
2) Big Pharm companies are donating large amounts to both Obama and Clinton.
http://money.cnn.com/2008/03/04/news/companies/pharma_votes/index.htm?postversion=2008030714
Let’s reiterate the point that the 3 proposals (the first link) are actually similar.
Why are the big pharm donating $$ to the democrats. It is actually more than their expectation that Democrats are going win (and therefore they want access). If a Democrat Whitehouse implements the healthcare policy, then drugs will be cheap. The manufacturer with the lowest cost gets the highest return and a lot less to do with marketing, distribution etc. This may have impact on the product development side of this business. Now, what shape will this universal healthcare be like? If it were very much the Canadian style, then the government (state or federal) could be the decision maker for which drug to be distributed.
And this is a big reason (or even incentive) for the donation.
What will happen in this scenario? There will be M&A in this case, and the acquirer will be the one who secures the government contracts. Shareholders may not get the best deal out of this since the prices are at least quasi regulated by the government (the first CNN link). The greatest beneficiaries will be the executives of the acquiring Pharms. And so, some employees of the big Pharms are really into donations to the Democrats. Product development spending may go down (R&D people need to watch out).
This could also be the most nightmarish scenario for the health insurance industry. Their market would be much smaller. They will not be able to do market segmentation either. There will be probably no product differentiation.
Why isn’t Wall Street concerned, as mentioned in the CNN article? They believe that is too much change to accomplish. This kind of change, they think, is fundamental to the society and thus requires a huge political will, political capital.
Health care is different from telephone, electricity or gas in the sense that it does not require hardware infrastructure. The infrastructure pretty much requires a monopoly. Healthcare does not.
Do Americans have the will to have a government beau racy to run healthcare? If democrats are able to debate more on the merit of their 2 different proposals, then American voters will be educated to make up their mind. However they continue to focus on perceptions of candidates. Let’s hope that this will be a hot topic between McCain and the future Democratic candidate.
