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BeyondGeography's Journal
BeyondGeography's Journal
December 31, 2019

Charles Pierce: This is the best speech I've ever seen EW give

Watch when you can. EW really gave us a great close to 2019 today. She is clearly ready to roll.

Happy New Year to my fellow Warren supporters.
December 31, 2019

Private equity ran amok in the 2010s

The decade exposed an industry that cared about lining its own pockets, often at the expense of the companies it bought.
By Joe Nocera

...Financially speaking, the 2010s have been characterized by corporate mergers, aggressive activist investors, out-of-control CEO pay and “maximizing shareholder value.” But more than anything, it has been a decade awash in private equity deals. I therefore dub it the private equity decade...What was different in the 2010s was less the size of the deals as their proliferation. In 2009, private equity firms completed 1,927 deals worth $142 billion, according to the financial data firm Pitchbook. By 2018, there were 5,180 private equity deals worth $727 billion.

Why so many deals? One reason is more firms are holding more capital than they know what to do with; Bain & Co. recently estimated that private equity firms have a staggering $2 trillion in “dry powder” that they need to deploy. But another reason is that there just aren’t as many big deals available as there used to be, so firms have had to move down the food chain to find companies willing to be bought out. Many, if not most, of the deals in the past few years have been for less than $500 million. I half expect the bodega down the street to be bought out.

What has also become clear this decade is the high-minded rationale the private equity industry once used to justify its deals has largely evaporated. You don’t hear much anymore about how taking a company private will remove short-term incentives, impose necessary restructuring, yadda, yadda, yadda. The main thing private equity has done this decade is to pile debt onto companies — imposing repayment costs while pulling out fees and dividends that have no bearing on what the private equity firm has actually done...One private equity skeptic, Daniel Rasmussen, conducted a study to see the effect private equity firms had on the companies they bought. Using a database of 390 deals with more than $700 billion in enterprise value, he found that:

In 54 percent of the transactions we examined, revenue growth slowed. In 45 percent, margins contracted. And in 55 percent, capex spending as a percentage of sales declined. Most private equity firms are cutting long-term investments, not increasing them, resulting in slower growth, not faster growth.

... It seems to me that there are two likely consequences for the devolution of private equity in this decade. The first is that when the business cycle finally turns, the consequences for the thousands of companies carrying private equity debt are likely to be severe. As increasing amounts of capital have chased deals this decade, purchase prices have increased drastically. Rasmussen reports that in 2013, private equity deals were done at an average of 8.9 times adjusted earnings. Today, that number has risen to 11 times adjusted earnings. That means the debt loads are becoming heavier...

December 31, 2019

Krugman: The deficit obsession of 2010-2015 did permanent damage.

The Legacy of Destructive Austerity

A decade ago, the world was living in the aftermath of the worst economic crisis since the 1930s. Financial markets had stabilized, but the real economy was still in terrible shape, with around 40 million European and North American workers unemployed. Fortunately, economists had learned a lot from the experience of the Great Depression. In particular, they knew that fiscal austerity — slashing government spending in an attempt to balance the budget — is a really bad idea in a depressed economy. Unfortunately, policymakers on both sides of the Atlantic spent the first half of the 2010s doing exactly what both theory and history told them not to do...

Why is austerity in a depressed economy a bad idea? Because an economy is not like a household, whose income and spending are separate things. In the economy as a whole, my spending is your income and your spending is my income. What happens if everyone tries to cut spending at the same time, as was the case in the aftermath of the financial crisis? Everyone’s income falls. So to avoid a depression you need to have someone — namely, the government — maintain or, better yet, increase spending while everyone else is cutting. And in 2009 most governments engaged in at least a bit of fiscal stimulus. In 2010, however, policy discourse was taken over by people insisting, on one side, that we needed to cut deficits immediately or we would all turn into Greece and, on the other side, that spending cuts wouldn’t hurt the economy because they would increase confidence.

...There are multiple explanations for the populist rage that has put democracy at risk across the Western world, but the side effects of austerity rank high on the list. In Eastern Europe, white nationalist parties came to power after center-left governments alienated the working class by letting themselves be talked or bullied into austerity policies. In Britain, support for right-wing extremists is strongest in regions hit hardest by fiscal austerity. And would we have Trump if years of wrongheaded austerity hadn’t delayed economic recovery under Barack Obama?

Beyond that, I’d argue that austerity mania fatally damaged elite credibility. If ordinary working families no longer believe that traditional elites know what they’re doing or care about people like them, well, what happened during the austerity years suggests that they’re right. True, it’s delusional to imagine that people like Trump will serve their interests better, but it’s a lot harder to denounce a scam artist when you yourself spent years promoting destructive policies simply because they sounded serious.

In short, we’re in the mess we’re in largely because of the wrong turn policy took a decade ago.

December 27, 2019

Wealth Tax, Anyone?: The World's 500 Richest People Increased Their Wealth by $1.2 Trillion in 2019

The world’s richest people had a good year in 2019, increasing their wealth by a staggering 25 percent. A new analysis of the Bloomberg Billionaires Index found that the 500 richest people on the planet increased their vast wealth by $1.2 trillion in the past year, bringing their total wealth to $5.9 trillion.

Amazon’s Jeff Bezos remains the richest person in the world, even in a year that saw him lose around $8 billion due to his divorce from ex-wife McKenzie. She is now 25th on the Bloomberg index, with $37.5 billion.

Among the top gainers of the year were Mark Zuckerberg, whose wealth jumped by $27.3 billion, and Bill Gates, who is $22.7 billion richer than he was at the start of the year. French magnate Bernard Arnault, the third richest person in the world, saw his wealth increase by $36.5 billion in 2019.

One billionaire not on the list is Michael Bloomberg, who owns the website that published it. According to Forbes, Bloomberg’s net worth is around $53.4 billion, which would rank him 19th on the list. But Bloomberg News does not cover Bloomberg LP, so the boss is not on the list.

Incidentally, Elizabeth Warren, one of the leading proponents of soaking the rich in the Democratic race for the presidency, released a new explainer of her wealth tax this week. What timing.


December 27, 2019

The Decade the World Went Backwards

Why Were the 2010s Such a Troubled Decade? Because the Global Economy Began to Fail Catastrophically — Just Like During the 1930s

... The 2010s were the decade that savegly regressive movements erupted around the globe — and rocketed to power in the most improbable places. Not just in war-torn poor states, or in failed and broken ones, which had never become wealthy democracies at all — but in the world’s richest and most powerful countries. A wave of hysterical, bellowing, fist-pumping hard-right fanaticism swept the globe — shattering the status quo. Of a centrism defined by American neoliberal ideals. This decade was the end of an age — and the beginning of another one. But the end of what — and the beginning of what?

...The world was going backwards. To when? To the 1930s, of course. The last time that capitalism blew a hole in the heart of the global economy, and created a wave of depressions. Only this time, many of the depressions were invisible ones. 50% of Americans struggled to pay the bills? 50% of Americans who got cancer would go bankrupt in a year or two? British living standards hadn’t risen in two decades? Good! Only the strong should survive! The weak deserve to perish. Let them. The logic — the illogic — the brutality, contempt, heartlessness, greed, and selfishness of capital had come to permeate the world’s thinking classes, too. Largely, most of the world’s intellectuals saw these invisible depressions as good things. And that was the final nail in the coffin. Wham! Revolution

Only — ironically, incredibly, stupidly, perfectly — it wasn’t the forward-moving revolution of Marx’s dreams, of Engel’s hopes, of Keynes’s quiet thoughts. It was the opposite of the global revolution of progress. It was a global revolution of regress. People had chosen to blame their problems on…hated others…but everyone was someone else’s hated other, too. Just as Brits blamed Europeans, who blamed Muslims, who blamed Americans, who blamed Mexicans. LOL — a global food chain of hate had arisen, in a colossal act of stupidity, hubris, and blindness. And yet nobody saw the irony. If everybody was blaming somebody else…who was also blaming somebody…how could anybody at all be the problem?

Nobody was the problem. The system was the problem. Capitalism was failing catastrophically and spectacularly as a global economy — unable to deliver higher living standards for something like 90% of the globe by now. In just the way greater minds had predicted it did and would cyclically, like Marx and Keynes. Never mind. Nobody remembered them. There were animals and vermin to hate, after all.

So the working class had its backwards revolution. Not towards progress, but towards regress. Hating others, of course, only costs a society things like expansive healthcare, retirement, education, transport, childcare, elderly care — because those are things had through unity and concern. But they are the very things the working class needs the most, to prosper. It’s in that sense these were regressive revolutions: they hurt the people who were part of them the most. It was the Trumpist and Brexiter who lost their jobs, whose life expectancy fell fastest, whose community was never rebuilt. Never mind — at least they had someone to hate. And what a delicious thrill that was. How it gave them the sense of worth and goodness they had been missing for too long.

The world had chosen a new destiny. Not forwards, but backwards. It had turn away from progress itself. It had rejected the idea of more for all, more rights, more public goods — for example, an education, income, or retirement for every life on planet earth. People increasingly didn’t want those things for everyone in their own societies — so how could the planet make progress towards a higher standard of living?

More at https://link.medium.com/BdKWqojaL2
December 26, 2019

For Her Head Cold, Insurer Coughed Up $25,865


Alexa Kasdan had a cold and a sore throat.

The 40-year-old public policy consultant from Brooklyn, N.Y., didn't want her upcoming vacation trip ruined by strep throat. So after it had lingered for more than a week, she decided to get it checked out. Kasdan visited her primary care physician, Roya Fathollahi, at Manhattan Specialty Care, just off Park Avenue South and not far from tony Gramercy Park.

The visit was quick. Kasdan got her throat swabbed, gave a tube of blood and was sent out the door with a prescription for antibiotics. She soon felt better, and the trip went off without a hitch. Then the bill came.

... When Kasdan got back from the overseas trip, she says there were "several messages on my phone, and I have an email from the billing department at Dr. Fathollahi's office." The news was that her insurance company was mailing her family a check — for more than $25,000 — to cover some out-of-network lab tests. The actual bill was $28,395.50, but the doctor's office said it would waive her portion of the bill: $2,530.26.

...The third reason for the high bill may be the connection between the lab and Kasdan's doctor. Kasdan's bill shows that the lab service was provided by Manhattan Gastroenterology, which has the same phone number and locations as her doctor's office.

...New York state has a law to protect patients from surprise bills. The law requires doctors' offices to warn patients in advance that they are using an out-of-network provider and that patients may be responsible for excess charges. If a patient doesn't consent to the involvement of an out-of-network doctor, then the patient must be held financially harmless from the bill. But it doesn't prevent an out-of-network provider from sending a bill or collecting from an insurer. Kasdan says she was not told that the throat swab was being sent out of network at the time of her appointment, though it's possible one of the many papers she signed included a broad caveat that some services might not be in network...

December 21, 2019

"This type of donation...makes me question his ability to challenge power."

The financial sector is lining up behind Pete Buttigieg. He leads his 2020 campaign rivals in Wall Street contributions.

WASHINGTON (AP) - The financial sector, blamed by progressives for spawning the 2008 economic collapse, is lining up behind Pete Buttigieg's presidential campaign. The mayor of South Bend, Indiana, has collected more campaign cash from donors and political action committees tied to the financial, insurance and real estate sector than any other White House hopeful, according to data compiled by the Center for Responsive Politics.

...One top Wall Street law firm could pose particular challenges for Buttigieg with progressives. He's the top recipient of cash this cycle from Sullivan & Cromwell, which has worked on some of the biggest corporate mergers in recent history, including Amazon's acquisition of Whole Foods, AT&T's purchase of Time Warner and Bayer's merger with Monsanto. The firm also represented some of the largest financial institutions that received federal bailout money.

...The firm's work on mergers in particular could raise concerns among voters in Iowa, where Buttigieg has staked much of his candidacy on a strong showing in the nation's first caucuses. Sullivan & Cromwell worked on one of the biggest agricultural company mergers in history in 2018 when drug and chemical company Bayer combined with agricultural giant Monsanto....Austin Frerick, a native Iowan and former Treasury economist who now heads up an antitrust enforcement research program at Yale University, said "seed cost increases are a direct impact of ag mergers like these,"

Frerick helped Buttigieg develop his agriculture plan in which Buttigieg pledges, among other antitrust planks, to double funding for antitrust enforcement and "launch investigations of the seed market's recent mergers for anticompetitive behavior."

Frerick said he was initially "really inspired" by Buttigieg running for president as a young, gay candidate with a message of change. But after seeing the donations from Sullivan & Cromwell lawyers, he decided to support Warren instead. "Antitrust is about power, and are you willing to trust power," Frerick said. "This type of donation from a law firm makes me question his ability to challenge power."

More at https://amp.businessinsider.com/buttigieg-leads-2020-rivals-in-wall-street-contributions-2019-12?__twitter_impression=true
December 21, 2019

Congress showers health care industry with huge victory after wagging finger at it for much of 2019

Vilified by lawmakers from both parties for months, the health-care industry this year appeared to face an existential threat to its business model. But this week, pharmaceutical companies, hospitals, insurance companies and medical device manufacturers practically ran the table in Congress, winning hundreds of billions of dollars in tax breaks and other gifts through old-fashioned lobbying, re-exerting their political prowess.

“It’s the ‘no special interest left behind bill’ of 2019. That’s what it feels like this is,” said Andy Slavitt, a former health administrator who served in the Obama administration. “There’s no other explanation.”

Support came from virtually every corner of Congress. A bipartisan push to curb the practice of surprise medical billing was delayed until next year, with Senate Minority Leader Charles E. Schumer (D-N.Y.) working behind the scenes to raise objections to the package, according to three people familiar with the talks who spoke on the condition of anonymity to share details of private negotiations.

A bipartisan bid to rein in prescription drug prices failed to advance, as Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) blamed Senate Majority Leader Mitch McConnell (R-Ky.) for blocking the effort. Pharmaceutical firms also won extended protections for select patents, as lawmakers tucked 17 words into Page 1,503 of a bill that critics allege could amount to billions more in profits for the industry.

And through a flurry of letters and targeted meetings with freshman House Democrats, the health-care industry ginned up broad support for repealing taxes that were central to the 2010 Affordable Care Act. Even House Speaker Nancy Pelosi (D-Calif.), one of the law’s architects, agreed to go along.

The success shows how formidable the health-care industry remains, able to overwhelm Democrats with well-honed talking points and splinter Republicans through a concerted push. The unexpected victories could also serve as a wake-up call to political leaders who have vowed to completely upend the health-care system after the 2020 elections. It showed how the industry, even when it is targeted, can emerge politically and financially stronger...


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