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Dilbert of Ze Day November 24, 2008

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Merrill, CDO’s and Swaps November 9, 2008

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Good article from the times on the bubble and fall of Merrill.

Even the big dogs on Wall Street get caught up in the euphoria that comes with mountains of money.  Makes me realize they aren’t as different as one might think; sure they have an exotic, aka esoteric, vocabulary and work on Wall Street with all its mystique and aura but that doesn’t necesarily mean they are any more intelligent/smart/reflective.  They can still make mistakes.

Of course hindsight is 20/20, but you think someone would have raised the alarm when ML began holding larger amounts of mortgages to generate bigger fees.  Maybe someone did and they were out-shouted by Semerci– sometimes people confuse the loudest/most-obnoxious for the smartest.  $316B in CDO’s carrying anywhere from .4-2.5% fees= 1.4BB-8.0BB.  Lots of people would lose sight of the risk with that kind of money flowing in.  Ultimately, this is a failure of management. 

O’Neal should be held personally responsible to shareholders.  I think a CEO should be responsible for what employees do; call me crazy.  Being responsible for a company being liquidated should not include getting a 160 million dollar exit package.

One of the best… November 7, 2008

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I forgot how much I love this commercial.


Hemp, Pot & Hedge Funds October 23, 2008

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Yes, there is a difference.

Farewell Letter from Hedge Fund Manager Andrew Lahde

He pretty much sums it up- don’t really know what to add on this.  Amen?

“Capitalism is broken”.  Some might argue that our system was never working in the first place, but as of now it truly is broken.  Click here for an awesome book/eye-opening perspective- Economic Interp of the Constitution by Charles Beard (1913).  Funny that I’ve been kind of dancing around this conclusion for the last couple years.  It took someone else stating it for it to really come home.  The socio-economic system in this country is broken.  I hope that the $700B bailout package will be THE last straw.  It is the crown jewel of a system that is built upon the illusion of democracy and meritocracy.  We live in a country that is of, for and by the elite.

Hospital Finance and the Credit Crisis October 7, 2008

Posted by Who? in Business, Health, Random, technology.
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Last week Rob talked about  how the recession  might affect different sectors within the industry, “More On Health Care and the Recession“.   A hospital, like any business, relies on a variety of financial instruments to maintain operations- both short and long-term.  Naturally, disruptions in the markets that facilitate these transactions can cause some serious headaches for borrowers.

Remarks coming out the the Fed today- “The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors have become increasingly reluctant to buy commercial paper, especially longer-dated maturities.  As the market for commercial paper shrank, rates on the longer-term debt increased significantly, making it more expensive for companies to borrow.” Full article here.

More on the topic from the WSJ HealthBlog– “Hospitals traffic in debt. They borrow money for big construction projects, and they effectively lend money to patients when they treat people without requiring payment upfront.  Unable to borrow money freely or forced to pay a high cost to borrow, employers are cutting jobs and reducing capital investments.”

The credit crunch presents some hurdles for hospitals to overcome but problems can be opportunities in disguise.  The importance of conservative financial management and efficiency are magnified in times like these.  Product and services that increases efficiency start to look a lot more attractive when margins are getting squeezed and every dollar spent is getting stretched further.  Interesting article here on cutting down on “frequent fliers” in the ER– perfect example of an opportunity being capitalized on to improve the efficiency and overall delivery of medical care.

The Tragedy of Medicare Fraud: Opportunity Cost October 6, 2008

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Just came across a post in USA Today- “Rampant Medicare Fraud Suspected in Miami”. True to its government-run form, there seem to be some problems surfacing in certain Medicare paid services (Home Health Care) across the country; it seems to be particularly out of control in Florida.

“Miami-Dade County is on track to cost Medicare a projected $1.3 billion for home health care services this fiscal year, up 1,300% in just five years, government data show. Investigators suspect that fraud is helping to drive the increase because the population of Medicare beneficiaries in the county grew only 10.2% between 2004 and 2007, the latest government data show.”

This is so outrageous that you almost can’t help but laugh. How does 1300% growth go unchecked? How can the administration look at that and not say “Wait a minute- that seems a little high…”? Remember, that $1.3 billion is for Miami-Dade County ALONE. The financial waste of that county alone is staggering, but the real tragedy is the economic cost– the cost of wasted opportunity.

Let’s say that 25% of that $1,300,000,000 is the result of fraud- who knows what the actual number is but it’s safe to say that a large percentage of 1300% growth is the result of fraud. Twenty-five percent of $1.3B is 325 MILLION dollars. That is almost a 1/3 of a BILLION dollars flushed down the toilet in ONE YEAR. That is the real tragedy of federally administered health care.

Think of what an innovator could do with $325 million. Think of what an innovator could do with the interest alone on a principal balance of that size. And, again, keep in mind that this is the waste from one county and one tiny portion of the Medicare budget.

Opportunity of the Day: a private contracting firm that protects against fraud in Medicare services.

Eliminate the waste and put it in the hands of people that can create value through innovation.  It’s not rocket science.

HealthCare 2020 October 5, 2008

Posted by Who? in Business, Health, Lifestyle Design, Politics, Random, technology.
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What will healthcare look like in 2020?  2020? That’s way out in the future; we’ll probably have Jetson brand pill dispensers in our homes by then. But think about that for a second-that’s barely more than a decade away.  We might not have the pill dispensers, but one thing is for sure- things will be different. Step back 10 years- could you imagine a company not only caring about but paying for you to invest in your health?  Last fall, The Boeing Company encouraged employees to take a Health Risk Assessment and they offered a $50 gift certificate to all that participated.  Over 100,000 people partcipated.  This year, less than a month into the event, over 35,000 people have taken the Assessment and received almost $2 million in gift certificates. 

So let’s start there, healthcare is changing.  From the ways that we seek and consume info and services to the way that we view our role in partcipating in our health and paying for those services.  No matter the outcome on November 4th, 2008, things will be different.

Changing Consumption: Information and Services

The internet is changing the way consumers seek information and this includes health related info.  Three months ago I injured my wrist playing basketball.  You can guess what I did next, right?  I taped it up and finished playing- (It was a close game!!).  But—when I got home that night and my wrist completely locked up after I took the tape off, I got online and Googled something along the lines of “how to tell if your wrist is broken”.  Ended up on WebMD and later found myself at the ER.  That process is very interesting when you think about it and it represents one of the ways that healthcare has and will continue to change.  Without even realizing it, I did a prelimary examination.  I wanted to know if my wrist was broken.  Where do I go when I want information?  Google.  Medical information is no longer solely possessed and distributed by doctors and nurses AND the methods of distribution are changing.  Last week, Charlotte wrote about “telemedicine” in her post “Everything But Touch and Smell“. 

Changing Perspectives

People and even companies are changing the way that they participate in healthcare.  Boeing is just one example.  Not only have they talked the talk, but they have backed it up.  Big company or not, two-million dollars is a lot of money.  Think about that.  Attitudes are shifting from treating symptons and injuries towards wellness, lifestyle and prevention.  Not everyone is going to jump on the Wellness Bandwagon, but it will be a part of the paradigm shift.  The industry, operations and practices have to change; I spent 6 hours in the ER only to have a Physician’s Assistant refer me to my primary-care physician.  You can be sure that next time, that hospital won’t be getting my business.  And that is the key- healthcare is a business.  The table is set for innovators to come in and “wow” consumers with quality, value and efficiency.

How will we get wellness and medical information in 2020?  What will the doctor’s office, wellness center and hospital of the future look like?  Where will it be located?  How will it flow and operate?  Who will the cost-structure look like?  What the system will look like in the future is almost beside the point; the important part is that it will be different and, with the right ideas, better.

Who to Blame Video October 3, 2008

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This video makes it look like Obama has some pretty ugly ties to the Mortgage Industry.
Decide for yourself.

Too big to fail: the Fed, the root cause and the bailouts September 18, 2008

Posted by Who? in Business, Politics, Random.

Was reading about all the craziness with the financial markets and had an interesting question.  So a company finds itself in deep shit and realize that they aren’t going to be able to ride it out.  How does the dialogue start with the Feds?  Is there a Bailout Hotline?  How about a hotline for homeowners that are going to lose their home?  The more I think about it, I am dead set against bailouts.  At least in theory.  Reality is always in shades of gray.

I wonder what it would have cost for the federal government to bailout every single homeowner?  In other words, was the cost of the panic in the financial market greater than the cost if the Fed just paid to secure the underlying securities in the first place?  This is assuming that the deterioration in the MBS market was the root cause of the current panic.  This is probably an overly simplistic view but it seems rational that there is a root cause and that MBS’s were at, or very near, the core.  The market got greedy and ran leverage to unsustainable levels.  Then confidence in the stability of MBS’s got rocked and values plummeted.  And the downward spiral followed.

Here is another question- why can’t the SEC just shut the markets down and let this blow over?  In other words, what I’m saying is, I think that the panic itself is causing more decrease in valuation the underlying, strictly financial issues.  If that is “too unreasonable”, how about halting trading in “at risk” securities?  The reaction would be “No, no, no- the markets must be allowed to function!”.  Uhhh…I’m pretty sure the market is what got us to where we are at AND the market is what continues to push us deeper in the hole.  In theory, if you freeze the “at risk” securities and let the panic fade/give the economy time to recover you would be making an effort to limit the correction to the responsible parties.  In a bailout, the cost is immediately distributed to every taxpayer.  Why not give the taxpayer a free roll of the dice to have the cost limited to those responsible?  Too big to fail is bullshit; too big to fail means that Wall Street gets a free roll of the dice.  The taxpayer is now stuck with the cost and the particpants on Wall Street got the benefits.

I hope between now and the next panic, I will have two things in place: 1) cash and knowledge of how raise large amounts and 2) the network and knowledge of how to raise a distressed debt fund.  More on this later.

The Law School Series: Law School is Big Business September 17, 2008

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The “I hate law school” traffic has been picking up lately…right on cue.  I don’t think I really started questioning things until second semester but I’m sure I had a couple random google searches along the way.  2nd semester searches mostly consisted of: I hate law school, should I drop out of law school, law school f*&%*$# sucks, why did I go to law school, why did you go to law school.  Trips to CareerBuilder and Craigslistto search for jobs were never far behind.

After having battled with the decision for almost 2 years, I think that the most important thing to pay attention to is this: if you keep coming back to the same thoughts/issues, you might want to consider taking some time off.  I think this stands as a general rule for any tough decision.  If you keep coming back to the same issue and reaching the same conclusion, there is probably something there.

For me, I kept coming back to the fact that I wasn’t happy.  I really enjoyed learning about the law but law school is not about learning.  Learning and intellectual rigor is a part of it, but first and foremost law school is a business.  The third year of law school is damn near useless; you learn the basics the first year, practice and refine your skills the second and they steal your money the third.  Well it can’t be useless otherwise law school would only be 2 years, right?  Put yourself in the position of the law school; a 3-year program means that they can grab an extra year of tuition from you.  If you’re thinking about law school, you need to understand this.  They are a business.  Their job is to maximize revenue.  Let that marinate. 

Take for example ohhh I don’t know…let’s say…Seattle University School of Law?  In my time there, I think the tuition was around $28,500, but that was 2 years ago.  For the 2008 academic year, tuition is $33,720.  So between 2006-2008, SU has raised their price by over 17%.  Law schools may be “non-profit” entities, but they are making big bucks.

The difference between a 2-year program and a 3-year program is $33,720 PER STUDENT.  The Prospective Students page shows this years entering at class is 325 students and total enrollment is 1,067.  So that means that a 3rd year at SU Law generates an additional…drum roll please…10.8 million dollars in revenue.  Ignoring school-sponsored scholarships and the difference b/w full and part-time students, SU Law generates 36 million dollars a year in tuition revenue.  Law school is about money.  I would be more than willing to bet that law schools are the most profitable units at any given school.

If you find yourself going back and forth about whether or not you want to be there- take some time off.  I know it doesn’t feel like you can, but you can take a break- you won’t be behind, you won’t be wasting time, you can and should do it if you are going back and forth.  Don’t be afraid of “wasting time” by taking some time to remove yourself from the environment and clear your head.  Be afraid of wasting an extra $30-$60,000.  Do you know what the reality of student loan repayment looks like if you don’t get that top job? 

No one at my school’s financial aid office ever sat me down and said “If you take out loans for the full cost of attendance (~48k/year), you will be paying $2,500+ each month for a very long time.”  And thats probably a low figure.  Think about that.  That is $30,000 a year AFTER TAXES.  MAYBE, if you are really good AND lucky, you’ll get a job that pays $90,000 a year.  But right off the bat you can subtract $43,000-ish off the top for student loan payments- before income tax, rent, food-anything. 

Bottom line is this: If you’re unsure, take time off.  Stay tuned for the next post where I’ll breakdown the debt/salary/workweek numbers and show you how insane it is to take on debt to pay for law school.