Late-Night ‘Good Show, Melania!’ Open Thread

One suspects (hopes) this can only get better…

Look at it from Melania’s point of view. She’s a nice sensible bureaucrat’s daughter from the Balkans, who fought her way up from a suspiciously nice apartment and somewhat better outfits than any of her schoolmates could afford, to a design school in Italy, through the slog of low-level ‘modelling’ in New York, to a fortuitous introduction to a celebrity real estate developer and (what we’re told is) a nice secure pre-nup contract. Life as the arm-candy to a D-list celebrity “rich guy” isn’t exactly a sinecure, but she’s put in the work. Her only son attends an expensive Manhattan private school, her parents have a nice apartment in NYC, and there’s lots of professional athletes work harder at staying in peak physical condition for far lesser rewards. Now — just as the old man should be handing off his more strenuous tasks to the offspring of previous wives — a bunch of ambitious underlings have talked the dumb bugger into pouring his money, energy and market reputation into a noisy, embarrassing, tedious pursuit of a job he’s not gonna get.

Think of her little son, Barron; the older Trump kids have finished their expensive educations, they’ve all got their own side businesses (siphoning money out of the family till), once this public sh*tshow falls apart they’ll scatter to the upper-class winds and pretend they had no idea what maggot Daddy got into his brain. But Barron? Melania’s elderly parents? The only resource they’ve got is… Melania.
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The value of 12 days

That is what this chart asks:

An $80,000 per course of treatment that is better than the previous regime. It providers, on median, an extra twelve days of life before half of the cohort dies.

Backing out some very rough calculations, that gives a quality adjusted life year cost of at least $2.5 million dollars. It could be much more as I am assuming that each day is a great day instead of probably a severely discounted day.
Update 1: Someone who actually knows WTF they are talking about passed me the Journal of Clinical Oncology CBA on this drug. I was off by a bit.

Incremental cost per life year saved
† 410,000
Incremental cost per qualityadjusted
life year
† (low impact
of diarrhea to high impact of

For 2007 US Dollars.

In Great Britain, a drug that has an incremental improvement over regimes like this might be worth a couple thousand dollars. If the drug prolongs life but keeps a person in the ICU for the incremental days, its incremental value would be close to zero. If the twelve extra days on average are spent out of the hospital and in great shape, it might be worth $4,000.

In the United States, we are paying 625 100 times the British willingness to pay for a quality adjusted life year in this case.

Is that how we want to use our resources? If so, than be ready to see health care costs continue to accelerate. If not, then we need to change our intellectual property regime as well as incorporate and accept some systems of no in order to get the price for a drug like this down to reasonable levels.

Donald Trump’s Bank Is Tottering

It seems like we might want something new to talk about, and I think I’ll follow John’s advice and focus on something other than the miseries of the day.

So how about this:

Donald Trump has a problem with bankers — or they with him:

Other Wall Street banks, after doing extensive business with Mr. Trump in the 1980s and 1990s, pulled back in part due to frustration with his business practices but also because he moved away from real-estate projects that required financing, according to bank officials. Citigroup Inc., J.P. Morgan Chase & Co. and Morgan Stanley are among the banks that don’t currently work with him.

At Goldman Sachs Group Inc., bankers “know better than to pitch” a Trump-related deal, said a former Goldman executive. Goldman officials say there is little overlap between its core investment-banking group and Mr. Trump’s businesses.


That’s why, to a great extent, the Trump organization has come to rely on Deutsche Bank, the one global bank that will do significant business with him:

While many big banks have shunned him, Deutsche Bank AG has been a steadfast financial backer of the Republican presidential candidate’s business interests. Since 1998, the bank has led or participated in loans of at least $2.5 billion to companies affiliated with Mr. Trump, according to a Wall Street Journal analysis of public records and people familiar with the matter.

All that’s in trouble now:

Deutsche Bank started the year by announcing a record-setting loss in 2015 of €6.8 billion.


In [recent] weeks, here’s what happened:

  • May 16, 2016: Berenberg Bank warns that DB’s woes may be “insurmountable”, noting that DB is more than 40x levered.
  • June 2, 2016: Two ex-DB employees are charged in ongoing U.S. Libor probe for rigging interest rates. Meanwhile, the UK’s Financial Conduct Authority says there are at least 29 DB employees involved in the scandal.
  • June 23, 2016: Brexit decision hits DB hard. The bank is the largest European bank in London and receives 19% of its revenues from the UK.
  • June 29, 2016: IMF issues statement that “DB appears to be the most important net contributor to systematic risks”.
  • June 30, 2016: Federal Reserve announces that DB fails Fed stress test in US, due to “poor risk management and financial planning”.

The DB share price has been cut almost in half since the start of the year, and is at 8% of its all time high.

Will the bank survive? Damned if I know.  This isn’t my field and I’ve just stumbled on the latest reports of its woes.  But one thing seem obvious.

Y’all may have noticed that Herr Drumpf is a candidate for an office that has a significant role in the regulation of credit markets. We’ve never had anyone this close to the presidency whose wealth was so personally at play in decisions that he and his administration would have to make, were that evil day ever to arrive.  As Russ Choma and David Corn note in Mother Jones,

…the presumptive GOP nominee also has a tremendous load of debt that includes five loans each over $50 million. (The disclosure form, which presidential candidates must submit, does not compel candidates to reveal the specific amount of any loans that exceed $50 million, and Trump has chosen not to provide details.) Two of those megaloans are held by Deutsche Bank, which is based in Germany but has US subsidiaries. And this prompts a question that no other major American presidential candidate has had to face: What are the implications of the chief executive of the US government being in hock for $100 million (or more) to a foreign entity that has tried to evade laws aimed at curtailing risky financial shenanigans, that was recently caught manipulating markets around the world, and that attempts to influence the US government?

There’s a little schadenfreude to be added to the terror that Herr Drumpf might actually reach the office in which that conflict of interest becomes real.  That, of course, comes in the thought that [I so devoutly hope] on November 8, the Donald will return to a business wholly dependent on other people’s money, to face a financial community in which there’s no one left willing to lend him a dime.

A boy can dream….

Image:  Marinus van Reymerswaele A Banker and His Wifefirst half of the 16th century.

Balance sheets, risk adjustment and risk corridors

The Land of Lincoln Co-op in Illinois is scrambling to stay solvent as they got hit with a larger than expected risk adjustment charge. They have reached an interesting strategy as reported by the St. Louis Post Dispatch:

Illinois Department of Insurance Acting Director Anne Melissa Dowling wrote in a June 30 letter to the federal government that she had ordered Land of Lincoln Health not to pay until it gets what it’s owed by the feds — nearly $73 million — under a separate provision of the Affordable Care Act.

The order “is designed to prevent an immediate liquidation” of Land of Lincoln Health, Dowling wrote. Making the payment would trigger further state action and could legally obligate regulators to put the company under state supervision…

Land of Lincoln Health filed a lawsuit last month in the U.S. Court of Federal Claims in Washington, claiming the federal government had shortchanged it of risk corridor payments, a temporary provision of the health care law meant to help unprofitable insurers. At least four other insurers have filed similar claims.

Land of Lincoln is most likely getting hit with the risk adjustment double whammy.

So the co-ops that are getting hit with significantly higher than projected risk adjustment outflows will be getting hit with a double whammy. An immediate adjustment to CY-15’s balance sheet and then a future adjustment to accommodate higher CY-16 risk adjustment net outflows.

The co-ops due to the transformation of their start-up capital from grants into loans and the the reduction of the total loan pool available are very thinly capitalized entities in the best conditions. Incumbent insurers (like Mayhew Insurance) have very deep excess reserves.

This matters because if the Risk Corridors paid out in full, Land of Lincoln would be fine. They would have received the approximately $81 million dollars that they are owed for policy year 2014 risk corridors. That would be a solid cash or near cash asset where face value would be the balance sheet value. So in that scenario, they could absorb an incremental multi-million dollar hit for policy year 2015 risk adjustment and then a catch-up hit on their accrual for policy year 2016 risk adjustment liability. It would not be pleasant, but the balance sheet could absorb the hit.

However Land of Lincoln had to write off $73 million dollars in risk corridor money due to the Rubio-con appropriation restriction. That reduced their reserve capital to just above minimum requirements where the state regulators get very worried about the ability of an insurer to pay all potential obligations. If there were no negative shocks to the balance sheet between the last review date and when Land of Lincoln could win a case in the Court of Federal Claims where they would receive a face value bookable asset of $73 million, they could survive. However higher than expected risk adjustment payments are a negative shock to the balance sheet. And if the balance sheet eats up the minimum needed reserves, the state will shut down the insurer.

This is not unexpected. It is what happens to thinly capitalized insurers. Well capitalized incumbents don’t care that their risk adjustment liabilities came in high or low if it knocks out competitors:

That is good news in the long run for well capitalized insurers. It is bad news for everyone else.

Well capitalized insurers can wait years to get $100 million dollar payments while using other cash reserves to cover the degradation of the risk corridor account receivable on the balance sheet. However, waiting several years and using other reserves is not feasible for co-ops and other smaller start-ups and new entries to the insurance market. As I explained in October, the co-ops counted on quick payment in full to meet cash reserve requirements.

until the Cromnibus, the risk corridor payments were seen as near cash and counted as high quality reserves. However the Cromnibus applied a large but unknown discount to those claims on Federal payments. That means the state regulators started to worry that in oh-shit scenarios, the smaller insurers could not pay off all incurred claims. And once state regulators start to worry, they shut down insurers that they worry about.

I don’t think Land of Lincoln will win a pissing match with the Federal government for a very practical reason that supersedes legal reasons. The feds have the ability to stop payment of advanced premium tax credits and cost sharing reduction subsidies until the risk adjustment obligation is made whole. If Land of Lincoln’s cash and reserve position is precarious, a few weeks of no federal cash flow will force the co-op to burn through their ready cash and eat into their reserves. Even if they can get a judge to agree with their theory, state regulators are highly likely to step in before all excess reserves are exhausted.

So dead man walking.

Saturday Evening Open Thread: Calibrated

Not often I get the chance to use the C.R.E.A.M. [Cash Rules Everything Around Me] tag sarcastically.

What’s on the agenda for the evening?

Risk adjustment: reality versus code efficiency

CMS released the 2015 policy year risk adjustment and re-insurance payment notice on Thursday afternoon. Several billion dollars net are changing hands. Roughly 10% of total premiums is changing hands.

Larry Levitt has the smartest take on the cash flows:

What does Larry mean by “operating the system?”

Experienced insurers know how to optimize their risk scores while inexperienced insurers are still groping forward with limited data.  Insurers that have only ever operated in the small group and individual market are at a data disadvantage compared to insurers that operate in individual, small group, CHIP, Medicaid, Medicare, and large employer group markets.

We’ll talk through an couple of examples of how the system is worked.

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Another Day of the Sanders Campaign, Another Sad Trombone

Hilbot though I be, I seriously doubt there’s anything revelatory in the Sanders campaign finances beyond their embarrassing amateurism. The Senator has been puttering happily along in his Green Mountain fiefdom for many years, from the evidence so far on the record-keeping equivalent of a three-ring binder ledger and a cigar box marked Petty Cash. It’s never been a big deal for his staff to back-reconcile a bunch of line items for Misc and Other at the end of the financial year. And a government salary that seems paltry to Congressfolk from states like New York or California is comparative wealth in poor underpopulated Vermont — unless he’s made some spectacularly bad investments or nursed some unsuspected high-dollar addiction, Bernie’s no doubt set aside a tidy sum for his retirement and his kids. Knowledgeable numbers people have speculated he might even be a millionaire, on paper… no crime, even for a politician, but an embarrassing reveal for someone running as The Populist Peoples’ Candidate.

Bernie never expected his campaign to go beyond drawing attention to his favorite issues; he certainly didn’t prepare in advance for the scrutiny that comes with a real presidential campaign. His troops were heavy on enthusiasm, light on experience / expertise. There’s bound to be a certain amount of under-documentation, some questionable overspending, maybe even a little of the impulsive hand-in-the-cash-drawer minor splurges that drew so much attention to the Palin family in the summer of 2008. Nothing — up till now — that would draw more than a stern rebuke and maybe some fines from the FEC…

In today’s Washington Post, an op-ed from William M. Daley, “former commerce secretary [under Bill Clinton] and White House chief of staff [to President Obama]”, “Bernie Sanders’s stubbornness is a big mistake” —

Bernie Sanders is making a big and potentially dangerous mistake with his continuing insistence on changes to the Democratic Party’s rules and platform. I should know. As chairman of Al Gore’s 2000 presidential campaign, I understand too well where such ideological stubbornness can lead.

Back then, many progressives insisted on backing third-party candidate Ralph Nader despite warnings it would undercut the Democratic nominee. Nader received 97,421 votes in Florida, which Gore lost by 537 votes. The result? President George W. Bush, who championed ill-advised tax cuts, the invasion of Iraq and other actions we now deeply regret.

Sanders made an energetic bid for the Democratic nomination, drawing big crowds and fueling debates on important topics such as income disparity. Although he lost to Hillary Clinton, Sanders is pushing his agenda to the party convention and insisting on “reforms” in a Democratic nominating process he describes as seriously defective.

Sanders is wrong to suggest the Democratic Party’s nominating system is seriously defective. It isn’t. It’s eminently fair to let party members (i.e., registered Democrats) select the nominee, and to give party loyalists and elected officials (superdelegates) a modestly bigger say…

Key Democratic constituencies, including the Congressional Black Caucus and Congressional Hispanic Caucus, strongly support superdelegates. “Our delegate selection process is not rigged,” Rep. James E. Clyburn (S.C.), a senior leader of the Black Caucus, wrote in a letter to colleagues. “It is transparent to the public and open for participation.”

Clinton beat Sanders fair and square. She won more states, more delegates (pledged and super), and 3.7 million more votes than he did…

… Democrats have won the popular vote in five of the last six presidential elections. In 2008, after losing a hard-fought primary to Barack Obama, Clinton promptly endorsed him and campaigned for him. In contrast, Sanders — who refused to even call himself a Democrat until this election — has yet to endorse Clinton. He says she, not he, is responsible for persuading his supporters to back her.

Every vote counts. Sanders should accept the primary outcome and enthusiastically rally his supporters to Clinton’s side to avoid a catastrophic Donald Trump presidency.

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