Monday, October 31, 2016

Debate Questions and the Clinton Campaign

On Sunday, March 6, 2016, Hillary Clinton and Bernie Sanders attended a debate sponsored by CNN, MLive and the Flint Journal held at the Whiting Auditorium in Flint, Michigan.  Here is a video showing the full debate:

While I certainly don't expect you to listen to the entire two hour debate, I want to focus on what occurred at the 18 minute and 18 second mark.  Here's the exchange:

COOPER: I want to go to Lee-Anne Walters. This is Lee-Anne Walters. She was one of the first people to report problems with the water in Flint. One of her twin boys stopped growing. Her daughter lost her hair. She says she’s undecided, and has a question for both of you to answer, but we’ll start with Senator Sanders. Ms. Walters?

QUESTION: After my family, the city of Flint and the children in D.C. were poisoned by lead, will you make a personal promise to me right now that, as president, in your first 100 days in office, you will make it a requirement that all public water systems must remove all lead service lines throughout the entire United States, and notification made to the — the citizens that have said service lines.

SANDERS: I will make a personal promise to you that the EPA and the EPA director that I appoint will make sure that every water system in the United States of America is tested, and that the people of those communities know the quality of the water that they are drinking, and that we are gonna have a plan to rebuild water systems in this country that are unsafe for drinking. COOPER: Let me just point out for accuracy’s sake, there is 10 million lead service pipes delivering water to people all across this country tonight. Secretary Clinton?

CLINTON: Well, I agree completely. I want to go further though. I want us to have an absolute commitment to getting rid of lead wherever it is because it’s not only in water systems, it’s also in soil, and it’s in lead paint that is found mostly in older homes. That’s why 500,000 children today have lead — lead in their bodies.
So, I want to do exactly what you said. We will commit to a priority to change the water systems, and we will commit within five years to remove lead from everywhere.

We were making progress on this in the 1990’s. I worked with then Senator Obama to get more money, more support to do more to remove lead."

Now, let's look at one of the recent emails released from John Podesta's computer dated March 5, 2016, one day prior to the aforementioned debate:

The email is from Donna Brazile, who was appointed as the interim Chairperson of the Democratic National Committee after Debbie Wasserman Schultz was forced to step down earlier this summer.  Keeping in mind that CNN sponsored the March 6, 2016 debate, it is interesting to note that Donna Brazile has been quite active with CNN, appearing with the host of the debate, Anderson Cooper, as a member of his panel of political experts on CNN's election coverage.  As well, she is a political commentator on CNN's Situation Room.  Here is a screen capture showing her web page on the CNN website:

It is interesting to see that, despite her protestations to the contrary as shown here (at the 5 minute mark):

...Donna Brazile's emails would, at the very least, suggest the appearance of impropriety.  If only this were the first time, however, as shown here, it clearly is not ;

This begs the question, "Can we trust anything that comes out of the Clinton campaign?".

Update October 31, 2016 - 14:00 EST

Here is an announcement from CNN about Ms. Brazile's termination:

Palestinian Democracy - Hillary Clinton Style

In a newly released audio tape from September 2006, Hillary Clinton was interviewed by Eli Chomsky, an editor for the Jewish Press.  According to Mr. Chomsky, the audiocassette is the only copy in existence and has not been heard by anyone outside of Jewish Press staff members over the past decade.  

Let's look back at a bit of history to put Ms. Clinton's comments into perspective.  On January 25, 2006, both Gaza and West Bank Palestine held parliamentary elections which resulted in a decisive victory for Hamas in Gaza which won 74 seats, ending the secular party Fatah's control of the Palestinian National Authority.  Fatah's defeat was largely related to its failure to provide basic services to Palestinians, particularly when compared to Hamas's successful social movement, particularly among Palestine's poorest citizens.  In addition, Fatah had a reputation for corruption.  This election was only the second time that Palestinians had participated in a democratic process to elect members to the Palestinian Legislative Council.   Palestine's then-Prime Minister Ahmed Qureia resigned and Palestinian President Mahmoud Abbas announced that he would ask Hamas to form a new government.  Interestingly, the United States had spent $2.3 million in USAID to support "democracy" in Palestine by promoting the image of Mahmoud Abbas and the Fatah Party as shown in this document from the Congressional Research Service:

Hamas, whose name is an acronym for the Islamic Resistance Movement, formed in 1987 as a product of the first Palestinian intifada.  It is rooted in the Palestinian branch of the Muslim Brotherhood and its charter calls for the creation of an Islamic Palestinian state to replace Israel.  Its military wing, Izz al-Din al Qassam Brigades, have conducted many anti-Israeli attacks including the use of rockets, improvised explosives and small arms.  In the latest hostilities between the two nations, the 50-day-long summer 2014 conflict (the 2014 Gaza War) led to the deaths of more than 2200 people, the displacement of up to 500,000 people and the destruction of more than 20,000 homes.

According to the U.S. Department of State, Hamas was placed on the Designated Foreign Terrorist Organizations list on October 8, 1997 as you can see here:

...and, despite the passage of nearly two decades, still has not been delisted by State.

So, to wrap up this portion of this posting, we know that Hamas, branded by the U.S. Government as a terrorist organization, ended up winning a democratically held election in January 2006 despite the best efforts of the United States to fund Hamas' opponents, Fatah, and influence the outcome to the detriment of Hamas.

Now, let's look at what then President George W. Bush had to say about the surprising win by Hamas:

Here's what he said:

"Obviously, people were not happy with the status quo.  You see, when you get people to vote, you give people a chance to express themselves at the polls.  If they are unhappy with the status quo, well, they'll let you know."

Here's what former President Bill Clinton had to say in 2009 about the 2006 election win by Hamas, interestingly comparing it to the history of the Democratic Party in the United States:

Now, let's get back to the Eli Chomsky interview of Ms. Clinton in September 2006.  Here's a quote showing her theory on what should have happened prior to and during the 2006 Palestinian election:

If you are interested, here is the link to the audio clip on Soundcloud.

Here is the quote:

"I do not think we should have pushed for an election in the Palestinian territories. I think that was a big mistake. “And if we were going to push for an election, then we should have made sure that we did something to determine who was going to win.

So, Hillary Clinton's solution to the problem of a potential Hamas win in Gaza was to "rig" the election to ensure that the good guys won and the bad guys lost.  That sounds like very similar actions that the United States has made in the past to unseat governments that they have disliked in the past.  If you are interested, here is the link to the audio clip on Soundcloud.

From this and other comments that she has made over the past decade and a half, I think that we can see that Ms. Clinton has a strong American interventionist bent, a predilection that we can see it in her comments about future Clinton Administration geopolitical relationships with China, Russia, Libya, Iran and Syria.  This short audio clip shows us that her global vision is one of American pre-eminence and that her vision of democracy is one that billions of people outside of the United States most definitely do not share.

Friday, October 28, 2016

How Political Polling Can Be Corrupted

Yet another in a long line of emails from the Democratic presidential candidate's camp gives us an inside look at political polling and how it has been corrupted.  Polls, even with their questionable accuracy, can be very persuasive voter motivator during an election; some voters will choose not to vote because their candidate looks like a shoe-in while others will choose not to vote because their candidate is so far behind that they feel as though their vote won't matter.

In among the tens of thousands of emails, there was a fascinating 37 page document from "The Atlas Project" dated January 16, 2008, back when Hillary Clinton was taking her first run at the Oval Office.  Here is the title page from the document:

In this document, the authors provide us with a roadmap that could be used to skew polling numbers for Arizona, Colorado, Florida, Iowa, Michigan, Minnesota, Missouri, Nevada, New Hampshire, New Mexico, Ohio, Pennsylvania, Virginia, West Virginia and Wisconsin.  Note that, according to Politico, Colorado, Iowa, New Hampshire, Florida, Nevada and Ohio are considered the seven states which are most likely to be contested in a general election (i.e. they are considered swing states).  In many cases, the outcome in these states will determine the winner of a presidential election as was found during the 2000 contested election which boiled down to the outcome in Florida.

In the email to which the Atlas study was attached, there was the following comment from Tom Matzzie, a former director of MoveOn, a left-leaning political action committee and policy advocate:

"Hey, when can we meet? I also want to get your Atlas folks to recommend oversamples for our polling before we start in February. By market, regions, etc. I want to get this all compiled into one set of recommendations so we can maximize what we get out of our media polling." (my bold)

Note the use of the word "oversample".  By oversampling in particular regions or among particular racial/ethnic groups, the final polling result can be impacted in a desired direction (i.e. support for the Democrats and support for Hillary Clinton in this case).

Now, let's look at some details from the Atlas publication.  Here is a screen capture showing the recommendations for the state of Florida with pertinent passages highlighted:

Note the use of the word "oversample".  As well as oversampling, in Florida, pollsters were to make certain that the sample was "...not too old and that it has enough African American and Hispanic voters to reflect the state". 

Here is a screen capture showing the recommendation for the state of Iowa, again, with the pertinent passages highlighted:

Again, note the use of the word "oversample".

Lastly, here are the recommendations for the state of Arizona, a non-swing state:

Again, the authors of the report recommend oversampling, however, in this case they recommend oversampling of both Hispanics and Native Americans.

While this example of poll skewing comes from the Democrat playbook, you can see how political campaign teams can use various "under-the-table" methods to affect the results of pollsters.  It is these polling results that are picked up by the mainstream media, generally with very little analysis, and are then broadcast to the voting public who quite often take them at face value.  As I noted above, this can have a significant impact on voters and voter turnout and can also impact one's political opponents.

Apparently, all is fair in American politics and the Podesta emails are giving us a fascinating glimpse of what lengths political campaigns are willing to go to to win.

Wednesday, October 26, 2016

Shadow Insurance - The Next Financial Sector Crisis?

Many Americans (and people in other nations around the world) do business with life insurance companies, either purchasing life insurance policies or annuities that they rely on to fund their golden years.  A recent analysis by Ralph Koijen and Motohiro Yogo at the Minneapolis Federal Reserve looks at shadow insurance, a means by which life insurers use reinsurance to move their liabilities from their regulated companies to less regulated wholly-owned entities and how this could create problems in the future.

Let's start by looking at the concept of reinsurance.  Here is a definition from Investopedia:

Reinsurance, also known as insurance for insurers or stop-loss insurance, is the practice of insurers transferring portions of risk portfolios to other parties by some form of agreement to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The party that diversifies its insurance portfolio is known as the ceding party. The party that accepts a portion of the potential obligation in exchange for a share of the insurance premium is known as the reinsurer.

Basically, insurance companies of all types use this scheme to reduce their risk by paying an insurance premium to a reinsurer that is not affiliated (i.e. an unaffiliated reinsurer) with the company that cedes its portfolio.  In a twist, and thanks to changes in regulations, life insurers can take huge amounts of their liabilities off their books by transferring the liabilities to "captive" companies that are wholly-owned subsidiaries.  It is probably easiest to think of captive companies as shell companies that are set up by the parent insurance company.  In 2000, changes in regulations forced life insurance companies to hold more capital against their life insurance liabilities to ensure that they had sufficient funding to pay out their policies and annuities.  After 2002, new state laws in 26 states allowed life insurers to establish captive companies to offset these new capital requirements.  In some cases, these special purpose entities or "shadow reinsurers" are located offshore in Bermuda, Barbados and the Cayman Islands as well as certain states including South Carolina and Vermont; these domiciles often have more favourable tax laws or capital regulations.  One thing that captives do not do is transfer risk outside of their company group; the issuing company is still ultimately responsible for the insurance and annuity liabilities.  What is concerning about this process is that the terms of many of the arrangements are not in the public domain, meaning that policy holders have no idea who really holds their insurance policies.  As well, the financial statements of captives are confidential to the public, ratings agencies and regulators outside of their state of domicile. 

Now that we have that background, let's look at the analysis by Koijen and Yogo.  They open by noting that the life insurance and annuity liabilities of U.S. life insurance companies were $4.068 trillion in 2012, a very substantial sum by any measure.  As I noted above, changes to regulations allowed insurance companies to create "captive" companies/shadow insurers; in 2002, $11 billion worth of life insurance liabilities were ceded to shadow insurers which grew to $364 billion in 2012, exceeding the total unaffiliated reinsurance (i.e. traditional reinsurance) which was $270 billion in 2012.  Here is a graph showing how the life reinsurance business has changed over the decade between 2002 and 2012:

You can easily see the significant growth in the use of affiliated reinsurers (i.e. captive companies or shadow insurers).

Here is a graph showing how the annuity reinsurance business has changed over the decade between 2002 and 2012:

Again, there has been significant growth in the use of affiliated reinsurers (solid line) and basically no growth in the use of traditional unaffiliated reinsurers (dashed line).

Life insurance companies that use shadow insurers tend to be larger companies; these companies have a 48 percent market share for both life insurance and annuities.  These companies ceded 25 cents of every dollar insured in 2012 to shadow insurers, up 1000 percent from 2 cents of every dollar back in 2002.

Here is a table which summarizes the statistics for both life and annuity reinsurance agreements combined:

Here is a table which summarizes the number of life insurers using shadow insurance and other key data:

The biggest risk involved is that life insurers are allowed to issue more policies for a given amount of equity since shadow insurers often do not fall under the same strict capital regulations.  On the upside for the insurance company, they are able to reduce the overall cost of issuing life insurance policies and annuities.  Overall tax liabilities can be reduced, particularly when the captive companies are located in an offshore shadow insurer.  Here is graphic showing the share of the affiliated reinsurance business by domicile with South Carolina and Vermont in grey, other U.S. states in dark blue, Bermuda, Barbados and the Cayman Islands in medium blue and other international locations in light blue:

The authors estimate that shadow insurance reduces life insurance prices by 10 percent for an average company, resulting in increases in annual life insurance issued by $6.8 billion.  While this may not seem like much, it amounts to 7 percent of the current life insurance market.

Now, let's look at how this practice could be problematic.  A June 2013 study by Benjamin Lawsky, Superintendent of Financial Services at the New York State Department of Financial Services (DFS) states the following:

"This financial alchemy, however, does not actually transfer the risk for those insurance policies because, in many instances, the parent company is ultimately still on the hook for paying claims if the shell company’s weaker reserves are exhausted (“a parental guarantee”). That means that when the time finally comes for a policyholder to collect promised benefits after years of paying premiums (such as when there is a death in their family), there is a smaller reserve buffer available at the insurance company to ensure that the policyholder receives the benefits to which they are legally entitled.

Shadow insurance also could potentially put the stability of the broader financial system at greater risk. Indeed, in a number of ways, shadow insurance is reminiscent of certain practices used in the run up to the financial crisis, such as issuing securities backed by subprime mortgages through structured investment vehicles (“SIVs”) and writing credit default swaps on higher-risk mortgage-backed securities (“MBS”). Those practices were used to water down capital buffers, as well as temporarily boost quarterly profits and stock prices at numerous financial institutions. Ultimately, these risky practices left those very same companies on the hook for hundreds of billions of dollars in losses from risks hidden in the shadows, and led to a multi-trillion dollar taxpayer bailout." (my bold)

Over an eleven month period in 2012 - 2013,  The New York DFS noted that there were at least $48 billion worth of shadow insurance transactions at New York-based insurers to lower the reserve and regulatory requirements of which 80 percent were not disclosed in their annual financial statements.  The life insurance industry's reserves, required by law to serve as a "shock absorber" against unexpected losses or financial shock, can be artificially boosted when the liabilities are "off-book"  through the use of shadow reinsurance which means that the company doesn't have to raise new capital or actually act to reduce risk.  This means that companies were allowed to divert their reserves for other purposes including:

1.) acquiring another company

2.) paying dividends to investors

...and, most importantly... 

3.) increasing executive compensation. 

I think that's more than enough information to digest in a single posting.  I realize that for many of us, this is a rather difficult subject to understand and I have tried to present it as simply as possible so that you can understand the potential risks involved in the life insurance business.  It always amazes me how companies find such creative ways to skirt laws that are designed to protect the public, in this case, holders of both life insurance and annuities.  Only time will tell whether this creativity ultimately costs American taxpayers in the same manner that Wall Street's creativity cost taxpayers hundreds of billions of dollars back in 2008 - 2009.