Category Archives: slimy marketing

Fructose

You could make a pretty good case that the current meltdown of the world economy could have been prevented if American regulators hadn’t been asleep at the wheel.  The Fed, the SEC, and the Office of Thrift Supervision come to mind as parties that could have, in different ways, put the brakes on the housing bubble, limited the spread of derivatives, and put the cuffs on outlaws like Bernard Madoff–before all hell broke loose.

The question arises:  what other disasters are regulators failing to prevent?

Michael Pollan directs our attention to the fructose scandal:

“We’re subsidizing the least healthy calories in the supermarket — high fructose corn syrup and hydrogenated soy oil, and we’re doing very little for farmers trying to grow real food”

Why in the world do we tolerate a public policy that encourages obesity? Human suffering aside, a huge group of people getting overweight and developing all sorts of weight-related heath problems costs us all a lot of money and diverts resources from you name it:  education, energy development, innovation.  It seems that we should be discouraging obesity.

Why did we allow this to happen?  I’m sure the corn lobby had something to do with it.  But I’d give equal measure of blame to cult of the market championed by Milton Friedman, Ronald Reagan, and many others.   For years Friedman promoted the idea that markets would police themselves–no need for agencies like the Food and Drug Administration.  It’s in people’s self-interest to not get fat, I can hear him saying,  and if they do that’s their problem.

Well, the problem is, it’s not ALL their problem.  And, by the way, have you ever heard of human nature?  Does it seem conceivable that people bombarded with slick advertising for cheap Big Gulps from Day One of their lives might start drinking them?  Particularly when the consequences develop much later?

Massive health problems in the US.  Another victim of conservative economics and the failure of the American regulators.

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In my inbox

From a recent email I received….

“Greetings,

I Donald and my sister Jenny may wish to know if we can entrust in you in helping us to receive the $35mUSD (Thirty Five Million United States Dollars) our parents had with a Financial Institution here before their untimely death by the assassins.”

And so forth.  This is of course the famous “419” advance fee fraud that apparently nets Nigerian scammers around $200 million per year.  It’s hard to believe people get sucked into this kind of thing, but it seems to me that the scammers would have a lot better luck if they didn’t write in such weird stilted language.  I mean phrases like “wish to know if we can entrust” and “untimely death by assasins” sounds like something from a bad Victorian novel.

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Kicking off the Death Spiral

Beware the individual health insurance market (yes, that’s the market McCain wants to push millions of people into). Consider this situation: let’s say you do the right thing and buy an individual health insurance policy when you’re healthy, pay premiums for years, then get sick.

The insurance company pays the initial claims, but they certainly don’t want you on their policy forever. You’re costing them a load of money and they are in business to make money. The logical thing to do would be to just cancel your policy at the annual renewal, but that’s illegal in all fifty states. They can only raise premiums to cover the costs of everyone on that individual plan. What to do?

Here’s an idea, as described in ConsumerReports Health.org:

Companies also control their risk by using a maneuver known as closing a block or book of business. They stop accepting new customers in a plan, which kicks off a process known as a “death spiral.”

Even if everyone in an insurance plan starts out relatively healthy, as time goes on, people get sick, and the cost to insure them rises. Once the pool is closed, costs for the remaining members rise inexorably. Healthier members find cheaper plans, but sicker ones are effectively forced out because they can’t afford coverage.

Once that process gets going, premiums on individual health insurance policies can rise at a breathtaking rate.

And they have an example:

Jesse Paul, 59, an Indianapolis lawyer, paid $25.50 a month for his individual, $100- deductible Prudential major medical policy when he took it out in 1980. Premiums rose steadily for years but at a pace that Paul deemed “rational in terms of medical costs.” In 2003 the premium shot up from about $1,200 to about $1,900 a month at renewal.

When Paul complained to the state insurance department, he learned that the policy had been closed to new entrants for years, that he was one of only 400 to 600 customers left in the state, and that the premium increase was permissible under Indiana law. Paul reached his breaking point when he got his latest renewal notice in August; the monthly premium was now $4,284. He quickly found out he was uninsurable on the private market because he took medications for high blood pressure, high cholesterol, and allergies. He is now insured by the Indiana high- risk pool for a premium of $650 a month.

If only Charles Dickens were alive and writing about the American healthcare industry.

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Filed under dignity, healthcare finance, slimy marketing, social insurance

Is that stent right for you?

Maggie Mahar reports that coronary stent manufacturer CypherUSA has launched a massive, glossy, direct-to-consumer advertising campaign encouraging consumers to take charge of their heart surgery by demanding the CypherUSA stent. She describes their latest commercial here, or you can watch it here, However I’m imagining the scene in the doctor’s office as these crucial, pre-op decisions are made:

Patient: Now Doc, I know this is a life-threatening situation and you’re the one with years of experience and training–and to tell the truth, I couldn’t tell you the difference between a left ventricle and a left testicle–but I’d just like to make sure we’re using the best equipment. Have you heard of the CypherUSA B200D stent?

Doctor: Well, yes I have. We use it primarily because discerning patients like you demand the best! Excellent choice.

Jesus, help me. Where in the hell do they scrape up these marketing people? Why do we as a society allow this to go on?

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Slimymarketing Alert

Have you purchased health insurance through a college or university recently? Be advised that those seemingly trustworthy institutions are selling some slimy merchandise: health insurance. BusinessWeek reports that many people with claims under those policies are finding themselves not-so-insured:

More than half of the insurance plans recommended by colleges offer benefits of $30,000 or less, according to a survey published in March by the General Accounting Office

Really? $30,000? The average group policy I’m familiar with has benefits of $2,000,000. If something really goes wrong—and isn’t that what insurance is for?— $30K is nothing, as several of the people in the article found out.

The policies were marketed using terms like “major medical coverage” and “catastrophic accident”, but there is nothing “major” about $30K of coverage. Of course, one can argue than parents and students should be reading the policies closely and shopping around. But, realistically, how many people have the time and skill to compare stuff like this. In addition to being on the lookout for overall caps on benefits, anyone looking to buy one of these policies needs to be aware that insurers are increasingly using “interior caps”– limitations on what they will pay for specific incidents and procedures. The intentionally confusing marketing and misplaced trust of parents and students has led to a “veritable gold mine” for some of the insurers, according to BusinessWeek.

And who were those insurers? Where did the colleges get those policies? The name “UnitedHealth” runs throughout the article. Let’s see, UnitedHealth. Isn’t that the company that was scammed by it’s own CEO?

Yes it is! William McGuire ran the company until 2006 when the Wall Street Journal revealed that he and fellow directors had been illegally backdating stock options to increase their compensation. Under pressure McGuire bailed in December 2006 with the largest golden parachute in the history of corporate America, $1.1 billion. Once a scammer always a scammer.

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Faith in markets

Now that housing and credit market fiasco is clear to all observers it might be a good idea to ask how we got here. Answer: regulators asleep at the wheel. Or, more precisely, blind regulators. Blinded by ideology. It worth re-reading something Paul Krugman had to say on this subject several months:

“[D]uring the bubble years, the mortgage industry lured millions of people into borrowing more than they could afford, and simultaneously duped investors into investing vast sums in risky assets wrongly labeled AAA. Reasonable estimates suggest that more than 10 million American families will end up owing more than their homes are worth, and investors will suffer $400 billion or more in losses.

So where were the regulators as one of the greatest financial disasters since the Great Depression unfolded? They were blinded by ideology.

“Fed shrugged as subprime crisis spread,” was the headline on a New York Times report on the failure of regulators to regulate. This may have been a discreet dig at Mr. Greenspan’s history as a disciple of Ayn Rand, the high priestess of unfettered capitalism known for her novel “Atlas Shrugged.”

In a 1963 essay for Ms. Rand’s newsletter, Mr. Greenspan dismissed as a “collectivist” myth the idea that businessmen, left to their own devices, “would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings.” On the contrary, he declared, “it is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.”

It’s no wonder, then, that he brushed off warnings about deceptive lending practices, including those of Edward M. Gramlich, a member of the Federal Reserve board. In Mr. Greenspan’s world, predatory lending — like attempts to sell consumers poison toys and tainted seafood — just doesn’t happen.

But Mr. Greenspan wasn’t the only top official who put ideology above public protection. Consider the press conference held on June 3, 2003 — just about the time subprime lending was starting to go wild — to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw.

Also in attendance were representatives of financial industry trade associations, which had been lobbying for deregulation. As far as I can tell from press reports, there were no representatives of consumer interests on the scene.redtape

Two months after that event the Office of the Comptroller of the Currency, one of the tree-shears-wielding agencies, moved to exempt national banks from state regulations that protect consumers against predatory lending. If, say, New York State wanted to protect its own residents — well, sorry, that wasn’t allowed.

Of course, now that it has all gone bad, people with ties to the financial industry are rethinking their belief in the perfection of free markets. Mr. Greenspan has come out in favor of, yes, a government bailout. “Cash is available,” he says — meaning taxpayer money — “and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this.”

One quibble. I don’t think there is much evidence that they are “rethinking their belief in the perfection of free markets”. It’s worth remembering that the same people who brought us the current crisis in housing and credit markets, and have the economy headed toward the worst recession in decades, have their eyes on the biggest prize of all. They propose to fix the healthcare “industry” by more of the same: deregulation.

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Filed under economics, junglenomics, radical right, slimy marketing

Through a Glass Darkly

Economists tell us that capitalism works best when buyers and sellers are fully informed. Or, to use the buzz word, when markets are “transparent”. How transparent are US markets? Back in 2006 Treasury Secretary Paulson lauded the US capital markets as “the most transparent in the world”.

For an update and a real world view lets check in with Bill Gross, manager of $700 billion in fixed income securities at PIMCO. Here’s how he describes his job these days:

There’s a card game most boomers know as “Old Maid.” ….. If you had the “Maid” the object was to dump it on someone else, but doing that involved numerous deceptions not totally unlike today’s shenanigans involving our capital markets and their imploding financial conduits. First of all, you had to pretend you didn’t have it in your hand. A calm, “no problem” facial expression was a requisite, but then you still had to entice your opponent on your left to pull the old lady out of a handheld mini-stack of perhaps 6 or 7 of your remaining cards. Placing “the card” at either end was one tactic, but the most successful maneuver always seemed to be exposing one edge of a middle card just a little bit higher than all the rest – the bait. Once dumped, you could breathe a temporary sigh of relief until, until…well until it was your turn to draw again from that all too suspicious player on your right.

 

Old Maid now has a second life mimicking our financial markets, and at PIMCO we’ve played it frequently in our Investment Committee over the past several months. “Who’s got the ‘Old Maid’?” we ask over and over again …This shunned lady in asset form was originally identified as a subprime mortgage, … No Old Maids in those hands, investors were assured; they were Babes with a stacked deck. Ah, but Father Time has a way of exposing plastic surgery and there have been implants aplenty in recent years.

 

Yep. Most transparent markets in the world! How did the best and brightest financial brains in the world end up playing Old Maid with so much money that it threatens the economy? Only a game that big would convince Uncle Sam to take a seat at the table.

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