I have been an interested reader of financial information for the the past 40 years. My uncle was an avid stock market investor when I was a kid and he got me interested in reading the Value Line investment survey. I still read it and base some of my decisions on it. Over the years I have had some degree of success in investing, but it hasn't all been good. One of my greatest successes was a defensive maneuver that resulted in me not losing anything during the stock market crash of 2008. I have been a subscriber at one time or another to most of the significant investment magazines and newspapers in the United States.
It has been interesting to observe what has happened to what has come to be known as the financial services industry over my investing career because it has implications for the increasing business control over medicine. I have already alluded to many on these implications on this blog including treating knowledge workers like production workers and creating an unhealthy work environment that results in a lack of empathy for the patients being treated. But there are even larger implications. Financial services industry friendly legislation has probably been the single largest contributor to the idea that the privacy of individuals is relative to the advantages gained by establishing credit reporting. Credit reporting agencies were born out of the idea that data could be collected under a Social Security Number and released to any financial institution without the consent of the person behind that SSN. That single idea violated a previous promise by Congress that SSNs would not be used as any type of national identifier and was single handedly responsible for creating a multi-billion dollar industry that basically buys and sells credit information and the identity theft industry - both the criminal side and the services to protect people from the criminals. It is much harder to be an identity thief in a world that does not have credit information centralized on a SSN.
The driving force behind businesses everywhere is to create leverage that results in people needing to buy a product or service and make it so they can't get it anywhere else. We hear a lot about competition and its importance in capitalism, but there is plenty of evidence that capitalism is not only lacking but that measures are often in place to severely restrict it. It results in an industry that is set up to optimize gain from consumers while keeping them all at risk. As an example, one of the "low risk" strategies for investing with some of these companies is to investment in index funds. As retirement nears, the recommendation can be to put funds into an annuity or with an advisor who can determine withdrawal rates, reallocation, and future investment decisions. In many cases the retiree is charged up to 1% for that service on top of whatever service charges and transaction fees are associated with the funds that are invested in. There is always the disclaimer that there is no guarantee of income from the account and this is compounded by the fact that interest on cash and money market funds is at an all time low. Very few investors can fund their retirement by interest on so-called safe investments and in the last decade we have witnessed the first losses on money market funds. All things considered, regulation at all levels seems like it is clearly set up to favor the financial services industry. They have a license to warn you that you can lose money even though you may be paying them to protect it - and that's OK. In some extreme examples, investment banks have recommended purchases to customer that they were actively betting against.
I don't know how many people can see the trend, but it is pretty obvious to me. As medical information gets more like financial information - it moves farther away from any reality basis and it becomes a vehicle for manipulation. The whole point of collecting data from a medical and scientific standpoint is to look at underlying meaning specifically implications for health care. The best example is lab data. If I look at a patient's CBC with differential count and chemistry profile, I have about 40 data points, any one of which could have significant health implications for the care of that individual. If I look at various quality markers and screening scores that are being collected for business purposes that data varies from questionable to clearly invalid and yet physicians are being held "accountable" for what is essentially business quality data. In other words, data that has no scientific basis and can be manipulated for a specific result. The usual intent is to maximize business profits and make it seem like the business is much more critical to the provision of health care than the health professionals it hires. As absurd as that last sentence looks, it is without a doubt one of the goals of most health care businesses.
Business information collected and manipulated for the sake of furthering business interests in the health care industry is no more valid than what happens in the financial services industry. Both types of information have evolved to place the consumer at risk all of the time and give them no clear reason for a making a decision in their own interest. And in both cases, consumers have no choice but to participate. We have a government mandated retirement industry that provides a windfall to financial services. We now have a government mandated health care industry that is set to provide a windfall the large health care and pharmaceutical companies. In both cases it is underwritten by the American consumer who is placed at financial risk all of the time in an economy of stagnant wages and significant unemployment.
George Dawson, MD, DFAPA
Not to mention that if anyone thinks HIPPA is designed for maximum patient information protection, think again: http://www.davidmallenmd.blogspot.com/2011/04/big-pharma-or-big-brother.html
ReplyDeleteDavid - excellent post and of course I agree with you. Reading the iterations of the "Privacy Rule" under Clinton and then Bush it was apparent to me that this was set up to grease the skids of business and make physicians more miserable. I cannot tell you the number of times in acute care settings that a med records department refused to release records to me in a critical. situation. In the meantime, I am getting marketed to based on my personal medical history. To say nothing of the millions of private medical records that have been "lost" and stolen. This has always been a set up that will play out just like the loss of financial privacy in the US. At some point Google and Facebook will be competing over who can sell you the cheapest non-medical replacement for your primary care physician. I would give that 10-20 years and would not be surprised to see it advertised on the AMA and APA web sites..
DeleteThe problem with making medical information like financial information is that it will be based on hype and idiocy, not science. The medical equivalent to buying Twitter at current valuations is using meth for improving mental and dental health.
ReplyDeleteYou want a tale of two cities...look how the financial services industry has captured regulation to their advantage vs. how doctors have been battered by regulation. But it's based on the mind-set of Goldman Sachs vs. the mindset of the family practitioner...who politically shows up for a gunfight with a butter knife.
James - I agree that it is no accident. Great example is how financial services company lobbyists write the legislation that affects their industry and they make it either too vague to interpret (unenforceable) or clearly in their favor. That has never been the case with any lobbyists for physicians and in fact there was a PPACA story going around about how executive branch aides told the lobbyists about how it was going to play out and they could either be on the winning side or not.
DeleteUnfortunately they never turn a guy like me loose in Washington. I would imagine they have plenty of moralistic types working for Congress and big business.
"...vs. the mindset of the family practitioner...who politically shows up for a gunfight with a butter knife."
ReplyDeleteThe following is an excerpt of a response from a physician in one of the threads on KevinMD to a comment of mine on the nature of business:
"One sees this at just about every turn these days. thank you for sharing this as most of us don't realize this sort of thing happening at banks."
I was touched by his innocence. Unfortunately, his innocence will also lead him to getting run over by a steamroller.
Mostly OT: Your link to Naked Capitalism in your About Me > Blogs I follow, was one of the reasons I thought I might like your work. During the banking crisis, I read Mike Shedlock's blog more and Zero Hedge quite a bit less than NC, but it was always a good read. I gave up on them all when I realized that the economy was not going to go out with a bang, but with a whimper.
I have been very interested in this stuff since the meltdown of Long Term Capital Management in 1998. Really liked Roger Lowenstein's book on the subject "When Genius Failed - The Rise and Fall of Long Term Capital Management". The problem of course is that nobody learned enough lessons from that near economic debacle to prevent the most recent one. They are all driven by greed and arrogance. Somebody working an angle where they can make a lot of money and produce nothing of value. One of the ways they can pull it off it by devaluing everybody else's work and of course that comes back to medicine.
DeleteMany parallels to what I am focused on. We have essentially a no value play connecting psychiatry with all sorts of conspiracies, Big Pharma problems, university personnel problems etc. I would call it a classic shorting strategy. Here we have a valuable profession, 38 thousand psychiatrists go to work everyday and provide a valuable service. We have the shorts trying to discredit the profession and get some kind of value out of that for themselves. They have no face validity - just bluster.
I think short sellers provide a valuable economic service...they read the balance sheets that hypesters ignore and point out the problems before things blow up. Enron shorters were ridiculed during conference calls but they were right in the end.
ReplyDeleteThe problem with LTCM wasn't the shorts (who were right) but the arrogant Nobel winning idiots who fell in love with their theories (sound familiar?). Compounded by the Greenspan put and the message from the government that Wall St. is a taxpayer funded casino that will tread on every moral hazard to keep the market high.
Speaking of shorting, too bad I didn't follow my own post and short Twitter. It's in free fall today....
http://data.cnbc.com/quotes/TWTR
People were greedy and arrogant in the 70s and 80s too and since the beginning of time. That's not the problem. The pigs back then were allowed to get slaughtered. Now the only people who get slaughtered are the taxpayers. Moral hazard is the problem, people have always been avaricious. Only in the presence of the Fed put and helicopter money/QE infinity is the idea of borrowing money 30:1 considered sane.
That is the charitable view of shorts and I agree there are some that are legitimate. On the other hand at the height of the bubble and even today there are quite a few short and distort operations that spread misinformation and they try to impact the stock not based on any fundamental problems but with propaganda. I was invested with an Internet company in the 1990's where one of these shorts was actually planning to meet with an SEC commissioner on TV and discuss the company that he was shorting until I sent an e-mail to that commissioner and his appearance on the financial show was cancelled. There are plenty of hypesters on both sides and they generally render any discussion of stock on the Internet worthless.
DeleteLTCM was a hedge fund that was basically a derivatives play. There loss was held to $4 billion by a deal put together by Greenspan and large banks. The problem is that there are any number of trading strategies today that are at least as risky. The LTCM strategy folded because of an unusual historical circumstance. I would generally agree with Buffet on derivatives and the recent banking crisis is another good example.
And yet after that Easy Al the gambler's pal had no problem endorsing derivatives and continued to insist during both the Internet and real estate bubbles that he couldn't see the bubble happening while prices hovered 2-3 standard deviations above normal. This is what passes for wise financial counsel these days. I think Buffett's quote was that derivatives were weapons of mass financial destruction. IMHO Greenspan, Helicopter Ben and Yellen are all Keynesian desparados trying to paper over disaster with money printing and kicking the can down the road. If Yellen were an M.D., she'd be the pain management specialist treating Vicodin addiction with Zohydro and Fentanyl patches.
ReplyDeleteThere was a time that investment banks had fear and that kept greed in check. Our government and the Fed took that fear away. If doctors lobbied like Wall Street, we'd all make millions a year, get million dollar Christmas bonuses and never worry about lawsuits or jail.
Complaining about people being greedy is complaining about the weather. It's just a fact of life and grousing doesn't help. What contains greed? Fear. Of losing everything if you're wrong. And the investment banks are too big to fail. Greed isn't the independent variable of 21st century economic failure, too big to fail is. If you're too big to fail, in my opinion, you're too big to exist. I know I'm not the first to think of that.
Good article on the subject. I agree with you about the financial sector...no way it should be 20 percent of GDP. Talk about waste of money and time.
ReplyDeletehttp://intellectual-detox.com/2013/04/14/rent-seeking-economy/
Wondering if you saw the 60 minutes segment on Michael Lewis or the dustup about high frequency trading on CNBC. It's pretty astounding what they've been getting away with for years. What a waste of brainpower too. But I understand why smart people get into things like HFT as opposed to biomedical development, which is slow, overregulated and frustrating.
ReplyDeleteDid not - but heard him on MPR tonight on the way home. I was going to include a reference the high frequency trading in the original post. It is this type of systemic corruption in the financial world that we can expect will play a bigger and bigger role in medicine and of course it is the mainstay of the managed care industry.
DeleteThe reaction to the high frequency scandal will be instructive since Lewis illustrates how it impacts everyone invested in diversified funds and retirements funds. Americans are so used to systematic corruption and the lack of law enforcement in these areas that it will briefly fade but something else will replace it.
Most people don't even read their mutual fund statements. They would be shocked to realize the expenses they pay to the financial services industry for holding their money. Of course that same industry pays nothing for holding the cash of these same customers.