This weekend brought more than a modicum of clarity to what happened behind the scenes in the run-up to the Oct. 1 launch of Healthcare.gov.
In a devastating story, Amy Goldstein and Juliet Eilperin of The Washington Post dissected how politics trumped policy when it came to the Affordable Care Act. In two key paragraphs, they wrote:
Based on interviews with more than two dozen current and former administration officials and outsiders who worked alongside them, the project was hampered by the White House's political sensitivity to Republican hatred of the law - sensitivity so intense that the president's aides ordered that some work be slowed down or remain secret for fear of feeding the opposition. Inside the Department of Health and Human Services' Centers for Medicare and Medicaid, the main agency responsible for the exchanges, there was no single administrator whose full-time job was to manage the project. Republicans also made clear they would block funding, while some outside IT companies that were hired to build the Web site, HealthCare.gov, performed poorly.
These interwoven strands ultimately caused the exchange not to be ready by its Oct. 1 start date. It was not ready even though, on the balmy Sunday evening of March 21, 2010, hours after the bill had been enacted, the president had stood on the Truman Balcony for a champagne toast with his weary staff and put them on notice: They needed to get started on carrying out the law the very next morning. It was not ready even though, for months beginning last spring, the president emphasized the exchange's central importance during regular staff meetings to monitor progress. No matter which aspects of the sprawling law had been that day's focus, the official said, Obama invariably ended the meeting the same way: "All of that is well and good, but if the Web site doesn't work, nothing else matters."
The Post also posted online a May 2010 letter written by David Cutler, a Harvard professor and health adviser to Obama's 2008 campaign, to Larry Summers, director of the White House's National Economic Council. In it, Cutler wrote:
My general view is that the early implementation efforts are far short of what it will take to implement reform successfully. For health reform to be successful, the relevant people need a vision about health system transformation and the managerial ability to carry out that vision. The President has sketched out such a vision. However, I do not believe the relevant members of the Administration understand the President's vision or have the capability to carry it out.
Another piece worth a read:“What’s Really Obstructing Obamacare? GOP Resisters,” by Michael Tomasky of Newsweek/Daily Beast. Tomasky writes that while media reports have focused on the problems of Healthcare.gov, not enough attention has been paid to the efforts by Republicans to obstruct the law. He wrote:
All across the country, Republican governors and insurance commissioners have actively and directly blocked efforts to make the law work. In August, the Obama administration announced that it had awarded contracts to 105 "navigators" to help guide people through their new predicaments and options. There were local health-care providers, community groups, Planned Parenthood outposts, and even business groups. Again-people and groups given the job, under an existing federal law, to help people understand that law.
What has happened, predictably, is that in at least 17 states where Republicans are in charge, a variety of roadblocks has been thrown in front of these folks. In Indiana, they were required to pay fees of $175. In Florida, which under Governor Rick Scott (who knows a thing or two about how to game the health-care system, you may recall) has been probably the most aggressive state of all here, the health department ruled that local public-health offices can't have navigators on their premises (interesting, because local public health offices tend to be where uninsured people hang out). In West Virginia, Utah, Pennsylvania, and other states, grantees have said no thanks and returned the dough after statewide GOP elected officials started getting in their faces and asking lots of questions about how they operate and what they planned to do. Tennessee issued "emergency rules" requiring their employees to be fingerprinted and undergo background checks.
America, 2013: No background checks to buy assault weapons. But you damn well better not try to enroll someone in health care.
I suspect in the weeks ahead, we will see more reporting on both story lines: how the administration mismanaged the rollout of the law and how Republicans have tried to ensure its failure. But let's not lose sight of consumers, whose lives will be directly affected by the act and what's happening now.
Some applicants may have proposed or indicated their plans to take over or buy out some of the smaller banks in existence; or even have had 'secret' talks for mergers. If such offers are part of the applicant's ‘mission’ to improve and reach out to the rural areas, including extending service to the ‘urban poor’, they deserve serious consideration
Soon after the closing date for receipt of applications for new banking licenses, D Subbarao, the then governor of Reserve Bank of India (RBI), stated that "not all eligible applicants may get the license". At that time, in the first week of July, he did not want to specify the number of licenses that the RBI may issue by March 2014. The only difference, after Dr Raghuram Rajan succeeded him is that now, chances are, licenses may be issued as early as January and not in March 2014 as was indicated at that time.
There are 26 applicants in the running. All the applications are being scrutinized by an External Committee, consisting of Dr Bimal Jalan, the former RBI governor, and he is assisted by a team consisting of Usha Thorat (former deputy governor of RBI), CB Bhave (former chairman of SEBI) and Dr Nachiket Mor (former executive of ICICI Bank).
The proposal to allow establishment of new banks was mooted way back in 2010 and it has taken almost three years to prepare the very exacting requirements that applicants will have to fulfil for serious consideration. As a result, only 26 applications have been received, as against the 100s that were received when such an issue came up more than a decade ago.
With the revised rules, which are realistic and practical, industrial houses, corporate bodies and others could submit proposals, as long as the criteria laid down were met.
As a sequel, the leading contenders are Tata Sons, Reliance Capital, Aditya Birla Nuvo, Shriram Capital, Bajaj Finserv and L&T Finance. Others who are just as serious and have good track record are the Department of Post, IFCI, UAE Exchange, LIC Housing, IDFC and JM Financial and Muthoot Finance. This does not exclude others like Religare, Janalakshmi, Indiabulls etc, who have their own specialized knowledge in the field.
It may be recalled that critieria for consideration of the application covered the need to have a minimum paid up capital of Rs500 crore; sound financial track record for 10 years; willingness to open at least 25% of its branches in unbanked rural areas and be in a position to start operations within 18 months. Foreign capital, if infused, should not exceed 49%. If foreign capital came through actual foreign banks to operate in India, within the 49% stipulation, they may be allowed, as long as their home country extended reciprocity for Indian banks to set up their branches in their country.
Without any doubt, the large business houses named above are serious to secure the licenses. Others like the Department of Posts are so well entrenched in the country through their own net work of post offices, it will be a cake walk for them to be operative within months of their acquiring the required clearances and complying with the need to set up an "official' banking arm, which could be simply attached to their post offices, preceded by recruitment of qualified and experienced banking staff.
However, the Finance Ministry has some reservations in this matter.
It appears, after submitting their application for a banking license,
India Post sought financial assistance to the extent of Rs1,900 crore to set up the commercial banking operation, if they got the license. For this, the Finance Ministry, has suggested that they need to get the Expenditure Finance Committee's (EFC) approval. Therefore, it looks like the ministry has shown its reluctance in allowing India Post to get into banking business. So far, we have no news as to the reaction of EFC and whether they would fully support the venture.
The other candidate with substantial overseas experience and connections in financial operation covers the UAE Exchange. They began as money exchange in 1980, in the UAE (United Arab Emirates) and have build strong infrastructure with 328 branches in 20 states in the country. They have submitted strong plans to meet the increased branch requirements in five years after the license is received. If successful in obtaining the license, chances are that, later on, a local UAE bank may enter the scene as its partner! The bulk of the UAE Exchange business has been to handle expatriate Indian remittances to India from the Gulf countries, which runs into billions of dollars, each year.
Other applicants like IFCI, IDFC, LIC Housing, etc. too have financial experience and in operating in allied fields. Such conditions would apply to several others, who are also fellow applicants to get the banking license!
The point is that, this time, everyone of the applicants is well versed and has necessary credentials to set up a banking operation, given the opportunity. However, we are to recall that, the Raghuram Rajan Committee, in 2008 pointed out that "the Indian banking sector is fragmented and there are too many small uncompetitive players in the system".
This thought will take us to look at the prospect of RBI giving "conditional" licenses in 2014 to some of the applicants; in fact, we feel that this may be done in a phased manner!
We do not know what the applicants have stated in their "Mission Statement"! It is possible that there may be some who may have proposed, (or indicated) their plans to take over or buy out some of the smaller banks in existence; or even have had 'secret' talks for mergers! Who knows, there may be someone, who wants to buy out the several cooperative banks in the country, who are scattered all over the place!
If such offers are part of the applicant's "mission" to improve and reach out to the rural areas, including extending service to the "urban poor", they deserve serious consideration. How effectively and quickly these new licensees can replace the blood-sucking moneylenders in rural areas remains to be seen!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
The world was pushed into a global recession when the US debt mountain collapsed in 2008. At present, overall debt burden relative to GDP is higher in India, Indonesia, Thailand, South Korea, China and Malaysia, up to 30% higher than in the US. What will be the effect if the global debt mountain has problems?
To almost no one’s surprise the US Federal Reserve (Fed) decided to continue its experimental bond buying known as Quantitative Easing or QE. The Fed is not alone. Since 2009 it is estimated that central banks all over the world pumped roughly $9 trillion into the world economy. This free money allowed governments; companies and private individuals borrow as never before. As a result the levels of debt have increased substantially.
Public debt in Organisation for Economic Co-operation and Development (OECD) countries as a percentage of GDP went from around 70% in the 1990s to 110% in 2012 and is expected to rise to 112.5% of GDP by 2014. Some of these debt figures are truly amazing. Portugal’s debt is 123% of GDP. In Italy the figure is 127%. Greece’s problems are well known. Their debt is 180% of GDP. In Japan, it is a whopping 246% of GDP. The US used to have a reasonable debt of 67% but that has now risen to 112% of GDP to over $17 trillion dollars, about $54,000 for every citizen.
Sovereign debt is not the only area that has grown substantially over the past five years. In the US, the record low interest rates allowed corporations to borrow as never before. In the past three years, non-financial US corporations have borrowed more than $1 trillion dollars. They now owe more than $14 trillion. Their debt is now 2.3 times annual corporate revenues. This is one of the highest levels recorded in history with one exception. The other time it was this high was during the dot.com bubble of 1999-2000.
The quality of debt has also changed recently. Usually there are standard ‘covenants’ or provisions to protect creditors. Before the crash in 2007, so called “cov-lite” loans became popular. These had fewer protections and were usually a disaster for the creditors when the loans went bad. Before the crash companies issued $100 billion in cov-lite loans. So far, in 2013 more than $200 billion of cov-lite loans have been issued. Usually they pay higher yields, which make them especially attractive in the era of cheap money.
Collateralized loan obligations (CLOs) became notorious after the crash. These special purpose vehicles (SPV) are made up of a pool of other loans, which are sliced and diced then packaged to provide different levels of risk. The level of risk was misrepresented by the credit agencies who were asked to rate them before they were sold. These have now made come back. There have been $55 billion sold this year. The highest since $88.94 billion were sold in 2007.
US consumers have been fairly frugal since the crash. Most have repaired their balance sheets, which are far less leveraged with one exception: student loans. In the US, there are $1 trillion student loans outstanding. After mortgages they are the second largest category of consumer debt. Unlike mortgages there is no collateral. Now, 11% or $110 billion are seriously delinquent, which means that they are at least 90 days past due.
The European sovereign debt crisis is well known. Even though it has, in theory, been stabilized, it does not mean that it is not still growing. Sovereign debt in Europe has grown significantly since 2007 despite several austerity programs. But it is not just sovereign debt. Unlike the US, Europe has failed to deal with its private debt. With the exception of Germany, private debt in Europe has increased since 2007. It is now beginning to show up, or more accurately discovered, as nonperforming loans. European banks’ nonperforming loans have doubled in four years to reach €1.2 trillion. They were €514 billion in 2008 and are now €1.187 trillion. Although much of these bad loans are located in the notorious periphery countries, Germany had the largest number of bad loans at €179 billion.
In contrast to the European countries, the BRIC countries have actually lowered their sovereign debt, but they are the exception in the emerging markets. However, even as the sovereign debt of the largest emerging markets has gone down, the growth of private debt has more than made up the difference. Emerging market bond sales have grown to about $1 trillion in size. It is now larger than the US junk bond market as an asset class.
Emerging market corporate bond sales have doubled since 2005 and are still growing rapidly. They reached a record of $200 billion last year. This record was surpassed last May. Much of the debt was in local currencies, but a lot was not. Emerging market companies accounted for 80% of hard currency debt sold in 2013.
In addition to bond sales, bank lending to emerging markets has also set records. It is now estimated to be about $3.4 trillion dollars. In the first quarter of 2013 alone, cross border bank lending to EMs rose to $267 billion.
Emerging market consumers have also been busy catching up to their more spendthrift cousins in developed countries. Non mortgage consumer debt is $1.6 trillion. Motor vehicle, large appliance, and electronic loans doubled while credit card loans grew 90%. Overall debt burden relative to GDP is higher in India, Indonesia, Thailand, South Korea, China and Malaysia, up to 30% higher than in the US. Consumer debt is so high that pawnbrokers are one of the fastest growing businesses in South East Asia. There are three listed on the Singapore stock exchange. The newest listed this week.
Brazil has developed a culture of installment payments or parcelas. Almost anything from shampoo to plastic surgery is available on instalments. The result is that the average family spends 20% of its monthly income paying off debt, handily beating American consumers who reached a record of 13.5% in 2007 and twice the present rate.
And last but certainly not least is China. China went on a debt binge to protect the country from the recession in 2008. It hasn’t stopped. Debt soared from 130% of GDP in 2008 to 200% today. Much of the stimulus was funnelled through to local governments who borrowed heavily to build infrastructure projects including many vanity projects. No one really knows the size of the debt. It could range anywhere from 15 trillion yuan to 30 trillion ($2.46 trillion to $4.92 trillion), which equals 30% to 60% of the GDP. The central government’s audit is supposed to be complete this month, but it is doubtful that they will release the real number.
In addition to the local governments, the Chinese also have 320 million credit cards. Their use has grown 400% in the past 6 years. Household debt is only half the level of government debt and a quarter of corporate debt but at 15 trillion yuan ($2.5 trillion) it isn’t a rounding error. It is only 50% of disposable income, not up to developed world levels, but it has tripled over the past 5 years.
The world was pushed into a global recession when the US debt mountain collapsed in 2008. What will the effect be this time if the global debt mountain has problems? The Federal Open Market Committee (FMOC) is responsible for the stimulus known as QE. Its membership will change on 1 January 2014, one incoming member, Charles Plosser, said the current round of QE will end at some point, though he won't give a timetable. Perhaps then we will find out.
(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and has spoken four languages.)