Obama's first year in office - he traveled so far and yet all he did was come back to where he started

Posted by Shyam Moondra

President Barack Obama just finished one full year in office. He seems to have traveled so far and yet it feels like all he did was come back to where he started. I give him a C for his efforts and personal qualities, which is far less than a B+ he gave himself during an interview on CBS. If anything, he certainly gained valuable experience from which he could learn and grow, and hopefully accomplish big things in the next twelve months.

Obama's election as president of the United States was transformative and it raised hopes for change among the American people. Right after his election, Obama enjoyed tremendous popularity and many expected that he would capitalize on that popularity and accomplish big things on a short order. The people were almost euphoric about the possibilities. They thought Obama will bring more bi-partisanship in national political discourse, stop job losses and home foreclosures, sign a health care reform legislation, implement new regulations for the financial sector, reach agreements with North Korea and Iran on non-proliferation of nuclear weapons, achieve an international consensus on climate change, and reach agreements with Russia on new arms treaty. He succeeded on none, making the voters angry and disillusioned that led to the unexpected victory of Scott Brown, a Republican, in the most liberal state of Massachusetts, filling the seat of the late Sen. Ted Kennedy. Now that the Democrats have lost their super majority in the Senate, it would become even more harder to get things done.

What went wrong?
· Obama failed to provide leadership. Obama proposed things but then he uncharacteristically became aloof from the process, leaving the members of Congress with diverse opinions to sort things out. Ultimately, the process became so polarizing, thanks to intense lobbying by the various interest groups, that it became almost impossible to realize Obama's original vision.

· Obama, a man with excellent communications skills, couldn't persuade a single Republican to vote with him. His failure to work effectively with the opposition was one of the biggest disappointments, especially to the independents.

· Lackluster leaders in the Congress from both parties sealed the fate of many initiatives that Obama proposed. The Senate Majority Leader is utterly ineffective, the House Speaker is one of the most disliked politicians in the history, and Republican leaders in the Senate and House have zero leadership skills. The Democrats have a majority in both houses and yet the party is doomed because of lack of discipline among the rank-and-file and Obama has not paid sufficient attention to the inner workings of the party.

· Obama's tendency to throw money at problems has turned off many independents and conservative Democrats. He needs to offer more imaginative solutions that require less new spending.

· Obama also suffered from bad luck. If his $700 bi stimulus spending had created the promised two million jobs, the mood of the people would have been very different than it is today. This recession has proven to be very stubborn and more stimulus may be needed down the road.

So where does Obama go from here?
· Obama needs to make some staff changes. Secretary of State Hillary Clinton and Secretary of Defense William Gates should be kept, but everyone else should be re-evaluated. Chief of Staff and Secretary of Department of Homeland Security should be replaced.

· Obama needs to move to the center and abandon his socialist tendencies, or else he will permanently lose the support of the independents. When all Republicans in the Congress vote against him, that is a big political problem. Obama needs to change his governing style and peel away pragmatic Republican lawmakers to achieve his agenda. He needs to forge and maintain special relationships with the centrist Democrats, non-ideologue Republicans, and independents to get big things done.

· Bring about changes in the Democratic leadership in the House and Senate. We need new leaders in the mode of the late Speaker Tip O'Neil or the late Senate Majority Leader L. B. Johnson who can bring discipline among the rank-and-file Democrats and also work effectively with the opposition.

· Provide more leadership. Obama tends to give broad outlines of his proposal but then he just walks away and let the members of Congress fight it out with disastrous results. Obama needs to roll up his sleeves and hammer out detailed compromises with the Democratic and Republican leaders in the Congress. Obama's recent meeting with the Republicans in Baltimore was a good start. He needs to follow-up with regular meetings with the Congressional leaders from both parties at the White House, as he said he would.

· Stop throwing money at problems at a time when our national debt and budget deficit are running so high. The case in point, health care reforms. Obama said all the right things during the election campaign, but once in office, the Democrats turned the main objective of cutting health care costs into developing new subsidies and entitlement programs. After the experience of escalating costs of Medicare and Social Security, the American people have almost no appetite for starting any new entitlement programs. Obama needs to go back and prune the health care bill to focus on insurance reforms and cost cutting. If costs are brought down, many of the uninsureds would be able to afford to buy health insurance, and thus the number of uninsureds would go down over time. The Democrats need to cut-down on the proposed subsidies and new entitlement programs.

· The first stimulus has not worked as expected, in terms of job creation. It seems inevitable that a second stimulus would be required, or else we could see the recurrence of recession in the second-half of 2010. This time, Obama needs to focus more on tax incentives rather than new spending. The government spending is never efficient and it involves a lot of waste. On the other hand, tax incentives put more money in the hands of non-government bureaucrats that tends to have immediate positive effect on economy. Besides, taxes can be raised again in the future when we have our prosperity back, but the government spending is never recovered.

· While we are still providing stimulus to the economy, simultaneously, Obama needs to aggressively propose a credible plan to reduce budget deficit and national debt. Unless the budget deficit is brought down to a more reasonable level, we are headed to a tough interest rate environment which will choke-off economic growth. Obama should eliminate wasteful spending in all different parts of the government, including the Defense Department. The federal budget gap, however, cannot be eliminated just by reducing wasteful spending; at some point, we will have to increase income taxes for those earning more than $250,00 a year ($500,000 for a couple) and close-down the corporate tax loop-holes (it's unfair when companies like Goldman Sachs pays only 10% in taxes because of creative off-shore trading schemes).

President Obama has many fine personal qualities, he is a very likable and honest man, he is very intelligent and well versed with public policy issues, and, most importantly, he has extraordinary communications skills. There is no reason why he can't use all of that and lead friends and foes into forging partnerships that would deliver for the American people. Obama just needs to show more leadership and get more involved in crafting legislation, collaborating with both Democrats and Republicans in the Congress. Even though, he didn't do as well as expected (true, he suffered from very high expectations), but he has the necessary skill set to achieve big things in the remaining three years of his presidency. Yes, he can!

Recent price increases by drug manufacturers show the need for a government option

Posted by Shyam Moondra

The drug manufacturers recently increased the drug prices in anticipation of the new health care legislation, thereby taking back some of the cost reductions they had promised only two months ago. This demonstrates why any health care reform must include a government option that would keep the service providers' greed in check. In the absence of a government option, it's very likely that the health care reforms would in fact increase the cost rather than reduce it as is hoped for by the legislation supporters.

If a government option is not included in the final health care bill, as an alternative, the bill must include a new regulatory frame-work for the entire health care industry (drug manufacturers, hospitals, insurance companies, and doctors) in which their rates and profits would be regulated by the government commissions just like public utility commissions today regulate telephone, gas, electricity, and water companies.

If the health care bill requires every American to buy health insurance, then it is imperative that prices are reasonable and that means either we have a non-profit government plan or the government regulates the prices and profits of the service providers. It would be unconstitutional to force Americans to buy health care insurance at artificially inflated prices.

In the interim, the drug manufacturers should be punished for their bad behavior. The Congress should immediately consider:
1. Changing the patent laws permitting the marketing of generics sooner.
2. Allowing reimportation of drugs from Canada and Mexico.
3. Suspending the tax subsidies given to the pharmaceutical industry.

Proposed health care bills will not reduce costs

Posted by Shyam Moondra


The health care bills passed by various committees in the Senate and House will cover many, if not all, of the 40 millions or so people who are presently uninsured, thanks to the subsidies provided by taxpayers' money at a cost of little less than $1 trillion over ten years. However, these bills will most likely increase the costs for those who presently do have the insurance coverage and/or the quality of health care will go down. All in all, none of the bills being currently considered by the Congress is satisfactory and the American people have a reason to worry about the future.

The following are the major weaknesses of the health care bills being considered and what needs to be done to improve them:

· The main problem is greed and profiteering among the service providers. We need to regulate insurance companies, hospitals, and drug companies as utilities. Health care is just as essential as electricity, gas, water, and telephone service. The state public health care commissions (structured in the same way as state public utility commissions are structured) should decide on the rates and profit margins of the health care providers. This approach will ensure that the health care costs remain under control.

· The final plan must have a non-profit government option to keep the competitive pressure on greedy health care providers. This option will provide an added protection if the other methods of cost reductions don't produce the desired results. Without this option, it does not seem fair to require people to buy mandatory insurance at inflated rates from the profit-hungry providers. This mandatory imposition on the public without a means to buy the insurance at a reasonable rate may even be unconstitutional.

· The inflated health care costs are partly due to exorbitant malpractice claims and huge malpractice insurance premiums hospitals and doctors have to pay that induce them to over-prescribe tests and treatments just to protect themselves. Without an effective tort reform, it's very unlikely that any of the proposed health care plans will result in lower health care costs.

· The current patent laws make it difficult for competing drug manufacturers to bring out inexpensive generics to the market place. The final health care plan should change the patent laws shortening the duration of exclusivity to enable generic offerings sooner. Also, the plan should allow re-importation of drugs from Canada and Mexico.

President Obama's speech on health care was effective – the ball is now in the Congress' court

Posted by Shyam Moondra

President Obama did a good job in outlining his health care plan in an address to the joint session of the Congress last night. The speech was well crafted and effectively delivered. Now the ball is in the court of the Congress that must deliver the legislation by the end of the year.

Prior to this address to the Congress, Obama was steadily losing ground in terms of public opinion because of his aloofness from the legislative process that many viewed as exhibiting lack of leadership. Also, his inadequate engagement with the Congress led to a lot of misinformation propagated by those, primarily conservative Republicans, who wanted to kill the initiative altogether.

This is what I liked in Obama's speech:
1. He articulated clearly that something had to be done on health care this year or else the whole economy will suffer in the long-term.
2. For the first time, he talked about tort reform that is essential to stop over-prescription of tests and treatments. The doctors and hospitals tend to order excessive tests and treatments just to protect themselves from potential malpractice lawsuits. These excessive tests and treatments significantly add to the cost of health care. The trial lawyers, who contribute heavily to the Democratic Party, generally oppose any changes in the malpractice laws; therefore, it was significant that Obama brought it up in his speech.
3. His three examples of how the late Sen. Ted Kennedy partnered with the prominent Republican senators to pass health care laws for children were particularly effective. Those examples will sway the attitude of many moderate Republicans who will now work harder to pass the health care legislation this year.
4. He successfully laid to rest misunderstandings about "death panels," government plan coverage for abortions, and the government plan driving insurance companies out of business - conservative Republicans had been using these misunderstandings to drive the public opinion against the health care reforms.
5. The government option will be started in a limited way, accounting for less than 5% of the total population.
6. The reasons for making health care coverage mandatory (just as most states require all drivers to buy no-fault car insurance) were explained better than before.
7. The proposed plan will be paid for without adding to the budget deficit.
8. He stated that he was open to adopting any new innovative ideas, Republican or Democrat, to make his proposed plan better.

This is what I didn't like in Obama's speech:
1. He listed three main goals of his plan: reduce the ranks of uninsureds, stop insurance abuses, and reduce costs. During the campaign, he always emphasized reducing costs as the primary goal of reforms, which I thought was right on the mark. If health care costs are brought down, many uninsureds will be able to afford to buy insurance and thus the problem of uninsureds will go away over time.
2. His price tag for the plan, $900 billions over ten years, will continue to turn off conservative Republicans and Democrats, especially at a time when federal budget deficit is running at record levels. Most Americans think that any tax increases should be used to reduce budget deficit and not for starting a new entitlement program.

Overall, Obama's speech was very helpful to Americans in understanding clearly what he was proposing and why. I am very optimistic that his speech will prod Democrats and Republicans to work together and hammer out a health care reform bill before the end of this year. Should Congress fail to pass a health care bill this year, Republicans will be blamed for this failure and they will pay a price in the mid-term elections of 2010.

So far, not so good - Obama needs to retool

Posted by Shyam Moondra

President Barack Obama and his team have badly stumbled on the health care proposal. Here are some observations:
· President Bill Clinton's health care proposal failed because the Clinton administration pretty much took over the job of writing the legislation and the Congress rebelled. This time, the Obama administration just outlined the key requirements and then became completely aloof from the process of writing the bill that was prepared by the members of the Congress with the help of lobbyists. This approach resulted in a draft bill riddled with loopholes diluting the reforms that were originally envisioned. Obama's lack of participation made him look like lacking leadership skills and it became impossible to have a unified message. The critics tore the plan apart, fueling a grass-root rebellion as witnessed at many town-hall meetings across the country.
· During the election campaign, Obama presented himself as a centrist, but the Democrat health care proposal in the House made it apparent that Obama is really a leftist in disguise. A vast majority of Americans are either at the center or slightly to the right of the center, so once it became clear that Obama was really a liberal, his support among the Democrat conservatives and Independents plummeted.
· During the depression of the 1930's, when people were suffering tremendously, President Franklin D. Roosevelt was able to push through his liberal agenda of starting new entitlement programs or creating what he called a "safety net." Some on the Obama team thought that, given the suffering among the masses because of the current financial crisis, they could push through a health care entitlement program costing $1 trillion for the first ten years. That approach seems to have backfired.
· Obama's superb speech making skills are not enough – he needs to be more hands-on. He needs to roll-up his sleeves and sit down with the Congressional leaders to hammer out the details of new bills rather than become completely detached from the whole process. In other words, he needs to do more walking than talking – people are tired of his speeches, press conferences, video blogs, and on-camera pronouncements.

The poor performance by the Obama team on the health care has far reaching consequences:
· Democrats could lose the control of the Senate and House in 2010, as happened during the Clinton's first term when his plan for universal health care coverage was rejected by the Congress. If Obama loses the support of Independents, he would not be able to win re-election in 2012, although it's too early to talk about that.
· Obama's other initiatives on climate change, education, regulatory reforms, energy independence, etc. may now be in jeopardy.
· If Obama is perceived as weak at home, it will embolden our adversaries abroad that would have negative security consequences for us and for our allies.

In general, the American people have the following core beliefs:
· They believe that the government is too inept to be able to run a program efficiently. Case in points, Amtrak and United States Postal Service – they both would go bankrupt if the government didn't bail them out. Even Medicare and Medicaid are fraught with corruption and fraud by service providers.
· The government can't be entrusted with their personal data and they would certainly not like the government to make any life and death decisions. The people simply don't like governmental intrusion in their personal lives, period.
· Those who work hard must be allowed to reap the fruits of their labor. They vehemently oppose the idea of government's taxing the rich and using that money to provide "free" services to the poor. They reject the idea of income re-distribution by the government in any form.
· They don't like a welfare state. The best thing that Clinton did was to dismantle the welfare programs that made many poor people too dependent on the government welfare checks, to the point that many poor people found it more profitable to remain unemployed. The American people oppose any Obama attempt to resurrect a welfare state.

So, where do we go from here?
· First, some changes within the White House are inevitable. To regain the trust of the American people, Obama needs to make personnel changes amongst the ranks of his advisors and perhaps some cabinet secretaries.
· Obama will be helped if the House Speaker Nancy Pelosi is replaced. She is far more to the left than Obama is and that's a real political problem because most of the population is more centrist. It would also help if some of the committee chairpersons in the House and Senate are also replaced by more younger, energetic, and innovative leaders.
· Scrap the existing health care proposals and start all over. Obama needs to focus on reducing health care costs and reforming insurance abuses and guarding against their greed. Obama should refrain from proposing any new expenditures (the people are not at all in the mood of starting any new entitlement program when the budget deficits are running at record levels – if we ever become prosperous again, we can reconsider new health care expenditures at that time but not right now).

Economic recovery may be erratic but it's on right track

Posted by Shyam Moondra

President Barack Obama has been in the oval office for only a few weeks but he has moved at a lightning speed on several fronts simultaneously. While his actions may not be perfect, he seems to have a good intellectual grasp of how the various pieces of the puzzle fit together. Undoubtedly, some critics on the other side of the political divide would say that he is on a wrong track. However, given the awful results of the George Bush presidency, it's hard to support the Republican ideological viewpoint that doing anything differently from what President George Bush did automatically puts you on a wrong track.

Never before, economic fortunes crumbled worldwide in such a short period. Low interest rates of the 1990s fueled the housing market prompted by innovative products such as sub-prime mortgages, mortgage-based securities, and credit default-swaps. The business was so lucrative that financial institutions around the world jumped on the bandwagon without ever bothering to fully assess the enormous risks involved and made a fortune. But when the FED started increasing interest rates to tame the fears of inflation, the house of cards began to crumble. Reduced demand for housing led to rapid decline in home prices that, in turn, led to the floodgate of defaults and foreclosures. The financial institutions that grabbed the mortgage-securities began to see the values of those securities evaporate and they were forced to report huge losses bringing them closure to bankruptcy.

The Obama administration moved swiftly to address the issues in a top-down as well as bottom-up fashion (as I suggested in "Combine top-down and bottom-up approaches to deal with the credit crunch," The Moondra Post, September 30, 2008) by offering assistance to the financial institutions through TARP and FED credit facilities as well as providing help to the homeowners to stay in their homes. The stimulus package, recently passed by Congress, includes tax credits for home buyers that should help reinvigorate the housing market. The Obama's proposed budget includes income-tax reductions for 95% of the taxpayers that will induce them to spend more, thereby boosting the economy. The budget also includes massive spending for infrastructure projects that would instantly create new construction jobs. In addition, the proposed budget includes long-term investments in alternative energy technologies (that will create new high-paying jobs and reduce our dependence on imported oil), health care (that will reduce health care costs), and education (that will increase our competitiveness in the world), The Obama administration's multi-pronged approach to the economic collapse is well thought out and it will yield positive results over time. While it's true that the budget proposal has many pork-barrel wasteful spending appropriations, overall, it has many more positive elements that are necessary under the present dire circumstances.

Not to forget the last piece of the puzzle, the regulatory reforms. Lack of regulations and oversight led to the collapse of the financial system. So it's not surprising that the Obama administration is aggressively moving to bring the regulatory regime to the twenty-first century. We need to regulate investment banks and hedge funds, monitor and regulate computerized trading to eliminate market manipulation (ban naked short selling, limit short selling to 1% of outstanding shares, require institutions to hold stocks they buy for a certain minimum period before they can sell those stocks, and limit trading in derivatives such as options), and impose strict capital requirements on all financial institutions (no more 40:1 leverage used by many investment banks and hedge funds).

The increased spending to jump-start the economy will certainly add to our budget deficit and national debt in the near-term. That's why President Obama is already looking beyond the near-term and he has proposed to reduce government expenditures (e.g., changes in defense contract procedures and health care reforms will save billions of dollars) and increase taxes on the richest (who prospered handsomely during the Bush years and now must give up some of those gains). It took President Bush eight years to turn a budget surplus into a huge deficit, so it's reasonable to expect that it will take a concerted effort by the Obama administration over the next several years before we see a budget surplus again.

In spite of the above dramatic initiatives, we are continuing to see unemployment on the rise and corporate profits on the decline, but the actions taken by the governments around the world create just the right conditions for an economic recovery. Lower interest rates, increased government expenditures, lower taxes for the middle-class, and regulatory reforms will boost the global economy soon. These conditions are ideal for the financial markets, so President Obama was right in his recent observation that long-term investors should start buying dirt-cheap stocks. The current average PE ratio of S&P 500 index of 12, while not as low as 6 of July 1932 and 7 of July 1982, is much lower than the latest 25-year average of 21 and 50-year average of 18. The decline in the average PE ratio from the recent peak of 44 set in 2002 is the worst since the depression of the 1930's. The conditions today are, however, very different than those in the 1980's when we had double-digit inflation and double-digit interest rates. Today, we have annual inflation rate of about 2% and fed funds rate of 0.5%. Therefore, the stocks are indeed very cheap with a huge upside potential.

Aside from the differences in policy directions, there is a stark difference in mostly reactive mode of operation of the Bush Administration and a pro-active comprehensive approach of the Obama administration. President Bush had no long-term vision and he never believed in a deep governmental involvement in free-market economy. President Obama works off a well-thought out strategic vision bringing in the full weight of the government to make his initiatives yield the results quickly. If President Obama continues to show vigor and remains a hands-on chief executive as he has been so far, chances are we will begin to see the results of his stimulus package and the proposed budget plan as early as in the second-half of 2009 and by 2010 we should be well on our way to recovery and renewed prosperity.

Barack Obama, the 44th President of the United States of America

Posted by Shyam Moondra on January 20, 2009

Today, 45 years after Martin Luther King, Jr. gave his "I Have a Dream" speech at the Lincoln Memorial in Washington, D.C., Barack Obama, an African American, was sworn in as the 44th President of the United States of America.

Obama's father was a Black Muslim from Kenya, although his white mother and maternal grand parents raised him as a devout Christian. It would seem unimaginable that a black man named Barack Hussein Obama could ever become the president of the United States.

It's no coincidence that Obama admires Abraham Lincoln the most and draws inspiration from him. It was Lincoln who ended slavery in the United States and was called by Frederick Douglass, one of the most prominent African Americans in the history of the United States, "emphatically the black man's president." It was no surprise that Obama chose to replicate Lincoln's train ride to Washington, D.C. for his inaugural.

Today's historic swearing-in by Obama, which was witnessed by over two million Americans, is clearly one of the defining moments in the history of the United States. While this was a matter of pride for all Americans, whites and non-whites alike, this monumental achievement has also demonstrated to the world what America is all about – a place where anyone can realize his or her dreams. The inauguration of the Obama presidency reflects the character and strength of America that even our adversaries envy. Obama's election has instantly resurrected the admiration, respect, and love that many people around the world have had for America.

Obama ran a brilliant and disciplined campaign; he was inspiring on the campaign trail; and he offered a message of hope in tumulus times. Obama's emphasis on inclusiveness and unity, sense of individual responsibility and purpose, and governmental transparency resonated well with the electorate. His calm and steady demeanor throughout the tough primary contest showed that he had what it takes to be a great president. His victory in the general election with an overwhelming majority demonstrated that the country was ready for a change.

Obama achieved so much and yet so much remains to be done. He now has to lead the country, in a non-partisan way, out of the current economic malaise. Never before, a new president inherited so much on his plate. Obama has to fix the economy and improve the lives of the middle class, bring the Iraq war to a conclusion, fight terrorism head-on in Afghanistan and Pakistan, solve the health care crisis, achieve energy independence, address the problem of global warming, settle once and for all the Israeli-Palestinian conflict, deal with belligerent Iran and North Korea and an overly aggressive Russia, improve the declining educational system, and tackle the entitlement programs. Obama has the intelligence, laser like focus, and energy to work on multiple issues and achieve big things for the entire world. He may very well nudge the U.S. Congress, that has in recent years become the weakest link in the government, towards becoming a more responsive and productive institution. If Obama and Congress can work together constructively and inclusively, the Obama presidency may prove to be one of the greatest presidencies of our times.

The road ahead is full of obstacles but for now the spirit of America is up and we should celebrate and cherish this extraordinary milestone in our history.

How to fix the broken health care system?

Posted by Shyam Moondra

The escalating health care costs are impacting families and businesses. In the face of government inaction on this issue, many corporations are washing their hands off this problem by cutting back employee/retiree's health benefits and increasing co-pay and deductibles. We already have 40 million Americans without health insurance, and given corporate cutbacks and sharp increases in premiums, the ranks of uninsureds will only increase making this crisis even more serious.

The current free-market model is broken. Most health care providers are milking this cow to the hilt - the greed has taken over their any sense of moral responsibility. Insurance companies, HMOs, hospitals, doctors, and drug companies are all increasing their charges in unrestricted way. There is no free-market competition; what we have is an industry-wide conspiracy to make more and more money.

The present health care system is beyond repair. What we need is a fundamental overhaul of the whole system. Any new system should have the following elements:

1. The government should takeover the health care insurance business. Having the efficiency of a large single carrier and removing the profit motivation from the equation will reduce the costs considerably. This single carrier should offer health insurance to all Americans, either through employers or directly to the people who do not have employer provided benefits (e.g., self-employed people).

2. The government, as a single carrier, should negotiate the lowest possible prices with hospitals, doctors, drug companies, and other service providers.

3. Medical record keeping and billing systems should be automated to reduce the operating costs of the health care system. Special provisions should be made to ensure the security and privacy of medical information of individual patients that's put on on-line.

4. The medical malpractice laws should be reformed to minimize frivolous lawsuits that increase the malpractice insurance premiums and eventually the health care cost. Having more transparency on this issue will also make the doctors stop prescribing unnecessary tests that they otherwise do to just protect themselves from potential malpractice law suits. The malpractice lawsuits should be allowed only in cases of genuine incompetent errors on the parts of doctors and hospitals.

5. Eliminate all tax write-offs for drug companies and other service providers in the industry.

6. Rewrite the patent laws to allow the marketing of generic drugs sooner.

7. Impose limits on marketing campaigns by drug manufacturers and ban the practice of giving kickbacks to doctors for prescribing specific brands of drugs.