BloggeRhythms

Something learned in a long career in the commercial finance business is risk analysis. Because the lender’s basis for any type of capital extension is determining the probability of the borrower to pay back as agreed.

 

While there are many formulae, steps to be taken and procedures for determining a borrower’s capability of meeting financial obligations, one of the basics is a broad-based assessment of outcome probability. This can easily be achieved by review of historical performance of others in similar endeavors, and of course, that of specific applicants themselves. That’s because most often, regardless that although new situations might be different, the likelihood is performance procedures and outcomes will be similar and consistent with those of the past. 

 

Therefore, if the same analytical criteria were to be applied to the administration’s involvement in the nation’s health care system, a fundamental step would be a review of other situations in which the government participated actively. Two examples follow in that regard:

 

Amtrak annual report points out that in 2010, its farebox recovery (percentage of operating costs covered by revenues generated by passenger fares) was 79%. In Fiscal Year 2011, the U.S. Congress granted Amtrak $563 million for operations and $922 million for capital programs. According to its publicly listed financial statements, in 2013 the railroad’s net loss was  $1,228.2 million which followed a$1,239.4 million net loss in 2012.

 

Then we have an article by Devin Leonard on May 26, 2011, in  Bloomberg Businessweek about the nation’s postal service stating that: “Since 2007 the USPS has been unable to cover its annual budget, 80 percent of which goes to salaries and benefits. In contrast, 43 percent of FedEx’s (FDX) budget and 61 percent of United Parcel Service’s (UPS) pay go to employee-related expenses. Perhaps it’s not surprising that the postal service’s two primary rivals are more nimble. According to SJ Consulting Group, the USPS has more than a 15 percent share of the American express and ground-shipping market. FedEx has 32 percent, UPS 53 percent.

 

The USPS has stayed afloat by borrowing $12 billion from the U.S. Treasury. This year it will reach its statutory debt limit. After that, insolvency looms.”

 

Added to those two financial quagmires, is seventeen trillion in U.S. debt and climbing, primarily due to governmental fiscal incapability.

 

Therefore, one doesn’t have to be a financial wizard to quickly see what the odds are that the government can effectively manage any kind of enterprise fiscally. The probability of success is currently at zero, or less. And, while both Amtrak and the USPS are huge organizations, both are dwarfed by the health care system which currently equals 20% of the nation’s economy.

 

So, while all the bickering, sniping and vindictiveness flies back and forth among politicos about government’s capability of managing the health care system effectively, the ultimate outcome is quite obvious.

 

Because, regardless of political affiliation, the odds are perfectly clear to anyone paying attention that as history’s proven time and again, government cannot operate any kind of financial system profitably. Which means that, its only a matter of time that the past will repeat itself, whereas most often, that’s precisely what it does.

 

That’s it for today folks.

 

Adios