A single currency?

On Bloomberg Surveillance this morning the concept of a single world-wide currency was discussed. Personally, I am not sure how that would even be possible. How would investors or the market be able to reflect their opinions as to the relative security and stability of various governments?

Even with a single world-wide currency, governments and countries will have different levels of output, stability, production, etc. There needs to be a way for the markets to reflect this. Currently, this can be done by the relative value of one currency versus another. Now consider every country has just one currency. The governments, natural resources, and indigenous economies are still different. Unless the currency is 100% backed by some universal commodity (gold, for example) part of the value of the currency is the "full faith and credit" in the issuing body, and that the currency note is redeemable for equivalent goods and services across national borders. That discrepancy between entities still exists regardless of shape, color, size, and portraits on the bills or coins in use.

Perhaps the discrepancies will become evident in different interest rates that need to be offered by the treasuries of the respective countries; a government with a stronger economy can offer lower rates in return for the inherent stability. Well, doesn't that make government securities in and of themselves a "shadow currency"? We can have the two bonds with the same par value, the same coupon, and the same duration with different prices, due to the perceived difference in risk and stability. I'd guess that pretty soon thereafter a market for trading these identical yet different instruments will be created, and we are pretty much back where we started.

As this is just semi-knowledgeable ramblings on my part, I'm curious to know how investors bet the German economy against the French, if both use the Euro. While an optimal currency area may be larger than a country, I'm pretty sure it is smaller than the entire world.

AIG or ARRGGHH?

Interesting news today, from CNBC:

American International Group CEO Martin Sullivan stepped down from his post, as expected, after growing discontent among the board and shareholders with his management of the insurance giant.…Sullivan has come under intense criticism since AIG recently announced billions of dollars in writedowns from losses after Sullivan and the company assured investors the writedowns would be minimal.

This is another example of where a good ERM study would have exposed the asset weakness. As The Economist writes:

Mr Sullivan did himself no favours by mismanaging expectations. He and his team poo-pooed critics, insisting until this year that AIG had oodles of excess capital and that its actual (as opposed to mark-to-market) losses would be modest. The firm has since been forced to admit that its accounting models were too optimistic, after its auditors found “material weaknesses” in them

Perhaps an outside analysis of the capital model may have been a good idea?

MA INSURANCE COMMISSIONER PROPOSES BANNING USE OF SOCIOECONOMIC FACTORS IN RATING AND UNDERWRITING

From Insurance Journal - August 29, 2007

The draft regulation makes years of driving experience, driving record and a vehicle's model and safety features as the primary rating and underwriting factors in private passenger auto insurance.

The draft regulation bans insurers from using gender, marital status, education, occupation, national origin, religion, homeownership and other socioeconomic factors, some of which Burnes says are prohibited by statute and others which she deemed violate public policy, for either rating or underwriting.

It also forbids insurers from using information from credit reports or scores for rating for at least a year, during which time she said she would study the overall use of credit scores by insurers. It does not prohibit the use of credt scoring for underwriting.

This does mean that subsidization will still be alive and well. Let's hope that there is less of it.

Florida turbulence

At least some Florida legislators are seeing the light. Florida Underwriter writes:

The resulting 91-page bill swept through the insurance code with all the fury of a major storm that left insurance representatives stunned and some legislator’s in disbelief. Representative Dennis Ross (R-Lakeland) said the bill was “as close to a socialist policy that we ever came to.” He was joined by Representative Don Brown (R-De Funiak Springs) who decried the changes to Citizens Property Insurance Corporation, which makes it certain the former residual market will be the state’s largest insurer. Speaking of the freeze of Citizens’ rates until January 1, 2009, Brown noted that the bill ensured that homeowners would be eventually face potentially crippling assessments. “A one-year rate freeze is playing Russian roulette and every year you continue the freeze you’re adding another bullet to the chamber,” he said.

Leave it to Governor Crist, however, to never confuse reality for political expediency:

But no matter how dire the message, Crist and the legislature were more than happy to press forward and place their imprint on the property market. “The Florida House and the Senate have been working very hard to bring relief to our homeowners, and I am grateful for their dedication,” said Crist . “The people have pleaded for relief, and the good men and women of the Florida Legislature have answered the call. This is the right thing to do.”

The right thing to do? For whom?!

Workers Compensation Data

This is interesting, and useful. Needing to do research on workers comp rate filings, I stumbled on this site, which links to near every rating bureaus you can think of: http://www.cutcomp.com/depts.htm


Rather helpful.

The Further adventures of a failed behemoth

From the Insurance Journal: August 1, 2005

Reinsurers Sue AIG Alleging Claims Fraud; AIG
Denies All Wrongdoing

A group of 18 insurers is suing American International Group and bankrupt
fronting company Trenwick America Reinsurance Corp. for allegedly scheming to
collect as much as $73 million in what the insurers claim are "grossly inflated"
workers compensation and other reinsurance claims.

The suit alleges that only about $15 million of the $73 million in claims for which AIG has demanded payment appear to be legitimate paid losses eligible for reinsurance coverage. The remaining amount reflects "highly suspect" estimates of future (incurred but not reported) losses, according to the complaint, which was filed in Suffolk Superior Court in Boston on July 6.

Click on the above link for the rest of the article.
It is amazing to see what is happening with AIG. It is even more amazing to see just how much AIG & Co. was doing sub rosa. I am very curious to see what else is unearthed. Stay tuned, this is going to develop for a long time.

The Medical Error Reporting Bill—More help or harm?

Congress has recently passed a bill to enhance the reporting of medical errors.

A national system designed to increase reporting of medical errors has won final congressional approval and been sent to President Bush.

It is estimated that more than 250 Americans die every day as a result of
preventable medical errors. Health care officials say increased reporting of
such errors would make it easier to spot harmful trends and find solutions, but
the current environment punishes openness because reporting such errors could
lead to the loss of credentials or a lawsuit.

Click Here for the rest of the Insurance Journal Article

While in theory, I too agree that this is a wonderful idea, I wonder how many congresspeople truly understand the stresses and pressures of medical emergencies. Yes, many, if not most medical error are underreported, and most are preventable. As such, nothing should stand in the way of preventing them.

However, hindsight is always 20/20. In the extreme stress of a situation, every single eventuality is not always immediately apparent. The practicioner has to make the best possible decision he or she can under the circumstances. After the fact, it is always possible for a defense lawyer, with six months to prepare, to have the luxury to do research and find the best possible solution, or reasons why the chosen decision was not the best. Try doing that when a patient is hemorrhaging on the floor, within seconds of bleeding to death.

I hope that this legislation will not result in having less decisive and less confident doctors; hesitant to do anything for fear of lawsuit.

There are too many lawyers for our own good, but that is another issue.

George Will on Reading

Well, I have always been a fan of George Will, not only for his political viewpoint, but for the style of his essays. He is a remarkable writer and well worth reading, even if you disagree with his politics.

On July 23, 2004, he penned a piece regarding the demise of reading in our country. I think it is important enough to quote in its entirety, and it is sobering, to say the least.

Readers' Block


By George F. Will

Friday, July 23, 2004; Page A29


The first modern celebrity -- the first person who, although not conspicuous in church or state, still made his work and life fascinating to a broad public -- may have been Charles Dickens. Novelist Jane Smiley so argues in her slender life of Dickens, and her point is particularly interesting in light of "Reading at Risk," the National Endowment for the Arts' report on the decline of reading.

A survey of 17,135 people reveals an accelerating decline in the reading of literature, especially among the young. Literary reading declined 5 percent between 1982 and 1992, then 14 percent in the next decade. Only 56.6 percent of Americans say they read a book of any sort in 2002, down from 60.9 percent in 1992. Only 46.7 percent of adults read any literature for pleasure.

The good news is that "literature," as the survey defined it, excludes serious history, for which there is a sizable audience. The bad news is that any fiction counts as literature, and most fiction, like most of most things, is mediocre. But even allowing for the survey's methodological problems, the declining importance of reading in the menu of modern recreations is unsurprising and unsettling.

Dickens, a volcano of words, provided mass entertainment before modern technologies -- electricity, film, broadcasting -- made mass communication easy. His serialized novels seized the attention of Britain's public. And America's: Ships arriving from England with the latest installment of Dickens's 1840 novel "The Old Curiosity Shop" reportedly were greeted by American dockworkers shouting, "Did Little Nell die?"

When journalists in 1910 asked an aide to Teddy Roosevelt whether TR might run for president in 1912, the aide replied, "Barkis is willin'," and he expected most journalists, and their readers, to recognize the reference to the wagon driver in "David Copperfield" who was more than merely willin' to marry Clara Peggotty, David's childhood nurse. Exposure to "David Copperfield" used to be a common facet of reaching adulthood in America. But today young adults 18 to 34, once the most avid readers, are among the least. This surely has something to do with the depredations of higher education: Professors, lusting after tenure and prestige, teach that the great works of the Western canon, properly deconstructed, are not explorations of the human spirit but mere reflections of power relations and social pathologies.

By 1995 -- before the flood of video games and computer entertainments for adults -- television swallowed 40 percent of Americans' free time, up one-third since 1965. Today electronic entertainments other than television fill 5.5 hours of the average child's day.

There have been times when reading was regarded with suspicion. Some among the ancient Greeks regarded the rise of reading as cultural decline: They considered oral dialogue, which involves clarifying questions, more hospitable to truth. But the transition from an oral to a print culture has generally been a transition from a tribal society to a society of self-consciously separated individuals. In Europe that transition alarmed ruling elites, who thought the "crisis of literacy" was that there was too much literacy: Readers had, inconveniently, minds of their own. Reading is inherently private; hence, the reader is beyond state supervision or crowd psychology.

Which suggests why there are perils in the transition from a print to an electronic culture. Time was, books were the primary means of knowing things. Now most people learn most things visually, from the graphic presentation of immediately, effortlessly accessible pictures.

People grow accustomed to the narcotic effect of their own passive reception of today's sensory blitzkrieg of surfaces. They recoil from the more demanding nature of active engagement with the nuances encoded in the limitless permutations of 26 signs on pages. Besides, reading requires two things that are increasingly scarce and to which increasing numbers of Americans seem allergic -- solitude and silence.

In 1940 a British officer on Dunkirk beach sent London a three-word message: "But if not." It was instantly recognized as from the Book of Daniel. When Shadrach, Meshach and Abednego are commanded to worship a golden image or perish, they defiantly reply: "Our God who we serve is able to deliver us from the burning fiery furnace, and He will deliver us out of thine hand, O king. But if not, be it known unto thee, O king, that we will not serve thy gods."

Britain then still had the cohesion of a common culture of shared reading. That cohesion enabled Britain to stay the hand of Hitler, a fact pertinent to today's new age of barbarism.

georgewill@washpost.com

Vedic Math

Well, you want some ancient math shortcuts? Need to find the square of 85 in two seconds flat? Take a look at Wired.Com's article on Vedic Math.

Enjoy, and by the way, what is the square root of 9724454. Too late :)