From the New York Times…

The surprising news made headlines in December 2002. Generic pills for high blood pressure, which had been in use since the 1950s and cost only pennies a day, worked better than newer drugs that were up to 20 times as expensive.

The findings, from one of the biggest clinical trials ever organized by the federal government, promised to save the nation billions of dollars in treating the tens of millions of Americans with hypertension — even if the conclusions did seem to threaten pharmaceutical giants like Pfizer that were making big money on blockbuster hypertension drugs.

Six years later, though, the use of the inexpensive pills, called diuretics, is far smaller than some of the trial’s organizers had hoped.

The biggest problem in the way health care is done in America is that consumers generally have no incentive to watch costs. To be sure, some people still argue that diuretics are not as effective as the new drugs as the article above points out. But the bottom line is that they are both pretty close in effectiveness and yet one cost 20 times as much as the other. Even granting that the new drugs are better, one has to wonder if it is worth paying 20 times more for a marginal improvement in effectiveness.

For some reason, this Chickenman entry did not feed through like it should.

From Mish….

The state of New Jersey is insolvent. Bankrupt might be a better word. New Jersey is $60 billion in the hole on pension funding and the Governor is planning on skipping payments in a “pension payment holiday” until 2012 so as to not increase property taxes. To top it off, the ongoing plan assumptions are 8.25%. Sorry NJ, that simply is not going to happen.

Read the whole thing.

Acme gives all of its employees a turkey at this time of year. Acme employs a lot of temporary workers–which is to say, Acme does not employ them, they are employed by the agencies, so they do not get turkeys. Acme does employ a number of high school co-ops; since they are Acme employees, they Click Here to continue reading.

From Naked Capitalism….

Let’s see, Bloomberg said yesterday that the Federal government had committed $7.4 trillion to lending facilities and guarantees. The total is now $8.2 trillion thanks to new programs announced today to aid borrowing by consumers, small businesses, and homeowners.

This modesty on the part policy makers is getting disgusting. Since people seem to be pulling numbers out of their hats, why are the numbers they keep pulling out just under a trillion? Why is no one out there promising a trillion dollar fix for a problem? What makes a trillion dollars too much to spend fixing a problem, but we can promise hundreds of billions of dollars every day?

From the Telegraph….

With retailers struggling to find credit and ordinary Russians being forced to change their spending, a vast lake of undrunk vodka is accumulating in distilleries across Russia.

Official statistics indicate a collapse in demand for vodka over the past two months. November inventories of unsold vodka stock have risen to 82 million litres, a 600 per cent increase from 2007, according to the National Alcohol Association.

This is a good thing. It might help cut down the alcohol related mortality that plagues Russia. Alcohol related mortality is a significant contributer to Russia’s demographic problems.

On the other hand, the same economic problems that keep the Russians from drinking are also going to cut down on the number of Russians willing to have children. So I overall Russia’s demographic problems are likely to get worse.

From the Naked Capitalist…

The Federal government has said that it is willing to lend or backstop up to $7.4 trillion to get the credit markets moving again. This figure comes from Bloomberg as a tally of all the commitment ALREADY made. Note that many of these have not been drawn down, hence the Fed’s and Treasury’s balance sheet have not (yet) expanded correspondingly. And some of these are in the form of guarantees, such as $1.4 trillion by the FDIC. Note the Bloomberg article fails to provide a tidy table showing how it came up with this figure. Critics will argue that the mixing of guarantees and borrowing facilities is an apples and oranges comparison, but the flip side is that the guarantees are treated by the authorities as a cost-free exercise, which is also incorrect.

From later on in the same post….

US debt to GDP stood at 350%. as of March 31, 2008. There are some items that are arguably overstated (lines of credit are included at their full amount, but second and third mortgages not included, and perhaps most important, contingent exposures like AIG’s credit default swap guarantees). It isn’t unreasonable to assume they net out.

The Fed’s proposed intervention is a bit more than half of GDP. However, note it (and the Treasury) has already made, and will continue to make, considerable commitments to non-US parties. AIG., for instance, has over $300 billion in CDS exposures in guarantees that permit European banks to evade minimum capital requirements (and AIG also has other, substantial non-US exposures). Similarly, the most likely cause of a Citi meltdown would be withdrawals of uninsured deposits, which were primarily overseas. Moreover, the Fed has also provided considerable indirect support to non-US entities via providing unlimited dollar swap lines to other central banks.

That is a long winded way of saying that not all of that $7.4 trillion applies to exposures that fall in the 350% debt to GDP figure cited above. Just to pick a number, say $6 trillion of the total goes to US debt. The US debt was $49 trillion. The Fed can commit less than 1/8 of the outstanding debt to solve the problem

As a nation we owe more then we can ever afford to pay. This comes from growing debt faster then GDP for many years. There are only to ways out of this mess. We can inflate our way out or we can allow many people to default. There is no third choice.

As for me, I prefer the default option to the massive inflation. At least under the default option there is a chance that the people who caused this mess will suffer more then those who played it straight. By contrast, massive inflation will benefit those with heavy debt and wipe out those who tried to save.

Given that the US is a democracy and a net debtor nation, I have no doubt about which solution this nation will chose in the end.

It was bad.

Check out Felix Salmon, Naked Capitalism, and Calculated Risk.

Edit: Marco Man worth checking out as well.

I been watching this Citi over the weekend. It seemed like things were merrily heading towards the government giving them a ton of money to solve all their problems. Then all the sudden everything went haywire.

Read this article from CNBC and you can get an idea of how fast things changed. Two updates on one article is hardly normal.

Naked Capitalism has more. Though I must say I take strong exception to this…

But the real problem is more basic. Why does the Administration need to be fair? This is a one-off, emergency measure. The fact that it is worrying about other banks demanding the same deal suggests the terms are not sufficiently punitive to Citi management (note the stress on the impact on the key actors). But even if it is not as nasty as it ought to be to Citi, people in power have the right to be capricious. Citi is unique on so many dimensions that it is easy to argue that a deal for Citi need not apply to anyone else.

I think that the idea that people in power have the right to be capricious is more harmful then Citi’s collapse could ever be.

Edit: Forgot to put the link in. Fixed now.