http://www.cnbc.com/id/37982580
Published: Tuesday, 29 Jun 2010
By: Reported by Steve Liesman, written by Michelle Lodge
For American taxpayers, now on the hook for some $145 billion in housing losses connected to Fannie Mae and Freddie Mac loans, that amount could be just the tip of the iceberg.
According to the Congressional Budget Office, the losses could balloon to $400 billion. And if housing prices fall further, the cost to the taxpayer could hit as much as $1 trillion.
Two things are clear: Taxpayers don’t want to foot the bill, and Fannie and Freddie, taken over by the government in 2008 to stanch the financial bloodletting, need a major overhaul.
“Some of us who don’t even own homes are paying to support others and their home ownership, and they ask ‘why?’ said Robert J. Shiller, a Yale University economics professor and co-creator of the S&P/Case-Shiller Home Price Indices.
The indices measure the US residential housing market by tracking changes in the value of residential real estate both nationally and in 20 metropolitan regions.
Shiller added that the mission of Fannie and Freddie should be severely cut back “so that they’re not helping middle-class homeowners, [but] they’re helping poor people get into the housing market.”
At the crux of the financial crisis, the government took over Fannie and Freddie to avert possible massive losses for banks, money-market funds and, perhaps, most importantly, foreign institutions that purchased billions of Fannie and Freddie debt because of its implied government guarantee.
The Chinese, for example, had invested heavily, and the US decided it didn’t want them to take a loss on their investment.
One possible scenario for the entities is to turn them into utilities, said Sean Dobson, CEO and chair of Amherst Securities.
“Freddie and Fannie could be used to standardize the mortgage product,” Dobson said, “to completely describe what the risks are and then act as a conduit for the capital markets to take the risk.”
Tuesday, June 29, 2010
Thursday, June 10, 2010
Soaring costs force Canada to reassess health model
http://news.yahoo.com/s/nm/20100531/hl_nm/us_health_3
By Claire Sibonney - Analysis Claire Sibonney
Mon May 31, 2:38 pm ET
TORONTO (Reuters) – Pressured by an aging population and the need to rein in budget deficits, Canada's provinces are taking tough measures to curb healthcare costs, a trend that could erode the principles of the popular state-funded system.
Ontario, Canada's most populous province, kicked off a fierce battle with drug companies and pharmacies when it said earlier this year it would halve generic drug prices and eliminate "incentive fees" to generic drug manufacturers.
British Columbia is replacing block grants to hospitals with fee-for-procedure payments and Quebec has a new flat health tax and a proposal for payments on each medical visit -- an idea that critics say is an illegal user fee.
And a few provinces are also experimenting with private funding for procedures such as hip, knee and cataract surgery.
It's likely just a start as the provinces, responsible for delivering healthcare, cope with the demands of a retiring baby-boom generation. Official figures show that senior citizens will make up 25 percent of the population by 2036.
"There's got to be some change to the status quo whether it happens in three years or 10 years," said Derek Burleton, senior economist at Toronto-Dominion Bank.
"We can't continually see health spending growing above and beyond the growth rate in the economy because, at some point, it means crowding out of all the other government services.
"At some stage we're going to hit a breaking point."
MIRROR IMAGE DEBATE
In some ways the Canadian debate is the mirror image of discussions going on in the United States.
Canada, fretting over budget strains, wants to prune its system, while the United States, worrying about an army of uninsured, aims to create a state-backed safety net.
Healthcare in Canada is delivered through a publicly funded system, which covers all "medically necessary" hospital and physician care and curbs the role of private medicine. It ate up about 40 percent of provincial budgets, or some C$183 billion ($174 billion) last year.
Spending has been rising 6 percent a year under a deal that added C$41.3 billion of federal funding over 10 years.
But that deal ends in 2013, and the federal government is unlikely to be as generous in future, especially for one-off projects.
"As Ottawa looks to repair its budget balance ... one could see these one-time allocations to specific health projects might be curtailed," said Mary Webb, senior economist at Scotia Capital.
Brian Golden, a professor at University of Toronto's Rotman School of Business, said provinces are weighing new sources of funding, including "means-testing" and moving toward evidence-based and pay-for-performance models.
"Why are we paying more or the same for cataract surgery when it costs substantially less today than it did 10 years ago? There's going to be a finer look at what we're paying for and, more importantly, what we're getting for it," he said.
Other problems include trying to control independently set salaries for top hospital executives and doctors and rein in spiraling costs for new medical technologies and drugs.
Ontario says healthcare could eat up 70 percent of its budget in 12 years, if all these costs are left unchecked.
"Our objective is to preserve the quality healthcare system we have and indeed to enhance it. But there are difficult decisions ahead and we will continue to make them," Ontario Finance Minister Dwight Duncan told Reuters.
The province has introduced legislation that ties hospital chief executive pay with the quality of patient care and says it wants to put more physicians on salary to save money.
In a report released last week, TD Bank said Ontario should consider other proposals to help cut costs, including scaling back drug coverage for affluent seniors and paying doctors according to quality and efficiency of care.
WINNERS AND LOSERS
The losers could be drug companies and pharmacies, both of which are getting increasingly nervous.
"Many of the advances in healthcare and life expectancy are due to the pharmaceutical industry so we should never demonize them," said U of T's Golden. "We need to ensure that they maintain a profitable business but our ability to make it very very profitable is constrained right now."
Scotia Capital's Webb said one cost-saving idea may be to make patients aware of how much it costs each time they visit a healthcare professional. "(The public) will use the services more wisely if they know how much it's costing," she said.
"If it's absolutely free with no information on the cost and the information of an alternative that would be have been more practical, then how can we expect the public to wisely use the service?"
But change may come slowly. Universal healthcare is central to Canada's national identity, and decisions are made as much on politics as economics.
"It's an area that Canadians don't want to see touched," said TD's Burleton. "Essentially it boils down the wishes of the population. But I think, from an economist's standpoint, we point to the fact that sometimes Canadians in the short term may not realize the cost."
($1=$1.05 Canadian)
(Reporting by Claire Sibonney; editing by Janet Guttsman and Peter Galloway)
By Claire Sibonney - Analysis Claire Sibonney
Mon May 31, 2:38 pm ET
TORONTO (Reuters) – Pressured by an aging population and the need to rein in budget deficits, Canada's provinces are taking tough measures to curb healthcare costs, a trend that could erode the principles of the popular state-funded system.
Ontario, Canada's most populous province, kicked off a fierce battle with drug companies and pharmacies when it said earlier this year it would halve generic drug prices and eliminate "incentive fees" to generic drug manufacturers.
British Columbia is replacing block grants to hospitals with fee-for-procedure payments and Quebec has a new flat health tax and a proposal for payments on each medical visit -- an idea that critics say is an illegal user fee.
And a few provinces are also experimenting with private funding for procedures such as hip, knee and cataract surgery.
It's likely just a start as the provinces, responsible for delivering healthcare, cope with the demands of a retiring baby-boom generation. Official figures show that senior citizens will make up 25 percent of the population by 2036.
"There's got to be some change to the status quo whether it happens in three years or 10 years," said Derek Burleton, senior economist at Toronto-Dominion Bank.
"We can't continually see health spending growing above and beyond the growth rate in the economy because, at some point, it means crowding out of all the other government services.
"At some stage we're going to hit a breaking point."
MIRROR IMAGE DEBATE
In some ways the Canadian debate is the mirror image of discussions going on in the United States.
Canada, fretting over budget strains, wants to prune its system, while the United States, worrying about an army of uninsured, aims to create a state-backed safety net.
Healthcare in Canada is delivered through a publicly funded system, which covers all "medically necessary" hospital and physician care and curbs the role of private medicine. It ate up about 40 percent of provincial budgets, or some C$183 billion ($174 billion) last year.
Spending has been rising 6 percent a year under a deal that added C$41.3 billion of federal funding over 10 years.
But that deal ends in 2013, and the federal government is unlikely to be as generous in future, especially for one-off projects.
"As Ottawa looks to repair its budget balance ... one could see these one-time allocations to specific health projects might be curtailed," said Mary Webb, senior economist at Scotia Capital.
Brian Golden, a professor at University of Toronto's Rotman School of Business, said provinces are weighing new sources of funding, including "means-testing" and moving toward evidence-based and pay-for-performance models.
"Why are we paying more or the same for cataract surgery when it costs substantially less today than it did 10 years ago? There's going to be a finer look at what we're paying for and, more importantly, what we're getting for it," he said.
Other problems include trying to control independently set salaries for top hospital executives and doctors and rein in spiraling costs for new medical technologies and drugs.
Ontario says healthcare could eat up 70 percent of its budget in 12 years, if all these costs are left unchecked.
"Our objective is to preserve the quality healthcare system we have and indeed to enhance it. But there are difficult decisions ahead and we will continue to make them," Ontario Finance Minister Dwight Duncan told Reuters.
The province has introduced legislation that ties hospital chief executive pay with the quality of patient care and says it wants to put more physicians on salary to save money.
In a report released last week, TD Bank said Ontario should consider other proposals to help cut costs, including scaling back drug coverage for affluent seniors and paying doctors according to quality and efficiency of care.
WINNERS AND LOSERS
The losers could be drug companies and pharmacies, both of which are getting increasingly nervous.
"Many of the advances in healthcare and life expectancy are due to the pharmaceutical industry so we should never demonize them," said U of T's Golden. "We need to ensure that they maintain a profitable business but our ability to make it very very profitable is constrained right now."
Scotia Capital's Webb said one cost-saving idea may be to make patients aware of how much it costs each time they visit a healthcare professional. "(The public) will use the services more wisely if they know how much it's costing," she said.
"If it's absolutely free with no information on the cost and the information of an alternative that would be have been more practical, then how can we expect the public to wisely use the service?"
But change may come slowly. Universal healthcare is central to Canada's national identity, and decisions are made as much on politics as economics.
"It's an area that Canadians don't want to see touched," said TD's Burleton. "Essentially it boils down the wishes of the population. But I think, from an economist's standpoint, we point to the fact that sometimes Canadians in the short term may not realize the cost."
($1=$1.05 Canadian)
(Reporting by Claire Sibonney; editing by Janet Guttsman and Peter Galloway)
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