This looks like a train wreck waiting for a place to happen. Almost makes me wish I was into shorting.

Mortgage insurers MGIC Investment Corp. (MTG), AmeriCredit Corp. (ACF), Conseco Inc. (CNO) could be in for a rough time if the housing bubble implodes leaving these guys holding the bag.

MGIC Investment Corp. (MTG) shares, at $61.50 (8.5x earnings) look cheap — as long as Street earnings forecasts of $6.70 and $7.20 a share pan out. The U.S.’s largest mortgage insurer currently insures $173b. But with home sales and prices falling, foreclosures and loan-default claims may rise.
http://seekingalpha.com/article/20882

Certainly could happen. We’ll see…

Nobel Laureate and father of free market thinking, Milton Friedman, sadly passed away November 16, 2006 at the age of 94. He will be missed.

Via Andy Kessler
http://www.andykessler.com/andy_kessler/2006/11/email_exchange_.html

a piece by Milton Friedman titled “How to cure health care”. It is a terrific piece, found here and some of it discusses Gammon’s Law, best summarized by this:

He observed that in “a bureaucratic system . . . increase in expenditure will be matched by fall in production. . . . Such systems will act rather like ‘black holes,’ in the economic universe, simultaneously sucking in resources, and shrinking in terms of ‘emitted production.’”
http://www.hooverdigest.org/013/friedman.html

Kessler includes emails from Milton Friedman

The market for automobiles, for TVs and so on is a market in which the producers deal directly with the consumers or, if indirectly, very closely, and in which the producers are incentivized to try to improve the quality and lower the cost of the goods that they are providing. They try to produce items that the consumer wants enough to pay what it costs to produce them.

In medicine today that is not the case. Almost no consumer of medical services pays for his own cost. Almost invariably, a third party pays. The incentives that operate in such a market are very different than the incentives that operate in the consumer market.

… If we could get the market straight so that customers were paying for it, I believe you could achieve at least as great improvements in health at a much lower cost and spread over a wider fraction of the population, but it is not easy to go from one market to the other. The market as it has now developed has very strong special fixed interests who will not give up their special position at all easily. The only real movement in the right direction has been the introduction of health savings accounts and their gradual spread. That may start a slow and steady movement in the right direction but I am not overly optimistic.

http://www.andykessler.com/andy_kessler/2006/11/email_exchange_.html

Thank you Mr. Friedman. As you righty observe, this will not happen in your lifetime.

How bad could it be? The government has put in place mechanisms that will prevent a recurrance of the major financial failures of the past.

FDIC insurance covers the principal and any accrued interest through the date of the insured bank’s closing on all your bank deposits including: checking, savings, money markets, and CDs.

Are Your Bank Deposits Insured?

President Franklin Roosevelt signed the Banking Act of 1933, which created the Federal Deposit Insurance Corporation (FDIC). This independent U.S. government agency protects depositors against losses and prevents runs on FDIC-insured banks or savings association banks. Discover what types of deposits the FDIC covers and how to make sure that you are getting the highest level of insurance for your money.
http://www.investopedia.com/articles/pf/06/FDICinsurance.asp

FDIC Insurance also covers Self-Directed Retirement Accounts on deposit at the insured bank.
* Traditional IRAs
* Roth IRAs
* Simplified Employee Pension (SIMPLE) accounts
* Section 457 deferred compensation plans
* Self-directed Keogh accounts
* Self-directed defined-contribution plans, for example, 401(k) plans

FDIC does not insure investments in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if these were purchased from an insured bank.

When the Savings and Loans were in trouble, government money - yours and mine, was poured into to bail out everyone involved. Could the FDIC respond in a similar manner?

If the economy really deteriorates in the coming years, how well funded is the FDIC? What portion of life savings are protected? Will they / can they honor all their obligations if there was a major recession or disruption of the banking system? We’ll see…

Learn more…
Savings and Loan bail out - similar to FDIC?
Money covered by FDIC comparred to Savings and Loans
Big winners and losers in Savings and Loan crisis

UnitedHealth Sees Bigger Options Charges [AP]

In 1997, 1999 and 2000, UnitedHealthcare’s outgoing CEO William W. McGuire received option grants on the day of the shares’ lowest price of the year — a lucky pattern with odds of 200 million to one. In addition to returning unexercised backdated options, McGuire has also agreed to forgo any benefit from such options that he has already exercised — though it remains unclear how that forfeiture will be accomplished. At the end of 2005, McGuire held $1.78 billion worth of unexercised options.
http://www.newsday.com/business/nationworld/

With news items like this, it is hard to be proud to be an American. However, judging by the lineup to get into business schools, it is clear that this greed and arrogance is greatly admired. I suppose one has to think more-fool-me for not reaching for such lofty goals and personal gain at the expense of the fabric of society. This is what makes America great, right?