With Reason on “Freedom’s Ramparts, America’s Tomorrow’s Will Always Dawn Brightly”: Podcast

Today, we’ve got a special podcast: The speech that Mitch Daniels, the former two-term governor of Indiana and the current president of Purdue University, gave at Reason‘s 50th anniversary celebration, held in Los Angeles in early November.

A thinking man’s politician, Daniels’ achievements as governor included leasing the money-losing Indiana toll road for $4 billion, passing a universal school voucher program, and making Indiana one of the most economically free states in the country. At Purdue, he’s managed to keep tuition costs down while also emphatically backing free speech and academic freedom. In his remarks, he told the audience that Reason has “with nearly unique persistence and unique fidelity to principle, upheld our liberties, constantly innovating and advocating measures to guard and extend them….With you on freedom’s ramparts, America’s tomorrow’s will always dawn brightly.”

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Teenage Sisters Legally Recorded Police, Who Tackled Them to the Ground

A North Carolina police officer is on administrative leave after a video surfaced of him tackling two teenage girls, apparently because they were recording him.

Video of the incident, which occurred Monday in Harnett County, shows 17-year-old Aumbria Urban and her 14-year-old sister, Jewelianna, being taken to the ground. What had they done wrong? The Harnett County Sheriff’s Office said in a statement that two officers were responding to a report of illegal drug activity. Eventually, they found their suspect—17-year-old Tyrese Namirr Gary—sitting in the driver’s seat of a car. “When the deputy approached the vehicle, the smell of marijuana was detected coming from the passenger compartment,” the police statement said, according to WNCN.

The deputies arrested Gary, who had other active warrants as well. Police claim to have found a handgun under his seat, which they also charged him for. The Urban sisters, meanwhile, were with Gary at the time (Aumbria is his girlfriend). The deputies searched them, too, but things quickly went south. “After each of us were patted down, we both started recording and asking why (my boyfriend) was being detained,” Aumbria told WTVD.

That’s appears to be when the now-viral video, taken on Aumbria’s phone and later posted to Facebook, starts:

“You cannot take my phone,” Jewelianna can be heard telling one of the deputies about 15 seconds into the 61-second clip. The officer responds by grabbing her around the neck and struggling with her for several seconds before taking her to the ground and informing her that she’s “under arrest.” After Jewelianna is incapacitated, another deputy holds her down while the first officer places her in handcuffs.

“Yo, what are you doing right now? She didn’t do anything!” says Aumbria as her sister is arrested. “You snatched her phone from her. That is her personal property. It’s all on video and you guys have absolutely no right to tell me I can’t record this. I did nothing wrong. You searched me, I had nothing.”

By that point, Jewelianna’s phone is on the ground, but she kicks it toward Aumbria. Then, when Aumbria goes to retrieve it, the first deputy tackles her as well, explaining that her sister’s phone is “evidence.”

The sisters were ultimately released without being charged and given their phones back. But Aumbria says she was warned not to publicize the footage. “The officer told me not to post it anywhere, not to let it get out,” she told WRAL, adding that she feels she was “harassed” and assaulted.

In addition to the first deputy being placed on leave, the incident is now being investigated by the North Carolina State Bureau of Investigation. “We will have additional details/information at conclusion,” the sheriff’s office said, according to WNCN.

The sisters were well within their rights to film the encounter. According to the American Civil Liberties Union of North Carolina:

You can take pictures of anything in plain view in a public space including federal buildings, transportation facilities, and the police, as long as you are not interfering with law enforcement.

Police officers may not confiscate or demand to view your digital photographs or video without a warrant, and they cannot delete your photographs or video under any circumstances.

Police frequently violate this right. In Texas, for instance, private citizens are generally allowed to record police officers in public places, as long as they’re not interfering with police work. But as Reason‘s Zuri Davis reported in July, an El Paso officer still arrested a young man who had filmed him pointing a gun at children.

Bonus link: Being able to record on-duty cops is important for police accountability. But as Radley Balko explained in a 2011 cover story for Reason, recording the police can be dangerous.

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US Banks Haven’t Behaved Like This Since 2009

Authored by Jeffrey Snider via Alhambra Investment Partners,

If there is one thing Ben Bernanke got right, it was this. In 2009 during the worst of the worst monetary crisis in four generations, the Federal Reserve’s Chairman was asked in front of Congress if we all should be worried about zombies. Senator Bob Corker wasn’t talking about the literal undead, rather a scenario much like Japan where the financial system entered a period of sustained agony – leading to the same in the real economy, one lost decade becoming a second and then a third.

Bernanke retorted that there weren’t going to be zombies in the United States. The American people needn’t worry because the key to staving off economic apocalypse was pretty simple.

If there is one message that I’d like to leave you with, if we’re going to have a strong recovery, it has got to be on the back of a stabilization of the financial system.

Bernanke was already busily trying to do just that, steady the banking system. Unfortunately for all of us, while he could see what needed to be done, doing it was altogether a different matter. His tenure was a total failure for this one thing. Neither he nor any of his fellow central bankers had any idea how to put this theory into practice.

They really don’t know what they are doing.

As I write almost every quarter at each update of the Federal Reserve’s Financial Accounts of the United States (Z1), there is a necessary debate still waiting over how much debt is the “right” amount. There are legitimate concerns about too much. What isn’t up for argument is the last ten years; Bernanke was, again, correct in that debt is a requirement in the modern financialized economy and to make it we all need confident, functioning banks.

No matter what the Federal Reserve tried, credit growth remains conspicuously stalled. The latest Z1 update for Q3 2018 shows quite a bit to be concerned about in terms of financial participation. The overall credit market is slowing – again.

Excluding the mind-boggling debt of the federal government, total credit (both securities and loans) was just a little more in Q3 2018 ($53.6 trillion) than it was the quarter when Lehman failed ($47.9 trillion). Worse, total credit last quarter was barely more than it was in Q2, the second nearly flat quarter this year (Q1 was slightly worse still).

The reason is clear enough – banks. The banking sector continues to malfunction; but not in some random sequence of “unexpected” troubles. Nor does this correspond to regulatory changes, as some keep trying to claim. There is no 2a7 money market reform to blame like in 2016, nor the imposition of Basel’s LCR (joke) as in 2014.

US Depository Institutions are still buying up the most liquid assets, of course. The phasing in of LCR requirements is long over but domestic banks and foreign subs located in the United States remain keen on UST’s and agency paper regardless. They are expressing a clear liquidity preference, keeping the predictions of the BOND ROUT!!!! to Economists not trading desks.

Since the last “rising dollar” period in the second half of 2014 Depository Institutions have increased their portfolio allocations to these most liquid assets by two percentage points, from 14.3% of all assets in Q2 2014 to 16.3% as of Q3 2018. It’s as if over the last four years the banking system, quite surpassing any LCR requirements, remains very concerned about global liquidity risks.

Those seem to have taken banks by storm in 2018. We know what this year has meant in markets, turmoil that isn’t actually overseas. The Z1 estimates show us just how astounding this latest disruption has been. For the last two quarters running, the banking system has shrunk.

This hasn’t happened since 2009 and the last remnants of the big panic. Domestic US banks haven’t been this unsettled since 2010 before QE2 (which only goes to show, yet again, how QE was a total fraud). Inside the domestic financial system, Euro$ #4 is already shaping up as a pretty big one, not that we didn’t really know it from real-time indications.

Total asset growth, not just bank credit, has ground to a halt. With banks allocating more to UST’s and agency securities, outside of the liquid class the financial system is at a standstill. In Q1 2018, Depository Institutions were collectively holding $15.98 trillion of all other types of assets besides UST’s and agency debt. As of Q3, they own $15.87 trillion.

The deflections and excuses will be different this time: QT, higher interest rates, trade wars, T-bills, etc. The pattern, as the baseline, however, remains the very same. The financial market was never fixed no matter what program any central bank conducted over the last eleven years. Every time it looks like things might improve “something” interrupts the healing process and sets the whole system back so that it can never escape this malaise.

The economy is therefore trapped by the same instability.

Bernanke was right, the financial system needed to be reset and restored. To do that would’ve require first a monetary reset; the crisis was never about subprime mortgages as the former Fed Chairman was trying to claim back then. If it was, something like QE (a simple asset swap, not money printing) might’ve had a chance (even then it wouldn’t have been a sure thing).

When the fissure instead resides in the world’s reserve currency system it’s a much different proposition. The banking system is being reminded in 2018 big time. When talking about retreat and retrenching here, being compared to 2009 and 2010 is the last thing anyone wants. Banks are uneasy in a way they haven’t been since some pretty dark days.

Maybe this time someone will actually try to find out why instead of queuing up QE5.

I wouldn’t count on it. Banks weren’t at risk of being zombies, it was central bankers who actually became mindless, repetitious sleepwalkers.

The costs continue to mount and for much more than the global economy.

Constant monetary instability >>> financial instability >>> economic instability >>> social instability.

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“Canary In The Coal Mine”: House Flipping Returns Crash To Six-Year Low

Real-estate speculation has long been a characteristic of booming housing markets, and in this current cycle of artificially suppressed rates, investors have been furiously flipping homes which peaked in the first few months of 2018. The number of companies flipping houses also hit a decade high, as HGTV programming and house flipping seminars across the country suckered in the broad base of the American people. 

Now the house flipping industry has gone bust, and many investors are left holding the bag. Flipping dropped for the third consecutive quarter, due to mortgage rate increases, according to Attom Data Solutions. At the same time, the average return on investment crashed to a six-year low.

“A total of 45,901 single-family homes and condos were flipped in 3Q18, signaling a 12% drop from a year ago to a 3.5-year low from the first quarter of 2015. Houses flipped sold for an average of $63,000 more than what the home flipper purchased them for, down from the all-time high of $68,000 achieved in the first quarter and from $65,000 a year ago,” said Attom Data Solutions.

The gross flipping profit in 3Q18 was about 42.6% ROI, the lowest level seen since the first quarter of 2012. Despite the recent market plateau, some flippers are finding it unprofitable in the current market environment.

With home price appreciation stalling, many flippers have started to notice margin compression and to make matters worse, President Trump’s tariffs have made the cost of materials just that more expensive.

The amount of flipped homes purchased with financing held steady at 38.8% in the third quarter, down from 39.2% a year ago and 40.7% the previous quarter.

“Home flipping acts as a canary in the coal mine for a cooling housing market because the high velocity of transactions provides home flippers with some of the best and most real-time data on how the market is trending,” Daren Blomquist, senior vice president at Attom, said in a press release.

We’ve now seen three consecutive quarters with year-over-year decreases in home flips. The last time that happened was in 2014 following the mortgage rate jump in the second half of 2013, but it’s still far from the 11 consecutive quarters with year-over-year decreases in home flips extending from 2Q 2006 through 4Q 2008 and leading up to the last housing crash,” he said.

The total houses flipped in the third quarter represented 5% of all single-family homes and condos sold in the quarter – the lowest reading in more than two years. The flipping rate declined from 5.1% a year ago and 5.2% from the previous quarter.

It seems the popularity of “how to flip a house” in Google Search across the US peaked in 2017 and has since stalled.

 

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“It’s Happening Again” – Stocks & Oil Are Giving Up Gains Fast

What goes up must come down in this new normal market as one veteran trader said “it’s happening again” as early trends are almost instantly inverted and “those fucking machines” run the market the other way.

The move seems very technical in nature with the machines tagging yesterday’s high stops and fading (similar to how yesterday’s drop found Friday’s lows and quickly kneejerked higher)…

The timing of the stocks slide also coincided with the story about The National Enquirer paying Trump’s (alleged) hush money.

Additionally Oil prices tumbled after the Iran oil minister questioned the stability of OPEC’s unity…“serious political disagreements exist within OPEC” and the OPEC meeting “involved lots of arguments”

Bond yields are dropping as stocks tumble.

 

 

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Trump Plausibly Pleads Ignorance in His Latest Defense Against Criminal Charges for Campaign Finance Violations

Today Michael Cohen, Donald Trump’s former lawyer, got the “substantial prison term” that federal prosecutors sought as punishment for various crimes to which he admitted, including violations of federal campaign finance law in the form of hush payments to women who claimed to have had sexual relationships with his client. “As a lawyer,” U.S. District Judge William H. Pauley III observed while sentencing Cohen to three years in federal prison, “Mr. Cohen should have known better.”

Donald Trump is no lawyer, of course, and ignorance seems like his best defense against the charge that he “knowingly and willfully” violated the Federal Election Campaign Act (as required for a criminal conviction under that law) by directing Cohen to make those payments. The president tried out that defense on Twitter this week, saying that even if the payments amounted to illegal campaign contributions, “it is only a CIVIL CASE.” He added that if “it was done correctly by a lawyer” (i.e., Cohen), “there would not even be a fine.”

That may seem like the usual Trumpian blame shifting, but it is plausible that Trump, to the extent that he considered the matter at all, trusted his lawyer to handle the hush payments in a nonfelonious manner. It would not be surprising if it never occurred to Trump that paying off Stormy Daniels and arranging to have The National Enquirer pay off Karen McDougal could be construed as, respectively, an excessive campaign contribution by Cohen and an illegal corporate contribution by AMI, the tabloid’s publisher. Trump surely wanted to keep the payoffs quiet, but that does not mean he knew they were illegal.

In another tweet on Monday, Trump described the $130,000 payment to Daniels (and maybe also the $125,000 payment to McDougal) as “a private transaction,” implying that his motive was personal (avoiding embarrassment to himself and his wife) rather than political (winning the presidential election). Cohen, by contrast, said he arranged the payments at Trump’s direction “for the principal purpose of influencing the election.” And in its press release announcing Cohen’s sentence, the U.S. Attorney’s Office for the Southern District of New York also confirmed that it had reached a non-prosecution agreement with AMI in which the company admitted that it paid McDougal “in concert with a candidate’s presidential campaign” to “ensure that the woman did not publicize damaging allegations about the candidate before the 2016 presidential election.” AMI said “its principal purpose in making the payment was to suppress the woman’s story so as to prevent it from influencing the election.”

It is possible that 1) Cohen and AMI both simply said what they thought prosecutors wanted to hear, 2) their understanding of the payments’ purpose was different from Trump’s, or 3) Trump’s motives were a mixture of personal and political. Even assuming that the payoffs helped Trump win the election, they would still count as personal rather than campaign expenditures if they would have happened regardless of whether he was running for president. “At a minimum,” former Federal Election Commission Chairman Brad Smith observed in a Reason essay after Cohen’s guilty plea last August, “it is unclear whether paying blackmail to a mistress is ‘for the purpose of influencing an election,’ and so must be paid with campaign funds, or a ‘personal use,’ and so prohibited from being paid with campaign funds.”

The second defense is less plausible than the first, since it seems that silencing Daniels and McDougal took on a new urgency in light of the election. Still, proving that the payments would not have been made in the alternate universe where Donald Trump did not run for president, like proving that he understood the intricacies of campaign finance law, would be a tall order.

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Is the Libertarian Party Glass Half Full or Half Empty?

The twilight of Gary Johnson's career ||| Matt WelchLast Friday, after a lengthy ballot count, Libertarian Jeff Hewitt was declared the winner of one of five officially nonpartisan seats on the Riverside County Board of Supervisors, giving him one of the largest constituent bases of any elected Libertarian in the party’s 47-year history. On Saturday in this space, we posted a far less upbeat assessment of the L.P.’s current electoral situation, which I wrote the day after the 2018 midterms.

So is the party zigging or zagging? As ever, it depends on who you ask, and the answer may well be “both.”

In a teleconference with party activists before the Hewitt announcement last week, Libertarian National Committee Chair Nicholas Sarwark laid out the numerical case for optimism.

“We ran 833 candidates for public office in 2018 in the November elections. We ended up with 52 [now 53] elected Libertarians….That’s an increase from the last general election year 2016, where we only elected 34 people,” said Sarwark, who finished in fourth and last place in November’s Phoenix mayoral race, receiving 10.5 percent of the vote. “In 2016, the Libertarian Party ran 593 candidates around the country….2017’s our last odd-numbered year; we ran 135 candidates for both state and local races, but of those, we ended up electing 48. So we do significantly better in these odd-year elections when the old parties aren’t paying as much attention. And it gives us a chance to further hone those skills and strategies so that when we go into 2020, we’re ready to have a record-setting number of candidates for a presidential year, and have more of them be more successful.”

In a press release Friday, the party exulted over Hewitt’s win, calling it “arguably the largest, most momentous win in Libertarian Party history.” The release went on to list the other winners from November, including four municipal officials who won partisan races in Indiana.

Mark Rutherford, a longtime activist in the comparatively successful Indiana L.P., and former vice chair of the national party (2010-12), says there has a been a sea change in approach to nuts-and-bolts campaigning. “I’ve never seen canvassing taken so serious by Libertarians since I first started paying serious attention to the LP in 1994,” Rutherford wrote in an email to me this week.

“More and more insider meetings and discussions center around running for office locally, especially smaller districts with 2000 or fewer voters,” Rutherford continued. “In 1998 it was hard to get LP’ers to talk about anything other than Presidential candidates and Congressional candidates….Too many discussion[s] were akin to philosophical debates over whether Hayek, Nock, or Rand were the most holy.”

Bottom line: “Right now, change is happening in the LP as I see it becoming a party that finds libertarians and gets them elected or appointed to office. I hope it continues.”

But other Libertarians look at the same data and discern drastically different meaning. The 1% ||| Arvin VohraArvin Vohra, the rhetorical bomb-thrower and former national vice chair (2012-16) who is running for the party’s 2020 presidential nomination, wrote a withering assessment right after the election arguing that the disappointing results, especially of New York gubernatorial candidate Larry Sharpe, show that the L.P. can only go so far playing it safe.

“I get why many Libertarians like Larry, Nick Sarwark, and other nice Libertarians,” Vohra wrote. “Many people used to like me for the same reason, back when I used to play nice. You can bring Larry or Nick home to meet your statist mom, or your statist friends. That’s something I like about Larry and Nick—I can bring them home to my statist friends. I get why some big-L insiders don’t like me. You can’t bring me home to meet your statist mom. If you come home with me, you’re getting disowned.”

Vohra’s solution? Fight directly and conspicuously for those who are net contributors to, instead of recipients from, government, and also to those whose power is diminished by the state.

“Winning will come from fighting for the reality we want, and emboldening those who will benefit from that Libertarian reality immediately. We have to fight for our people before we pander to our enemies,” he concluded. “If you add the number of current homeschoolers, private schoolers, and Men’s Rights Activists, it’s far more than the 4 million [votes 2016 presidential candidate Gary Johnson] got. Add in those who pay more in taxes than they receive in services, and it’s many, many times that. Even if I get 10 percent of the net losers from government, it will shatter Gary Johnson’s record.”

Vohra’s approach did not translate into votes last month in Maryland, where he finished in a distant fourth place with just 1.0 percent of the vote running for U.S. Senate.

Vohra will be among what promises to be a crowded field vying for the party’s prized plum: access to ballots in the 2020 presidential race. Those who have officially announced their intentions to compete include confrontational activist Adam Kokesh, political performance artist Vermin Supreme, and L.P. Radical Caucus Vice Chair Kim Ruff. Also openly laying the groundwork is controversial 2016 vice presidential candidate Bill Weld. Overstock.com founder and blockchain enthusiast Patrick Byrne has engaged in some discussions, though told me in October that he’s “almost definitely” not going to run.

“And then there are a few more people who have contacted me privately to ask questions about what would one do and how do you do it,” Sarwark said in his conference call. Party insiders have presumed that among such names to eventually go public will be current or recent elected officials from one of the two major parties, though such hopes have failed to materialize in the past.

How tantalizing is the L.P. ballot prize? “As far as how we came out of the 2018 election, ballot access-wise,” Sarwark said, “we are on in 34 states for 2020 for a presidential candidate. That is the best situation we have ever been in after a non-presidential general election, and it’s actually the best situation that any third party has been in in history.” The party maintains its expectation to be on the ballot in all 50 states plus the District of Columbia, “which would be one of the first times, maybe the first time, that anyone’s done that back to back as a non-Republican-or-Democratic party.”

The biggest nut to crack—not just for Libertarians, but for Greens and independents as well—may well be how to navigate electoral politics when the winds of polarization are blowing so strong. Voters who perceive elections as life-or-death contests tend to shun the margins.

Still, as the L.P. celebrates its 47th anniversary this week, there are measurable signs of progress, if not quite the whole free-society-in-our-lifetimes thing, or even a member of Congress.

“The original Libertarian Party had only 70 members, but today exceeds 130,000,” the L.P. noted yesterday in a birthday press release. “The membership of the Libertarian Party has increased by 92 percent during the past 10 years. The presidential ticket of Gov. Gary Johnson and Gov. William Weld in 2016 received a record number of votes for the Libertarian Party. Perhaps most importantly, the Libertarians are the only party on the political spectrum defending both economic responsibility and social acceptance.”

Bonus video: Todd Krainin captures the final days of Gary Johnson’s final campaign.

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National Enquirer Publisher Admits To Trump Hush-Money Scheme Hours After Cohen Sentenced

Hours after former Trump attorney Michael Cohen was sentenced to three years in prison, the parent company of the National Enquirer, American Media Inc. (AMI), admitted responsibility for its role in a $150,000 “catch-and-kill” hush money payment to a former Playboy Playmate who alleged that she had an affair with Donald Trump in 2006, reports Bloomberg

Under a non-prosecution agreement, AMI admitted that it refused to publish Karen McDougal’s claim and prevent it from influencing the election” after she agreed to a contract negotiated by Cohen, according to a lawsuit McDougal filed against AMI in Los Angeles Superior Court. 

As the Wall Street Journal reported in November, 2016;

The tabloid-newspaper publisher reached an agreement in early August with Karen McDougal, the 1998 Playmate of the Year. American Media Inc., which owns the Enquirer, hasn’t published anything about what she has told friends was a consensual romantic relationship she had with Mr. Trump in 2006. At the time, Mr. Trump was married to his current wife, Melania.

Quashing stories that way is known in the tabloid world as “catch and kill.” –WSJ

In a written statement, American Media Inc. claims it wasn’t buying McDougal’s story for $150,000 – rather, they were buying two years’ worth of her fitness columns, magazine covers and exclusive life rights to any relationship she has had with a then-married man. “AMI has not paid people to kill damaging stories about Mr. Trump,” read the statement.

Looks like they’ve walked that back, bigly.

According to AMI’s cooperation agreement, Cohen and another campaign official met with AMI Chairman and longtime Trump friend David Pecker about the payment around August 2015. 

David thought Donald walked on water,” an ex-Enquirer employee told the New Yorker in July 2017, adding that Pecker had been using Trump’s private plane for trips to Florida. “Donald treated David like a little puppy. Donald liked being flattered, and David thought Donald was the king.Both have similar management styles, similar attitudes, starting with absolute superiority over anybody else.”

Gus Wenner, head of Wenner Media’s digital operations, which recently sold US Weekly and Men’s Health titles to American Media, told the New Yorker: “He was painting Donald as extremely loyal to him, and he had no issue being loyal in return. He told me very bluntly that he had killed all sorts of stories for Trump. He hired a girl to be a columnist when she threatened to go public with a story about Donald.” –Newsweek

“As a part of the agreement, AMI admitted that it made the $150,000 payment in concert with a candidate’s presidential campaign, and in order to ensure that the woman did not publicize damaging allegations about the candidate before the 2016 presidential election,” prosecutors wrote in the deal. 

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Even Democrats Are Divided Over Medicare For All

In some ways, Medicare for All is on a roll. Polls show increasing public support for the idea, if not a clear sense of what it means, and Democrats in Congress—especially the expected presidential frontrunners—are increasingly willing to endorse the idea. It’s likely that it will figure prominently into the 2020 presidential campaign. As one recent article in Health Affairs, a kind of Bible for health policy wonks, stated, “Medicare for All, though difficult, is now within the realm of political possibility.”

I wouldn’t be quite so sure, at least not in the very near future, because despite surging enthusiasm for the slogan, the practical and political problems with single-payer health care haven’t changed. It’s expensive, but there’s no agreement among proponents about how, or even whether, to finance it. Transitioning millions of Americans from employer plans to a government-run system would be, at best, a massive administrative challenge, and more likely a bureaucratic nightmare—think Brexit, but for health care. Well-funded industry groups would vehemently oppose it. And even Democrats in Congress aren’t all on board.

As Politico reported earlier this week, Medicare for All is an issue that divides congressional Democrats, and some of the same advocacy groups that funded defenses of Obamacare, some of which employ or have close ties with Democratic political operatives, are now pushing back on single-payer. And part of the reason, it turns out, is Obamacare.

That’s because Obamacare funneled a signficant amount of money to hospitals and insurers, while a single-payer system like the one proposed by Sen. Bernie Sanders (I-V.T.) would cut provider payments and largely put private health insurers out of business. Taxing the rich won’t provide nearly enough money to fund $32 trillion in new government spending, and the most straightforward potential financing mechanism—requiring employers to fund Medicare for All—would still be a difficult political lift.

So it’s not exactly a surprise that even single-payer proponents like Rep. Frank Pallone (D-N.J.), the incoming chair of the House Energy and Commerce Committee, have been upfront about the fact that, at the moment, the votes simply don’t exist.

That’s why I basically agree with The Washington Examiner‘s Philip Klein when he warns single-payer opponents against focusing too much on the phantom threat of Medicare for All. Putting too much energy into fighting an idea that has little chance of becoming reality, he argues, is likely to make less drastic (but still substantial) expansions of government into the health care sector come across as more politically palatable.

The Medicare for All push may not be realistic in the short term, but it’s not too hard to imagine Democrats coalescing around something like a Medicare buy-in program or a public option, in which government would offer an insurance plan alongside regulated private coverage. In this scenario, Medicare for All would play the too-radical, too-progressive foil to some sort of still-significant expansion of the health care state, allowing it to appear to be a middle-ground compromise.

The problem, at least for Republicans and their backers, is that opposing Medicare for All and its various congressional apostles makes for easy politics, and, just as crucially, it allows GOP lawmakers to pretend they have something that they don’t — a health care policy vision of their own.

Ask a typical Republican about health policy right now, and you’re likely to hear essentially empty catchphrases like “patient-centered” and “preserving the doctor-patient relationship” that have little in the way of policy substance behind them, and certainly don’t contain a holistic vision for how American health care should be financed and regulated. Behind the scenes, meanwhile, conservative health care wonks spend a lot of time squabbling amongst themselves over both policy particulars and messaging; yes, there are real points of agreement, but they are united most strongly by what they are against. It doesn’t help that President Trump has effectively declared Medicare, the nation’s largest health care entitlement, off limits to reform.

Which means that the fight will inevitably come down to the forces on the left that support single-payer, or something closer to it, and forces on the right that basically support doing more or less what we are doing now, with all the frustrations and follies that entails.

Maybe that’s a sustainable political equilibrium, in which the health policy status quo remains widely disliked but wins by virtue of being too big and too complex to overhaul. But more likely, I think, is that the single-payer forces win a game of inches, not in a year or two or even four, but perhaps in 10 or 20, when less-divided Democrats have either worked through their issues or just collectively agreed to ignore them—and Republicans are as clueless and flat-footed as ever. Medicare for All’s moment has (probably) not arrived. But if its opponents don’t offer an alternative, it might well be on its way.

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High Yield Bond Shorts Hit Record Highs Amid IG Credit’s Worst Year Since Lehman

2018 is looking like being the worst year for investment grade credit markets since 2008’s Lehman-led collapse…

And worse still, Citigroup’s analysts are weary that the clock is ticking for the riskiest corporate bonds…

“The markets are entering a new phase of increased volatility,” they wrote, and “we are a long way from a sustained high yield recovery.

Prices for bonds rated CCC or lower (the weakest high yield credits) have dropped about 8.7% since the credit selloff started in early October, according to Bank of America Merrill Lynch Indexes. And as prices fall, yields on CCC-rated bonds have climbed to 11.5%  – well above the current coupon around 8.1% (meaning dramatically higher refunding costs).

As about 34% of CCC-rated bonds come due in the next four years, up from 20% in 2010, according to Citigroup, Barrons notes that these companies will need to decide whether to pay down debt or refinance at higher rates. Either way, they will need to focus on cash.

All of which perhaps explains why, as The Wall Street Journal reports, bond investors scrambling to protect themselves from losses are increasingly using bets against the largest junk-bond ETFs.

The value of bearish bets on shares of the two largest junk-bond ETFs hit a record $10 billion in recent weeks, according to data from IHS Markit . 

A record 59% of shares outstanding of the largest junk-bond ETF have been sold short, up from about 35% in September, according to data from S&P Global Market Intelligence.

WSJ reports that appetite to short the ETF, operated by iShares, has far exceeded the number of shares available to borrow; ETF brokers have created an estimated $2 billion new shares to meet the demand since the start of October, said IHS Markit analyst Samuel Pierson. Short sellers of stocks and bonds are constrained by the amount of securities they can borrow. But ETF brokers can create new shares specifically to lend them out, allowing for much larger bearish positions.
 

Additionally, negative bets (or hedges) on indexes of credit default swaps, or CDS, for junk bonds hit a four-year high in November, according to Citigroup .

“There’s been increased interest because people are concerned about the credit market as we get closer to the late stages of the credit cycle,” said Calvin Vinitwatanakhun, a Citigroup credit-derivatives analyst.

And, as we recently detailed, Morgan Stanley strategists now expect this bearish turn in credit to continue in 2019.

The tricky handoff from quantitative easing (QE) to quantitative tightening (QT) that is under way is central to the cracks that have appeared across risk markets and credit markets in particular. Global QE provided the necessary conditions for corporations to lever up, which is exactly how they responded.

Outstanding US corporate credit market debt has more than doubled from US$3.2 trillion in 2008 to well over US$7 trillion today, with the biggest chunk of it coming in the BBB portion of the credit curve, the lowest rung of investment grade ratings. High debt growth has translated to high leverage – BBBs with 31% of BBB debt leveraged at or above 4.0x.

Lower yields driven by QE had important consequences for investor behaviour as well. The search for yield became a driving force which led to substantial inflows into US credit, particularly overseas investors. Also thanks to the Fed emerging as a large non-price-sensitive, programmatic investor of agency mortgage-backed securities (MBS) as part of QE, fixed income investors became progressively underweight MBS and overweight corporate credit. As the cycle got extended, the net result of these flows into credit investments has seen the manifestation of late-cycle excesses in credit markets. High debt growth has led to high leverage and weak structural protections for credit investors.

With the transition into QT, these flows are reversing. We have a marked drop-off in 2018 of foreign investor flows into US credit investments.

And equity market participants should be worried.

Credit markets have led the tightening liquidity downswing in markets.

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