Wednesday, April 29, 2009

Obama's 100 Days of Acronyms

President Obama offered public-private partnerships (PPP's) as the solution to most of America's problems. The stimulus package provided money for infrastructure PPP's. Treasury's Tim Geithner added an "I." That made financial PPP's pubic-private investment partnerships or PPIP's. Health care reform looks ripe for HCPPIP's, health care public private insurance partnerships.

The other acronym washing through the federal veins, pay for performance or P4P. Bonuses and incentive pay took down Wall Street in an orgy of greed and leverage. Expect the same impact on health care and education.

President Obama's 100 days of acronyms are bad management theory. Expect major suboptimization for the country, while teachers and doctors are incentivized to act like Wall Street CEO's. Widespread bad behavior from P4P's had a twelve year history before America's banking system imploded. It came from executive stock option compensation, with stock prices supposedly the most pure form of incentive pay. Yet, 30% of options were backdated, unethical and most times illegal under SEC rules. Few executives paid a legal price. Why does President Obama impose a system that corrupts?

It gets more twisted. The Obama administration imitates the greed and leverage boys, the ones who took down America's banking system and much of the shadow system. The applicable acronym is private equity underwriter (PEU). President Obama believes private equity is the solution. His regulatory proposals ignore PEU's. PPIP's are specifically designed for PEU participation. Only taxpayers provide the leverage for new PEU banking deals.

TALF, the Term Asset Backed Securities Loan Facility, restarts debt securitization with taxpayer money. Securitized instruments continue imploding, enough that one credit insurer defaulted this past week.

Change? What change? At least the letters are different.

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