The Guest Blog

Farrell: Taking A Position

The needle didn't move very far at the health care summit.

Positions were formed long ago and the talk-fest provided photo ops and little more.

Observers took away what they wanted.

The New York Times editorialized on Saturday that the "differences between Democrats and Republicans are too profound to be bridged." They could have written the editorial the day before the summit. The Wall Street Journal said the meeting may have driven the sides even further apart. If so, says the Times, "Speaker Pelosi should push the House to accept the fundamentally sound Senate bill." If they can't get the votes for that bill, the Times says they should alter the bill ever so slightly with parallel legislation that could be passed via the reconciliation process.

Cost of healthcare
Lilli Day | Photodisc | Getty Images

On the reconciliation route, Republican Senator Lamar Alexander said that reconciliation "has never been used for something like this."

Truth is, reconciliation has been used quite often, and the party out of power always squeals mightily about how flawed the process is.

It might be tough for some to listen to conservative talk show radio programs, but they have an interesting lineup of sound bites from Democrats deploring reconciliation when it was used to pass the Bush tax cuts. The President is one who particularly stands out in this lineup along with a host of Democratic Senators including then-Senator Biden and Schumer of New York. But that's politics.

N.Y. Times columnist David Brooks had a decidedly different take on the tone of the meeting. He saw the President as trying to get a result. He feels, though, the quality of the comments got worse the closer you got to the party leadership. "The Democratic Senate leader, Harry Reid, gave comments that veered between the misleading and the incoherent. Statements from Nancy Pelosi were partisan spin." At the end of it, Mr. Brooks sees the Democrats as favoring a highly regulated insurance system and the Republicans see the answer to the problem being the creation of "a genuine market with clear price signals." But the editorial was probably correct that a compromise is a bridge too far.

Both sides agree that more regulation of insurers is needed, but clash over the role of Federal versus State regulators. Both sides agree the government should help individuals and small businesses buy insurance but disagree over minimum benefits. The biggest disagreement is over the expansion of coverage to the uninsured. The Democrats want to cover more than 30 million people and the Republicans say we can't afford the entitlement programs that now exist, let alone start new ones.

On to reconciliation. Since there is a timetable established if you go that route, at least it will be over in a couple of months.

The needle is starting to move on the Greek debt crisis.

Since cross ownership of debt is the norm (Dave Rosenberg of Gluskin, Scheff in Canada reports 51% of Portugal's debt is owned by Spanish banks, 32% of Spain's debt is owned by German banks, and 25% of German debt is owned by French banks, and they all own a lot of Greek debt) if the powers within the EU don't figure a solution, a lot of banks have a lot of trouble. Among the problem nations, Greece owes $43 billion to German banks, Spain owes a massive $240 billion to German banks and Portugal $47 billion followed by Italy at $209 billion all to German banks (source: Wall Street Journal, Saturday, February 27).

When the Union was first formed, many hoped it would lead to a political union. Gideon Rachman, writing in the Financial Times, recently said that, "Gerhard Schroeder, the German Chancellor at the time euro notes first emerged... believed monetary union required decisive advances toward political union." But most citizens of the EU feel far more attached to their own nation. Rachman says "Europeans are much less willing to bail each other out than they are to bail out their fellow countrymen. West Germany spent billions to turn around East Germany. But there is little sign they are willing to spend further billions to turn around Greece." But when you see the size of the problem on German bank balance sheets-- oh, it's again the banks that have gone too far-- there may be no other choice.

The latest seems to be that German banks will provide a rescue plan with Berlin providing special guarantees. As of Sunday morning when I am writing this -- U.S versus Canada for hockey gold at three today is a hard and fast deadline-- serious thought is being given to the German development bank, KfW, issuing a guarantee to any bank that buys Greek debt. There is still hope that Greece will be able to pull off its own debt offering this week, but it has been postponed before. Economist Ken Rogoff was quoted in the Journal Saturday that the "Greek government has been in default for more than half the years since 1800! And that gives it the worst track record in Europe." Not a comforting thought! Stay long the dollar against the euro. I continue to believe the euro is going much lower.


Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.