Thursday, August 27, 2009

Vegas Run for the Super Draft

I am heading out to Vegas in a few hours for the first ever Las Vegas Fantasy Football Super Draft. It looks to be a pretty crazy weekend with 6 or so VIP parties and a live draft at the Hard Rock Hotel over just three nights. We are bringing out tons of FSL swag with the plan of signing up hundreds of new Fantasy Football users at with a top secret special offer. If you happen to be in Vegas, I should be reachable on the FSL support number through Sunday.

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Monday, August 24, 2009

The Expectation Value of Health Insurance

Two key concepts bubbled to the top for me over the last few weeks on this overly complex health care reform issue. These may be the two most important points of all, and until congress grasps these two items, any health care reform will do more harm then good. Let’s call these two concepts, the expectation value of health insurance, and the probability of success with a communist Russia type economy.

Let’s start with the first one. 46 million uninsured is the number that Obama loves to throw out there, but it is simply a lie. There are 36 million uninsured Americans (2007 census report), the rest are illegal aliens. Assuming that Obama knows the difference between the two of them, he is lying to help his cause with that number, but that is not what’s important now. Out of the remaining 36 million you have about 25 million called “indestructibles”. They are 18-28 year olds who could probably afford health insurance, but choose to not take it because they feel they are indestructible. After that you have about 10 million poor, who could qualify today for Medicaid, and say about 1 million others. So let’s forget about the 1 million others, and the poor who could already have coverage. That leaves us with the simple task of getting the indestructibles on health insurance to solve the alleged problem. So let’s ask ourselves a very simple question. Why do the “indestructibles” choose to not carry health insurance, and is this a rational economic choice for them as consumers. If you start to think about it at all, you can see that the system is set up to simply rip off indestructibles, and that their choice to stay out of the system is a +EV choice. You need to understand that the health insurance market is not free. It is highly regulated, and is the only insurance where the premiums can’t be set based on the individual policy risk. Think about that for a second. When you buy car insurance, your individual cost is based on numerous risk factors (value of the car, your driving record, how many miles you drive, where you live…). When you buy home/fire insurance, again it is based on individual risk factors (value of the home, type of roofing material, location of home). When you buy life insurance it is based on risk factors (your age and your health history). Health insurance could also use a multitude of risk factors as well (your age, your health history, pre-existing conditions, if you smoke, if you are overweight, if you are a heavy drinker, the size of your family...). The government simply does not allow this for heath insurance, and forces companies to “pool” people together to spread the risk, while charging each similar policy the exact same amount. So now we get back to our “indestructibles”. These guys are the lowest possible health insurance risk, but get charged exactly the same as a 75 year old with a history of heart disease and diabetes. They would have to pay 7-10k per year for health insurance they will likely not need for many years, unless they break a bone or something like that. Even if they can get the same coverage for 3k through there employer, it is still not worth it to them. The expectation value of buying insurance for them is -$3,000 (subsidized) or up to -$10,000 without employer help. The expectation value of not carrying insurance is much larger (less negative). Their only issue is variance. If you wanted this class of uninsured to choose to take insurance, you need to stop ripping them off, and make them pay what it actually costs to insure them. Yes, costs for high risk groups would have to go up, but it should for them. Take the car insurance analogy. A very bad driver who totals his car every other year, and has multiple speeding tickets, pays the exact same rate as a perfect driver with no accidents and no tickets. And if you allow pre-existing conditions, the bad driver can stay off insurance until he totals his car, and then sign-up to get all the good drivers to subsidize his risk and repair bill. The worst thing about the health care bill is it appears to make health insurance mandatory by law. The people most harmed by the bill are the 25 million uninsured (the problem according to Obama), who will be forced to take health insurance at complete rip-off rates for their individual level of risk.

Now on to the second concept. The argument that I hear over and over again is that the government can create a public, government run, option that can compete effectively with the health insurance industry to lower costs. The argument goes like this. The evil insurance companies are wasting marketing dollars advertising against each other, are inefficient because they can’t get economies of scale in processing claims, and on top of all of that make a profit that comes directly out of the care provided. If the government were to take over the entire system, they would not have to advertise or make a profit, and could set up one efficient system to process all claims. On the surface this seems to make sense to the average person, and I think that’s why this claim is repeated over and over by the many talking heads out there. There is a big problem with this argument though. The health insurance industry is really no different than any other competitive industry. So you really can make the same argument anywhere. Let’s look at personal computers for a second. We have Apple and all of the various Microsoft windows based PC vendors. There is tons of advertising going on and efficiencies that could be gained if we went to a single manufacturer. So the government should just take over the entire computer industry, because if they did we would get better and less expensive computers as a result. After they get done taking over the computer industry, they should do the automotive industry (already ½ way there), the banking industry, consumer electronics, clothing, the airlines and more. Doing all of this will save Americans money because the U.S. Government is a beacon of efficiency in a highly inefficient free market system. It starts to become absurd at this point, right? The government is simply not efficient at anything they do, and can’t compete on a level playing field with a profit motivated company. The profit motivated company will find ways to reduce costs, and improve their offering until they eventually displace the government competitor while still earning a profit. For an example of a country where everything was run by the state, look at communist Russia. Not exactly an economic powerhouse. If the government is really capable of out competing private industry, Russia would still be around, and the American economy would be near the back of the pack of all developed countries. The fact that after all of these years we are still an economic powerhouse under a free market system, and all other countries with more state ownership of the economy lag us economically, is simple proof that our system is the most efficient. Going to a government run health care system can only raise costs, and kill all innovation. The only way the government can compete with private industry is cheating by using tax payers to subsidize losses, or by changing the rules to the benefit of the government competitor. You can already see this with GM. Now that we own them, we start pushing their products with Cash for Clunkers and electric car subsidies, and then rewrite the EPA mileage standards so that a hybrid, plug-in car (The GM Volt), can get an absurd 250ish MPG rating when the gas engine on board will probably get less that 40 MPG.

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Thursday, August 20, 2009

Photo Dump and Contest

A was out on vacation for a while, so sorry about the lack of posts. I thought I would do another photo contest so here we go. Whoever is the first to answer all of the questions about the below photos gets a $10 transfer to the online poker, or daily fantasy sports site of their choice (limited to FullTilt, PokerStars, or FantasySportsLive). If nobody gets them all in two weeks, whoever has the most correct answers wins.

Name This Surf Contest

Name This Lake

Name This Building

Name the "Avenue" where this Tree House is Located

Name The Place Where This Guy Hangs Out At

Name This Building


Friday, August 07, 2009

Cash for Clunkers Donkey Math

Well congress thinks they finally have a winner with the “cash for clunkers” program, and are looking to extend it for another 2 billion tax payer dollars. Let’s just take a peak at the donkey math and see if this makes any sense to the taxpayers that are paying for the program. First off, not all of the 1 billion (soon to be 3 billion) will be distributed as rebates. The government has to administrate the program, and that costs money. Out of the first billion spent the costs averaged $6000 per rebate. As with all government programs, they get to skim some off the top for themselves. Next, we do not actually have the money to pay for the program, so we will need to borrow it. So we will need to pay back the 6k per car with interest. So let’s try to calculate the amount of interest we will end up paying by the time it is paid back. Interest rates are pretty low right now, but there is also no plan to pay off the deficit anytime soon. Obama’s budget plans for 1 trillion dollar deficits for the next ten years. We can’t start paying off the 3 billion for cash for clunkers until all of the subsequent borrowing after the program is paid back with interest. Since we know that we will be borrowing at least an additional 10 trillion over the next ten years, and we will have to pay that back first with interest, I think you can see that it is going to be at least another 30 years or more before we start to pay off the 3 billion. Even worse is that we are borrowing most of the money in short term T-bills that will need to be continually rolled over at market rates over the 30+ years. So it is basically just like putting the program on a maxed out credit card with a risky adjustable rate, and no plan to pay it back. Under these assumptions, we will pay somewhere around $12,000 in interest in addition to the $6,000 in principle for a total taxpayer expense of $18,000 per $4500 clunker rebate. Genius!

Well it even gets worse from here. People will argue that we are saving the earth by getting the bad gas mileage cars off the streets and getting people into better mileage cars. That’s the whole point, right? That’s some pretty simplistic thinking. The program is actually worse for the environment than no program at all would be. Lets me explain. It costs energy to make a car. Lots of energy. You have to melt and form all that steel. You have to make and ship all of the parts. You have to assemble it by moving large items around the assembly floor. You have to ship the car from the assembly line to the dealership. Making a car is an energy intensive activity. If we are going to take a car that is still running, and may have 2 to 4 more years left, and throw it in the trash for a better mileage new car, then the energy cost to make a new car needs to be low, or you don’t actually save any energy. With the energy cost of a new car being so high, saving 4 to 10 miles per gallon over the 2 to 4 years the clunker would have continued to run, simply does not pay for the extra energy required to build a car that was not needed yet.

So in summary, the cash for clunkers plan costs $18,000 per car to taxpayers over a 30+ year payment schedule, and actually increases United States energy consumption, even with a 4 to 10 MPG improvement per car.

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Tuesday, August 04, 2009

Warning! Poker Content

Post #500 on this blog

For some reason I am back to playing cash games at FullTilt. It’s been a couple of years. I played for a while after the UIGEA, but eventually the games felt and were measurably tougher IMO. I switched over to beginner S&Gs at Bodog (still easy to crush), and the occasional blogger or other MTTs mainly on FullTilt. Realizing that it would be a long time before I would be playing cash at FullTilt, I removed most of my funds. I also tend to transfer funds to friends out of the FT account. This steady drain of funds can easily outweigh the meager blogger and MTT winnings I get at FullTilt. Lately, I have not even been playing MTTs and S&Gs. It’s too much of an open ended time commitment. I like the idea of playing as long or short as you would like to, and online cash games are the only way to go for that. When I found out they were doing a $100 no deposit bonus, I figured it was time to get my feet wet again over at FullTilt. The last time I played cash I was 4 tabling $1/$2 NL. Looking at just over four hundo in the FT account, that level would not be possible. I like to have 10x the buy-in for multi-tabling. So I started off at .25/.50, and then started mixing in some .50/1.

I switched to the new lobby from the software upgrade, and sorted for low stakes NL cash by percentage seeing the flop, and then added filters for 8+ players and $7 min. average pot (to filter out the lowest “Low’ stakes). To my surprise, an amazing number of tables were meeting my table selection criteria. When I have wanted to dabble in the past, it seemed like it was way too hard to get on multiple tables that met my basic criteria. Now, with what appears to be increased traffic on FullTilt, and the advanced sorting and filtering it was easy to find juicy tables. After about 500 hands mixing up the stakes and moving the roll closer to $500, I decided to just commit to .50/1, even though I was under rolled. I play a very low variance playing style, and that allows me to play under rolled to some extent. With the $100 bonus clearing quickly while 4 tabling .50/1, I should be able to offset running bad, and if I started running good, I might get quickly to a safe bankroll.

After committing to 4 tabling .50/1, I was able to play about 1000 more hands, and ran my bankroll up to $675 (about $250 up total), while clearing about $40 in bonus funds. I am feeling pretty good about my game, and it feels like most of the cash game rust is already gone. I have not been stacked or even gotten very low on any table yet. I also seem to have a pretty steady positive accumulation that makes me a winner in nearly every session. I like to play against short stacks, and it seems like there are way more people playing with 1/5th of a full stack lately. I even had the pleasure of holding court at a .50/1 table where I had a full stack and the rest of the table had $30 or less for over an hour. I can’t really remember that ever happening before. For some reason I tend to beat up on shorties. I think it is my squeaky tight preflop, hyper aggressive post flop play. I am so tight preflop, that when I do play, I am often good enough to call down a shorties preflop push. Post flop, because of my aggression and their lack of stack, I am putting them to the test a bunch for their whole stack. If I raise preflop, and then fire $5 on the flop, the shorty is forced to commit right there. So my $5 bet is almost leveraged like a $20 all-in. I had grinded up nicely before the gift hand below.

I pick up AA UTG and limp it. This was my first UTG limp with rockets in a cash game in forever. A late position player with $100 behind raised it to $5.50, and the button with $130 called. I reraised it to $15 to try to kill the set mining odds, and get it down to one player. The initial raiser folded, and the button called. The flop was T high rainbow. I continuation bet $25 into about a $35 pot. I was reraised to $50. I figured based on the preflop action, the only hand I needed to worry about here was TT. Hands like JJ, QQ, KK, and ATs were much more likely and could have been bet the same way. I decided to just jam right there, and was gift called pretty quickly with AKo. A blank on the turn, and the $260+ pot was mine. Not sure what this guy is thinking there, but I will take his money.

I have another $60 in bonus to clear, and will probably knock that out this week. If I can get the roll north of $1K, I may start moving back up to $1/$2, and posting about poker more often.

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