Merged airline wouldn't be a high-flier
Published: Monday, January 8, 2007 at 6:01 a.m.
Last Modified: Sunday, January 7, 2007 at 11:25 p.m.
Dear Mr. Berko: I bought 200 shares of US Airways at $52.60 last November and now have a good short-term profit. I'm concerned about the merger between US Airways and Delta and how it may affect the price of my stock. Please give me your usual straight talk opinion of this merger.
Now another question. For tax and personal reasons, I'm buying my mother's home and will rent it back to her. She's owned the home for 17 years. It has a mortgage balance of $48,000 and I'm paying her $202,000. I went to the bank and they told me that I have to have title insurance for myself in order to get the mortgage. Two other banks told me the same thing.
The title policy will cost my mother $2,870 and I will have to get a policy that will cost $425. That seems like a lot of money. I remember that you wrote an article on title insurance a couple years ago and hope that you can give me some advice on how to get this more cheaply. This doesn't make sense to me after 17 years with no problems.
E.P., Boca Raton
Dear E.P.: US Airways Inc. (LCC-$57.05) doesn't flap my wings, and a merger between these carriers should give wise investors serious cause to pause. If formerly bankrupt US Airways is successful in acquiring bankrupt Delta Air Lines Inc., I recommend that you sell your 200 shares quick as a bunny, then while exhaling, (sell) short the stock.
The reason is basic high school math: When two minus numbers are added together, the result is a larger minus number. A merger of two failures fouls up the slipstream and is a recipe for disaster. Oh, LCC may move higher in the short term, but those two carriers are as different as cheese and chalk and I'm willing to wager my mint-condition Barbie doll collection to a pound of turnips that the new and larger entity may be belly-up not too long after the next presidential election.
The management styles of LCC and Delta couldn't be more oppugnant: Douglas Parker, chief executive officer of US Airways, and Gerald Grinstein, CEO of Delta, are as compatible as Brutus and Caesar. Grinstein and his boys are bitterly opposing the merger and are trying to convince creditors that Delta's potential as a "stand-alone" carrier will provide better returns than they'd receive from LCC's bid ... even if LCC raises the ante.
But I suspect the merger will be approved because the creditors believe that a bird in the air is worth two on the tarmac. But can you imagine the myriad turf battles this hostile merger will create ... not the least of which is: Who will be the surviving CEO, how many employees will lose their jobs and why is Joe being paid more for the same job responsibilities as John?
A tie-up of the two would create the largest airline in the world with $27 billion in revenues, 82,000 employees, 8,000 daily flights, 700 destinations and 800 aircraft. Neither Parker nor Grinstein have had notable success managing an airline, and to assume that either of these warring lads has the skill-sets to integrate a carrier of this size and complexity is folly, far beyond common sense.
Title insurance is an $18 billion a year fraud and less than $75 of each policy is paid out in claims. Thanks to computerized record-keeping, the cost to search the records and verify a clean title is less than $30. In fact, today's technology ensures that you have a better chance of winning the lottery than finding a default in your mother's title. Heck, even if your mother refinances her mortgage, she will have to purchase a title insurance policy, despite the acknowledged absence of any new risks on the deed.
This is pure corruption. The bribes, gifts, plane tickets, shopping sprees, vacation packages and cash under the hat to real estate brokers, mortgage brokers, etc., for steering business to rapacious title companies rival graft at the congressional level. And Florida is one of the states where this greed and corruption is pandemic.
The only advice I can offer is to search the Internet. Several years ago, after I wrote that article about the high cost of title insurance, at least a dozen readers told me that they were able to save 40 percent to 50 percent by surfing various Web sites. I'm sorry. I wish I could be more helpful but you, like millions of homeowners, are stuck in the muck of grime, graft and greed.
Dear Mr. Berko: When you spoke at the fundraiser for our church about the future of our country, you pointedly said that we must have a single-payer health care system. You noted that there are 41 million uninsured in the country who can't afford health care. You said they must have medical access but (and the following are your words) "the health insurance industry's intentional high costs exclude them from participation."
Are you nuts or something? How can you preach such socialistic ideas in a capitalistic society? They would be able to afford health care if they were worth more to their employers so they would be paid better. Do you know how much our leftist government has screwed up our country? And it would do the same without a private health care system if we allowed it to happen.
You have no idea of the wonderful things that health insurance companies like Aetna have done to help Americans. Their contributions to health care are unequaled in any other country in the world. You shouldn't preach left-wing, pinko communist ideas to people who invite you to their homes. Shame on you.
C.S., Elkhart, Ind.
Dear C.S.: Why do I suspect that my friend Charming Charlie, the insurance agent from Kokomo asked you to write? And why do I believe that you may be employed by one of the Big Eight (Aetna, Cigna, Coventry, Health Net, Humana, WellPoint, the Blues or United) health companies?
I'm not going to touch your comment about the federal government except to say that the voters are as much to blame as those they elect. My dad, who voted in 19 presidential elections, said, "We get what we pay for." And your comments about the health care industry's "wonderful things" are true because no other country in the world allows private industry to make tens of billions of dollars a year from the suffering of its citizens.
I'd like to know why you don't "gritch" about a $30,444 hospital bill plus $3,882 in medical supplies for an appendectomy patient who had a five-day stay. And how fair is a $7,809 emergency room charge to X-ray and cast a fractured fibula? But I'd really like to know why Aetna and Blue Cross paid those outlandish charges without a peep (but nickel and dime every doctor) using our premium dollars.
There's the problem: It's not the doctors nor the government but rather the insurers themselves. Their pockets are so heavily lined with our premium dollars that paying a huge hospital bill is no more meaningful to them than would be the advent of another fly to a slaughterhouse.
Now would you please tell Charming Charlie that last year the Big Eight reported net profits of $19 billion plus free cash flow of $22 billion? Holy moly! That's $41 billion - easily enough to pay the health care costs for all of those 41 million uninsured. And I think you ought to tell Charming Charlie that the top five officers at each of the Big Eight health insurance companies received $237 million in compensation last year. That's a shameful use of our premium dollars. Those Big Eight health insurers employ more than 300,000 people, each of whom is paid a salary with benefits averaging $40,000. Well, that number computes to $12 billion and not a penny of that is used for health care. Certainly a shameful use of our premium dollars.
And then there are billions of dollars spent each year for desks, computers, rent, utilities, thousands of tons of paper and millions of paper clips. Those billions are not spent on health care but they are paid with your premium dollars. Can you imagine how many hundreds of thousands of telephones are owned by Aetna, Cigna, United, Health Net, Coventry, WellPoint, Humana and the Blues? Then count the myriad thousands of copy machines, computers, cubicles, pencils, legal pads and so on, all of which are shamefully paid with premium dollars that could be used for medical costs.
Finally, one must count the commissions paid to people like you who sell health insurance policies. It's estimated that last year the Big Eight paid close to $12 billion in commissions, shamefully using premium dollars that could be used to pay doctors, hospitals, drug companies and other health care providers.
And that's just the Big Eight. There are countless smaller companies selling health care policies, shamefully skimming billions from your premium dollars. Tell this to Charming Charlie.
So, like it or not, those tens of billions of wasted premium dollars persuasively argue for a single-payer government-controlled health care system. It's obvious from those wasted billions that health care premiums would be less by half with a single-payer system.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at email@example.com.
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