Hypocritical, thieving Governments misallocate billions from tobacco settlement

In 1998, 46 state governments reached a Master Settlement Agreement (MSA) with the four major tobacco companies over healthcare costs. The state governments argued successfully that the tobacco companies knowingly produced a product that could contribute to long-term health issues and smoking-related illnesses, ultimately costing  the states more in payments to Medicaid. The terms of the settlement called for tobacco companies to make payments to the states based on their level of cigarette sales, with a minimum of $206 billion during the first 25 years.

These arrangements quickly put the naked hypocrisy and greed of both government and Wall Street on public display.

First, the government spends millions of tax dollars trying to make tobacco sales decrease. So tying the states’ compensation to cigarette sales is like telling your teenage son or daughter: Look, we don’t want you to smoke. And we’re going to lecture you every night about it. But for every cigarette you do smoke, the cigarette companies are going to pay your mother and I $100.

It’s complete hypocrisy and lunacy.

Of course, the Wall Street sharks smelled the billions of dollars about to exchange hands. And they approached greedy state governors, treasurers, comptrollers, and legislators, asking, “Why wait on the settlement dollars to be paid over many years when you can get your hands on the money today?”

The government politicians and bureaucrats thought, yes, why not get all the money up front? Then, we can spend all the money while still in office, and use it to help keep position and power! 

So, Wall Street produced instruments to securitize future tobacco settlement payments and sold them off as bonds to investors. Of course, Wall Street got its fees up-front. And it helped the state governments get all the settlement money up-front too.

In the meantime, tens of millions more tax dollars  were spent on government’s mindless anti-tobacco campaigns, propaganda and rhetoric. And indeed, it resulted in lower tobacco sales. But lo and behold, this decrease in sales put a serious dent in the flow of tobacco settlement money!

So now, it looks like the tobacco settlement bonds won’t be able to pay out to the investors. And the investors will have to eat the losses because state governments already got all the money.

But the “good news” is, that money is still there for all the purported long-term health care costs… Right?

Well, a little of the money was used on smoking cessation and prevention. (Yet, in practice, funding these programs ultimately contributed to the lack of payments for the tobacco settlement bonds.)

The states spent the rest of the money on expanding public school systems and teacher benefits, balancing (instead of cutting) budgets, pet projects, and virtually every conceivable kind of doubtful government spending.

The one thing the money wasn’t used for was setting aside funds to cover the supposed additional Medicaid costs for purported smoking-related illnesses.

State governments gained a windfall. And Wall Street made its profits. But investors are actually losing money on subpar investment bonds. And the taxpayers are left, once again, and after all, holding the bag for future Medicaid payments.

So as Obamacare costs start to rise, states will look–once again–to the taxpayers to pay for their deceit and wastefulness. Frankly, one has to wonder about the court system that comes up with such crazy settlements and permits such counter-productive arrangements in the first place.

And don’t forget–even when you factor in all the billions in shake-down money paid to the government extortionists, the tobacco companies are alive and doing quite well.

So what can you do to avoid this mess?

Well, the most important thing you can do is try NOT to rely on government-run healthcare (although now that’s virtually any healthcare). And the first step is to practice moderation. If you smoke cigarettes, cut back to less than half-a-pack per day. Or smoke only a cigar or pipe. A few life insurance companies now give cigar/pipe smokers a break on this supposedly “bad habit.” They know this habit actually lowers death and disease rates overall. (Although cigar and/or pipe smokers do have slightly higher rates of oral cancers compared to non-smokers, these can be readily detected with routine oral exams by doctors or dentists.)

Second, stay mentally and physically active. But don’t over-exercise. Follow a healthy diet. Avoid sugars and carbs, and limit calories. But don’t eliminate dairy, eggs, meat, salt or saturated fats.  And don’t obsess about those few extra pounds. Research suggests a few extra pounds is healthy. And being moderately overweight does not always present the risks that have been attributed to it.

Given the nutritional decline in most available foods, most people should supplement with a high-quality B vitamin complex. (Especially if you take Metformin.). In addition, I recommend supplementing with 5,000 IU of vitamin D daily.

Lastly, make sure your blood pressure is under control. Recent research suggests that a goal of 140/90 (or even 150/90) may be more realistic than 120/80, considering the side effects of drugs as well as the need for heart, brain, kidneys and other tissues to get adequate blood circulation, oxygen and nutrients, especially as we get older. (I’ll be giving an important update on the recent blood pressure research in this month’s issue of my Insiders’ Cures newsletter. If you’re not yet a subscriber, now is the perfect time to get started. Subscribers can access all current and previous issues on my website under the subscriber tab.)

And last, but certainly not least, make sure you don’t buy any tobacco settlement bonds!