Issues Now!

The Public Health Insurance Option As A Strong Competitor

Jason Rosenbaum2 — Thu, 28 May 2009 13:25:29 -0700

Jacob Hacker at Campaign for America's Future laid out the case for a Medicare-like public health insurance option:

A Medicare-like public plan would be much more stable and secure than other approaches. It would provide the broadest possible choice of doctors. It could be offered throughout the nation on the same terms. It would have the lowest administrative costs. And its bargaining power and large risk pool would allow it to offer the most affordable possible premiums and most effectively restrain costs while upgrading the quality of care.

Health Care: How 'Public' Must A Public Plan Be?

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Plan to attend the America's Future NOW! conference in Washington.

Joe Paduda disagrees, arguing that the savings Hacker sees from Medicare are overstated. Instead, he proposes a different model for the public health insurance option:

I could go on, but the point is clear - Medicare's supposed administrative and medical cost advantages are not real. That does NOT mean a public plan option isn't viable. In fact, there is a government plan that is kicking the collective private health plan industry's rear end. It's the Veteran's Administration, and rather than Medicare, i'd base a national plan on a dramatic expansion of the VA.

Who's right? Well, both—or neither.

First, I should take issue with one of Paduda's assertions. Medicare does indeed hold down health care costs. Its costs are growing slower than private insurance. Now, that doesn't mean costs aren't growing; they are. If we don't control health care costs, Medicare will indeed break the bank. That's why we need the public health insurance option.

To analyze which type of public health insurance option will work best, I think it helps to understand the goal of the public health insurance option. First and foremost, the public health insurance option should exist to provide people with a place they can go to get quality health insurance if and when their private insurance fails to provide them with what they need. People should always have a choice to get out of the private, monopolistic system if they want.

This choice will lead to increased competition. (I'm not sure why Paduda says it "may" lead to more competition; it seems to me that increased competition is pretty much a guarantee.) The public option should be able to bargain with providers for lower rates, and with less overhead, it will be able to provide services for at least nominally less than private insurance right off the bat. This, combined with an insurance program designed to protect people's health and not a corporate bottom line, will make the public health insurance option a strong competitor. Private insurance will be forced to respond.

This competition between public and private seems to me to be the main driver of lower costs and better outcomes. Private insurers will likely get creative finding ways to out-deliver and undercut public insurance. And public insurance, with access to a vast pool of data and government transparency regulation, will be able to really understand costs in the health care system in a new way, and derive further solutions from that, solutions like the ones Atul Gawande has proposed in this must-read article in the New Yorker.

So, in a way, it doesn't matter much if the public health insurance option is Medicare-like or Veteran's Administration-like. As long as it provides people with quality health care and peace of mind, it will be popular. And as long as it is a strong competitor, it can adapt down the line to ratchet down health care costs even further.

Why We Can't Compromise On Public-Plan Choice

Jacob S. Hacker — Wed, 27 May 2009 11:45:46 -0700

Of all the components of the health reform package that will be debated in Congress this year, none inspires greater admiration or ire than the idea of “public plan choice.” Public plan choice means simply that Americans younger than 65 who do not have employment-based health insurance should have the option of enrolling in a new public health insurance plan that provides good coverage on equal terms in all parts of the country.

As I have argued at length, by creating a benchmark for private plans and a new means of reining in costs and improving quality, public plan choice is the key to ensuring that health reform provides quality affordable care to all Americans over the long term.

Health Care: How 'Public' Must A Public Plan Be?

Recently, some policy experts have called for a “compromise” approach that would involve state-based public plans designed to mimic state self-insured health plans. Some have even backed models that simply involve a government contract with one or more private insurers to administer claims. Neither approach would achieve the cost savings nor delivery system changes that a truly national public plan could. Indeed, in an online debate, Stuart Butler of The Heritage Foundation correctly stated that a self-insured nonprofit health plan such as those now run for public employees in many states would be “a public plan in name only.”

A true public plan cannot rely on private insurers to set premiums, provider rates, or terms of coverage, and it must be publicly accountable at the national level. The simplest, most workable, most cost-effective, and most attractive way to achieve these crucial goals is to model the new public plan on Medicare, the successful and popular public health insurance program for the elderly and disabled.

A Medicare-like public plan would be much more stable and secure than other approaches. It would provide the broadest possible choice of doctors. It could be offered throughout the nation on the same terms. It would have the lowest administrative costs. And its bargaining power and large risk pool would allow it to offer the most affordable possible premiums and most effectively restrain costs while upgrading the quality of care.

No less important, this model is overwhelmingly popular: In polls, between two-thirds and three-quarters of Americans say they want private plans to compete with a “government-administered public plan similar to Medicare.”

In stark contract, state-run plans or plans run by third-party administrators would have severe disadvantages:

1. They would require building a new plan (or a new set of regional plans and oversight agencies) largely from scratch, which would mean forfeiting the administrative, economic, and political advantages of building on the Medicare infrastructure.

2. Such models would also require forfeiting another major advantage of a Medicare-like public plan: the ability to provide enrollees with a broad choice of providers.

3. Most important, the prospect for cost restraint and/or quality improvement under these proposals would be limited. Medicare has increasingly out-performed private plans in restraining the rate of increase of health spending while maintaining broad access. A new public plan could draw on Medicare’s experience, as well as the experience of the national VA system, to improve its cost-control methods and enhance the quality of care.

In short, the public health insurance plan should be a model for how to deliver cost-effective high quality care. Only a national, comprehensive and truly public plan can provide this essential benchmark for private plans.

So let’s not compromise away an essential element of health reform. When the debate over reform heats up, advocates will need a clear, simple, and unthreatening vision of reform that makes a simple promise: Americans should get a real choice between private insurance and a Medicare-like public plan, not a false choice between private insurance plans and a “public plan in name only.”

The United States Needs a Cohesive Industrial Policy

Steven Capozzola — Tue, 26 May 2009 17:02:54 -0700

Clyde Prestowitz is absolutely right that the United States needs a cohesive, forward-looking national industrial policy. And furthermore, he is correct in pointing out the “policies of China, Japan, Korea and others to undervalue their currencies.” Such mercantilistic trade practices are an excellent reminder that other major economic powers already maintain their own inwardly focused industrial policy.

Beyond GM: Our Bankrupt Industrial Policy

This becomes particularly relevant when discussing the U.S. auto sector. In fact, more than 7.2 million U.S. jobs are dependent on a healthy U.S. auto parts supply chain.

What’s needed to strengthen the automotive supply chain and revitalize American manufacturing are policies that get America back to work.

Our organization, the Alliance for American Manufacturing (AAM) recently undertook an 11-state, 34-city bus tour that culminated in a teach-in on Capitol Hill. As we took our message across the country, we found strong support for a more reciprocal trade policy and for a restructured U.S. auto industry that doesn’t simply rely on the offshoring of more production in order to meet a shrinking bottom line. Simply put, tax dollars should not be used toward the outsourcing of more U.S. production.

We must revise our approach to trade policy, including strong enforcement of existing U.S. trade law. We also need to reform our healthcare system and invest in research and innovation in order to restore American manufacturing. Anything less is simply short-sighted.

An Industrial Renaissance Policy

Clyde Prestowitz — Tue, 26 May 2009 13:39:11 -0700

For years Larry Summers and I had a running argument over industrial policy.

As a mainstream economist in good standing, he, of course argued that governments can't pick winners and losers and that even if it could, special interests would inevitably capture the process and distort it. Under no circumstances, he emphasized, should America have an industrial policy.

My view was that as an industrial nation we would inevitably make decisions that involved picking winners and losers. Breaking up AT&T, standards setting by the FCC or FDA, R&D spending by N.I.H, etc. are all examples of such decisions. The only question was and is whether those decisions would be guided by some overall productivity optimizing criteria or by chance or, more likely, the very special interests Larry feared.

Beyond GM: Our Bankrupt Industrial Policy

Well, now that the U.S. government owns the banks, insurance, and auto companies with Larry as the chief winner and loser picker, that whole discussion has become moot.

But now that we are picking winners and losers, the question of how we are doing it has become very important. So far, the answer is "not very well."

While pouring big bucks into GM and Chrysler to keep them alive, the administration has largely ignored one of the biggest factors making them uncompetitive - the exchange rate. The strong dollar and the policies of China, Japan, Korea and others to undervalue their currencies tend to undercut the rescue effort. Industrial policy will only work if it is a complete policy, and a complete policy in this case must be one that deals with the exchange rate question.

More important, however, is the question not only of saving Detroit, but more broadly, of revitalizing the whole U.S. productive base. To avoid a repeat of the experience of the past two years, we must come out of this crisis with a vastly reduced trade deficit. But to do that, we must begin to produce more of what we consume, which is, after all, what Obama has been talking about when he discusses creating green and other kinds of jobs. But the problem is that right now, the greener we get, the more we import because we don't make most of the stuff we would need to install.

Take batteries for instance. Electric cars, lawn mowers, and other devices need batteries. With a few small exceptions, U.S. companies don't make batteries. They also don't make windmill blades and turbines. They also don't make solar cells or concentrators.

Even if GM and Chrysler survive in some reduced form, a lot of workers are going to lose their jobs as a lot of factories are shut down. A sensible industrial policy would be looking at ways to replace those auto factories with battery, windmill, and solar cell plants. The new Commerce Secretary ought to be talking to Korean battery makers, Danish windmill producers, and Japanese photovoltaic cell manufacturers about why they should be investing in the U.S. and why they should be doing joint ventures with American companies. He should have some financial investment incentives to use to entice these companies to U.S. shores.

At the same time he should be creating government-industry consortia to promote development of these technologies in the United States. Use the Sematech consortium that was set up in the late 1980s to meet Japanese competition in semiconductors as a model. He should also be working with State governors to see to it that new factories are located so as to replace old ones and to take advantage of concentrations of worker skills.

In short, America needs a real industrial renaissance policy, not just a save GM and Chrysler policy.

America Needs a 12-Step Program

Kari Fulton — Wed, 20 May 2009 09:18:02 -0700

It is a Monday morning in Washington, D.C. and the children of River Terrace Elementary are walking past carry-outs, liquor stores, traffic, and plumes of smoke from the Benning Road Peaking Power Plant dancing in the sky. The dance ends with a sprinkle of pellets of chemical warfare falling onto the community below. Scientists at the Agency for Toxic Substances and Disease Registry call it "particulate matter" and it has been linked to the area's high rates of asthma, bronchitis and cancer .

A few states away, at Marsh Fork Elementary in West Virginia, little children are also filing into class, smack dab in the middle of coal country. Sludge fills their drinking water, so they are told not to drink it. Sometimes they cannot even go out to play, because the cracks in the playground are oozing out toxic coal sludge. Why?

Why are these children and so many more people around the world suffering from cancer, disease, chemical warfare, increased violence and economic instability? All for the sake of fossil fuels. Brittanica Encyclopedia defines fossil fuels as, "any of a class of materials of biologic origin occurring within the Earth's crust that can be used as a source of energy. Fossil fuels include coal, petroleum, and natural gas. They all contain carbon, and were formed as a result of geologic processes acting on the remains of (mostly) plants and animals that lived and died hundreds of millions of years ago." This ancient source supplies 90 percent of all the energy used by industrially developed nations. It turns on our lights, heats our stoves, fuels our cars.

The Politics of Energy: How Much Capping And Trading?

For almost a century, scientists have been developing technology to make us less reliant on fossil fuels. In 1910, American Engineer Frank Schuman built one of the first practical industrial scale solar plant, at Meadi, Egypt. Schuman proclaimed enthusiastically, "Sun power is now a fact and no longer in the 'beautiful possibility' stage... It will have a history like aerial navigation. Up to twelve years ago it was a mere possibility and no one took it seriously."

Unfortunately Schuman's innovative technology and his solar powered predecessors have been placed on the back burner, as world economies lean toward less expensive, but more dangerous fossil fuel. This dependence on fossil fuels has become a monkey on our back that we cannot seem to shake. Almost 100 years later, we are still facing the threats of oil shortages and struggling with an addiction to this dangerous, life threatening commodity. But why?

Why. Because the fossil fuel industry is so addicted to the profits from controlling the masses with oil and coal, that they even have the audacity to call it "clean".

Please, don't believe the hype. Ain't no such thing as clean coal. Ask the parents of the children at Marsh Fork Elementary, who live in the Appalachian mountains, and work in the coal mines blowing up mountaintops to gather up coal.

Thedirtylie.com, found that in the past twenty years, "mountaintop removal has obliterated an estimated 470 mountains in Appalachia, crushing 1 million acres of the world’s most productive and diverse temperate hardwood forests and smothering 1,200 miles of streams. At the current pace, the coal industry will have decimated a piece of Appalachia the size of Delaware - more than 1.4 million acres — by the end of the next decade."

The falling rock from mountaintop removal tumbles and hits the homes of the Appalachian people below. With one stroke, seven, nine, ten generations of memory falls to pieces. The rock breaks the homes, but the work breaks the soul.

In Nigeria, the quest and acquisition of fossil fuels has also lead to oil related violence. A 2004 Fact Finding Report by the Human Rights Watch, “Rivers and Blood: Guns, Oil and Power in Nigeria’s Rivers State,” found companies like Shell have taken over indigenous land and partnered with corrupt politicians to maintain control over oil markets and Nigeria's government. Since late 2003, the running fight for control of these villages and towns has resulted in the deaths of dozens of local people and forced tens of thousands to flee their homes. Schools and businesses have closed. Homes and property worth millions of dollars has been destroyed. Hundreds of mostly young male fighters have also been killed. The violence has created a profound climate of fear and insecurity in Rivers State, leaving local people reluctant to return to their homes or to seek justice for the crimes committed. Although it is dangerous, the people work in the mines because that is all they know. They are now addicted too, but crying for a twelve step program.

Please America, check-in to rehab from fossil fuels. Please America, go into rehab for our souls. We are watching the earth die, not realizing that the same things that are killing our planet are the same thing that are killing us too.Greenhouse gases are the number one cause for climate change around the world. The Environmental Protection Agency estimates that over half of the greenhouse gas emissions from United States come from power plants like the Benning Road Peaking Plant, in the River Terrace Community, in Washington, DC. Another third comes from transportation and the exhaust that comes from automobiles fueled with oil from oil refineries like the ones in Nigeria's River State. As one of the world's largest emitters of greenhouse gas emissions, our energy usage is causing the world to heat up with vengeance.

This addiction is worse than any drug, and runss so deep that most of us don't even realize we are fiends; from petrolatum jelly vaseline to cars that run on gasoline, to month after month of making ends meet to pay a light bill, or heating bill — while Mother Earth continues to be pimped for our comfort and satisfaction.

But can you really blame the people when you have fossil fueled fiends running our markets and our country? They introduced us to the good stuff and said we had to have it to succeed; to run that red-hot corvette and thaa private jet is what will really make you feel free. Unfortunately, this type of "freedom" doesn't come to many. So most people in the world are just reading the advertisement and breathing the fumes from car exhausts and jet fuels. Particulate matter slowly falling is inhaled, causing yet another child to miss a day of school. The doctor will say it's just another asthma attack.

There is another way to freedom. Today, more and more countries are revisiting the work of engineers like Frank Schuman who saw renewable energy such as wind and solar as more than just a "beautiful possibility". As an activist in the Youth Climate Movement and organizer with the Environmental Justice and Climate Change Initiative, I've had the honor to work with amazing leaders from around the world, all working together to spark a truly clean and just energy revolution that creates healthy and sustainable jobs, preserves our planet and frees millions of people around the world from addiction to fossil fuels.

In 2007 the Energy Action Coalition, which is made up of 50 organizations, including EJCC, came together to host the first ever youth summit on the Climate Crisis. The event gathered together over 6,000 young people from the U.S. and Canada. With Power Shift 2007, we held the largest lobby day on climate in U.S. history. Power Shift 2007 engaged a nation and helped to make climate change and renewable energy a major topic in state and national elections.

In January of 2009 the Energy Action Coalition came together once again within the first 100 days of President Barack Obama's term for Power Shift 2009. Through Power Shift 2009, we gathered 12,000 young people from around the U.S. and the world, all in solidarity for a truly just renewable energy economy. We gained the attention of our local senators and congress people by storming the halls of Capitol Hill, wearing green hard hats symbolizing a unified call for more green jobs and investment in a new green economy.

With a new administration, the voices of the Youth Climate Movement and the calls from the grassroots advocacy of communities living near the coal fields, power plants and oil refineries are finally starting to be heard. On March 24, 2009 the Environmental Protection Agency announced it will suspend and review permits for two mountaintop removal coal mining operations — and putting hundreds more mountaintop coal-mining permits on hold until it can evaluate their impact on our nation’s streams and wetlands. On April 17th, the agency announced its findings from a 2007 Supreme Court Ordered report and found that greenhouse gases are a serious threat to public health and welfare. With a sense of hope for the future, EPA administrator, Lisa Jackson announced, “This finding confirms that greenhouse gas pollution is a serious problem now and for future generations....This pollution problem has a solution – one that will create millions of green jobs and end our country’s dependence on foreign oil.”

Within the first 100 days of the Obama Administration, the United States has taken the first steps in a twelve step process to end our addiction to fossil fuels. We have acknowledged that we have a problem and it is directly connected to the fossil fuels we consume. If we want to live free, if we want to continue living in our perceived luxuries, we must take a moment to reduce our waste, reduce our pace of energy consumption, and thinkt.

Today is the time to make a decision. Just like the workers in the coal mines of West Virginia, we are reaching our rock bottom and it is time for an intervention and introduction to a twelve step program to end this addiction to fossil fuels. By reviewing the twelve step program developed in 1935 by Alcoholics Anonymous founders Bill Wilson and Dr. Bob Smith, I have created 12 steps the United States and the American people must take to alleviate this addiction and truly reach Eco-freedom and Environmental Justice.

Step 1. Admitting we have a problem, and that the United States is the largest emitter of greenhouse gases that are causing climate change. We are dependent on unhealthy and unstable fossil fuels, and are playing a role in the destruction of ourselves, others and the planet.

Step 2. Start to believe there is a power higher than ourselves. For whatever reason, that higher power allowed us to live on this planet. We must give thanks by tending to this planet as the planet has tended to us.

Step 3. Make a decision to embrace the "WE" mentality instead of the "ME" mentality. The world is more that one person. At this stage, we begin to live our lives with conscious respect for the planet and all beings inhabiting this world.

Step 4. Take a soul searching and fearless inventory of our personal practices, and the social circumstances that have allowed this addiction to fossil fuels to run our lives.

Step 5. Continue our soul searching quest, and publicly admit to ourselves, Mother Earth, and the world the exact wrongs we have done to the earth and to our bodies through this addiction to fossil fuels.

Step 6. Be entirely ready to transition off of fossil fuels and unsustainable habits, purchases and practices.

Step 7. Work together to create a grassroots and mainstream culture of support in removing our countries over materialistic and consumerist shortcomings that allow this addiction to fossil fuels to grow larger as a threat to our planet and our humanity. Humbly ask and listen for guidance and support from Mother Nature and the international greater good.

Step 8. Making a list of people countries and environments we have harmed and be willing to make amends to them all. This will be quite a feat for United States, or almost any developed nation, to accomplish. However, in our own lives we can begin by making a list of environmental hazards in our communities or in communities that may receive the waste from our community.and pledging to advocate for land remediation and support with environmental justice concerns.

Step 9. Making direct amends to the communities, countries and environments that we have harmed due to our addiction to fossil fuels, except when to do so would injure them or others. While we must make amends for our wrongs, we must listen to the needs of people we have wronged first, and make sure they even want our help. We can make direct amends to the earth and to communities impacted by our environment by giving back through tree planting, advocacy work, fundraising support for local grassroots actions and clean-up/service projects to restore our communities and our environment.

Step 10. Continuing taking personal inventory and not be afraid to admit when we are wrong. As a world leader, America must shred an misconceived image of superiority. This image has helped greatly in allowing us to fall into one of the worst recessions since the Great Depression. At this step we won't allow our pride to keep us from saving people and the planet.

Step 11. Staying connected and in tune with a higher power, grassroots community efforts and to the mission of our country that is expressed in the constitution. Through a process of deep thought and research making sure that we realize who we truly are in this world and in this universe. Becoming more aware of the deeper role America can play in protecting our environment and reducing the threat of drastic climate change.

Step 12. At this point our country will have experienced such a dramatic sociological and cultural shift that if asked we could truly work with other countries like China, India and Europe as we all overcome our addiction to fossil fuels.

However in order to reach step twelve, we must all take step one.

The Environmental Protection Agency, grassroots environmental advocates and everyday people around the world have started taking the first steps towards Eco-freedom. We are gathering together to make sure our country makes the first step as well. This year, 2009, is a critical turning point in our future. Major legislation on climate change is being debated on the floors of Capitol Hill, and in December, leaders of industrialized nations around the world will come together in Copenhagen, Denmark for the 15th annual United Nations Climate Change Conference.

For 8 years the world has been waiting for the U.S. to make a statement. This year will be the first time the Obama administration will be a part of the negotiations, and it is the hope of the world that the U.S. will take a lead in addressing global climate change by making true steps to reducing our greenhouse gas emissions. The decisions we make today will decide the future of our children and generations to come. It's time to listen to seven generations from today. It's time to drop the fossil fuel habit and start creating the beautiful reality of a renewable energy economy that is based on justice, human rights and sustainability!

To learn more about what you can do to advocate for getting the United States into a Fossil Fuel Rehab program visit powershift09.org, ejcc.org and checktheweather.net.

Without The Grassroots, No Choice But To Deal

Bill Scher — Wed, 20 May 2009 08:26:37 -0700

David Roberts laments the political squeeze the Waxman-Markey climate compromise puts on progressives, forced to choose between "what justice and prudence demand and what's possible within the current constraints of power politics" but ends on a hopeful note: "if a small step is all you can take, I guess you take the small step."

It appears that right now a small step is all we can take, but did it have to be so? And will it always, especially when we don't have time for only small steps if we are to avert a climate crisis? The political reality for progressives must face is that there are enough congressional Democrats from fossil fuel producing states to block any legislation.

The Politics of Energy: How Much Capping And Trading?

There are two ways to overcome the political hurdle. Either cut deals with the coal, oil, auto and utility industries that weaken (but hopefully don't completely undermine) the legislation. Or convince voters in those areas that their interests are not the same as those of fossil fuel CEOs, motivating them to take action and putting public pressure on key congresspeople to back stronger climate protection legislation.

Cutting deals can be handled behind closed doors in the halls Congress. Generating public pressure requires major grassroots mobilizing.

The political reality Reps. Henry Waxman and Ed Markey had to face is there has been no major grassroots mobilizing in the broader progressive movement. While poll numbers show strong support for strong legislation, there has been no grassroots intensity to back that up, to convince skittish politicians that the public is demanding action immediately, and will hold politicians accountable if they don't follow through.

Yes, environmental groups are active. Yes, there have been some ads and email appeals. But the issue has not dominated the progressive conversation in recent weeks, and it did not become the top priority issue across most areas of the progressive movement -- even though the most critical negotiations were happening this month.

This is not necessarily the fault of individuals. There has been little in the media -- either traditional or new -- to let individuals know that the past month has been the critical time to influence climate legislation. Engaging voters in the legislative process has not been a priority for traditional media outlets more interested in stoking outrages du jour, and sadly, new media outfits have been spotty on this front as well.

But broad, deep, relentless and coordinated grassroots mobilization is the only thing that can put a wedge between special interest lobbying and Congress. If we aren't present in the halls and offices of Congress, you better believe every day corporate lobbyists are.

So faced the reality of no grassroots mobilization providing real wind at their backs, Waxman and Markey had to deal. And bless 'em for it, or else we'd really be nowhere.

But until we figure out how to get the millions of progressives to engage the legislative process early in the process, we'll be stuck with choice after choice of watered-down legislation or no legislation at all.

The Case for Patience

Ryan Avent — Thu, 14 May 2009 11:55:52 -0700

In response to Dean’s response, let me begin by clarifying my position on a timeline for regulatory reform.

I don’t believe we need to wait for a year or more before beginning the effort to reshape the financial system—in fact, I think we could begin right now. I would like to see the White House and the Congress working toward a comprehensive regulatory overhaul this very minute, which might be put up for a vote within a matter of months. What I don’t think we should do is rush the reform process through as an explicit response to this crisis. What we’d like the financial system to look like a year or two down the road should not be a major consideration in determining how to achieve financial stability now. The priority should be addressing the immediate crisis in as effective a manner as is possible given constraints.

Should We Bail Out This Bailout?

Having said that, I think it’s most helpful to divide Dean’s proposals into two categories. The first is his proposal for immediate resolution of the problem of potentially insolvent banks. He says:

That is real simple. The shareholders get wiped out and the bondholders likely get wiped out too. That's the way capitalism is supposed to work.

This is the kind of message that should appeal to angry voters—take over the banks and wipeout the fat cats what created the mess. I don’t believe that following this path would have the effect Dean desires, however. Restructuring one or a handful of banks would leave most of the difficult work to be done—it wouldn’t obviate the need to regulate leverage and behavior. Even if nationalization could be accomplished in the cheapest manner possible—by wiping out bondholders—it’s likely that the process of cleaning up a Bank of America or a Citigroup would be quite expensive (particularly if depositors got nervous and began withdrawing funds). This expense would mean that new appropriations for the banks would be necessary, which would no doubt blunt the public’s satisfaction at having a big bank go down.

Further, and as Dean knows, there is some risk (and potentially a significant risk) that nationalization would touch off a new round of financial instability. This wouldn’t only prove damaging to the administration’s efforts to reform the financial stability; it would also threaten the Obama presidency and the whole of the progressive agenda.

Dean’s other regulatory proposals are sound in principle, and I hope they are incorporated in whole or in part into legislation. But here, too, I think it’s better to take one’s time and produce the best legislation possible rather than rush ahead to take advantage of public sentiment. For one thing, I doubt that anger at bankers will wane in the near future, but for another, I’m skeptical that this anger can be channeled into an effective regulatory framework. “Let the banks fail,” is a rallying cry. Even, “Reduce financial compensation,” could resonate with the public. “Alter the procedures by which Fed presidents are chosen,” is destined to cause eyes to glaze over.

Just have a look at the recent fate of mortgage cramdown legislation. This should have been something the public could rally behind, and it certainly should have been an issue on which standing with the banks proved politically poisonous. And yet stand with the banks legislators did, enough of them to kill the measure. Anger works for bringing down people and institutions. At fine-tuning rules it is of limited utility.

Why We Can't Wait To Move On Bank Reform

Dean Baker — Thu, 14 May 2009 07:15:07 -0700

If we didn't live in the world we actually live in, Ryan's approach—fix the immediate problem, then set things right for the future—would make sense. But, we do live in this world.

In this world, the folks with money—the bankers in this case—call the shots. At the moment, they are on the defensive because they have to come to Congress begging for money in the full light of day. (Actually, even now more of the bailout money is going to them through the back channels of the Fed and the FDIC and the bottomless trough of AIG, than through direct appropriations from Congress.) It is precisely because the banks have an immediate problem that there is some hope of reining them in, of imposing regulations on them and preventing them from ripping us off in the future. If we don't seize this moment, then be prepared to turn over your first born and everything else to the financial industry.

Typically, bank and financial regulatory policy draw about as much attention as a public reading of the phone book. The only people who show up for writing the legislation and overseeing the oversight are the people paid by the financial industry. In this environment, the banks have gotten and will get everything they want.

Should We Bail Out This Bailout?

We have a rare moment where we have millions of people with pitchforks who are absolutely furious because Congress wants to use their tax dollars to protect the banks from the mistakes they made. This is American capitalism standing naked. The rich are not smart and talented and incredibly productive. They are pathetic failures who just happen to have the political power necessary to line their pockets. Everyone can see that right now, except the people who are paid not to.

We can impose simple demands. The public has an interest in keeping the financial system operating, but zero interest in rewarding the seven and eight-figure buffoons who wrecked AIG, Citigroup and Bank of America. This means that if we give them the money to stay afloat, then we own them.

That is real simple. The shareholders get wiped out and the bondholders likely get wiped out too. That's the way capitalism is supposed to work.

We also tell the boys and girls running the show that they are going to get more normal salaries. If they can't live on $500k a year, then they should look for another line of work.

All of this is very simple and understandable, which is where the discussion should be kept. The details are complex, but so are the details of school fire safety. The public does not need to know the details. The only thing that the public needs to know is that we can keep the financial system running without handing taxpayer dollars to the people who wrecked the economy. If we don't go this route, it is only because the people setting the policy work for the banks. It's that simple.

There is a long list of regulatory reforms that we should be demanding but the most important are the simplest. First, a financial products safety commission along the lines recommended by Elizabeth Warren, the head of the TARP Congressional Oversight Panel. The supposed downside of this one—it will slow financial innovation—is a risk we should be willing to live with.

The second key demand is to take the Fed away from the banks. There is no more reason for the banks to have special input in the setting of monetary and regulatory policy than the United Auto Workers. They can petition their representatives in Congress to have their interests protected. They should not be given majority control of the Fed.

And, we should have the words "watch for bubbles" tattooed across the forehead of the Fed chairman. It is ungodly stupid to either fail to see an asset bubble of the size of the $8 trillion housing bubble or to see it and just sit back and let it grow. If the Fed chair has "watch for bubbles" tattooed on his or her forehead maybe they will understand that containing bubbles is one of the Fed's responsibilities.

Finally, to help cover the cost of this disaster and to put financial speculation on an even footing with other forms of gambling, how about a modest financial transactions tax? If we imposed a 0.25 percent tax on the purchase or sale of share of stock, as is done in the United Kingdom, and put scaled taxes on trade of options, futures, credit default swaps and other financial instruments, we can easily raise over $100 billion a year.

Because the development of computers has sharply reduced the price of trading over the last three decades, a tax of this magnitude would only raise transactions costs back to where they were in the 1980s, a period when we already had a highly developed capital market. It is hard to see the downside to this tax other than the political opposition of the financial industry. Does anyone have a better way to raise $1 trillion over the next decade?

Anyhow, we have to move now while the people have their pitchforks in hand. Once they put them down, we will be back to business as usual.

The Politics of Ending Bailout-mania

David Sirota — Tue, 12 May 2009 08:59:42 -0700

Dean Baker has expertly provided the economic case for ending taxpayer-funded bailouts for Wall Street. But, as we all know, just because something makes sound economic sense does not mean Congress or the White House will change course.

That's particularly true when it comes to policies affecting the financial industry. The continuation of no-strings-attached bailouts is not merely a product of the industry's outsized political influence bought by hundreds of millions of dollars in campaign contributions and lobbying. It is also a product of both a money-worshiping media Establishment and a strain of sycophantism that inhibits the progressive movement from taking on a more confrontational posture.

Should We Bail Out This Bailout?

When the Wall Street meltdown first hit and public opinion polls showed a country deeply opposed to the Bush-Obama bailouts, almost every television pundit, newspaper columnist and reporter portrayed bailout proponents as Serious and Sober Defenders of the Republic and bailout opponents as Unserious Luddites Who Want the Country to Enter a Depression. Perhaps the best example of this unbridled elitism came from historian Doris Kearns Goodwin, who appeared on Charlie Rose's PBS show to liken bailout proponents to those courageous legislators who supported 1960s civil rights laws, and berated bailout opponents as irresponsible. This kind of portrayal largely continues today.

At the same time, much of the progressive movement has opted to give President Obama a pass on his strong support for more no-strings-attached bailouts. The rationale for this is some mix of loyalty and worship, with many believing that to take on the White House in an oppositional fashion would unduly weaken the new president.

So, then, what to do? How can the bailout politics ever change?

Well, first and foremost, bailout politics are changing already, without the consent of the Washington media Establishment. With polls continuing to show the public angry at the prospect of more bailouts, the administration has been forced to hold off asking for more bailout funds, knowing that intensified opposition in Congress means another request would likely be rejected. Indeed, Congress already stripped Obama's second $750 billion bailout request out of his 2010 budget proposal.

Second, both the fledgling protests against bailouts - on the left from A New Way Forward, and on the right from the so-called Tea Parties - suggests a potential base of support for challenger candidates who base their campaigns against incumbents on a progressive or conservative brand of anti-bailout populism. For Democrats who control Congress, this poses a particular threat, because they have far more to lose than the Republicans. And so progressive movement efforts to force Democrats to take tougher anti-bailout positions is the opposite of disloyal - it's the best way to help Democrats avoid unnecessarily emboldened GOP candidacies in 2010.

The necessity for progressives to help strengthen an anti-bailout political coalition, rather than sitting on the sidelines hoping public anger recedes, is obvious.

According to Bloomberg News, the White House, the Congress and the Federal Reserve have committed almost $13 trillion to the financial industry in one bailout form or another. If even more resources continue to be devoted to bailing out the same financial con artists who got us into this economic mess, that means far less resources will be available to tackle all of the nation's other challenges (health care, infrastructure, education, etc.). And when those challenges aren't met, conservatives will have a set of failures to cite as a powerful rationale for their own political revival.

So while bailout politics have yet to become the cause du jour of the progressive movement, it must be that cause—because if it doesn't become central to progressive organizing and opposition, it could undermine the movement's entire legislative and electoral agenda.

Time to End the Bailouts

Dean Baker — Tue, 12 May 2009 06:59:14 -0700

Treasury Secretary Timothy Geithner told us last week that the country’s 19 largest banks had passed the stress tests. There are good reasons for questioning the results of these tests.

For example, the bad scenario used in the tests assumed that unemployment would average just 8.9 percent for all of 2009. The unemployment rate hit 8.9 percent last week and it is undoubtedly going higher, so clearly the economy will be worse than what was assumed in the tests.

But, we can skip the details and take the Treasury secretary at his word. If the banks are strong enough to get through the downturn, then can we end the taxpayer bailouts that were supposedly necessary to keep them afloat?

Should We Bail Out This Bailout?

At the top of the list, the positive stress tests should mean the end of the Public-Private Investment Partnership (PPIP) program. PPIP was designed to clear the toxic assets from the banks’ books. PPIP involved a massive subsidy to the banks since it provided enormous leverage to buyers of toxic assets, while assigning them very little risk.

Even assuming no gaming (banks could pay third parties to bid up the price of their assets), the incentive structure of the PPIP would lead investors to bid far more for toxic assets than they would in a free market. The result would likely be that many investors would incur large losses with the taxpayers’ dollars. But if the banks are okay, why not just let the banks dump their bad assets in the market?

The banks also enjoy a variety of other subsidies. They can currently issue hundreds of billions of dollars of bonds with a guarantee from the Federal Deposit Insurance Corporation (FDIC). This implies a substantial interest rate subsidy. The savings from a government guarantee can easily be four percentage points of interest. If a bank has borrowed $30 billion under this program (which is the case with the largest banks), the subsidy amounts to a taxpayer gift of $1.2 billion a year.

The Federal Reserve Board has also created a variety of special lending facilities that allow the banks to borrow money at below-market rates. The Fed has close to $2 trillion in outstanding loans (a large portion of these loans are to non-financial companies) that were issued through these special facilities. If the banks are okay, we can shut these special facilities and to allow the banks to again rely on market financing.

Finally, it should be time to shut the AIG window. Many of the largest banks, including Goldman Sachs and J.P. Morgan, had bought derivatives from AIG’s financial products’ division. If AIG had been allowed to collapse last fall, then most of these derivatives would be essentially worthless. However, the government stepped in and decided to honor in full AIG’s obligations.

This commitment from the government was very helpful to the banks. Goldman Sachs in particular did very well, pocketing $12.9 billion (at 4.3 million SCHIP-kid years) on derivatives that might have been worthless without the government’s helping hand. If the banks are really okay, then we can let them bear the consequences of their bad investment decisions rather than foisting the cost of their mistakes on the rest of us.

In short, there is no reason to argue with Mr. Geithner and his assessment of the banks’ health. Let’s take him at his word and end the bailout.

Dean Baker, the co-director of the Center for Economic Policy Research, will be a panelist at the session "Under Water: Addressing the Housing Crisis" during the America's Future NOW! conference in Washington June 1-3.