American Elephants

The Health Care Drama in Massachusetts is Turning to Tragedy, or Farce. by The Elephant's Child
April 9, 2010, 11:58 am
Filed under: Economy, Health Care, Taxes | Tags: , ,

The health care drama in Massachusetts continues.  Governor Deval Patrick kicked off his re–election campaign by rejecting most of the premium increases that the state’s insurance companies had asked regulators to approve.   Mr. Patrick rejected the increases, and now claims that price controls are the correct response to “industry greed.”

In Massachusetts, all of the major insurance companies are nonprofits.  Three of the largest four posted operating losses in 2009.  In an emergency lawsuit in Boston superior court yesterday, they argued that the arbitrary rate cap would result in another $100 million in collective losses, and make it impossible to pay the expected cost of claims.  Even the solvency of some companies may be threatened. So, until the matter is settled, the insurers have just stopped selling new policies.

State officials have demanded that the insurers resume offering policies, under threat of fines or regulatory punishment.  Amazing!  The situation is so bad that the Governor has to threaten companies to make them sell their products at less than market cost.

The state’s Attorney General and his insurance regulators have concluded that the reason why Massachusetts insurance premiums are the highest in the nation is the underlying cost of health care, not greedy insurance companies that Mr. Patrick and Mr. Obama like to cite.

Central to Massachusetts health care are mandates requiring insurers to cover anyone who applies regardless of their state of health or pre-existing conditions, and to charge everyone the same rate.  Surprise! This allows people to wait until they’re about to face major medical bills to purchase insurance.  Between April 2008 and March 2009, about 40% of new enrollees at Harvard Pilgrim Health Plan stayed with it for fewer than five months and on average, ran up costs about 600% higher than the company would otherwise expect.  Blue Cross Blue Shield has had similar experience.

This kind of thing will soon be coming to your insurance market.  Democrats chose to regard all Republicans’ warnings about unworkable mandates, underestimated costs and ignored savings as simply more right-wing troublemaking.  Keep watching Massachusetts.  It will be instructive.

An Interesting Proposal. by The Elephant's Child

Here’s a proposal that is circulating around the Internet.  Appeals to me.

Proposed 28th Amendment to
The United States Constitution

“Congress shall make no law that applies to the citizens
of the United States that does not apply equally to the
Senators and/or Representatives;
and Congress shall make no law that applies to the
Senators and/or Representatives that does not
apply equally to the citizens of the United States of America.”

What do you think?  Would we ever get Congress to agree to this one?

Alan Greenspan Gets It, and Gets Blunt With Congress. by The Elephant's Child
April 9, 2010, 7:00 am
Filed under: Capitalism, Economy, Law | Tags: ,

The Financial Crisis Inquiry Commission, is busily trying to discover just how the financial crisis came about and especially who to blame.  Alan Greenspan, former Federal Reserve Chairman testified before the committee on Capitol Hill on Wednesday April 7.

In his testimony, the former Fed Chairman  told some plain truths that he was unable to utter when he headed the central bank.  According to Investors Business Daily:

Greenspan implied it was Congress’ meddling  incompetence — not the Fed, or free markets, or greedy bankers — that created the financial meltdown.

If the Fed as a regulator had tried to thwart what everyone perceived as a fairly broad consensus that the trend was in the right direction, homeownership was rising and that was an unmitigated good, then Congress would have clamped down on us.

There’s a presumption that the Federal Reserve’s an independent agency, and it is up to a point, but we are a creature of Congress and if…we had said we’re running into a bubble and we need to retrench, the Congress would say “we haven’t a clue what you are talking about.”

Absolutely correct. It was not the Fed that caused the housing crash and financial meltdown, it was Congress and the White House.

It began back in the 1970s when left-wing activists attacked banks for supposed “redlining practices that let them discriminate in making home loans.

Congress responded with the Community Reinvestment Act, which gave regulators the power to force banks to lend money to “low-income, minority, and distressed neighborhoods.  To fund the lending, they used Fannie Mae and Freddie Mac — and rewrote the credit standards for the banks, making them more open.  Banks made the loans, Fannie and Freddie bought them, using borrowed money to do so.

Home ownership became the goal, and getting more people into their own homes became a Congressional aim.  Credit ratings no longer mattered, nor did employment or a steady income.  What mattered was race.

By 1996 President Clinton’s HUD told Fannie and Freddie that 42 percent of their financing had to go to those with incomes below the median. By 2000, HUD Secretary Andrew Cuomo unveiled new regulations to provide $2.4 trillion in mortgages for affordable housing for 28.1 million families.  Despite regular efforts at reform, pleading by the Bush administration and Greenspan himself,  Democrats in Congress, led by Barney Frank and Chris Dodd,  rejected any major changes to Fannie and Freddie.  It’s the old “good intentions” story. They meant well.

The biggest villain in the whole financial meltdown is not too little regulation, nor the free market, nor greedy bankers.  In this matter, Alan Greenspan is absolutely correct.   The blame lies upon Congress itself.

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