naked capitalism

It would be very hard not to notice, even if one is paying only cursory attention, how oversold the various “reform” programs underway are, and how they would be more accurately called, “Politicians Take Boatloads of Cash From Special Interests While Pretending They Help the Little Guy.” While cynics will argue that out that this is business as usual in Washington, differences in degree are differences in kind. We now have a destructive downcycle in progress, where companies (case example: financial services starting in the Rubin, um, Clinton era) win regulatory breaks that bolster their bottom lines, which enable them to throw more dollars at lobbying, which enable them to profiteer even more…..all at the expense of the public at large that isn’t directly benefitting from the scam.

Some readers (actually surprisingly few, but that may be a function of this being a holiday week and readers being in an agreeable mood) were critical of my opposition to the health care reform charade under way, the argument being that the insurance program was a Good Thing, it would provide insurance to people who were formerly uninsured, with subsidies to those at and not far above the poverty line (this is a big deal, for those who are familiar with benefit programs, some low income people do not seek better paying work because they would lose Medicare coverage).

The key assumption is that the insurance purchased will actually provide meaningful, affordable coverage. That is likely to prove to be a questionable assumption.

From an economic standpoint, anyone of reasonable means should not want insurance, save catastrophic coverage. You are better off paying for your routine coverage yourself, and paying for insurance (whether public or private) only to cover serious ailments that require hospitalization or other expensive treatment. So to extend that principle, for lower income people, the government could subsidize the catastrophic coverage and provide support for routine and preventive treatments.

In an interview with Bill Moyers at PBS (hat tip reader John D), Robert Knutter and Matt Taibbi explain how health care “reform” does far more for the insurers and drug companies, and far less for citizens than the plan’s boosters would lead us to believe:

ROBERT KUTTNER: Rahm Emanuel, the President’s Chief of Staff, was Bill Clinton’s Political Director. And Rahm Emanuel’s take away from Bill
Clinton’s failure to get health insurance passed was ‘don’t get on the wrong
side of the insurance companies.’ So their strategy was cut a deal with the
insurance companies, the drug industry going in….do whatever
it takes to get a bill. Never mind whether it’s a really good bill, let’s
get a bill passed so we can claim that we solved health insurance. Secondly,
let’s get the drug industry and the insurance industry either supporting us
or not actively opposing us….Now, that’s one way to get
legislation, it’s not a way to transform the health system. Once the White
House made this deal with the insurance companies, the public option was
never going to be anything more than a fig leaf…now it’s really nothing.

Yves here. The Administration signaled very clearly it that the public option was a mere trading chip. How? They called it….the “public option”! It’s an incredibly lame name, not the sort you’d ever use if you were serious about rallying public support. This is an Administration very attuned to marketing and positioning (the headfake HAMP mortgage mod program had its own logo and website as soon as it was launched, and consider the clever branding of the empty “stress tests”). Back to the transcript:

ROBERT KUTTNER: Think about it, the difference between social insurance and an individual mandate is this. Social insurance everybody pays for it through their taxes, so you don’t think of Social Security as a compulsory
individual mandate. You think of it as a benefit, as a protection that your
government provides. But an individual mandate is an order to you to go out
and buy some product from some private profit-making company, that in the
case of a lot of moderate income people, you can’t afford to buy. And the
shell game here is that the affordable policies are either very high
deductibles and co-pays, so you can afford the monthly premiums but then
when you get sick, you have to pay a small fortune out of pocket before the
coverage kicks in. Or if the coverage is decent, the premiums are
unaffordable. And so here’s the government doing the bidding of the private
industry coercing people to buy profit-making products that maybe they can’t
afford and they call it health reform.

Yves again. This is the key element that defenders of this program simply do not appreciate. The “plan” does nothing to fix the underlying problem of our health care system, which is bad incentives that lead to much higher costs than in other countries. This “reform” if anything reinforces the troublesome elements of the current system (by now making it official policy rather than design via official neglect) and worsen the cost equation by further enriching drug companies and extending the role of private insurers. Back to the transcript:

MATT TAIBBI: The Democrats are in exactly the same position that the Republicans were in once the Iraq War turned bad. All the Republicans have
to do now is sit back and watch the Democrats make a disaster out of this
health care effort. And they’re going to gain political capital whether
they’re in the right or not. And I think it’s a very- it’s a terrible thing
for the party.

There is a good deal more in this interview, which you can read here.
A related piece at Huffington Post, “The Cash Committee: How Wall Street Wins on the Hill” gives a describes in gory detail how big money trumps consumer interests, with the House Financial Services Committee as case study. It starts by discussing how efforts to regulate auto dealers were blocked, how the increase in the committee’s size favors vested interests: they play the grass roots game.

….groups like the auto dealers don’t bring with them to Capitol Hill the public-relations baggage of Wall Street or Goldman Sachs. “The local auto dealers are very popular in their districts,” Frank says. The more an interest group can make an issue district-specific and the more it can relate on an everyday level, Frank argues, the better it will do. “That’s why the realtors always beat the bankers. The bankers sit and they go [Frank makes a dour face, leans back in his chair and tightly folds his arms, miming an aloof posture]. The realtors are out there joining the Kiwanis and sponsoring little league.”

The same is true with John Deere, dairy farmers and other back-slapping boys from back home. But the big banks have figured this out, too — and now they use precisely such groups to poke holes in the reform effort. Over the last year, they’ve drafted an army of credible little guys to walk the halls of Congress and push the interests of brokers, swaps traders and Wall Street bankers. And they’ve shown that they don’t need big loopholes to slip trillions of dollars through.

“What’s happening now is the pro-regulation forces are being out-grassroots-ed by the antis,” Frank says. One member, he says, represented tons of title insurance companies. Another came from the headquarters of credit unions. A third’s district is home to LexisNexis; another to Equifax. Each of those entities received special treatment because their representative sits on the committee — and the more members on the committee, the more special treatment is needed. “I have not had a problem because of campaign contributions. The problem is democracy: it’s people responding to people in their districts: community bankers, realtors, auto dealers, as I said, end users, insurance agents,” says Frank.

Yves here. Those who followed the derivatives “reform” fiasco may recall how Wall Street got corporation to act as its spear carriers and plead its cause. Back to the piece:

Bank lobbyists looking for the seven votes needed to up-end legislation know where to start. [Melissa] Bean and 15 other New Dems have effective veto power on the committee and are sympathetic to their interests. According to its mission statement, the coalition, which was founded in the boom year 1997, is “committed to enacting policies that encourage economic growth, maintain U.S. competitiveness, meet the new challenges posed by globalization in the 21st century, and strengthen our standing in the world.” Wall Street lobbyists usually warn that banking regulations will harm U.S. competitiveness and slow economic growth.

Six of the committee’s New Dems are frontline freshmen. The panel is also home to seven Blue Dogs, another faction of business-friendly Democrats, three of whom are also New Dems. Two of the Blue Dogs are frontliners, including Rep. Walt Minnick, a freshman Democrat from Idaho who worked to beat back the pro-consumer finance authority in committee and pushed an amendment on the House floor that would have gutted it. Both efforts failed, but Minnick was nonetheless singled out for praise by the American Bankers Association in a post-vote memo…

Brad Miller has had his share of battles with the bottom two rows [newer members of the committee who sit in lower ranks]. Many of “the Blues and News,” as he calls them, are hamstrung by a “dependence on contributions from the industry. That traditionally has been one of the reasons to get on the committee. It was seen as a money committee.”

The article concludes by noting that the Democratic party has made a Faustian bargain with conservatives. There’s a reason that polls skew more liberal than what is the party is serving up:

But the difficulty of corralling the conservative Democrats, the valuable spots they take up on the committee that could otherwise go to a moderate or progressive and the expensive campaigns they require to stay in office call into question the strategy that got them elected. The party’s argument is that it is these marginal Democrats who give it the majority it needs to govern. But in seeking to craft its majority, the DCCC pays no attention to how those candidates will behave once in office.

One freshman, Alabama’s Parker Griffith, after getting roughly $1.5 million from the DCCC in 2008 and 2009, returned the favor by voting against every Democratic priority and then bolting for the Republican Party. The bottom two rows of the banking committee have been filled at a price of tens of millions of dollars. That money could have instead boosted the campaigns of progressives such as Bill Hedrick, Dan Seals or Bill Durston — all of whom lost tight races; none of whom would have voted with Wall Street.

Progressive Congressional candidate Darcy Burner who, despite heavy backing from the DCCC lost a squeaker in Washington State in 2008, says the campaign strategy has a more insidious influence.

“The D-triple-C as an institution is much more inclined toward Blue Dog candidates than progressives and that’s a self-fulfilling prophecy. They pick candidates who might be perfectly progressive and teach people to be less progressive. You really have to buck them to stay progressive,” she says, citing her own experience and several candidates who gradually became more conservative under DCCC guidance. “Once you say that stuff to voters, you’re expected to follow through.”

You can find the full article here.