It’s zir way or the highway

A New Years Gift brought to be the fine people of the “Tolerance”, “Diversity” and “Inclusion” crowd.

The morally superior Left. 🙂

Did you call a transsexual person “he” or “she” when they preferred to be called “zhe?” According to a newly updated anti-discrimination law in New York City, you could be fined an eye-watering $250,000.

In the latest, astonishing act of draconian political correctness, the NYC Commission on Human Rights have updated a law on “Discrimination on the Basis of Gender Identity or Expression” to threaten staggering financial penalties against property owners who “misgender” employees or tenants.

Incidents that are deemed “wilful and malicious” will see property owners face up to $250,000 in fines, while standard violations of the law will result in a $125,000 fine. For small business owners, these sums are crippling.

It’s not as simple as referring to transmen “he” or transwomen as “she,” either. The legislation makes it clear that if an individual desires, property owners will have to make use of “zhe,” “hir” and any other preferred pronoun. From the updated legislation:

The NYCHRL requires employers and covered entities to use an individual’s preferred name, pronoun and title (e.g., Ms./Mrs.) regardless of the individual’s sex assigned at birth, anatomy, gender, medical history, appearance, or the sex indicated on the individual’s identification. Most individuals and many transgender people use female or male pronouns and titles.

Some transgender and gender non-conforming people prefer to use pronouns other than he/him/his or she/her/hers, such as they/them/theirs or ze/hir

Other violations of the law include refusing to allow individuals to use single-sex facilities such as bathrooms that are “consistent with their gender identity,” failing to provide employee health benefits for “gender-affirming care” and “imposing different uniforms or grooming standards based on sex or gender.”

Examples of such illegal behaviour include: “requiring female bartenders to wear makeup,” “Permitting only individuals who identify as women to wear jewellery or requiring only individuals who identify as male to have short hair,” and “permitting female but not male residents at a drug treatment facility to wear wigs and high heels.”

So, Klinger on M*A*S*H could not get Col. Blake or Col. Potter fined $250,000 for objecting to him where a dress to work. (Military Protocols aside because after all, that just government sanctioned discrimination anyhow).

Not mention that Klinger being of Middle Eastern descent could also charge him with Islamophobia!

Yeah, that make perfect sense! 🙂

In other words, if a bar owner prevents male bartenders from wearing lipstick and heels, they’ll be breaking the law. They’ve now got a choice between potentially scaring off customers, and paying hundreds of thousands of dollars in fines. Regardless of the establishment’s clientèle or aesthetic, every property owner will be forced to conform to the same standard.

This is the latest in what Spiked Online editor-in-chief Brendan O’Neill calls “The Crisis of Character” in the west, in which identities become grounded in subjective interpretation rather than objective reality. The state is now forcing society to recognise the subjective identities of individuals, regardless of how absurd or surreal they may seem. In New York City, recognising someone’s identity is no longer a matter of case-by-case common sense and courtesy. It’s zir way or the highway. (Breitbart)

And in Orwellian Language Manipulation and Reality Control along with Moral Relativism (where the  only moral thing is do the Leftist Politically Correct thing or be a “bigot”, “racist” or both).

The Left: We want to do whatever the fuck we want to do, and when we want to do it, because we want to do it and you heathen mongrel Neanderthals who aren’t worth of kissing our ass will just have to shut and do as you are told or else.

We are the superior beings and we will rule over you with an iron fist of “social justice”.

We are your Superiors in every way possible, now and forever.

You do as your told when you are told, or else!

<<insert maniacal laugh here>>

Welcome to end of 2015, The Year of Orwellian Madness.

Here comes 2016, the End of The World Vote.

You will bow down peasants to your new Monarch, Queen Hillary The First.

That is the only choice you will be given to avoid punishment.

Or Else, The Scarlet “B” (BIGOT) be ‘tattooed’ on your forever!

the scarlett b
You will burn in Liberal Politically Incorrect until you are re-educated and renounce your unenlightened non-diversity, non-inclusion and intolerant heathen ways.

INFIDEL.  🙂

 

 

 

Happy New Health Care Everyone…

More than three years after passage of the Affordable Care Act (aka, Obamacare), most Americans still lack a good understanding of what the law does and how it will affect them. In large measure, that is due to the sheer complexity of the law and the fact that its major pieces are only now beginning to take effect. That complexity is also the root cause of many of the technical problems the federal government is facing in implementing the law, with those technical problems creating, in turn, even greater public confusion and anxiety.

The politically “popular provisions” (such as, so-called “free” preventive care, covering 26-year-old “children” on their parents’ plans, and expanding Medicare prescription drug benefits) took effect first—prior to the 2012 election. But these provisions are nearly inconsequential compared to the damaging Obamacare components slated to take full effect in January 2014.

That’s when a new and completely unsustainable subsidy program takes hold via the government exchanges. It’s also when Obamacare expands the broken Medicaid program to take in millions of new patients, and when Americans start paying for most of the nearly $1.8 trillion in new entitlement spending with massive tax hikes and unprecedented cuts to the Medicare program.

The results of these intertwining provisions will profoundly change the U.S. health care system and will undoubtedly produce lasting negative effects for a majority of Americans, regardless of the source of their health care coverage. Many Americans will see higher costs, fewer choices for coverage and less access to doctors and hospitals.

CHANGING INSURANCE COVERAGE AS WE KNOW IT

The Exchanges
The key vehicle used by Obamacare to radically transform and standardize health insurance in the U.S. is the creation of government health insurance exchanges. These exchanges were created to sell and subsidize standardized government-approved health care plans. Most of those who acquire coverage through the exchanges will have their costs subsidized by federal taxpayers. In 34 states, the federal government will be in charge of running the exchange.

Sixteen states, plus the District of Columbia, have elected to run their own state exchange. Open enrollment in the exchanges began on October 1. Coverage for enrollees kicks in beginning January 1, 2014.

Standardizing Health Insurance
Plans are offered in metal tiers: bronze, silver, gold, and platinum. Bronze plans will have the lowest premium, but highest cost sharing, and the reverse will be true of platinum plans. Those under age 30 can also purchase so-called catastrophic plans.

While there is some variance from state to state, every plan sold on the exchanges must offer a new “essential health benefits package”—an extensive level of benefits drawn from 10 different benefit categories.

With these built-in benefit mandates, insurers are unlikely to offer additional benefits. Doing so would further increase the price of their products compared to their competitors. In essence, the benefit floor created by Obamacare is likely to also become a benefit ceiling. The result is that meaningful differences among health plans can be hard to come by at the benefits level.

Over-Regulation of Insurance
These benefit mandates are combined with new insurance rules inside and outside the exchanges that take full effect in 2014. These include:

  • Unrestricted guaranteed issue, meaning no one can be denied coverage due to a pre-existing condition, even if they didn’t have previous coverage. (Of course, to avoid people waiting until they are sick to buy coverage, Obamacare added the infamous individual mandate to coerce healthy people to join Obamacare now.)
  • No medical underwriting, meaning an insurer cannot vary premiums based on health condition.
  • Community rating, which essentially forces insurers to charge younger adults artificially higher premiums by limiting the variation in premiums between the young and old. (The natural variation in medical costs runs at about 1:5. Obamacare sets the ratio at 1:3)
  • Prohibition of annual and lifetime limits on benefits. This provision has been gradually phasing in. The limits will be fully phased out on January 1, 2014. (At that time, any waivers for plans with such limits will expire, and 4 million people in plans that got waivers will lose their existing coverage.)

These new rules and mandates create a one-size-fits-all insurance model. Unfortunately, millions of policies previously sold do not fit this model. As a result, millions of Americans have lost—or are at risk of losing their health plan.

Subsidizing Coverage in the Exchange
Starting in 2014, the government will subsidize premiums for coverage purchased through the Exchange by individuals earning from 100 percent to 400 percent of the federal poverty level (FPL). For individuals, that income range is between $11,490 and $45,960 in 2013. For a family of four, the income range is between $23,550 and $94,200. The subsidies are applied on a sliding scale with the lower income participants receiving higher amounts.

In addition to premium subsidies, cost-sharing subsidies are available to those who purchase a silver plan in the Exchange and earn between 100 and 250 percent of FPL. These cost-sharing subsidies will offset enrollees’ out-of-pocket expenses.

The heavy subsidies are expected to draw more and more people to the exchanges. In May 2013, the Congressional Budget Office (CBO) estimated 7 million people would obtain coverage through the exchanges in 2014. By 2023, the CBO projected 24 million to obtain coverage there, with 19 million receiving subsidies. The CBO estimates that together, the subsidies will cost taxpayers almost $1.1 trillion from 2014-2023.

Higher Premiums and Fewer Choices
The main effect of these Obamacare provisions is a lack of competition, reduced consumer choice, and increased costs in the exchanges. Just the opposite of what the president promised.

The standardization of benefits inherently limits choice but this is combined with a lack of insurer competition, further reducing choices for Obamacare consumers. A county-level analysis of insurers participating in the state exchanges shows that 17 percent of the nation’s counties will have no choice—only one insurer is offering coverage to residents there. More than a third (35 percent) of all counties have only two carriers to choose from. Another 26 percent are being offered coverage from only three carriers. Thus, three out of four counties in America will only have three insurance options through Obamacare. A lack of insurer competition not only reduces choice, it also reduces pressure on insurers to keep costs down.

Obamacare’s many onerous provisions have led to significant premium increases for most consumers in a majority of states. A Heritage Foundation analysis found that 42 of the 47 states for which comparable premium data are available will see significant average premium increases—in many cases, over 100 percent— for individuals purchasing from the exchanges.

A common way for insurers to mitigate premium increases is to reduce the scope of their provider networks. As a result, major hospitals are being excluded in some exchanges, and many exchange customers are finding that their doctor isn’t in their exchange plan’s network.

For instance, the Los Angeles Times reports that “a major insurer in the state run market, Blue Shield of California, said its exchange customers will be restricted to 36% of its regular physician network statewide.”

EXPANDING A BROKEN ENTITLEMENT
Another major piece of Obamacare is an expansion of Medicaid to individuals earning up to 138 percent of the FPL, an annual income of $15,856 in 2013.

The law promises that our already broke federal government will fund the Medicaid expansion population at 100 percent for the next three years, gradually reducing reimbursement to 90 percent in 2020 and thereafter. The CBO expects a partial expansion to cost $710 billion over the next decade. Those states that have opted to expand their programs will see their Medicaid rolls start to swell in January. The administration’s fight to get the rest of the states to expand will rage on.

Originally the law stated that, if a state refused to expand its Medicaid program, the federal government would take back its matching funds for the entire program.

But in June 2012, the Supreme Court deemed that provision to be coercive and ruled that the federal government could not withhold all its funding to states that chose not to expand, it could only withhold the expansion funding.

Prior to Obamacare, Medicaid traditionally covered low-income mothers and children, as well as low-income disabled and elderly. Obamacare’s blanket expansion includes anyone with income up to 138 percent of the FPL. If every state expands its program, as many as 25 million additional people could enroll in Medicaid by 2021—most of them childless adults.

Thus far, only 25 states have agreed to the massive expansion. The rest are weighing their options. The 25 states that have not yet bought into the expansion are under intense pressure from hospital lobbyists to do so. The administration, too, shaken by the dismal enrollment figures in the exchanges, has recently stepped up its efforts to “shame” governors into expansion.

Health Coverage Doesn’t Equal Access to Care
Medicaid beneficiaries already find it difficult to access care. A major reason is due to low physician participation rates. Sandra L. Decker, an economist at the National Center for Health Statistics, found that in 2011, one of three primary care physicians would not accept new Medicaid patients. And it’s no secret why. Medicaid typically reimburses doctors at rates below paid by private insurance plans. In 2008, Medicaid reimbursement was little more than half (about 58 percent) that provided by private plans.

Although Obamacare provides a federal funding boost for Medicaid primary care physicians, reimbursement levels are likely to trend back down. For one thing, the federal boost is only to Medicare reimbursement levels which are still below private insurance rates—about 80 percent. For another, the increase in Medicaid reimbursements is only temporary, ending after 2014.

Instead of reforming a program that is already failing the most-vulnerable in our society, Obamacare expands it, worsening the problem.

PAYING FOR OBAMACARE
New Taxes, Mandates, and Fees Obamacare contains 18 specific tax hikes, mandates or penalties estimated to raise a total of $771 billion in new revenue from 2013-2022. All but four of these are already in effect, and three more will take hold in 2014. Total tax revenue from Obamacare is estimated to be almost $32 billion in 2014.

Included in this list are the individual mandate and the employer mandate. The Supreme Court upheld the individual mandate as a constitutional exercise of Congress’s power to tax, yet it remains wildly unpopular. It is designed to coerce individuals into purchasing government approved health insurance or face a tax penalty. The penalty will start in 2014— based on either $95 or one percent of annual income, whichever is greater. However, nearly all those subject to pay it will pay the latter (one percent of income) amount because individuals with an annual income of only $9,500 or less would likely qualify for Medicaid or a hardship exemption.

The employer mandate forces all employers with 50 or more full-time employees (defined as those working 30 hours per week) to either offer coverage the government deems affordable and adequate or pay a penalty. The penalty varies—either $2,000 per employee after the first 30 workers, or $3,000 per employee receiving subsidized coverage in the exchange, whichever is less.

The Obama administration has delayed the enforcement of the employer mandate until 2015, but it was done administratively rather than through legislative action. Thus many in the business community are still confused— since the law says one thing and the administration says another. Regardless, plenty of businesses have already adapted by reducing hours for their employees to fall under the hourly threshold.

The health insurer tax, one of the bigger taxes included in the law, is an annual fee on health insurance plans. This tax is based on each individual company’s share of the market and is estimated to raise $101.7 billion from 2014-2023, including $8 billion in 2014 alone. While the insurance industry is actively trying to delay the tax, it is sure to have a huge effect on premiums next year and thereafter. An actuarial analysis by the consulting firm Oliver Wyman shows that in 2014, this tax will increase premiums by 1.9 to 2.3 percent. And the impact will be far greater in later years.

Another large fee to help pay for Obamacare is a reinsurance fee, which isn’t even included in the list of 18 taxes. The temporary fee is assessed on group health plans to help spread the cost of the covering those in the exchanges. The fee is going to be $63 per covered life in 2014. Like most taxes and fees, the result will likely be higher premiums.

Using Medicare to Pay for Obamacare
Seniors in Medicare are also hit by the Obamacare spending spree. Obamacare includes a host of across-the-board Medicare spending cuts, totaling $41 billion in 2014 and more than $700 billion by 2022. Contrary to the way these cuts are often portrayed, they are not being used to shore up the Medicare program and are not aimed at specific instances of waste, fraud, and abuse.

Seniors, access to care will be compromised if these draconian cuts take place. The Medicare Trustees project that 15 percent of all hospitals, hospices, nursing homes, and home health agencies would become unprofitable within five years. As the Trustees go on to explain:

“Medicare’s payments for health services would fall increasingly below providers’ costs. Providers could not sustain continuing negative margins and would have to withdraw from serving Medicare beneficiaries or (if total facility margins remained positive) shift substantial portions of Medicare costs to their non-Medicare, non-Medicaid payers.”

In fact, Obamacare’s initial Medicare payment changes are already having an effect on seniors’ access to care. UnitedHealth, the nation’s largest provider of Medicare Advantage plans, announced in November that thousands of doctors would be dropped from their network thanks to lower reimbursement payments due to Obamacare. “It’s no secret that we are under substantial funding pressure from the federal government,” UnitedHealth President Austin Pittman told the Wall Street Journal.

As Obamacare’s payment reductions intensify in the coming years, so will the damage they wreak among health care providers and facilities. This can only increase the severity of barriers to care confronting America’s seniors.

An Experiment We Can ’t Afford
Obamacare’s new entitlements are kicking into high gear at a time when the nation rapidly approaches a fiscal crisis. The national debt has surpassed $17 trillion, and government spending is on track to exceed revenues in 2014 by 18 percent. Existing entitlement programs, desperately in need of reform, are largely to blame for this untenable situation.

While the U.S. health care system certainly needed reform before Obamacare, the Affordable Care Act exacerbates pre-existing flaws and creates new problems. Americans can’t afford the cost of Obamacare or its harmful impact on access to quality health care.

But sice Homo Superior Liberalis can never be wrong and they have the best of intentions you’ll just have to suck it…:)

Enjoy.

Political Cartoons by Steve Kelley

Remember, Vote For Me! The Other Guy’s an Asshole!
 

Doing The Math

The number of American workers collecting federal disability payments climbed to yet another record of 8,853,614 in March, up from 8,840,427 in February, according to newly released data from the Social Security Administration.

But don’t worry, the economy is “improving”. 🙂

Political Cartoons by Jerry Holbert

The Obama administration wants banks to lower lending standards, and Fannie and Freddie are back in the black. The stage is set for a replay of some very unpleasant history.

Do you miss the thrill you felt when your wealth got vaporized in 2008?

Well, they want to do it again. Because it’s only “fair”….And after all, it was the Banks’ fault! 🙂

Michael Ramirez Cartoon

Let’s do the math: We have nearly 30 million uninsured people about to get medical coverage under the health care law come January. And we have a projected shortage of 45,000 primary care physicians by 2020. Add to that the American Association of Nurse Practitioners (AANP), with 43,000 members who say they can offer basic care if state laws would just let them set up an independent practice without doctor supervision.

And the answer is …

The nurse-practitioners, of course, say it’s a matter of simple addition: New laws are needed to give them more autonomy.

But doctors say it’s a miscalculation to think that patient safety won’t be compromised by not having a doctor overseeing things. Family physicians have more than four times as much education and training, accumulating an average of 21,700 hours, whereas nurse-practitioners receive 5,350 hours, the American Academy of Family Physicians points out.

So you’ll get the clerk instead of the mechanic to fix you up.

But fear not! Obama is here to save you.

Last week, one of the world’s leading consulting firms, Milliman, warned about sticker shock ahead for individuals and families buying health insurance.

How did the White House respond? In its usual Orwellian fashion, it said, “Health care costs are falling, thanks to the reform law.” Falling is correct only if you’re standing on your head.

President Obama repeatedly promised that insurance exchanges would save families up to $2,300 a year.

He couldn’t possibly have believed it. From day one, it was obvious the law would push up premiums.

That’s because it requires insurers to cover services rarely covered in the past, puts sick people in the same risk pool with the healthy and slaps insurers with $100 billion in taxes to pass along to consumers.

Who will be clobbered by high premiums? Everyone buying insurance on the exchanges.

Those are people who customarily buy their own insurance (about 25 million) and people who are currently uninsured but have to get it beginning in 2014, and finally millions of people whose employers will drop coverage in response to the law’s costly requirements. Milliman predicts 67 million people in all by 2017.

These people will have no choice but to buy the one-size-fits-all “essential benefits package.”

That includes treatment for drug addiction, maternity care and dental and vision care for children. Only 2% of plans currently include all these services. When the law compels insurers to cover more, it compels consumers to pay more.

The Ohio Department of Insurance says the requirements will push up premiums 20% to 30%.It cheats the couple not having any more children and the straight-arrows who will never shoot heroin.

The healthy also get whacked. Until now, most states helped people with pre-existing conditions by setting up separate, subsidized risk pools.

Someone in the sickest 5% of the population will use 17 times as much care as a healthy person, according to the Agency for Healthcare Research and Quality. The Obama health law pools everyone together and requires the healthy to pay as much as the sick.

This is like asking you to subsidize the premiums of the guy who has 15 speeding tickets and 5 DUIs but is required to have insurance! (they do exist by the way- High risk pools)
See Adverse Selection. 🙂
So what’s the answer…Slick Marketing!! 🙂

Uninsured: The White House recently released details about how it plans to market ObamaCare to the uninsured. What it reveals is that most of them don’t want what the administration is trying to force them to buy.

In a series of slides posted on the Health and Human Services’ website, the administration explains how it plans to market ObamaCare to the uninsured.

Let’s leave aside for a minute the oddity of this effort. Its backers have endlessly touted ObamaCare as a miracle of modern government that will at long last bring insurance within reach of 48 million people who desperately want it. Besides, the law mandates that everyone buy ObamaCare coverage.

So why the need for a big marketing push at all?

Once you look at the marketing slides the HHS has produced, you find the answer.

It turns out that the Democrats and the Obama administration apparently didn’t bother to investigate who these uninsured people actually are before they forced through a $1.8 trillion plan to help them.

What they’ve learned since is that more than half of the 48 million who the government says are uninsured aren’t interested in health insurance, which is why they don’t bother to buy it in the first place.

The administration now admits that vast numbers of the uninsured will be unlikely to respond to ObamaCare’s marketing pitches.

The biggest market segment identified by HHS, in fact, is what it describes as “healthy and young,” who make up 48% of the uninsured population.

They have “a low motivation to enroll” because they are in “excellent to very good health” and so “take health for granted.”

Plus, as the HHS has apparently just discovered, most of them say that cost is the main reason they don’t have coverage.

Then there are the “passive and unengaged,” which make up 15% of the uninsured and also have a “low motivation to enroll” because they “live for today.” They also cite cost as a key factor.

The problem, of course, is that ObamaCare will make insurance vastly more expensive for many of those who fall into these groups by larding on new benefit mandates and placing limits on premium-lowering deductions and co-pays. It will also introduce insurance market rules that force the young and healthy to subsidize premiums for those older and sicker.

State insurance commissioners have been warning the administration about how all this will cause “rate shocks.”

And even ObamaCare’s backers admit that its subsidies won’t compensate for all the new costs these rules will impose, making it even less likely that these groups will sign.

Indeed, the only group likely to rush into ObamaCare’s arms are the 29% who the HHS says are “sick, active and worried” who will have the “highest predicted responsiveness” to mass media ads.

See adverse selection. And Moral Hazard. And you should understand why this whole thing is so doomed….

If only these people sign up, ObamaCare’s premiums will spiral out of control, as the pool of insured gets sicker and more expensive.

And that, in turn, will cause still more of the young and healthy to drop insurance and taxpayer subsidy costs to skyrocket.

Democrats may think that a big, slick marketing campaign can change all this. Our guess is that it will be about as effective as Ford’s was for the Edsel. (IBD)

But you get to pay for it, in perpetuity!! 🙂

Imagine if you and your friends split the tab for coffee every day, and then someone who orders a five-course meal joins the group. Oliver Wyman, management consultants, reported that putting people with pre-existing conditions in the risk pool will push up premiums 40%.

Similarly, Milliman predicts medical claims going up 32% on average and by as much as 62% in California and 80% in Ohio by 2017.

$100 billion in new federal sales taxes on health plans over the next decade will clobber consumers, too. In New York, where premiums will be highest, the taxes will add $900 a year to the cost of a family plan, Oliver Wyman estimates.

The White House dismisses concerns about rising premiums, saying consumers with moderate incomes will get subsidies. That’s like arguing that it’s OK for food prices to double because the needy can get food stamps. Taxpayers foot the bill for subsidies. And consumers ineligible for them get socked with sky-high costs.

Even with subsidies, millions of people coerced to sign up will stop paying premiums. A family with two adults, two kids and a household income of $35,300 will be eligible for an $11,090 subsidy paid directly to the insurer, but they will have to pay at least $118 a month toward the premium.

Families living paycheck to paycheck will default in order to make rent or car payments.

This is the mortgage crisis and the college loan crisis all over again. Another gift from the politicians who think Washington knows best. (IBD)

‘Government is not reason; it is not eloquence. It is force. And force, like fire, is a dangerous servant and a fearful master.’ –George Washington

Political Cartoons by Lisa Benson

Photo

Bending the Curve

“The only thing we’re going to try to do is lower costs so that those cost savings are passed onto you. And we estimate we can cut the average family’s premium by about $2,500 per year.” – Barack Obama, October 2008

Eventually the “affordable” portion of the “Affordable Care Act” kicks in, right?

“It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication somehow think that we can afford to pay for doctors, hospitals, medication and a government bureaucracy to administer it.” Thomas Sowell

The must-issue regulation built into ObamaCare increases costs for the insurers, who cannot draw all of the needed revenues from the high-risk pool, thanks to mandates on rates.  That means those costs have to get spread out to everyone in the pool.  This is nothing more than Risk Pool 101, a course that Congress flunked repeatedly in the ObamaCare debate because that wasn’t the point of the exercise to begin with.

As I have said before, to put it very simply, look up Adverse Selection and you’ll know why this was doomed to failure.

My Adverse Selection Blog

Insurance companies try to minimize the problem that only the people with big risks will buy their product, which is the problem of adverse selection, by trying to measure risk and to adjust prices they charge for this risk. Thus, life insurance companies require medical examinations and will refuse policies to people who have terminal illnesses, and automobile insurance companies charge much more to people with a conviction for drunk driving.

Or a Person who never had insurance get’s a terminal disease and gets insurance to pay for it and it costs  A LOT to the insurer then dies shortly thereafter.

If the insurer had known they’d have adversely selected to not insurer this too a high a risk person but if they can’t do that then You and I get higher premiums to pay for it!!

Ta da! 🙂

Moral Hazard: In insurance markets, moral hazard occurs when the behavior of the insured party changes in a way that raises costs for the insurer, since the insured party no longer bears the full costs of that behavior. Because individuals no longer bear the cost of medical services, they have an added incentive to ask for pricier and more elaborate medical service—which would otherwise not be necessary. In these instances, individuals have an incentive to over consume, simply because they no longer bear the full cost of medical services.

And does this all not sound like ObamaCare to you??

But ObamaCare was a political decision not an economic decision so that’s why the economics are bass-ackwards AGAIN.

Obama and The Democrats are masters of this. Pass a Political bill that sounds like economics but is purely an ideologically based bill meant to benefit THEM politically and nothing else.

In the meantime you, the moron ,I-don’t-wanna-know voter gets it in the shorts but you’re happy to be given yet another government approved enema!!

Case In Point….

The latest government report on national health spending provides more evidence that ObamaCare will act as poison to a health care system that was already on the mend.In 2011, the last year for which data are available, spending on health care climbed just 3.9% for the third year in a row.The press is dismissing it as the result of the recession, while the Obama administration claims ObamaCare deserves credit. Neither is true.

Health spending skyrocketed during previous economic slumps — it saw double digit increases during the deep, prolonged 1981-82 downturn, for example.

Plus, the spending trend had been falling for years before the last recession, dropping from 7% in 2004 to 4.7% in 2008. In any case, even after the recession ended in mid-2009, spending growth still slowed.

Insurance premiums showed the same trend. According to the Kaiser Family Foundation, annual family premium increases fell from 9% in 2005 to 5.4% in 2007, and to 3% in 2010.

The health care market, it turns out, was already figuring out how to control costs long before ObamaCare. Witness the explosive growth in Health Savings Accounts.

These plans — which combine high-deductible insurance policies with a tax-free health spending account that rolls over at the end of the year — went from virtually nonexistent in 2005 to become the second most popular plan offered by employers, the Kaiser study found.

These plans hold down health spending by giving consumers a more direct financial stake in their own health care decisions.

The problem is that ObamaCare declares war on this cost control effort by capping deductibles at $2,000 and making it harder to offer health savings accounts. And ObamaCare’s ever increasing list of benefit mandates will drive up costs just as they have at the state level.

The “guaranteed issue” rule will force premiums still higher, which even ObamaCare fans now admit, and its huge subsidies will drive up taxpayer costs.

The result: Annual spending increases will shoot up to 7.4% in 2014, when ObamaCare fully kicks in, and will remain at or above 6% for the foreseeable future.

Insurance premiums are already spiking, up 9.5% in 2011 and 4.5% last year. And as we pointed out in this space yesterday, double-digit premium increases are now popping up all over the place.

Doctors take an oath to “first do no harm.” Too bad Obama didn’t adhere to that when he forced ObamaCare down the country’s throat.

But it’s the HOLY GRAIL of Authoritarian Liberalism!!

Getting to choose who lives and who dies. Getting to choose how you live. It was irresistible. They’d been slobber over the idea for 80 years.

Now they can decide when you are no longer of any use to the State. They can have the Food Police out there deciding that what you’re eating isn’t “healthy” enough for the State’s purposes. And they get to have the IRS to kick down your tax door if you don’t pony up!!

What’s not to like, if you’re a petty dictator and consider yourself so far above mortals in “enlightenment” and “compassion”??

After all, if you disapprove you must be and evil, mean, poor-hating “granny-off-the-cliff” arsehole! 🙂

Political Cartoons by Lisa Benson

Michael Ramirez Cartoon

Insurance 201

Thomas Sowell has column today that is very well sad and I personally know the impact of it. And I have preached at this pulpit before.

https://indyfromaz.wordpress.com/2012/06/19/insurance-101/

In insurance markets, moral hazard occurs when the behavior of the insured party changes in a way that raises costs for the insurer, since the insured party no longer bears the full costs of that behavior. Because individuals no longer bear the cost of medical services, they have an added incentive to ask for pricier and more elaborate medical service—which would otherwise not be necessary. In these instances, individuals have an incentive to over consume, simply because they no longer bear the full cost of medical services.

And does this not sound like ObamaCare to you?? :)

Take it away Mr. Sowell.

Insurance is all about risk. Yet neither insurance companies nor their policy-holders can do anything about one of the biggest risks — namely, interference by politicians, to turn insurance into something other than a device to deal with risk.

By passing laws to force insurance companies to cover things that have nothing to do with risk, politicians force up the cost of insurance.

Annual checkups, for example, are known in advance to take place once a year. Foreseeable events are not a risk. Annual checkups are no cheaper when they are covered by an insurance policy. On the contrary, they are one of many things that are more expensive when they are covered by an insurance policy.

All the paperwork, record-keeping and other things that go with having any medical procedure covered by insurance have to be paid for, in addition to the cost of the medical procedure itself.

If automobile insurance covered the cost of oil changes or the purchase of gasoline, then both oil changes and gasoline would have to cost more, to cover the additional bureaucratic work involved.

In the case of health insurance, however, politicians love to mandate things that insurance must cover, including in some states treatment for baldness, contraceptives and whatever else politicians can think of. Playing Santa Claus costs a politician nothing, but it can cost the policy-holder a bundle — all of which the politician will blame on the “greed” of the insurance company.

(see Adverse Selection).

Insurance companies are regulated by both states and the federal government. This means that, instead of there being one vast nationwide market, where innumerable insurance companies compete with each other from coast to coast, there are 50 fragmented markets with different rules. That adds to the costs and reduces the competition in a given state.

When there are innumerable insurance companies, it is by no means clear that political regulation of them will produce better results than the regulation provided by competition in the market. In a competitive market, insurance companies would cover only those things that their policy-holders are willing to pay to have covered. Policy-holders would have no reason to pay to have insurance cover things that would be cheaper if paid for directly — or not paid for at all, in the case of things that are not a real concern to many people, such as baldness cures.

One of the factors in the number of the “uninsured,” for whom politicians are willing to turn the whole medical care system upside down, is the high cost of insurance that covers far more things than most people would be willing to pay for, if it was up to them. The uninsured who use hospital emergency rooms and don’t pay are a problem only because politicians passed laws forcing hospitals to let themselves be taken advantage of in this way.

Too many political “solutions” are solutions to problems created by previous political “solutions” — and will be followed by new problems created by their current “solutions.” There is no free lunch. In the case of health insurance, there is not even an inexpensive lunch.

Health insurance would be a lot less expensive if it covered only the kinds of risks that can involve heavy costs, such as a major operation or a crippling disability. While such things can be individually very expensive, they don’t happen to everybody, and insurance is one way to spread the risks, so that the protection of a given individual is not prohibitively expensive.

The problem of “pre-existing conditions” is a problem largely because of the way that politicians have written the laws — more specifically, by giving a tax break to employer-provided health insurance. If individuals bought their own health insurance, with the same tax advantages, the fact that an illness occurred after they changed employers would not make it a “pre-existing condition.”

There is no inherent reason for employers to be involved, in the first place. The fact that some guy manufactures furniture or plumbing fixtures in no way qualifies him to understand insurance for his employees. Including him in the loop adds another unnecessary layer of bureaucratic costs.

Political risks are the biggest risks.

So you want to know why your auto insurance is going up “even though I’m a good driver” or your Home insurance is going up “even though my house is worth less”??

Well, it’s very simple. Along with all of what has been discussed there is INFLATION.

http://www.bls.gov/data/inflation_calculator.htm

And the medical costs, repair costs and the lawyer  (you know all those “call me now” lawyer commercials?) costs go up and guess what happens to your premiums. They go up. It’s not personal.

And any real homeowners policy will be based on the replacement cost of the home and not the market value because the market value is a) fickle (just think about 5 years ago) b) includes land and locational factors that have nothing to do with the home.

Example, my home. It’s located with the “noise zone” of Sky Harbor International Airport. Thus my house is technically worth less because you can hear plane noise at a certain level.

If my house burns down do I want the replacement cost based partially on that or do I want it based on the materials to rebuild it?

And if inflation in the cost of those materials cause the premium to go up?

I hope you see the point.

Most people don’t.

Why?

Narcissistic Greed. It’s all about ME! and Insurance should only be about ME.

I don’t want MY policy based on other people.

Which is a fundamentally flawed understanding of the entire concept of insurance in the first place.

And that lack of education is a real problem because it leads people to misunderstand the entire process and the fundamentals underlying the entire concept.

And lets politicians and manipulative Liberals get away with their “solutions” that just cause more problems but make them look good.

And thus, you go for “get rich quick” type schemes by manipulative politicians that actually CAUSE more problems than they solve. But you get the satisfaction of “sticking it” to them. But it’s you that ultimately gets stuck.

Oh, there are ways to bring it down, but reforms to litigation laws and practices (by politicians who are mostly lawyers) is very hard. Lobbyists are very strong in the area. This is their meat and potatoes.

Medical costs are skyrocketing and ObamaCare will just make them worse. Trying to reform that gets you “thrown grandma off the cliff” rhetoric.

So, in the end RHETORIC HAS IT’S CONSEQUENCES.

Consequences in your wallet.

That’s the risk.

Political Cartoons by Glenn Foden

Political Cartoons by Glenn Foden

Political Cartoons by Gary Varvel

Insurance 101

ObamaCare and Insurance 101. It may be a bit dry, but this is the problem with it and why the claims of lower premiums was such a lie and why this whole thing was either a scam or more pie-in-the-sky feel good liberalism taking a piss on reality.

So the Democrats have started working on what if it’s struck down:

Under the law, insurers would still have to accept all applicants regardless of health problems, and they would be limited in what they can charge older, sicker customers.

As a result, premiums for people who directly buy their own coverage would jump by 15 percent to 20 percent, the Congressional Budget Office estimates. Older, sicker people would flock to get health insurance but younger, healthier ones would hold back.

To forestall such a problem, the administration asked the court – if it declares the mandate unconstitutional – to also strike down certain consumer protections, including the requirement on insurers to cover people with pre-existing health problems. That would mitigate a damaging spike in premiums. (AP)

So the administration wants the parts that they say “the people love” to be struck down to mitigate the damage. Fascinating… 🙂

Kind of like the Mandate was going to be great for everyone, then 1700+ waivers, mostly to unions, were granted because it was going to hurt these people.

And of course, it wouldn’t be there fault when grandma gets thrown off a cliff and run over by the bus! 🙂

Mind you, as I have said since this whole thing started that ObamaCare was designed to destroy the private insurance industry and replace it with nothing but government controlled insurance anyhow.

Adverse Selection: It describes a situation where an individual’s demand for insurance (either the propensity to buy insurance, or the quantity purchased, or both) is positively correlated with the individual’s risk of loss (e.g. higher risks buy more insurance), and the insurer is unable to allow for this correlation in the price of insurance. This may be because of private information known only to the individual (information asymmetry), or because of regulations or social norms which prevent the insurer from using certain categories of known information to set prices (e.g. the insurer may be prohibited from using information such as gender, ethnic origin, genetic test results, or preexisting medical conditions, the last of which amount to a 100% risk of the losses associated with the treatment of that condition). The latter scenario is sometimes referred to as ‘regulatory adverse selection’.

The insurance company is unable to screen out “pre-existing conditions” so premiums will be higher simply because people with conditions that will cost more than the premium can charge will rush to the door and flood the system thus causing a financial hardship on the company. Thus premiums will inflate to cover this.

This has always been one of the factors in ObamaCare that made me laugh when they said premiums would go down.

That is simply NOT POSSIBLE with “pre-existing conditions” mandated.

But does that mean that people like this are just left out in the cold by mean old, greedy insurance companies?

No.

There are risk pools for that. Pools usually subsidized for their high risk, much like Flood is or that idiot driver that you can’t refuse auto insurance to even though they’ve had 5 DUI’s in the year (yes, that does really happen- rare, but it does happen).

2010: Last year, Charles Baker, former CEO of Harvard Pilgrim Health Care, one of Massachusetts’s largest health plans, noticed some health insurance brokers posting comments on his widely read blog. They were suspicious that people were applying for health coverage after a medical condition developed, got the care they needed, and then dropped the coverage.

From April 2008 to March 2009, 40% of the individuals who applied to Harvard Pilgrim stayed covered for less than five months. Yet claims were averaging about $2,400 a month, about six times what one would expect.

Blue Cross and Blue Shield of Massachusetts has now confirmed it is experiencing similar problems. The company says that in 2009, 936 people signed up for three months or less and ran up claims of more than $1,000.

And that’s just Two Examples. Just Two. From 2010. Imagine the Future.

Furthermore, if there is a range of increasing risk categories in the population, the increase in the insurance price due to adverse selection may lead the lowest remaining risks to cancel or not renew their insurance. This leads to a further increase in price, and hence the lowest remaining risks cancel their insurance, leading to a further increase in price, and so on. Eventually this ‘adverse selection spiral’ might in theory lead to the collapse of the insurance market.

And ObamaCare does this in spades, but with the Mandate in place these lowest risk individuals are not allowed to cancel and assume their own risks. Not without a penalty and a visit from an IRS agent that is. But if the penalty is less than the premium then you just keep gaming the system.

To counter the effects of adverse selection, insurers (to the extent that laws permit) ask a range of questions and may request medical or other reports on individuals who apply to buy insurance, so that the price quoted can be varied accordingly, and any unreasonably high or unpredictable risks rejected. This risk selection process is known as underwriting. 

That’s why now a policy can be cancelled by Underwriting if it is found you made fundamentally false statements because it has to be assumed at the time of the contract that both parties are acting in good faith.

Mandates increase a moral hazard is a situation where there is a tendency to take undue risks because the costs are not borne by the party taking the risk.

Uber Liberal Economist Paul Krugman described moral hazard as “any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly.”

Aka, you and higher premiums.

Also you get high premiums from what could be called REGFARE (aka Regulatory Warfare) and boy does the Obama Administration love using this with HHS, The EPA, The FCC, the IRS, Justice Dept., ad nauseum.

In insurance markets, moral hazard occurs when the behavior of the insured party changes in a way that raises costs for the insurer, since the insured party no longer bears the full costs of that behavior. Because individuals no longer bear the cost of medical services, they have an added incentive to ask for pricier and more elaborate medical service—which would otherwise not be necessary. In these instances, individuals have an incentive to over consume, simply because they no longer bear the full cost of medical services.

And does this not sound like ObamaCare to you?? :)

Example: if you know you have terminal cancer and you buy insurance to cover your last 6 months but don’t disclose this to the insurance company (“pre-existing condition”) the company will be paying 10’s of thousands of dollars in claims potentially with virtually no premium to cover that.

Now multiply that by millions of people. The 30 million uninsured. They may not all have this intent, but the scale is still relevant and the effect is too.

Are you starting to see the problem here and how ObamaCare was meant to subvert it?

And if it’s struck down, the Democrats will just come back with another pig and new lipstick.

Being able to decide who lives and who dies and to control every facet of your life “to cut your costs” (Food Police anyone?) is the Holy Grail of Liberalism so they won’t give up if even if it’s unconstitutional. They’ll just re-brand it and call the pig by another name but the effects will still be the same though.

LAWFARE. Waging a war by lawsuits and REGFARE, waging war by regulation and subversion of Adverse Selection and Moral Hazard.

That’s the Insufferably Morally Superior Left in a nutshell.

So endeth the lesson.

Political Cartoon by Chuck Asay
Political Cartoons by Lisa Benson

Political Cartoons by Glenn Foden

Moral Hazard

Ineptocracy (in-ep-toc-ra-cy)- a system of government where the least capable to lead are elected by the least capable of producing,and where the members of society least likely to sustain themselves or succeed,are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

THE $7 Trillion Dollar Secret

The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.

The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.

Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.

A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
‘Change Their Votes’

“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.”

The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court case against the Fed and a group of the biggest U.S. banks called Clearing House Association LLC to force lending details into the open.

The Fed, headed by Chairman Ben S. Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort — and that needy institutions would be reluctant to borrow in the next crisis. Clearing House Association fought Bloomberg’s lawsuit up to the U.S. Supreme Court, which declined to hear the banks’ appeal in March 2011.

$7.77 Trillion

The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

“TARP at least had some strings attached,” says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program’s executive-pay ceiling. “With the Fed programs, there was nothing.”

Bankers didn’t disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.
‘Motivate Others’

JPMorgan Chase & Co. CEO Jamie Dimon told shareholders in a March 26, 2010, letter that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.” He didn’t say that the New York-based bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion on Feb. 26, 2009, came more than a year after the program’s creation.

Howard Opinsky, a spokesman for JPMorgan (JPM), declined to comment about Dimon’s statement or the company’s Fed borrowings. Jerry Dubrowski, a spokesman for Bank of America, also declined to comment.

The Fed has been lending money to banks through its so- called discount window since just after its founding in 1913. Starting in August 2007, when confidence in banks began to wane, it created a variety of ways to bolster the financial system with cash or easily traded securities. By the end of 2008, the central bank had established or expanded 11 lending facilities catering to banks, securities firms and corporations that couldn’t get short-term loans from their usual sources.
‘Core Function’

“Supporting financial-market stability in times of extreme market stress is a core function of central banks,” says William B. English, director of the Fed’s Division of Monetary Affairs. “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.”

The Fed has said that all loans were backed by appropriate collateral. That the central bank didn’t lose money should “lead to praise of the Fed, that they took this extraordinary step and they got it right,” says Phillip Swagel, a former assistant Treasury secretary under Henry M. Paulson and now a professor of international economic policy at the University of Maryland.

The Fed initially released lending data in aggregate form only. Information on which banks borrowed, when, how much and at what interest rate was kept from public view.

The secrecy extended even to members of President George W. Bush’s administration who managed TARP. Top aides to Paulson weren’t privy to Fed lending details during the creation of the program that provided crisis funding to more than 700 banks, say two former senior Treasury officials who requested anonymity because they weren’t authorized to speak.
Big Six

The Treasury Department relied on the recommendations of the Fed to decide which banks were healthy enough to get TARP money and how much, the former officials say. The six biggest U.S. banks, which received $160 billion of TARP funds, borrowed as much as $460 billion from the Fed, measured by peak daily debt calculated by Bloomberg using data obtained from the central bank. Paulson didn’t respond to a request for comment.

The six — JPMorgan, Bank of America, Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS) and Morgan Stanley — accounted for 63 percent of the average daily debt to the Fed by all publicly traded U.S. banks, money managers and investment- services firms, the data show. By comparison, they had about half of the industry’s assets before the bailout, which lasted from August 2007 through April 2010. The daily debt figure excludes cash that banks passed along to money-market funds.
Bank Supervision

While the emergency response prevented financial collapse, the Fed shouldn’t have allowed conditions to get to that point, says Joshua Rosner, a banking analyst with Graham Fisher & Co. in New York who predicted problems from lax mortgage underwriting as far back as 2001. The Fed, the primary supervisor for large financial companies, should have been more vigilant as the housing bubble formed, and the scale of its lending shows the “supervision of the banks prior to the crisis was far worse than we had imagined,” Rosner says.

Bernanke in an April 2009 speech said that the Fed provided emergency loans only to “sound institutions,” even though its internal assessments described at least one of the biggest borrowers, Citigroup, as “marginal.”

On Jan. 14, 2009, six days before the company’s central bank loans peaked, the New York Fed gave CEO Vikram Pandit a report declaring Citigroup’s financial strength to be “superficial,” bolstered largely by its $45 billion of Treasury funds. The document was released in early 2011 by the Financial Crisis Inquiry Commission, a panel empowered by Congress to probe the causes of the crisis.
‘Need Transparency’

Andrea Priest, a spokeswoman for the New York Fed, declined to comment, as did Jon Diat, a spokesman for Citigroup.

“I believe that the Fed should have independence in conducting highly technical monetary policy, but when they are putting taxpayer resources at risk, we need transparency and accountability,” says Alabama Senator Richard Shelby, the top Republican on the Senate Banking Committee.

Judd Gregg, a former New Hampshire senator who was a lead Republican negotiator on TARP, and Barney Frank, a Massachusetts Democrat who chaired the House Financial Services Committee, both say they were kept in the dark.

“We didn’t know the specifics,” says Gregg, who’s now an adviser to Goldman Sachs.

“We were aware emergency efforts were going on,” Frank says. “We didn’t know the specifics.”
Disclose Lending

Frank co-sponsored the Dodd-Frank Wall Street Reform and Consumer Protection Act, billed as a fix for financial-industry excesses. Congress debated that legislation in 2010 without a full understanding of how deeply the banks had depended on the Fed for survival.

It would have been “totally appropriate” to disclose the lending data by mid-2009, says David Jones, a former economist at the Federal Reserve Bank of New York who has written four books about the central bank.

“The Fed is the second-most-important appointed body in the U.S., next to the Supreme Court, and we’re dealing with a democracy,” Jones says. “Our representatives in Congress deserve to have this kind of information so they can oversee the Fed.”

The Dodd-Frank law required the Fed to release details of some emergency-lending programs in December 2010. It also mandated disclosure of discount-window borrowers after a two- year lag.
Protecting TARP

TARP and the Fed lending programs went “hand in hand,” says Sherrill Shaffer, a banking professor at the University of Wyoming in Laramie and a former chief economist at the New York Fed. While the TARP money helped insulate the central bank from losses, the Fed’s willingness to supply seemingly unlimited financing to the banks assured they wouldn’t collapse, protecting the Treasury’s TARP investments, he says.

“Even though the Treasury was in the headlines, the Fed was really behind the scenes engineering it,” Shaffer says.

Congress, at the urging of Bernanke and Paulson, created TARP in October 2008 after the bankruptcy of Lehman Brothers Holdings Inc. made it difficult for financial institutions to get loans. Bank of America and New York-based Citigroup each received $45 billion from TARP. At the time, both were tapping the Fed. Citigroup hit its peak borrowing of $99.5 billion in January 2009, while Bank of America topped out in February 2009 at $91.4 billion.
No Clue

Lawmakers knew none of this.

They had no clue that one bank, New York-based Morgan Stanley (MS), took $107 billion in Fed loans in September 2008, enough to pay off one-tenth of the country’s delinquent mortgages. The firm’s peak borrowing occurred the same day Congress rejected the proposed TARP bill, triggering the biggest point drop ever in the Dow Jones Industrial Average. (INDU) The bill later passed, and Morgan Stanley got $10 billion of TARP funds, though Paulson said only “healthy institutions” were eligible.

Mark Lake, a spokesman for Morgan Stanley, declined to comment, as did spokesmen for Citigroup and Goldman Sachs.

Had lawmakers known, it “could have changed the whole approach to reform legislation,” says Ted Kaufman, a former Democratic Senator from Delaware who, with Brown, introduced the bill to limit bank size.
Moral Hazard

Kaufman says some banks are so big that their failure could trigger a chain reaction in the financial system. The cost of borrowing for so-called too-big-to-fail banks is lower than that of smaller firms because lenders believe the government won’t let them go under. The perceived safety net creates what economists call moral hazard — the belief that bankers will take greater risks because they’ll enjoy any profits while shifting losses to taxpayers.

Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions. For example, a person with insurance against automobile theft may be less cautious about locking his or her car, because the negative consequences of vehicle theft are (partially) the responsibility of the insurance company.

If Congress had been aware of the extent of the Fed rescue, Kaufman says, he would have been able to line up more support for breaking up the biggest banks.

Byron L. Dorgan, a former Democratic senator from North Dakota, says the knowledge might have helped pass legislation to reinstate the Glass-Steagall Act, which for most of the last century separated customer deposits from the riskier practices of investment banking.

“Had people known about the hundreds of billions in loans to the biggest financial institutions, they would have demanded Congress take much more courageous actions to stop the practices that caused this near financial collapse,” says Dorgan, who retired in January.
Getting Bigger

Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.

Total assets held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data.

For so few banks to hold so many assets is “un-American,” says Richard W. Fisher, president of the Federal Reserve Bank of Dallas. “All of these gargantuan institutions are too big to regulate. I’m in favor of breaking them up and slimming them down.”

Employees at the six biggest banks made twice the average for all U.S. workers in 2010, based on Bureau of Labor Statistics hourly compensation cost data. The banks spent $146.3 billion on compensation in 2010, or an average of $126,342 per worker, according to data compiled by Bloomberg. That’s up almost 20 percent from five years earlier compared with less than 15 percent for the average worker. Average pay at the banks in 2010 was about the same as in 2007, before the bailouts.
‘Wanted to Pretend’

“The pay levels came back so fast at some of these firms that it appeared they really wanted to pretend they hadn’t been bailed out,” says Anil Kashyap, a former Fed economist who’s now a professor of economics at the University of Chicago Booth School of Business. “They shouldn’t be surprised that a lot of people find some of the stuff that happened totally outrageous.”

Bank of America took over Merrill Lynch & Co. at the urging of then-Treasury Secretary Paulson after buying the biggest U.S. home lender, Countrywide Financial Corp. When the Merrill Lynch purchase was announced on Sept. 15, 2008, Bank of America had $14.4 billion in emergency Fed loans and Merrill Lynch had $8.1 billion. By the end of the month, Bank of America’s loans had reached $25 billion and Merrill Lynch’s had exceeded $60 billion, helping both firms keep the deal on track.
Prevent Collapse

Wells Fargo bought Wachovia Corp., the fourth-largest U.S. bank by deposits before the 2008 acquisition. Because depositors were pulling their money from Wachovia, the Fed channeled $50 billion in secret loans to the Charlotte, North Carolina-based bank through two emergency-financing programs to prevent collapse before Wells Fargo could complete the purchase.

“These programs proved to be very successful at providing financial markets the additional liquidity and confidence they needed at a time of unprecedented uncertainty,” says Ancel Martinez, a spokesman for Wells Fargo.

JPMorgan absorbed the country’s largest savings and loan, Seattle-based Washington Mutual Inc., and investment bank Bear Stearns Cos. The New York Fed, then headed by Timothy F. Geithner, who’s now Treasury secretary, helped JPMorgan complete the Bear Stearns deal by providing $29 billion of financing, which was disclosed at the time. The Fed also supplied Bear Stearns with $30 billion of secret loans to keep the company from failing before the acquisition closed, central bank data show. The loans were made through a program set up to provide emergency funding to brokerage firms.
‘Regulatory Discretion’

“Some might claim that the Fed was picking winners and losers, but what the Fed was doing was exercising its professional regulatory discretion,” says John Dearie, a former speechwriter at the New York Fed who’s now executive vice president for policy at the Financial Services Forum, a Washington-based group consisting of the CEOs of 20 of the world’s biggest financial firms. “The Fed clearly felt it had what it needed within the requirements of the law to continue to lend to Bear and Wachovia.”

The bill introduced by Brown and Kaufman in April 2010 would have mandated shrinking the six largest firms.

“When a few banks have advantages, the little guys get squeezed,” Brown says. “That, to me, is not what capitalism should be.”

Kaufman says he’s passionate about curbing too-big-to-fail banks because he fears another crisis.

‘Can We Survive?’

“The amount of pain that people, through no fault of their own, had to endure — and the prospect of putting them through it again — is appalling,” Kaufman says. “The public has no more appetite for bailouts. What would happen tomorrow if one of these big banks got in trouble? Can we survive that?”

Lobbying expenditures by the six banks that would have been affected by the legislation rose to $29.4 million in 2010 compared with $22.1 million in 2006, the last full year before credit markets seized up — a gain of 33 percent, according to OpenSecrets.org, a research group that tracks money in U.S. politics. Lobbying by the American Bankers Association, a trade organization, increased at about the same rate, OpenSecrets.org reported.

Lobbyists argued the virtues of bigger banks. They’re more stable, better able to serve large companies and more competitive internationally, and breaking them up would cost jobs and cause “long-term damage to the U.S. economy,” according to a Nov. 13, 2009, letter to members of Congress from the FSF.

The group’s website cites Nobel Prize-winning economist Oliver E. Williamson, a professor emeritus at the University of California, Berkeley, for demonstrating the greater efficiency of large companies.
‘Serious Burden’

In an interview, Williamson says that the organization took his research out of context and that efficiency is only one factor in deciding whether to preserve too-big-to-fail banks.

“The banks that were too big got even bigger, and the problems that we had to begin with are magnified in the process,” Williamson says. “The big banks have incentives to take risks they wouldn’t take if they didn’t have government support. It’s a serious burden on the rest of the economy.”

The Moral Hazard.

Dearie says his group didn’t mean to imply that Williamson endorsed big banks.

Top officials in President Barack Obama’s administration sided with the FSF in arguing against legislative curbs on the size of banks.
Geithner, Kaufman

On May 4, 2010, Geithner visited Kaufman in his Capitol Hill office. As president of the New York Fed in 2007 and 2008, Geithner helped design and run the central bank’s lending programs. The New York Fed supervised four of the six biggest U.S. banks and, during the credit crunch, put together a daily confidential report on Wall Street’s financial condition. Geithner was copied on these reports, based on a sampling of e- mails released by the Financial Crisis Inquiry Commission.

At the meeting with Kaufman, Geithner argued that the issue of limiting bank size was too complex for Congress and that people who know the markets should handle these decisions, Kaufman says. According to Kaufman, Geithner said he preferred that bank supervisors from around the world, meeting in Basel, Switzerland, make rules increasing the amount of money banks need to hold in reserve. Passing laws in the U.S. would undercut his efforts in Basel, Geithner said, according to Kaufman.

Anthony Coley, a spokesman for Geithner, declined to comment.
‘Punishing Success’

Lobbyists for the big banks made the winning case that forcing them to break up was “punishing success,” Brown says. Now that they can see how much the banks were borrowing from the Fed, senators might think differently, he says.

The Fed supported curbing too-big-to-fail banks, including giving regulators the power to close large financial firms and implementing tougher supervision for big banks, says Fed General Counsel Scott G. Alvarez. The Fed didn’t take a position on whether large banks should be dismantled before they get into trouble.

Dodd-Frank does provide a mechanism for regulators to break up the biggest banks. It established the Financial Stability Oversight Council that could order teetering banks to shut down in an orderly way. The council is headed by Geithner.

“Dodd-Frank does not solve the problem of too big to fail,” says Shelby, the Alabama Republican. “Moral hazard and taxpayer exposure still very much exist.”
Below Market

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, says banks “were either in bad shape or taking advantage of the Fed giving them a good deal. The former contradicts their public statements. The latter — getting loans at below-market rates during a financial crisis — is quite a gift.”

The Fed says it typically makes emergency loans more expensive than those available in the marketplace to discourage banks from abusing the privilege. During the crisis, Fed loans were among the cheapest around, with funding available for as low as 0.01 percent in December 2008, according to data from the central bank and money-market rates tracked by Bloomberg.

The Fed funds also benefited firms by allowing them to avoid selling assets to pay investors and depositors who pulled their money. So the assets stayed on the banks’ books, earning interest.

Banks report the difference between what they earn on loans and investments and their borrowing expenses. The figure, known as net interest margin, provides a clue to how much profit the firms turned on their Fed loans, the costs of which were included in those expenses. To calculate how much banks stood to make, Bloomberg multiplied their tax-adjusted net interest margins by their average Fed debt during reporting periods in which they took emergency loans.
Added Income

The 190 firms for which data were available would have produced income of $13 billion, assuming all of the bailout funds were invested at the margins reported, the data show.

The six biggest U.S. banks’ share of the estimated subsidy was $4.8 billion, or 23 percent of their combined net income during the time they were borrowing from the Fed. Citigroup would have taken in the most, with $1.8 billion.

“The net interest margin is an effective way of getting at the benefits that these large banks received from the Fed,” says Gerald A. Hanweck, a former Fed economist who’s now a finance professor at George Mason University in Fairfax, Virginia.

While the method isn’t perfect, it’s impossible to state the banks’ exact profits or savings from their Fed loans because the numbers aren’t disclosed and there isn’t enough publicly available data to figure it out.

Opinsky, the JPMorgan spokesman, says he doesn’t think the calculation is fair because “in all likelihood, such funds were likely invested in very short-term investments,” which typically bring lower returns.
Standing Access

Even without tapping the Fed, the banks get a subsidy by having standing access to the central bank’s money, says Viral Acharya, a New York University economics professor who has worked as an academic adviser to the New York Fed.

“Banks don’t give lines of credit to corporations for free,” he says. “Why should all these government guarantees and liquidity facilities be for free?”

In the September 2008 meeting at which Paulson and Bernanke briefed lawmakers on the need for TARP, Bernanke said that if nothing was done, “unemployment would rise — to 8 or 9 percent from the prevailing 6.1 percent,” Paulson wrote in “On the Brink” (Business Plus, 2010).
Occupy Wall Street

The U.S. jobless rate hasn’t dipped below 8.8 percent since March 2009, 3.6 million homes have been foreclosed since August 2007, according to data provider RealtyTrac Inc., and police have clashed with Occupy Wall Street protesters, who say government policies favor the wealthiest citizens, in New York, Boston, Seattle and Oakland, California.

The Tea Party, which supports a more limited role for government, has its roots in anger over the Wall Street bailouts, says Neil M. Barofsky, former TARP special inspector general and a Bloomberg Television contributing editor.

“The lack of transparency is not just frustrating; it really blocked accountability,” Barofsky says. “When people don’t know the details, they fill in the blanks. They believe in conspiracies.”

In the end, Geithner had his way. The Brown-Kaufman proposal to limit the size of banks was defeated, 60 to 31. Bank supervisors meeting in Switzerland did mandate minimum reserves that institutions will have to hold, with higher levels for the world’s largest banks, including the six biggest in the U.S. Those rules can be changed by individual countries.

They take full effect in 2019.

Meanwhile, Kaufman says, “we’re absolutely, totally, 100 percent not prepared for another financial crisis.”(Bloomberg)

Feel better now? 🙂

Political Cartoons by Henry Payne

Political Cartoons by Jerry Holbert

 Political Cartoons by Michael Ramirez