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More on deregulation: A comparison |
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The similarities between financial deregulation and subsequent bailout and conservative proposals to further deregulate health care are too great to be overstated. Here’s how the financial version has played out so far:
The financial industry was systematically deregulated (see Phil Gramm and the 1999 Gramm-Leach-Bliley Act) to allow less government oversight over the banking industry. Subsequently, the industry ran with the new rules, making obscene amounts of money by taking obscene risks.
When those risks turned sour, the banking crisis had become so large and so widespread that now, apparently, the government is the only one who can avert crisis by bailing them out - to the tune of $700,000,000,000 in taxpayer money.
If conservatives have their way, health care will turn out exactly the same way. Insurance companies will be deregulated, which will allow them to make obscene amounts of money. Instead of taking risks, they will insure less and less people under the new rules because they will now be legally able to only insure those people that make them a profit.
So, what happens to the rest? That’s where the bailout comes in. Under deregulation, the ranks of the uninsured will grow. Government (and hospitals) act as the explicit firewall in this system (as opposed to the implicit one in the financial system) - more people will join public plans for the poor and/or elderly and more people will show up at emergency rooms uninsured. The net effect is the same: The corporations make a lot of money, and government foots the bill for the bailout.
Here it is, in chart form:
| Financial Bailout | Health Care Bailout | |
| 1 | Deregulate and take more risk | Deregulate and cover less people |
| 2 | Profit | Profit |
| 3 | Crisis! (too much risk) | Crisis! (too many uninsured) |
| 4 | Bailout with taxpayer money | Bailout with taxpayer money |
We don’t want to repeat history, right?
Honestly, it’s pretty simple. If we deregulate and provide less oversight to corporations - whether they be financial institutions or insurance companies - we shouldn’t be surprised when they turn around and make as much money as they can without regard for risk. Just as deregulation only exacerbated the housing bubble (if not out and out caused it), deregulation will only exacerbate the problem we have in this country with uninsured patients and spiraling health care costs.
There is another way, of course. Regulate insurance companies harshly and make sure they are forced to cover everyone sufficiently and affordably. And while you’re at it, make a real public health care plan (not a firewall) that people can opt-in to if they want. It will lower everyone’s cost and help cover the uninsured. And it won’t continue giving taxpayer money away to corporations.
(also posted on the NOW! blog)
The current financial crisis is not the result of banks “taking obscene risks” due to deregulation.
The current crisis is the result of government meddling in the mortgage market - and populist/socialist attempts to rewrite the laws of economics.
Freddie and Frannie are government-funded institutions. THEY were able to “take obscene risks” and post losses - because government backing insulated them from the consequences of their decisions.
They quickly grew to monopolize the mortgage industry - bribing Congressional representatives with (taxpayer) money to avoid reform.
The Carter and Clinton white houses used Freddie and Frannie to give sub-prime (=subsidized) mortgages to people who would otherwise not be qualified for loans. This was tied to left-wing rhetoric about “fairness” to minorities.
Think of it as forcing the banking system to make affirmative action loans, without regard for borrower’s financial condition. That’s basically what it was.
But the laws of economics cannot be rewritten. People unable to repay should not receive loans.
The non-government-backed investment firms that bought these loans are now eating the bad debt brought about by government meddling and market-making.
If Freddie and Fannie had been private firms - they would have had to make decisions based on the (deregulated) market reality. Instead they were shielded from the market - and all sorts of inefficiency and corruption resulted.
This isn’t a story about the perils of deregulation.
It’s a story about the perils of government over-involvement.
Guess which candidate is pushing just this socialist-style over-involvement?
links:
http://www.ibdeditorials.com/IBDArticles.aspx?id=306632135350949
http://theanchoressonline.com/2008/09/20/why-our-financial-system-near ly-collapsed/
I would agree with you that Freddie and Fannie’s public/private nature caused a lot of these issues, but come on, it wasn’t only Freddie and Fannie taking these risks. Private banks were able to take these risks because Congress deregulated and allowed them to use more leverage. When they became “too big to fail,” now we have to bail them out.
So, sure, a free marketer would say fuck it, let the banks fail, they deserve it. And they would be right. But we also have to be practical. If we don’t want institutions that are “too big to fail,” we need smart regulation that will not allow them to become so. We need to regulate their risk and be vigilant on the anti-trust aspect of things.