Category Archives: Myths Exposed

FAQs on Health Care Reform

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Blogger – I won’t go on too much. This entry by the Director does not instill confidence. He says that the legislation will decrease the incentive to work or work more hours because of the huge increase in Medicaid. Then he says it won’t matter TOO much, even though he said it will be the biggest effect outside the healthcare industry itself. HUH?

I am going to deal with your objections in smaller increments as I think the details matter and I do not want to put too much into one post (if possible). The speech by the director that you cite,

http://cboblog.cbo.gov/?p=1478

 referred to an update on the economic outlook …the update is here…

The Budget and Economic Outlook: An Update

http://www.cbo.gov/ftpdocs/117xx/doc11705/08-18-Update.pdf

Here is the actual quote in the report that the director referred to:

Policy changes incorporated in current law are also expected to slow the expansion of the labor supply during the next 10 years. Those changes—including the expiration of EGTRRA, JGTRRA, and provisions limiting the impact of the alternative minimum tax—will raise marginal personal tax rates during the next decade relative to what they were in the past decade and will thereby modestly reduce people’s incentive to work.  Page 65 in pdf

EGTRRA – Economic Growth and Tax Relief Reconciliation Act of 2001 by George Bush

JGTRRA – Jobs and Growth Tax Relief Reconciliation Act of 2003 by George Bush

This has nothing to do with health care but with George Bush.

In addition, CBO expects that the major health care legislation enacted in 2010 will reduce the supply of labor slightly (see Box 2-1).  Page 65 in pdf, shown below in entirety

This states that, “That net effect reflects changes in incentives in the labor market that operate in both directions” so the net effect is “roughly half a percent”. 

In the speech you referred to he is saying that labor outside the health care industry which is much larger will have the biggest impact from the half a percent.

If you read the particulars below you will see their justifications for this claim.  One thing you should remember is the big picture, 95% of the US population will have health insurance and the Federal debt will be reduced by 1.3 trillion dollars over 20 years (as opposed to what happens if these bills did not exist).  I think in each of the specific cases below I would be hard pressed to state that it would be better if we did not do it at all…what do you think?

 

The reason for this has to do with “expansion of Medicaid and the provision of subsidies that will reduce the cost of insurance obtained through the newly created exchanges, beginning in 2014.” for single people making between $14,945/year and $43,320/year and married people making between $30,429/year and $88,200/year.  So if these folks are not offered health insurance through their employer they can still get health insurance through the new health insurance exchanges and extra help with subsidies.  The subsidies decline in value as their income reaches the upper limit (at which the subsidies are zero).  They speculate that some people might work fewer hours or leave the labor market but this “will apply only to a small segment of the population”.  

They also state, “Other provisions in the legislation are also likely to diminish people’s incentives to work. Changes to the insurance market, including provisions that prohibit insurers from denying coverage to people because of preexisting conditions and that restrict how much prices can vary with an individual’s age or health status, will increase the appeal of health insurance plans offered outside the workplace for older workers. As a result, some older workers will choose to retire earlier than they otherwise would.

Additionally, the state, “People currently lose eligibility for Medicaid if their income rises above a certain level; for working parents, the median income threshold for eligibility among states was 64 percent of the FPL in 2009. The health care legislation will allow parents to work and still qualify for Medicaid until their income exceeds 138 percent of the FPL. Moreover, parents whose income exceeds the new, higher threshold may be able to work and receive the tax credits and cost-sharing reductions for insurance purchased through the exchanges. Some other provisions of the legislation may also affect decisions regarding work, but their net effect on the total labor supply will probably be small.”

The new law imposes an excise tax on “Cadillac”, high end health insurance plans.  It also add 0.9% increase for singles making over $200,000/year and married over $250,000/year.  “The net effect of that increase will probably be a slight decline in labor supply.”

Another effect would be, “Employers’ decisions to hire workers will also be affected in some cases by the health care legislation. Employers with 50 or more employees will be required to pay a penalty if they do not offer insurance or if the insurance they offer does not meet certain criteria and at least one of their workers receives a subsidy from an exchange.”  However, “Alternatively, because firms are penalized only if their full-time employees receive subsidies from exchanges, some firms may instead hire more part-time or seasonal employees.” 

Box 2-1 on page 66 of the pdf states:

The Patient Protection and Affordable Care Act (Public Law 111-148) and the Health Care Education Reconciliation Act of 2010 (P.L. 111-152) will affect some individuals’ decisions about whether and how much to work and employers’ decisions about hiring workers.  The Congressional Budget Office (CBO) estimates that the legislation, on net, will reduce the amount of labor used in the economy by a small amount—roughly half a percent—primarily by reducing the amount of labor that workers choose to supply. That net effect reflects changes in incentives in the labor market that operate in both  directions: Some provisions of the legislation will discourage people from working more hours or entering the workforce, and other provisions will encourage them to work more. Moreover, many people will be unaffected by those provisions and will face the same incentives regarding work as they do under current law.  The net reduction in the supply of labor is largely attributable to the substantial expansion of Medicaid and the provision of subsidies that will reduce the cost of insurance obtained through the newly created exchanges, beginning in 2014. In particular: The legislation  extends Medicaid eligibility to most nonelderly residents whose income is below 138 percent of the federal poverty level (FPL)— including childless adults who are currently ineligible for Medicaid in most states. (The FPL in 2010 is $10,830 for a single person and $22,050 for a family of four.)  People who purchase insurance through the new exchanges will generally be eligible for tax credits to help them pay their health insurance premiums if their income is between 138 percent and 400 percent of the FPL and they are not offered coverage through an employer. (They may also be eligible for reductions in their cost-sharing requirements.) Those subsidies decline in value as income rises and can, under some circumstances, drop sharply to zero when income exceeds 400 percent of the FPL. The expansion of Medicaid and the availability of subsidies through the exchanges will effectively increase beneficiaries’ financial resources. Those additional resources will encourage some people to work fewer hours or to withdraw from the labor market. In addition, the phase out of the subsidies as income rises will effectively increase marginal tax rates, which will also discourage work. But because most workers who are offered insurance through their jobs will be ineligible for the exchanges’ subsidies and because most people will have income that is too high to be eligible for Medicaid, those effects on financial resources and marginal tax rates will apply only to a small segment of the population. Other provisions in the legislation are also likely to diminish people’s incentives to work. Changes to the insurance market, including provisions that prohibit insurers from denying coverage to people because of preexisting conditions and that restrict how much prices can vary with an individual’s age or health status, will increase the appeal of health insurance plans offered outside the workplace for older workers. As a result, some older workers will choose to retire earlier than they otherwise would. In contrast, another feature of the Medicaid expansion removes an existing disincentive to work for many low-income individuals. People currently lose eligibility for Medicaid if their income rises above a certain level; for working parents, the median income threshold for eligibility among states was 64 percent of the FPL in 2009. The health care legislation will allow parents to work and still qualify for Medicaid until their income exceeds 138 percent of the FPL. Moreover, parents whose income exceeds the new, higher threshold may be able to work and receive the tax credits and cost-sharing reductions for insurance purchased through the exchanges. Some other provisions of the legislation may also affect decisions regarding work, but their net effect on the total labor supply will probably be small. For example, the new laws impose an excise tax on high cost health insurance plans beginning in 2018. CBO expects that the burden of the tax will, over time, be borne primarily by workers, reducing their after-tax compensation and thereby encouraging them to work more. That provision, though, will also increase the effective price of health insurance, making other goods relatively less expensive. Those “other goods” include leisure—which people “purchase” in forgone earnings by choosing to work less—so the change in relative prices will encourage people to work less. The legislation also increases Medicare’s Hospital Insurance (HI) tax by 0.9 percentage points on earnings above $200,000 ($250,000 if married and filing a joint return). The net effect of that increase will probably be a slight decline in labor supply. Employers’ decisions to hire workers will also be affected in some cases by the health care legislation. Employers with 50 or more employees will be required to pay a penalty if they do not offer insurance or if the insurance they offer does not meet certain criteria and at least one of their workers receives a subsidy from an exchange. Those penalties, whose amounts are based on the number of full-time workers in the firm, will, over time, generally be passed on to workers through reductions in wages or other forms of compensation. However, firms generally cannot reduce workers’ wages below the minimum wage, which will probably cause some employers to respond by hiring fewer low-wage workers. Alternatively, because firms are penalized only if their full-time employees receive subsidies from exchanges, some firms may instead hire more part-time or seasonal employees. More generally, the health care legislation may shape the labor market or the operations of other segments of the economy in ways that are difficult to anticipate or quantify. For example, the legislation could influence labor markets indirectly by making it easier for some employees to obtain health insurance outside the workplace and thereby enabling workers to take jobs that better match their skills. Some firms, however, might invest less in their workers—by reducing training, for example—if the probability of retaining those workers declines. To the extent that changes in the health insurance system lead to improved health status among workers, the nation’s economic productivity could be enhanced. It is not clear, however, whether such changes would have a substantial impact on overall economic productivity or output. Moreover, many of the effects of the legislation may not be felt for several years because it will take time for workers and employers to recognize and to adapt to the new incentives.

Blogger – Then he goes on to say that they PROJECT that 32 Million more people will be insured by 2019 and that that will increase services met by the healthcare industry. But then he says that the reduced spending on the previously uninsured caused by this will be minimal. HUH? I could be wrong, but doesn’t this mimic the Mass. law, and we see how that has turned out.

Here is what he stated,

Turning to the health sector, one effect of the March legislation will be to increase the amount of health care delivered to people who would have been uninsured in the absence of the law. CBO projected that 32 million fewer people will be uninsured in 2019 because of the legislation. Previous research suggests that, all else equal, gaining insurance coverage will increase an individual’s demand for health services by about 40 percent. By itself, this would represent an expansion of the health sector of the economy equal to an increase in total health services of a few percent.

The health care market segment will expand by a few percent because there are 32 million more people insured and the demand for health care services will go up by 40%.

Another effect of the March legislation will be to reduce unnecessary spending on health care for people who would be insured with or without the legislation—but probably only to a very limited extent

I think this may be what you are referring to with your “reduced spending” comment.  He is not referring to the total cost of the uninsured but to the spending done on the insured regardless of the health care reform legislation.

He cites four reasons for this:

  1. He states it will “will reduce administrative costs and increase competition among insurers”.
  2. He states that because of the “Cadillac” tax (which you correctly stated goes into effect in 2018) for high end insurance plans, employers will probably offer plans just below the threshold for the excise tax (imposed by the “Cadillac” tax).  This will lower premiums and therefore, spending.  It will also add greater cost sharing (from the excise tax) and more stringent benefit management (due to the lower premiums).
  3. “The legislation reduced payments to many Medicare providers relative to what the government would have paid under prior law. Those reductions will impose greater pressure on providers to increase efficiency in the delivery of care. As a result of those cuts in payment rates and the existing “sustainable growth rate” mechanism that governs Medicare’s payments to physicians, CBO projects that Medicare spending will increase significantly more slowly during the next two decades than it has increased during the past two decades (per beneficiary, after adjusting for overall inflation)”  The health care reform bill reduces payments to providers and therefore, slows the ever increasing costs of health care.
  4. “The legislation set up a number of experiments in delivery and payment systems to induce providers to offer higher-quality and lower-cost care.”  This is one thing I like very much which I referred to in another post.  These are pilot, test projects to evaluate the effectiveness and cost impact before it is rolled out on a larger scale. If these projects are successful the benefits will be included over and above the debt reduction of 1.3 trillion dollars over 20 years.  The CBO did not factor the test projects impact in because they do not know the outcome yet…

 Blogger – The Excise Tax (Cadillac Tax) doesn’t go into effect until 2018. He expects that many employers will answer this by giving cheaper plans, and that this will somehow make costs go down and care more efficient. How? There are NO restrictions on rate increases in ObamaCare- only a “review” and public flogging. I guess you get to keep your healthcare if you have a good job that provides it- but only some of it. I am no fan of Unions, but I can see why they fought and won to get a 5 year gap in this provision. If they are planning to pay for some of ObamaCare with this, I think they are wrong about how much $ it will garner. The only thing I can think of is that they hope this will create cheaper group provider services. Maybe, but maybe it will just mean fewer insured services.

Because historically folks on the high end do not want to pay excise taxes.  Employers will give them insurance plans whose costs are just below the excise tax threshold.  This means lower cost plans.  Since they are lower cost folks that do want to pay the excise tax and chose the lower cost plans the insurance companies will be more cost conscious about benefits.

The threshold is set at annual premiums of…

“a high-cost health plan is defined as costing more than $10,200 for an individual or $27,500 for a family, including worker and employer contributions to flexible spending or health savings accounts. The cost does not include stand-alone vision or dental benefits. The tax would not be imposed until 2018”

“For retirees and workers in high-risk professions, such as firefighters and longshoremen, the bill would set higher thresholds — $11,850 for an individual plan and $30,950 for a family plan.”

http://www.kaiserhealthnews.org/Stories/2010/March/18/Cadillac-Tax-Explainer-Update.aspx

“On average, the annual premium was $2,985 for a single person and $6,328 for a family.”

http://healthinsurance.about.com/od/healthinsurancebasics/a/cost_of_health_insurance.htm

You do not get fewer insured services.  Folks that fall into the single people making between $14,945/year and $43,320/year and married people making between $30,429/year and $88,200/year can actually get services where they had none before (no health insurance at all offered by their employer).  If you fall into the “Cadillac” folks you can get the same benefits you got before but you will pay an additional excise tax increase of 0.9%.  I really think these folks can afford that and having 95% of Americans covered kind of puts that in perspective IMO.

 Blogger – He also mentions that insurers have been regulated by the legislation and that this will reduce costs. Again, “splain that to me, Lucy? How How How will it reduce costs when costs ar not regulated? He claims it will be through competition in the nongroup market. How again? With insurance companies being exempt from interstate competition laws, how will that do anything but force more people into the local companies at whatever price they choose to provide coverage? Even if their assumption is correct, he admits that it will be minimal.

This is the reference from the remark he made, “The legislation changed the regulation of private health insurance. Those changes will reduce administrative costs and increase”

 New Market Rules Would Reduce Administrative Costs

Compared with plans that would be available in the nongroup market under current law, nongroup policies under the proposal would have lower administrative costs, largely because of the new market rules:

“Nongroup” here means private insurance like the kind self-employed folks use

• The influx of new enrollees in response to the individual mandate and new subsidies—combined with the creation of new insurance exchanges—would create larger purchasing pools that would achieve some economies of scale.

• Administrative costs would be reduced by provisions that require some standardization of benefits—for example, by limiting variation in the types of policies that could be offered and prohibiting “riders” to insurance policies (which are amendments to a policy’s terms, such as coverage exclusions for preexisting conditions); insurers incur administrative costs to implement those exclusions.

• Administrative costs would be reduced slightly by the general prohibition on medical underwriting, which is the practice of varying premiums or coverage terms to reflect the applicant’s health status; nongroup insurers incur some administrative costs to implement underwriting.

• Partly offsetting those reductions in administrative costs would be a surcharge that exchange plans would have to pay under the proposal to cover the operating costs of the exchanges.

http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf page 14 pdf

 Blogger – Then he addresses Medicare. I just have to cut & paste this because I think his rhetoric and then his admittance of the frailty of his assumption is kind of staggering.

” The legislation reduced payments to many Medicare providers relative to what the government would have paid under prior law. Those reductions will impose greater pressure on providers to increase efficiency in the delivery of care. As a result of those cuts in payment rates and the existing “sustainable growth rate” mechanism that governs Medicare’s payments to physicians, CBO projects that Medicare spending will increase significantly more slowly during the next two decades than it has increased during the past two decades (per beneficiary, after adjusting for overall inflation). We wrote last spring that it is unclear whether such a reduction in the growth rate of spending could be sustained, and if so, whether it would be accomplished through greater efficiencies in the delivery of health care or through reductions in access to care or the quality of care.”

So the cuts will force docs to reduce costs, or maybe not, and the gov’t will be spending less, but it might not be sustainable? And the reductions could very well reduce care for people who have been paying in 5% all their working lives? Not to be repetitive, but HUH?

A lot of the problems here has to do with the language these guys use.  I wish they would write cliff notes for the rest of us…The spending reductions were mentioned in an earlier post but there is nothing in all this that discusses payment reductions to doctors.  However, under the legislation prior to health care reform,

“Under current law, some of Medicare’s payments for physicians’ services are limited by a system known as the sustainable growth rate mechanism. That system is currently projected to reduce payments to physicians by about 20 percent in 2011 and more thereafter. (If legislation was enacted to override those reductions—as has happened every year since 2003—spending on Medicare would be significantly higher than projected in the baseline.) Changes to the Medicare program made by the recently enacted health care legislation will also restrain the growth of spending. Even with those constraining effects, CBO anticipates that spending for Medicare will expand faster than the economy. As a result, by the end of the decade, outlays for Medicare are projected to total $929 billion (4.0 percent of GDP), compared with $519 billion (3.5 percent of GDP) this year.”

http://www.cbo.gov/ftpdocs/117xx/doc11705/08-18-Update.pdf page 38 pdf

The reductions in cost come through the other ways previously mentioned.  So the spending reductions previously mentioned offset the increase payments to physicians that has happened every year since 2003 (thank you AMA).  If pending legislation to increase Medicare payments to physicians goes through (has not yet but I did mention the pending bill in an earlier post) the costs of Medicare could increase more than their baseline projection.  However, they also do worst case projections that would take this into account.

“the proposal includes numerous provisions that would encourage the development and dissemination of less costly ways to deliver appropriate medical services, either directly or indirectly. Examples of those provisions include the excise tax on high-premium insurance plans; the creation of a new Medicare advisory board that might limit the growth rate of Medicare spending; and certain changes in Medicare’s payment methods as well as new pilot and demonstration projects regarding other changes in payment methods (such as penalties for hospital readmissions that are deemed avoidable and incentives to coordinate patients’ care). The changes in Medicare’s payment methods could “spill over” to the private sector and decrease spending for health care relative to currently projected levels. However, the effects of those initiatives on Medicare’s spending are uncertain and would probably be small in 2016 relative to the program’s total spending, so any spillover to private insurance at that point would probably be small as well.”

http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf page 28 pdf

The sustainable part has to do with the comment they made in the report that they expect the cost of Medicare to increase slower over the next two decades than the last two decades with Health Care Reform.  Beyond two decades is a toss up and I doubt that any plan can be structured to work into perpetuity.

I do not see a reduction of care but changes must be made or insurance premiums will keep going up and companies will continue to pay less and less.  The idea is to slow the increase of costs and The Health Care Reform Act is the beginning not the end of this process.  Many Republicans and Democrats have tried and failed to begin, President Obama got it done…a start…

Blogger – I would like to quickly reference the last part of your link, markdart, to the CBO response to Sen. Ryan.

http://www.house.gov/budget_republicans/press/2007/pr20100319letter.pdf

In the March 18, 2010, preliminary analysis of the budgetary effects of the reconciliation proposal, CBO and JCT estimated that the direct spending and revenue effects of enacting that proposal together with the Senate-passed health bill (H.R. 3590) would yield a net reduction in federal deficits of $138 billion over the 2010–2019 period. Thus, the legislation’s effects on the rest of the budget—other than the cash flows of the HI trust fund—would amount to a net increase in federal deficits of $260 billion over the same period. For the decade beyond 2019, CBO expects that enacting the reconciliation proposal and the Senate-passed health bill would reduce federal budget deficits relative to those projected under current law—with a total effect during that decade in a broad range around one-half percent of GDP. The legislation would have positive effects on the cash flows of the HI trust fund in that decade that would be larger than its effects on federal budget deficits as a whole. Therefore, leaving aside the cash flows of the HI trust fund, CBO expects that the reconciliation proposal and the Senate-passed health bill would yield a net increase in budget deficits during the decade beyond 2019.  The increase in the balances of the HI trust fund that would result from enacting H.R. 3590 and the reconciliation proposal might suggest that significant additional resources—$398 billion plus additional interest to be credited to the trust fund over time—had been set aside to pay for future Medicare benefits. However, only the additional savings by the government as a whole truly increase the government’s ability to pay for future Medicare benefits or other programs, and those would be much smaller ($138 billion plus interest savings to be achieved over time). In effect, the majority of the HI trust fund savings under H.R. 3590 and the reconciliation proposal would be used to pay for other spending and therefore would not enhance the ability of the government to pay for future Medicare benefits.

I am no Rhodes scholar. I worked to provide the formal educations for my family. This confuses me. Are they saying that the legislation might make less of a deficit than would have happened without it, but that the cost (most probably) comes at the price of Medicare benefits?

My husband and son are the big brains in the family, and I am going to pick my husband’s on this tonight- I may have to backpeddle (or might have better ammo) tomorrow. But to me the  big picture is that the cost of ObamaCare is not only going to be in the wallet for most Americans, but in the ability to get quality care even if you have paid for it. That is an assumption, but no more unreasonable than the assumptions made by the CBO and those who take their projections as gospel. I have a lot of “HUH’s” that I don’t feel any better about after your post debunking the criticisms of the CBO on ObamaCare, markdart. I welcome any illumination!

This is another case of confusing language with these folks.  The name of the section that you quoted from is, “The Budgetary Impact of Enacting the Reconciliation Proposal and H.R. 3590 Excluding Cash Flows of the Hospital Insurance Trust Fund”.  The bill can be found here,

Patient Protection and Affordable Care Act

http://thomas.loc.gov/cgi-bin/bdquery/z?d111:H.R.3590:

The Hospital Insurance (HI) trust fund is the fund from which Medicare Part A benefits are paid.  The letter asked the director what would happen if this trust fund was excluded from the health care reform package.  To make a long story short the answer is not good, don’t do it.  The trust fund needs to stay with the health care reform package to make the numbers work and to keep Medicare Part A alive past 2017.

The CBO letter that responds to the criticism you brought up states,

On the basis of the economic forecast and technical assumptions underlying CBO’s March 2009 baseline, CBO projected that, under current law, the HI trust fund would be exhausted—that is, the balance of the trust fund would decline to zero—during fiscal year 2017.  Enacting the reconciliation proposal and the Senate-passed health bill would reduce net outlays for Part A of Medicare by $286 billion over the 2010–2019 period relative to that baseline, CBO estimates. Enacting that legislation would also increase HI payroll tax receipts by about $112 billion over that period, according to estimates by CBO and JCT. Together, those changes in outlays and revenues would diminish budget deficits and add $398 billion plus interest earnings to the trust fund’s balances over that 10-year period.

http://www.house.gov/budget_republicans/press/2007/pr20100319letter.pdf page 4 pdf

So, the health care reform bill adds $398 billion plus interest to the Medicare Part A trust fund.  Under the previous law that trust fund would equal 0 in 2017.  There is nothing in here about Medicare benefits.

My overall conclusion is that there is nothing in the specific arguments you made that IMO reinforces the criticisms you have.  To the contrary, I think, without the health care reform intervention, your fears are more justified.  However, I am open to and welcome more specific arguments to prove your case.

CBO: Health-care reform bill cuts deficit by $1.3 trillion over 20 years, covers 95%

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I still think the CBO projections are valid even after reading this criticism,

CBO Confirms That Without Accounting Gimmicks, Obamacare Adds to Deficits

The CBO believes that Health-care reform bill will cut the deficit by $1.3 trillion over 20 years and cover  cover 95% of the US population.

The CBO based their projections on current law and bills like to pass at the time which has passed since then…therefore, the original CBO statement stands and the criticism raysmon referenced fails.

The title, “CBO Confirms That Without Accounting Gimmicks, Obamacare Adds to Deficits”, is at best misleading and at worst heavily biased.

The criticism raysmom brought up are based on a bill that has not passed yet and likely will not which increase payments to physicians for Medicare. 

The report was also based on bills that had not passed at the time but passed subsequent to publishing the criticism article.  Details are below…

The criticisms of the CBO report are answered in detail here by the CBO,

http://www.house.gov/budget_republicans/press/2007/pr20100319letter.pdf

In short, the major criticism is based on a proposed bill originally,

H.R. 3961- Medicare Physicians Payment Reform Act of 2009 (the title was not changed even though it has nothing to do with Medicare or Physicians…my guess is that they could not get enough votes or some technical reason why they could not change the title…silly)

 http://www.govtrack.us/congress/bill.xpd?bill=h111-3961. 

However, H.R. 3961 (the one that passed) has nothing about physicians and Medicare only the Patriot Act and intelligence related matters.

The part that has not passed which increases Medicare payments to doctors,

H. Res. 903: Providing for consideration of the bill (H.R. 3962) to provide affordable, quality health care…

http://www.govtrack.us/congress/bill.xpd?bill=hr111-903

is a major argument for the criticism.  The bill will likely not pass as written.

The criticism also stated that the CBO estimate was based on this bill not passed at the time,

Patient Protection and Affordable Care Act (Cadillac tax)

http://thomas.loc.gov/cgi-bin/bdquery/z?d111:HR03590:@@@L&summ2=m&

which passed subsequent to the criticism places a tax in the future on very high end insurance policies for executives and cuts Medicare payments in some cases.

Saving Social Security

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The Republican budget proposal for 2010 correctly states, “Without reform, its Trust Fund will reach exhaustion in 2041; as a result, future retirees face across-the-board benefit cuts of up to 22 percent in that year.”  Their solution is in effect to reduce the primary benefit by 15% overall in increments of .25 percentage points per year over a number of years, in effect a reduction of benefits by 15%…

Reducing the 15-percent Primary Insurance Amount bracket by 0.25 percentage points per year, from the date at which SSA finds it cannot meet scheduled benefits within 5 years.

http://www.gop.gov/solutions/budget page 33 in pdf

On page 34 they further state,

This proposal is relatively modest compared with the magnitude of the Social Security challenge. But it will begin a process aimed at developing bipartisan reforms to ensure Social Security’s sustainability over the long term.

So, they admit this is a “modest” proposal.  What they are not saying is that they think further cuts in benefits will be required to save Social Security.

When Social Security was first devised the retirement age for full benefits was 65.  This was almost exactly the life expectancy for that time.  Life expectancy now is 77.9 years (National Center for Health Statistics).  I think that Social Security could be saved by doing the same kind of thing we do with Social Security Cost of Living adjustments.  If we tied the full benefit retirement age to the life expectancy number for those that have not yet starting paying into the system we would not have to reduce benefits and the original intent of the trust fund could be preserved.

One caveat, Social Security was never designed to be a full retirement package.  In those days private company pension plans were common.  That does not really exist anymore.   However, I think we probably should look at Social Security as a safety net not a ‘be all end all’.  I think we can also significantly help seniors on the Medicare front but I will put that in another post…

So my Social Security goal would, in effect, meet the 22% reduction requirement by 2041. 

Wars Started by Republicans Including Vietnam

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Eisenhower, Republican, started the Vietnam war and spent a huge amount of money (for the time) on covert operations…it just takes a little research to shoot down most of the Republican myths on the internet.  I would use the word “lie” instead of “misstatement” but I do not think they know better so it is not an overt lie…

 November 1, 1955 — President Eisenhower deploys the Military Assistance Advisory Group to train the ARVN (South Vietnamese Army). This marks the official beginning of American involvement in the war as recognized by the Vietnam Veterans Memorial. 

http://en.wikipedia.org/wiki/Role_of_the_United_States_in_the_Vietnam_War

Here are more wars started by Republicans (I am not implying all were wrong)…

American Civil War: Abraham Lincoln, Republican; First fought to preserve the Union(the right to secede is still debated to this day) later to end slavery.

Korea(1876); Ulysses S. Grant, Republican; Called Choson at the time, the country attacked and destroyed an American Navy Vessel. The war was fought with similar motives as Perry’s visit with Japan.

Spanish-American War and Phillipine Insurrection: William McKinley, Republican; American Naval Ship Maine sent to monitor alleged mistreatment of the civilians of Cuba and protect American economic interests. The ship was destroyed and the press (the real instigators of the war)of the time placed the now doubtful blame on the Spanish. US fought the war to free Cuba. McKinley announced that giving the Filipinos Independence outright would be like simply handing them over the Germans or Japanese(because of the geographic position) and harm American economic Interests.

Nicaragua: Calvin Coolidge, Republican; Like Haiti the objective was stabilization.

Grenada: Ronald Reagan, Republican; When a Communist government took over the country, it persecuted the American college students studying there.

Panama, Persian Gulf War Operation Restoring Freedom: George HW Bush, Republican; Noriega, leader of Panama was charged with drug traffickingand through Noriega’s power, Panama would declare war(Though retaining the Canal is alleged to be the real motive). Persian Gulf War was fought to Liberate Kuwait from Iraq and protect Saudi Arabia from an Invasion(also to protect oil interests). Troops were sent to Somalia to assist in the feeding the hungry after guerrillas shot up UN aid convoys.

Afghanistan and Iraq: George W. Bush, Republican; Invasion of Afghanistan was the result of the Taliban ruled government’s refusal to hand over Osama bin Laden. Iraq’s invasion is still under debate.

Put Your Money Where Your Mouth Is…Put Up or Shut Up

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While it is popular to say the US is a “nanny state” or the we need to drastically cut the size of the Federal Government, I suggest that is pure rhetoric and manipulation unless you are willing to base your opinions on real numbers.  Here are the numbers:

http://www.cbpp.org/cms/index.cfm?fa=view&id=1258

If by nanny state you mean safety net programs, they make up 14% on the 2010 budget.  This is what safety net programs are:

These programs include: the refundable portion of the earned-income and child tax credits, which assist low- and moderate-income working families through the tax code; programs that provide cash payments to eligible individuals or households, including Supplemental Security Income for the elderly or disabled poor and unemployment insurance; various forms of in-kind assistance for low-income families and individuals, including food stamps, school meals, low-income housing assistance, child-care assistance, and assistance in meeting home energy bills; and various other programs such as those that aid abused and neglected children.

If you mean social security it was 20% of the 2010 budget.

If you mean Medicare, Medicaid, CHIP (Children’s Health Insurance Program) was 21% of the 2010 budget.

Defense and Security was 20% of the 2010 budget.

Interest on debt was 6% of the 2010 budget.

Interest on debt was 19% of the 2010 budget.

Other is:

■7% – Benefits for federal retirees and veterans: This subcategory combines the veterans’ benefits and services function (700) and the federal employee retirement and disability subfunction (602, which is part of the income security function).

■3% – Education: The education subcategory combines three subfunctions of the education, training, employment, and social services function: elementary, secondary, and vocational education; higher education; and research and general educational aids (subfunctions 501, 502, and 503 respectively).

■2% – Scientific and medical research : This subcategory consists of the general science, space, and technology function (250), and the health research and training subfunction (552).

■3% – Transportation : This subcategory consists of the entire transportation function (400).

■1% – Non-security international: This subcategory consists of the international affairs function (150) except for international security assistance, which is included with defense, above.

■4% – All other: This subcategory consists of all other federal expenditures.

This is where the rubber meets the road.  Talk is cheap…extremist’s self-righteous indignation is manipulative…manipulation ends when reason begins…

So now that you know what it is, tell me how would you make radical changes?  Give specific percentages please.

Federal Deficit and Debt – President Obama vs President Bush

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If you look at these numbers you will see that the national debt has gone up every year since 1969 except the last four years of the Clinton administration budget:

Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public,

1968 to 2007, in Billions of Dollars

Sources: Congressional Budget Office; Office of Management and Budget.

Date         Deficit (-) or Surplus Debt Held by the Public

1968                 -25.2                             289.5

1969                 3.2                                278.1

1970                 -2.8                               283.2

1971                 -23.0                             303.0

1972                 -23.4                             322.4

1973                 -14.9                             340.9

1974                 -6.1                               343.7

1975                 -53.2                             394.7

1976                 -73.7                             477.4

1977                 -53.7                             549.1

1978                 -59.2                             607.1

1979                 -40.7                             640.3

1980                 -73.8                             711.9

1981                 -79.0                             789.4

1982                 -128.0                           924.6

1983                 -207.8                           1,137.3

1984                 -185.4                           1,307.0

1985                 -212.3                           1,507.3

1986                 -221.2                           1,740.6

1987                 -149.7                           1,889.8

1988                 -155.2                           2,051.6

1989                 -152.6                           2,190.7

1990                 -221.0                           2,411.6

1991                 -269.2                           2,689.0

1992                 -290.3                           2,999.7

1993                 -255.1                           3,248.4

1994                 -203.2                           3,433.1

1995                 -164.0                           3,604.4

1996                 -107.4                           3,734.1

1997                 -21.9                             3,772.3

1998                 69.3                              3,721.1

1999                 125.6                            3,632.4

2000                 236.2                            3,409.8

2001                 128.2                            3,319.6

2002                 -157.8                           3,540.4

2003                 -377.6                           3,913.4

2004                 -412.7                           4,295.5

2005                 -318.3                           4,592.2

2006                 -248.2                           4,829.0

2007                 -160.7                           5,035.1

http://www.cbo.gov/budget/data/historical.pdf

Federal Debt Under President George W. Bush

President Bush started with 3.3196 trillion dollars of public debt.

He left his 8 years (6 years with control of both branches of Congress) with 7.8111 trillion dollars of public debt.

This means the public debt increased 4.4915 trillion dollars during his administration.

Federal Debt Under President Obama

Here are the numbers for the Obama administration projected out to 21014:

Year Gross Debt in Billions as % of GDP Debt Held By Public ($Billions) as % of GDP
2010 (2 Sept) 13,442.1 92.1 (2nd Q) 8,933.2 61.2 (2nd Q)
2010 (est.) 14,456.3 98.1 9,881.9 67.1
2011 (est.) 15,673.9 101.0 10,873.1 70.1
2012 (est.) 16,565.7 100.6 11,468.4 69.6
2013 (est.) 17,440.2 99.7 12,027.1 68.7
2014 (est.) 18,350.0 99.8 12,594.8 68.5

 This means the public debt is estimated to increase under the Obama administration by 4.7837 trillion dollars.

http://en.wikipedia.org/wiki/United_States_public_debt

Wikipedia can be unreliable but I checked out the numbers before I posted the link.  The chart is a little simpler to read but here is the official US Treasury Department numbers:

http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo4.htm

http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm

Projected (est.) Congressional Budget Office numbers come from this report:

http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf

Republican’s commonly complain that the surplus was due to Republican control of the Congress.  However, they do not point out that President Clinton did not have full control of the Congress for six years as President Bush did.

The Republicans took control (not a super majority) of the US House of Representatives in 1994 not the Senate.

http://en.wikipedia.org/wiki/United_States_House_of_Representatives_elections,_1994

In 1995 the Republicans took control of the Senate as well (not a super majority).

“In the 1996, 1998, and 2000 elections, Republicans lost Congressional seats but still retained control of the House and, more narrowly, the Senate. After the 2000 election, the Senate was divided evenly between the parties, with Republicans retaining the right to organize the Senate due to the election of Dick Cheney as Vice President and ex officio presiding officer of the Senate. The Senate shifted to control by the Democrats (though they technically were the plurality party as they were one short of a majority) after GOP senator Jim Jeffords changed party registration to “Independent” in June 2001, but later returned to Republican control after the November 2002 elections. In the 2006 elections, Democrats won both the House of Representatives (233 Democrats, 202 Republicans) and the Senate (49 Democrats, 49 Republicans, and 2 Independents caucusing with the Democrats) as well as the majority of state governorships (28-22).”

http://en.wikipedia.org/wiki/Republican_Revolution

The Republicans had full control of the Executive and Congressional branches of government for six years and could not generate a surplus.  However, President Clinton did it for four years without having full control.

Unemployment Statistics – President Obama vs President Bush

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Unemployment Under President George W. Bush

The unemployment rate in 2000 was 4.0%

The unemployment rate in 2009 was 9.3%

The rate went from 4.0% to 7.7% under President Bush, 3.7% over his administration.

http://www.bls.gov/cps/cpsaat1.pdf

Unemployment Under President Obama

Current estimates are 9.6%

President Obama took office on January 20, 2009

In January 2009 the rate was 7.7%

It went from 7.7% to estimated 9.6% under President Obama, 1.9% under President Obama to date.

Series Id:           LNS14000000
Seasonally Adjusted
Series title:        (Seas) Unemployment Rate
Labor force status:  Unemployment rate
Type of data:        Percent or rate
Age:                 16 years and over

Top of Form

Download:

Bottom of Form
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
2000 4.0 4.1 4.0 3.8 4.0 4.0 4.0 4.1 3.9 3.9 3.9 3.9  
2001 4.2 4.2 4.3 4.4 4.3 4.5 4.6 4.9 5.0 5.3 5.5 5.7  
2002 5.7 5.7 5.7 5.9 5.8 5.8 5.8 5.7 5.7 5.7 5.9 6.0  
2003 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7  
2004 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4  
2005 5.3 5.4 5.2 5.2 5.1 5.0 5.0 4.9 5.0 5.0 5.0 4.9  
2006 4.7 4.8 4.7 4.7 4.6 4.6 4.7 4.7 4.5 4.4 4.5 4.4  
2007 4.6 4.5 4.4 4.5 4.4 4.6 4.6 4.6 4.7 4.7 4.7 5.0  
2008 5.0 4.8 5.1 5.0 5.4 5.5 5.8 6.1 6.2 6.6 6.9 7.4  
2009 7.7 8.2 8.6 8.9 9.4 9.5 9.4 9.7 9.8 10.1 10.0 10.0  
2010 9.7 9.7 9.7 9.9 9.7 9.5 9.5 9.6 9.6        

http://www.bls.gov/webapps/legacy/cpsatab15.htm (need check U3 Seasonally Adjusted)

How George Bush and the Private Mortgage Market Created The Perfect Storm

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This article is a factual examination of the historical causes for the economic collapse that began in 2006.

Here are some obvious facts about the economic crisis:

It occurred in 2006.  President Bush had been president for six years.  The Republicans had controlled both the Senate and the House for six years.

The last four years of the Clinton administration there was an annual budget surplus.  The last time this occurred was in 1969.[i]  It has not happened since.  To be fair, the Republicans took control of the House of Representatives in 1994.

Certainly, a significant event that started the collapse happened during the last few years of the Clinton administration.  The Gramm–Leach–Bliley Act of 1999, known as financial services deregulation,

repealed part of the Glass-Steagall Act of 1933, opening up the market among banking companies, securities companies and insurance companies. The Glass-Steagall Act prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.[ii]

The bill was a compromise between the Clinton Administration and the House Republicans:

The bill then moved to a joint conference committee to work out the differences between the Senate and House versions. Democrats agreed to support the bill after Republicans agreed to strengthen provisions of the anti-redlining Community Reinvestment Act and address certain privacy concerns; the conference committee then finished its work by the beginning of November. On November 4, the final bill resolving the differences was passed by the Senate 90-8, and by the House 362-57. This legislation was signed into law by Democratic President William Jefferson “Bill” Clinton on November 12, 1999.[iii]

The law allowed the traditional investment brokers to create and sell High Risk Investment Products to traditionally Low Rise Investment Banks that led to sub-prime mortgage fiasco and Hedge Fund meltdown of 2007. Historically, the combined industry has been known as the “financial services industry”.[iv]

This post will document, reference and detail how the mortgage meltdown occurred.

This is what the data will show:

  • The increase of low income housing, sub-prime loans in the Clinton and Bush administration were NOT the prime factor in the economic crisis although they did contribute in a small way.
  • A large ramp up in purchasing of Mortgage Backed Securities (MBS) under pressure from the Bush administration to meet the 56% low income housing requirement of President Bush contributed more significantly to the collapse.
  • The market demand created by the MBS in the private sector for 30 trillion dollars of unregulated, credit default swaps was the final and most significant factor in the mortgage meltdown.

In 2008 a Washington Post article stated,

In 1995, President Bill Clinton’s HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans. HUD expected that Freddie and Fannie would impose their high lending standards on subprime lenders.  Banks typically back prime loans with customers’ deposits. But subprime lenders often rely on money from Wall Street investors , who buy packages of loans as investments called mortgage-backed securities.[v]

Many folks quote this article but here is the history that proceeded President Clinton’s action:

Conventional loans are low risk.  Sub-prime loans are higher risk, non-conventional loans.

How did non-conventional, sub-prime loans get started[vi]?

Fair Housing Act[vii] of 1968 – President Lyndon B. Johnson

It was a follow-up to the Civil Rights Act of 1964. While the Civil Rights Act of 1866 prohibited discrimination in housing, there were no federal enforcement provisions.

[viii] of 1974 – President Gerald Ford

It made it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age.

Home Mortgage Disclosure Act[ix] of 1975 (HMDA) – President Gerald Ford

It requires financial institutions to maintain and annually disclose data about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving 1 to 4 unit and multifamily dwellings. It also requires branches and loan centers to display a HMDA poster.

HMDA was designed by the Federal Reserve Board in order to:

Help public officials to distribute public-sector investments

Discover if financial institutions are serving housing needs of communities

Identify where there are discriminatory lending practices

Community Reinvestment Act of 1975[x] – President Jimmy Carter

It was designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.

The Questionable Authority is a blog that explains redlining well,

Let’s start with the Community Reinvestment Act and the reasons that it was passed. For decades prior to the law’s passage, banks engaged in a process known as redlining, where they declined to write loans in certain geographic areas – typically low-income areas with large minority populations. They did not decline to write bad loans in these areas; they refused to write any loans at all. For example, in 1975 the largest bank in the Bronx wrote a grand total of 32 loans in the entire borough (Rooney 1995, p.50). No loans means no new businesses, no new housing, no opportunity. [xi] 

Here is a historical chart based on The American Institute of Policy Research and the Government Accounting Office.[xii] [xiii] The columns are:

the total sub-prime loans as a percentage of all loan originations (Col 1).  The total includes Government Sponsored Enterprises (GSEs are Freddie, Fannie and FHA) and private mortgage companies.  Freddie and Fannie are not government agencies.

the percent of GSE sub-prime loans (Col 2).  For example, 1997 the GSE sub-prime loans were 51% of the total originations of 19%.

the total in billions of all of all loan originations (Col 3).

the total in billions of all sub-prime loans (Col 4) including private sector, GSE and FHA.

the total in billions of sub-prime, GSE and FHA loans (Col 5).

the percent of the total market of GSE and FHA, sub-prime loans (Col 6)

the default percentage of the total market (Col 7)

the amount in billions of the total market defaults (Col 8 )

Note: All currency amounts in billions

Year    Col 1    Col 2    Col 3    Col 4  Col 5  Col 6  Col 7  Col 8

1997    19%     51%     $926    $176    $90      10%     0.9%    $8

1999    22%     61%     $1050  $231    $141    13%     0.9%    $12

2001    19%     65%     $1437  $273    $177    12%     0.7%    $17

2003    17%     67%     $1765  $300    $201    11%     0.6%    $21

2005    26%     43%     $1042  $271    $117    11%     1.5%    $9

2007    18%     70%     $2033  $366    $256    13%     0.5%    $28

Column 1 show that, for the years shown, all private sector and public sector sub-prime loans which includes low income loans peaked in 2005 at 26%.

Column 2 shows that, for the years shown, all

The American Institute of Policy Research further states,

 

Subprime Loans as a percentage of total originations were fairly constant for the period 1997-2003, averaging about 19.5%. The percentage averaged 26% for 2004-2006, before declining to 18% in 2007.[xiv]

Conclusion:

Non-conforming, sub-prime loans were a small percentage of all mortgage originations. 

Fannie, Freddie and FHA were an even smaller percentage of all sub-prime loans.

Defaults on all mortgages were even smaller

In 1997, two years after the Clinton and HUD issue, GSE and FHA sub-prime loans represented about 10% of the total market.  Even in the Bush administration this only grew 13%.

This is a historical chart based on a paper presented to the Financial Crisis Inquiry Commission.[xv] The columns are:

GSE new mortgage business as a percentage of total single family mortgage originations (Col 1)

FHA new mortgage business as a percentage of total single family mortgage originations (Col 2)

Private, sub-prime new mortgage business as a percentage of total single family mortgage originations (Col 3)

Private, high risk (stated income, etc.) new mortgage business as a percentage of total single family mortgage originations (Col 4).  High risk was not tracked until 2002.

Year    Col 1    Col 2    Col 3    Col 4

1997    32%     9%       14%     NA

1999    42%     9%       12%     NA

2001    44%     6%       9%       NA

2003    51%     4%       10%     21%

2005    30%     2%       32%     42%

2007    30%     2%       34%     45%

The report further states,

It thus appears that the subprime lending innovations over this period actively displaced GSE and FHA activity, leading to the declines in their market shares. [xvi]

Conclusion: From 2003 to 2006 GSEs and FHA new market share went down significantly while private mortgage company’s market share on sub-prime, high risk loans went up significantly.

MBS are packages of mortgages (sort of like mutual funds) that are bought and sold on in the stock market.  They are mortgages bought from private companies and bundled into packages by huge trading firms (you know the ones we bailed out) and sold on the stock exchange.

In 1997 the GSEs owned about 12% of the total market share of these securities. In 2001 the GSEs owned about 15% of the total market share of these securities.  In 2008 this percentage had grown dramatically to 40%. 

In intervening years it was much more.  President Bush directed his HUD director to pressure the GSEs into buying massive amounts these MBS on the open market.  This created huge market for these securities and encouraged more and more risky private sector mortgages so they could be bought, bundled and sold on the open market largely to Fannie and Freddie.

As the Washington Post article states,

But by 2004, when HUD next revised the goals, Freddie and Fannie’s purchases of subprime-backed securities had risen tenfold. Foreclosure rates also were rising.

That year, President Bush’s HUD ratcheted up the main affordable-housing goal over the next four years, from 50 percent to 56 percent. John C. Weicher, then an assistant HUD secretary, said the institutions lagged behind even the private market and “must do more.”

For Wall Street, high profits could be made from securities backed by subprime loans. Fannie and Freddie targeted the least-risky loans. Still, their purchases provided more cash for a larger subprime market.

“That was a huge, huge mistake,” said Patricia McCoy, who teaches securities law at the University of Connecticut. “That just pumped more capital into a very unregulated market that has turned out to be a disaster.”[xvii]

How did the GSE’s accomplish this?  As the article further states:

In 2003, the two bought $81 billion in subprime securities. In 2004, they purchased $175 billion — 44 percent of the market. In 2005, they bought $169 billion, or 33 percent. In 2006, they cut back to $90 billion, or 20 percent. Generally, Freddie purchased more than Fannie and relied more heavily on the securities to meet goals.

“The market knew we needed those loans,” said Sharon McHale, a spokeswoman for Freddie Mac. The higher goals “forced us to go into that market to serve the targeted populations that HUD wanted us to serve,” she said.

But because Fannie and Freddie were buying mortgage-backed securities rather than the actual subprime loans, their involvement came too late to require stiffer standards from lenders.

Fannie and Freddie “made no progress in civilizing the market,” said Sandra Fostek, a senior regulator at HUD.

William C. Apgar Jr., who was an assistant HUD secretary under Clinton, said he regrets allowing the companies to count subprime securities as affordable.

“It was a mistake,” he said. “In hindsight, I would have done it differently.”[xviii]

Conclusion: Even though Fannie, Freddie and FHA had much less to do with new loans in the Bush administration they bought huge amounts of MBS in those years to meet President Bush’s 56% housing requirement. 

Additionally, the President encouraged the GSEs to “focus” their “core housing mission” “with respect to low-income Americans and first-time homebuyers” in the following statement from the White House,

The Administration strongly believes that the housing GSEs should be focused on their core housing mission, particularly with respect to low-income Americans and first-time homebuyers. Instead, provisions of H.R. 1461 that expand mortgage purchasing authority would lessen the housing GSEs’ commitment to low-income homebuyers.[xix]

Conclusion:  President Bush had directed HUD to require the GSEs to meet the 56% low income housing requirement.  This pressured the GSEs to buy massive MBS.  This created a massive market for junk mortgages.

Credit Default Swaps are insurance policies on mortgages, sort of like the futures market for commodities for MBS.  Credit Default Swaps are not regulated.  The government did not own credit default swaps.  This was purely a private market commodity.

Between 2000 and 2008, the market for such swaps ballooned from $900 billion to more than $30 trillion.[xx]

This is what brought AIG down.

Goldman Sachs played both sides MBS and Credit Default Swaps.

When the Fannie and Freddie bought huge amounts of MBS, pressured by the Bush administration, the market for credit default swaps went astronomical.  This is ultimately what broke them and resulted in tax payers having to bail them out. [xxi]

If you do not believe me what about Greenspan, Treasury Secretary Paul O’Neill, Securities and Exchange Commission chairman Harvey Pitt, and Commodity Futures Trading Commission chairman James Newsome,

In September 2002, Greenspan, Treasury Secretary Paul O’Neill, Securities and Exchange Commission chairman Harvey Pitt, and Commodity Futures Trading Commission chairman James Newsome wrote a letter to members of Congress to note their opposition to legislation that would regulate derivatives. They wrote:

We believe that the [over-the-counter] derivatives markets in question have been a major contributor to our economy’s ability to respond to the stresses and challenges of the last two years. This proposal would limit this contribution, thereby increasing the vulnerability of our economy to potential future stresses….

We do not believe a public policy case exists to justify this governmental intervention. The OTC markets trade a wide variety of instruments. Many of these are idiosyncratic in nature….

While the derivatives markets may seem far removed from the interests and concerns of consumers, the efficiency gains that these markets have fostered are enormously important to consumers and to our economy.

Greenspan and the others urged Congress “to be aware of the potential unintended consequences” of legislation to regulate derivatives.

They got it exactly wrong. Swaps and derivatives ended up undermining, not bolstering, the economy.[xxii]

This data clearly shows that:

The increase of low income, sub-prime loans and the low overall default rate of all loan originations (1.5% in 2005 was the highest tracked in this data, through 2007).  This dispels that myth that the crisis was caused by loan defaults of low-income folks.

The huge increase of MBS purchased by the GSEs from 2003 through 2006 under pressure from the Bush administration to meet the 56% affordable housing requirement along with the 30 trillion dollar credit default swap fault market it created in the private sector was the cause of the housing bubble that burst into the subsequent economic crisis.  Even Alan Greenspan, a Republican, admitted in his interview Brian Naylor,

BRIAN NAYLOR: The man once known as the maestro for his direction of the nation’s economy as Fed chairman sat for four long hours yesterday, watching lawmakers who once cheered his performances turn into harsh critics. Testifying before the House Oversight Committee, Greenspan didn’t down play the severity of the crisis in the nation’s markets.

 

Mr. ALAN GREENSPAN (Former Chairman, Federal Reserve): We are in the midst of a once-in-a-century credit tsunami. Central banks and governments are being required to take unprecedented measures.

 

NAYLOR: Under questioning from Democrats on the panel, Greenspan conceded he might have been, as he put it, partially wrong in not moving to regulate trading of some derivatives that are among the root causes of the credit crisis. He also admitted his free market ideology may be flawed. This exchange with committee chairman, Democrat Henry Waxman of California, verged on the metaphysical.

 

Representative HENRY WAXMAN (Committee Chairman, Democrat, 30th District of California): You found a flaw in the reality…

 

Mr. GREENSPAN: Flaw in the model that I perceived is a critical functioning structure that defines how the world works, so to speak.

 

Rep. WAXMAN: In other words, you found that your view of the world, your ideology was not right. It was not working.

 

Mr. GREENSPAN: How it – precisely. That’s precisely the reason I was shocked, because I’ve been going for 40 years or more with very considerable evidence that it was working exceptionally well.[xxiii]

This is what happens when the private sector and government work in collusion with each other.  Between the Democrats and the Republican’s who do you suppose would have the explicit, stated purpose of doing that?  Hint: Who wants to privatize Social Security[xxiv] and Medicare?  Who do you think is going to pay for it?

[i]Revenues, Outlays, Deficits, Surpluses, and Debt Held by the Public,

1968 to 2007, in Billions of Dollars

Sources: Congressional Budget Office; Office of Management and Budget.

Date        Deficit (-) or Surplus           Debt Held by the Public

1968                -25.2                            289.5

1969                3.2                               278.1

1970                -2.8                              283.2

1971                -23.0                            303.0

1972                -23.4                            322.4

1973                -14.9                            340.9

1974                -6.1                              343.7

1975                -53.2                            394.7

1976                -73.7                            477.4

1977                -53.7                            549.1

1978                -59.2                            607.1

1979                -40.7                            640.3

1980                -73.8                            711.9

1981                -79.0                            789.4

1982                -128.0                          924.6

1983                -207.8                          1,137.3

1984                -185.4                          1,307.0

1985                -212.3                          1,507.3

1986                -221.2                          1,740.6

1987                -149.7                          1,889.8

1988                -155.2                          2,051.6

1989                -152.6                          2,190.7

1990                -221.0                          2,411.6

1991                -269.2                          2,689.0

1992                -290.3                          2,999.7

1993                -255.1                          3,248.4

1994                -203.2                          3,433.1

1995                -164.0                          3,604.4

1996                -107.4                          3,734.1

1997                -21.9                            3,772.3

1998                69.3                             3,721.1

1999                125.6                           3,632.4

2000                236.2                           3,409.8

2001                128.2                           3,319.6

2002                -157.8                          3,540.4

2003                -377.6                          3,913.4

2004                -412.7                          4,295.5

2005                -318.3                          4,592.2

2006                -248.2                          4,829.0

2007                -160.7                          5,035.1

http://www.cbo.gov/budget/data/historical.pdf

[ii]Gramm–Leach–Bliley Act

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

[iii]Gramm–Leach–Bliley Act

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

[iv]Gramm–Leach–Bliley Act

 http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

[v]How HUD Mortgage Policy Fed The Crisis

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

[vi] Community Reinvestment Act

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

[vii]FAIR HOUSING ACT

 http://www.justice.gov/crt/housing/title8.php

[viii]US Code, 15 U.S.C. § 1691

 http://www.law.cornell.edu/uscode/15/1691.html

[ix] Home Mortgage Disclosure Act of 1975

http://www.fdic.gov/regulations/laws/rules/6500-3030.html#6500hmda1975

[x] Community Reinvestment Act

http://www.fdic.gov/regulations/laws/rules/6500-2515.html#6500hcda1977

[xi]http://scienceblogs.com/authority/2008/09/the_subprime_mortgage_crisis_a.php

[xii]Table 3: Detail for Subprime Loans – see endnotes for sources (page 10 pdf)

http://www.aei.org/docLib/Pinto-High-LTV-Subprime-Alt-A.pdf

Figure 1: GSE Investment Portfolio and MBS ($ Billions, Left Axis),

GSE % of Total Outstanding Single Family Mortgages (Right Axis)

http://www.fcic.gov/hearings/pdfs/2010-0227-Jaffee.pdf

[xiii]  GAO report (page 18 for sub-prime data and page 21 for default rates data in pdf):

http://www.mortgagebankers.org/files/News/InternalResource/57640_GAOReportInformationonRecentDefaultandForeclosureTrends.pdf

[xiv]http://www.aei.org/docLib/Pinto-High-LTV-Subprime-Alt-A.pdf (page 12 pdf)

[xv]Figure 1: GSE Investment Portfolio and MBS ($ Billions, Left Axis),

GSE % of Total Outstanding Single Family Mortgages (Right Axis)

http://www.fcic.gov/hearings/pdfs/2010-0227-Jaffee.pdf

[xvi]Figure 2: GSE, FHA, Subprime, and High Risk New Mortgage Activity as Percentage of Total Single‐Family Mortgage Originations (page 9 pdf)

http://www.fcic.gov/hearings/pdfs/2010-0227-Jaffee.pdf

[xvii]How HUD Mortgage Policy Fed The Crisis

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

[xviii]How HUD Mortgage Policy Fed The Crisis

http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

[xix]Statement from the White House (President Bush) October 26, 2005:

http://georgewbush-whitehouse.archives.gov/omb/legislative/sap/109-1/hr1461sap-h.pdf

http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_default_swaps/index.html?inline=nyt-classifier

[xxi]Interesting Article

http://money.cnn.com/magazines/fortune/fortune_archive/2005/01/24/8234040/index.htm

See also,

http://www.nytimes.com/2005/08/29/opinion/29krugman.html

http://blogs.reuters.com/felix-salmon/2010/05/03/did-greenspan-try-to-quash-a-housing-bubble-debate/

[xxii]http://motherjones.com/politics/2008/10/alan-shrugged

[xxiii]http://www.npr.org/templates/story/story.php?storyId=96070766

[xxiv]To those that say they could invest their Social Security dollars I can tell you as an active trader that even professionals rarely do better than market.  I wouldn’t mind if the Congress did allow folks to do their own investing but it is sort of like people that do not have health insurance…when they do need medical care they end up in the emergency room and cost all of us more money.  However, if we could figure out a way for people that invested their own Social Security dollars and lost it all to keep from ending up on the taxpayer’s bill I would have no problem with it.  It is true that the Bush Administration was only pushing for a lower percentage of Social Security dollars that could be invested privately but this debate goes back many decades to the beginning of Social Security.  The Republicans since FDR would like to get rid of or never have had Social Security.  Since they have failed to get rid of it in previous decades their current effort is to make a fundamental change to the trust fund (which can only be done through a very difficult act of Congress) to allow a small percentage of individual investment.  If they could accomplish this subsequently increasing the allowed percentage would be a much easier Congressional task.

Here are more references for the Republican attempts to privatize Social Security in this decade:

Assorted articles concerning Republican’s plans to privatize Social Security:

Republican Privatization to Eliminate Medicare and Social Security

What are Republicans trying to privatize Social Security?

Social Security Privatization

Pelosi blasts Republican plan to privatize Social Security

National Review: Social Security Privatization a Winning Issue

Social Security Still Needs to Be Privatized

Social Security

Republican bills aimed at privatization:

Report: “Social Security Reform: Current Issues and Legislation,” By Dawn Nuschler. Congressional Research Service, Library of Congress. Updated May 18, 2007.http://www.house.gov/waxman/pdfs/crs/RL33544.pdf

Page CRS-18:

In the 109th Congress, 10 Social Security reform bills were introduced as follows: H.R. 440 (Representative Kolbe and Representative Boyd), H.R. 530 (Representative Sam Johnson), H.R. 750 (Representative Shaw), S. 540 (Senator Hagel), S. 857 (Senator Sununu), H.R. 1776 (Representative Paul Ryan), H.R. 2472 (Representative Wexler), S. 1302 (Senator DeMint), H.R. 3304 (Representative McCrery), and S. 2427 (Senator Bennett). All but two of the measures (H.R. 2472 and S. 2427) would have established individual accounts to supplement or replace traditional Social Security benefits, among other changes.

Report: “Social Security: The Chilean Approach to Retirement.” By Christopher Tamborini. Congressional Research Service, Library of Congress, May 17, 2007. http://assets.opencrs.com/rpts/RL34006_20070517.pdf

Page CRS-3: “During the 109th Congress, 10 Social Security reform bills were introduced; all but two of these would have allowed workers to invest some part of their earnings in individual retirement accounts, either to supplement the Social Security system (often referred to as add-on accounts) or to replace part of the system (often referred to as carve-out accounts).13 No legislation received congressional action.”

Report: “Social Security Reform: Current Issues and Legislation,” By Dawn Nuschler. Congressional Research Service, Library of Congress. Updated May 18, 2007. http://www.house.gov/waxman/pdfs/crs/RL33544.pdf

Page CRS-18: “In the 109th Congress, 10 Social Security reform bills were introduced as follows: H.R. 440 (Representative Kolbe and Representative Boyd), H.R. 530 (Representative Sam Johnson), H.R. 750 (Representative Shaw), S. 540 (Senator Hagel), S. 857 (Senator Sununu), H.R. 1776 (Representative Paul Ryan), H.R. 2472 (Representative Wexler), S. 1302 (Senator DeMint), H.R. 3304 (Representative McCrery), and S. 2427 (Senator Bennett).”

Web page: “Biographical Directory of the United States Congress 1774-Present.” United States Congress. Accessed September 17, 2008 at http://bioguide.congress.gov/biosearch/biosearch.asp

{This site was used to determine the party affiliations of the sponsors of the following bills:}

H.R. 440 – Representative Kolbe (R-AZ) and Representative Boyd (D-FL)

H.R. 530 – Representative Sam Johnson (R-TX)

H.R. 750 – Representative Shaw (R-FL)

S. 540 – Senator Hagel (R-NE)

S. 857 – Senator Sununu (R-NH),

H.R. 1776 – Representative Paul Ryan (R-WI)

S. 1302 – Senator DeMint (R-SC)

H.R. 3304 – Representative McCrery (R-LA)

Report: “Social Security Reform: Current Issues and Legislation,” By Dawn Nuschler. Congressional Research Service, Library of Congress. Updated May 18, 2007. http://www.house.gov/waxman/pdfs/crs/RL33544.pdf

Page CRS-23:

During the 110th Congress, two comprehensive Social Security reform measures have been introduced: H.R. 1090 (Social Security Guarantee Plus Act of 2007) and H.R. 2002 (Individual Social Security Investment Program Act of 2007). H.R. 1090, which is the same as H.R. 750 in the 109th Congress, would establish voluntary individual accounts funded with general revenues, among other program changes. H.R. 2002, which is the same as H.R. 530 in the 109th Congress, would establish individual accounts funded with a redirection of current payroll taxes, among other program changes.

{H.R. 1090 was sponsored by Rep. Ron Lews (R-KY). H.R. 2002 was sponsored by Rep. Samuel Johnson (R-TX).}

Bill: “S.2765, Saving Social Security Act of 2008.” United States Senate, March 13, 2008. http://thomas.loc.gov/

Sec. 101. Establishment of an investment-based option for social security benefits.

 Bill: “H.R.4922: Savings Account for Every American Act of 2007.” United States House of Representatives, December 19, 2007. http://thomas.loc.gov/

 {This bill calls for the establishment of individual “S.A.F.E.” savings accounts through payroll deduction to be used in retirement. A S.A.F.E. account has meaning as provided for by section 222 (c) of the IRS Code of 1986.}

 Bill: “H.R.1090: Social Security Guarantee Plus Act of 2007.” United States House of Representatives, February 15, 2007. http://thomas.loc.gov/

 [March 13, 2007: Referred to House Subcommittee on Social Security.]

 Bill: “H.R.2002: Individual Social Security Investment Program Act of 2007.” United States House of Representatives, April 23, 2007. http://thomas.loc.gov/

  [April 25, 2007: Referred to House Subcommittee on Social Security.]

 Bill: “S.2765: Saving Social Security Act of 2008.” United States Senate, March 13, 2008. http://thomas.loc.gov/

  [March 13, 2008: Referred to Senate Committee on Finance.]

 Bill: “H.R. 4922: Savings Account for Every American Act of 2007.” United States House of Representatives, December 19, 2007. http://thomas.loc.gov/

 [December 19, 2007: Referred to Committee on Ways and Means and Committee on Oversight and Government Reform.]

Report: “2008 Republican Party Platform.” Republican National Committee, September 2008. http://www.gopplatform2008.com/2008Platform.pdf

Page 19: “Comprehensive reform should include the opportunity to freely choose to create your own personal investment accounts which are distinct from and supplemental to the overall Social Security system.”

Web page: “Obama ’08, Seniors and Social Security” Obama for America. Accessed November 11, 2008 at http://www.barackobama.com/issues/socialsecurity/

“In the midst of the 2005 debate over Social Security privatization, Obama gave a major speech at the National Press Club forcefully arguing against privatization. He also repeatedly voted against Republican amendments that aimed to privatize Social Security or cut benefits.”

Transcript: “The Republican Debate on Fox News Channel,” New York Times, October 21, 2007. http://www.nytimes.com/2007/10/21/us/politics/…

“And you have to go to the American people and say we don’t — we won’t raise your taxes. We need personal savings accounts, but we got to fix this system.”

Report: “Strengthening Social Security and Creating Personal Wealth for All Americans.” The President’s Commission to Strengthen Social Security, December 21, 2001. http://www.csss.gov/reports/Final_report.pdf

Page 11: “Personal accounts improve retirement security by facilitating wealth creation and providing participants with assets that they own and that can be inherited, rather than providing only claims to benefits that remain subject to political negotiation.”

Ken Buck and “Pro-abortion”

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Ken Buck made a comment last night that he makes a distinction between pro-choice and pro-abortion folks. Just as “pro-life” is an intentionally manipulative misnomer so is this distinction. I have made the case on my blog (http://mixermuse.com/blog/2010/01/29/the-greater-good-and-scott-roeder/) that “pro-life” folks are not “pro-life” as they would have you believe. They are really anti-abortion folks that maintain a radical, fundamentally religious position if they oppose abortion under any circumstances. Additionally, if they really believed that all life was sacred they would oppose the death penalty, oppose war and favor a radical solution to health care. In any case, my intent with this post is to suggest that the argument that Ken Buck and the other anti-abortionists make that assumes there are rabid “pro-abortion” folks out there are really a deflection of their own radical views.

It is nonsensical to suggest that pro-choice folks really want people to get abortions. It is ludicrous to think that most sensible folks would want to push abortions on people. Why would anyone in their right mind insist that someone get an abortion? The only way I could see that someone could arrive at this position would be if they wanted to target an ethnic group on the grounds of some extreme genocidal position. Does Ken Buck think that these “pro-abortion” folks really want to target an ethnic group? The anti-choice folks have made these claims in the past about historical, pro-choice people but these days that claim only makes them look like lunatics to those of us outside their club. What other reason would someone be radically “pro-abortion”?

What he calls “pro-abortion” is really only people that think abortion should be an individual choice and not a big-government call about what should be a personal issue (to put it in Ken Buck’s terms). What really bothers me about this tactic is that it re-directs the real extremism to a fabricated extremism. Psychologists call this “projection” but in sociological terms it is really an attempt at mass manipulation. The real radicals are the ones that believe abortion should be outlawed under any circumstances (rape, incest, to protect the life of the mother, etc.). However, if they can re-define their extremism as the more “sensible” position then their position feigns the appearance of less radical and thus, more moderate. Thus, the “right” is never “right enough” and the left is always increasingly just left of the radical right. If the position that the government should not intrude on people’s personal choice for an abortion is shown to be “pro-abortion” and radical then the anti-abortion folks make their extremism more palatable. If people see through this, their feeble attempts at manipulation are ineffective and the real zealots become apparent.

What I take away from Ken’s comment is that he is content to surround himself with extreme right positions and he is willing to make everyone else look like the extremist he really is. If one adopts an ideology that can never directly be stated but only pointed at in “code words” it is because the ideology cannot stand on its own, in the light of reason and reasonable folks. I get the feeling that a lot of the right wing rhetoric is dishonest, pointing to ideas that they cannot express directly except in their inner circle. Thus, comments border on elitism, support for the rich and big business, racism, sexism, and homophobia but never quit get there in public discourse because that light would be too revealing. I know there are conservatives that have direct, honest and well thought out positions but this trend on the right is a little disturbing. I do all I can to make my ideas direct and without any need to ‘paint lipstick on a pig’. The question voters need to ask themselves is, “Is this the kind of person we want for our Senator”?

The Odd Thing about the Tea Party

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There is something odd about the tea party that I have not been able to pin down until now. The Tea Party is “mad as hell and ain’t gonna take it no more”. I see these older white folks talking about armed revolution and it makes me chuckle. Could you see gray haired, overweight revolutionaries being mowed down by the military? This sounds like a Monty Python skit to me. Anyway, the really funny thing is that these folks are demonstrating to conserve. There is an oxymoron knotted in this thought. The thought of ‘conserving’ is to continue the status quo. Traditionally, conservatives do not want too much change. They support establishment candidates that are not going to rock the boat. It would be ludicrous to demonstrate to stay the same. It would be like painting legs on a snake, a koan. These folks are using the thought ‘conserve’ to covertly introduce a radical agenda.

They do not want to conserve. They want to push an elitist, marginally violent (for now), questionably racist, quasi anarchistic agenda. They all came out of the conservative Republican ranks so they think of themselves as conservatives but they have not worked out the ideological specificities of their own anger. If they really wanted to conserve they would stay in the Republican Party and vote for the ‘true’ conservatives (whatever that is). These folks say they are ‘true’ patriots and ready to spill blood to prove it. Their deacto flag is the American Revolutionary flag that states, “Don’t Tread on Me”. They quote Thomas Jefferson, “The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.” They rarely state the rest of the quote but it is the part that I agree with about the Tea Party, “It is it’s natural manure.” They think of themselves as extreme patriots. They do not think they are racists as they find that position untenable but they make ‘rational’ claims and ‘mere’ jokes about Islamics, women and blacks. Personally, I am all too happy to see them tear the Republican Party to pieces. However, when they find out they do not want to conserve but overthrow traditional conservatives it will be interesting to see how far they will go with their lassie faire capitalism. They are against taxes because they see that their standard of living is going down and they blame it on the liberals. Many of the ingredients are in play for the dictionary definition of fascism.

Only one thing is lacking – a vibrant, charismatic leader. After World War 1 the Germans saw their standard of living go down and blamed it on the Versailles Treaty that ended the war. They saw ‘illegal immigrants’ and ethnic groups such as the Jews as the source of their plight. They still maintained their extreme nationalism after World War 1. Hitler seized the moment and played on their angry emotions. He rightly divined undercurrents that were making the Germans angry as hell and gave those emotions voice and clarity. He played up the ethnic antagonisms and voiced the ‘rational’ concerns of their anger. Like Sarah Palin, he spoke in thinly veiled terms of violence (i.e., locked and loaded, cleaning their guns, scope crosshairs, etc.). He played on the Germans anger with their current government and advocated throwing the bums out. He made the current German government the enemy which is not a conservative inclination. He appealed to the ‘true’ German national. He focused their anger on the liberals of his day the socialists and the communists (contrary to the obscurantism and revisionist history of Jonah Goldberg). He used the corporatism of his day to finance his campaign. There were some differences. He did not play on religious values as his megalomania would not allow it (although he did fan nationalism into a religious zeal). He gave the Germans a revisionist history of themselves.

I do not know if the Tea Party would follow this route even if a Hitler type came along but the Tea Party does need to clarify its ideology and unify its goal. They are ripe for the picking and these folks are not scholars. They distrust ‘liberal’ universities and to the contrary trust the antithesis in folks like Sarah Palin. I think the fascist tendency in this country has been redefined, revised, made virtuous and put lipstick on but the stench has been apparent since Reagan and growing. Fascism is really violent hate disguised. With a little push like a lower standard of living and a vibrant spokesperson it could grow legs. I hope that this is not the case. In any case, on the positive side, these folks will tear the Republican Party to pieces and if, as I have long thought, the religious element checks out the Republicans will be introduced to what the Democrats have been dealing with for decades, plurality.