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Obama and the Revival of Wall Street
Ahead of the upcoming mid-term elections there is an argument being put forward by Democrat apologists that President Barack Obama’s resuscitation of Wall Street at public expense and his wholly inadequate ACA (Affordable Care Act) are policy successes worthy of political support. The base tactic is to set up false choices and then argue that Mr. Obama chose among the better of the available alternatives. His unconditional resurrection of Wall Street is posed against an inevitable second Great Depression when the choice was between reviving the existing system of suicide finance or reining it in to serve a public purpose. And the problem in need of solving with the American health care system is a lack of access to health care for a substantial portion of the population. Increasing the intrusion of the insurance industry into the U.S. health care system, as the ACA does, builds an even higher wall between people and access to health care.
The base frame in support of the revival of Wall Street is that Mr. Obama had a choice of Great Depression 2.0 or the wholesale revival of Wall Street, however ‘distasteful’ the latter might have been. Left unsaid is that it is this very same Wall Street that destroyed the economies of the West through creating the housing boom / bust, that the only thing resolved since the onset of crisis is the incomes and wealth of the very richest, that the Federal government held all of the cards in 2008 – 2009 when Wall Street was at risk of collapse and that Mr. Obama put the very same Timothy Geithner and Larry Summers who promoted the bank interests that created the crisis in charge of covering it up. Nationalization of major Wall Street banks was put forward as a policy option in top-level discussions of resolving the crisis. The argument now being made (top link) that government agencies lacked the legal authority to do so ignores the practical circumstance that Wall Street was dependent on government largesse to avoid wholesale bankruptcy in 2008 – 2009 and that the ‘lacked legal authority’ argument was no where to be found in contemporaneous policy discussions.
Graph (1) above: both income and wealth dispersion have worsened under Mr. Obama’s tenure as President. Illustrated are the rise in relative (to the median) wealth of the very richest and the decline in relative wealth of the poorest. While the trend toward income and wealth inequality preceded Mr. Obama’s time in office, his policies have overwhelmingly benefited the very rich and left everyone else to their own devices. Rather than simply giving bailout funds to Wall Street the money could have been used to buy down negative equity for those duped into taking predatory loans to buy houses. Likewise the purchase by the Federal Reserve of $ 4 trillion in assets has overwhelmingly benefited the very richest by raising financial asset prices. Source: Russell Sage Foundation.
To be clear, the Obama administration’s choice of what to do with Wall Street wasn’t— was not, between consequence free bailouts and another Great Depression. And in fact the IMF (International Monetary Fund) spent the previous half-century asserting this very point when it came to closing dysfunctional banks overseas. Predatory banks draw economic resources away from well-functioning parts of national economies under nearly all theories of banking and finance. Claims that Obama administration policies (Dodd-Frank) have ‘reformed’ the financial system ignore global financial interconnectedness, multiple commitments of limited collateral and that not even government regulators believe that too-big-to-fail has been resolved. A relevant question is where the economic resources will come from to resolve the $1 – $2 quadrillion in Swaps notional and other derivatives contracts that take precedence over all other claims, including depositor’s, in bankruptcy? And the contention that government subsidies of Wall Street have now ended demonstrates near complete ignorance of how financial markets function.
Graph (2) above: one of the more spurious contentions Democrat loyalists put forward is that current ‘calm’ in the form of rising stock markets and house prices amidst ongoing depression for a substantial proportion of the population indicates that Obama administration policies resolved anything? The current circumstance of high stock prices (relative to cyclically adjusted corporate earnings) and tight (low) credit spreads has been a sign of impending turmoil in the past. For statistical reasons (non-stationary credit spreads), the way to view the too-big-to-fail subsidy of Wall Street is over boom / bust cycles and not at a cyclical low point for credit spreads. Claiming that current conditions answer the question would look quite different if the ‘current condition’ was 2008 – 2009. And in fact, actual economic conditions for most Americans have continued to deteriorate as stock and housing market prices driven higher by Federal Reserve policies have revived the fortunes of the very richest. Source: St. Louis Fed, Moody’s.
Graph (3) above: Mr. Obama’s supporters claim that were it not for his consequence-free bailouts of Wall Street a second Great Depression would have occurred. What is illustrated above are the declines in real (inflation-adjusted) median household incomes and wealth both before and after Mr. Obama took office. For the bottom half of the population both income and wealth continued their declines after Mr. Obama took office.. This isn’t to claim that the full cause of the declines lies with Mr. Obama’s policies— former Democrat President Bill Clinton is substantially responsible for the catastrophic deregulation that led to financial calamity. That Mr. Obama appointed the chief architects of this calamity, Timothy Geithner and Larry Summers, to head the bailout efforts for his administration goes far in explaining why only bankers and the very rich have benefited from his policies. Sources: St. Louis Fed and Russell Sage Foundation.
The issues around the ACA (Affordable Care Act) are just as pernicious but in many ways of more direct relevance to most people. A recent article in the New York Times made the point that there is a large ‘learning curve’ to effectively navigate Obamacare coverage. The article focused on Philadelphia but the issues raised are relevant nationwide. For the uninitiated, Pennsylvania is one of twenty-four states that declined to expand Medicaid coverage under Obamacare. Remember: Obamacare was sold as the ‘politically feasible’ alternative to (national) single-payer health care. With Medicaid being the only health care program available to the poor and very poor, the refusal of half of the states to expand the program suggests that settling for the ‘political feasible’ choice was a very poor political calculation if expanding access to health care was the goal. The practical impact is that a substantial portion of poor and near poor across the country will see no increased access to health care under Obamacare.
The ‘learning curve’ at issue is the ins and outs of Obamacare insurance coverage— premiums, subsidies, co-payments, deductibles and out-of-pocket expenses, along with the intricacies of health care networks where health care providers may deal with hundreds of different insurers and know very little of what is covered by any specific insurance plan. In an effort to minimize costs insurers are creating ‘narrow networks’ that limit who provides covered health care— e.g. specific hospitals, doctors and labs. For example: if (non-emergency) surgery is needed the person having the surgery must make sure that the hospital where the surgery is to take place is ‘in network,’ that all doctors involved in any aspect of the surgery are in network, that all diagnostic tests are done through ‘in network’ labs and that all drugs prescribed are ‘approved’ within the network. Failure to know any and all of these details and to make sure that everyone involved— hospital employees, doctors, nurses and administrators, both understand and act on policy limitations, will result in bills for medical services that the people Obamacare was nominally designed to serve can’t afford to pay. Additionally, if you become sick and lose your income you either go on Medicaid if you live in one of the twenty-six states that expanded Medicaid coverage or you are on your own—no matter how many years you have been paying insurance premiums for.
Here Wall Street and Obamacare start to come together. The issue of the complexification of health care, forcing people to know and to competently navigate every aspect of insurance contracts, medical consultation and health care provision or suffer adverse consequences, is related to Wall Street strategies of issuing mortgages that only those with a Ph.D. in math and a lot of time to waste on contractual minutiae can understand. The variable rate mortgages of the housing boom / bust were sold as ‘affordability products,’ as an accommodation to borrowers for their (the borrower’s) benefit. What they were is age-old predatory lending. The most complicated mortgages were issued to the least sophisticated borrowers. In the case of Obamacare, complexification works in the interests of insurers. The more difficult it is for the insured to know what costs they are ‘responsible’ for the easier it is for insurers to force the costs of health care onto them. And even if one assumes honest motives, forcing people to devote their lives to the minutiae of health insurance policies is a uniquely American form of torture.
The delusional premise of Obamacare is that making health care less costly will make it affordable. This has been the Republican fantasy behind health insurance ‘vouchers’ for the last three decades— give everyone a three-hundred dollar tax break to buy insurance and everyone will have health care. Obamacare is set up to give the poorest bottom-half of the country a choice between buying food, paying the rent and ‘buying’ health care. This ‘better than nothing’ approach dissuades people from getting health care until they have no other choice. Decades of experience from actual health care systems suggests that health care— keeping people healthy, is socially and economically less costly than treating people once they are sick. The second-order fantasy at work is that individuals can control health care costs by selecting health insurers that in turn select competent low cost health care providers. The amount of information needed to make the informed choice between policies that might actually accomplish this is beyond the ability of everyone likely to be touched by Obamacare. (Quick: what is the probability that an in network anesthesiologist will be available on any given day? Congratulations, you are one ten-thousandth of your way to making a decision).
Democrat shill and mainstream economist Paul Krugman argues that California, where Medicaid was expanded under Obamacare, points the way toward a single payer health care system. The first problem with this is that Medicaid is a program of minimal health care provision for the very poor— any effort to conflate Medicaid with the functioning health care systems of other ‘developed’ countries is as pathetic as it is disingenuous. The second problem is that for all of the theorized political feasibility of Obamacare half of the states have refused its most important element— Medicaid expansion, meaning that unless these state governments quickly change their minds Mr. Obama’s ‘pragmatic’ compromise looks a lot like what it is widely perceived to be— a cynical sell-out to the sick-care industry. Speculation that there will be a more propitious time to implement real health care reform— single payer, than when Mr. Obama first took office and Democrats held both houses of Congress, derives from the same failed ‘pragmatics’ that now leaves half of the states without Medicaid expansion. The third problem is that unless complexity is resolved people are going to despise Obamacare once they realize that they must devote their lives to insurance company minutiae to get the health care they are now being forced to pay health insurance premiums for. If Mr. Krugman, or any other Democrat Party shill, really wants to sell the idea that ‘Medicaid for all’ is the way forward let them say so clearly so that we know what the Democrat plan really is.
The evidence for the success of Obamacare put forward to date, that a government mandate to make uninsured people buy health insurance has led uninsured people to buy health insurance, illustrates how empty public policy in the U.S. really is. The only relevant metric is whether or not we have a functioning health care system that serves all people, regardless of their ability to pay— or a very clear path in that direction. By this measure, with the most expensive health care system in the ‘developed’ world by a factor of two, substandard outcomes and half of the states rejecting Medicaid expansion, Obamacare has at best added complexity around the margins—it is an entire functioning health care system away from being successful. What will add to this dysfunction, and possibly to a social tipping point, will be the economic effects of the next inevitable financial crisis. As President, Barack Obama has been a continuation of Carter-Reagan-Bush-Clinton-Bush bureaucrats of empire. They have all been successful in serving their constituencies. Maybe it’s ‘progress’ that a black man now has the job. But we aren’t his constituents. Wall Street and the sick-care corporations are. If Democrat apologists want to point to political successes, they should at least point to the right successes.
Rob Urie is an artist and political economist. His book Zen Economics is forthcoming.