Archive

Posts Tagged ‘bailout’
October 6th, 2014 at 6:49 pm
Expert: ObamaCare Bailout of Insurance Industry Similar to Bush Era Prescription Drug Program

The Obama administration has been catching some flak over its intent to redirect taxpayer dollars toward a controversial “risk corridor” program designed to bailout ObamaCare-friendly health insurance companies that lose too much money.

The primary line of attack stems from the absence of any specific congressional appropriations to fund the program. Congressional Republicans and the Government Accountability Office say this precludes any end-run maneuvers to pay for it anyway, while the Obama administration is ignoring opposition.

But in the drive to add this abuse of executive discretion to President Barack Obama’s long list of power grabs, a bit of history is sure to make Republican critics think twice before pushing much farther.

“But Loren Adler, research director for the Committee for a Responsible Federal Budget, points out that a similar risk-protection program in the Medicare prescription drug program does not receive an explicit annual appropriation, yet has not been challenged,” reports an entry on the Modern Health Care blog. “He thinks that makes it highly unlikely that HHS will be deterred from making the payments to insurers under the risk corridors program.”

Indeed, any federal judge reviewing a future legal challenge to HHS’ pending move would very likely analogize the two programs and conclude that if Congress has not objected to the practice in one instance, and the two cases are similar, it probably intended to defer on both. In such a scenario, the end result is a judge (rightly) telling Congress to speak more clearly and fix the law.

The upshot of all this is that it makes everyone painfully aware of how important it is for Congress to pass clear laws. Republicans aren’t responsible for ObamaCare’s poor draftsmanship, but if they ever get enough power to make changes, they should take care to make them unambiguous to interpret.

October 3rd, 2014 at 11:24 am
ObamaCare Nearing a Fannie and Freddie-Style Bailout of Insurance Companies?

Could ObamaCare’s “risk corridor” program become the health insurance industry’s equivalent of Fannie Mae and Freddie Mac – the federally funded entities that spent $180 billion bailing out banks who issued subprime mortgages?

Stephen Moore, the chief economist at the Heritage Foundation, thinks so.

“But insurance experts warn that [the risk corridor] program creates the same moral hazard problem for health insurance that we saw in the mortgage market with Fannie Mae and Freddie Mac,” Moore writes at Investor’s Business Daily. “The guarantee on bad mortgages encouraged bad mortgages. The guarantee against losses on ObamaCare enrollees encourages insurers to toss sound underwriting standards out the window. This didn’t turn out so well with Fannie and Freddie, which received a taxpayer-funded bailout of more than $180 billion after issuing subprime mortgages that should never have been written.”

Moore goes on to say that surveys of health insurance companies selling plans on ObamaCare exchanges say that the vast majority expect to receive a payment from the federal government to cover their losses. Estimates for the first year near $1 billion. And, since there is no cap to how much the feds will reimburse, there is no limit to how much money a company can lose and still expect a check from Uncle Sam.

Despite all this, the Obama administration is chugging ahead with plans to make payments under the risk corridor program without explicit congressional appropriations. Republicans are contesting President Barack Obama’s authority to do this – with an assist from a recent GAO legal opinion – but they should really train their fire on eliminating the risk corridor program as is. As with IRS tax credits, ObamaCare can’t survive without a convoluted shell game that hides the true cost of health care.

We’ll never get health care policy right until we can talk honestly about how it’s funded. Now would be a good time for the GOP to being that process.

August 11th, 2014 at 2:24 pm
HHS to Fund Coming ObamaCare Bailout of Insurance Companies

What makes conservatives so sure that the Obama administration will bailout insurance companies losing money under ObamaCare?

“According to a recent investigation conducted by the House Oversight and Government Reform Committee chaired by Darrell Issa, insurers widely expect to receive funds from the bailout program,” writes U.S. Senator Marco Rubio (R-FL). “One large insurer recently filed financial statements claiming they expect part of their revenue to come from American taxpayers via the ObamaCare bailout ‘fund.’”

Thwarted by the GOP majority in the U.S. House of Representatives who refuse to appropriate money for this part of ObamaCare, the Department of Health and Human Services “figured out a way to use general funds available through the Centers for Medicare and Medicaid Services to pay off health insurers,” says Rubio. “The effect is to circumvent Congress’ power of the purse for the purpose of bailing out health insurers with taxpayer funds.”

Whether it’s the CIA lying about spying on congressional investigators or IRS officials conveniently losing potentially damaging emails, executive branch officials in the Obama administration are destroying the ability of anybody outside their clique from being able to trust anything they say.

August 7th, 2014 at 3:24 pm
The Coming ObamaCare Bailout

Because of ObamaCare’s mismatched incentive structure, some savvy commentators are warning of an impending, multi-billion dollar bailout of the insurance companies selling health care policies under the law.

“Pre-ObamaCare,” writes Dan McLaughlin, “insurers had to price their policies mainly by reference to market forces (albeit in an already heavily-regulated market)… Guess wrong and you lost money. But under ObamaCare, consumers no longer have the choice whether or not to buy policies, and insurance companies no longer face any risk of losing money, because they’ve been promised a bailout. Money will still be lost, but it will be taxpayer money, and you never run out of that, do you?”

McLaughlin is talking about ObamaCare’s “3 R’s” – reinsurance, risk corridors and the risk adjustment program. I’ve written about this multi-year, $20 billion bailout before. In different ways, each is designed to subsidize insurers for lost revenue traceable to the health law’s dysfunctional mandates. The threefold scheme was buried in the legislation to buy the support of large insurance companies who would have refused to participate without it.

Now the bill is coming due.

Based on interviews and documents containing discussions between Obama administration officials and insurance industry executives, a House Government Oversight report reveals that insurers are expecting the following payments:

1)      $640 million from the Risk Corridor program for the 2014 plan year

2)      $346 million from the Risk Adjustment program

The reinsurance program redistributes money among private insurance companies, as determined by the federal government.

The numbers quoted above are two to three times higher than originally anticipated because of the high level of adverse selection – i.e. too many older and sicker enrollees, not enough younger and healthier ones. The latter group is avoiding enrollment, preferring to pay ObamaCare’s relatively low penalty. But even that is a mirage. Reports are surfacing that as many as 25 million uninsured Americans are getting ObamaCare penalty waivers for next year; further increasing the federal budget deficit.

Bailouts can be nice, if they apply to you. But as a governing strategy, they eventually bankrupt the entire system.

November 25th, 2013 at 5:52 pm
After Obamacare, Cities Want Pension Bailout Too

After decades of kicking the financial can down the road, some of America’s biggest cities now want to try throwing it up the ladder.

Starting January 1, Detroit will move its retirees to Michigan’s federally-run Obamacare exchange. Instead of the previous full coverage paid for by taxpayers, each retiree will get a $125 monthly stipend. The move is projected to save the city roughly $120 million.

Chicago and other cash-strapped cities are considering similar options.

But the move to offload state and local obligations onto federal taxpayers is just getting started. Writing for City Journal, Steven Malanga explains that municipal debt related to unfunded pensions far outweighs the amount owed to retiree health benefits.

To big city mayors the solutions, of course, are identical – Ask Uncle Sam for a bailout.

At some point, America’s entitlement culture – up and down the socio-economic ladder – has to take a back seat to fiscal reality. We’ll see if enough people are ready to have such a debate when the 2016 presidential election rolls around.

October 5th, 2012 at 3:24 pm
Obama Admin Hiding FHA’s Need for a $688 Million Bailout

Dan Murphy at National Review found another possible debating point for Mitt Romney:

Tucked away in President Obama’s 2012 budget proposal was a little-noticed provision telling Congress that it may need to provide $688 million to cover the FHA’s projected losses this fiscal year. Translation: The FHA will need a bailout for the first time in its 75-year history.

A short-term solution by the Department of Housing and Urban Development covered up FHA’s growing financial problem until mid-November, i.e. after the presidential election.

Mitt Romney should clue-in the American people on this failure before they vote.

July 11th, 2011 at 9:47 pm
Gelinas: 3 Choices on Leftover Toxic Debt

City Journal’s Nicole Gelinas describes the Bush-era “TARP” bailout as a massive case of moral hazard.  With the financial sector able to fob off its bad debts to the American taxpayer while suffering almost no consequences, it’s no wonder the jobless rate is not recovering.

The politicians we elect have three choices—the same choices they had four years ago. They can admit that this debt isn’t worth much and allow the financial sector to bear the consequences. They can hope that the Fed tries to use inflation to raise the price of everything else, making the debt seem a lighter burden in comparison. Or they can maintain their silence, letting the financial sector take another half-decade or more to make enough money on new ventures so that it can finally admit what it should have admitted back in the fall of 2007: bad debt is never good. At least the Fed acknowledges this strategy: it says that it’s using “time” to manage toxic securities and “minimize disruption to the financial markets.” But prolonging government control of financial markets just prolongs investors’ uncertainty.

If Congress and President Obama, as well as the candidates who would like to succeed the president in 2013, maintain their silence, people should at least understand that the lousy jobs numbers are no mystery. They are the result of a policy that Washington has willfully chosen. As the Fed notes, the cost of this policy isn’t measured in dollars but in something more precious: time. Washington’s refusal to confront the debt problem is costing millions the most productive years of their lives.

April 11th, 2011 at 12:00 pm
Free Market Solution to Housing Crisis

While the federal government continues to create moral hazards for people trying to stay in their soon-to-be-foreclosed homes, TwinRock LLC is giving those same people a reason to hope: letting former homeowners rent their foreclosed properties at reduced rates.

So far TwinRock has purchased 22 homes in Moreno Valley, Riverside, Corona, Rialto, San Bernardino, Highland, Murrieta, Wildomar and Temecula, and the company has plans to buy several hundred more, said Meyer.

Earlier this year, TwinRock put together a $6 million fund to enable the company to buy about 40 Inland homes and it is getting ready to raise another $15 million, Philips said. The firm’s investment model primarily calls for buying houses with cash at trustee auctions conducted each weekday at Inland courthouses, he said.

There’s another benefit to keeping people in their homes:

Letting former homeowners remain in the foreclosed homes as tenants also eliminates the potential that the homes will be vandalized by angry former owners facing eviction, Meyer said.

TwinRock’s solution isn’t for everyone.  Some homeowners are so indebted in other areas they need to declare bankruptcy and restart their financial history.  For many others, however, renting one’s home with the possibility of buying it back later is much more attractive than waiting for a temporary government bailout.

H/T: Riverside (CA) Press-Enterprise

March 25th, 2011 at 11:03 am
Portugal Likely to Seek Bailout; Warnings for US Federalism?

When every opposition group voted down his austerity budget earlier this week, Portugal’s prime minister resigned.  Now, the European Union is preparing to bail out a third member nation in just over a year.  (The other two are Greece and Ireland.)

While the Portuguese mess probably won’t have an immediate fiscal impact on the United States, the EU’s crisis of federalism could soon be felt over here.

States like Illinois and California are teetering on the edge of insolvency after spending like a bunch of reckless European countries.  Because of the EU’s shared currency and the effects a default would have on the rest of the federation, the EU feels pressed into covering the costs of some members’ excess.

The same thinking seems likely to migrate across the Atlantic.  Members of Congress are mulling options like bankruptcy for failing state governments, though that risks undermining state sovereignty.  Also, bailouts run the risk of prolonging hard decisions, as well as deepening the dependency of states on the feds.

There are no easy answers, but there are some necessary decisions.  Time will tell if those in Sacramento and Springfield can come to better resolutions that the parliament in Lisbon.

September 3rd, 2010 at 7:53 pm
Higher Education Bubble Could be the Next to Pop

Conventional wisdom says that when the job market dries up, it’s time to head back to school for more education.  With today’s announcement that unemployment is above 9% nationally for the 16th month in a row, many out-of-work Americans will consider going back to school.

In two to three years, those who pay for more certificates or degrees may find that their employment – and financial – situation hasn’t improved.  The reason is the rising cost of higher education coupled with the loss in value of college degrees.  Per Reason Magazine:

Student borrowing has more than doubled since the end of the 20th century, according to the College Board, with $85 billion in loans in 2008, up from $41 billion in 1998. And as the rising rate of defaults indicates, borrowers in aggregate are not making the kind of money—i.e. twice as much as a decade ago—they would need to pay those loans back.

The government’s response to this bubble has been to get itself more deeply involved in the inflation. The administration has kicked in various types of assistance, such as a $100 million college prep program. And in March, President Barack Obama signed a bill eliminating the 45-year-old Federal Family Education Loan Program (which guaranteed student loans made by private lenders) and replacing it with a system of direct Treasury Department loans to students. The first part of these efforts is a straightforward waste of money. The second has the potential to be a marginal improvement on a system that shouldn’t exist.

So we have too much money going into an asset, not enough value coming out, a massive increase in leverage, and a large taxpayer liability for the difference.

Get ready for another bailout…

June 26th, 2010 at 8:47 pm
Obama Bank Tax Spreads the Pain Around

If you ever nursed the idea that taxation isn’t a form of punishment, President Barack Obama is here to disabuse you.  A day after Congress passed massive new regulations on the financial industry, the president today called for passage of a 10 year, $90 billion tax on banks and hedge funds to pay for the 2008 financial bailout.  To quote the president:

“We need to impose a fee on the banks that were the biggest beneficiaries of taxpayer assistance at the height of our financial crisis — so we can recover every dime of taxpayer money,” Obama said in his weekly radio and Internet address.

And yet the tax/fee/legalized theft won’t be levied on just “the biggest beneficiaries.”  It will hit every bank with assets over $50 billion and hedge funds with more than $10 billion.  That means even the financial institutions that have already repaid their bailout debts will be hit with the 0.15% increase in the cost of doing business.

But remember: businesses don’t pay taxes (or fees) – people do.  Keep that in mind when your monthly service fees jump through the roof.

May 27th, 2010 at 11:23 am
Obama to Europe: Borrow and Spend Even More
Posted by Timothy Lee Print

One of the pillars of Barack Obama’s 2008 campaign was that America had become too didactic toward the rest of the world, particularly toward the more anti-American elements of Europe.  A kinder, gentler Obama would be the ointment to soothe all international discord, they promised.

But the Obama Administration has proven even more didactic than the Bush Administration.  The primary difference is that Obama bows to antagonists like Russia and the Palestinians, while disrespecting friends like Israel.

Now, Obama is even reneging on his “reset” stance toward Europe and self-righteously instructing them on how to pilot their economies.  Consider this opening paragraph from today’s Wall Street Journal front-page article entitled “U.S. Chides Europe’s Crisis Response:”

U.S. Treasury Secretary Timothy Geithner landed in Europe and reasserted a traditional American role of dispenser of financial advice to the world, telling European governments to get their fiscal houses in order.”

That’s pretty amusing stuff from an administration that quadrupled America’s deficit in its very first year.  What’s worse, his administration is insisting on more of the very policies that caused Europe’s economic and budgetary maladies.  Greece’s welfare spending required a $1 trillion bailout, and Portugal, Spain and England may not be far behind. Despite this self-evident reality, the Obama Administration instructs them to pursue more of the same.  According to the report, Geithner admonished European leaders “to keep pumping stimulus into their economies.”

This prompts the question of whether there exists any remaining tether whatsoever between the Obama Administration and reality.  The euro has plummeted following Greece’s bailout, and even the American Dow Jones Industrial Average fell below 10,000 yesterday on fears that the contagion will spread.

A word of advice to Europe:  reconsider your love affair with Obama before he steers you toward even greater catastrophe.

May 12th, 2010 at 1:54 pm
Don’t Just Stand There; Do What Bush Did!

The White House phone bill might be ticking sharply north this month because, lo and behold, it turns out there are more politicians in desperate need of President Obama’s perpetual insistence to “act boldly.”  On the heels of reports that he cajoled German Chancellor Angela Merkel into forsaking her voters and bailing out Greece comes this breathless update: Obama is twisting arms in Spain!

Spain is one of the “PIGS” countries, a group of economic basket cases including Portugal, Ireland, Greece, and Spain.  Like the others, Spain is suffering from extreme budget deficits caused by rampant government spending to prop up unsustainable social welfare programs.  Obama called to convey some tough love:

Mr Obama’s call yesterday to Mr Zapatero added an American voice to European pressure on Spain.

Mr Zapatero has so far shied away from structural reforms opposed by trade unions but is now facing new calls from EU leaders to slash spending again and tackle his country’s economic crisis.

If it’s true that Obama is urging Spain to cut spending, then three cheers for fiscal sanity!  Unfortunately, there are no indications that approach is being seriously considered on this side of the pond.  As proof, the Obama Administration is holding out a curious example for Europeans to follow: the Bush era’s Troubled Asset Relief Program (TARP).

American officials urged that Mr Sarkozy and Mrs Merkel recall the U.S. lesson of 2008-2009 when the Bush administration persuaded a reluctant Congress to approve a massive $700 billion Troubled Asset Relief Program.

While politically unpopular, the U.S. rescue plan convinced markets that authorities were serious about keeping banks afloat.

Or it convinced those who play in the markets that the American government wasn’t serious about letting the invisible hand apply the rules of risk and reward to credit default swaps.  If anything, TARP is a monument to the kind of taxpayer funded subsidy for bad behavior that should be avoided by other countries because it socializes the risk yet personalizes the reward.

If European leaders want to speed the decline in trust for economic “experts” by all means, TARP away – just don’t whine when China buys chunks of real estate for pennies on the Euro.

H/T: Daily Mail (UK)

May 10th, 2010 at 4:43 pm
Dow Surges with News of Trillion Dollar European Bailout Fund

After an erratic end to last week’s trading filled with ‘typos’ and frozen stocks, the Dow and markets all over the world are rallying on news that the European Central Bank will create a trillion dollar fund to buy government and private debt to keep lending liquid.  With the help of the IMF and the Euro-using nations, the fund will prop up troubled governments.

The response of surging stock markets does not mean this is a wise and sound policy.  Investors merely feel the momentary comfort that there will be enough stability in the short term for money to be made.  But this plan is little different from the $50 billion rainy day bailout fund batted around the debate for financial reform here in the United States, other than the sources of funding.

Such measures create perverse incentives for market actors, whether a country like Greece, or private firm like Goldman Sachs, saying, “Go ahead, and continue to take big risks.  Don’t worry about the consequences.  We’ve got your back.”  Why should Greece tackle its massive public sector union crisis?  Why wouldn’t Wall Street firms go out on a limb for a big potential gain, if there were a multi-billion dollar bailout fund to catch them if they fall?

Markets are all about incentives.  Rainy day bailout funds create the wrong incentive.

May 6th, 2010 at 7:37 pm
Darrell Issa Uncovers Treasury-GM Axel of Evil

Rep. Darrell Issa (R-CA) is continuing his one-man assault on government corruption by calling out the Treasury Department for helping GM lie its way back to respectability.  Apparently, GM paid off its debt to taxpayers with money from a government (i.e. taxpayer) escrow account and claimed it was free and clear.  When the Treasury Department parroted the nationalized car company’s line, Issa, the Ranking Republican on the House Oversight Committee, demanded proof.  What he got was a document from Treasury stating it “never” endorsed GM’s claim, accompanied by an attached press release headlined – no kidding – “GM REPAYS TREASURY LOAN IN FULL.”

You can’t make this stuff up.

H/T: The Daily Caller

May 5th, 2010 at 7:43 pm
Freddie Mac Back to Remind You of Its Failures

As Goldman Sachs is reeled into court for potential securities fraud, a bigger fish is still swimming free and wreaking havoc on the public.  Freddie Mac, one half of the not-so-dynamic duo of government-backed mortgage peddlers, took another massive hit during the first quarter of the year.  The company, which is largely owned by the federal government after the 2008 bailouts, is set to ask for an additional $10.6 billion in “federal aid,” aka more bailouts.

With assistance and pressure from Washington to make housing affordable for all, one can see how Freddie Mac thinks that money grows on trees.  Unfortunately, all of us in the real world, from whom the government is funded, should be concerned how “We the Taxpayers” are going to come up with another $10 billion to flush down the toilet.  Not to mention why.

More troubling, while Goldman Sachs is getting grilled at congressional hearings, financial reform legislation, which unleashes a broadside against banks, but not a single provision addressing the troublesome Fannie and Freddie, will soon be ushered to a vote.  The Kansas City Star’s E. Thomas McClanahan stated it well:

“Wall Street’s excesses sent the markets and the economy off a cliff, but the seeds of the debacle were planted by politicians and richly fertilized by their creations: Fannie and Freddie…”

The shenanigans on Wall Street may or may not have brushed up against the law, but the opportunity and incentive would not have existed had the federal government and its lending arms, Fannie and Freddie, not insisted on giving mortgages to folks who could not afford them.  Congress should remember as they point a finger at Wall Street that four fingers are pointing back at them.

April 20th, 2010 at 10:19 am
WaPo’s Ezra Klein: Financial Bill Bailout “Isn’t a Bailout”
Posted by Timothy Lee Print

In his best Alice in Wonderland attempt to facilitate the Obama Agenda, Ezra Klein of The Washington Post explains the bailout provision of the Senate’s proposed financial regulation bill and determines that “it isn’t a bailout.”

Klein begins with the rationalization that the bill’s $50 bailout provision “isn’t a lot of money” compared to the $700 billion TARP bill and the House’s $150 resolution fund.  Gee, now that you put it that way, we suppose it’s OK?  Rather than characterize Klein’s logic, we’ll simply accept his own description of the bailout process:

The FDIC takes over the banks.  The $50 billion fund is used to keep the lights on while all this happens.”

In other words, Mr. Kelein, the $50 billion fund subsidizes operations and pays the bills during bureaucratic takeover of an enterprise that should have instead faced the stark prospect of certain failure for its own decisions.  In other words, it continues operations while federal regulators take their time in determining their preferred political outcome.  Protecting reckless enterprises against the consequences of immediate and certain failure will only encourage the very moral hazard that incentivized such recklessness in the first place.  That’s precisely the problem with Washington’s bailout culture.