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Hey! Let’s Bail Out the Insurance Industry, Too!

The House of Representatives is often called the Thinking Man’s Keystone Cops, and yesterday, we got to see why.  House Republicans are now floating the idea – in a desperate attempt to do anything, anything, anything but admit their entire financial premise of “Adam Smith is God” is mere folly – that instead of the U.S. government paying to bail out the financial sector, private insurance companies swoop in and insure the bad debts instead.

Did anyone ask the insurance industry what they thought of that?

To begin at the beginning, insurance companies are a bit like casinos, inasmuch as insurance is basically a bet that you won’t need as much money out of the insurance company as you put into it.  You pay $200 a month (no shit, it’s really that much, ask your employer) for health insurance and probably won’t use any of that for most of the years you’re paying into it, barring some doctor’s and dentist’s appointments and the occasional bottle of pills for something or other.  What you don’t spend is what they use to pay off the bills of sick people who actually need the money at the moment.

But if there are more people taking more money out of the system than are paying into it, the whole thing collapses.  And in fact, the insurance industry is so overwhelmed with expenses that they’re actually ditching people once they do get sick.  Because of course, like casinos, they’re not in the business of enriching your life.  You may have seen Sicko, yes?

So, with all that said, how many insurance companies out there are going to take on billions of dollars of debts already proven to be bad ones?  Probably as many as casinos who admit people with their own sets of loaded dice.  And if they are willing to take on the failed debts, what are we to provide them in exchange?  Because no company does anything for free – nor should they.

Finally, if it’s not already obvious enough, AIG just went into the shitter, itself.  AIG is the nation’s and the world’s largest insurer.  So, not only did the Great White Hope of the Republican Free Market Solution just go the way of sheep intestine condoms, but so did a huge investment trust of the insurance industry.

Because the insurance industry is really just another expression of the financial marketplace, dealing in risk just like stock brokers do.  In order to insure people, they need reliable “value stores,” as is the phrase I keep hearing whilst paying attention to this crisis.  In other words, the insurance industry has no money to pay so long as the financial industry has no capital to give them.

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George Bush on Home Ownership

The irony here is that in his speech last night, ol’ George said there was too much foreign capital in the market, and now a foreign news service has audio of ol’ George telling people that there wasn’t enough in 2002.  Which is it?

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Bush Spreads the Blame

I was hanging out with some friends last night and didn’t get to comment on Bush’s speech concerning the financial crisis we face.  So, I’m taking the opportunity to do that now.

My initial thought on this speech is how amazing I find it that Bush is able to ascribe blame for the crisis as far and wide as foreign investments infusing too much capital into the markets, yet can find no reason to blame his own administration or Party for anything.  His speech left no stone unturned, no goat unscaped.  He blames foreign investors, banks – Fannie and Freddie, in particular – studiously unspecified borrowers and investors on Wall Street and Main Street. . . . but nothing is mentioned about the deregulation practices that led to this problem; nothing about an administration asleep at the switch for even the minor regulatory duties it was still responsible for.

He blames foreign investors for investing too much capital in the markets, thus forcing American markets to begin reckless mortgage investing practices.  This is a bit like saying “The Devil Made Me Do It.”  For a politician from a party avowedly dedicated to the notion of personal responsibility, this is a remarkably flippant abandonment of that principle.

And speaking as a person who is committed to the idea of community and inter-personal responsibility, I have to say that it’s just crap.  There was absolutely nothing forcing the hand of banks and lenders when they chose to commodotize mortgages – the real problem in the financial crisis.  It was when mortgages got bundled up and sold off as commodities that things got bad; it was when commodities started getting used as “value stores” like cash that things got dangerous and it was when the values of those commodities fell that liquidity dried up, which is where we are now.

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Forget the Exec Pay: Focus on What We’ll Pay!

A bit of sensible thinking on the bailout proposals for Wall Street from David Leonhardt at the New York Times.  The bottom line is that the $700bn we’re sinking into Wall Street’s bad debts doesn’t have to be nearly that much at the end of this process: the question is what price we buy the bad debt at and how quickly we can recoup loss.  Check out the article:

Economic Scene – Issue Is Payback, Not Bailout – NYTimes.com

The efforts to punish executives and help Main Street are based on a worthy instinct — to address not just the crisis but also larger problems like inequality. The best way to solve those problems, though, is to make sure the government spends as little possible on an effective bailout.

A few hundred billion dollars saved today will leave a few hundred billion tomorrow to spend on a better health care system, a saner energy policy and a healthier economy.

Trust me, I’m under no illusions that we’re going to be making money off this deal.  But the question in the end is how much we lose on it, and that’s what Congress needs to focus on.  That means figuring out at what value bad debts will be priced before we buy them and what oversight is in place to make sure things are working the way we expected them to.  Restoring our financial breakwalls removed by Republicans is a good idea, too, but only after these issues are worked out.

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Bailout: Something Foul’s Afoot. . .

Looks like there’s no crisis too big for John McCain to avoid playing politics with:

Political Radar: Stephanopoulos: McCain Holds Key to Administration’s Bailout Passage on Capitol Hill

ABC News’ George Stephanopoulos reports: If Republican presidential candidate Sen. John McCain doesn’t vote for the Bush administration’s $700 billion economic bailout plan, some Republican and Democratic congressional leaders tell ABC News the plan won’t pass.

“This is a huge crisis. We know, in the words of many  experts and mine, this is the greatest financial crisis since World War II. So to somehow, for the Democrats to say that their vote is going to be gauged on my vote frankly doesn’t do them a great deal of credit.”

Funny thing: no one knows how this plan will turn out – if indeed it passes – till well after the election.  I understand that Republicans are hoping to paint this as the Mother of All Tax and Spend Liberal Proposals, but until the bill passes and until it’s proven to be a failure, how does this not come across as the Mother of All Republican Deregulation Fuck Ups?

Am I missing something?

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Have You Seen This Email?

OM-freakin’-G, this is funny.

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McCain’s Narcissistic Reform Initiative

Talking Points Memo has both the video and the quote of Jonathan Alter critiquing John McCain’s reaction to the Keating Five scandal.  I’d like to amplify his comments slightly, if I could.  First, the quote:

Talking Points Memo

[Y]ou remember the Keating Five scandal that he was a part of, which, by the way, it’s crazy but there’s been very little about it in the press in the last few weeks. And McCain thinks he’s getting a hard time, he’s really getting a free ride on the fact that he was in the middle of the last great financial scandal in our country. But his reaction to that, you would have thought, would have been more regulation of the financial services industry. Instead he moved forward on campaign finance reform after being caught in that scandal, but did nothing – nothing – to try to prevent another savings and loan crisis from happening down the road. He was missing in action when it came to even learning the basic lessons of a scandal that he said taught him all kinds of things that he would never forget.

To put this another way, John McCain’s signature reform initiative was entirely narcissistic and self-flagellating.  The largest scandal in our nation’s financial history since the Great Depression, now dwarfed by our current crisis, meant nothing to his sense of reform.  He made no attempts whatsoever to reform the financial system that was at the root of the problem – indeed, he spent the rest of his time in Washington actively working against regulations that might have prevented our current crisis.  Rather, the important take-away from his experience with Keating and lobbyists was that getting involved with lobbyists might get you into trouble.