Commentary Magazine


Topic: public utilities

Obama’s Economic Policy: Crony Capitalism

The so-called financial-reform bills now working their ways through each house of Congress are, like the health-care-reform bill before them, not about reform at all. They do not reform anything. Instead, they make the federal government the major player in a major industry. Just as the health-care-reform bill will transform private insurance companies into the equivalent of public utilities, whose every major decision needs government approval and whose returns on capital are more or less guaranteed, these bills would do the same for big banks and other financial institutions.

President Obama gave a typical speech yesterday in the same room where, a 140 years ago, Abraham Lincoln gave a most untypical speech. Well, perhaps typical for Lincoln: eloquent, tightly reasoned, profound, and consequential in its effect. (As an aside, I have spoken in the Great Hall of Cooper Union myself and had a powerful feeling that I was standing upon holy ground while I did so; Obama, I suspect, felt he was only adding to its sanctity.) Obama’s speech was typical in that it set up straw men, fearlessly knocked them down, assigned blame without evidence, told falsehoods while demanding that others stop lying, and asked for discussion as long as every discussant agrees with him. Everyone else and every other opinion is “illegitimate.”

Wall Street was hardly blameless regarding the financial crisis of 2008 and reforms are necessary to prevent the same things from happening again. Niall Ferguson and Ted Forstmann explain what’s needed in today’s Wall Street Journal. (In a nutshell: moving derivatives trading from back rooms to exchanges and limiting the leverage that banks can use.)  The Senate bill wouldn’t do that. Instead it would move most derivatives trading to exchanges but allow the chairman of the Commodity Futures Trading Commission to decide what derivatives can still be traded over the counter. Does anyone see there a hugely empowered federal official (not to mention a golden lobbying opportunity for banks and members of Congress alike)? Is a back room at the CFTC an improvement over a back room at Goldman Sachs?

And Fannie and Freddie? They were at the heart of the mortgage meltdown and political piggy banks that were so badly (and corruptly) regulated that they are likely to cost the taxpayers $400 billion when all is said and done. But neither of these bills even mentions them. Fannie and Freddie are classic examples of crony capitalism, where government and business are in bed together. Obama wants to expand that disastrous model to the likes of JPMorgan Chase and Goldman Sachs.

It is the business of business to take risk and seek profit. It is the business of government to regulate business to ensure that the public interest is not put at risk. That’s exactly what government failed to do before 2008. As Judge Richard Posner put it in his most recent book, The Crisis of Capitalist Democracy, “Calling bankers greedy for taking advantage of profit opportunities created by unsound government policies is like calling rich people greedy for allowing Medicare to reimburse their medical bills.”

The Obama administration’s ruthless pursuit of ever greater concentration of power in Washington — and calling it reform — just keeps getting scarier.

The so-called financial-reform bills now working their ways through each house of Congress are, like the health-care-reform bill before them, not about reform at all. They do not reform anything. Instead, they make the federal government the major player in a major industry. Just as the health-care-reform bill will transform private insurance companies into the equivalent of public utilities, whose every major decision needs government approval and whose returns on capital are more or less guaranteed, these bills would do the same for big banks and other financial institutions.

President Obama gave a typical speech yesterday in the same room where, a 140 years ago, Abraham Lincoln gave a most untypical speech. Well, perhaps typical for Lincoln: eloquent, tightly reasoned, profound, and consequential in its effect. (As an aside, I have spoken in the Great Hall of Cooper Union myself and had a powerful feeling that I was standing upon holy ground while I did so; Obama, I suspect, felt he was only adding to its sanctity.) Obama’s speech was typical in that it set up straw men, fearlessly knocked them down, assigned blame without evidence, told falsehoods while demanding that others stop lying, and asked for discussion as long as every discussant agrees with him. Everyone else and every other opinion is “illegitimate.”

Wall Street was hardly blameless regarding the financial crisis of 2008 and reforms are necessary to prevent the same things from happening again. Niall Ferguson and Ted Forstmann explain what’s needed in today’s Wall Street Journal. (In a nutshell: moving derivatives trading from back rooms to exchanges and limiting the leverage that banks can use.)  The Senate bill wouldn’t do that. Instead it would move most derivatives trading to exchanges but allow the chairman of the Commodity Futures Trading Commission to decide what derivatives can still be traded over the counter. Does anyone see there a hugely empowered federal official (not to mention a golden lobbying opportunity for banks and members of Congress alike)? Is a back room at the CFTC an improvement over a back room at Goldman Sachs?

And Fannie and Freddie? They were at the heart of the mortgage meltdown and political piggy banks that were so badly (and corruptly) regulated that they are likely to cost the taxpayers $400 billion when all is said and done. But neither of these bills even mentions them. Fannie and Freddie are classic examples of crony capitalism, where government and business are in bed together. Obama wants to expand that disastrous model to the likes of JPMorgan Chase and Goldman Sachs.

It is the business of business to take risk and seek profit. It is the business of government to regulate business to ensure that the public interest is not put at risk. That’s exactly what government failed to do before 2008. As Judge Richard Posner put it in his most recent book, The Crisis of Capitalist Democracy, “Calling bankers greedy for taking advantage of profit opportunities created by unsound government policies is like calling rich people greedy for allowing Medicare to reimburse their medical bills.”

The Obama administration’s ruthless pursuit of ever greater concentration of power in Washington — and calling it reform — just keeps getting scarier.

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The Latest Same ObamaCare Bill

Obama has put forth another version of ObamaCare, but it’s not even sufficient to be scored by the CBO. The CBO website explains:

This morning the Obama Administration released a description of its health care proposal, and CBO has already received several requests to provide a cost estimate for that proposal. We had not previously received the proposal, and we have just begun the process of reviewing it—a process that will take some time, given the complexity of the issues involved. Although the proposal reflects many elements that were included in the health care bills passed by the House and the Senate last year, it modifies many of those elements and also includes new ones. Moreover, preparing a cost estimate requires very detailed specifications of numerous provisions, and the materials that were released this morning do not provide sufficient detail on all of the provisions. Therefore, CBO cannot provide a cost estimate for the proposal without additional detail, and, even if such detail were provided, analyzing the proposal would be a time-consuming process that could not be completed this week.

We do have some idea what’s in it, however. Matt Continetti explains: “Obama’s new, improved plan is more expensive than the Senate bill, does not address the concerns of pro-life House Democrats over the Senate’s abortion language, maintains the tax exemption for the Democrats’ union friends, and will effectively turn insurance companies into heavily regulated public utilities.”

What we do know is that under ObamaCare’s latest incarnation, you really don’t get to keep your existing health-care plan. And we know that it seeks to federalize the regulation of the health-insurance industry. (“The big new idea in the president’s plan is to federalize regulation of health insurance, creating a Health Insurance Rate Authority to conduct ‘reviews of unreasonable rate increases and other unfair practices of insurance plans.’ This reflects the overall strategy to give more and more control over the health sector to Washington.”) And it seems that there are $136B worth of new taxes to be imposed on the people Obama said he’d never tax, namely those families making less than $250,000.

What we don’t know is why anyone who opposed the last version(s) of ObamaCare would accept this one. It is still a mammoth tax-and-spend bill and still seeks to federalize health care. If Nancy Pelosi has 218 votes for this, I’d be surprised. If Senate Democrats want to walk the plank for a retread of the bill that voters in Massachusetts sent Scott Brown to the Senate to oppose, I’d be surprised. But I suppose we’ll find out.

Obama has put forth another version of ObamaCare, but it’s not even sufficient to be scored by the CBO. The CBO website explains:

This morning the Obama Administration released a description of its health care proposal, and CBO has already received several requests to provide a cost estimate for that proposal. We had not previously received the proposal, and we have just begun the process of reviewing it—a process that will take some time, given the complexity of the issues involved. Although the proposal reflects many elements that were included in the health care bills passed by the House and the Senate last year, it modifies many of those elements and also includes new ones. Moreover, preparing a cost estimate requires very detailed specifications of numerous provisions, and the materials that were released this morning do not provide sufficient detail on all of the provisions. Therefore, CBO cannot provide a cost estimate for the proposal without additional detail, and, even if such detail were provided, analyzing the proposal would be a time-consuming process that could not be completed this week.

We do have some idea what’s in it, however. Matt Continetti explains: “Obama’s new, improved plan is more expensive than the Senate bill, does not address the concerns of pro-life House Democrats over the Senate’s abortion language, maintains the tax exemption for the Democrats’ union friends, and will effectively turn insurance companies into heavily regulated public utilities.”

What we do know is that under ObamaCare’s latest incarnation, you really don’t get to keep your existing health-care plan. And we know that it seeks to federalize the regulation of the health-insurance industry. (“The big new idea in the president’s plan is to federalize regulation of health insurance, creating a Health Insurance Rate Authority to conduct ‘reviews of unreasonable rate increases and other unfair practices of insurance plans.’ This reflects the overall strategy to give more and more control over the health sector to Washington.”) And it seems that there are $136B worth of new taxes to be imposed on the people Obama said he’d never tax, namely those families making less than $250,000.

What we don’t know is why anyone who opposed the last version(s) of ObamaCare would accept this one. It is still a mammoth tax-and-spend bill and still seeks to federalize health care. If Nancy Pelosi has 218 votes for this, I’d be surprised. If Senate Democrats want to walk the plank for a retread of the bill that voters in Massachusetts sent Scott Brown to the Senate to oppose, I’d be surprised. But I suppose we’ll find out.

Read Less