Tuesday, May 18, 2010

Democrats are Wrong, but Republicans are Wronger, and the Senate's Wrongest

There's nothing more fun in politics than pointing out the other side's hypocrisies. Although this does little to further intellectual inquiry, it makes for great political theater. In comparing healthcare and market reform, I will attempt to provide the facade of doing both.
I'm of the personal opinion that Chris Dodd's reform package is about the best you could expect of the Senate. While not perfect, it has some important components. The one component Republicans contend it lacks is eliminating the concept of 'Too Big to Fail.' What's interesting is that few (if any) Republicans are pushing for size restrictions. Rather, they clamor for a provision that says we will not bail out any financial institutions in the future - thus eliminating the moral hazard created by our rush to mollify AGI's asshattery as the sky's falling down.
This pie in the sky fancy is about as disingenuous as the healthcare budget numbers Democrats were peddling earlier this year. A quick recap of what's bothersome: the current tax exemption for health insurance means that, as a general rule, we have an incentive to overconsume health insurance. This is why you end up with the so-called 'gold-plated' health insurance policies. The Senate was too scared to tackle this issue today, and instead wrote in the bill that they would be taxed starting in the year 2018. This tax was then used to calculate the long-term budget impacts of the healthcare bill.
I call this disingenuous because it doesn't take a policy degree to guess the likely future. Come 2017, Congress will come under pressure to amend the legislation and prevent new taxes, it will, and the financial solvency touted by Obama will be thrown out the window.
The same applies with McConnell going to the Senate floor and screaming about the 'institutionalization of bailouts.' It really doesn't matter how much power you give regulators - when shit hits the fan, they'll be on Capitol Hill demanding the power to prevent Citigroup from going under, and (assuming the President has a lick of sense) it will be done. When faced with the prospect of disaster, policy will be amended (regardless of long-term consequences).
I may be giving McConnell too much credit here in pretending he's merely disingenuous - he's lying to advance his party's standing while hurting America. When you look at what happens under the Dodd bill, no institution is saved. The government may take it over and chop it up into little pieces, but it is an entirely different company in which the stockholders lose their shirts. And that's really the crux of the matter - when you understand you'll lose your investment if a company goes under, you'll either search for a safer investment or demand a greater rate of return. Which is what this bill does. Which makes McConnell wrong. Again. Upon review, nothing too earth-shattering in this paragraph.
I still contend derivatives trading contributes absolutely nothing to the economy.

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