Battle Shaping Up on Financial Reform

In a conversation last week, a member of the House Financial Services Committee told me that Democrats expect to get some Republican support for financial regulatory reform in the Senate. I don’t see it. And it appears that Paul Krugman agrees with me.

The White House is optimistic, because it believes that Republicans won’t want to be cast as allies of Wall Street. I’m not so sure.

Perhaps Democrats are simply stretching a political canvas in hopes that some Republicans will either add a few brushstrokes or just paint themselves into a corner. But back in December when the House passed the Wall Street Reform and Consumer Protection Act (summary) it received not a single Republican vote.

Then last week when the Senate Banking Committee approved the Restoring American Financial Stability Act (summary) it too received no Republican support. In recent interviews Republican Senator Bob Corker (TN) has stated his continued opposition to the committee’s reform plan and that he prefers to slow things down.

Where have we heard that before?

Last Sunday The New York Times reported that Wall Street and the financial industry, along with their business and conservative allies, were gearing up to spend “tens of millions of dollars” in a “campaign to scale back or block” Democratic financial reform plans. Still, they purport to favor reform.

Wall Street executives say that although they support increased regulation, the changes sought by Democrats could exacerbate the problems that emerged in the 2008 economic crisis rather than fix them. Among the targets of their criticism are the creation of a consumer fiscal protection agency, the establishment of a multibillion-dollar fund to head off bailouts of companies deemed “too big to fail,” and the regulation of derivatives as well as other high-risk trading instruments.

That wouldn’t seem to leave a whole lot of room for any real reform, though, would it?

There are actually two fights shaping up here. One is a political fight, foremost in the Senate. On that front all indications point to Republicans and Wall Street wanting to drag things out — appearing to “come to the table” and then walking away — while trying to ensure that neither substantive rules nor enforcement “teeth” make their way into a final package. And they’d prefer to keep postponing any action in hopes the public will tire of it all — or even turn it into a Democratic liability.

The other fight is over substance. Will enough specificity, rules and structural changes be put in place to make a real difference? And which ones? Will Wall Street be held accountable and made to pay to clean up the mess it created? Will we have learned the lessons of the Great Recession, of the dangers of the de-regulators and the fallacy of free market fundamentalism? Will we put in place strong consumer protections, as well as regulations that will help financial markets work in constructive rather than destructive ways?

For far too long the myopic, smug and rapacious financial elites have treated economic and regulatory policy as their private playground, as if the citizenry were incapable of understanding such complicated matters. Their paid economists and conservative pundits look to shroud matters in mystery.

But they are the ones who got it all wrong. And it’s not such a mystery after all. My next post will provide a compendium, of sorts, of useful links to resources and information to help us “bone up” for the financial regulatory reform battles ahead.


Medicare Part E?

Another part of health care reform:

The Class Act, a legacy of Senator Edward M. Kennedy (whose widow and son were on hand for the signing), sets up the first national government-run long-term care insurance program, which will be offered primarily through employers.


The Class Act does not require screening of applicants for health problems, so people who might not qualify for private long-term care insurance can enroll. Participants will pay monthly premiums; after a five-year vesting period, they receive benefits if they need care, whether they are 28-year-olds hurt in snowboard accidents or 88-year-olds with Parkinson’s disease.

You pay premiums, and after you’ve been doing that for years, if you get sick or injured, you get some help with your daily care, with tasks that will help people stay out of nursing homes.

Naturally, the private insurance industry is against this. They’d rather keep collecting high premiums from people with no other choices—surprise! According to the executive director of the American Association for Long-Term Care Insurance (i.e. a spokesman for private insurance):

“Inevitably, Class will morph into an entitlement program that’s a mandatory tax on all individuals,” he said. He calls it “Medicare Part E.”

By using the words “entitlement” and “mandatory tax,” this private insurer spokesman is trying to paint the program as inevitably unpopular. But “Medicare Part E” gets closer to the truth. Because Medicare is popular, remember? And if there’s one thing private insurers don’t want, it’s popular programs doing what they do without the uncertainty and abusive price hikes.

“Medicare Part E,” may sound scary to the insurance companies, but to most of us, it sounds pretty good.


No Longer a Pre-Existing Condition

When Nancy Pelosi said that, with the passage of health care reform, being a woman would no longer be a pre-existing condition, what did she mean?

The New York Times explains:

Until now, it has been perfectly legal in most states for companies selling individual health policies — for people who do not have group coverage through employers — to engage in “gender rating,” that is, charging women more than men for the same coverage, even for policies that do not include maternity care. The rationale was that women used the health care system more than men. But some companies charged women who did not smoke more than men who did, even though smokers have more risks. The differences in premiums, from 4 percent to 48 percent, according to a 2008 analysis by the law center, can add up to hundreds of dollars a year. The individual market is the one that many people turn to when they lose their jobs and their group coverage.

Insurers have also applied gender-rating to group coverage, but laws against sex discrimination in the workplace prevent employers from passing along the higher costs to their employees based on sex. Gender rating has taken a particular toll on smaller or midsize businesses with many women, like home-health care, child care and nonprofits. As a result, some businesses have been unable to offer health coverage or have been able to afford it only by using plans with very high deductibles.

In addition, individual policies often excluded maternity coverage, or charged much more for it. Now, gender rating is essentially outlawed, and policies must include maternity coverage, considered “an essential health benefit.”

It is breathtaking we lived under this system for so long, and that so many people were willing to fight change.


“It Is Time”

Right again, Mr. Herbert:

With the marathon effort to overhaul the health care system behind us, it is time for the Obama administration to move quickly and powerfully to the monumental task of putting Americans back to work.

Bob Herbert’s column today, titled The Magic Potion, is worth a full read. But here are some snips:

The just-say-no crowd will insist that we can’t afford a real effort to revitalize employment, that budget deficits are too high, that the economy will recover without additional government stimulus, that the president has used up most of his political capital, and that there isn’t much that government can do under any circumstances to create jobs.

- snip -

The recession is not over for the nearly 15 million people who are unemployed. Many of them have been out of work for longer than six months, a seeming eternity. Widespread joblessness and underemployment are threatening to become permanent features of the American landscape, corroding not just our standards of living but the very vibrancy of the American way of life.

- snip -

You can’t get back to a robust economy without putting Americans back to work. The economy needs to be rebuilt on a solid foundation of good jobs at good pay, and many of those jobs will have to come from thriving new industries. This is a long-term project that demands big-time government involvement. It will require the kind of commitment — over an even longer period of time — that President Obama and the Democrats in Congress gave to their health care initiative.

- snip -

What is needed are bold new initiatives on several fronts.

- snip -

The United States is a rich nation. To say that we cannot afford to do the things necessary to shore up the quality of our lives and establish a brighter future for coming generations is absurd. We always seem to have money for warfare and to bolster the interests of the monied classes.

One specific jobs plan Mr. Herbert does not mention is the Local Jobs for America Act introduced by Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee, which would immediately support one million public and private sector local jobs. Perhaps Chairman Miller should give Mr. Herbert a phone call on it — I’d imagine he’d be rather receptive.

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The First Loophole

And they’re off!

You didn’t have to be a cynic to think insurance companies would try to find loopholes in the health care fix. But I must confess, even I am a little surprised at their first stab at it. On the list of individual parts of the reform that would be hard for them, or for politicians pushing repeal, to take back, this one would rank pretty high.

Yup, the insurance companies went after kids. Specifically, they said that while the law said they couldn’t deny kids for having pre-existing conditions, they just didn’t have to sell insurance to the entire family of a sick child. No, really.

Insurance industry lawyer William Schiffbauer told the New York Times, “The fine print differs from the larger political message. If a company sells insurance, it will have to cover pre-existing conditions for children covered by the policy. But it does not have to sell to somebody with a pre-existing condition. And the insurer could increase premiums to cover the additional cost.’’

This did not go over so well with policymakers such as Nancy Pelosi and Health and Human Services Secretary Kathleen Sebelius.

And the insurance companies backed down. This time.

In a letter to Health and Human Services Secretary Kathleen Sebelius, the industry’s top lobbyist said insurers will accept new regulations to dispel uncertainty over a much-publicized guarantee that children with medical problems can get coverage starting this year.

Quick resolution of the doubts was a win for Obama — and a sign that the industry has no stomach for another war of words with a president who deftly used double-digit rate hikes by the companies to revive his sweeping health care legislation from near collapse in Congress.

“Health plans recognize the significant hardship that a family faces when they are unable to obtain coverage for a child with a pre-existing condition,” Karen Ignagni, president of America’s Health Insurance Plans, said in a letter to Sebelius. Ignagni said that the industry will “fully comply” with the regulations, expected within weeks.

Anyone have any bets on which provision the insurance companies will go after next?

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Bad News for Rich Tax Evaders

In addition to providing tax incentives for businesses hiring unemployed workers, a recently enacted jobs bill also strikes a major blow for tax fairness, and does so on a global scale.

As The New York Times’ Gretchen Morgenson reported on Sunday:

WITH all the hoopla over the health care bill, hardly anybody noticed that a job creation bill that President Obama signed on March 18 makes it much harder for United States citizens to avoid taxes by hiding money in overseas bank accounts.

For many years wealthy Americans as well as foreign investors have been able to pursue a host of schemes designed to shield their taxable incomes. The issue was highlighted last year when the giant Swiss-based bank UBS got caught over-zealously offering tax evasion services to rich U.S. customers. The Obama administration sought to have the bank disclose information that could help the Treasury collect illegally evaded taxes, something UBS and Switzerland resisted but then settled last summer. Recently the UBS tax fraud probe has spread to other countries.

Now, as Ms. Morgenson writes:

Congress is attacking some of these schemes, courtesy of interesting provisions aimed at curbing tax avoidance that legislators wrote into the new jobs bill, known as the Hiring Incentives to Restore Employment Act.

The most substantive section of the bill states that foreign financial institutions will face a 30 percent tax on their United States investments if they refuse to disclose information about accounts they have opened for American citizens in offshore jurisdictions. Another aspect of the bill eliminates a clever derivatives strategy used by investors to make their tax bills on dividends disappear.

Individuals have stashed an estimated $1 trillion in offshore accounts, the government says, allowing them to avoid up to $70 billion in taxes each year. The federal government estimates that abusive offshore schemes by corporations cost our Treasury an estimated $30 billion in tax revenue as well.

Under the new law foreign financial institutions that do not provide the U.S. with information on their American customers’ accounts would be hit with a 30 percent withholding tax on their earnings on U.S. investments. And that applies not only to banks, but to securities firms, hedge funds, private equity firms, commodities and derivatives traders as well.

And another massive tax avoidance scheme that’s been used for years by foreign investors also gets shut down.

The law also closes a gaping tax loophole that allows investors who receive dividends on companies’ shares to pay no taxes on them. The Government Accountability Office estimates that billions of dollars in potential tax revenue are lost each year through the use of so-called dividend equivalent strategies.

Under our laws, dividends paid by United States companies to foreign shareholders are supposed to be taxed at 30 percent. But for many years, banks have structured deals using derivatives that allow clients to turn dividends into “dividend equivalents.” Though these payments look like dividends, because they are embedded in a derivative they do not generate a tax.

Under the new law, the tricky derivative “swap” is treated as a dividend and taxed.

Kudos to the Congressional lawmakers responsible for this one. Or maybe it was those “little punk staffers.”

Major New Jobs Bill Gains 105 Co-Sponsors

In less than three weeks the Local Jobs for America Act, introduced by House Education and Labor Committee chairman Rep. George Miller (D-CA), has obtained 105 co-sponsors and more are expected as a national coalition effort reaches out to House members during the current two-week Congressional recess.

The bill, hailed as the most significant new piece of a Congressional jobs agenda, would provide direct funding to local governments to create, restore or save up to one million public and private jobs for the next two years. It has already received the strong support of many national organizations and policy advocates.

Following the historic passage of health care reform, the Congress will next need to turn its attention to jobs and the economy. With the Senate likely to focus first on financial regulatory reform, the House should be free to turn its attention to jobs legislation.

With the economy still weakened by persistent high rates of unemployment, and with state and local governments facing increasingly severe revenue shortfalls, endangering both public jobs and services, and many private sector jobs as well, the Local Jobs for America Act would:

Specifically, the Local Jobs for America Act invests:

* $75 billion over two years to local communities to hire vital staff
* Funding for 50,000 on-the-job private-sector training positions

The bill also includes provisions already approved by the House:

* $23 billion this year to help states support 250,000 education jobs
* $1.18 billion to put 5,500 law enforcement officers on the beat
* $500 million to retain, rehire, and hire firefighters

More specifics on the bill are detailed here by the House Education and Labor Committee.

The complete, current list of co-sponsors is available here.

If you don’t see your U.S. Representative listed as a co-sponsor yet, and you want to help support this legislation while Congress is in recess until April 12, go to this state-by-state House Member web page and follow the links to find your Representative and his or her home district office contact information. Ask them to join the growing list of co-sponsors of H.R. 4812, Congressman Miller’s Local Jobs for America Act.

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Interesting Things Around the Internet

  • Congressional incivility in historical perspective.
  • Via Atrios, the often overlooked point that cars cost money. That’s not just the purchase of a car, but gas, insurance, and so on. And the upshot is that, at least in many areas, it’s cheaper to live in the “expensive” housing in the middle of a city and not have to drive than it is to live out in the “cheaper” suburbs where you spend a lot on transportation. That’s important context when we’re talking about funding of public transit as well.
  • Not an outcome of health care reform, but a shift in our health care system nonetheless:

    As recently as 2005, more than two-thirds of medical practices were physician-owned — a share that had been relatively constant for many years, the Medical Group Management Association says. But within three years, that share dropped below 50 percent, and analysts say the slide has continued.

    For patients, the transformation in medicine is a mixed blessing. Ideally, bigger health care organizations can provide better, more coordinated care. But the intimacy of longstanding doctor-patient relationships may be going the way of the house call.

  • Elizabeth Warren remains awesome.
  • More on the new foreclosure program.

No Jobless Aid Vote Until April 12

As Mitchell has written, it’s unemployment insurance extension time again.

And once again, one Republican is coming forward to block itone is coming forward, but his party is with him.

In a statement, the National Employment Law Project says:

“It is unacceptable that Congress has, for a second time, failed to extend the existing federal benefits programs with so many people counting on this assistance. We have been down this road already and seen the turmoil it caused. Congress cannot continue to play games with people’s lives. They need to get the job done, now,” said Christine Owens, Executive Director of the National Employment Law Project.

“One million people are now newly at risk of losing benefits in April because of Congress’s failure to act, and 212,000 alone will lose benefits in the first week. It will be devastating if
Congress takes a two-week break with such significant business left unfinished. There’s no break in the crisis for unemployed workers. The House has passed an extension, and now the Senate needs to get it done before the program is slated to expire,” said Owens.

“The delay in the extension comes at great expense to jobless workers and the U.S. economy.
There are now 14.9 million unemployed Americans and long-term unemployment afflicts 6.1 million – over 40 percent of the unemployed. Over 11 million jobless workers are collecting some form of unemployment insurance, including nearly 5.7 million receiving extensions. There is much work to be done and workers simply cannot afford to go through this benefits renewal drama every month or two. Congress must approve this stopgap extension immediately, and then after the recess, extend the jobless programs through the end of 2010 so that we do not find ourselves in this situation again,” said Owens.

But Congress has gone on recess and will not be back until April 12.

Coburn is not called Dr. No for nothing—the list of bills he’s blocked over the years is truly epic. So maybe this is just Coburn being Coburn. Maybe it’s Senate Republicans extracting some blood because they’re made health care reform passed. They’ve made it abundantly clear they’re willing to hurt working people for their own political ends, and this could be that.

Whatever the reason is, the outcome is suffering around the country.

Tell your senator this must be priority one on April 12.

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Aid to Homeowners Coming?

In today’s NY Times, unemployment claims “fell more than expected.”

Except they really didn’t. It’s all part of the numbers guessing shell game:

The Labor Department said first-time claims dropped by 14,000 to a seasonally adjusted 442,000. That was below analysts’ estimate of 450,000, according to Thomson Reuters.

But most of the drop resulted from a change in the calculations the department makes to seasonally adjust the data, a Labor Department analyst said. Excluding the effect of the adjustments, claims would have fallen by 4,000.

Later in the article:

The number of people continuing to claim unemployment benefits, meanwhile, fell to 4.6 million.

But that does not include millions of people who are receiving extended benefits for up to 73 extra weeks, paid for by the federal government, on top of the 26 customarily provided by the states. Nearly 5.7 million people were on the extended benefit rolls for the week ended March 6, the latest data available. That is about 300,000 lower than the previous week. The extended benefit figures aren’t seasonally adjusted and are volatile from week to week.

All told, more than 11.1 million people are claiming unemployment benefits, the department said.

And as always, this doesn’t include the numbers of those still unemployed who have used up their benefits and those who were never eligible.

However – it sounds as though good news is coming for troubled homeowners.

From the NY Times:

The Obama administration on Friday will announce broad new initiatives to help troubled homeowners, potentially refinancing several million of them into fresh government-backed mortgages with lower payments.

Another element of the new program is meant to temporarily reduce the payments of borrowers who are unemployed and seeking a job. Additionally, the government will encourage lenders to write down the value of loans held by borrowers in modification programs.

The escalation in aid comes as the administration is under rising pressure from Congress to resolve the foreclosure crisis, which is straining the economy and putting millions of Americans at risk of losing their homes. But the new initiatives could well spur protests among those who have kept up their payments and are not in trouble.

This could be real help for those homeowners who are unemployed or underemployed and barely hanging on. Stay tuned.