Archive for October, 2010

Three Early Failures of Obamacare

October 5, 2010

We have barely seen the Obamacare Healthcare Plan go into effect and so far, there have already been three big failures.  I’m sure we’ll see many more as the plan is more widely implemented.

1.  Since they can’t raise rates for pre-existing conditions, the companies will just raise the rates for everyone.

One of the main points in Obamacare is that insurers cannot deny you coverage because of a pre-existing condition.  However, nothing in the legislation prevents the companies from raising rates on everyone in order to cover the people with pre-existing conditions.

2.  Insurance companies have decided to stop selling children only plans.

Rather than take on sick kids with pre-existing conditions when parents sign them up for child only plans, the insurers will just stop selling the coverage.  Talk about your backfires.

3.   McDonald’s will drop their partial policy for over 30,000 workers.

So, rather than allow McDonald’s to provide partial coverage to their part-time workers that covers doctor visits and basic medical care, Obamacare mandates that the company provides full coverage.  Instead of making this commitment, McDonald’s will just stop providing any coverage at all.  You could argue that McDonald’s is “evil” for choosing to keep their money, but you could also argue that government intervention is ruining a situation that is working.

I’m sure these cases are just the tip of the iceberg.  The healthcare companies and drug companies spent millions lobbying for the healthcare overhaul.  I’m sure there will be more problems like this that arise, and we won’t have any recourse unless we repeal all or portions of the law.

Hayek and Bailouts

October 5, 2010

I’m in the middle of reading The Road to Serfdom, by FA Hayek.  I’m on a part right now that talks about the role of government and the free market.

People now think that free market supporters want no regulation and financial anarchy.  This is especially true with the criticism of the Tea Party.

However, Hayek claims that laws are necessary and that there are two main points:

1.  The rules have to be predictable and known in advance.

2.  The rules have to be set with no regard of who they will benefit.  A law created to benefit a particular group will create imbalances.

Unfortunately, we actually have not violated rule #1 in our economic system today.  The rules are very predictable, that our government will bail out big corporations at the expense of the individual family.  This is predictable in all the wrong ways.

We have violated rule #2 and you would be hard pressed to find any legislation that does not seek to help one particular group.  The healthcare laws are supposed to help the uninsured.  The financial overhaul is supposed to benefit the consumer.  While the laws are well meaning, we know that they will not work because business will exploit the laws that they lobbied for in their favor.

As I read more of The Road to Serfdom, I’ll keep posting my thoughts.  It is not a very easy read (Hayek’s sentences last forever!) but the ideas that he was expressing in the 1940’s are as true today as they have ever been.

TARP Success?

October 5, 2010

Today, the Treasury Department declared that the government will only lose $29 billion from the TARP program.  This is being hailed as a huge success and that we saved the financial system and the economy, preventing a second Great Depression and barely losing any money.

I have some big problems with these statements.  First of all, most of the big banks that were infused with cash paid back that money within a year of the program starting.  How can a bank go from about to collapse to financially stable so quickly?

Think about Goldman, it received $10 billion from the government.  If they just took that money and invested it for a year in 3% government bonds, that’s $300 million!  Citi and Bank of America got $20 billion each.  That could turn to $600 million of pure profit.

Did the big financial institutions create a sense of panic, in order to get the government to step in and “save” them by taking over all their bad debts?  Did they know that this panic would lead the government create a web of regulations that stifles future competition?  Anytime banks and government come together, I have a feeling the banks are going to win.

Also, where did this money come from anyway?  We created $700 billion out of thin air, gave it to banks to earn interest on, took on their bad loans, and then they gave it back to the Treasury.   Will the government now put that money to rest?  Or will it eventually make it back into the economy.

And finally, $33 billion is still a lot of money.  We have just become desensitized to the number because we saw the $750 billion stimulus package and the $700 billion bailout.  $33 billion just seems like a drop in the bucket.

While the government claims the success of TARP, I find it hard to believe that it saved our economy and that the true cost was really that low.  We’re still mired in a stalled economy and the bad debt is still out there and has not been liquidated.  And with all the success of this bailout, business now knows that future bailouts will be sure to follow, allowing them to take more foolish risks and setting us up for even bigger failure.