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Saturday, June 27, 2009

Health Care Reform’s Moment Arrives — Again

Kevin Sack in NYT 6/19/09 makes interesting observations about the challenges of implementing Health Care reform.

What separates this year’s initiative from past health care expansions is that it would attempt to address the system’s shortcomings in cost, access and quality all at once. It would do so with intricately interlocking components aimed at making health care affordable, ending discriminatory insurance practices and redirecting treatment toward prevention.

Whether any individual piece will produce its intended savings or improvements is impossible to tell; when judging how they might work in concert, the uncertainty is compounded.

Seeking broad popular support, the president and congressional leaders have played within the 40-yard lines of the health policy spectrum. Those who favor a single-payer, government-run insurance system have been marginalized, along with those who would unleash the system to the free market.

Mr. Obama and the Democrats began by using the stimulus package to direct new money toward the computerization of health records and research on the effectiveness of medical procedures. In the legislation now being considered, there is broad Democratic consensus on mandating that almost all Americans have coverage, expanding eligibility for Medicaid, subsidizing insurance for the working poor, establishing an insurance marketing exchange and requiring insurers to cover those with pre-existing conditions.

But there are profound disagreements on other proposals, including the Medicare cuts, tax increases to pay for the subsidies, and the public plan option, which insurers regard as a threat to their existence. The chairman of the Senate Finance Committee, Max Baucus, Democrat of Montana, has been searching for a compromise that might attract Republican support.

Although the Democrats may be able to pass bills without Republican votes, bipartisanship is important to Mr. Obama because it would set the tone for the rest of his term. The essential tension of the coming few weeks will revolve around whether the Democrats can maintain momentum while working to satisfy Republican concerns. Mr. Obama is leaving the nitty-gritty to Congress while pronouncing that he is “open to” particular compromises, like substituting member-owned insurance cooperatives for the public plan.

At a comparable stage of the Clinton health care push of 1993, “it seemed that health care reform was unstoppable,” former Senator Tom Daschle has written. The Clinton administration’s subsequent tactical failures have become the antimatter of Mr. Obama’s strategy, persuading him to move quickly, stay out of the weeds and share ownership with Congress.

In addressing the doctors this week, Mr. Obama argued that whatever the cost of revamping the system, “the cost of inaction is greater.” But he also made clear that he understood the most enduring lesson from past efforts.
“As clear as it is that our system badly needs reform,” he said, “reform is not inevitable.”

Thursday, June 25, 2009

Fed Chairman Target of GOP Attack

WASHINGTON — In a peculiar role reversal, Republican lawmakers are mounting a ferocious attack on the Republican chairman of the Federal Reserve, while Democrats are coming to his defense.

Ben S. Bernanke, the Fed chairman, will be grilled on Thursday by the House Oversight and Government Reform Committee about his role in orchestrating Bank of America’s controversial takeover of Merrill Lynch late last year.

The House investigation is heavily colored by partisanship. President Obama is proposing to give the Federal Reserve formidable new powers to regulate giant institutions, including Bank of America, that could pose risks to the financial system.

Republicans, along with some Democrats, argue that the Fed already has too much power.

Unhappy about the huge bank bailouts that the Fed arranged with the Treasury Department during the Bush administration, many Republicans are even more displeased that Mr. Bernanke is now working hand-in-glove with the Obama administration.

The result is a set of dueling narratives and agendas, all of which will be on full display when Mr. Bernanke testifies on Thursday. Henry M. Paulson Jr., the former Treasury secretary, is expected to testify next month.

A memo written by Republicans, citing e-mail and internal Fed documents that were subpoenaed from the central bank, is building a case that Mr. Bernanke was a Machiavellian autocrat who forced Bank of America to go through with a disastrous merger that it no longer wanted to complete.

But the committee’s Democratic chairman, Representative Edolphus Towns of New York, is investigating whether Bank of America executives were engaged in an elaborate shakedown, demanding that the Fed and the Treasury provide more than $100 billion in fresh capital and guarantees against the losses that were building up at Merrill Lynch.

Republicans are circulating newly unearthed e-mail that suggests Fed officials kept the Securities and Exchange Commission and the Office of the Comptroller of the Currency in the dark about its efforts to keep the merger alive by informally reassuring Kenneth D. Lewis, the chief executive of Bank of America, that the government would provide the bank with extra help if it was needed.

By that point, however, the S.E.C. had abdicated to the Fed its authority over investment banks like Merrill Lynch. And the comptroller’s office was responsible for overseeing commercial banks, but not the umbrella holding company.

The new e-mail message reinforces the impression that Fed officials badly wanted Bank of America to complete the Merrill takeover, despite Merrill’s spiraling losses.

But other e-mail between Fed officials shows that Bank of America executives were pressuring the Fed and the Treasury up to the last minute on Dec. 30, when the deal was scheduled to close, to provide written promises that the government would provide billions in new capital and other protection.

The documents show that Fed officials refused to provide any specific commitments, though a top official did assure the bank’s chief financial officer, Joe L. Price, that the government would provide help, if needed.

“I told Joe that we were not yet in a position to proffer a package, but we were working toward something that works for them and for us,” wrote Kevin M. Warsh, a Fed governor, in an e-mail message to a senior Treasury official on Dec. 30.

A little more than two weeks later, the Fed and the Treasury indeed provided huge assistance — $20 billion in new capital and guarantees against losses for $118 billion in Merrill Lynch assets — over the protests of Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, whose agency would be the guarantor.

Mr. Lewis told the oversight committee on June 11 that Fed and Treasury officials pressured him to keep the deal alive, even threatening his job and those of his board members. Mr. Lewis testified early this year to the New York attorney general that Fed and Treasury officials urged Bank of America not to disclose Merrill’s losses, but he retreated from that assertion at the June 11 hearing.

Fed officials have acknowledged that they warned Mr. Lewis that he would be on shaky legal ground if he tried to back out of the deal by invoking a “material adverse change” clause.

But Fed officials insist they never threatened to oust the bank’s executives if they scuttled the deal. In e-mail disclosed before the last hearing, Mr. Bernanke referred to Mr. Lewis’s qualms about the merger as a “bargaining chip” to get more help from the government.

Despite Mr. Bernanke’s Republican roots, and the fact that President Bush nominated him to be Fed chairman, the Republican memo prepared for the hearing on Thursday describes Mr. Bernanke as a champion of government intrusion and an ally of President Obama.

“Given the Obama administration’s proposal to vastly expand the Federal Reserve’s financial regulatory power over virtually any economic actor,” it warned, “the Fed’s willingness to keep key regulatory partners such as the S.E.C. and O.C.C. in the dark raises important questions.”

But Kevin Mukri, a spokesman for the Office of the Comptroller of the Currency, said on Wednesday that Fed officials had in fact kept the agency informed about Bank of America’s situation.

Report Points to Risks of Merit Pay for Teachers
retrieved June 6, 2009

Published Online: May 14, 2009
Report Points to Risks of Merit Pay for Teachers
By Debra Viadero

Merit-pay plans for teachers may be growing more popular with politicians, but a report released today argues that such compensation plans are rarely used in the private sector and can sometimes bring about unintended negative consequences.
During the 2008 presidential campaign, both President Barack Obama and his rival, U.S. Sen. John McCain, endorsed the idea of performance-incentive plans that would tie teachers’ pay to their students’ scores on standardized tests. Mr. Obama’s proposed fiscal 2010 budget, in fact, calls for boosting spending on the Teacher Incentive Fund, a program that awards grants to school districts to devise performance-pay programs, to $517.3 million, up from $97.3 million in the current year.
But in "Teachers, Performance Pay, and Accountability," the report published today by the Washington-based Economic Policy Institute, researchers point out that such pay plans are less common in the private sector than their proponents sometimes claim. According to the report, only one in seven workers in the private sector is covered by bonus or merit-pay plans, and most of those workers are in the real estate, finance, and insurance fields.
"There has been modest growth in the U.S. of bonuses,” said John S. Heywood, the University of Wisconsin-Milwaukee economist who co-wrote that part of the study, "but a lot of bonuses may be poorly related to individual performance."
Workers might get a bonus, for instance, if their entire department or organization has a profitable year or because employers use them as a substitute for paying health benefits, according to Mr. Heywood.
But compensation plans that use formulas or indicators to reward employees on the basis of their productivity—which are among the kinds of programs that growing numbers of policymakers have in mind for teachers—are less common, and may even be declining, according to Mr. Heywood and Scott J. Adams, the other author on that section of the report. Mr. Adams is an associate professor of economics at UW-Milwaukee.

'More Harm Than Good'

The two researchers based their conclusions on recent data from several large-scale or nationally representative surveys, including the National Compensation Survey, the National Longitudinal Survey of Youth, the Panel Study of Income Dynamics, and the National Study of the Changing Workforce .
The study finds, for example, that in the 2005 National Compensation Survey, only 6 percent of workers received regular, output-based payments in the strictest sense. Even the growing number of bonuses that are not linked to specific measures of productivity account for just 2 percent to 3 percent of overall pay, the report says.
Moreover, the report says, research on the private sectors’ experiences with pay-for-performance schemes suggests that they sometimes yield unproductive results.
"A general lesson from this part of the economy is that when you have jobs where it’s very hard to identify all the dimensions of productivity, and when it’s hard to measure all the individual contributions of productivity, formulaic pay plans tend to be suspect and to do more harm than good," said Mr. Heywood.
Part of the problem, explains EPI economist Richard Rothstein in the second half of the report, is that pay-for-performance plans based on narrow indicators often lead to unintended, negative consequences—sometimes because workers game the system or sometimes because the measures themselves induce perverse incentives.

Average Performance Improves

For instance, he writes, when the Soviet Union, before its collapse, set targets for the number of shoes its factories should produce, manufacturers responded by making larger numbers of smaller shoes. They may have saved on leather, but the shoes were too small to be of any use to consumers.
Likewise, in the United States, researchers have documented instances in which the advent of health-care "report cards," which report mortality rates on a hospital-by-hospital basis, led some providers to decline to treat more difficult, severely ill patients. Mr. Rothstein says similar consequences have resulted when police departments set ticket quotas or when television stations conduct promotions that artificially boost their ratings during "sweeps weeks," so that they could set their advertising rates higher.
"And, of course, we saw what happened with the stock market collapse," Mr. Rothstein added.
Yet, by the same token, Mr. Rothstein also concludes, studies show that accountability systems based on narrow performance measures can nonetheless improve average overall performance, even as they result in some perverse consequences.
In education, though, Mr. Rothstein maintains "most policymakers who now promote performance incentives and accountability, and scholars who analyze them, seem mostly oblivious to the extensive literature in economics and management theory documenting the inevitable corruption of quantitative indicators and the perverse consequences of performance incentives that rely on such indicators."
While he did not have time to read the report or make a judgment on it, Michael J. Podgursky, an economics professor from the University of Missouri, Columbia, who has studied teacher pay-for-performance plans, noted that lessons for education from such efforts in the private sector may be limited, because most such workers do not have tenure, as teachers do. Private-sector employers, particularly those whose workers are not members of unions, may not need to spur motivation when employees know they can be fired at will.
The EPI report is the first of three on teacher merit-pay programs that are intended to add context to current debates over such pay-for-performance plans.

Thursday, June 11, 2009

TARP early payback a cop out on regulatory prevention

NYT: 6/9/09. The bank holding companies, among them American Express, Goldman Sachs, JPMorgan Chase and Morgan Stanley, plan to return a combined $68.3 billion of previously granted TARP money. That represents more than a quarter of the federal bailout money that the nation’s banks have received since last October, when many feared that failures might cascade through the industry.

But the decision to allow the banks to exit the Troubled Asset Relief Program, or TARP, also ushered in a new, and potentially risky, phase of the banking crisis. Letting the lenders out now — earlier than many had envisioned, and without the industry reforms some consider necessary to prevent future crises — raises many sobering questions for policy makers, bankers and taxpayers.

The program was aimed at purchasing assets and equity from banks to strengthen them and encourage them to expand lending during a tightening credit squeeze. But after banks return the TARP money, the administration will forfeit much of its leverage over them. With that loss goes a rare opportunity to overhaul the industry. The administration’s ability to push institutions to purge themselves quickly of bad assets and do more to help hard-pressed homeowners will be diminished.
Of even deeper concern is the running trouble inside the banking industry. Despite tentative signs of revival, many banks remain fragile. Four of the nation’s five largest lenders, including Citigroup and Bank of America, were not allowed to return their bailout funds.

Some analysts worry that financial institutions that repay bailout money now may turn to Washington again if the economy worsens and losses overwhelm banks. One of the most vexing problems of the credit crisis — how to rid banks of their troubled mortgage investments — remains unresolved.

The banks are eager to escape TARP and the restrictions that come with it, particularly the limits on how much they can pay their 25 most highly compensated workers. (Even so, the Obama administration plans to propose guidelines on executive compensation for the broader industry as early as Wednesday.)
Yet even banks that return taxpayers’ money will remain dependent on other forms of government aid. Among them are enhanced deposit insurance, incentive payments to modify home mortgages and federal guarantees on bonds that banks sell to raise capital.

“They may need the government’s money to get through this storm,” Christopher Whalen, a managing partner at Institutional Risk Analytics, said of the banks. “If the banks have to come back and ask for more money in a few months, I don’t think the response from Washington will be too kind.”

Taxpayers — many of whom probably never imagined that banks would return their bailout money so soon, if ever —stand to make several billion dollars from their investment in the 10 banks. So far, the Treasury has collected about $1.8 billion in interest payments. It also might reap as much as $4.6 billion as the banks seek to expunge other government investments, known as warrants.
The first round of repayments will free up billions of dollars that the administration can then funnel to other troubled banks and companies without having to return to Congress for more money.

But homeowners and consumers are unlikely to benefit if banks repay their TARP funds en masse. Banks are giving back money that might otherwise be used to make loans.
The announcement on Tuesday underscored the stark dividing line across the banking industry. On one side are big banks now considered healthy enough to forgo their TARP money. On the other side are those considered too weak to go without it. Still, some of those weaker banks may be allowed to repay the money soon.
Mr. Obama, in remarks on Tuesday in the East Room of the White House, stopped short of declaring the crisis over. And the president, who has been harshly critical of multimillion-dollar bonuses for Wall Street executives, had a message for the banks that were returning the money.

“I also want to say: the return of these funds does not provide forgiveness for past excesses or permission for future misdeeds,” he said.
The Treasury did not name the banks, but the institutions quickly acknowledged the decision in a barrage of press releases on Tuesday morning. Morgan Stanley was among the first out with the news. American Express, Bank of New York Mellon, the BB& T Corporation, Capital One Financial, JP Morgan Chase, Northern Trust, the State Street Corporation and U.S. Bancorp soon followed. Goldman Sachs, which had pressed hard to repay the money, waited nearly two hours before issuing its release.

Who's Responsible For The Debt?

Overwhelmingly: the GOP and Bush, a fact the vast majority of the right simply ignored for the past eight years. David Leonhardt lays out the facts that Glenn Reynolds and his fellow partisans keep denying

About 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt.

Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.
About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.

If the analysis is extended further into the future, well beyond 2012, the Obama agenda accounts for only a slightly higher share of the projected deficits.
It is not Obama's debt - or, rather, he owns about 10 percent of it. It's Bush's. And like everything Bush did, he left the wreckage for others to handle after he left the stage. And the bribing, war-making, spending and borrowing didn't even win him any durable popularity. They sold this country, its reputation and its treasure for a one-off re-election.

2000 Early downturn -291 Bil
Bush Policies -673
Current recession -479
Bailout -185
Current programs -282
Simulus -145
Obama programs - 56
Current est. -1215