Tag: bailouts

Will Republicans Expand ObamaCare?

Back when the GOP was selecting its nominee for president last year, I warned my Republican friends that on ObamaCare, Donald Trump might be worse than Hillary Clinton:

Good ol’ partisanship would stop Hillary Clinton from expanding ObamaCare even a little. A faux opponent like Trump could co-opt congressional Republicans to expand it a lot.

I even quipped that a President Trump might sell out ObamaCare opponents for 10 feet of border wall.

It looks like my prediction was eerily accurate. Even as the House Republican leadership and President Trump claim they are moving legislation that would repeal and replace ObamaCare (it wouldn’t), Trump is offering to expand ObamaCare in return for Democratic cooperation in funding a new border wall.

ObamaCare requires participating insurers to offer more comprehensive coverage to low-income enrollees, with the understanding that Congress would compensate insurers for that added cost. The thing is, the Democratic Congress and president that enacted ObamaCare never appropriated funding for those so-called cost-sharing subsidies. President Obama initially recognized the lack of an appropriation, but then began issuing those subsidies anyway–because ObamaCare would have collapsed if he hadn’t.

By that time, Republicans had taken over the House of Representatives, and they sued the Obama administration in federal court for encroaching on Congress’ power of the purse by spending federal funds without an explicit appropriation. A federal judge sided with the House. She ruled that paying those cost-sharing subsidies “violates the Constitution,” and ordered that they stop, pending an appeal, which the Obama administration timely filed.

That was the state of play when President Trump took office. His administration now has three choices.

  1. It can declare that it agrees with the court’s ruling and enforce the court order. This would mean ending the illegal payments that are the only reason ObamaCare is still on the books. If Trump ends those illegal subsidies, it is likely that even more insurers will announce they are leaving the Exchanges. As I have written elsewhere, taking this step would create even more pressure on Congress to repeal ObamaCare, particularly the law’s community-rating price controls that are causing health insurance markets to collapse.
  2. It can appeal the lower court’s ruling. This is the strategy the Obama administration pursued. It would be an awkward step given that Trump’s attorney general Jeff Sessions and Secretary of Health and Human Services Tom Price have each stated they believe these payments are unconstitutional.
  3. It can ask Congress to appropriate the subsidies. This may be the most politically awkward option of all. It would mean the first legislative change that congressional Republicans and the Trump administration make to ObamaCare would not be to repeal it, but to expand it. Funding cost-sharing subsidies would mean Republicans would be providing more money for ObamaCare than a Democratic Congress did at the height of its power.

According to Reuters, the Trump administration has chosen option #3:

President Donald Trump put pressure on Democrats on Sunday as U.S. lawmakers worked to avoid a government shutdown, saying Obamacare would die without a cash infusion the White House has offered in exchange for their agreement to fund his border wall…

Spending legislation will require Democratic support to clear the Senate, and the White House says it has offered to include $7 billion in Obamacare subsidies to help low-income Americans pay for health insurance, if Democrats accept funding for the wall.

A 51-Percent Premium Hike Rescues ObamaCare In Pinal County

Demonstrator Ryan Thomas, a supporter of U.S. President Barack Obama's health-care law, the Affordable Care Act (ACA), holds an "ACA is here to Stay" sign after the U.S. Supreme Court ruled 6-3 to save Obamacare tax subsidies outside the Supreme Court in Washington, D.C., U.S., on Thursday, June 25, 2015. The U.S. Supreme Court upheld the nationwide tax subsidies that are a core component of President Barack Obama's health-care law rejecting a challenge that had threatened to gut the measure and undercut his legacy. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Ryan Thomas

Pinal County, Arizona was in danger of being the first second third fourth place where ObamaCare caused insurance markets to collapse. As of last month, every private health insurance company now selling ObamaCare coverage in the county announced it would no longer do so in 2017. Had that scenario come to pass, it would have tossed nearly 10,000 residents out of their Exchange plans and left them to buy ObamaCare coverage outside of the Exchange, with no taxpayer subsidies to make the coverage “affordable.” If they didn’t buy that unaffordable coverage, ObamaCare would still subject them to penalties, at least until the Secretary of Health and Human Services intervened.

It appears that Pinal County has avoided that fate. Blue Cross Blue Shield of Arizona has announced that, despite reservations, it will sell ObamaCare coverage in Pinal County next year. Pinal County now joins 13 other Arizona counties, one third of counties nationwide, and seven states that will have only one carrier in the Exchange.

Greeks Vote Against Euro and For Democracy

Greece’s parliamentary elections could reshape Europe. In voting for the radical left the Greek people have reinvigorated home rule and democracy across the continent.

Greece has been in economic crisis seemingly for eternity. Even in the Euro the system could not generate the growth necessary to repay the debt:  the economy was hamstrung by enervating work rules, corrupting political influences, profiteering economic cartels, and debilitating cultural norms.

The inevitable crisis hit in 2009. Athens couldn’t make debt payments or borrow at affordable rates. Nor could Greece devalue its currency to make its products more competitive. The European “Troika” (European Central Bank, European Commission, and International Monetary Fund) developed a painful rescue plan.

Syriza, meaning Coalition of the Radical Left, arose to challenge the two establishment parties. Headed by Alexis Tsipras, Syriza won 36.2 percent and 149 seats, two short of a majority, on Sunday.

Syriza offered dreamy unreality:  free health care and electricity along with food subsidies, pension increases, salary hikes, and more public sector jobs. Billions in new revenue is to magically appear.

Occupy Pennsylvania Avenue: How the Government’s Unconstitutional Actions Hurt the 99%

That’s the title of a new paper that Carl DeNigris and I just published in the Drake Law Review.  Here’s the abstract:

Economic freedom is the best tool man has ever had in the perpetual struggle against poverty. It allows every individual to employ their faculties to a multitude of opportunities, and it has fueled the economic growth that has lifted millions out of poverty in the last century alone. Moreover, it provides a path for individuals and communities to free themselves from coercive government policies that serve political elites and discrete political classes at the expense of the politically weak. Because of their relative political weakness, the poor and lower middle class tend to suffer the most from these inescapable power disparities.

Yet economic freedom — and ultimately, economic growth — is not self-sustaining. This tool of prosperity requires sound principles that provide a framework for cooperation and voluntary exchanges in a free society. Principles equally applied to all and beyond the arbitrary discretion of government actors; principles that provide a degree of certainty and predictability in an otherwise uncertain world. That is, economic freedom requires the rule of law, not men.

In this article, we discuss the corrosive effects that unconstitutional actions have on the rule of law, economic growth and, in turn, on the ability of the poor to improve their economic misfortune. We focus on the institutional dangers and adverse incentives that unconstitutional policies tend to create. These dangers are not just abstract or theoretical; this article shows how specific unconstitutional actions adversely affect the lives of poor Americans. And while Part IV shows that even constitutional violations by local governments can have disastrous effects, our central theme is that the federal government’s disregard for the U.S. Constitution has led to policies that kill jobs, stymie economic growth, and ultimately exacerbate the problems of those living in poverty.

The case studies we use to illustrate our argument are Obamacare, bailouts/crony capitalism, the Sarbanes-Oxley/Dodd-Frank financial regulations, and housing policy.  It’s truly stunning to see how the policies that the government pursues – unconstitutional ones at that – hurt the very people they’re designed to help.  Read the whole thing.

Geithner Favors Fannie Mae Debtholders over Taxpayers … Again

You have to give Treasury Secretary Tim Geithner some credit for spin: today the Treasury announced “Further Steps to Expedite Wind Down of Fannie Mae and Freddie Mac.” The only problem is that the steps announced largely put the taxpayer at greater risk in order to protect holders of Fannie and Freddie debt.

Essentially, the Treasury has amended its agreements with Fannie and Freddie so that the companies no longer have to pay a fixed dividend to the U.S. taxpayer, but instead “every dollar of profit” from the companies to the taxpayer. The problem is that the Government Sponsored Enterprises (GSE) have never had a year where their profits would have covered the dividend payments, so while we can debate if the taxpayer will recover anything from the GSEs, shifting to just collecting profits definitely means the taxpayer’s potential recoupment is lower.

The GSE’s regulator, the Federal Housing Finance Agency (FHFA) was at least a little more honest in its announcement of the changes, stating that, “as Fannie Mae and Freddie Mac shrink, the continued payment of a fixed dividend could have called into question the adequacy of the financial commitment contained in the PSPAs.”  Read “financial commitment” to mean protecting debtholders from loss.

How does the change protect debtholders over taxpayers? It reduces the ability of FHFA to place Fannie or Freddie into a receivership, under which FHFA could impose losses on creditors. Under Section 1145 of the Housing and Economic Recovery Act, FHFA has the discretion of appointing a receiver if one the GSEs displays an “inability to meet obligations,” which would include dividend payments. By essentially taking away that lever from FHFA, Treasury has greatly reduced any chance of a receivership. Sadly, I believe a receivership was the only thing that would force Congress to also deal with Fannie and Freddie. Treasury’s actions have been a massive win for the broken status quo.

Don’t let the rest of the Treasury announcement fool you. Yes, Treasury has both agreed to reduce the GSEs’ portfolios and to require the GSEs to submit an “annual taxpayer protection plan,” but both of these efforts are little more than fig-leafs to cover Treasury’s protection of GSE creditors at the expense of taxpayers. After all, the first commandment in the Geithner bible, as witnessed during the 2008 bailouts, is that debtholders shall take no losses, regardless of the expense to the taxpayer.

Europe’s Crisis Is Because of Too Much Government, Not the Euro Currency

The mess in Europe has been rather frustrating, largely because almost everybody is on the wrong side.

Some folks say they want “austerity,” but that’s largely a code word for higher taxes. They’re fighting against the people who say they want “growth,” but that’s generally a code word for more Keynesian spending.

So you can understand how this debate between higher taxes and higher spending is like nails on a chalkboard for someone who wants smaller government.

And then, to get me even more irritated, lots of people support bailouts because they supposedly are needed to save the euro currency.

When I ask these people why a default in, say, Greece threatens the euro, they look at me as if it’s the year 1491 and I’ve declared the earth isn’t flat.

So I’m delighted that the Wall Street Journal has published some wise observations by a leading French economist (an intellectual heir to Bastiat!), who shares my disdain for the current discussion. Here are some excerpts from Prof. Salin’s column, starting with his common-sense hypothesis.

…there is no “euro crisis.” The single currency doesn’t have to be “saved” or else explode. The present crisis is not a European monetary problem at all, but rather a debt problem in some countries—Greece, Spain and some others—that happen to be members of the euro zone. Specifically, these are public-debt problems, stemming from bad budget management by their governments. But there is no logical link between these countries’ fiscal situations and the functioning of the euro system.

Salin then looks at how the artificial link was created between the euro currency and the fiscal crisis, and he makes a very good analogy (and I think it’s good because I’ve made the same point) to a potential state-level bankruptcy in America.

The public-debt problem becomes a euro problem only insofar as governments arbitrarily decide that there must be some “European solidarity” inside the euro zone. But how does mutual participation in the same currency logically imply that spendthrift governments should get help from the others? When a state in the U.S. has a debt problem, one never hears that there is a “dollar crisis.” There is simply a problem of budget management in that state.

He then says a euro crisis is being created, but only because the European Central Bank has surrendered its independence and is conducting backdoor bailouts.

Because European politicians have decided to create an artificial link between national budget problems and the functioning of the euro system, they have now effectively created a “euro crisis.” To help out badly managed governments, the European Central Bank is now buying public bonds issued by these governments or supplying liquidity to support their failing banks. In so doing, the ECB is violating its own principles and introducing harmful distortions.

Last but not least, Salin warns that politicians are using the crisis as an excuse for more bad policy - sort of the European version of Mitchell’s Law, with one bad policy (excessive spending) being the precursor of an additional bad policy (centralization).

Politicians now argue that “saving the euro” will require not only propping up Europe’s irresponsible governments, but also centralizing decision-making. This is now the dominant opinion of politicians in Europe, France in particular. There are a few reasons why politicians in Paris might take that view. They might see themselves being in a similar situation as Greece in the near future, so all the schemes to “save the euro” could also be helpful to them shortly. They might also be looking to shift public attention away from France’s internal problems and toward the rest of Europe instead. It’s easier to complain about what one’s neighbors are doing than to tackle problems at home. France needs drastic tax cuts and far-reaching deregulation and labor-market liberalization. Much simpler to get the media worked up about the next “euro crisis” meeting with Angela Merkel.

This is a bit of a dry topic, but it has enormous implications since Europe already is a mess and the fiscal crisis sooner or later will spread to the supposedly prudent nations such as Germany and the Netherlands. And, thanks to entitlement programs, the United States isn’t that far behind.

So may as well enjoy some humor before the world falls apart, including this cartoon about bailouts to Europe from America, the parody video about Germany and downgrades, this cartoon about Greece deciding to stay in the euro, this “how the Greeks see Europe” map, and this cartoon about Obama’s approach to the European model.

P.S. Here’s a video narrated by a former Cato intern about the five lessons America should learn from the European fiscal crisis.

The States Are Already Getting Bailed Out

In today’s Wall Street Journal, Sen. Jim DeMint (R-SC) and Rep. Kevin Brady (R-TX) advise the states to get their fiscal houses in order instead of holding out hope for a bailout from federal taxpayers. That’s sound advice. However, the states already effectively get bailed out by federal taxpayers each and every year.

The first chart shows that the federal government has accounted for over a third of total state spending in recent years. The increase can be attributed to federal “stimulus” spending. The federal government’s share will retreat as the economy (hopefully) continues to strengthen and federal policymakers limit spending increases in the face of mounting debt. However, getting the federal government’s share of total state spending back to, say, 30 percent would be nothing to celebrate.

The post-stimulus decrease in Washington’s generosity to the states has state and local officials—and the special interests that ultimately benefit from the Beltway-to-State money laundering operation—concerned. Reporters typically relay these concerns to the public without adding any historical context. The following chart provides that context, and it indicates that the concern shouldn’t be that the states won’t be getting as much money; rather, the concern should be that the states have become dangerously reliant on federal money.

So here’s another suggestion for state and local officials. If you want to spend more money than Washington will give you, go out and tell your taxpayers that you want to increase their taxes to pay for it.

[See this Cato essay for more on why the federal government should cut aid to the states.]

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