22 May, 2014

Too Big To Fail

"Federal funds earmarked to offset
Affordable Care Act insurer losses."
The Los Angeles Times
21 May, 2014
"The Obama administration has quietly adjusted key provisions of its signature healthcare law to potentially make billions of additional taxpayer dollars available to the insurance industry if companies providing coverage through the Affordable Care Act lose money.

The move was buried in hundreds of pages of new regulations issued late last week. It comes as part of an intensive administration effort to hold down premium increases for next year, a top priority for the White House as the rates will be announced ahead of this fall's congressional elections."
So starts the article of The Los Angeles Times, and conservatives immediately started to criticize treating the insurance companies as "too big to fail" as part of a blatant attempt to salvage the political careers of the president's party. If insurance companies have joined the banks and auto makers as being too big to fail, which industries will be next in line? Are there any major corporations that aren't too big to fail, or are we possibly missing something more subtle behind the idea?

After all, the conservatives really don't have a valid argument against rescuing companies deemed "too big to fail." George W. Bush did it first. (Although some conservatives are trying to disown this by stating that he was not a conservative - or not conservative enough.) The democrats, quick to criticize Bush's bailout as proof of the Republicans being the party of the rich, lost their ability to use that argument when Obama not only did the same, but gave away even more money and added the auto industry in the mix. Now the Democrat administration is funnelling money to the largest insurance companies in the nation. I think one question that should be asked is, exactly what isn't too big to fail? Then again, maybe we're being tricked into looking in the wrong place.

Don't get me wrong, I do believe that the financial institutions and the insurance companies have their share of the blame. The financial institutions created the derivatives market and the credit default swaps that turned bad loans into an international financial crisis. The insurance companies advocated for the Affordable Care Act. However, there is another player whom we frequently criticize, but about whom we don't seem to think when we use the term "too big to fail."

I am referring to the federal government. 

It was the federal government which mandated that financial institutions make loans "more available" to those who couldn't afford it. It was the federal government which failed in its role of monitoring and regulating those financial institutions when they started making very risky investments based on those already risky loans. (Maybe that failure was caused by the fact that the government routinely appoints leaders from those same financial institutions to head up the monitoring and regulating.) Was it just the financial institutions that were bailed out, or was the trillions of dollars funnelled to them also a bail out of a government seeking to cover up its failures in the time leading up to the economic collapse?

Now we have this guarantee against losses for insurance companies in regard to the Affordable Care Act. These insurance companies are not on the verge of failure, this guarantee is to offset an inevitable increase in consumer insurance premiums until after an election. Why do this? It is because those running the  government can't be seen to have failed in regard to the Affordable Care Act, just as neither Democrats nor Republicans could be seen to have failed in regard to monitoring and regulating the financial institutions. 

When we complain about the idea of businesses being bailed out by the government because they are deemed "too big to fail," let's not forget that these bail outs are also for a government, regardless of the party in charge, that deems itself too big to even appear to fail. One of the quips that was used when the banks were being bailed out was that, instead of being too big to fail, they might be too big to succeed. I think that also applies to government.

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