Signing Day Message

I'm writing to you on a great day for America.

This morning, I gathered with members of Congress, my administration, and hardworking volunteers from every part of the country to sign comprehensive health care reform into law. Thanks to the immeasurable efforts of so many, the dream of reform is now a reality.

The bill I just signed puts Americans in charge of our own health care by enacting three key changes:

It establishes the toughest patient protections in history.

It guarantees all Americans affordable health insurance options, extending coverage to 32 million who are currently uninsured.

And it reduces the cost of care -- cutting over 1 trillion dollars from the federal deficit over the next two decades.

To ensure a successful, stable transition, many of these changes will phase into full effect over the next several years.

But for millions of Americans, many of the benefits of reform will begin this year -- some even taking effect this afternoon. Here are just a few examples:

Small businesses will receive significant tax cuts, this year, to help them afford health coverage for all their employees.

Seniors will receive a rebate to reduce drug costs not yet covered under Medicare.

Young people will be allowed coverage under their parents' plan until the age of 26.

Early retirees will receive help to reduce premium costs.

Children will be protected against discrimination on the basis of medical history.

Uninsured Americans with pre-existing conditions can join a special high-risk pool to get the coverage they need, starting in just 90 days.

Insured Americans will be protected from seeing their insurance revoked when they get sick, or facing restrictive annual limits on the care they receive.

All Americans will benefit from significant new investments to train primary care doctors, nurses, and public health professionals, and the creation of state-level consumer assistance programs to help all patients understand and defend our new rights.

As I've said many times, and as I know to be true, this astounding victory could not have been achieved without your tireless efforts.

So as we celebrate this great day, I want to invite you to add your name where it belongs: alongside mine as a co-signer of this historic legislation. Organizing for America will record the names of co-signers as a permanent commemoration of those who came together to make this moment possible -- all of you who refused to give up until the dream of many generations for affordable, quality care for all Americans was finally fulfilled.

So, if you haven't yet, please add your name as a proud health care reform co-signer today:

http://my.barackobama.com/cosigner

Please accept my thanks for your voice, for your courage, and for your indispensable partnership in the great work of creating change.

History, and I, are in your debt.

President Barack Obama

"Barack Obama"

For Consumers, Clarity on Health Care Changes

By TARA SIEGEL BERNARD
American consumers, who spent a year watching Congress scratch and claw over sweeping health care legislation, can now try to figure out what the overhaul would mean for them.

The uninsured are clearly the biggest beneficiaries of the legislation, which would extend the health care safety net for the lowest-income Americans.

The legislation is meant to provide coverage for as many as 32 million people who have been shut out of the market — whether because insurers deem them too sick or because they cannot afford ever-rising insurance premiums.

For people already covered by a large employer — most Americans, in other words — the effect would not be as significant. And yet, just about everyone might benefit from tighter insurance regulations.

“We think it’s a big step forward,” said Bill Vaughan, a policy analyst at Consumers Union. “It’s going to provide a peace of mind that many Americans who really want or need health insurance will always be able to get a quality product at a reasonable price regardless of their health or financial situation.”

There would be costs to consumers, too. Affluent families would be required to pay additional taxes. Most Americans would be required to have health insurance and face federal penalties if they do not buy it. And it is still unclear what effect, if any, the legislation would have on rising out-of-pocket medical costs and premiums.

But there is no question that the legislation should benefit consumers in various ways. Beginning in 2014, for example, many employers — those with 50 or more workers — could face federal fines for not providing insurance coverage. Several of the other changes would take effect much sooner.

Six months after the legislation is enacted, many plans would be prohibited from placing lifetime limits on medical coverage, and they could not cancel the policies of people who fall ill. Children with pre-existing conditions could not be denied coverage.

And dependent children up to age 26 would be eligible for coverage under their parents’ plans — instead of the current state-by-state rules that often cut off coverage for children at 18 or 19.

And within three months of the law’s taking effect, people who have been locked out of the insurance market because of a pre-existing condition would be eligible for subsidized coverage through a new high-risk insurance program.

That special coverage would continue until the legislation’s engine kicks into a higher gear in 2014, when coverage would be extended to a wider part of the population through Medicaid and new state-run insurance exchanges.

Those exchanges, or marketplaces, are meant to provide much more competitive, consumer-friendly online shopping centers of private insurance for people who are not able to obtain coverage through an employer.

In 2014, people with pre-existing conditions could no longer be denied insurance, all lifetime and annual limits on coverage would be eliminated and new policies would be required to meet higher benefit standards.

Even sooner, in 2013, affluent families with annual income above $250,000 would be required to pay an additional 3.8 percent tax on their investment income, while contributing more to the Medicare program from their payroll taxes. And eventually, the most expensive insurance policies would be subject to a new tax.

Here is a look at some of the main ways the health care overhaul might affect household budgets.

The Uninsured

Although most Americans who do not obtain health insurance would face a federal penalty starting in 2014, many experts question how strict the enforcement of that penalty would actually be.

The first year, consumers who did not have insurance would owe $95, or 1 percent of income, whichever is greater. But the penalty would subsequently rise, reaching $695, or 2 percent of income.

Families who fall below the income-tax filing thresholds would not owe anything. Nor would people who cannot find a policy that costs less than 8 percent of their income, said Sara R. Collins, a vice president at the Commonwealth Fund, an independent nonprofit research group.

EXPANDED MEDICAID More lower-income individuals under the age of 65 would be covered by Medicaid, the federal health insurance plan for the poor. Under the new rules, households with income up to 133 percent of the federal poverty level, or about $29,327 for a family of four, would be eligible.

EXCHANGES AND SUBSIDIES Most other uninsured people would be required to buy insurance through one of the new state-run insurance exchanges. People with incomes of more than 133 percent of the poverty level but less than 400 percent (that’s $29,327 to $88,200 for a family of four) would be eligible for premium subsidies through the exchanges.

Premiums would also be capped at a percentage of income, ranging from 3 percent of income to as much as 9.5 percent.

EMPLOYMENT FLEXIBILITY The exchanges would also help people who lose their jobs, quit or decide to start their own businesses.

“If you lose your employer-related insurance, you will be able to move seamlessly into the exchange,” said Timothy Stoltzfus Jost, a professor at the Washington and Lee University School of Law.

Moreover, people of any age who cannot find a plan that costs less than 8 percent of their income would be allowed to buy a catastrophic policy otherwise intended for people under age 30.

Those With Insurance

EMPLOYER COVERAGE People who receive coverage through large employers would be unlikely to see any drastic changes, nor should premiums or coverage be affected. But almost everyone would benefit from new regulations, like the ban on pre-existing conditions that would apply to all policies come 2014.

There might even be cases where people would be eligible to buy insurance through an exchange instead of through their employer, Professor Jost said: those who must pay more than 9.5 percent of their income for premiums, or those whose plans do not cover more than 60 percent of the cost their benefits.

CHANGES IN MEDICARE One of the biggest changes involves the Medicare prescription drug program. Its unpopular “doughnut hole” — a big, expensive gap in coverage that affects millions — would be eliminated by 2020. Starting immediately, consumers who hit the gap would receive a $250 rebate. In 2011, they would receive a 50 percent discount on brand name drugs.

HIGH-COST INSURANCE Starting in 2018, employers that offer workers pricier plans — or those with total premiums of $10,200 or more for singles and $27,500 for families — would be subject to a 40 percent tax on the excess premium, said C. Clinton Stretch, managing principal of tax policy at Deloitte. Retirees and workers in high-risk professions like firefighting would have higher thresholds ($11,850 for singles, or $30,950 for families), pegged to inflation.

Although the taxes would be levied on the insurer, experts expect the assessment to be passed on to the consumer in the form of higher premiums or reduced benefits.


http://www.nytimes.com/2010/03/22/your-money/health-insurance/22consumer.html?exprod=myyahoo&pagewanted=print

Obama hails landmark health care vote

By ROBERT PEAR and DAVID M. HERSZENHORN
WASHINGTON — Congress gave final approval on Sunday to legislation that would provide medical coverage to tens of millions of uninsured Americans and remake the nation’s health care system along the lines proposed by President Obama.

By a vote of 219 to 212, the House passed the bill after a day of tumultuous debate that echoed the epic struggle of the last year. The action sent the bill to President Obama, whose crusade for such legislation has been a hallmark of his presidency.

Minutes later, the House passed a package of changes to the bill and sent it to the Senate. The Senate majority leader, Harry Reid of Nevada, has promised House Democrats that the Senate would quickly take up the reconciliation bill with the changes in it, and that he had secured the votes to pass it.

But while the Senate is bracing for a fierce floor fight over the reconciliation measure, the landscape was permanently altered by passage of the original Senate bill. Should the reconciliation bill, which cannot be filibustered, collapse for any reason, the core components of the Democrats’ health care overhaul would move forward. Indeed, Senate Republicans were quickly faced with a need to recalibrate their message from one aimed at stopping the legislation to one focused on winning back a sufficient number of seats in Congress to repeal it.

Mr. Obama watched the roll call with Vice President Joseph R. Biden Jr. in the Roosevelt Room inside the White House. Since Monday, the president had spoken with 92 lawmakers, either in person or by telephone, the White House said.

“Tonight when the pundits said it was no longer possible, we rose above the weight of our politics,” Mr. Obama said in televised remarks from the White House shortly before midnight.

“We proved that we are still a people capable of doing big things,” Mr. Obama said. “We proved that this government — a government of the people and by the people — still works for the people.”

Democrats hailed the votes as historic, comparable to the establishment of Medicare and Social Security and a long overdue step forward in social justice. “This is the civil rights act of the 21st century,” said Representative James E. Clyburn of South Carolina, the No. 3 Democrat in the House.

After a year of partisan combat and weeks of legislative brinksmanship, House Democrats and the White House clinched their victory only hours before the voting started on Sunday. They agreed to a deal with opponents of abortion rights within their party to reiterate in an executive order that federal money provided by the bill could not be used for abortions, giving the Democrats the final votes. Democrats said that in expanding access to health coverage for uninsured Americans, they were creating a new program every bit as important as Social Security and Medicare, while also putting downward pressure on rising health care costs and reining in federal budget deficits.

Republicans said the plan would saddle the nation with unaffordable levels of debt, leave states with expensive new obligations, weaken Medicare and give the government a huge new role in the health care system.

The debate on the legislation has highlighted the deep partisan and ideological divides in the nation and set up a bitter midterm Congressional election campaign, with Republicans promising an effort to repeal it or block its provisions in the states.

Representative Marcy Kaptur, Democrat of Ohio, said the bill heralded “a new day in America.” Representative Doris Matsui, Democrat of California, said it would “improve the quality of life for millions of American families.”

But Representative Paul D. Ryan, Republican of Wisconsin, denounced the bill as “a fiscal Frankenstein.” Representative Lincoln Diaz-Balart, Republican of Florida, called it “a decisive step in the weakening of the United States.” Representative Virginia Foxx, Republican of North Carolina, said it was “one of the most offensive pieces of social engineering legislation in the history of the United States.”

The passions swirling round the bill were evident Sunday on the sun-splashed lawn south of the Capitol. Hundreds of protesters chanted, “Kill the bill” and waved yellow flags declaring, “Don’t Tread on Me.” They carried signs saying, “Doctors, Not Dictators.”

The health care bill would require most Americans to have health insurance, would add 16 million people to the Medicaid rolls and would subsidize private coverage for low- and middle-income people, at a cost to the government of $938 billion over 10 years, the Congressional Budget Office said.

The bill would require many employers to offer coverage to employees or pay a penalty. Each state would set up a marketplace, or exchange, where consumers without such coverage could shop for insurance meeting federal standards.

The budget office estimates that the bill would provide coverage to 32 million uninsured people, but still leave 23 million uninsured in 2019. One-third of those remaining uninsured would be illegal immigrants.

The new costs, according to the budget office, would be more than offset by savings in Medicare and by new taxes and fees, including a tax on high-cost employer-sponsored health plans and a tax on the investment income of the most affluent Americans.

Cost estimates by the Congressional Budget Office, showing that the bill would reduce federal budget deficits by $143 billion in the next 10 years, persuaded some fiscally conservative Democrats that they should vote for the bill.

Democrats said Americans would embrace the bill when they saw its benefits, including some provisions that take effect later this year.

Health insurers, for example, could not deny coverage to children with medical problems or suddenly drop coverage for people who become ill. Insurers must allow children to stay on their parents’ policies up to their 26th birthday. Small businesses could obtain tax credits to help them buy insurance.

The Democratic effort to secure the 216 votes needed for passage of the legislation came together only after last-minute negotiations involving the White House, the House leadership and a group of Democratic opponents of abortion rights, led by Representative Bart Stupak of Michigan. On Sunday afternoon, members of the group announced that they would support the legislation after Mr. Obama promised to issue an executive order to “ensure that federal funds are not used for abortion services.”

Mr. Stupak described the order as a significant guarantee that would “protect the sanctity of life in health care reform.” But supporters of abortion rights — and some opponents — said the order merely reaffirmed what was in the bill.

The procedural vote on Sunday, approving the terms of debate, had put the House on track to approve the health care bill that was passed by the Senate on Dec. 24, on a party-line vote. That bill will soon become the law of the land, the White House said.

House Democrats were also poised to pass a separate measure that would make significant changes and corrections to the Senate bill. That measure would go to the Senate, where the majority leader, Harry Reid, Democrat of Nevada, has promised to take it up in short order. Mr. Reid said he had the votes to pass it, though he faces resistance from Republicans.

The House galleries were full, and the floor was unusually crowded, for the historic debate on health care. Passage of the bill would be a triumph for Mr. Obama and Ms. Pelosi. Working together, they revived the legislation when it appeared dead after Democrats lost their 60th vote in the Senate and with it their ability to shut off Republican filibusters.

Republicans said they would use the outcome to bludgeon Democrats in this year’s Congressional elections. The White House is planning an intensive effort to convince people of the bill’s benefits. But if Democrats suffer substantial losses in November, Mr. Obama could be stymied on other issues, including his efforts to pass major energy and immigration bills.

The campaign for health care overhaul began as a way to help the uninsured. But it gained momentum when middle-class families with health insurance flooded Congress with their grievances. They complained of soaring premiums. They said their insurance had been canceled when they got sick.

“It’s not just the uninsured,” said Representative Jim McGovern, Democrat of Massachusetts. “We also have to worry about people with insurance who find, for crazy reasons, that they are somehow going to be denied coverage.”

The drive for universal insurance coverage was sustained by lawmakers like Representative Tammy Baldwin, Democrat of Wisconsin. Adding urgency to the debate were the strident complaints of employers, especially small businesses, who said they were being crushed by the cost of employee health benefits.

In the end, groups like the United States Chamber of Commerce and the National Federation of Independent Business tried to stop the bill, saying it would increase the cost of doing business. But other groups, including the American Medical Association and AARP backed it, as did the pharmaceutical industry. Lawmakers agreed that Sunday’s debate was historic, but they were poles apart in assessing the legislation.

Ms. Pelosi said the bill would free people to pursue their dreams without having to worry about being bankrupted by medical bills or losing health insurance when they switch jobs.

“It’s liberating legislation,” Ms. Pelosi said. “It’s to free Americans to live their passion, reach their aspirations without being job-locked because they have to have health care, especially if they have someone in their family with a pre-existing condition.”

Representative Rodney Alexander, Republican of Louisiana, said, “You cannot expect to expand coverage to millions of individuals and to curb costs at the same time.”

Republicans said the picture painted by the budget office was too rosy, because the new taxes and fees would start immediately, while the major costs would not show up for four years.

Moreover, Republicans said Democrats would pay a price for defying public opinion on the bill.

“Are you so arrogant that you know what’s best for the American people?” Representative Paul Broun, Republican of Georgia, asked the Democrats. “Are you so ignorant to be oblivious to the wishes of the American people?”

Lawmakers spoke with deep conviction in explaining their votes.

“Health care is not only a civil right, it’s a moral issue,” said Representative Patrick J. Kennedy, Democrat of Rhode Island, who invoked the memory of his father, Senator Edward M. Kennedy, Democrat of Massachusetts, a lifelong champion of health care for all.


Carl Hulse contributed reporting.


http://www.nytimes.com/2010/03/22/health/policy/22health.html?exprod=myyahoo&pagewanted=print

Why We Reform by Paul Krugman

One way or another, the fate of health care reform is going to be decided in the next few days. If House Democratic leaders find 216 votes, reform will almost immediately become the law of the land. If they don’t, reform may well be put off for many years — possibly a decade or more.

So this seems like a good time to revisit the reasons we need this reform, imperfect as it is.

As it happens, Reuters published an investigative report this week that powerfully illustrates the vileness of our current system. The report concerns the insurer Fortis, now part of Assurant Health, which turns out to have had a systematic policy of revoking its clients’ policies when they got sick. In particular, according to the Reuters report, it targeted every single policyholder who contracted H.I.V., looking for any excuse, no matter how flimsy, for cancellation. In the case that brought all this to light, Assurant Health used an obviously misdated handwritten note by a nurse, who wrote “2001” instead of “2002,” to claim that the infection was a pre-existing condition that the client had failed to declare, and revoked his policy.

This was illegal, and the company must have known it: the South Carolina Supreme Court, after upholding a decision granting large damages to the wronged policyholder, concluded that the company had been systematically concealing its actions when withdrawing coverage, not just in this case, but across the board.

But this is much more than a law enforcement issue. For one thing, it’s an example those who castigate President Obama for “demonizing” insurance companies should consider. The truth, widely documented, is that behavior like Assurant Health’s is widespread for a simple reason: it pays. A House committee estimated that Assurant made $150 million in profits between 2003 and 2007 by canceling coverage of people who thought they had insurance, a sum that dwarfs the fine the court imposed in this particular case. It’s not demonizing insurers to describe what they actually do.

Beyond that, this is a story that could happen only in America. In every other advanced nation, insurance coverage is available to everyone regardless of medical history. Our system is unique in its cruelty.

And one more thing: employment-based health insurance, which is already regulated in a way that mostly prevents this kind of abuse, is unraveling. Less than half of workers at small businesses were covered last year, down from 58 percent a decade ago. This means that in the absence of reform, an ever-growing number of Americans will be at the mercy of the likes of Assurant Health.

So what’s the answer? Americans overwhelmingly favor guaranteeing coverage to those with pre-existing conditions — but you can’t do that without pursuing broad-based reform. To make insurance affordable, you have to keep currently healthy people in the risk pool, which means requiring that everyone or almost everyone buy coverage. You can’t do that without financial aid to lower-income Americans so that they can pay the premiums. So you end up with a tripartite policy: elimination of medical discrimination, mandated coverage, and premium subsidies.

Or to put it another way, you end up with something like the health care plan Mitt Romney introduced in Massachusetts in 2006, and the very similar plan the House either will or won’t pass in the next few days. Comprehensive reform is the only way forward.

Can we afford this? Yes, says the Congressional Budget Office, which on Thursday concluded that the proposed legislation would reduce the deficit by $138 billion in its first decade and half of 1 percent of G.D.P., amounting to around $1.2 trillion, in its second decade.

But shouldn’t we be focused on controlling costs rather than extending coverage? Actually, the proposed reform does more to control health care costs than any previous legislation, paying for expanded coverage by reducing the rate at which Medicare costs will grow, substantially improving Medicare’s long-run financing along the way. And this combination of broader coverage and cost control is no accident: It has long been clear to health-policy experts that these concerns go hand in hand. The United States is the only advanced nation without universal health care, and it also has by far the world’s highest health care costs.

Can you imagine a better reform? Sure. If Harry Truman had managed to add health care to Social Security back in 1947, we’d have a better, cheaper system than the one whose fate now hangs in the balance. But an ideal plan isn’t on the table. And what is on the table, ready to go, is legislation that is fiscally responsible, takes major steps toward dealing with rising health care costs, and would make us a better, fairer, more decent nation.

All it will take to make this happen is for a handful of on-the-fence House members to do the right thing. Here’s hoping.

http://www.nytimes.com/2010/03/19/opinion/19krugman.html?ref=general&src=me&pagewanted=print

Copyright 2010 The New York Times Company

Paul Krugman: Health Reform Myths

Health reform is back from the dead. Many Democrats have realized that their electoral prospects will be better if they can point to a real accomplishment. Polling on reform — which was never as negative as portrayed — shows signs of improving. And I’ve been really impressed by the passion and energy of this guy Barack Obama. Where was he last year?

But reform still has to run a gantlet of misinformation and outright lies. So let me address three big myths about the proposed reform, myths that are believed by many people who consider themselves well-informed, but who have actually fallen for deceptive spin.

The first of these myths, which has been all over the airwaves lately, is the claim that President Obama is proposing a government takeover of one-sixth of the economy, the share of G.D.P. currently spent on health.

Well, if having the government regulate and subsidize health insurance is a “takeover,” that takeover happened long ago. Medicare, Medicaid, and other government programs already pay for almost half of American health care, while private insurance pays for barely more than a third (the rest is mostly out-of-pocket expenses). And the great bulk of that private insurance is provided via employee plans, which are both subsidized with tax exemptions and tightly regulated.

The only part of health care in which there isn’t already a lot of federal intervention is the market in which individuals who can’t get employment-based coverage buy their own insurance. And that market, in case you hadn’t noticed, is a disaster — no coverage for people with pre-existing medical conditions, coverage dropped when you get sick, and huge premium increases in the middle of an economic crisis. It’s this sector, plus the plight of Americans with no insurance at all, that reform aims to fix. What’s wrong with that?

The second myth is that the proposed reform does nothing to control costs. To support this claim, critics point to reports by the Medicare actuary, who predicts that total national health spending would be slightly higher in 2019 with reform than without it.

Even if this prediction were correct, it points to a pretty good bargain. The actuary’s assessment of the Senate bill, for example, finds that it would raise total health care spending by less than 1 percent, while extending coverage to 34 million Americans who would otherwise be uninsured. That’s a large expansion in coverage at an essentially trivial cost.

And it gets better as we go further into the future: the Congressional Budget Office has just concluded, in a new report, that the arithmetic of reform will look better in its second decade than it did in its first.

Furthermore, there’s good reason to believe that all such estimates are too pessimistic. There are many cost-saving efforts in the proposed reform, but nobody knows how well any one of these efforts will work. And as a result, official estimates don’t give the plan much credit for any of them. What the actuary and the budget office do is a bit like looking at an oil company’s prospecting efforts, concluding that any individual test hole it drills will probably come up dry, and predicting as a consequence that the company won’t find any oil at all — when the odds are, in fact, that some of the test holes will pan out, and produce big payoffs. Realistically, health reform is likely to do much better at controlling costs than any of the official projections suggest.

Which brings me to the third myth: that health reform is fiscally irresponsible. How can people say this given Congressional Budget Office predictions — which, as I’ve already argued, are probably too pessimistic — that reform would actually reduce the deficit? Critics argue that we should ignore what’s actually in the legislation; when cost control actually starts to bite on Medicare, they insist, Congress will back down.

But this isn’t an argument against Obamacare, it’s a declaration that we can’t control Medicare costs no matter what. And it also flies in the face of history: contrary to legend, past efforts to limit Medicare spending have in fact “stuck,” rather than being withdrawn in the face of political pressure.

So what’s the reality of the proposed reform? Compared with the Platonic ideal of reform, Obamacare comes up short. If the votes were there, I would much prefer to see Medicare for all.

For a real piece of passable legislation, however, it looks very good. It wouldn’t transform our health care system; in fact, Americans whose jobs come with health coverage would see little effect. But it would make a huge difference to the less fortunate among us, even as it would do more to control costs than anything we’ve done before.

This is a reasonable, responsible plan. Don’t let anyone tell you otherwise.

http://www.nytimes.com/2010/03/12/opinion/12krugman.html?pagewanted=print

Copyright 2010 The New York Times Company

March of Dimes March for Babies

Walk with me for healthy babies

I'm very excited to be a part of March for Babies this year and hope you will join my team!

Every day, thousands of babies are born too soon, too small and often very sick. We're walking because we want to do something about this.

The money we raise will support March of Dimes research and programs that help moms have full-term pregnancies and babies begin healthy lives. And it will be used to bring comfort and information to families with a baby in newborn intensive care.

Please join my team. You can do so on my team Web page. If you can't walk with me, please help the team reach our goal by making a donation. You can do that online as well.

Thank you for helping me give all babies a healthy start!

Visit http://www.marchforbabies.org/ team/t1384516 to donate or to walk with me.

Would you like to see what March for Babies is and why I'm walking?
Click here to see the video.

The March of Dimes mission is to improve the health of babies by preventing birth defects, premature birth and infant mortality.

March of Dimes March for Babies

Dallas
April 17, 2010
N Buckner Blvd & E Northwest Hwy
Dallas, TX 75201

Walk Distance: 5 miles
Registration Time: 8:00 AM
Start Time: 9:00 AM
Chapter: Dallas Division
(972) 669-3463

http://www.marchforbabies.org/team_dashboard.asp?si=1C32DA58-FB24-4463-B567-95A6280FD037&SeId=1384516

An Irish Mirror by Paul Krugman

Everyone has a theory about the financial crisis. These theories range from the absurd to the plausible — from claims that liberal Democrats somehow forced banks to lend to the undeserving poor (even though Republicans controlled Congress) to the belief that exotic financial instruments fostered confusion and fraud. But what do we really know?

Well, in a way the sheer scale of the crisis — the way it affected much, though not all, of the world — is helpful, for research if nothing else. We can look at countries that avoided the worst, like Canada, and ask what they did right — such as limiting leverage, protecting consumers and, above all, avoiding getting caught up in an ideology that denies any need for regulation. We can also look at countries whose financial institutions and policies seemed very different from those in the United States, yet which cracked up just as badly, and try to discern common causes.

So let’s talk about Ireland.

As a new research paper by the Irish economists Gregory Connor, Thomas Flavin and Brian O’Kelly points out, “Almost all the apparent causal factors of the U.S. crisis are missing in the Irish case,” and vice versa. Yet the shape of Ireland’s crisis was very similar: a huge real estate bubble — prices rose more in Dublin than in Los Angeles or Miami — followed by a severe banking bust that was contained only via an expensive bailout.

Ireland had none of the American right’s favorite villains: there was no Community Reinvestment Act, no Fannie Mae or Freddie Mac. More surprising, perhaps, was the unimportance of exotic finance: Ireland’s bust wasn’t a tale of collateralized debt obligations and credit default swaps; it was an old-fashioned, plain-vanilla case of excess, in which banks made big loans to questionable borrowers, and taxpayers ended up holding the bag.

So what did we have in common? The authors of the new study suggest four “ ‘deep’ causal factors.”

First, there was irrational exuberance: in both countries buyers and lenders convinced themselves that real estate prices, although sky-high by historical standards, would continue to rise.

Second, there was a huge inflow of cheap money. In America’s case, much of the cheap money came from China; in Ireland’s case, it came mainly from the rest of the euro zone, where Germany became a gigantic capital exporter.

Third, key players had an incentive to take big risks, because it was heads they win, tails someone else loses. In Ireland this moral hazard was largely personal: “Rogue-bank heads retired with their large fortunes intact.” There was a lot of this in the United States, too: as Harvard’s Lucian Bebchuk and others have pointed out, top executives at failed U.S. financial companies received billions in “performance related” pay before their firms went belly-up.

But the most striking similarity between Ireland and America was “regulatory imprudence”: the people charged with keeping banks safe didn’t do their jobs. In Ireland, regulators looked the other way in part because the country was trying to attract foreign business, in part because of cronyism: bankers and property developers had close ties to the ruling party.

There was a lot of that here too, but the bigger issue was ideology. Actually, the authors of the Irish paper get this wrong, stressing the way U.S. politicians celebrated the ideal of homeownership; yes, they made speeches along those lines, but this didn’t have much effect on lenders’ incentives.

What really mattered was free-market fundamentalism. This is what led Ronald Reagan to declare that deregulation would solve the problems of thrift institutions — the actual result was huge losses, followed by a gigantic taxpayer bailout — and Alan Greenspan to insist that the proliferation of derivatives had actually strengthened the financial system. It was largely thanks to this ideology that regulators ignored the mounting risks.

So what can we learn from the way Ireland had a U.S.-type financial crisis with very different institutions? Mainly, that we have to focus as much on the regulators as on the regulations. By all means, let’s limit both leverage and the use of securitization — which were part of what Canada did right. But such measures won’t matter unless they’re enforced by people who see it as their duty to say no to powerful bankers.

That’s why we need an independent agency protecting financial consumers — again, something Canada did right — rather than leaving the job to agencies that have other priorities. And beyond that, we need a sea change in attitudes, a recognition that letting bankers do what they want is a recipe for disaster. If that doesn’t happen, we will have failed to learn from recent history — and we’ll be doomed to repeat it.

http://www.nytimes.com/2010/03/08/opinion/08krugman.html?em=&pagewanted=print
Copyright 2010 The New York Times Company