OK, let’s try to tackle what to me is the thorniest of all the major political issues: health care reform.
The Problem
First, let me try to state the problem as succinctly as I can. The American health care system in general does provide quality care to us, and people are usually able to in some manner get care when they need it. However, the overall price tag of our health care system per capita is the most expensive in the world. And the complexity of our system can be brutally daunting.
We also need to understand something about health care as a “market” or “commodity.” Health care is a different animal than your basic commodity. Most things I can purchase are not essential to my life. I may find them desirable to have, but they are not essential. There are a very few buy-able things that I think we would all agree are essential to us. Having enough food and water to live on, having enough shelter to not die of exposure, and so forth. These items, however, are at least at their minimal requirement not particularly expensive in the grand scheme of things.
Of those buy-able things that are essential to our lives, there is only one that can “break the bank” due to its cost -- health care. For example, take a person making $250,000 per year. This is a higher income than the vast majority of Americans have. But if that person is without insurance and all the costs fall to him/her personally, and they develop diabetes and associated medical problems and has a heart attack as a consequence that leaves them crippled, I can guarantee you that between the costs of all the tests and medications and treatments, it would break that person financially, even if they can continue in their regular employment, and even more so if they can’t.
The idea of protecting oneself against potentially financial-disaster-inducing costs is the idea of “insurance.” It is essentially pooling everyone’s money together so that when some of them have these kinds of things, it can be paid for and not destroy them financially. It works fairly well for things like home owners insurance or auto insurance. And it has been helpful to a point with trying to protect oneself against high health care costs. But there are problems.
One is that even for relatively healthy people, just routine medical care and checks or basic illnesses and so forth can be pricey. Which means insurance premiums are bound to be high - and we all know they are. So even for healthy people with every advantage, it takes a chunk out of the wallet.
And for “high utilizers” of health care services, whether a diabetic with complications, or patients with emphysema or congestive heart failure, or cancer, or chronic low back pain, the costs are outrageously high. So high, in fact, that profit-conscious administrators of health insurance companies do everything they are legally allowed to do to dump those high utilizers from their rolls, or not add them in the first place.
To complicate things further, medical information and technology is always advancing, and the “new stuff” is almost always expensive. And yet, while I said above that health care is an “essential” for life - that is true I think when considered broadly - if you look at individual aspects of health care (is a particular surgery for sure “necessary” or is a particular medication for rheumatoid arthritis “necessary”), it becomes more murky. On some things, there is strong general agreement within the medical/scientific community, on others not so much.
So we have issues of what medical tests, evaluations, treatments, and so forth are “covered” or not. And because not all tests and treatments are clearly “necessary” there is the issue of incentives...how much should an individual be expected to pay for themselves, i.e. co-pays and deductibles, etc.
----------------
Policy Options
So, having laid this groundwork, let’s talk policy and we can get to what kinds of things McCain and Obama say they want to do in this area.
Since I know many of you (and I’m in this group as well) feel that we ought to be very careful about what government is involved in, let me comment on that first.
Let’s just accept that health care is the kind of thing that government simply is involved in these days. That’s not going to change, so I say let’s not argue that point. And there is a good rationale for government involvement in health care: namely that without it, it is hard to see how market forces without any restraints are going to lead to an acceptable system that serves all from the least to the most needy.
If I can oversimplify for a moment, there are three main options for health care policy. The first is to keep government out of it entirely. Again, I think the nature of the need for healthcare, and the high cost and high variability of cost make this an untenable option, and in any case it is an unrealistic one in our society today. 100 years ago, sure, when it was more having the doctor give an opinion and maybe provide a few chemicals or simple procedures. But not in an era where a potentially life-saving surgery could cost $10,000 or more, and a potentially joint-sparing arthritis medication can cost over $1,000 per month.
The second option is government run health care, where the government pays for and controls everything. This would be your Hillary-care or Canada/European type option, if you will. I could go on and on about the many problems I see with this option, but it comes down to this. If the government pays, the government controls. And if the government controls, then it will determine what things it will and won’t pay for. And when budgetary pressures come to bear, as they always do, then they simply stop paying for some things, or make it more difficult to get, or they limit your options, and pretty much always they will limit what doctors and all those who provide health related services, make. And I can tell you from personal experience that as challenging a job as it is being a physician, if you take away financial incentive, you will simply end up with less capable people overall in the field. Those with great knowledge and ability will go into other professions. Bottom line: if you take competition out of the system, you pay a heavy price in the long run. So, there you have just a small sampling of my problems with this option.
Finally, there is the “somewhere in between” option. Basically this would keep health insurance as an essentially private function (along with current government programs like Medicare, Medicaid), but would place regulations on how insurers are required to operate in the U.S. and would help look for solutions to specific problems with the overall healthcare system. Let’s call this the Private-Public option.
The first two options, in the current political climate, are off the table. So let’s look at the options for the Private-Public system.
The biggest problems with what we think of as the “typical” private insurance systems are:
If you change jobs or situations, there is no guarantee you can keep your insurance or even roll into another option.
If you become “less healthy” for any reason, the incentive for the insurance company covering you is to try to dump you from their rolls. They can’t legally do so for just wanting to, but as we all know they look for opportunities to do so.
The high variability of health care costs means that 5% of patients use the vast majority of total health care dollars. These are the patients most likely to end up not covered by insurance, because they “break the bank” of the insurance companies.
So, what we want from proposals from McCain or Obama is solutions to these problems. We need portability of insurance, we need insurers to be required in some way to not dump expensive patients or deny them in the first place, and to do this we may need some kind of way “insure the insurers” or in other words help pool resources so that the most expensive patients can be paid for without placing the entire burden on one company.
Let me try to boil down McCain and Obama’s proposals to what I see as their principle points.
McCain
John McCain’s principle goal with insurance reform would be: (1) work with the states on programs that may receive federal funding that have the goal of having all citizens covered by health insurance, (2) help create a non-profit organization that will essentially pool resources from insurance companies, and I presume also government and private sources, with the purpose of helping cover the cost of the high-utilizers of health care resources. The idea would be that by helping insurance companies with these costs, they can require that the insurers bring these individuals into their plans, (3) make the health insurance marketplace more national and less local/regional. The idea would be that this would make it possible for an individual or family to choose from a broad range of national options - not tied strictly to their employer, for example, and (4) provide tax credits that will help Americans pay for their health insurance premiums, making it possible for many not currently covered to get that health insurance they need.
Obama
Barak Obama also would create a system to help insurers with high-cost patients, but his principle center-piece proposal is this: he would greatly expand an existing insurance program operated by the federal government. He would allow any American to obtain the same insurance that is used by federal employees now. He says he would pay for this by taxing big businesses who do not offer an equivalent level of insurance to their employees. The idea would be to “encourage” these big businesses to cover their employees, while still offering affordable health insurance to essentially all Americans even if their employer does not give it to them.
In some ways, I like his proposals. However, as I look at what the effect of this would be down the road, I have serious concerns. The principle one is this: I think there are a number of features that would push many people into the “government-run insurance” option. What’s the problem with that? Well, if this increasingly becomes the “norm” then in terms of the effect on the overall system, government will increasingly be in charge. And that has many, many downsides. For one thing, there is no “level above the government” to appeal to with problems/issues. And the democratic process we all know is notoriously slow and inefficient in reigning in government efforts gone awry or working poorly.
With the current system, insurance companies may try in different ways to increase revenue and decrease costs, but in the end they also know government (both executive and judicial) has an eye on them, which affects their decision making. Not to mention the market itself, where if they don’t take care of their patients and another company does, people will migrate to the one that does a better job.
However, if it is the government itself that is making these final decisions about what will and won’t be covered and what the charges are allowed to be, etc. then there is little recourse, and what there is is slow. And it potentially pushes the costs not only onto the taxpayer, but in tight parts of the budget cycle, onto the national debt. Is that really where we want it?
I can tell you already that even the Medicare program has a massive effect on the entire industry, and it is much more of a negative effect than a positive in my judgment. For example, many insurers just follow the lead of Medicare and Medicaid, particularly when it serves their needs (such as lower payments to health care providers), and they basically just “blame the government” for these moves when complaints are made. Moving things over more and more to government control I think will lead to similar outcomes but on an ever larger scale.
Other Ideas?
There are a couple of what I think are good ideas that I have not yet heard from either candidate. One is the idea that government provide a new set of “rules of the road” for companies that want to provide health insurance to Americans. Basically rule number one is that they cannot deny anyone applying for insurance, and they have to treat individual applicants similarly to corporate/employee applicants. There would also be some kind of a cap on upper limits for premiums (it does not need to be a “hard cap” but may be calculated such as a percentage difference between their highest and lowest rates, etc.). This would still need to leave room for discretion for the insurers, and it should be accompanied by a program like the one described under McCain above, where high-utilizing patients are paid for in part by a non-profit organization that can also receive some government funds, etc. Then all of a sudden most Americans can get and afford health insurance and can’t be denied as long as they can pay reasonable premiums, and if not, then that’s where Medicaid and other state programs can step in to help.
Cost Reduction Strategies
Then there are a few things that can be done to reduce “overall” health care costs, to some degree independent of what government policy toward insurers turns out to be. I’ve heard some talk of these things from both candidates.
Safe re-importation of drugs
To me, this is a fairly easy one. Because many nations have nationalized/government-run health care system, those nations when they negotiate with drug companies can basically say “hey, we are only going to pay for one med in this class, so who will give us the lowest cost?” and they can basically get it. To capture these markets, pharmaceutical companies will sometimes sell the meds to these nations at a loss, with the idea that they will make up the revenue/profits when they sell to the U.S. In other words, we end up with jacked-up prices and subsidize much of the rest of the world.
The idea is that normally, our FDA has its own system for making sure that drugs imported into the US are safe and that there are good quality assurance systems in place.
But, if the US were to create a list of nations who we trust to have similar high standards, then allow “re-importation” of medications from those nations to the US, then all of a sudden the drug companies can’t play this game, because if they try to charge us a lot more, we can just buy in Canada and ship it here, for example.
That will at least force drug companies to level the pricing and make the system more fair. And for Americans, our drug costs should go down significantly.
Better use of information technology
Another area where we can, through policy, reduce health care costs, is in developing standards across the industry for secure communication of medical information. This could lead to, for example, not having duplicate or unnecessary testing done, or may allow a physician with good information at their fingertips to accomplish more at a first visit, rather than needing a follow up one. And these are just the cost benefits; it also helps prevent medical errors, and improve the quality of patient care.
Tort Reform
Just briefly: there are significant costs when physicians feel the need to practice “defensive medicine” in other words order tests not likely to show a problem but ordered “just in case” by physicians worried about lawsuits. Also, dollars spent on medical malpractice insurance just adds additional dollars to the overall health care bill. Patients do need a means of recourse when needed, but there are effective ways to do this without excessive cost.
Summary
This may well be (I think is) the single most complex policy issue of them all. There is no simple, easy solution that I think we would be happy with.
That said, something needs to be done - for various reasons the current system is inadequate.
Both candidates have some good ideas as to lowering overall costs, improving health care overall nationally, and getting more Americans covered by insurance.
Where they particularly differ is in their approach to increasing the number of Americans covered by insurance, and in what portion of the overall health care system would be paid for and managed by the government.
Obama would still leave current options basically in place but would open up the government run insurance company to all Americans (currently just for federal employees).
McCain would basically work through the states on programs (currently operating fairly effectively in several) that would insure all Americans eventually, and would give people who are applying as individuals for insurance a tax credit/rebate to help pay for premiums.
McCain’s program is more decentralized (coordinating with the states) and likely would take some time to work out, but in its essentials I think would ultimately work.
Obama’s program I think sets some important standards and gives new options for getting insurance, but I believe will lead us in the direction where the government pays for and directly controls more and more of the overall health care system, which I think would have very negative consequences down the road.
My overall opinion: both have some good ideas, but I fear any policy that significantly expands the direct government involvement in determining and paying for health care benefits.
Update: It may be that the current expenditures being decided on to stabilize the financial system make it impossible to have a very large increase in expenditures on health care, which would impact plans for both candidates, but more so for Obama since his proposals are much more costly.
Thursday, September 25, 2008
Wednesday, September 24, 2008
President Bush Speech on Financial Crisis
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release September 24, 2008
ADDRESS BY THE PRESIDENT
TO THE NATION
State Floor
9:01 P.M. EDT
THE PRESIDENT: Good evening. This is an extraordinary period for America's economy. Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration. We’ve seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending. Credit markets have frozen. And families and businesses have found it harder to borrow money.
We’re in the midst of a serious financial crisis, and the federal government is responding with decisive action. We’ve boosted confidence in money market mutual funds, and acted to prevent major investors from intentionally driving down stocks for their own personal gain.
Most importantly, my administration is working with Congress to address the root cause behind much of the instability in our markets. Financial assets related to home mortgages have lost value during the housing decline. And the banks holding these assets have restricted credit. As a result, our entire economy is in danger. So I’ve proposed that the federal government reduce the risk posed by these troubled assets, and supply urgently-needed money so banks and other financial institutions can avoid collapse and resume lending.
This rescue effort is not aimed at preserving any individual company or industry — it is aimed at preserving America's overall economy. It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America's financial system is back on track.
I know many Americans have questions tonight: How did we reach this point in our economy? How will the solution I’ve proposed work? And what does this mean for your financial future? These are good questions, and they deserve clear answers.
First, how did our economy reach this point?
Well, most economists agree that the problems we are witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions — along with low interest rates — made it easier for Americans to get credit. These developments allowed more families to borrow money for cars and homes and college tuition — some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.
Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit — combined with the faulty assumption that home values would continue to rise — led to excesses and bad decisions. Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.
Optimism about housing values also led to a boom in home construction. Eventually the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell. And this created a problem: Borrowers with adjustable rate mortgages who had been planning to sell or refinance their homes at a higher price were stuck with homes worth less than expected — along with mortgage payments they could not afford. As a result, many mortgage holders began to default.
These widespread defaults had effects far beyond the housing market. See, in today's mortgage industry, home loans are often packaged together, and converted into financial products called "mortgage-backed securities." These securities were sold to investors around the world. Many investors assumed these securities were trustworthy, and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.
The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses. Before long, these securities became so unreliable that they were not being bought or sold. Investment banks such as Bear Stearns and Lehman Brothers found themselves saddled with large amounts of assets they could not sell. They ran out of the money needed to meet their immediate obligations. And they faced imminent collapse. Other banks found themselves in severe financial trouble. These banks began holding on to their money, and lending dried up, and the gears of the American financial system began grinding to a halt.
With the situation becoming more precarious by the day, I faced a choice: To step in with dramatic government action, or to stand back and allow the irresponsible actions of some to undermine the financial security of all.
I’m a strong believer in free enterprise. So my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There’s been a widespread loss of confidence. And major sectors of America's financial system are at risk of shutting down.
The government's top economic experts warn that without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold:
More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession.
Fellow citizens: We must not let this happen. I appreciate the work of leaders from both parties in both houses of Congress to address this problem — and to make improvements to the proposal my administration sent to them. There is a spirit of cooperation between Democrats and Republicans, and between Congress and this administration. In that spirit, I’ve invited Senators McCain and Obama to join congressional leaders of both parties at the White House tomorrow to help speed our discussions toward a bipartisan bill.
I know that an economic rescue package will present a tough vote for many members of Congress. It is difficult to pass a bill that commits so much of the taxpayers' hard-earned money. I also understand the frustration of responsible Americans who pay their mortgages on time, file their tax returns every April 15th, and are reluctant to pay the cost of excesses on Wall Street. But given the situation we are facing, not passing a bill now would cost these Americans much more later.
Many Americans are asking: How would a rescue plan work?
After much discussion, there is now widespread agreement on the principles such a plan would include. It would remove the risk posed by the troubled assets — including mortgage-backed securities — now clogging the financial system. This would free banks to resume the flow of credit to American families and businesses. Any rescue plan should also be designed to ensure that taxpayers are protected. It should welcome the participation of financial institutions large and small. It should make certain that failed executives do not receive a windfall from your tax dollars. It should establish a bipartisan board to oversee the plan's implementation. And it should be enacted as soon as possible.
In close consultation with Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox, I announced a plan on Friday. First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system. In the short term, this will free up banks to resume the flow of credit to American families and businesses. And this will help our economy grow.
Second, as markets have lost confidence in mortgage-backed securities, their prices have dropped sharply. Yet the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages. The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal. And when that happens, money will flow back to the Treasury as these assets are sold. And we expect that much, if not all, of the tax dollars we invest will be paid back.
A final question is: What does this mean for your economic future?
The primary steps — purpose of the steps I have outlined tonight is to safeguard the financial security of American workers and families and small businesses. The federal government also continues to enforce laws and regulations protecting your money. The Treasury Department recently offered government insurance for money market mutual funds. And through the FDIC, every savings account, checking account, and certificate of deposit is insured by the federal government for up to $100,000. The FDIC has been in existence for 75 years, and no one has ever lost a penny on an insured deposit — and this will not change.
Once this crisis is resolved, there will be time to update our financial regulatory structures. Our 21st century global economy remains regulated largely by outdated 20th century laws. Recently, we’ve seen how one company can grow so large that its failure jeopardizes the entire financial system.
Earlier this year, Secretary Paulson proposed a blueprint that would modernize our financial regulations. For example, the Federal Reserve would be authorized to take a closer look at the operations of companies across the financial spectrum and ensure that their practices do not threaten overall financial stability. There are other good ideas, and members of Congress should consider them. As they do, they must ensure that efforts to regulate Wall Street do not end up hampering our economy's ability to grow.
In the long run, Americans have good reason to be confident in our economic strength. Despite corrections in the marketplace and instances of abuse, democratic capitalism is the best system ever devised. It has unleashed the talents and the productivity, and entrepreneurial spirit of our citizens. It has made this country the best place in the world to invest and do business. And it gives our economy the flexibility and resilience to absorb shocks, adjust, and bounce back.
Our economy is facing a moment of great challenge. But we’ve overcome tough challenges before — and we will overcome this one. I know that Americans sometimes get discouraged by the tone in Washington, and the seemingly endless partisan struggles. Yet history has shown that in times of real trial, elected officials rise to the occasion. And together, we will show the world once again what kind of country America is — a nation that tackles problems head on, where leaders come together to meet great tests, and where people of every background can work hard, develop their talents, and realize their dreams.
Thank you for listening. May God bless you.
Office of the Press Secretary
For Immediate Release September 24, 2008
ADDRESS BY THE PRESIDENT
TO THE NATION
State Floor
9:01 P.M. EDT
THE PRESIDENT: Good evening. This is an extraordinary period for America's economy. Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration. We’ve seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending. Credit markets have frozen. And families and businesses have found it harder to borrow money.
We’re in the midst of a serious financial crisis, and the federal government is responding with decisive action. We’ve boosted confidence in money market mutual funds, and acted to prevent major investors from intentionally driving down stocks for their own personal gain.
Most importantly, my administration is working with Congress to address the root cause behind much of the instability in our markets. Financial assets related to home mortgages have lost value during the housing decline. And the banks holding these assets have restricted credit. As a result, our entire economy is in danger. So I’ve proposed that the federal government reduce the risk posed by these troubled assets, and supply urgently-needed money so banks and other financial institutions can avoid collapse and resume lending.
This rescue effort is not aimed at preserving any individual company or industry — it is aimed at preserving America's overall economy. It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America's financial system is back on track.
I know many Americans have questions tonight: How did we reach this point in our economy? How will the solution I’ve proposed work? And what does this mean for your financial future? These are good questions, and they deserve clear answers.
First, how did our economy reach this point?
Well, most economists agree that the problems we are witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions — along with low interest rates — made it easier for Americans to get credit. These developments allowed more families to borrow money for cars and homes and college tuition — some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.
Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit — combined with the faulty assumption that home values would continue to rise — led to excesses and bad decisions. Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.
Optimism about housing values also led to a boom in home construction. Eventually the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell. And this created a problem: Borrowers with adjustable rate mortgages who had been planning to sell or refinance their homes at a higher price were stuck with homes worth less than expected — along with mortgage payments they could not afford. As a result, many mortgage holders began to default.
These widespread defaults had effects far beyond the housing market. See, in today's mortgage industry, home loans are often packaged together, and converted into financial products called "mortgage-backed securities." These securities were sold to investors around the world. Many investors assumed these securities were trustworthy, and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.
The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses. Before long, these securities became so unreliable that they were not being bought or sold. Investment banks such as Bear Stearns and Lehman Brothers found themselves saddled with large amounts of assets they could not sell. They ran out of the money needed to meet their immediate obligations. And they faced imminent collapse. Other banks found themselves in severe financial trouble. These banks began holding on to their money, and lending dried up, and the gears of the American financial system began grinding to a halt.
With the situation becoming more precarious by the day, I faced a choice: To step in with dramatic government action, or to stand back and allow the irresponsible actions of some to undermine the financial security of all.
I’m a strong believer in free enterprise. So my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There’s been a widespread loss of confidence. And major sectors of America's financial system are at risk of shutting down.
The government's top economic experts warn that without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold:
More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession.
Fellow citizens: We must not let this happen. I appreciate the work of leaders from both parties in both houses of Congress to address this problem — and to make improvements to the proposal my administration sent to them. There is a spirit of cooperation between Democrats and Republicans, and between Congress and this administration. In that spirit, I’ve invited Senators McCain and Obama to join congressional leaders of both parties at the White House tomorrow to help speed our discussions toward a bipartisan bill.
I know that an economic rescue package will present a tough vote for many members of Congress. It is difficult to pass a bill that commits so much of the taxpayers' hard-earned money. I also understand the frustration of responsible Americans who pay their mortgages on time, file their tax returns every April 15th, and are reluctant to pay the cost of excesses on Wall Street. But given the situation we are facing, not passing a bill now would cost these Americans much more later.
Many Americans are asking: How would a rescue plan work?
After much discussion, there is now widespread agreement on the principles such a plan would include. It would remove the risk posed by the troubled assets — including mortgage-backed securities — now clogging the financial system. This would free banks to resume the flow of credit to American families and businesses. Any rescue plan should also be designed to ensure that taxpayers are protected. It should welcome the participation of financial institutions large and small. It should make certain that failed executives do not receive a windfall from your tax dollars. It should establish a bipartisan board to oversee the plan's implementation. And it should be enacted as soon as possible.
In close consultation with Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox, I announced a plan on Friday. First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system. In the short term, this will free up banks to resume the flow of credit to American families and businesses. And this will help our economy grow.
Second, as markets have lost confidence in mortgage-backed securities, their prices have dropped sharply. Yet the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages. The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal. And when that happens, money will flow back to the Treasury as these assets are sold. And we expect that much, if not all, of the tax dollars we invest will be paid back.
A final question is: What does this mean for your economic future?
The primary steps — purpose of the steps I have outlined tonight is to safeguard the financial security of American workers and families and small businesses. The federal government also continues to enforce laws and regulations protecting your money. The Treasury Department recently offered government insurance for money market mutual funds. And through the FDIC, every savings account, checking account, and certificate of deposit is insured by the federal government for up to $100,000. The FDIC has been in existence for 75 years, and no one has ever lost a penny on an insured deposit — and this will not change.
Once this crisis is resolved, there will be time to update our financial regulatory structures. Our 21st century global economy remains regulated largely by outdated 20th century laws. Recently, we’ve seen how one company can grow so large that its failure jeopardizes the entire financial system.
Earlier this year, Secretary Paulson proposed a blueprint that would modernize our financial regulations. For example, the Federal Reserve would be authorized to take a closer look at the operations of companies across the financial spectrum and ensure that their practices do not threaten overall financial stability. There are other good ideas, and members of Congress should consider them. As they do, they must ensure that efforts to regulate Wall Street do not end up hampering our economy's ability to grow.
In the long run, Americans have good reason to be confident in our economic strength. Despite corrections in the marketplace and instances of abuse, democratic capitalism is the best system ever devised. It has unleashed the talents and the productivity, and entrepreneurial spirit of our citizens. It has made this country the best place in the world to invest and do business. And it gives our economy the flexibility and resilience to absorb shocks, adjust, and bounce back.
Our economy is facing a moment of great challenge. But we’ve overcome tough challenges before — and we will overcome this one. I know that Americans sometimes get discouraged by the tone in Washington, and the seemingly endless partisan struggles. Yet history has shown that in times of real trial, elected officials rise to the occasion. And together, we will show the world once again what kind of country America is — a nation that tackles problems head on, where leaders come together to meet great tests, and where people of every background can work hard, develop their talents, and realize their dreams.
Thank you for listening. May God bless you.
Thursday, September 18, 2008
McCain in 2005: Fannie & Freddie Regulatory Reform
Here is the statement John McCain read into the Senate record on 25 May 2005:
"Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.
The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.
The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.
For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.
I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.
I urge my colleagues to support swift action on this GSE reform legislation."
"Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.
The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.
The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.
For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.
I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.
I urge my colleagues to support swift action on this GSE reform legislation."
Purpose
Sometimes I come across material I think is really helpful or interesting, but I'm reluctant to put it on the main blog because I want to keep that one relatively succinct (I know everyone is busy!). With this "supplemental blog" I can post this information but just link to it from the main blog, for those interested. Hope this is helpful.
Subscribe to:
Posts (Atom)
