Thursday, July 23, 2009

Wall Street Bails Out Obama

Just when he was falling onto the ropes over health insurance reform, President Obama got a bailout from Wall Street. We learned today that bonus pools at the biggest banks rose to $74 billion this year, up from $60 billion last year. The political news was starting its summertime slowdown. Now, prominent members of Congress and the administration can recoil in faux Kabuki style and present carefully crafted soundbites denouncing the spectacle of taxpayers making wealthy financiers more prosperous. An electorate worried about the cost of health insurance reform can be diverted by populist outrage over greater inequality of wealth in a time of rising unemployment. Goldman Sachs individually assisted the President with its grumpiness over the amount it would pay to redeem the government's TARP warrants even as it aimed to award employees record levels of compensation. For the tabloids, a supposedly sterling investment bank that turns out to have feet of clay is a better story than a President who is trying to help people, even if the help involves a lot of money.

The stock market has also given the President a boost. Beginning with optimism over less bad economic data in March, the market has shot almost straight up on the basis of a few green shoots and a lot of hopeful thinking. Most recently, a number of federally subsidized banks have reported better than expected earnings. It's astonishing what you can do with trillions of dollars of subsidies and government-guaranteed survival.

Additionally, some business corporations have reported better than expected financial performance, much of it attributable to frantic cost-cutting. In the arithmetic sense, cost cutting improves earnings. But no seasoned executive will tell you that a corporation can attain lasting prosperity from cost cutting (GM, Ford and Chrysler serve as Exhibits A, B and C in this regard). Nevertheless, the stock market is so desperate for any good news that less negative has become the new fabulous.

Momentum traders, who feed off upwards stampedes like today's market, may feel good. Rational investors will remember than in the last ten years, every up-market frenzy, beginning with the Great Illusory Surge of late 1999 and early 2000, has ended badly. It's unclear if the market will test its early March lows. But we should remember the lesson so recently taught by the real estate markets: no asset class continually rises in value.

Still, the financial markets have short term memories. Probably more than a few bottles of champagne are being bought tonight in Manhattan and other places where investors lurk. That's good for President Obama, who doesn't have to fight a fearful stock market even as he struggles for traction with health insurance reform.

Everyone, including the medical profession and the private health insurance industry, agrees that reform is needed. But current efforts are bogging down in the quagmire of the debate over who will pay for it. That's a necessary debate, but its NIMBY-like obsessiveness overlooks the morass we already have. The insured are paying something like $1,000 each to cover the cost of care for the uninsured. Since the the insured tend to be better off than the uninsured, the well-off already pay. The principal question is how that payment will be made--in insurance premiums or federal income taxes.

Let's also remember that we all benefit from universal health coverage. If you're well-off and allergic to tax increases, consider this: the nice restaurant meals you enjoy might be prepared by uninsured workers who can't afford to see a doctor and might pass swine flu onto you or your family. The uninsured folks who clean your office and its bathrooms at night could leave bacteria or viruses to infect you the next day. The uninsured passengers on the subway, bus or airplane might be a health threat to dozens at a time. That annoying cough behind you at the theater could do much more than interrupt your enjoyment of the movie.

Also consider that health insurance isn't guaranteed for most people. Once your child graduates from college, he or she probably will be dropped by your policy. Many young people don't have jobs with employer-sponsored health insurance. Will your child take the initiative to buy an individual policy? Also, a lot of people of all ages who operate or work at small businesses are uninsured. If an uninsured close relative of yours--an adult child, parent or sibling-- gets sick or is injured, who might have to chip in to cover the costs? You probably wouldn't simply let a family member slide into the gutter, so it would be your net worth that would shrink. We all have a stake in health insurance reform. It's not just a matter of costs. It's also a matter of benefits.

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