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OpenMarket: Banking and Finance

  • Cost of Bailout Gets Bigger; SEC Regulation Backfires

    September 23, 2008
    The financial bailout bill is not just "dangerous, inflationary, unnecessary, and unconstitutional."  It's also a lot more costly than the government admits, judging from the hypocritical arguments made by government officials.  The Treasury Secretary in the past has resisted calls to loosen federal accounting rules, so-called "mark-to-market" rules that require mortgages to be assessed at their current fire-sale prices, rather than their estimated value if held to maturity.  These rules can result in banks being declared insolvent even...
  • Strictly circumscribed containment

    September 23, 2008
    From today's Washington Examiner editorial: "There are credible alternatives to the Bush administration's bailout approach.  Economist Brian Westbury, for example, suggests allowing troubled firms to erect an accounting firewall around at-risk assets created between December 2003 and August 2007 by segregating them from the rest of their balance sheets and then holding those assets to maturity. The government's main role would be in providing insurance for the sequestered assets instead of buying them outright. By comparison, the Bush bailout looks like a bum's rush for economic freedom." CEI's VP of Policy Wayne Crews agrees. "This is just the right approach.  Not every asset is a problem, there needs to be a...
  • Bailout Bill Dangerous, Inflationary, Unnecessary, and Unconstitutional

    September 23, 2008
    The $700 billion financial bailout bill being pushed by Bush and Congressional leaders is attracting broad opposition.  Not only does it rip off taxpayers and violate constitutional limits on delegation of government power, it also threatens to spread the contagion of the mortgage meltdown, drive up inflation, and ruin the value of the U.S. dollar at home and abroad.
    Law Professor Ilya Somin and economist Steven Landsburg question the need...
  • Bailout Threatens Economy, Shreds Constitution, Rips Off Taxpayers

    September 22, 2008
    The stock market sank as the Bush Administration capitulated to liberal demands that its proposed $700 billion bailout of the financial system be expanded to add more costly give-aways, like "systematic” limits on foreclosure, that would allow irresponsible borrowers to remain in their homes at taxpayer expense.   The bailout is so extreme that it is unconstitutional. Because of rigid federal accounting regulations that require Enron-style "mark-to-market accounting," the bailout could actually deepen the financial crisis.  The bailout will...
  • GINA Law Passes, Will Afflict Insurers and Employers

    April 26, 2008
    On April 24, the Senate voted 95-to-0 to pass the Genetic Information Non-Discrimination Act (GINA), which bans insurers and employers from taking genetic information into account.  The Economist blog suggests it could doom private individual insurance in the future, as people who test negative for genetic risk factors for diseases refuse to buy health insurance policies that are priced the same for them as for riskier people who test positive for those genetic risk factors, effectively forcing those with lower risks to subsidize those with higher risks.  Such adverse selection would cause the market for such insurance policies to dry up.  Last year, I...
  • Killing Consumer-Directed Health Care?

    April 26, 2008
    One of the most important recent innovations in health care has been the expansion of consumer-directed care, especially through Health Savings Accounts.  HSAs offer patients greater control over their money and create an incentive for cost-consciousness.  Suddenly people have a reason to shop around and find the best deal for routine care. But Congress is preparing to wreck the system.  At the behest of a congressional staffer-turned lobbyist, the House has voted to impose on HSAs much of the regulatory bureaucracy evident in health insurance.  Reports the Wall Street Journal:
    Democrats have made affordable health care a mainstay of their election agenda, but apparently only if you're willing to get insurance through the government. Witness their stealthy assault on Americans who prefer the...
  • Sen. Johnson is Back

    September 6, 2007
    Senator Tim Johnson, returned to work yesterday. His return means that the debate over Optional Federal Chartering of insurance will heat up (link goes to an op-ed I wrote on the topic.) Although the bill in question, the National Insurance Act could be nitpicked to death, its general thrust would likely improve the insurance markets around the country. It's pretty simple to describe: Let insurance companies do what banks have done since the Civil War and subject themselves to federal rather than state regulation while simultaneously getting rid of confusing and unnecessary rate regulatory regimes.
  • What Gives in South Carolina?

    August 17, 2007
    I'm writing this from the new library in downtown Columbia, South Carolina. It's a big, open all glass building that I wouldn't want to be in during a hurricane. Thanks to a series of insurance reforms, here, however, it looks like it will get rebuilt quickly no matter what happens. South Carolina, for the most part, has taken the right insurance reform route when it comes to wind coverage while other states have gone wrong. Some background first: in the wake of soaring post Hurricane Katrina rates, nearly every hurricane-prone state implemented insurance reforms. In most places, these reforms involved states taking on liability for their citizens: Florida, as I write about in the current Weekly Standard, could well go bankrupt. While states like Texas and Mississippi won't go bankrupt, they will likely need to raise taxes on...
  • Should Disaster Insurance Be Compulsory?

    July 30, 2007
    A masthead editorial (full text by subscription only) lays out a compelling case for mandatory purchase of catastrophe insurance. I've long supported something close to a mandate for health insurance purchase, but I'm not sure if anything like that makes sense for property insurance. Under all circumstances, I do think that government does have an obligation to rescue people in serious trouble (although it might well send them a bill if they're able-bodied and ignored clear evacuation orders). But, unlike health care -- where longstanding ethical rules make it impossible to deny treatment altogether -- I can't think of anybody who would...
  • Mandatory Purchase

    July 9, 2007
    In a piece in Saturday's Washington Examiner, I examine the parallels between auto insurance and health insurance, and, for the most part, find that they're not that great. Here's one point I make:
    To begin with, borrowing the most talked about feature of auto insurance—mandatory purchase—won't actually provide coverage to all of the 47 million Americans who lack it. While over 95 percent of American motorists live in states that mandate auto insurance purchase, about 13 percent of accidents involve drivers without coverage. Countries like Switzerland, Israel, and Germany that require individuals to buy private health insurance, likewise, find that not everyone complies. Mandatory purchase would decrease the number of uninsured, but, alone, nobody can seriously contend that it would actually result in universal...

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