More Health Reform Needed - In America's Workplaces

I'm a blogger fellow with Brave New Films on their 16 Deaths Per Day campaign for worker safety. Join us on Facebook.



Last week, the House Education and Labor Committee held a hearing on HR 2067, the Protecting America's Workers Act (PAWA). This bill would strengthen and modernize OSHA, the Occupational Safety and Health Administration, and give them the tools to actually carry out their mission of ensuring a safe workplace for all Americans.

We tend to think of health care as simply a matter of insurance and doctors and pills. But workplace safety plays just as vital a role. Most of us spend a majority of our waking hours at our workplaces. We often carry out dangerous tasks at worksites which are not fully screened by regulators. We are offered little training or safety equipment to carry out these tasks. And a lot of us die - 16 deaths per day, in fact, over 5,000 deaths a year due to workplace accidents, and many more - over 50,000 - from occupational disease.

Many of these deaths are preventable, and simply due to OSHA not having the resources or the tools to carry out its mandate. PAWA would change that. It would extend OSHA coverage to state, local and federal government workers, as well as airline and railroad employees, which (incredibly) do not currently get OSHA protections - well over 8 million workers. It actually raises civil penalties for worksite violations, for the first time in two decades, so that fines for keeping a hazardous workplace is not the cost of doing business. Any violation involving a worker death would be susceptible to a mandatory minimum penalty. And PAWA would provide accountability, by allowing prosecutions against employers who allow worker injuries and deaths willfully (employees and their families would have means to hold employers accountable as well). This would represent the first update of the Occupational Safety and Health Law since its enactment in 1970.

A report last week suggested that workplace injuries have declined, despite no changes to the law. Certainly the Chamber of Commerce has been throwing these statistics around. But these numbers from the Labor Department are often preliminary, involve changes to reporting standards, and never count the 50,000-plus deaths due to occupational diseases and toxic exposure. Indeed, the Chamber works hard to create reporting rules beneficial to their businesses, which mitigate reporting statistics. There's also conflicting data, like the jump in workplace suicides. Meager successes - if they exist - do not eliminate the need for continued action.

The regulatory reform at OSHA over the past several years, prior to the Obama Administration, is legendary, and admirably summed up by this report from the Center for Progressive Reform. The current leadership of OSHA - Assistant Secretary David Michaels and Deputy Assistant Secretary Jordan Barab - have been handed a dysfunctional agency without the means to cover every worksite in America, nor the enforcement capabilities to force compliance. An excerpt:

Observing OSHA in its struggle to implement and enforce the OSH Act is a study of regulatory dysfunction. OSHA and its state partners employ fewer than 2,100 inspectors to keep tabs on more than 8 million U.S. workplaces. OSHA must meet so many analytical requirements that it takes more than a decade to implement a single new standard. By one
count, OSHA is subject to 18 different statutory, court-created, and administrative limits on its rulemaking process [...]

If conducted properly, a compliance assessment at a very large worksite might take 2,000 employee-hours. The accompanying legal proceedings can drag on for months or years. In Fiscal Year 2010, OSHA will spend about $227 million on federal enforcement programs, but will only have the capacity to inspect 40,000 of the nation’s more than 8 million workplaces.

Proactive rulemaking to manage emerging hazards, such as lung disease linked to diacetyl, and other flavoring chemicals used in the popcorn industry, can also be a huge resource drain. Every type of OSHA employee – economists, engineers, occupational health specialists, lawyers – is involved in the development of new health and safety standards. Coordinating their work is difficult and costly.

Yet, OSHA operates on a shoestring budget. OSHA’s budget climbed steadily in the 1970s, funding the agency’s growing capacity to develop new rules and enforce the OSH Act, which in turn triggered a backlash from the business community. Under the Reagan and George H.W. Bush administrations, OSHA’s budget was first cut and then held roughly even with inflation. The Clinton administration gave OSHA a boost, and the agency’s budget reached an historic high in 2001. But that was the same year that the agency published its ill-fated ergonomics standard, and, like OSHA’s aggressive enforcement in the late 1970s, the ergonomics standard elicited a backlash in the business community and a subsequent whittling-away of the agency’s budget under George W. Bush.

The whole report is worth reading. You could tell this story in virtually every regulatory agency in America. The Reagan revolution ushered out real enforcement of industry and ushered in industry capture or resource starvation. This has continued largely unchecked until today. PAWA would change that, on a variety of levels.

And this isn't an abstract problem. There are real consequences to inattention to our workplaces. To take just one example: in July 2009, a temporary worker in Camden, NJ named Vincent Smith died from falling into a vat of chocolate. He was untrained, without job security as a temp and making the minimum wage. And it turned out that the food processing plant didn't have a license to make chocolate. They operated for six or seven years without scrutiny from federal or even local inspectors, and workers had no whistleblower protections to call OSHA and report the violations. In an effort to save money, Hershey sub-contracted out their chocolate processing to plants like this, and that savings comes at the expense of worker safety.

Local inspectors took out their wrath on the processing plant, fining them a whopping.... $1,152. Eventually, federal authorities investigated the plant, and they did come up with a fine for the multiple safety violations and the death of Vincent Smith - $39,000. This is considered a major fine for OSHA, and yet it's a mere pittance of the profits for a company operating illegally without a license for 6 years.

Smith's family has filed a personal injury lawsuit. But we cannot rely on the courts, absent regulators, to prevent the next death, or provide the deterrent needed to get employers to provide a safe workplace. We need the Protecting America's Workers Act.

CFPA Gets Big Boost From Obama

The White House actually made news today. Really, and it had nothing to do with Norway. The President came out with a full-throated endorsement of the Consumer Financial Protection Agency, actually foregrounding it among all the other elements of financial regulatory reform.

But a central part of our reform effort is also aimed at protecting Americans who buy financial products and services every day -- from mortgages to credit cards. It's true that the crisis we faced was caused in part by people who took on too much debt and took out loans they couldn't afford. But my concern are the millions of Americans who behaved responsibly and yet still found themselves in jeopardy because of the predatory practices of some in the financial industry. These are folks who signed contracts they didn't always understand offered by lenders who didn't always tell the truth. They were lured in by promises of low payments, and never made aware of the fine print and hidden fees [...]

As we've seen over the last year, abuses like these don't just jeopardize the financial well-being of individual Americans -- they can threaten the stability of the entire economy. And yet, the patchwork system of regulations we have now has failed to prevent these abuses. With seven different federal agencies each having a role, there's too little accountability, there are too many loopholes, and no single agency whose sole job it is to stand up for people like Patricia, Susan, Maxine, Andrew and Karen -- no one whose chief responsibility it is to stand up for the American consumer, and for responsible banks and financial institutions who are having to compete against folks who are not responsible.

So under the reforms we've proposed, that will change. The new Consumer Financial Protection Agency that I've asked Congress to create will have just one mission: to look out for the financial interests of ordinary Americans. It will be charged with setting clear rules of the road for consumers and banks, and it will be able to enforce those rules across the board.

This was an idea from Elizabeth Warren that had absolutely no traction in Washington, and now the President of the United States is backing it in major speeches. He even attacked the US Chamber of Commerce for opposing it. To me, that's a big deal. But Oslo went and ruined everything. Oslo!!

I was on a conference call with Austan Goolsbee after the speech, and he emphasized three key points:

1) transparency - the importance of writing rules for credit cards, loans, etc., in clear language with full disclosures
2) fairness - it's time to get rid of unfair or predatory practices like payday lenders, and level the playing field for community banks.
3) accountability - not only would financial institutions and regulators be held accountable (the thinking is that the only thing a CFPA regulator would do is protect consumers, instead of the current disparate nature), but consumers would be able to take responsibility without being taken advantage of.

There was a reporter from the Philly Inquirer on the call who had the gall to say that the people affected by deceptive practices in the financial industry "made some dumb decisions." This is going to be the standard claim from the right (remember Rick Santelli's "I don't want to subsidize the loser's mortgages" rant?) so it's important to be armed with the facts. The fact is that regardless of whether you "go out there and shop" (another claim by this lunatic), financial products are written currently in deliberately obtuse ways, and the profit margins of the lenders or banks are directly proportional to how much of the fine print they can hide. People intuitively know this, and all the associated games along with it. And they deserve a federal agency at least tasked with looking out for them.

Now unfortunately, some of this comes a little late, as the National Community Reinvestment Coalition mentioned today:

“We applaud the President’s necessary leadership on financial reform. Clearly the President felt it necessary today to speak out against the weakening of the bill. Unfortunately, the damage from corporate lobbying in Congress may have already been done,” said John Taylor, president and CEO of NCRC.  "The ability of the proposed Consumer Financial Protection Agency (CFPA) to protect the most financially vulnerable individuals and communities has already been undermined by substantial changes to the bill.”

“Most importantly, the proposed agency will not have sufficient independence from the existing regulators, whose failure to enforce the law was the reason for the establishment of the agency,” said Taylor. “The exclusion of enforcement of the Community Reinvestment Act was also a major concession to the financial services lobby, and allows them to continue to shirk affirmative obligations to serve and lend to working class Americans, within the constraints of safe and sound underwriting.”

In particular, Taylor is talking about the removal of "plain vanilla" financial products that would set a baseline standard for what's minimally required. And that's true. But it's good that Obama jumped in now before this weakens any further. And it would be good to re-emphasize this after the Nobel fervor blows over.

Why The WellPoint Case Matters

Just a few thoughts about why this WellPoint case matters to the overall health care reform debate:

• Maine is a "swing state" for health care reform - Given its Senators, and given this behavior by the insurer who controls over 70% of the local market, obviously a scandal like this in Maine, where Anthem is literally suing the state to guarantee a profit, is deeply embarrassing to the political class if it spreads and becomes a big story.

• Regulation alone cannot work - Here we have a state where insurance companies are regulated much like a public utility. The Superintendent is vested with the power to protect consumers and ensure reasonable rates. And despite that, the insurance company sues for a better profit margin. This is not entirely abnormal among utilities, who troll for a friendly judge to allow them to raise their rates. In the area of health care, however, we are being told that tough regulations will solve the problem of skyrocketing premiums and get everyone covered. I think we know what to expect - lawsuits like this in every state, with private corporations arguing that their corporate personhood status somehow entitles them to a profit - that's basically what they're saying in this lawsuit.

• The for-profit health care system is doomed - in this case, the Maine Superintendent of Insurance allowed Anthem to raise their rates by 10.9% to reach an actuarial "break-even" rate. Over the past ten years, they have raised their rates by double digits 8 times. If you had an individual plan in Maine in 1999, today it probably costs FOUR TIMES as much. That's just not sustainable for anybody. Before long, people will simply not be able to carry health insurance. And they will easily reach the hardship exemptions in the individual mandate in the Congressional bills. If you have to raise your prices by 11% every year just to break even, your business doesn't work. Increasingly, insurance companies are losing market share and only staying in business due to growth in Medicaid and Medicare. Government subsidization of this private industry, in other words, is keeping them alive. So why keep them afloat at all?

In short, this is an important case to expose to understand insurance industry practices and the future of health reform.

Subsidiary Of WellPoint Sues Maine To Raise Insurance Premiums 18.5%

A wild story out of Maine.

Anthem Health Plans of Maine, a subsidiary of WellPoint, is suing the state because they want to increase premium rates by 18.5% on their 12,000 individual insurance policy holders, so they can guarantee themselves a 3% profit margin. This story shows how silly it would be to solely rely on regulation to rein in insurance industry practices.

Like many other states, Anthem Health Plans hold a monopoly on the individual insurance market in Maine, controlling 79% of all the plans. Also like many other states, they are licensed to sell insurance through the Department of Insurance, who must clear all rate increases prior to implementation. Originally, Anthem Health Plans were a nonprofit Blue Cross and Blue Shield corporation licensed to practice in Maine since 1939. In 1999, Anthem bought the business and began to operate it as a for-profit company. Since that point, Anthem has raised premium rates 10 times, and 8 of those times have been double-digit rate increases.

Jan-99: 20.4%
Nov-99: 15.7%
Jan-01: 23.5%
Feb-02: 12.7%
Jan-03: 3.4%
Mar-05: 14.5%
Mar-06: 16.3%
Jan-07: 16.7%
Jul-07: 1.3%
Jan-08: 12.5%

The average individual Maine rate-payer is paying four times as much for insurance than they did ten years ago.

But this isn't good enough for Anthem Health Plans. They first proposed a 14.5% rate increase for its individual insurance products, then they revised it up to 18.1% and finally 18.5%. This is an average increase. Some plans would see increase of 24.5%, some 38.4%, and for its Preventive Care and Supplemental Care Accident rider, which is part of 1/3 of all their policies, Anthem proposed a rate increase of 58.2%. This amounts to Maine consumers paying $12 million more in annual premium dollars for the exact same level of benefits.

Anthem isn't hurting for profit. Their Maine operations have generated an average annual return of $70 million dollars over the last five years. Anthem paid dividends to their parent company, WellPoint, of $75 million dollars last year alone, and $152 million since 2006. Their nine highest-paid employees totaled over $4.3 million in compensation. The individual market, while a smaller portion of their overall business, still generated $5.4 million in profit over the last two years.

The reason Anthem desires these rate raises is because their actuarial charts show they can guarantee a 3% profit through this increase. That's an estimate, however, and in 8 of the last 10 years the profit margin achieved has actually been higher. The Maine Superintendent of Insurance ruled in May 2009 that the 3% profit and risk margin sought was "excessive and unfairly discriminatory," as per the laws of the state, and instead approved a rate increase of 10.9% for Anthem. Given the recession, the financial health of the company, and the years of large rate increases, there was no way she could approve anything higher.

So Anthem sued the state. But not after filing revised rates at a 10.9% increase so they could get that going while they litigated for an even higher rate.

The Superintendent of Insurance explained in a court filing that there is no statute mandating that Maine must provide Anthem or any other insurer with a guaranteed profit. Given Anthem's ability as a large operation to cut costs, just as any family must do during a recession, the Superintendent argued there is nothing preventing them from making a profit with a 10.9% rate of premium increase. But Maine is under no obligation to guarantee one. That would be a "socialized profit," which Anthem is asserting the right to without any legal basis in fact. Furthermore, policyholders have contributed $17.4 million in profit to Anthem's bottom line over the past decade, which should be more than enough to cover potential losses from just the individual insurance line this year.

Anthem argued that they were discriminated against relative to other companies in Maine because one other individual insurer was provided a 3% profit and risk margin (that company, MEGA, asked for 2.2% rate increase back in 2007, a far different scenario). This, the corporation said, violated their equal protection rights under the federal and state Constitutions. This is a laughable claim, that the state must guarantee a profit for every insurance company licensed to provide a product. It's nowhere to be found in the Maine Insurance Code, and the Superintendent of Insurance is allowed under Maine law to consider each company's situation individually. In this case, she ruled that a 18.5% increase in premiums would be unfair and excessive.

This is a very revealing case. Those arguing against a public option claim that insurance regulations alone will be sufficient to provide an affordable product for everyone. Here's a case where Maine is attempting to regulate the industry, and the industry sues the state in an effort to grab more profit. While claiming to be on the side of reform, they will fight tooth and nail, and can be expected to do so for every regulation in the national health care bill, right down the line.

Brave New Films has put together a video exposing the practices of Anthem and its parent company WellPoint. You can send your friends in Maine the news about this lawsuit, to highlight this practice. Maine Superior Court will consider this case on Wednesday.

From Maine Superior Court, Civil Action, Docket No. AP-09-29
Anthem Health Plans of Maine, Inc., d/b/a Anthem Blue Cross and Blue Shield v. Superintendent of Insurance, et al.

Rate this story up on Digg and Reddit.

...Arthur Delaney now has this story up at The Huffington Post. He notes that Anthem lied about their individual market performance:

In its filing, Anthem said it had lost $3.7 million on its individual insurance products over the past five years. The AG says Anthem has made $5.4 million from individual consumers over the past two years, and points out that Anthem paid $75.7 million in dividends to WellPoint in 2008, $40.4 million in 2007, and $35.6 million in 2006. And its executives paid themselves pretty well, too.

Veto Threat?

This is a gentle veto option, but if Obama actually carries through with it, I'd have to hand it to him.

The White House on Tuesday suggested that President Obama would consider vetoing regulatory reform legislation if it did not include strong enough protections for consumers of credit cards, mortgages and other financial instruments.

Press Secretary Robert Gibbs told reporters that there were "big" concerns inside the administration over reports that Congress was scaling back a key pillar of the president's approach to reform: the creation of a Consumer Financial Protection Agency (CFPA). And, in a warning shot to the legislative branch, he suggested that proposed legislation to create the CFPA might not pass the president's desk if it becomes too watered down in the process.

"The president would not sign any bill that he thought was too weak," said Gibbs. "I think we have seen what happens whether it is credit card companies, mortgage companies, we now see it more in stories covering the charges for bank overdrafts and the amount of money that costs the American people each year. The American people deserve an advocate on their behalf dealing with these entities. The president believes that strongly and believes that at the end of the day we will have a strong Consumer Finance Protection Agency working on behalf of the American people."

This is the proper use of the bully pulpit. The CFPA has already been gutted to an extent. Obama laying a marker can help assure it won't get gutted any further.

Obama veto threats have been rare to this point. The only other I can remember had to do with eliminating the F-22 fighter plane. This is a very good sign, if he's willing to go up against powerful interests, and his own party in the Congress, and siding with the people.

The banks are still running roughshod over Congress. They've beaten back any serious attempt to rein them in, and even now, after taking hundreds of billions if not trillions from the federal government, they are still taking major risks, still not engaging in consumer lending, still playing with derivatives at the same numbers from before the crisis. Clearly the Congress has shown no ability to stop them, and to this point, neither has the President. I hope this signals a true change.

The Truth About The Baucus Health Care Bill

You can watch the public option debate in the Senate Finance Committee right now. It's important to understand what a bill without that public option would actually do. We got Jerry Flanagan of Consumer Watchdog to explain the elements of Baucus-care without a public option, and it's not a pretty picture.



As Flanagan explains, without a public option, insurance companies can set their own rates, set their own level of benefits, and force the uninsured to pay them under penalty of law - you're talking about a forced market where people will be fined for not giving money to private health insurance companies. Max Baucus would say that there are safeguards to limit the amount of out-of-pocket spending or premium spending as a percentage of income, but he wants those rules to be set by the National Association of Insurance Commissioners, an industry-friendly group without open meetings or public hearings, making the potential for loopholes and abuse very ripe.

Flanagan also takes on the bad employer provisions in the Baucus bill, which will allow them to drop health care for their customers and throw them onto the exchanges. He says that employers could pay only a couple hundred dollars a year per employee under this plan.

Flanagan further explains that the co-op alternative in the Baucus bill could lead to the gutting of state consumer protection laws on health insurance. This is a key point, and could lead to the insurance market looking like the credit card market, with every issuer moving to states with virtually no regulations or restrictions on how they manage their credit card business.

If you're looking for a quick, succinct way to explain the problems with the Baucus bill, pass along this video.

Turning Over The Hen House To The Foxes

One thing I've been tracking in the health care debate is what would be the mechanism for enforcing insurance company regulations. Right now we have a loose state-based framework for overseeing health insurers, with no federal oversight. Under the reform bills, the feds set down some pretty strong mandates on insurers - no rescission, no denying coverage for pre-existing conditions, rates set within a certain range. But who will enforce that? Will there be a new federal bureaucracy created? Or will the states continue to dominate. In Max Baucus' Senate Finance Committee bill, at least, the answer is the latter.

Healthcare overhaul legislation moving through the Senate Finance Committee would put crucial rule-making authority in the hands of a private association of state insurance commissioners that consumer advocates fear is too closely tied to the industry.

The National Assn. of Insurance Commissioners currently writes model laws and regulations that individual states are free to accept or discard. Under the bill by Sen. Max Baucus (D-Mont.), it would craft a model rule governing "health insurance rating, issuance and marketing requirements" that would become "the new federal minimum standard without any further congressional action." States would be permitted to deviate from the standards only by appealing to the Department of Health and Human Services.

In effect, the bill would allow the group to write many of the new rules on issuing and marketing insurance to millions of uninsured Americans who would be required to purchase policies.

"The NAIC is clearly an organization that is dominated by the insurance industry," said California Lt. Gov. John Garamendi, a former state insurance commissioner.

"I think the NAIC has an important role to play. They have a lot of knowledge, but I would be concerned about giving them authority to set the rules."

The NAIC is composed of 56 public officials, insurance commissioners variously elected or appointed to their positions. They hold no open meetings. Their records do not have to be made public. They have no federal accountability and are not vulnerable to any federal sanction. And there's also this:

Much of the criticism, particularly from consumer groups, stems from the departure of top association officials for plum industry jobs.

In 2004, the president of the National Assn. of Insurance Commissioners quit midterm to head the Property & Casualty Insurers Assn. of America.

Last year, one official left to become chairman of Swiss Re America Holding Corp., a division of global reinsurance giant Swiss Re. Another left to lead the Insured Retirement Institute, a Washington-based trade group that promotes the use of insurance in retirement portfolios.

It seems really bizarre to hand off these important rulemaking functions to a closed body often criticized of being influenced by the insurance lobby, many of whose members go through the revolving door back to the industry as executives and lobbyists. This looks like regulatory capture to me. Henry Waxman's bill creates an independent rulemaking panel accountable to Congress. Sounds like a far better solution. I know these details aren't as sexy as the public option, but they are quite important. If the NAIC builds insurance regulations with giant loopholes that the industry practically writes to their advantage, we have done virtually nothing to expand access and ensure affordable health care for everyone.

Movement By Inches On The Green Economy At The G-20

These international conferences rarely produce anything of value beyond some communique. In Pittsburgh at the G-20, leaders of the major nations congratulated themselves on saving the global economy and committed themselves to regulatory reform by 2012, with crackdowns on derivatives and banker pay and capital requirements. All of that's somewhat nebulous, however, and will be determined by national legislatures. I'm more interested in two measures. One is the pledge to phase out subsidies for fossil fuels. Again this is easier said than done, but it's good to put the nations of the world on the record, that artificially keeping polluting industries afloat is antithetical to the need to reduce greenhouse gases.

World leaders gathered in Pittsburgh for the Group of 20 summit agreed Friday afternoon to phase out fossil fuel subsidies over time, approving language that does not outline a specific timetable for the phaseout and makes clear that poorer citizens may still receive help in paying their energy bills.

But the wording of the statement, championed by the Obama administration, signals the world's most influential nations are taking an initial, tentative step away from the fossil fuels that power their economies.

"We commit to rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption," the statement said. "As we do that, we recognize the importance of providing those in need with essential energy services, including through the use of targeted cash transfers and other appropriate mechanisms. This reform will not apply to our support for clean energy, renewables and technologies that dramatically reduce greenhouse gas emissions."

The other somewhat important announcement was the acknowledgement that the G-20 should be the key international economic conference going forward, rather than the more exclusive Group of 8. This gives emerging nations like China, India and Brazil more say in the global economic future.

Yacht Party Rushes To Tout Snake Oil That Works, Works, Works!

Around 11:00 this morning some senior Yacht Party members and their acolytes will stand in front of microphones in Sacramento trumpeting a report about state labor regulations and small businesses. They can be expected to say that the real problem with the California economy is all those gosh darn regulations, and if only businesses could free themselves from the iron boot of - I don't know, the 40-hour work week, child labor, the right to have an employee saw off his fingers in a lathe without responsibility, it's a different thing every week with these people - the state could be saved.

It's worth understanding what this report that makes them go ga-ga is all about. John Myers had a sketch of it the other day.

The document, wonkishly titled Cost of State Regulations on California Small Business Study, was quietly made public late yesterday. You can read it here [...]

The summary says it all, at least in the eyes of the business community:

The study finds that the total cost of [business]regulation to the State of California is $492.994 billion which is almost five times the State's general fund budget, and almost a third of the State's gross product. The cost of regulation results in an employment loss of 3.8 million jobs which is a tenth of the State's population. Since small business constitute 99.2% of all employer businesses in California, and all of non-employer business, the regulatory cost is borne almost completely by small business. The total cost of regulation was $134,122.48 per small business in California in 2007, labor income not created or lost was $4,359.55 per small business, indirect business taxes not generated or lost were $57,260.15 per small business, and finally roughly one job lost per small business.

Basically, regulations take your wives, enslave your children, throw your ice cream on the ground, and write "loser" on your chest in sun tan lotion when you fall asleep at the beach. It's amazing how in line this study is with standard conservative tropes about onerous regulations and big government. I wonder why that is? Here's Myers.

So how do (authors Sanjay Varshney and Dennis Tootelian) reach their conclusions? The 33 page report (85 pages if you include the charts) relies heavily on Forbes Magazine and its annual report of the best -- and worst -- states in which to do business. The 2008 report ranks California #40 in the nation, and that's the relative placement the authors used for their calculations.

"Forbes data is reliable," says the study, "in that it uses credible sources of secondary data that are well recognized and respected as credible independent research in the business world."

Perhaps, but Forbes' proprietary methodology isn't entirely transparent. Its website does note the sources for its rankings: data from both the federal government and nonprofits like the Tax Foundation and the conservative-leaning Pacific Research Institute.

This "academic" study cribbed their data from a MAGAZINE profile? One owned by a movement conservative, which includes materials from wingnut welfare think tanks? And we're supposed to just let that go?

Myers goes on to note that the way Varshney and Tootelian transform the Forbes data into dollar amounts is entirely inscrutable, but designed to advance the proposition that every single state's set of regulations are harmful to business. "Even Forbes' #1 state for business friendliness, Virginia, comes out with a regulatory climate that's a net loss to the state of $4.4 billion." The study also neglects to determine which regulations harm business more or less. It's a partisan mess of a report and it should not be taken seriously. Which is why the Yacht Party has taken to it so quickly, with classy headlines like "California Businesses Waterboarded by Governmental Overregulation."

Look, labor regulations serve a particular purpose. It's true that they have a cost to business, but they also provide a significant cost savings to the individual, to the public health system, to the overall quality of life for the laborer. We have made these trade-offs over hundreds of years. The Yacht Party may think that The Jungle is a fantasy utopia, but in my experience, Californians and pretty much everybody else appreciate safe food and clean air and the minimum wage.

You can get a good sense of the intellectual honesty of a politician - and the media - by seeing if they bite at this crap sandwich of a report.

Financial Reform Already Takes A Hit

The Obama Administration has begun the agonizing process of scaling back their financial regulatory reform package to please bankers. This one's going to be so ugly I'll have trouble looking at how the sausage is made.

In a step toward overhauling the nation’s financial regulation, a senior Democrat on Wednesday announced a plan that preserved the core of the White House’s proposal for a new consumer financial protection agency, while jettisoning a smaller though symbolically significant provision that had posed political obstacles [...]

An Obama proposal that Mr. Frank rejected would have required banks and other financial services companies to offer so-called plain vanilla products, like 30-year fixed mortgages and low-interest, low-fee credit cards.

That proposal set off criticism by Democrats and Republicans, some with close ties to the banking industry, that it was the first step toward having government bureaucrats approve and disapprove an array of products.

At a hearing on Wednesday before the financial services committee, Treasury Secretary Timothy F. Geithner said: “There has been a lot of concern that if you invest the government with the ability to decide what’s appropriate here and there, that will lead to less competition and choice. The chairman’s proposals, which I’ve had a chance to read quickly, provide a better balance of choice and protection.”

Consumer groups are hanging their hats on the fact that the Consumer Financial Protection Agency hasn't been eliminated completely... yet. But Frank would exempt merchants, retailers, accountants, real estate brokers and IRA providers from any of its laws, and I would expect that list to grow. Banksters remain unconvinced that the CFPA needs to exist, and I'm fairly confident that they'll continue to advocate aggressively against it.

"We are pleased that a number of the issues we raised have been addressed," said Edward L. Yingling, president of the American Bankers Association. "At the same time, there are some very significant issues that still need to be addressed."

Among those issues, Yingling said, is that under the current proposal, states could go beyond the federal guidelines for consumer protection set by the new agency, an approach that financial firms say could lead to burdensome and conflicting regulation. A separate agency for consumer protection "still will have conflicts with the safety and soundness regulators," Yingling said. He and others also argue that the new regulator would be too powerful. "The agency still will have very, very broad, legislative-like powers. It can basically do anything it wants," he said. "We think that's a problem."

Also Tuesday, at an event outlining the chamber's objections to the CFPA, David Hirschmann, head of the organization's Center for Capital Markets, described the proposed new agency as an "overly broad, overly sweeping, big government solution."

It's good news that Frank pushed back hard against an alternate proposal floated by the Blue Dogs, but I fear we're seeing a slow walk toward something right in the wheelhouse of that alternative.

...Felix Salmon calls it the beginning of the end of meaningful reform:

There’s no good reason for this capitulation, except for the financial lobby has so effectively captured Congress that no reform would be able to get through with such a common-sense provision in place. This has nothing to do with the government “approving and disapproving a wide array of financial products”, it just says that anybody who wants to call themselves a bank should provide simple, basic banking products which aren’t prone to hidden fees and lucrative opacity. I fear that by the time Congress is done, the Consumer Financial Protection Agency won’t be able to protect consumers at all — and that’s assuming it’ll even exist.

Tom Campbell's Kind-Of-Interesting But Just-A-Mask-For-Friedmanism Health Care Proposal

Tom Campbell, among all the Republicans in the gubernatorial field, has at least been willing to lay out detailed plans for how he would fix the state. Typically this manifests itself as the same old Hooverism. But his health care plan at least gets points for creativity.

GOP gubernatorial hopeful Tom Campbell released a unique health care proposal Thursday that would redistribute $42 billion in federal and state funds already spent on health care in California to buy private health coverage for everyone in the state who's "involuntarily" uninsured.

Under the former congressman's plan, the funds would cover an estimated 2 million such people in addition to the 7.6 million already receiving public health coverage under the state Medi-Cal and Healthy Families programs.

"The astounding conclusion," Campbell writes in his proposal, "is that, using only the money already being spent by the federal and state governments for health care in California, we could buy free market health insurance currently available and cover all involuntarily uninsured in California, and still have more than $700 per person left over!"

Instead of dedicating funds to services for the poor or children, Campbell would split the state into regions, and allow insurers to bid against one another to cover everyone in that region who earned below a certain level, along with everyone denied coverage for a pre-existing condition. Insurers wouldn't bid on price, but quality of coverage - the money would be fixed, and insurers would bid against each other based on what they would cover and at what rate.

I'm wondering why any insurer would bid for this right. They deny people with pre-existing conditions because they are more likely to use health care, increasing their medical loss ratio. And the poor are more likely to need health care treatment based on lifestyle and environment. And the kicker to Campbell's plan is, if nobody bids, the status quo would remain in place for that geographical area. So basically, Campbell is touting a big plan that would do... nothing. And he wouldn't embark on it if the federal government enacts their own plan.

Mavericky!

Really, that interesting, if impossible (try getting a federal waiver to set it up and face Congressmembers with interests in protecting SCHIP and Medicaid), proposal is a cover for Campbell's apparent agenda - to permit the interstate sale of insurance and to bring up the canard of tort reform as a panacea. Medical malpractice is an insignificant percentage of total health care costs and states which have embarked on major medmal reform, like Texas, have seen no change in health inflation. As for the interstate sale of insurance, you can do it now - only you're responsible to comply with the laws of the state in which you sell. This proposal would allow insurers to only be responsible to the regulations of the state where they are based. Tom Campbell wants to do for the health insurance industry what this kind of proposal did for the credit card industry - send all insurance companies to a small state with no regulation, and gut all state-based regulation in the process, leaving California's insurance customers at the mercy of the laws of South Dakota or Mississippi.

To his credit, Campbell wants to remove the anti-trust exemption on the insurance industry. But really, that's a means to an end here. However, there is a point of consensus between conservatives and liberals to do away with the McCarran-Ferguson Act, that offers that anti-trust exemption. Bills to this effect were just introduced in Congress. If Campbell wants to talk them up to the California GOP delegation, go ahead.

Keep An Eye On This

As much of the content of the traditional media rankles many of us, the editorial decisions should as well. Dozens of potentially game-changing stories go unreported while the Umbrage Brigade on cable talk about what Joe Wilson said about Jimmy Carter or whether Michelle Obama is overstepping her boundaries by talking about health care (I caught that one today). Meanwhile, the biggest financial crisis in 70 years just happened, and even people who consider themselves well-informed don't understand the entire story. The Congress enacted the Financial Crisis Inquiry Commission (some are calling it the new Pecora Commission, given its similarity to the Depression-era commission of that name led by chief investigator Ferdinand Pecora), headed by former California Treasurer and gubernatorial candidate Phil Angelides, and they held their first public session yesterday. The meeting was introductory in nature, but Tim Fernholz came away with a few thoughts.

• Given the membership [PDF], I worried that the committee would be beset with partisan bickering and/or clashing ideologies, like the Congressional Oversight Panel. The COP, appointed by Congress to provide oversight of the bank rescues, is regularly undermined by dissents from Representative Jeb Hensarling, whose deeply conservative economic views preclude almost any reasonable discussion about regulation and finance. But though some tensions showed, I though the conservative New Pecora commissioners seemed open-minded; former Bush administration economic official Keith Hennessey and McCain economic adviser Douglas Holtz-Eakin made productive comments, though Peter Wallison, a more doctrinaire conservative than either of the other two, seemed to have his mind made up about the financial crisis, essentially blaming Fannie Mae and Freddie Mac right from the outset. He may be the poison pill on this committee.

• Most surprising was Vice-Chairman Bill Thomas, a former Republican Congressman and Committee Chair. Thomas seemed to agree broadly with Chairman Phil Angelides goals of non-partisan fact-finding, and went out of his way to compliment the views of every member of the commission. He even singled out Commissioner Brooksley Born, who strongly advocated regulating derivatives during the Clinton administration, telling her that the crisis would have been much more manageable had her advice been acted on. Later, asked by a reporter if the issue of regulating markets would divide the committee, Thomas stepped forward to say that he thought regulatory reform was inevitable and that making it work correctly was critical. Though it is easy for him to say that now, Thomas' early impressions are much less doctrinaire than had been anticipated.

• One concern: There is no liberal economist on the committee, while there are three conservative economic thinkers in Hennessey, Holtz-Eakin and Wallison. The Democratic appointees have regulatory, legal, political and private business experience, but no specific economic expertise.

• Early in the week, the New Pecora Commission announced the appointment of Thomas Greene as its Executive Director. Greene, a lawyer, has done complex investigatory work both in Washington, D.C. and in California, coordinating anti-trust and securities investigations in a variety of venues. The appointment is critical; recall that the Pecora Commission was named after it's executive director, Ferdinand Pecora, not the members of congress who constituted the actual committee. And more talent is coming: As Greene hung around after the hearing, several different people, including several lawyers, approached him about working for the commission.

The FCIC will hold hearings and issue regular reports between now and December 2010. This needs to be watched. We all have a sense that the banksters turned Wall Street into their private gambling hall and took huge risks, secure in the knowledge that they could get the government to bail them out if things went awry. Currently there have been no prosecutions of the major players in the scandal, no accountability to any degree, and a year later, Wall Street appears to be going back to their same old ways, entirely at our expense. Michael Hirsh believes that this commission offers one last chance to make the record public, and use it as a lever to change the system. He's not optimistic, however. The ideological shadings of the commission and Angelides' wariness of using the subpoena power he's been given worry him (I actually think Angelides can be a lot tougher than Hirsh or anyone gives him credit for). But he offers a glimmer of hope.

Still, Angelides and his team may yet surprise us. It's happened before. The history of "blue ribbon" commissions like this one is rich and storied in Washington; one of them, in 1942, was led by an obscure senator from Missouri who was also seen as a political hack at the time. His name was Harry Truman, and he turned his commission on defense malfeasance into a ticket into the White House and the history books [...]

What we do need, however, is a parade of witnesses who will provide what's been missing so far in this crisis—a prominent outlet for public outrage. In the last nine months, the Obama administration and the grandees in Congress have been designing solutions without much input from the outside, often using experts from Wall Street (especially "Government Sachs"). It's pretty much been a closed system. Even Paul Volcker, considered perhaps the greatest Federal Reserve chairman in history (now that the Alan Greenspan era looks much worse retrospectively), has been all but ignored by the president he is advising. Volcker has been making a series of speeches around the country calling for sensible changes to the structure of Wall Street that the administration and Congress are not yet considering. He wants federally guaranteed bank deposits to be cordoned off from heavy risk-taking and proprietary trading. Volcker wants banks, in other words, to be barred from behaving like hedge funds. "Extensive participation in the impersonal, transaction-oriented capital market does not seem to me an intrinsic part of commercial banking," Volcker told a corporate group Wednesday in Los Angeles. He should be invited to Washington to say the same thing.

I can remember a time when commissions like these, from the Pecora Commission to the Truman Commission to Watergate to Iran-Contra to even the 9-11 Commission, were major public news, followed intensely by the media. You'd think that a similarly designed commission tasked with uncovering the greatest loss of wealth in world history would generated more than a few words on the cable news crawl. But we have to make this important, too. The FCIC may fall into partisan bickering, or it may create some powerful narratives about the criminal enterprise on Wall Street. But none of it will matter if nobody pays any attention.

Imagining The Paul Volcker Treasury Department

Paul Volcker was pretty heavily involved with the Obama transition team, and certainly had the ear of the Administration at some point. I don't know the status of that now. But hopefully they pick up on this article in the Wall Street Journal:

Former Federal Reserve Chairman Paul Volcker on Wednesday said banks should operate in a much less risky fashion, including not making trading bets with their own capital, comments that could provoke intensified debates over the future of financial regulation.

Mr. Volcker, who currently is chairman of the White House's Economic Recovery Advisory Board, suggested banks should be restricted to trading on their client's behalf instead of making bets with their own money through internal units that often act like hedge funds.

"Extensive participation in the impersonal, transaction-oriented capital market does not seem to me an intrinsic part of commercial banking," he said in a speech to the Association for Corporate Growth in Los Angeles [...]

Mr. Volcker said banks should be banned from "sponsoring and capitalizing" hedge funds and private-equity firms, which are largely unregulated. He also said "particularly strict supervision, with strong capital and collateral requirements, should be directed toward limiting proprietary securities and derivatives trading."

He also said collateral and leverage restrictions against the largest nonbank financial institutions "may be needed."

That's because it isn't, it's just become a growth center for banks that can operate like a casino and get the government to bail them out if things go wrong.

Volcker is basically advocating a similar version of the reforms that came out of the Great Depression. Then, banks were separated into commercial and investment entities under the Glass-Steagall Act, and bank holding companies could not own other financial firms. That came out of the Pecora Commission recommendations, which dug up so much of Wall Street's corrupt practices that the necessity of reform could not be refuted.

In a Volcker Treasury Department, instead of Tim Geithner, we would have a chance to make these the starting points for reform, and invigorate the modern-day Financial Crisis Inquiry Commission, or Angelides Commission, to dig deep and look into what the financial firms did to nearly destroy the economy. The banksters would be fending off the cries for reform instead of using their lobbying arms to channel them in business-friendly ways.

Now wouldn't that be nice?

...Matt Taibbi says that Volcker was basically beached after the campaign along with a lot of the other more progressively minded economic advisers. It sounds pretty right.

If The Congress Won't Do It, The EPA Will

Harry Reid is signaling that health care and financial regulatory reform will take precedence in the Senate over the climate change bill, which could push the legislation into next year. The problem with that is the Copenhagen conference coming up in December, and the need for the US to bring something tangible to the table if there is any hope for an agreement. Indeed, the Europeans are already angry at the US approach, and not having some movement on the climate in hand will probably kill it completely. So the Administration has taken the law into their own hands, as allowable under the Supreme Court mandate to regulate greenhouse gas emissions.

The Obama administration on Tuesday formally proposed new fuel efficiency standards for cars and trucks, a move that signals the first federal limits on greenhouse-gas pollution.

In May, President Obama announced in a Rose Garden ceremony that cars would be held to a higher environmental standard. On Tuesday, officials filled in the details, linking fuel economy to emissions from vehicles.

The net effect would be to require manufacturers to ratchet up fuel economy 5 percent per year. In 2016, new cars and trucks would have to achieve an average rating of 35.5 miles per gallon. Cars currently must average 27.5 miles per gallon; light trucks must average 23.1 miles per gallon.

If this is any indication, it's only a first step, leading to other command-and-control measures from the EPA and other regulatory agencies in the absence of a climate deal from Congress. Power plants, one presumes, would be next. In fact, they've already started revising the rules on waste discharges from coal plants.

It's probably not the best practice, but under the current gridlock, it's the only tool available to the Administration. So members of Congress, particularly Republicans, have a choice to make. Legislation or regulation?

Polluting industries certainly didn't give up the fight against legislation in the face of regulation, and they'll continue to fight tooth and nail against the regulation in an attempt to run out the clock and maximize profits. David Roberts says that's why Obama needs to get involved and get a climate bill passed.

The war against EPA regulations will also be waged with aggressive public relations campaigns. There will be great hue and cry about the economy-destroying burden that command-and-control regulations impose on American business. And unlike with a climate bill, responsibility (read: blame) cannot be dispersed. There is no hint of bipartisanship. Responsibility for EPA regulations will fall entirely on Barack Obama and his administration, not on Congress—which is probably how Congress prefers it. If it’s a total mess, or demagogued as one (as is all but certain), it’s Obama that takes the hit. That is yet another reason he’d rather avoid it.

Greens are fighting to preserve EPA authority in the climate bill. Some have even said that it would be preferable for legislation to fail and the EPA to take over. It’s not hard to understand why—something needs to be done about existing coal plants, and there aren’t many tools in the climate bill toolbox to address them. But no one should be under any illusions. The NSR/PSD/BACT approach is grossly suboptimal for the job that needs doing. It might have the intended effect—killing coal plants—but there’s potential for unintended effects as well, including substantial political blowback.

Both sides, greens and industry, have reason to fear if the climate bill fails. It’s terra incognita, a volatile and unpredictable situation. Obama doesn’t need any more problems like that. That’s among the reasons he is likely, this fall, to put some of the time and energy toward lobbying for a good climate bill. From his narrow political perspective, virtually any bill is preferable to catching the EPA tiger by the tail. That tiger eats bunnies.

In this case, the House has already passed a bill, so really we're looking at the Senate as the holdup here. But the dynamic of Senators not wanting to be responsible, pushing all the political liability on to the President, will be difficult to change.

Financial Reform FAIL And A New Metric For Recessions

Simon Johnson had the same problem as I did with the President's speech on financial reform:

As a diagnosis of the problems that let us into financial crisis, it was his clearest and best effort so far. He didn’t say it was a rare accident for which no one is to blame; rather he placed the blame squarely on the structure, incentives, and actions of Wall Street.

But then he said: our regulatory reforms will fix that. This is hard to believe. And even the President seems to have his doubts, because he added a plea that – in the meantime – the financial sector should behave better [...]

Louis Brandeis, of course, would have seen things differently. The author of “Other People’s Money: And How The Bankers Use It,” was under no illusions concerning the underlying financial power structures and how they operated. He would have regarded an appeal to the better nature of bankers as somewhere between humorous and sad.

The only thing that will make a different is regulation. This is the lesson of the 1930s in the US – the regulations imposed at that time created a financial sector that did not impede growth after World War II; basic intermediation (connecting savers and borrowers) worked fine and destabilizing frenzies were avoided. During this period, the financial sector came up with venture capital, ATMs, and credit cards – arguably the three most important financial innovations of the past 100 years, and much more helpful of real innovation than anything you’ve seen since 1980.

As Johnson has repeatedly argued, we need to break up the biggest banks, end the revolving door between Wall Street and Washington and ensure that the executives taking the risks put their own fortunes at stake instead of gambling with our money. Sadly, none of these elements exist in the more modest reform proposals from the President, and even those are faltering in the face of institutional pressure.

As a result, we muddle through, resetting the clock to the pre-bailout days without having fundamentally fixed the system or prevented the possibility of a relapse. It's great that Ben Bernanke thinks the recession is over. But the 9.4 million people who have lost their jobs would disagree with him. Their personal depressions continue, and I would argue that this is a direct result of allowing the titans of Wall Street trillions in Treasury wealth while ordinary Americans suffer with a too-small stimulus and not much prospect for recovery.

Fifteen million Americans are locked in the nightmare of unemployment, nearly 10 percent of the work force. A third have been jobless for more than six months. Thirteen percent of Latinos and 15 percent of blacks are out of work. (Those are some of the official statistics. The reality is much worse.)

Consider this: Some 9.4 million new jobs would have to be created to get us back to the level of employment at the time that the recession began in December 2007. But last month, we lost 216,000 jobs. If the recession technically ends soon and we get to a point where some modest number of jobs are created — say, 100,000 or 150,000 a month — the politicians and the business commentators will celebrate like it’s New Year’s [...]

At some point the unemployment crisis in America will have to be confronted head-on. Poverty rates are increasing. Tax revenues are plunging. State and local governments are in a terrible fiscal bind. Unemployment benefits for many are running out. Families are doubling up, and the number of homeless children is rising.

It’s eerie to me how little attention this crisis is receiving. The poor seem to be completely out of the picture.

Joseph Stiglitz has a similar view in today's Guardian, arguing that the Administration through saving the financial system has perversely created banks that are not only too big to fail but too big to resolve, the way you would other entities which cannot meet their obligations. In a separate piece, he argues that the metric for evaluating recession - gross domestic product - now has almost no bearing on everyday lives, and ought to be scrapped in favor of something that truly reflects the outlook for ordinary people.

The big question concerns whether GDP provides a good measure of living standards. In many cases, GDP statistics seem to suggest that the economy is doing far better than most citizens' own perceptions. Moreover, the focus on GDP creates conflicts: political leaders are told to maximise it, but citizens also demand that attention be paid to enhancing security, reducing air, water, and noise pollution, and so forth – all of which might lower GDP growth.

The fact that GDP may be a poor measure of well-being, or even of market activity, has, of course, long been recognised. But changes in society and the economy may have heightened the problems, at the same time that advances in economics and statistical techniques may have provided opportunities to improve our metrics.

I remember Andy Stern coming up with the same idea in his book a few years ago. If we continue to use a metric based on the desires of elites, then they will please themselves with growth results even though the mass of people continue to suffer. Believe it or not, common statistics can actually change policy for the better. The problem lies in getting everybody to use it.

...Kevin Drum offers up real median income growth as a better metric. If that's the case, we've actually been in a depression for a decade.

Excuse Me, Now?

President Obama's speech on financial reform laid out the basis for a new regulatory structure, but this part puzzled me to no end.

So restoring a willingness to take responsibility -- even when it's hard to do -- is at the heart of what we must do. Here on Wall Street, you have a responsibility. The reforms I've laid out will pass and these changes will become law. But one of the most important ways to rebuild the system stronger than it was before is to rebuild trust stronger than before -- and you don't have to wait for a new law to do that. You don't have to wait to use plain language in your dealings with consumers. You don't have to wait for legislation to put the 2009 bonuses of your senior executives up for a shareholder vote. You don't have to wait for a law to overhaul your pay system so that folks are rewarded for long-term performance instead of short-term gains.

The fact is, many of the firms that are now returning to prosperity owe a debt to the American people. They were not the cause of this crisis, and yet American taxpayers, through their government, had to take extraordinary action to stabilize the financial industry. They shouldered the burden of the bailout and they are still bearing the burden of the fallout -- in lost jobs and lost homes and lost opportunities. It is neither right nor responsible after you've recovered with the help of your government to shirk your obligation to the goal of wider recovery, a more stable system, and a more broadly shared prosperity.

So I want to urge you to demonstrate that you take this obligation to heart. To put greater effort into helping families who need their mortgages modified under my administration's homeownership plan. To help small business owners who desperately need loans and who are bearing the brunt of the decline in available credit. To help communities that would benefit from the financing you could provide, or the community development institutions you could support. To come up with creative approaches to improve financial education and to bring banking to those who live and work entirely outside of the banking system. And, of course, to embrace serious financial reform, not resist it.

Yeah, same with the health insurance industry. You don't see them rushing to accept anyone regardless of pre-existing condition or renouncing the dumping of sick patients. The way our system works, for-profit companies don't change their ways unless forced to by law. Is this some rhetorical trick that benefits nobody in the end, or is the President really asking Wall Street nicely to reform themsleves, trim their sails and stop taking risks with our money?

Financial titans are not going to play fair because somebody tells them to. That's what makes them FINANCIAL TITANS. The only way to hold Wall Street responsible is through holding them directly responsible and investigating every nook and cranny of their dirty dealings. The President is not powerless to simply beg and grovel for responsibility. He has significant tools at his disposal. Turning the Justice Department loose on the fraudsters isn't a bad start. Or empowering the Angelides Commission to really attack the root causes. Point being, if you want any kind of significant regulatory reform to pass, you'd better get tough on Wall Street instead of engaging them as some kind of buddy.

Still, the measure is proving more troublesome than expected in the House, where top Democrats had initially thought it would pass easily.

Unease among Democrats prompted House Financial Services Chairman Barney Frank (D-Mass.) to postpone a markup on the Consumer Financial Protection Agency proposal scheduled before the August recess. It’s now expected to occur in early October.

Industry efforts to kill the CFPA seem to be having an effect. And moderate Democrats still aren’t entirely on board. “Distinct parts [of the bill] are real problems for a lot of people,” including the enforcement powers granted to the agency and the lack of state pre-emption, said a Democratic aide.

Maybe the thinking in the White House is to turn over regulatory reform to Richard Shelby the way other progressive policy agenda items have been turned over to Republicans and moderates.

What happened in the financial market should have been a wake-up call. As Phil Angelides said, "If this shock doesn't do it, I don't know what would." But that requires leadership to see the changes through. And it's frankly lacking at the top.

...Arianna nails it.

And that's the way it is with our leaders. They stand on the bridge making theatrical gestures they claim will steer us in a new direction while, down in the control room, the autopilot, programmed by politicians in the pocket of special interests, continues to guide the ship of state along its predetermined course [...]

I don't dispute for a minute that his heart is in the right place, and that he means it when he says "the old ways that led to this crisis cannot stand" and touts "the need for change and change now."

But we've been hearing similarly great sentiments for months now -- and they've had the same impact as my friend's ten year-old yanking on the cruise ship wheel. None. President Obama won't be able to change the course our financial system is on unless he goes down into the boiler room and disengages the autopilot -- which means taking on the bankers and their hordes of lobbyists who continue to dictate policy in DC.

I'd give Obama a little more agency here - the Presidency carries tremendous power - but basically this is right.

A Year After Lehman

A year ago, Lehman Brothers collapsed, sparking a financial meltdown that nearly took the global economy with it. The problem, as many saw it, concerned giant banks taking huge risks and putting greed ahead of responsibility. The solution, one year out, has been to stuff those giant banks with money to prop them up, while making them bigger and allowing them to take exactly the same risks.

One year after the collapse of Lehman Brothers, the surprise is not how much has changed in the financial industry, but how little.

Backstopped by huge federal guarantees, the biggest banks have restructured only around the edges. Employment in the industry has fallen just 8 percent since last September. Only a handful of big hedge funds have closed. Pay is already returning to precrash levels, topped by the 30,000 employees of Goldman Sachs, who are on track to earn an average of $700,000 this year. Nor are major pay cuts likely, according to a report last week from J.P. Morgan Securities. Executives at most big banks have kept their jobs. Financial stocks have soared since their winter lows.

The Obama administration has proposed regulatory changes, but even their backers say they face a difficult road in Congress. For now, banks still sell and trade unregulated derivatives, despite their role in last fall’s chaos. Radical changes like pay caps or restrictions on bank size face overwhelming resistance. Even minor changes, like requiring banks to disclose more about the derivatives they own, are far from certain.

Coming on the same weekend as the 11th-hour bailout of the giant insurer American International Group, and the sale of Merrill Lynch, Lehman’s failure was the climax of a cataclysmic weekend in the financial industry. In the days that followed, nearly everyone seemed to agree that Wall Street was due for fundamental change. Its “heads I win, tails I’m bailed out” model could not continue. Its eight-figure paydays would end.

In fact, though, regulators and lawmakers have spent most of the last year trying to save the financial industry, rather than transform it. In the short run, their efforts have succeeded. Citigroup and other wounded banks have avoided bankruptcy, and the economy has sidestepped a depression. But the same investors and economists who predicted, and in some cases profited from, the collapse last fall say the rescue has come at an extraordinary cost. They warn that if the industry’s systemic risks are not addressed, they could cause an even bigger crisis — in years, not decades. Next time, they say, the credit of the United States government may be at risk.

First Alan Greenspan, and then Ben Bernanke, have offered the biggest forces in the financial industry a "put" - a price at which they will bail out investors for any risky asset they manage to buy. Asset prices have been artificially inflated by the threat of collapse and the overriding principle of "too big to fail". In fact, Lehman is seen by many in the halls of power as an EXAMPLE of too big to fail - as their collapse triggered a crisis, the decree was made that such a collapse can never happen again.

And so we have the big firms growing even bigger. And the level of risk they take on basically the same, although leverage is a little bit reduced (maybe 15:1 instead of 25:1). And the regulatory structure is largely unchanged. The same regulators are accumulating even more power despite having missed all the signs of collapse a year ago.

Here’s a novel thought. Instead of creating more regulations to try to prevent this kind of mess from recurring, why not figure out how to hold regulators accountable when they perform as poorly as they did in recent years?

Edward J. Kane, a professor of finance at Boston College and an authority on the ethical and operational aspects of regulatory failure, has some ideas about how to do this and right our damaged system in the process. He outlined them in a recent paper titled “Unmet Duties in Managing Financial Safety Nets.”

This ugly financial episode we’ve all had to live through makes clear, Mr. Kane says, that taxpayers must protect themselves against two things: the corrupting influence of bureaucratic self-interest among regulators and the political clout wielded by the large institutions they are supposed to police. Finally, he argues, taxpayers must demand that the government publicize the costs of efforts taken to save the financial system from itself.

What we have now is the same self-interested power brokers holding control over the financial industry, and a federal government which has plugged its fingers in the dike, from which they are reluctant to let go lest disaster strike again. The industry has been weaned on these tremendous public investments and become used to them. The exit could be painful and I'm not convinced that the overall industry even welcomes it. They've got a pretty good thing going - the profits get privatized, the risk gets socialized.

To the extent there is a recovery, the President deserves a little credit. Yet he is rapidly squandering the opportunity to truly recast the financial industry into their traditional role, as facilitators of the flow of capital but not hoarders of it. The crisis point was a natural time to make the necessary changes to the system, not after that feeling of crisis has lifted and the Masters of The Universe are playing with house money again. Politically, it gives the sense that the bailouts were simply a handout to industry instead of an exchange of help in the near term for wide-ranging fixes in the long term. The President took to Wall Street today to argue for financial regulatory reform, but it's going to be difficult to get this through while the banks have all the leverage. He's going to say that normalcy cannot lead to complacency. He's going to say that the rules must be tightened to ensure that we never again subsidize the casino that has become Wall Street. That includes a Consumer Financial Protection Agency to protect those who buy mortgages and take out credit cards. It includes reining in derivatives and leverage. It includes accountability for the credit ratings agencies who got their job completely wrong because their incentives were allied with the same interests who sold the crap. It includes the ability to wind down banks that are too big to fail, making them too big to exist.

I'm pessimistic that all of this will actually happen, though. A year after Lehman, it feels like the time for reform has passed. And that's extremely dangerous for the nation.

The Huge Looming Fight Over Financial Regulations

Today's the anniversary of 9-11, I guess. Why don't they just make it the following Monday and give us all a three-day weekend?

But another anniversary looms around this same time. On September 14, 2008, Lehman Brothers collapsed, and it sparked the biggest financial crisis since the Great Depression. America and other countries committed trillions in resources to keep the biggest banks afloat, and as a result we have rescued the system without fundamentally changing it or ensuring that the same bubble-and-crash couldn't happen again. Instead of taking advantage of the crash and responding to the bailout by immediately moving to financial regulatory reform, to prove that the banksters weren't getting free reign, the Administration waited, and is now trying to move forward without the urgency created by the crisis. Which is why you see high-fiving in the financial media that this regulatory reform effort will not succeed.

Large staffs of lobbyists with powerful financial interests behind them will use time-honored techniques to water down or kill anything that would drain profits and force the banksters to stop gambling with our money. The same interests killed a proposed Consumer Protection Agency in the 1970s with irrational fears about how it would harm ordinary Americans. And in the Senate, that same kind of coalition is forming to kill the Consumer Financial Protection Agency proposed by the Administration.

Nonetheless, I have a couple reasons to be optimistic, as this article in The Hill was the other day. First of all, the push to empower the Fed as a single regulator for a banking sector that it basically is enjoined to has faded rapidly.

The Obama administration's vision for revamping the nation's financial regulatory system could face significant revisions in the Senate, where proposed reform legislation departs from the White House proposal on several key points, according to staff members, lobbyists and a lawmaker briefed on the plans.

A bill taking shape in the Senate Banking Committee could give the Federal Reserve far less authority than the administration sought in the reform proposal it unveiled in June. Senators on both sides of the aisle have expressed a lack of confidence in the Fed in the wake of the financial crisis, challenging everything from the central bank's transparency to its ability to protect consumers.

Some lawmakers oppose giving the Fed responsibility for monitoring systemic risk in the economy, as proposed by the administration, favoring instead vesting that authority with a council of regulators.

"We really do take what the administration did as advisory. We have our own ideas," said one Democratic staff member familiar with the legislation who was not authorized to speak on the record. "We've been thinking about this a long time."

The second reason why I'm sanguine is that the Justice Department is finally stepping up with enforcement - and I think AIG represents the beginning, not the end.

U.S. investigators are probing the former head of American International Group Inc's (AIG.N) Financial Products unit, Joseph Cassano, and other executives for securities fraud, a law enforcement source familiar with the case said on Friday.

The source said that a grand jury may be impaneled this month in New York to consider potential charges that executives failed to disclose the value of toxic assets to the bailed-out insurance company's outside accountants and shareholders.

"The investigation is really who knew what and when about these assets," said the source, who asked not to be identified because the probe was ongoing. "They were holding toxic credit default swaps and may not have disclosed their real worth."

I don't think there's a single part of this sector that couldn't be probed in the same way. Look at this horrow show of overdraft fees on debit cards, for example. You cannot literally promise lighter enforcement in exchange for tighter regulation, but I think the firms get the message.

This actually will be a more expensive fight than health care reform in terms of lobbying, once everyone gets down to it. Chris Dodd's centrality to it while he fights for his political life is a bit worrying, but he's not the real problem here. It's the Mark Warner types who can deep-six anything meaningful.

...Yves Smith is not so hopeful.

Moment Of Truth For Schwarzenegger As Legislature Passes Anti-Rescission Bill

I mentioned this yesterday, but California lawmakers gave final approval to a bill that would ban the practice of rescission, where insurance companies drop coverage for policyholders after they try to use it based on alleged technical inaccuracies in their application form. Here's what AB2 would do:

AB 2 would require:

• Individual health care service plans to be subject to an independent external review before denying or rescinding coverage.

• The state to establish standard information and health-history questions to be used on policy applications.

• That intentional misrepresentation be shown before an individual health care service plan can be rescinded.

This language basically complies with what would appear in federal legislation before Congress banning rescission.

Now Arnold Schwarzenegger has a choice to make. Does he side with people who are denied coverage after paying premiums for years? Or does he side with his usual pals in the Chamber of Commerce who will push for anything, no matter how immoral, to maximize profits?

Everyone should know that Schwarzenegger vetoed a similar bill to this last year. He's always been a Chamber of Commerce sock-puppet and I don't expect him to change now. However, Schwarzenegger has been an alleged proponent of health care reform at the national level, and in a recent letter endorsed the concept of guaranteed issue of insurance, which obviously conflicts with allowing insurers to rescind policies. He also supports continued state regulation of the insurance industry.

Well, here's his chance. The Legislature has acted to ban what I call insurer-assisted suicide, and Arnold can make his decision by either signing the bill or vetoing it.

Cramdown Returns

The Federal Reserve revealed survey results today showing the economy stabilizing throughout the country and the recession nearing an end. But without jobs, people won't feel that recession's end. As a result, even the Fed survey showed consumer spending "soft," and employment "weak" in all 12 Fed regions. And that will impact the still-unresolved sector of the economy that could easily relapse us into a double-dip recession, the housing market.

Although the ailing residential real-estate market is still weak, it also flashed signs of improvements. The Fed regions of Chicago, Richmond, Boston and San Francisco observed an "uptick in sales." Most regions said buyer demand remained stronger at the low end of the housing market, although Philadelphia did note an "upturn in sales at the high end of the market."

The Boston, Cleveland, Dallas, Kansas City, Richmond and New York regions credited the first-time home buyer tax incentive with spurring sales. Most regions reported downward pressure on home prices, although Dallas and New York said that prices were "firming."

That first-time homebuyers credit will soon expire, and this analysis fails to take into account the problems from those facing foreclosure, particularly those who got into adjustable-rate mortgages. The interest-only loan holders, in particular, could see a real disaster in the months and years to come when their rates reset.

Edward and Maria Moller are worried about losing their house — not now, but in 2013.

That is when the suburban San Diego schoolteachers will see their mortgage payments jump, most likely beyond their ability to pay.

Like millions of buyers during the boom, the Mollers leveraged their way into a house they could not otherwise afford by taking out a loan that required them to make only interest payments at first, putting off payments on the principal for several years [...]

With many of these homes under water — worth less than the loans against them — many interest-only mortgages will soon become unaffordable, as the homeowners have to actually start paying principal. Monthly payments can jump by as much as 75 percent.

The Mollers owe so much more than their house is worth, and have so few options, that they are already anticipating doom.

“I’m praying for another boom,” said Mr. Moller, 34. “Otherwise, we’ll have to walk.”

These people are going to lose their homes, with devastating consequences for the rest of the real estate market and the greater economy ($908 billion dollars are tied up in active interest-only loans). Even the Treasury Department expects millions more foreclosures in the same report that they tout their homeowner protection programs.

This is why it's good to see cramdown return. The provision, allowing bankruptcy judges to modify primary home loans unilaterally the way he would a vacation home or a yacht, would give those facing foreclosure a level playing field against lenders who have no incentive to change the terms of their loans.

House Financial Services Committee Chairman Barney Frank (D-Mass.) tells the Huffington Post he plans to revive the effort to give bankruptcy judges the authority to renegotiate home mortgages -- by making it part of this fall's much-anticipated financial regulatory reform bill.

Wall Street banks scored an overwhelming victory in April when they soundly defeated a cramdown measure in the Senate. Only 45 Democrats voted with homeowners, dealing the measure the kind of defeat that often sends legislation off into the wilderness for years, if not for good.

Frank and Senate Majority Whip Dick Durbin (D-Ill.), who led the bill in the upper chamber, both said after its defeat that it was finished. Frank was dismissive when, about a week after the vote, HuffPost asked if cramdown might come back. "Excuse me, what planet were you on last week? The vote was 45 to 51. Why would you ask that? Do I think there's a likelihood we could overturn 45-51? No," said Frank. "I wish it weren't the case."

But since then, foreclosures have continued unabated and the unemployment rate has continued to climb, increasing to 9.7 percent last month. Both forces feed on each other and create a drag on the economy.

The Obama administration had high hopes for the law Congress passed intended to encourage mortgage modifications. The law is all carrot, however, and no stick. Cramdown is the stick. If banks think they could get hit in bankruptcy court, they're more likely to bargain.

Because regulatory reform is a big bill with enough populist-friendly elements in it to be difficult to oppose, it could be a good vehicle for cramdown. Add that to the Consumer Financial Protection Agency and more credit card reform legislation, and that bill will be the subject of a huge fight, perhaps even bigger than the health care bill, at least in terms of lobbyist energy.