The Lie of Our Lives, continued
In Part One of this post I tried to lay out just one way in which the financial sector of our economy has come to control our national destiny in very unhealthy ways. What I did not get into was how much of this was made possible by the slavish devotion of certain political ideologies to their own warped notion of a "free market." The problem lies not in free markets themselves, which history has shown to be the single greatest means for creating wealth and alleviating poverty that the world has ever known. The problem lies in political ideologies that view a "free market" as one which is as absolutely free of government interference as possible, ignoring the glaringly obvious fact that "free markets" of this kind tend toward monopoly, which is quite as adept at government, if not more so, at stifling innovation, competition, prosperity and the actual freedom of the market itself.
For the common citizen, this usually manifests itself such; seeing how obtrusive and bureaucratic government can be on their own level, say when they want to build a shed in their own damn back yard, and need a permit, or when the health inspector tells them they need to add a "hand washing" sink to their restaurant kitchen, even though they already have three, but not one specifically devoted to "hand washing," or other such garbage, the citizen applies these principles unequivocally all the way to the top. However, the difference here is obvious. The shed in the yard, or the absence of the sink in the kitchen, are not going to put other people on the other side of the country out of their homes or out of business.
But when business reaches the stratosphere, and gathers the resources to actually corner and manipulate the markets, this is far, far more destructive to the economy than any government interference could be.
In the rest of this post, we're going to look, hopefully briefly, at three more stunts that have been pulled by the financial sector in the last few decades. As in the last post, the overwhelming majority of what I have to say has been drawn from Matt Taibbi's excellent book, Griftopia. There is far, far more going on here than I have room to relate, and Tabbi lays it out superbly. He also has room to put names with all of this thievery, because, unsurprisingly, the people in our government who are supposed to be looking out for our interests, actually are not, because they are all past, future or sometimes even present employees of the companies they are supposed to be regulating. And you know how that goes.
America has the least efficient, least cost-effective health care system in the developed world. Health care consumes 16% of our gross domestic product, compared to France at 11%, Sweden at 9% and England at 8%. "But we get the best care in the world," Americans love to brag. Uh, not exactly. For the $7,200 we spend per capita on health care, versus the $2,900 that is the average in other OECD countries (other market economies), what do we have to show for it? We have, relative to all of those countries, higher infant mortality, higher obesity, shorter life spans, fewer doctors and fewer acute care beds, per capita. Huh. Not really a good bargain. Yes, if you are a petro-shiekh, you fly to Boston for your quadruple-bypass. If you are an American citizen, well, screw you.
Where does that other $4,300 go? Well, a lot of it goes to paperwork. Because the majority of those other market economies have single-payer care, they have a lot less paperwork. 31% of health care costs in the United States go towards administration, whereas the OECD average is less than half that. The majority of those costs stem from chasing insurance claims. As a personal example, my wife used to work for a small speech pathology practice. Of the six or so employees they had working in the office at any given time, two of them were devoted full time to trying to get insurance companies to pay up on their claims.
Which of course they rarely do. Which of course is the whole problem here. The reason hospitals and doctors in the US have to charge so much for care is that half the time they don't get paid by the insurance companies. But why don't insurance companies have to pay?
Because they have local monopolies. Because when the Sherman Anti-Trust Act was written in 1890 to give the federal government the power to break up monopolies that affected interstate commerce, somehow insurance wasn't counted as "commerce."
This would take a book in itself to get into in detail, but here is one example to demonstrate just how powerful an insurance monopoly can be. Following Hurricane Katrina, insurance companies were hit with thousands of claims. In Louisiana, which has stricter regulations, these claims against hurricane damage were paid out with relatively little fuss. Next door in Mississippi, with laxer regulations, it was a different story. In Mississippi, the insurance companies got together and decide to deny any claim where the homeowner could not prove that their house had been destroyed by wind damage and wind damage only. If there was any evidence of water damage at all, the insurance companies called it "flood damage" and denied the claim, leaving the Federal government, well, us really, to pick up the tab, since the US government would pay these out under the National Flood Insurance Program. Since this was, you know, a hurricane, and it tends to rain during a hurricane, that pretty much means they denied nearly every claim. That year, in what should have been one of the worst years in the history of insurance, the sector posted a record profit of $48.8 billion.
And that's not even the best part. One of the Mississippi claimants happened to be Trent Lott. Yes, that Trent Lott. Did they even pay out on the claim of the soon to be Senate Majority Leader, third in line for the Presidency of the United States? If you guessed, "nope," you win.
Take this same fiasco and apply it millions of times over, but spread out over time so that it is less conspicuous, and you pretty much have a picture of the way health insurance in the US operates. Having "insurance" isn't insurance at all. Half of the bankruptcies in this country are due to health care costs, and of those, over 75% actually have health insurance.
When Obama and Congress got together to draft health care reform, the one thing they heard over and over, from Tea Partiers on the right to pseudo-Marxists on the left was "get rid of the anti-trust exemption for insurance companies." So what did they do? They left it in.
How could they be so stupid? Well, it isn't really about stupidity. They tried to put it in originally and then, sometime between when the bill passed the House and when it was approved by the Senate, the clause repealing the anti-trust exemption for insurance companies... disappeared. It later turns out that they sold it out to buy the vote of Senator Ben Nelson of Nebraska, a former insurance CEO who has been given $1.29 million in campaign contributions from big insurance over the years. The Democratic leadership also gave Nelson a $100 million and agreed to have the rest of us foot the bill on Nebraska's Medicaid payments for the foreseeable future.
Obama got his sixty votes. And the Democrats got to pass something they could call "health care reform" and maybe, get their next few election bids paid for. Or maybe not, if big insurance thinks the Republicans will be even kinder, which they probably will be.
So now you are required to buy health insurance that half the time isn't worth the paper it is printed on. Sure, there were some positive aspects to the bill, regulations about pre-existing conditions and such, but so long as the insurance companies have a monopoly, those regulations won't have any teeth.
So if you are still under the delusion that the people you shake hands with at town-halls and then send off to Washington full of promises actually run this country at all, then I am not really sure what to say to you. I'm sorry, maybe? Even among the most jaded cynic, I think that the general perception is that our political leaders are in cahoots with big business. But it is sadder than that. They are more like scraggly dogs, begging for scraps, trading millions, sometimes billions of dollars of benefits, loopholes and taxpayer money for a few measly tens of thousands in campaign contributions, and maybe, maybe, if master would be so kind, a job when I retire, if its okay with you, master? (Sorry to mix the metaphors, but our politicians are actually more pathetic than either dog or slave.)
And it gets worse.
That sounds innocuous enough right? Well, if you read the last post, you should understand that things with nerdy names like collateralized debt obligations in the hands of a financial sociopath can be as devastating as a machete in the hands of regular 'ole run-of-the-mill sociopath. And commodity futures are worse, because they affect real things that real people need to survive every day, like food and fuel.
The last time you filled your car, what did it cost you? In a five day work week, I fill mine every four days (I have a 45 minute commute). The last time I filled up, it hit $39.99. I was disappointed. In a truly masochistic way, I wanted to see that 4 roll over, just to laugh in its face. Why is gas so high? Contrary to what the morons on the right would have you think, it isn't because we need to start opening up, right now, drills on national land. And contrary to what the nincompoops on the left would have you believe, it isn't because we all drive our fat asses around in SUVs. (I'm not dismissing energy security, or carbon emissions as a real issue, but it just isn't the cause of what we're paying at the pump right now.)
So why are we paying so much for gas and heating oil, and subsequently for food? Because of a letter. Well, sixteen letters, to be precise. But let's talk about commodity futures first.
If you are a wheat farmer and I am a bread company, we need to do business. But if you show up to the market on a day when I am not buying, you have incurred the costs of transportation and are incurring the risk of your crop spoiling before I am ready to buy. Plus, you have a farm that needs tending. Similarly, if I show up on a day when there is no wheat to be had, I stand to lose productivity. So in steps a middle man, the speculator. The speculator agrees to buy wheat from you at $2.80 knowing that he can sell it to me for $3.00. I always have a buyer, you always have a seller, he makes a tidy little profit for very little work. Everyone wins.
The only danger here, as usual, is a player monopolizing the market, or cornering it, and manipulating the price of an essential commodity. So for the majority of the history of this country, investment firms and other major financial institutions were forbidden from getting into the commodity futures market. And the system worked just fine. Until 1991, and a letter.
For about ten years prior, Goldman Sachs (surprise, surprise) had been begging the Commodity Futures Trading Commission for an exemption to this rule. In 1991, someone at the CFTC named Laurie Ferber basically decided, "Ah, what the hell. What's the worst that could happen?" So she secretly sent Goldman a letter, secret from Congress, the President, or any of your elected representatives, that made Goldman above the law. The CTFC ultimately issued sixteen of these letters to various Wall St. institutions, and at this point 80% of commodities trading goes through these firms. Basically, if you wanted to buy up a crap-load of commodity futures on your own, it would be highly illegal. But if you pay Goldman or one of these other banks a fee, and go through their letter, then it's all kosher.
Here's the problem with speculators investing big in commodity futures. To steal Taibbi's example, let's say someone starts going around to car dealers saying he wants to buy $500,000 worth of cars. He doesn't care what kind of car he gets, or how many, because he isn't purchasing it for himself, he is just gambling that value of "cars" is going to go up and he is going to make a profit. Well, eventually, someone is going to sell him one car for $500,000. If enough speculators with enough dough start doing this, eventually anyone who wants a car for the usual stuff, like driving, is going to be shit out of luck. Why would I sell to you for twenty grand what I can sell to this guy for half a mil?
But the commodities that are traded are things more essential than cars. They are wheat and corn and soybeans, the base of the food pyramid, however you eat. They are oil and natural gas, the things that keep you from freezing to death in the winter, and get you to work, and to the hospital. And the prices we pay for these things, right now, are artificially inflated, pretty much because Laurie Ferber didn't give a crap.
But wait, it gets better. So who is investing in these things? Well, for one, a lot of it seems to be coming from sovereign wealth funds. Sovereign wealth funds, SWFs, are the enormous amounts of money that some countries, typically Middle Eastern petro-dictatorships, are sitting on, just looking for a place to get a good return. Well, you can imagine how this went. Basically, the sovereign wealth funds of foreign countries, some of whom are extremely antagonistic to, even sworn enemies of, the United States, are being funneled through our banks, to inflate the prices of the very products that they sell us. They are profiting twice over, on the commodities futures, and then on the commodities themselves. And they are able to do this without incurring the wrath that would accompany deliberately cutting the oil supply, because the majority of this money passes through so many bogus companies in so many countries that it is almost impossible to legally trace it back to its source.
Meanwhile, in poorer parts of the world, there are food riots.
Selling America, Piece by Piece
Guess what else these SWFs are buying? Your highways, your turnpikes, your parking garages, even your parking meters. If you think selling parking meters to foreign investors isn't a big deal, lets just take a look at one example. In 2008, Mayor Daley of Chicago leased all of the city's parking meters, for 75 years, to a conglomerate of investors, called Chicago Parking Meters, LLC, assembled by Morgan Stanley. CPM paid $1.2 billion for the lease. Because Daley only gave the city alderman three days to consider a deal he had been putting together for over a year, it wasn't calculated until after the deal had gone through that the projected revenue for the city's 36,000 meters was at least $2 billion over the terms of the lease. Since Chicago will likely still be there in 75 years, it is already losing out.
Who were the investors in CPM? Well, originally it was Morgan Stanley, a bunch of others, and a 6% share was going to Deeside Investments. After the deal went though, everyone else in CPM except Morgan Stanley bailed and sold their shares to Deeside, who now had a 49.9% share. As it turns out, Tannadice Investments, which owns Deeside, is owned by the Abu Dhabi Investment Authority. Well, at least the alderman knew what they were voting on. Oh wait, no, they didn't.
Still what's the big deal? This is capitalism right? If you've got the cash, make a bid! The problem is that now the citizens of Chicago don't control parking in their own city. CPM immediately changed the meter schedule from 9am-6pm Monday through Friday to 8am-9pm, seven days a week, 365 days a year. And the rate went from 25 cents an hour to $1.20. If the city wants to close the street for a parade or festival, they have to pay CPM for lost revenue. If you want to close the street for a block party, arts festival or farmer's market, guess what? You owe CPM a few thousand dollars.
The problem is this; when you sell your sovereignty to people who don't give a crap about anything but making money, you actually hurt the economy. The market suffers. The princes in Abu Dhabi don't give a shit if the meter rates are hurting local business, depressing neighborhoods, or if the absence of fairs and festivals is keeping potential customers away from local business. All they care about is quarters in the meter. But the people of Chicago care about those things. And the city of Chicago used to.
Where We're At
We're not broke. We're for sale. All of the tremendous wealth that this country is capable of generating is being siphoned off, through a few large financial firms, and turned over to whoever has enough cash up front to play the game. If you are already wealthy, you can become obscenely so, if you know the right people, or hold the right letter. You can do this by manipulating the prices of their homes, their doctor's visits, their food and their heating oil. Then, you can destroy those things that they rely on to get by, and make a profit by betting against them. And finally, you can get them, and their children, to pay you back for the little bit you may have lost by calling your buddies at the Fed and getting them to print you enough greenbacks to cover the difference, which they will have to pay back in taxes.
The only words to describe this degree of triple-screwing are those in common usage in the porn industry. But since this is a family blog, I'll let you look them up yourself.