Anyone who follows all the twists and turns of analyzing the Great Recession, the Wall Street bailouts, derivatives, mortgages, income inequality, indebted households, trade deficits and all the other components of our malaise comes away with a disquieting sense that ethics have been tossed overboard just about everywhere.

The latest information to buttress this concern comes from the faculty at the University of Missouri at Kansas City.  In an article entitled “Time to Foreclose the Mortgage Companies,” Prof. Randall Wray gives an overview of the role played by mortgage companies in precipitating the financial meltdown and now a continuing role in preventing mortgage relief for those caught in the meltdown.  

Along the way Prof. Wray gives a good description of how the mortgage financing industry has morphed into an expensive feeding frenzy by literally all players in the financial industry.

“Keep in mind that when we destroyed the thrifts in the 1980s, we transitioned to a new “market-based” home finance model that involves independent mortgage brokers, property appraisers, risk raters, title companies, mortgage insurers, credit default swap sellers, mortgage servicers, securitizers, accounting firms, commercial banks, investment banks, and pension funds and other managed money that hold the securities. In this “originate to distribute” model, almost all concerned live on fee income rather than on the interest and principal payments of homeowners (which service the securities). Of course, this is part of the reason that no one ever bothered to check whether the homeowner would actually be able to make the mortgage payments.”

And this description of why mortgage companies make more money if the home is foreclosed.

“When a house is finally foreclosed, the mortgage servicer has first dibs on the revenue from sale of the house. According to the UBS study, foreclosure can take up to two years (depending on the state and on complications) and total costs—including paying off the servicer—can eat up 90% of the revenue from the home sale. This is why the total losses on home mortgages (absorbed mostly by the securities holders) are so huge even if home values fall by “only” 30%.”

If you read many articles about the credit card business this theme appears there as well.  Having people make late payments is actually good for the credit card businesses and their partners, the banks.  The deeper in trouble a cardholder gets, the more they make.

If you read a post mortem of the derivative business as practiced leading up the the financial meltdown you read about investment banks selling dodgy derivatives, then shorting them later thus making money on both the sale and the subsequent losses of clients who bought the dodgy securities to begin with.

One can be pardoned in thinking that ethics have been totally jettisoned.

Next comes the health care reform debate and one reads about the millions and millions of dollars suddenly descending on Washington D.C. and Congressional campaign coffers, all given by dominant players in our existing health care system.  Even though the public strongly supports the reform movement, this deluge of money is drowning the public’s will.   It’s drowning the will of President Obama, one of the most popular Presidents in recent memory.

Whether its Wall Street or Health Care it becomes obvious that Congress is severely compromised in its ability to represent the public.  This lack of ethics is not complete, but it is pervasive enough to compromise the Democracy we live in.

First the ethics go.  Then next Democracy goes.  Where we go remains to be seen.

Federal tax subsidies to private health insurance plans will cost $240 billion in 2010.  No wonder the 85% of people with private plans are so happy, we’re heavily subsidizing their plans through our tax laws.  Not only that but the subsidies are enjoyed most by higher income workers.  Lower-income families pay the largest percent of income on insurance, but receive the smallest tax subsidy.

This from the Robert Wood Johnson Foundation.  The full report is here.

The tax exclusion for employer contributions to employer sponsored insurance (ESI) is the largest subsidy for private insurance.  The employer contribution is excluded from income or payroll taxes.

Employee contributions are also excluded if made through a Flexible Savings Account (FSA).

Employer contributions made to Health Savings Accounts (HSA) are similarly excluded.

People who purchase insurance outside of their employment do not enjoy all the same tax advantages.

So there you go.   Let’s stop the subsidy and see if people still want to keep their expensive (little do they know how expensive!) private plans.  

The blog UnderstandingSociety has a well written article discussing income inequality, it’s effects, and some metrics we should consider when making our policies.  I particularly like the emphasis put on providing strong, free public education to those not wealthy because this is the surest way to mitigate income disparity.

First a description of our current income inequality here in the US.

“The international comparison of wealth inequality is particularly interesting. Wolff provides a chart of the share of marketable wealth held by the top percentile in the UK, Sweden, and the US, from 1920 to 1992. The graph is striking. Sweden starts off in 1920 with 40% of wealth in the hands of the top one percent, and falls fairly steadily to just under 20% in 1992. UK starts at a staggering 60% (!) in the hands of the top 1 percent in 1920, and again, falls steadily to a 1992 level of just over 20%. The US shows a different pattern. It starts at 35% in 1920 (lowest of all three countries); then rises and falls slowly around the 30% level. The US then begins a downward trend in the mid-1960s, falling to a low of 20% in the 1970s; and then, during the Reagan years and following, the percent of wealth rises to roughly 35%. So we are roughly back to where we were in 1920 when it comes to wealth inequalities in the United States, by this measure.

Why does this kind of inequality matter? Partly because significant inequalities of wealth have important implications for such things as the relative political power of various groups; the opportunities that groups have within and across generations; and the relative security that various individuals and groups have when faced with economic adversity. People who own little or nothing have little to fall back on when they lose a job, face a serious illness, or move into retirement. People who have a lot of wealth, by contrast, are able to exercise a disproportionate amount of political influence; they are able to ensure that their children are well educated and well prepared for careers; and they have substantial buffers when times are hard.”

And this is the author’s concluding paragraph citing some obvious (at least to me) policies that should be used to mitigate this growing inequality.

“So what are the remedies for the very high level of wealth inequality that is found in the United States? Wolff focuses on tax remedies, and certainly these need to be a part of the story. But remedying the social obstacles that exist for disadvantaged families to gain property — most fundamentally, disadvantages that derive from the educational opportunities that are offered to children and young people in inner-city neighborhoods — is crucial as well. It seems axiomatic that the greatest enhancement that can be offered to a young person is a good education; and this is true in the question of wealth acquisition no less than the acquisition of other socially desirable things.”

Alternet, a news blog that’s widely read on the internet, has a pointed article about the ongoing health care reform debate.

The article points out, as an example, that the Congressional Budget Office report that health care reform proposals would cost $1 trillion over the next 10 years was broadcast nationally, but a follow up CBO report which dropped that number to $611 billion–less than we spend annually on the military–you never heard about.

Even that number is true only if Congress doesn’t make tax law changes to pay for this bill (which it will do.)  It also ignores numerous budget cost savings that will happen if there is universal health care, or the money that will be freed up for businesses to expand, or God forbid, actually give employees pay raises.

The savings of having universal health care are large, but unremarked in the public debate.

The blame for this ignorance can be laid pretty much at the feet of the national media, which has ignored the information.

“If you can frame the terms of a debate, you’ve gone a long way towards winning it before you’ve begun. Tragically, Republicans, the health care industry and business-friendly Blue Dog Democrats have largely been able to do exactly that, with a substantial assist from the corporate-owned media.

They’ve successfully focused the health care debate on the short-term costs to the federal government’s bottom line, obscuring the potential impact that a meaningful realignment of the health care system would have on the economy as a whole. In so doing, opponents of reform have hoodwinked much of the public into believing that investments in America’s national health care system will wind up costing individuals more than they’d gain from the effort.”

What kind of savings?  How about bankruptcies, of which 6 of 10 are caused by massive medical bills that can’t be paid, sometimes even if the debtor had private insurance!  Or consider the long term savings that will come from people who don’t become diabetics because they have a personal doctor. 

Even the watered down proposals now under consideration will directly save $550 billion over the next 10 years according to academic studies.

But the truth is our system is too expensive for our pocketbooks and is only going to get worse if not changed.

“In 2007, the U.S. spent an average of $7,290 per person on health in total (both public and private care). The average costs in other wealthy countries — generally with better outcomes — was $2,964….

 As economist Josh Bivens of the Economic Policy Institute wrote, the non-budgetary effects of fixing the system “will pay off big for American families in the form of lower premiums, co-pays, and space for wage growth…..”

Of course having your own doctor and not having to worry about huge health care bills are pretty nice benefits all by themselves.

Hit the link and read the article.  It will give you a reality dose when it comes to understanding our health care crisis.

We’ve just witnessed with Wall Street how concentrations of power in an industry can result in massive transfers of money from the majority of citizens to a small minority.

Now we are witnessing the same process, only this time the industry is health care.  There are differences, of course, but not in methodology.  Wall Street held a pistol to the public’s head and said “pay us or we’re all going to die.”  Health care is saying “pay us or we’ll deny you health care.”

There’s little real debate that the system we now have charges a big premium for an inferior product.   Every study shows that, among developed countries, the United States health care industry falls short in almost every comparison:  From citizen longevity, to successful births, to availability, to cost, and in almost all other metrics our system is obviously sub par.   And estimates are we pay more than $6,000 annually per person for this system compared to others that are embarrassingly better.

So where is all this additional money going?  Who are the beneficiaries of this massive wealth transfer?

Under what circumstances can a private industry survive this way?  There’s only one circumstance, and it’s the same one we’ve encountered with Wall Street.  It is a non-competitive industry.

So who are the non-competes in health care?

First, consider the medical profession.  Gaining a medical degree is expensive and thus eliminates from competition many talented individuals who would compete if they could afford the degree.  This level of expense also forces many who do gain degrees to specialize because specialists make more money.   This in turn reduces the number of general practicioners who, studies show, are critical in improving health care outcomes because of their special relationship with clients.  General practicioners know their clients best.  They know their history.  They educate their clients about healthy lifestyles, as an example, and act as gatekeepers to specialists when needed.

Medical education should be free, with competition in talent and studies the determining factors to gain a degree:  Not just the wealth of the student, or the student’s family.  Medical teaching facilities should be expanded in number, to increase competition there as well.  In return, physicians should be salaried and graded solely on health outcomes.  In our current system physicians are instead paid on how many tests they run.

Second, consider the legal profession.  Medical disputes, from payments to malpractice, are funneled directly into the legal system.  This is a tremendous subsidy to the legal profession, both pro and con, everytime there is a dispute.   Panels should be empowered to adjuticate disputes.  They can act much faster than the court system, which can take years, and panels can include professionals who can discern problems without the emotional appeals our current system encourages.  Lawyers get paid by the award, and emotional appeals are a tool used to gain large awards before juries.  In addition to this, legal  resolution is costly in every dispute, no matter how minor.  Mediation and arbitration before panels would solve this expensive problem.

Third, both federal and state regulations have encouraged the concentration of health insurance companies to the point where competition is absent in most parts of the country.  In most states, for all practical purposes, the top health care insurance company has a monopoly.

With this kind of dominance, insurance companies consider actual medical care as a “loss” and compete on their ability to provide less medical care per dollar of revenue.  This is known as the “medical loss ratio” and the lower that number (the less care delivered) the greater the profit.  The easiest way to reduce this loss ratio is to deny coverage whenever possible: the poor, the unemployed, the chronically ill, those with pre-existing systems are simply ejected from the rolls.

And with this dominance in the industry, these companies have less motivation to control costs because they can charge whatever they want.   Instead they just deny coverage.  If there’s a dispute they hire lawyers.  This is a major reason health care costs are consuming both the national purse, the corporate purse, as well as the individual purse and have far outpaced their income’s ability to keep up with rocketing health care insurance premiums.

Finally, both pharmaceutical and medical device companies sell into this non-competitive industry, charging premium prices because no one in the industry faces competition and therefore no one has an incentive to control costs–outside of the decision to simply refuse care.

President Obama has made health care reform the top priority.  He accurately points out that if left un-reformed, health care costs will bankrupt the nation.  As private health care costs continue to outpace people’s ability to pay, more and more citizens will either receive little or no care, or they will, if able, put themselves on public programs like Medicare or Medicaid.

As a practical matter, Obama has insisted on some form of “public option” for people to choose instead of private insurance.  There are two reasons for making this proposal, the most important one is not the one most often debated.

The important reason is that, if true private health care reform is not successful (and that is a probability because most other systems are primarily public ones), then an existing public option makes it easier to transition to a primarily public health care system when it becomes clear to everyone that the private system will not reform enough to deliver effective health care to the majority of Americans.

The second reason, and the most debated, is the concept that a public option will restore competition to the industry as a whole and, as a result, will reduce the outsized profits and outsized expense increases of the current system. 

The current private health care system participants know what’s not being debated, the first reason for inserting a public option, is the most important.  But the best way to stop it is to keep a public option out of the mix of reform.

And that’s where the debate has been concentrated. 

One thing seems very clear.  One way or another, the public option will result.  The only question is how soon and whether we will incur the additional cost of rapid transformation, made under fiscal duress, or whether we will make an orderly transition.

The current system is pouring record amounts of money right now into lobbying members of Congress.  This is natural because the wealth transfers being enjoyed by these businesses, doctors and lawyers is immense.  As an oligopoly they will fight to the death any effort to change their favored status, gained in part by their allies in government who have written the laws that favor their dominance.

Whether Obama’s technique of placing “the camel’s nose in the tent” by the public option is successful, or whether the country eventually has to dismantle the current system piece by piece, the job has to be done.  We have no real choice.

I recently received a couple $25 Visa gift credit cards for birthday presents. 

First, the person who bought me the cards was charged $3.50 per card.  Which meant the card was good for only $21.50.  Second they’re charge cards which means if you buy something for $19 that means you can’t use the card for anything costing more than $2.50.  It will simply reject the purchase.  You don’t have the option, for example, of buying something for $6 and using $4.50 in cash to make up the difference.

But not to worry about the $2.50 left on the card.  After 5 months Visa begins charging a monthly fee of $2.50 for the card.  That takes care of the remainder pretty well.

What a ripoff.