Retooling Health Care

Congress and President Obama will soon be returning to Washington. The gentle wounded beast called health care reform awaits them. Here's my humble opinion of how it was mismanaged and what they can do to save it.

How Obama Fumbled Health Care Message
By John F. Wasik,
Author of The Audacity of Help: Obama's Economic Plan and the Remaking of America

Foul. Turnover. Two strikes. No matter which overused sports metaphor you use to describe the Obama team's handling of their health care reform agenda, it's clear that the best one to date is "fumble!"

The most audacious health plan in two generations is sputtering thanks to really awful communication planning, a mixed and confusing message and poor defensive strategy.

Since I just finished researching and writing a book on Obama's economic plan (The Audacity of Help), I can tell you he hasn't clearly communicated the dollars and sense argument. Everyone knows that health-care costs are going up and it's not sustainable. But how much will his plan save the family of four, the single mother, the high-income household? Will there be any real savings at all when you figure in the costs of paying for it? That was the first blunder. Americans always vote with their wallets and the Obama crew missed this fact.

I'm sure that Obama's team had an inkling of what they were up against in terms of a massive anti-lobbying campaign. Yet the disinformation blitzkrieg ranging from the loony Sarah Palin to the grannie "death panels" has not been fully dispersed. Not even close.

According to research by Bloomberg News, for every lawmaker in Congress, there are six health-care lobbyists. That's an army of 3,300 arm-twisters, back-biters and potential sources of re-election funds in the faces of our elected officials. There have been so many influence peddlers that an average of three lobbyists per day have been registering in Washington since July 1.

What has Obama's team promised the heavy hitters in this cabal? He's met with doctor, hospital and pharmaceutical groups in the White House. Did he promise to not reap cost savings on a large scale? Did he tamp down plans for a public option? Did he promise to keep the boondoggle that subsidizes drug prices and managed care in Medicare? He has not been forthcoming with those details and that hurts his credibility.

"The whole process is seedy and demonstrates cruel disregard for the millions of Americans who, whether in dire need of medical services or not, voted for 'change we can believe in,'" wrote Ralph Nader in a recent column.

The sinister locomotive of this train wreck is the fee-for-service business model in the system. Few are talking about it and the industry doesn't want to touch it. Hence the vicious counter-attack. If you're a hospital, doctor, clinic or drug company why would you want government messing with this virtually unlimited source of income?

If you're a doctor and own an MRI facility, you tell your patients to get scans because it directly benefits you. If you're a pharmaceutical corporation, you want doctors and hospitals to use the latest -- albeit most expensive -- name-brand drugs. The last thing you want is a single-payer system or an amorphous "public option" plan negotiating huge discounts and doing studies that compare your heavily advertised product with generic equivalents.

If you're an insurer, you loathe the idea of a public plan even more. Not turning away people who are really sick or burdened with "pre-existing conditions" means reduced profits and lower executive bonuses. After all, claims in insurance parlance are "losses." Private insurers are in the business of investing money, not healing people.

Now that the White House seems to be backing off the public option, how will his plan reduce costs while protecting those with chronic conditions and those considered "uninsurable?" Not a week goes by when I don't have a conversation with family or neighbors on how they will afford coverage if they lose a job or get seriously ill. I have the same fears myself.

To best battle the manic propaganda machine, the Obama team can get back into the game but needs to craft its defense and offense around three streamlined concepts:

1. Choice. You keep your doctor, hospital, Medicare and other providers. Maybe rebrand the entire plan as "iChoice." Branding is everything and right now they have a mish-mash that confuses everyone.

2. Affordability. Whether working or not, poor or disabled, you won't go broke paying for coverage -- ever.

3. Universal. Everybody is covered. No questions asked.

To their credit, the White House team has attempted to combat the effluent of the disinformation campaign on their whitehouse.gov blog in a late-to-the-game spinoff www.WhiteHouse.gov/realitycheck.

Yet the Obama team's pushback needs to be ferocious, clear and boiled down. How will the plan impact those with insurance through employers? Will it cost more or less over time? If the public option is dropped, how will those without employer-provided insurance obtain guaranteed, affordable coverage?

Is there any point to reform unless the more than 60 million uninsured and under-insured can be covered and not face bankruptcy? There should be some irrefutable part of the program that will prevent the 20,000 annual deaths of people who avoided life-saving medical care because they just couldn't afford it.

©2009 John F. Wasik, author of The Audacity of Help: Obama's Economic Plan and the Remaking of America

Ted Kennedy, RIP

Today we mourn the passing of a great legislator, Sen. Edward Kennedy. The lion of the senate fought for laws that truly helped people. We can truly honor him by passing a health-care reform bill that ensures universal, affordable coverage.

I would also like to turn over the rest of my blog today to my friend and former high school English teacher Mary Freund, who sent me this thoughtful note this morning:

Senator Ted Kennedy died today, and I am sad. Saddened at his passing, and saddened because his death marks the end of Kennedy influence on my life, and I am forever grateful for all Kennedy inspiration.

I was just ready to start high school as John Kennedy was running for President, and the controversy opened my eyes; I was growing up in heart of the John Birch society and heard people I loved speak out about not letting a “damn fish-eater” in office. The Camelot years were hopeful, joyful and full of ideas. For me, the Kennedys balanced the hatred of grandma Mac who taught me more about racism than anyone. John’s assassination was announced in Mrs. Jacob’s English class, and I put my head down and cried.

I read every biography or history of the Kennedys; I have more copies of the POST magazine with the Warren report than even mom did. I campaigned my heart out for Bobby when I was a senior in college. I’’ve made posters for my dorm room and classroom, stick-it notes in certain books, and even letterhead carrying the Kennedy slogans and quotes. Joe, the patriarch of the Kennedy clan, was a tycoon and strict father; he believed: THOSE MUST GIVE MUCH TO WHOM MUCH HAS BEEN GIVEN, (for I believe I , too, have been given much) and he raised the Kennedy children to give much: 3 sons’ died for this country, Eunice was a pillar of social service, all Kennedys embraced the Civil Rights Movement, and Teddy wanted national health care forty years ago.

And so, for today, I am sad. Sad for the Kennedys, and sad for the loss of Camelot influence as it has faded, sad for all the high school seniors who have never lived in an aware society of hopefulness and inspiration, sad because this crucial vote for health care could have used Ted’s leadership.

My hopefulness is for this country to carry on the concept of helping others, easing the way through life’s harshness by doing the right thing, We must have national health care.

The Unattainble Home: Reinventing the American Dream

This essay is based on my "Cul-de-Sac Syndrome."

By John F. Wasik

Even before the home bubble burst, homes cost too much for more than four out of 10 Americans. Only 56 percent of Americans could afford a modestly priced home in 2002, the first full year of the bubble. And as Americans went deeper into debt to finance their dream, they accumulated less and less of a tangible ownership stake. Home equity as a percentage of market value peaked in 1982 — at 70 percent — after a brutal recession. More than half of American homeowners with a mortgage would owe more than they owned at the end of 2008. About 7.5 million were spending more than half of their income on housing costs.

The craving for upward mobility through home ownership escalated even as families on the edge of “making it” were falling behind economically. The think tank Demos said that 23 million families became “economically insecure” from 2000 to 2006, while 4 million experienced economic decline. This erosion in prosperity was triggered by a 22 percent decline in financial assets (following the dot-com bust), loss of health benefits, and an overall rise in the cost of homeownership (up 9 percent during that period). The reaction to this backsliding — buying a home as an investment — was the equivalent of a couple on the verge of divorce deciding to have a child in hopes that it would save their marriage. For more than 3 million in or facing foreclosure in 2009, this thinking proved financially catastrophic.

The housing bust represents a profound loss of wealth since few households had significant savings outside of their homes, as values dropped to a median $200,000 in early 2009 from $221,900 at the height of the bubble in 2006. In California, always on the fault line between profound innovation and multiple disasters, the boom and bust was a tragic manic-depressive episode. The median home price in Southern California alone slid to $285,000 by the end of 2008, 44 percent below the peak of $505,000 in 2007. Although the decline allowed more people to afford homes, even during the bust only one-fifth of Los Angeles residents could afford the median-priced home — up from 2 percent during the boom.

The Bust’s Fallout

The housing bust created a firestorm of collateral damage.

• Lehman Brothers, one of the oldest and most venerable investment banks, was forced into bankruptcy and liquidation during a run on its assets in the late summer and fall of 2008. Its subprime mortgage and credit default swap holdings were essentially to blame, creating the largest business bankruptcy in U.S. history. Its demise released a tsunami of securities- and derivatives-related demons. Basically, when home prices collapsed, the value of the securities holding mortgages also went south. These “toxic assets” imperiled any institution that held them.
• When the run commenced on Lehman, it drove Merrill Lynch, the country’s largest brokerage house, into the arms of Bank of America, creating the world’s largest brokerage with more than $2.5 trillion in assets and 20,000 “financial advisers.” Merrill, whose symbol was an optimistic though ferocious black bull, had also invested billions in tainted subprime securities. Government regulators also forced the sale of Bear Stearns Companies, another major mortgage securities player, to JPMorgan Chase for a bargain-basement sale price of $10 a share (the initial price was $2 a share). Like Lehman, Bear effectively evaporated.
• The U.S. government seized Freddie Mac and Fannie Mae, the two largest mortgage issuers and guarantors, and promised to infuse the companies with cash to keep them afloat. Their liabilities vastly exceeded their assets and they were losing a total $50 billion in the third quarter of 2008 alone. Since they insured, loaned, or sold securities representing $5 trillion — about half of the U.S. mortgage market — they were deemed “too big to fail.”
• Caught in the opaque business of insuring mortgage securities through the shadowy and then-unregulated world of credit default insurance, the government effectively took over AIG, the world’s largest insurer. The Federal Reserve lent it more than $80 billion
  by early 2009, part of a $150 billion bailout. It, too, was deemed too large to go bust, because its mortgage and derivatives positions threatened the global financial system.
• Seeking refuge in the regulated banking system, the remaining Wall Street investment banks morphed into old-fashioned, deposit-oriented banks. Goldman Sachs and Morgan Stanley applied to become regulated banking companies with federal oversight. American Express followed later in the year. The Age of Froth was truly over as the cowboy operations that thrived on 30-to-1 (and higher) leverage became history.
• The mother of all bailouts came as wintry storms arrived with an Old Testament vengeance in the autumn of 2008. With rancorous and reluctant Congressional approval, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke on October 1 ushered through a sketchy $700 billion bailout package called the Troubled Asset Relief Program (TARP), which would pump money into banks, possibly buy bad mortgages, and prop up the financial system for a short time. This massive cash transfusion was designed to prevent credit markets from shutting down and avert a global depression. Meanwhile, the Fed was lending some $2 trillion to banks, attempting to break a credit freeze that threatened to shut down all institutional lending. Paulson later backtracked on his earlier proposal to buy mortgages, triggering even more concerns that his master plan was ill conceived and ineptly managed. Sensing that the real purpose of all of the bailout measures was to stem the foreclosure crisis, the Federal Deposit Insurance Corporation announced its own mortgage bailout plan on the heels of the Paulson announcement. Several large banks said they would do voluntary loan modifications to reduce the cost of adjustable-rate loans, although they were under no legal obligation to do so.
• After more dithering over how TARP funds would be allocated, Secretary Paulson and Fed Chairman Bernanke moved to prop up Citigroup, one of the largest global lenders, with a $20 billion cash infusion and guarantee of more than $300 billion of its loans. Within days, responding to criticism that banks were the exclusive benefactors of the government’s bailout, the Fed moved to guarantee certain mortgage, credit-card, and student-loan securities.

John F. Wasik, author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream, is a personal finance columnist for Bloomberg News and the author of several books. His most recent book, The Merchant of Power, was praised by Studs Terkel and well reviewed by The New York Times. Wasik has won more than 15 awards for consumer journalism including the 2008 Lisagor and several from the National Press Club. He has appeared on such national media as NBC, NPR, and PBS. He lives in Chicago. For more information, visit www.johnwasik.com.

Copyright © 2009 John F.Wasik, author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.

How to Fix US Housing Long Term

This is a piece I wrote for HNN.US.

For more information on the book, see www.culdesacsyndrome.com.

How did the U.S. succumb to one of the most devastating housing recessions since the 1930s? Was it as simple as saying that everyone from mortgage brokers to Wall Street just got greedy? Or did it have to do with Americans’ obsessions with ever-bigger homes? Weren’t homes supposed to be the safest investments on the planet?

Much of what happened in this flood of exuberant optimism did not just happen overnight. The underlying causes of the debacle have been ingrained in Western culture for almost half a millennium, myths that came to full blossom precisely at a time when Americans’ view of themselves, their post 9/11 security and their shaky financial future was being tested like never before.

As it stands now, the housing bust may shake out as one of the biggest financial blow-ups in history, rivaling the Great Depression as more than $4 trillion in wealth evaporated. A bubble where demand exceeded realistic economic fundamentals was triggered by a number of uniquely American cultural values, desires and economic shortcomings. Millions entered a financial cul-de-sac during this period of irrational exuberance. It may take years for them to escape from this dead end.

The stereotypical villains in this story have been Wall Street bankers, the government and greedy participants from speculating “flippers” to the Federal Reserve. Although there’s plenty of blame to spread around when it comes to who was motivated by pure avarice or criminal exploitation, much of that picture has been illuminated. Those who thought they would profit handsomely have already been exposed, have taken their losses and are well known to anyone following this debacle. It’s far too easy, though, to point fingers at the purveyors of the usual human excesses. Something deeper and more profound triggered this crisis, something that lurks at the core of the American experience.

The nature of the American Dream – and what it has cost us – is what my book explores. How did we come to think that each home should be a worthy investment that propelled millions to leverage beyond their ability to pay? In an age of burgeoning info-technology, why are we still building homes with the latest 19th-century techniques? What was the market behavior that drove homeowners into subprime loans and moving ever further out from jobs and cities? How did we come up with this idea that we should “buy as much house as we could afford?”

We’ve gotten stuck in an unsustainable cul-de-sac. After following the bubble and its aftermath for the past seven years as a personal finance columnist for Bloomberg News, I’ve gained some insights into urban planning, resource depletion, homebuilding techniques and economics that are disturbingly critical of the American dream of homeownership. I am more intrigued at how America created what I call spurbs. These are car-dependent sprawling urban areas, unconnected to core cities by public transportation and beset by unsustainable costs for infrastructure, services and resources. As highly leveraged places now ravaged by foreclosures and falling property values, they will suffer the most in coming years.

How do we heal this syndrome? Even if the home market superficially recovers with higher prices, home starts and sales, there are some deep-seated problems that will haunt future generations if we don’t correct them.

Doubtless, it had been a great run. From 2000 to 2006, U.S. median home prices rose about 50 percent to an average $221,900. Whatever Americans were losing to inflation and stagnant wages during those boom years for housing, they were more than making up in their home values. Family income only inched up 14 percent during that period. Yet home prices can only outpace family income for so long. After a while, the aberration had to disappear by what economists call "regressing to the mean," or returning to a historical average return, which is less than the rate of inflation when you subtract the myriad expenses of homeownership.

Was there something about the role of the home in American culture that convinced millions in a relatively short period of time that they could win the lottery just by taking out a mortgage? Could they suddenly re-invent themselves as passive investors and successful speculators who could ride the treacherous waves of the bond market, Wall Street’s propensity for bundling securities like frayed pieces of fabric and the property markets?

I submit that we need to do nothing less than reinvent the American Dream. Homes were unaffordable to begin with for nearly half the population. We can build them cheaper in factories within environmentally sound technologies. In the process, we can create millions of jobs and export technologies.

What about the communities that embraced the ever-expanding American home? What will enable a metropolitan area to grow in an age of expensive energy, rising taxes, constrained resources and an aging population? There are a host of approaches that I’ve culled from leading thinkers, research organizations and environmental groups.

• De-Link Property Taxes from School Funding and Local Development. In a handful of areas, this has been done. The key is to provide a diversified source of school and infrastructure funding from local, regional, state and federal sources. This will help address the reason why families move ever further out from central cities to find better schools and housing values. Educational quality simply needs to improve in every school district if America is to stay in the global economic game. “The problem with U.S. education is a problem of inequality,” says Fareed Zakaria, a skilled observer of geo-politics. “This will, over time, translate into a competitiveness problem, because if the United States can’t educate and train a third of the working population to compete in a knowledge economy, this will drag down the country.”

• Prioritize Transportation Funding. Channel the majority of federal transportation subsidies into public transportation and road and infrastructure repairs. Rebuild the bridges, overpasses, grade crossings and roads we have now. Direct a greater proportion of federal dollars into urban light rail, zero-emission buses, trails, public transit, bike paths and inter-city high-speed trains. Provide funding to new communities that emphasize grid layouts to minimize street traffic. Minimize the building of high-speed, multi-lane highways. Provide tax incentives and financing for transit-oriented developments that are within walking distance of public transportation.

• Create Model Zoning Codes. This can be done on the local, county and state level. Allow for mixed-use zoning that encourages pedestrian and bike traffic and discourages sprawl while promoting green buffer zones. There should be model ordinances on the books for areas that want to create livable, walkable and bikeable communities.

• Update Building Codes for the 21st Century. Require that all new construction and communities be required to meet the standards set forth in the LEED, Energy Star or other local programs. Montgomery County, Maryland, for example, is mandating that new homes meet Energy Star guidelines. Mandate water conservation measures in homes and subdivision design. A national energy building code needs to mandate conservation for every new or remodeled building. On a local level, building permit fees can be reduced for green improvements. The city of Chicago, for example, will waive up to $25,000 in fees, depending upon the level of improvements.

• Create Green Jobs, Particularly in Blighted Areas. Millions of jobs can be created to refurbish sub-standard housing, installing energy appliances, building public transportation and retrofitting buildings. According to the Apollo Alliance, for every $1 billion invested in public transportation, 47,500 jobs are supported. Wind power creates 2.77 jobs for every megawatt produced; solar photovoltaic manufacturers generate 7.254 jobs. A comprehensive energy program should mandate all new buildings follow national efficiency guidelines and provide as much funding that was invested in the Space Race of the 1960s to carbon-neutral energy technologies. A tax on carbon emissions on every level – industrial, commercial and residential – will finance this research and development. In addition, take away the $47 billion in subsidies to the oil and coal industries and invest it in clean energy and building research and tax credits.

• Trim Real Estate Tax Breaks. Write-offs for mortgage interest, property taxes and capital gains distort and artificially inflate home prices. It effectively provides subsidies for those in the most expensive areas, ranging from $26,285 per owner-occupied unit in the San Francisco Bay area to $12,759 in Hawaii, according to a University of Pennsylvania-Wharton School study. Start with repealing the mortgage-interest deduction. Desirable areas would still be in demand if these tax breaks go away and prices may fall in others. That will enhance affordability.

• Fund a Smart Grid. Provide the necessary funding to update the electrical grid for this century. Ideally, the grid should be able to respond automatically to power surges without breakdowns. Supplement the grid with substantial investments in clean energy and modern electrical storage. Mandate that utilities provide services to tell customers when off-peak power is available and provide tax incentives for homeowners who want to create their own clean power supplies. Require net metering and buy-back of home-generated electricity. Enhance the tax credit package to a 20-year horizon for those who want to invest in clean energy production. De-couple utility industry profits from sales through tax credits. Reverse the paradigm: the less power they sell through energy-conservation measures, the more money they can make.

• Create Private Incentives for More Affordable Housing. Mandate that new developments offer a variety of housing by size and price, including rentals and high-density townhomes. When home prices rise by $1,000, another 217,000 are priced out of purchase. Offer builders tax breaks for keeping homes under 3,000 square feet and increasing density.

• Personalized, National Health Care. American mobility is largely based on employment. Millions not only want a better job with higher wages, they want freedom from catastrophic health expenses. The only way to achieve this is to de-link health coverage from employment (and the tax breaks provided to employers for offering health care). In a personalized, national program, the government can contract with private companies who bid for the business to underwrite policies that cover the entire country. This will enable people to be more productive, take any kind of employment and move wherever they want. It will indirectly help housing because Americans won’t be locked into communities. They may be able to move to less-populous areas and pursue telecommuting. A guaranteed universal savings plan for all Americans is also essential.

That brings us to the American project itself, which dictated that ordinary homeowners could indeed start over as housing investors. Investment homes would become not only their retirement fund but their college savings vehicle. Castles could be profitable as long as land became scarcer. After all, they weren’t making any more of it.

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