Wednesday, October 3, 2012

Has Romney offered Obama money to throw the election?

You have to wonder after seeing Obama's poor performance in the debate tonight. He did land some blows on Romney, but didn't call him a liar when Romney lied and did not defend himself from several lies that Romney has made over and over.  I'm a terrible debater and I would have done better than Obama tonight. The average man in the street would have. Obama never even mentioned Romney's 47% remark, which has been the biggest gaffe of the campaign.

First of all there is the lie that Obamacare is cutting $716 billion from Medicare.  Obama said, it's only cutting reimbursements, not benefits, but that's not enough of a response.  It was a great opportunity for a teachable moment.  Medicare Advantage is a perfect example of failed conservative social engineering.

Medicare works by the government reimbursing private (and public) care providers on a fee for service basis. In order to control costs, Medicare instituted Diagnostic Related Guidelines to fix the customary charges for various procedures.  Doctors howled, but because Medicare and Congress allowed them to increase charges more than inflation, they mostly signed on.

In 1998 a Republican Congress said this is stupid.  We could save tons of money if more efficient private companies were to compete and offer things like preventive care that could reduce expenses for the whole system.  Private companies were encouraged to compete by getting a per capita subsidy for enrollees, and it was expected that they would make such efficiencies from preventive care they would make money. Now one may question the likelihood of big preventive savings on seniors, but they blithely pushed ahead. Instead they all lost money, and by 2003 half had left the business and enrollees were down to about 10% of seniors, from 17% when the program started.

In 2003, the Republicans "fixed" their failed program by upping the subsidy, so now Medicare Advantage costs the government 12% more per person than original Medicare.  Enrollment has gone up to 26% of seniors because private insurers are keen to get the new higher subsidies, yet studies show they are not giving better or more benefits to seniors, and numerous marketing abuses by insurance companies constructing these plans have left many seniors without proper care.

Privatization cost more and delivered less care.  Obamacare cut the extra subsidy without cutting benefits. That is to say, if companies stop offering plans because their rates have been cut, then people will still get original Medicare.  Congressman Ryan is so on board with this idea that he had "cost savings" in his budget that exactly matched what Obama was going to get by cancelling Medicare Advantage's extra subsidies (which was estimated at $515 billion, but Romney always inflates numbers).

Romney, however, says Obama is cutting Medicare, which is a lie because 1) Obama is only cutting Medicare Advantage, not Medicare; 2) There is no evidence seniors are benefiting from the extra subsidies provided by the government to private insurance companies under Medicare Advantage; 3) Romney's own VP has made budget proposals which assume the same cuts; and 4) Romney proposes freezing Medicaid payments to the states, which will primarily affect the elderly in nursing homes with reduced benefits.  Under Obamacare the elderly will still get Medicare at the same reimbursement rate that has always been offered to most of them and Medicaid; but under Romney's plan many seniors will not.

The Republicans have been making this claim of Medicare cuts at every rally and at every opportunity.  By now Obama should have had an easy snappy answer to it.  He doesn't.  Most likely, the snappy retorts his people have thought of did not do well in Focus groups.  Fine, but the damage from leaving big charges like this apparently unrefuted is much more serious than coming up with an answer some people don't understand. It's Debate 101: Do not let the opponent make unrefuted charges.

The second obvious failure was on Dodd-Frank.  Romney makes an incredible claim that people can't get mortgages because banks won't issue them; and banks won't issue them because Obama's regulators have not been clear about qualifying mortgages.  This is a lie.   It's true that the "qualifying mortgages" have not been finalized due to industry and government foot dragging. It is not true that any lending going on now is therefore curtailed.  Quite the opposite.

The purpose of Dodd-Frank was to force banks to evaluate credit risk in the mortgages they write.  During the last decade it was clear that banks were writing mortgages to anyone with no thought of the credit worthiness of the buyers because they could sell the mortgages and didn't need to worry about the repayment.  So Dodd-Frank's notion was that  by making them keep 5% (1 in 20) of the mortgages they write, banks would have an incentive to exercise due professional care in evaluating mortgages. That was unacceptable to industry, which said they wouldn't write any mortgages on that basis, showing in effect that they were no longer in the business of evaluating credit risk.  In truth, they were overexposed in real estate and needed to reduce their exposure in that market by cutting lending, but they couldn't admit that to the government which is frantic for them to support the real estate market.  So Dodd-Frank said, okay, if buyers are highly qualified (such as putting a 20% downpayment and making monthly payments less than 28% of buyer income), you don't have keep any of the mortgages and you can carry on as before. Industry thinks those credit requirements are too steep. The idea of offering an exception was to keep mortgage markets going, and support markets for the mortgages the banks have already sold.  The whole idea of the "qualifying residential mortgage" then, was to keep the banks lending.  However, to prevent that from being so profitable it would be the only lending the banks would do, closing fees were to be capped at 3% on those super high quality mortgages, including title insurance and all the rest.

However, all these provisions can't take effect until the the details of the "qualified" mortgages are nailed down, which means that effectively the reform hasn't happened yet.  So the banks are free to do whatever they want, contrary to Romney's claim.  The financial people, as well as other real estate professionals, are dragging their feet on the government's proposed qualifying standards so they can keep their fees high and maybe overturn the whole law.  Obama is dragging to prevent a temporary dip in the lending that would happen when standards are put in place.  So the regulations have not taken effect, and any banks who want to lend in the mortgage industry have a strong incentive to do it right now, making Romney's claim the opposite of what is actually happening. Banks are writing more mortgages than they would without Dodd-Frank.

The problem here is that the government wants to stop the banks writing bad mortgages, which means fewer mortgages, and to reduce their overall exposure to real estate fluctuations; and at the same time, the government wants to put a floor under the current market, which has lost more value than it did during the Great Depression, so the market can recover more quickly.  These goals are incompatible, but the Obama administration in not getting that rule finalized has tended to support the current immediate market rather than cope with the long-term changes required.  Romney wants to eliminate any thought of long term structural reform, which leaves the banking system highly vulnerable to any shock affecting real estate.  Remember the lie: Romney says Dodd-Frank is too much regulation, and it has hurt the economy by not being implemented.  It makes no sense on its face and since his own goal is to repeal the new regulation, is doubly absurd.

Obama didn't respond effectively to that lie either.  That's just two examples.  Throughout the debate he seemed to be trying to make peace with Romney instead of pressuring him on his lies.  It's obvious that Obama has some kind of Stockholm Syndrome response to Republican opposition, and I can only wonder if they've tried to buy him off as their best chance to win the election. Going into the debate, it was unclear how Obama could contrive to lose the election except by going off script and saying something deranged.  Obama did not, but he did surprise everyone.  By refusing to fight back when attacked, even though the attacks could not have come as any kind of surprise - granted it started out with Romney outrageously claiming he would not reduce taxes on the rich, which all his plans do - Obama came across as someone who has no fight in him at all.  It's as though he thinks his performance sells itself even though he has been in politics long enough to know better.

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