The executive summary of the problem of bank failure can be summed up in a very few words: greed and compliance of politicians
A little Background:
The history of banking goes back to ancient Greece, Egypt, and Rome. Throughout history, banks have failed, pretty much for the same reason. The greed and mismanagement of the owners and the support of politicians (through the creation of central banks).
Two types of Accounts:
There have been successful banks that have lasted for more than 150 years when they have followed basic principles of bank management. The two types of accounts can be described in none Latin terms as deposit accounts and loan accounts.
Deposit accounts can best be described in today's language as the equivalent of a safe deposit box. The owner or depositor retains ownership of the funds and has immediate and full access on demand (during normal business hours). In history these accounts actual cost the depositor money akin to safe deposit box rental today. There was no interest paid on these funds.
The bank held these funds under what is known as 100% reserve. That means if ALL the customers came and ask for their money, all transactions would be covered by funds in the bank's vault.
Loan accounts are similar certificates of deposit. You give the bank use of your money for a fixed period of time and they agree to pay you a set interest rate. This is how banks make their money. They may pay you 4% interest over the year, but they may actually make 6%. You're typically happy with your cut, and the bank takes their cut. There is usually some risk of losing principle with these type of accounts, so buyer beware.
Today's Banks:
Next time you go to your bank, credit union, or savings and loan, ask the manager on duty what their reserve ratio is. Do not be surprised if they tell you a single digit number. This is referred to as the "fractional reserve system". The history of successful banks is built on those banks that have practiced the 100% reserve system and that have kept the two types of accounts separate, not only on paper, but in a physical sense as well.
Why the Taxpayer Gets left holding the bag:
Can you say: FDIC Federal Deposit Insurance Corporation. This is the arm of the federal government that bailouts banks (savings and loans, credit unions, etc...) with your money when the management team losses their hind end with the investments they made with your deposits. The leadership of the failed bank gets to keep their private jets, country club memberships, and million dollar houses, and you the taxpayer gets the bill.
This cozy relationship has come about over the centuries due the that simple fact that politicians have benefited from the banks taking their deposit account funds and loaning them to local government for projects and who knows what else. The political contributions of the banking and financial industries are quite a staggering sum. They tend to donate to both parties, to cover their bases.
What should be done:
Eliminate the FDIC program and tell banks that the leadership is responsible for any and all deposits. Suggest to all depositors, to understand the two types of accounts (deposit and loan) and the costs and potential risks of each. In addition, end the Federal Reserve system of loaning banks money to cover their loses. Hold the officers of the bank personally responsible. In Venice, Italy circa 1450, failed bank officials were hung.
Google the FDIC and add up their bailouts over the last 30 years, warning, it's a big number. It's time to bring some sanity to Washington and stop the inter-generational theft.
A successful representative republican (as outlined in the Constitution) requires an informed citizenry.
Wednesday, October 28, 2009
Saturday, October 24, 2009
A Rebuttal to The American Health Care Solutions Act (H.R. 3713)
The Republicans get part of a viable solution with this latest attempt at an alternative to health insurance reform. This rebuttal is based on the outline posted at the Congressional website of Mike J. Rogers (MI-8) on 02 Oct 09.
I agree that government run health care or anything else (except national defense) is not desired. The bottom line is that real reform is needed, but, we need to deal with the root causes of the issue, not merely dance around the edges. What follows are positive critiques of the posted summary of the bill.
Pre-existing conditions: This should be handled in two ways. For the first 18 months after passage, the no exclusion for pre-existing conditions should be allowed as we transition to individual health insurance as opposed to employer based health insurance. But after the transition period, it would be necessary to allow private companies the right of refusal for those that wait too long to get coverage. Cancellation guidelines should be based on extreme consumer behavior (e.g. repeated drunk driving convictions), or lack of financial responsibility with respect to paying premiums.
Expansion of Federal block grants: The Federal government is $12 Trillion in debt. The last thing we can afford is MORE spending. Unless cuts are made elsewhere (refer to the 7th edition of the Cato Handbook for Policymakers for ideas), we cannot afford additional spending. Assistance to those that cannot afford their own insurance should be limited to Medicaid reformed as suggested below.
Create associations for small businesses: This is the basic premise that all in Government repeatedly miss. One of the root causes of the insurance issue is that for most Americans, health insurance is employment based. It is time to end this practice that became widespread during an earlier Socialist administration during WWII. Average Americans make the necessary decisions on their home, life, and automobile insurance, I am certain that they are competent enough to pick an appropriate health insurance policy. This would allow portability, reduce the burden on businesses large and small, and allow insurance companies to offer a wide variety of consumer based policies.
Allow purchase across state lines: This is on target, but only nibbles at the edge of the issue. According to research at the Heartland Institute, there are over 1900 state laws that negatively impact the free market forces that would dramatically lower costs and prices of not only health insurance, but health care services as well. All these laws need to be reviewed and dealt with in a logical manner. Those in state legislatures and state insurance bureaus need to learn that most Americans do not want nor need them to define the content of their insurance policy. Setting basic content analogous to Personal Liability and Property Destruction for automobile insurance could be agreed to nationwide. The rest of the content should be optional and left to the consumer.
Tort Reform: This part is on target and much needed. Special Medical Courts, Loser Pays, and limits to pain and suffering awards are but a few of the parts of tort reform needed.
Health Savings Accounts: This is one of the best things to come out of the Bush years (after our safety in the war against Islamofacism). Expanding these would help families manage their own health care without the need for government meddling at the state or national level.
Discounts for Healthy behavior: Skip the employers, allow the insurance companies the ability to set rates based on the consumer’s behavior. Analogous to discounts for auto insurance for a good driving record, this is only good business and a foundation to free market capitalism.
Medicare Medicaid Fraud: Reform all government programs from fee for service to insurance premium assistance. This would eliminate 80% of the fraud and make managing the programs much easier. It would also allow market forces to help set prices of services, not bureaucrats in Washington.
“Transparency Portals”: Is this something from Star Trek??? By allowing individuals and families to manage their own insurance without being related to employment, this (whatever it is) becomes unnecessary. Cut the cord to employment based health insurance.
It is time for those in government to realize, that the vast majority of Americans do not need them to “take care of them”. Free markets work, excessive government interference leads to failure. Limited regulation is acceptable, but most don’t need nor want basic decisions made for them by Congress.
Have you seen the approval numbers for Congress lately? Congress needs to stick to the enumerated powers and get those right. And, oh yeah, cut overall spending to 90% of revenues collected in the previous tax year.
I agree that government run health care or anything else (except national defense) is not desired. The bottom line is that real reform is needed, but, we need to deal with the root causes of the issue, not merely dance around the edges. What follows are positive critiques of the posted summary of the bill.
Pre-existing conditions: This should be handled in two ways. For the first 18 months after passage, the no exclusion for pre-existing conditions should be allowed as we transition to individual health insurance as opposed to employer based health insurance. But after the transition period, it would be necessary to allow private companies the right of refusal for those that wait too long to get coverage. Cancellation guidelines should be based on extreme consumer behavior (e.g. repeated drunk driving convictions), or lack of financial responsibility with respect to paying premiums.
Expansion of Federal block grants: The Federal government is $12 Trillion in debt. The last thing we can afford is MORE spending. Unless cuts are made elsewhere (refer to the 7th edition of the Cato Handbook for Policymakers for ideas), we cannot afford additional spending. Assistance to those that cannot afford their own insurance should be limited to Medicaid reformed as suggested below.
Create associations for small businesses: This is the basic premise that all in Government repeatedly miss. One of the root causes of the insurance issue is that for most Americans, health insurance is employment based. It is time to end this practice that became widespread during an earlier Socialist administration during WWII. Average Americans make the necessary decisions on their home, life, and automobile insurance, I am certain that they are competent enough to pick an appropriate health insurance policy. This would allow portability, reduce the burden on businesses large and small, and allow insurance companies to offer a wide variety of consumer based policies.
Allow purchase across state lines: This is on target, but only nibbles at the edge of the issue. According to research at the Heartland Institute, there are over 1900 state laws that negatively impact the free market forces that would dramatically lower costs and prices of not only health insurance, but health care services as well. All these laws need to be reviewed and dealt with in a logical manner. Those in state legislatures and state insurance bureaus need to learn that most Americans do not want nor need them to define the content of their insurance policy. Setting basic content analogous to Personal Liability and Property Destruction for automobile insurance could be agreed to nationwide. The rest of the content should be optional and left to the consumer.
Tort Reform: This part is on target and much needed. Special Medical Courts, Loser Pays, and limits to pain and suffering awards are but a few of the parts of tort reform needed.
Health Savings Accounts: This is one of the best things to come out of the Bush years (after our safety in the war against Islamofacism). Expanding these would help families manage their own health care without the need for government meddling at the state or national level.
Discounts for Healthy behavior: Skip the employers, allow the insurance companies the ability to set rates based on the consumer’s behavior. Analogous to discounts for auto insurance for a good driving record, this is only good business and a foundation to free market capitalism.
Medicare Medicaid Fraud: Reform all government programs from fee for service to insurance premium assistance. This would eliminate 80% of the fraud and make managing the programs much easier. It would also allow market forces to help set prices of services, not bureaucrats in Washington.
“Transparency Portals”: Is this something from Star Trek??? By allowing individuals and families to manage their own insurance without being related to employment, this (whatever it is) becomes unnecessary. Cut the cord to employment based health insurance.
It is time for those in government to realize, that the vast majority of Americans do not need them to “take care of them”. Free markets work, excessive government interference leads to failure. Limited regulation is acceptable, but most don’t need nor want basic decisions made for them by Congress.
Have you seen the approval numbers for Congress lately? Congress needs to stick to the enumerated powers and get those right. And, oh yeah, cut overall spending to 90% of revenues collected in the previous tax year.
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