Too Big to Regulate?

Simon Johnson has a thought-provoking piece up today discussing whether the current direction of financial regulation is going in the right direction. What do you think? Has Wall Street changed after a year since the meltdown began?

It looks like the current health care reform bill is becoming more like health insurance reform as David Brooks sees it. So health care is also too big to regulate. I find this conclusion amusing, because I seem to remember Obama changing to calling health care reform health insurance reform a few months ago. Ok, so what? The rhetoric changed. Buy why? Is the timing coincidental? Does it really matter what reform is called. Actually, yes. The timing is suspect because 2 weeks after the name change, the story was confirmed that the Administration had struck a behind-the-scenes deal with the drug industry to block any reforms that could affect the drug industry. Well, so what? The industry promised to make changes and help with the deal. That's good, right? Yes, but when you look at it from standpoint of what the industry has to gain, things get less encouraging. This Vanity Fair piece details what different parts of the heath care industry make in dollars. Which part of the industry makes the most profit? Drug companies.

It seems to me that the Administration started out with health care reform, got hit with a bunch of threats from lobbyists. Grew fearful that the reform would go the way of Clinton in 1994. Since the Administration is filled with former Clinton staffers, the strategy changed to include the big health care players from the beginning. This necessitated that they make huge concessions to these players in exchange for a chance at success. But in order to make effective your rhetoric to the public, you have to find a common enemy, one that both the public and Congress could gang up on. The weakest of the health care players from a dollars perspective is the insurance companies, and they were chosen. Yes, they do deserve their criticism, and their practices of recission and are disgusting, but they are only a small part.

Think of the health care like the Golden Gate Bridge. There are lots of little pieces that are necessary for the bridge to work. You are told that the bridge is in imminent collapse. The pillars that hold the bridge up are rusting through. The cables are fraying. The road surface has holes that cars fall through. It's obvious to all that the bridge will fail in the future. Billions of dollars are spent maintaining the bridge each year, yet it just gets worse and worse. What do you do about it? Do you replace the bridge? Do you build a new bridge next to the old one? Do you just patch up the existing bridge?

Right now, it seems like the current proposal (The Baucus Bill) is going to patch up the current bridge, with the hope that the patches hold. But the problem is that the patch is only fixing the road surface (which I am analogizing to health insurance). It does nothing to the columns that are rusting, or the frayed cables. This is the deal that has been struck. Maybe it will prolong the current bridge, but there is still a collapse in the future. Maybe the hope is that people will see how nice the road is, they will want to patch the columns and fix the cables. But the foundation is still rotten. The bridge is too big to fix.

Also, both Brooks and Ezra Klein are lamenting the loss of the Wyden-Bennet bill.