- - Friday, January 31, 2014


Commentator Charles Krauthammer produced a wickedly provocative piece recently given the headline “Stop the bailout — now.” He was talking about the looming bailout for the big insurance companies that are looking more and more like saps in their support of President Obama’s health care law.

It seems the insurance pools for the health exchanges created by Obamacare are probably going to be unbalanced — too many older people with expensive health care needs and not enough “young healthies,” whose inflated premiums were supposed to help underwrite health care for the oldsters.

The fear is a “death spiral,” wherein the young healthies jump ship, expanding the gap between insurance companies’ costs and revenues.

The law promises the insurance companies a bailout from any death spiral, though. One provision created a “reinsurance” fund plenished by a $63-per-enrollee tax collected from insurers and self-insuring employers.

It will generate an estimated $20 billion to help cover insurance company losses. Another provides for a massive infusion of taxpayer funds if the insurance companies lose money on Obamacare.

Mr. Krauthammer urges the Republican House to repeal those bailout provisions and dare congressional Democrats to fight for the bailouts. Without them, he suggests, the insurance companies will cut and run, and Obamacare will wither away.

“Such a bill would be overwhelmingly popular,” writes Mr. Krauthammer, “because Americans hate fat-cat bailouts of any kind.”

A fine point. However, why should Republicans stop at the insurance companies? Republicans too often rail against big government but then give big government a pass when it aligns itself with big business.

Consider Wall Street and the big banks, which played a prominent role in creating the real-estate bubble that gave us the financial crisis of 2008-09. One reason the recovery from that crisis has been so sluggish and protracted is that the big banks applied political muscle to coax the federal government and the Federal Reserve into providing bailouts, stimulus packages and other financial props.

This was provided in the name of helping mortgage holders, but the real beneficiaries were the big banks.

Instead of using federal resources to remove toxic assets from the banks’ balance sheets (which would have necessitated a restructuring of the banks and upended a few lofty careers), the government used those resources to buoy bank stock prices.

One result was that it took much longer than necessary for the housing market to “clear” and for an organic recovery to begin.

Then the Fed added another huge boost by keeping interest rates near zero for years. This practically guaranteed huge bank profits as they borrowed from the Fed’s discount window for next to nothing in order to buy much higher-yielding government paper (with no need to add to their reserves, as they would have had to do with big private-sector loans).

Meanwhile, ordinary Americans saw their money-market funds and other fixed-income investments plummet. Financial consultant David Smick has called this “the greatest transfer of middle-class and elderly wealth to elite financial interests in the history of mankind.”

Or consider Fannie Mae and Freddie Mac, the mortgage giants that thrived through special loan backing from the federal government. These “government-sponsored enterprises” helped inflate the housing bubble by generating what The Economist calls “a gusher of easy credit” during the boom years, when housing prices skyrocketed — owing, in significant measure, to the Fannie-Freddie spree.

Many top executives of these enterprises got fabulously rich, then sat back and watched as the federal government bailed out the two irresponsible enterprises. Some new capital requirements were instituted as part of the bailout, but now Mr. Obama’s new top guy at Fannie Mae, Mel Watt, wants to dismantle much of that in the interest of cheaper credit.

Where is the Republican Party on this kind of thing?

The country is being strangled by bigness — big government, big business, big finance, big public-employee and service-sector unions. It’s all intertwined and held together by big lobbying organizations and big campaign-finance entities.

A reckoning is inevitable, but the two parties resist it because they operate in the political culture created by all this bigness.

Meanwhile, ordinary Americans are left feeling more and more like chumps as the elites enjoy the special privileges that go to them through all of this intertwined bigness.

The Republican Party should go populist, becoming the party of ordinary citizens, the people Andrew Jackson called “the humble members of society.”

It could start with Mr. Krauthammer’s insurance-company proposal, then extend to the big banks, which should be broken up and brought under control; then to Fannie and Freddie, which should be forced to operate like other businesses; then on to the public-employee unions in the vein of what Wisconsin Gov. Scott Walker has done in his state; then extending to the size and scope and intrusiveness of the federal government itself to stop the fiscal irresponsibility that is robbing our grandchildren of their future.

Jackson, incidentally, is a worthy model. He never engaged in the kind of leveling, or wealth distribution, that so beguiles Mr. Obama. He even suggested that government has a positive obligation to protect the wealthy from the assaults often directed against them by civic forces of envy.

At the same time, he hated special privileges engineered by elites to line their own pockets and enhance their own lives. That’s why he also hated bigness, because it always spawns elites eager to exploit bigness for their own benefit.

It’s time for a little Jackson action.

Robert W. Merry, political editor of The National Interest, is the author of books on American history and foreign policy.

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