Commentaries

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Game is up for health insurers

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By John M. Berry

John M. Berry, who has covered the economy for four decades for the Washington Post and other publications, is a guest columnist.

Health insurance companies are aggressively raising premiums at the same time they are fighting to stop the creation of public non-profit funds that would give them serious competition.

This foolish effort to pad profits before any healthcare overhaul gets passed ought to backfire. The so-called public option was already gathering support despite claims by conservatives that it would lead to a government takeover of health care.
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Banks must see the debate has changed

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Regulators are rarely accused of being too candid. But Adair Turner’s observation that the financial sector is too large has seen the chairman of Britain’s Financial Services Authority swamped by a wave of protest.

Executives, lobby groups and even Boris Johnson, London’s Mayor, have responded with dire warnings about the risks of undermining the financial sector. This knee-jerk response shows the industry still fails to understand the consequences of the crisis it helped to cause. It is high time bankers engaged in a proper debate about their future.

Turner is right to take on swollen banks

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So the watchdog can bark after all. Adair Turner, chairman of Britain’s Financial Services Authority, says the financial sector has “swollen beyond its socially useful size”. That is a striking statement for any financial regulator, particularly one that counts promoting London’s financial centre as one of its goals. Identifying the problem, however, is the easy bit. Reversing decades of financial expansion will require global agreement on tough new rules, and the determination to make sure they are consistently enforced.

Turner’s comments, in a debate hosted by Prospect magazine, underscore the extent to which the crisis has upended the received wisdom among policymakers. For years they assumed markets were self-correcting, that financial innovation brought lasting economic benefits, and that regulators should think twice before getting in the way.

Next up for Fed, tackling the $4.5 trillion giant

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The Financial Times reports that the Federal Reserve is taking on another mammoth undertaking – reform of the $4.5 trillion repurchase agreement market, which acts as the very plumbing of the U.S. financial system.  And the central bank should. This plumbing is looking creeky after the Lehman Brothers failure exposed some big cracks that had threatened to destabilize global markets.

The New York Fed has already championed an effort to establish best practices to prevent failed repo transactions – ie when a borrower fails to deliver a security in a timely matter – by imposing penalty rates. Failed repos soared in October to record levels amid a spike in demand for super safe securities like U.S. Treasurys and a reluctance to lend agency mortgage-backed securities and agencies.

Who is the Fed accountable to?

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It’s pretty clear the Federal Reserve is going to emerge as the big winner in the Obama administration’s proposed overhaul of the financial regulatory system. But any grant of new powers to the Fed must come with legislation requiring greater accountabilty from the nation’s central banker.

Now this is not meant to knock the job the Fed has done in the current financial crisis.  In many respects, Fed Chairman Ben Bernanke should be applauded for showing a willingness to improvise and come up  with creative solutions for trying to limit the damage to the banking system and the economy. But throughout the crisis, Benanke &  Co. have shown an utter disdain for transparency and full disclosure.

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