George Zornick | The Nation

George Zornick

George Zornick

Action and dysfunction in the Beltway swamp. E-mail tips to george@thenation.com

The House Will Consider a Disturbing Cybersecurity Bill

Most people involved in the cyber-terrorism debate agree that better information sharing between the private sector and government is needed—the current law structure doesn’t allow for good enough cooperation between government security agencies and private companies who come under massive cyber-attacks.

One bill in the House, by Representative Dan Lungren, does a decent job of addressing these concerns. It’s being debated this month in the normal procedure of open committee sessions. But another bill, by Representatives Mike Rogers and C.A. Dutch Ruppersberger, containing potentially grave civil liberties violations, was approved in one secret session—and is the bill being promoted by Republican House leadership and industry groups.

The Rogers-Ruppersberger bill creates a “cybersecurity exception” to every federal and state law that allows private companies to share Americans’ private communications with the National Security Agency, the Pentagon, the CIA and basically any other federal agency that requests it. The Lungren bill, by contrast, limits all of the sharing to the Department of Homeland Security, a civilian agency—and this is an important distinction. The DoD’s Cybercommand, along with the NSA, are notoriously secretive and not subject to many of the transparency rules in place at DHS.

This takes the nation’s cybersecurity efforts—and all of the very delicate monitoring that goes with it—and transfers it to the military and away from civilian control.

Even more troubling, the Rogers-Ruppersberger bill doesn’t limit the type of information that can be shared to specific cyber-terrorism threats—the language is vague to the point where virtually any communication could be shared. The information simply needs to be “pertaining to the protection of” a system or network—not related to a known attack or threat. And all networks are included—not just, say, computer networks that run the power grid or control flight patterns. Since hackers often use routine Internet, this would allow ISPs to share virtually all Internet traffic with the government.

Once the government has possession of that information, it can use it however it wants—it does not necessarily need to pertain to a cyber-terrorism investigation. (The Lungren bill limits the use to “related law enforcement).”

It’s not hard to see how, if passed, the Rogers-Ruppersberger bill would allow private companies to share basically any private electronic communications it wanted with any government agency, for virtually any purpose. The ACLU, the Electronic Frontier Foundation and the Center for Democracy and Technology are launching major campaigns to stop it.

Rogers has defended his bill on the grounds that information-sharing by private companies is completely voluntary under his proposed law, which is true. But he doesn’t mention that, in exchange for sharing the information, the companies receive help from the NSA in identifying a cyber-attack—and more importantly, under Rogers’ bill the companies receive blanket immunity from any lawsuits pertaining to the sharing.

In an op-ed for ABC News, Leslie Harris of the Center for Democracy and Technology explains this is why the industry is backing the bill:

For companies, the answer is easy: there is freedom to share information with whatever entity you please, blanket immunity for sharing, blanket immunity for a recipient of shared cybersecurity information who fails to take protective measures even when they are clearly needed, and no regulatory burdens are imposed.

The Rogers bill, along with the Lungren bill, will be debated the week of April 23. We’ll be sure to stay on top of it.  

Is DeMarco Ready to Write Down Mortgages?

Progressives have mounted an increasingly intense campaign to pressure Edward DeMarco, acting director of the Federal Housing Finance Agency, to write down the principal on mortgages held by Fannie Mae and Freddie Mac. The FHFA took control of Fannie and Freddie during the 2008 crisis, and DeMarco has since prohibited the two companies from reducing principal amounts of troubled mortgages, citing concerns that it would hurt the Fannie and Freddie bottom lines.

But in a speech at the Brookings Institute today, DeMarco opened the door—a little. “I will not be announcing any conclusions today,” he said, but talked of the potential that “Fannie Mae and Freddie Mac might apply principal forgiveness.” That’s at least not a firm no, which is what DeMarco had previously offered.

It’s important first to flag this as a (small) progressive victory—it’s hard not to draw a line from the Congressional and progressive pressure to today’s speech, in which DeMarco not only doesn’t rule out principal reductions, but speaks forthrightly to the human cost of the housing crisis:

Throughout this crisis each of us know of, or have heard about, many individual stories of homes lost through foreclosure. One cannot help but have sympathy for those who have suffered such misfortune. And surely no one can look at the dislocations in the housing market and not feel frustration at how so many people and institutions failed us, whether through incompetence, indifference, or outright greed or fraud. Yet we are also blessed in this country with people and institutions who care, who are strongly motivated to provide assistance and find solutions. […]

Six years into this housing downturn, the losses persist. The debate continues about how we as a society are going to allocate the losses that remain. Asking hard questions in this debate does not make one unfeeling about the personal plight this situation has created for so many. Indeed, the majority of those most hurt by this housing crisis did nothing wrong – they were playing by the rules but they have been the victims of timing or circumstance or poor judgment.

DeMarco’s potential shift here is based on a FHFA study of how updates to Treasury’s HAMP program might help the agency write down severely troubled mortgages—an analysis that found FHFA could realize $1.7 billion in savings by forgiving principal on some loans.

The agency examined a pool of 700,000 mortgages, on which Fannie and Freddie would lose an estimated $63.7 billion if they were not modified. The analysis looks at the recently tripled incentives under HAMP for principal write-downs, and finds that the losses would be $53.7 billion if some principal were forgiven, while the losses would be $55.7 billion if those loans were granted forbearance—this means some principal isn’t reduced, but taken off temporarily until payments can be made. This is the method DeMarco has heretofore preferred, but this analysis shows it might be more costly than principal reduction—and this is significant. After factoring in the money sent over from Treasury and the people who may redefault, the analysis found $1.7 billion in savings for FHFA under principal reduction.

DeMarco is focusing on, at most, 1 million homeowners, which is but a small slice of the troubled mortgages held by Fannie and Freddie—they have about 60 percent of the market. Why such a small segment? That’s what some Democrats already want to know.

“[W]ith millions of homeowners facing foreclosure, principal reduction for less than a million homeowners is no silver bullet,” said Senator Jeff Merkley of Oregon today. “We moved mountains saving the major financial institutions in 2008 and 2009. It’s now time to bring the same energy and conviction to restore health to our housing market and help families stay in their homes.” (He also noted that DeMarco’s speech was a “step in the right direction.”)

In any case, let’s look at the rest of DeMarco’s speech. While he is opening the door to principal write-downs, he does outline several policy reasons why he thinks they might not work, or might not be desirable. He focuses in particular in two possibilities for moral hazard.

The first is the potential for homeowners to enter “strategic default”—in other words, to stop making payments until they are troubled enough to receive a principal write-down. DeMarco estimated that it would only take 20,000 strategic defaulters to wipe out the $1.7 billion savings.

This is a popular Republican talking point, but in fact little moral hazard really exists here. Throughout the housing crisis strategic has been simply a boogeyman—nobody can find actual evidence that people are actually engaging in it en masse. And when it comes to the homeowners in the GSE portfolio, very few are even in a position where it would make sense to do so, and everyone else shouldn’t suffer for it. This is a point highlighted by Housing Secretary Shaun Donovan earlier this week. “We shouldn't punish the vast majority of folks where strategic default isn't really a risk just to fix what may be a risk with a small percentage (of borrowers),” he said.

The other moral hazard DeMarco outlines is more real—he argues that principal write-downs could basically be a second bailout to big banks, and essentially reward previous misdeeds.

Here’s the argument: many homeowners—as much as 50 percent of those under Fannie and Freddie, DeMarco estimates—have a second lien on their home with a third party, probably a big financial institution. When Fannie and Freddie write down the principal—a hit to taxpayers, especially considering the Treasury incentives—the big bank holding the second lien benefits, because, though it has written nothing down, it shares in the benefit of a homeowner now more able to make payments. This is especially true if there’s still a foreclosure anyhow.

Under HAMP, there is a Second Lien Modification Program, but as DeMarco noted, that’s still problematic—under that program, the first and second lien holders share in losses. Normally, the first lien holder would not have to share in these losses.

The problem of second liens is one that deserves a thoughtful policy response. But in any case, it’s a bit odd to hear DeMarco suddenly making an argument about the impropriety of helping big banks' bottom lines, when his position so far has simply been to protect "his" banks’ bottom lines. One wonders if perhaps DeMarco is still searching for reasons not to issue write-downs—but it’s clear he’s feeling the pressure.  

White House Drops Campaign Finance Disclosure Push

One year ago, news leaked that the Obama administration was contemplating an executive order that would require all corporations with a government contract to disclose political spending. The ostensible purpose was to make the federal contracting process more transparent, but campaign finance reformers were particularly excited—since so many companies have a federal contract, the order was seen as a de facto DISCLOSE Act, which requires all corporations to reveal political spending over $10,000.

Unfortunately, that initiative seems to be dead, at least for now. The Hill reports that the administration is unlikely to issue that order, until after the 2012 elections at the earliest. This matches what I’ve heard from campaign finance reformers involved in the process.

It’s important to recall that, when the Obama campaign announced in February it would explicitly support Priorities USA and other Democratic Super PACs, there was a pledge to work hard at campaign finance reform in the meantime. This is what campaign manager Jim Messina wrote at the time:

The President opposed the Citizens United decision. He understood that with the dramatic growth in opportunities to raise and spend unlimited special-interest money, we would see new strategies to hide it from public view. He continues to support a law to force full disclosure of all funding intended to influence our elections, a reform that was blocked in 2010 by a unanimous Republican filibuster in the U.S. Senate. And the President favors action—by constitutional amendment, if necessary—to place reasonable limits on all such spending.

Indeed, Obama supports the current House and Senate versions of the DISCLOSE Act—laudable bills that have exactly zero chance of passing before the end of the year because of Republican votes in the House and Senate. The administration could make that change happen anyway with a stroke of the pen on this executive order, but it’s now clear that it will not.

The question then is what, exactly, the White House is actually willing to do to create a better campaign finance system. If it’s not going to sign this executive order, the administration could try to force some nominees onto the Federal Elections Commission, as many good government groups have urged. Alternately, the White House could call for the Securities and Exchange Commission to issue rules requiring political spending disclosure—one SEC commissioner has already voiced support for that move.

If Obama is serious about campaign finance reform, he might take some of these executive actions. Alternately, he could just keep supporting bills he knows won’t pass, while raking in millions to his Super PAC for untold future promises. I have a cynical hunch what will happen, but I’m eager to be proven wrong.

March Jobs Report: We're Treading Dangerous Waters

The jobs data released this morning is a clear disappointment: only 120,000 jobs were added, which is less than what analysts predicted and barely enough to keep up with population growth. The unemployment rate went down slightly, to 8.2 percent, but only because the labor force shrank as people stopped looking for work.

In January and February, the economy added 243,000 and 227,000 jobs respectively. A strong recovery would feature something like 250,000 to 300,000 jobs added per month, at least, and it looked as if perhaps we were flirting with that sort of momentum. Apparently not.               

One shouldn’t put too much stock in one month’s numbers, but that applies to the recent positive signs too. The bottom line is that the recovery is going forward sluggishly, if at all, and it needs a push. If it wasn’t already clear—and really, it was—the government needs to enact some serious stimulative measures.

But the question is: what measures, and how could they possibly be enacted? With Republicans in control of the House through at least the end of this year, any sort of stimulus package or jobs plan can be ruled out. If Democrats can take the House back and hold the Senate and presidency, perhaps prospects brighten next year—but you still have Republican obstructionism and presumed Democratic timidity. Meanwhile, minutes from the Federal Reserve’s most recent policymaking meeting show there won’t be an easing from the Fed any time soon. Through an odd combination of consensus and paralysis, Washington has settled on a jobs plan: do nothing. (Or, worse than that, should we have President Romney pushing the Ryan budget next year).

“The March jobs report should set off alarm bells,” said Robert Borosage of the Campaign for America’s Future. “Washington seems dangerously close to repeating the mistakes of 1937, moving prematurely to reduce deficits and constrict monetary policy, when the economy has not yet gained sufficient momentum to continue to grow. In 1937 that folly pushed the economy back into recession. In today’s Europe, austerity has had the same effect. We should not ignore the lessons of history and experience.”

Just to keep in mind the truly hard work ahead, take a look at the employment cliff the country is staring up at from the valley below:


Here are some more tidbits from the jobs report:

  • One major area of job loss was in the retail sector, which lost 38,000 jobs. Matthew Yglesias wonders if this might be part of the structural decline of retailing. Those jobs won’t be easy to add back; with online purchasing becoming more and more common, the need for big retail outlets shrinks.

  • The numbers are truly depressing when one looks at people who have stopped looking for work or are underemployed. The “alternative unemployment rate measure,” which is people who have been discouraged from continuing to look for work or are working part-time as they await a full-time job, is 14.5 percent. That means almost 23 million people are unemployed or underemployed.

  • Long-term unemployment is at record highs. Over 42 percent of the unemployed have been looking for work for 27 weeks or longer. The previous high for this statistic in the past six decades was 26 percent, reached in June 1983.

  • Two bits of good news: average hourly wages increased slightly, as did initial unemployment claims. Both could be signs of at least some degree of forward momentum.  

Two Years After Upper Big Branch, Why Does Regulation Remain Weak?

Today marks two years since an explosion at the Upper Big Branch Mine in West Virginia killed twenty-nine of the thirty-one workers inside. The blast occurred, investigators later said, because mine operator Massey Energy flouted even basic federal safeguards. “A company that was a towering presence in the Appalachian coal fields operated its mines in a profoundly reckless manner, and 29 coal miners paid with their lives for the corporate risk taking,” read a report last year from the Mine Safety and Health Administration.

The MSHA report faulted the agency itself, as well, for continually allowing Massey to ignore a wide array of crucial safety rules. Regulators found an astonishing 515 violations in the years leading up to the explosion, yet refused to issue a flagrant violation citation which might have forced the company to change its practices—a failure that report described as “disturbing.” The MHSA also failed to notify miners they were working in mines that didn’t meet minimum safety standards.

Most gallingly, despite three methane-related explosions at Upper Big Branch since 1997—the same cause as the final catastrophic explosion—federal regulators “did not compel (or to our knowledge even ask) UBB management to implement” safety measures.

Massey has since reached a large settlement with the Department of Justice, and was bought by a competitor. But unfortunately, there have been no large scale changes at MSHA. Democrats introduced a bill in 2010 that would increase penalties for violations, expand whistleblower protection for miners and give federal regulators more power to enter mines and issue subpoenas—but Republicans killed it.

Today, on the anniversary of that disaster, the authors of that legislation spoke out about the still-urgent task of reforming mining oversight. Democratic Representatives Lynn Woolsey and George Miller said in a statement that “[t]he imperative to close loopholes in our nation's mining laws remains with us and many of our colleagues.”

“There were many tears shed at the time and proclamations made from elected officials to honor the dead by taking all actions necessary to prevent a similar disaster from ever happening again,” they said. “But, two years later, as the headlines and national attention have faded, we are in danger of losing the sense of urgency that is so often essential to moving legislation to keep miners safe.”

They also called for a reversal of budget cuts to MSHA, which has been struggling to appropriately staff operations. Miller has previously described workers at the MSHA as “overwhelmed and inexperienced.”

It should be noted that MSHA issued new rules for underground coal mine exams this week—though they are focused mainly on self-policing by mine operators. The new rules require coal company workers to conduct pre-shift and on-shift inspections, and record and report the results. The West Virginia Coal Association, an industry group, is fighting these new rules—because it says miners are “not trained to know federal regulations and shouldn't be asked to perform the job of a federal inspector.” 

House Poised to Gut Derivative Reforms

Reuters Pictures

Unregulated, shadowy derivatives played a key role in the 2008 financial crash—Warren Buffett called them “financial weapons of mass destruction”—and the Dodd-Frank financial reforms took serious measures to bring them out into the open. Even Matt Taibbi, a noted critic of the overall bill, said the derivative rules were the “biggest win of all.”

Now, Republicans—and some Democrats—on the House Financial Services committee are quietly trying to gut these key reforms. The committee reported out two bills recently that would make derivative transactions largely opaque once again and that would exempt large portions of the financial industry from further regulation.

Representative Barney Frank, the ranking Democrat on Financial Services, released a statement this week sounding the alarm about the two bills, which the House is expected to take up this month when it returns from recess. “Thoroughly hoping to take advantage of the fact that public attention is now focused on the budget and the healthcare bill, House Republicans are moving substantially to weaken the regulation of derivatives,” Frank said. “Democrats will be pushing for… two very important amendments to these bills, and if they are rejected by the majority, we will work hard against both bills and urge the Senate and the President to reject them.”

The Swap Execution Facility Clarification Act, introduced by New Jersey Republican Representative Scott Garrett—and co-sponsored by a leading Democrat on the committee, Representative Caroline Maloney—would kneecap the open-market derivative reforms established in Dodd-Frank.

Before the bill was passed, derivatives were mainly traded in the dark; neither regulators nor customers were privy to crucial price details. Only the traders, who have obvious motives for self-enrichment, knew this information.

Dodd-Frank directed the Commodity Futures Trading Commission to create rules to bring derivative trading out into the open. Already, traders now share trade and position details with federal regulators. Customers are still mainly in the dark, as most derivative trades are done over the phone, one-on-one, and so the customer is at the trader’s mercy. But in late 2010 the CFTC began pushing forward rules that derivative market participants must post prices on a “centralized electronic screen” that customers can easily access; one-to-one phone dealings would be barred.

Garrett’s bill is ostensibly meant to preserve the ability of firms to conduct phone trades—something the Democrats on the committee actually support. But as written, it would gut most all of the derivative reforms regardless of how they are conducted.            

The second bill, the Swap Jurisdiction Certainty Act, was introduced by Democratic Representative Jim Himes, and co-sponsored by Garrett and would prevent the CFTC and the SEC from regulating derivative trades by overseas subsidiaries of American companies—even if the regulators determined those trades threatened the stability of the American economy or were being conducted purely to avoid regulation in America. If passed, financial firms would presumably be able to offshore a good deal of their derivative trading. Regardless of where its conducted, this sort of trading has clear potential to crash the market and even the firms themselves—which would no doubt be disastrous to the economy. 

Combined, these two bills would defang much of the Dodd-Frank efforts to rein in dangerous derivatives. It’s truly astonishing—these instruments have already demonstrably caused massive harm to the US economy, and the negative effects continue to this day. Dark derivative markets benefit virtually nobody except financial traders; Representative Maloney, pressed by the New York Times last year to explain her position on the Swap Execution Facility Clarification Act, cited her concern about job losses on Wall Street. 

It seems likely the Republican House will pass these bills in April, though unlikely that the Senate would approve them and less likely President Obama would sign measures that would hobble crucial elements of Dodd-Frank. But Republicans and their Wall Street funders are clearly eager to move the ball forward—and you can bet this isn’t the last attempt they will make to liberate the beloved, beleaguered derivative traders. 

Senator Harkin Unveils Major Economic Legislation Aimed at Middle Class

Senator Tom Harkin announced today a broad economic plan that he will introduce shortly in the Senate—one well to the left of the current White House proposal and aimed directly at reviving the middle class.

Harkin’s legislation, which he dubs the “Rebuild America Act,” touches on virtually every area of American economic policy: it revamps the tax code, initiates a wide array of public spending meant to goose the economy, pushes for fair trade laws, and retools laws and regulations that affect middle-class families.

The legislation is divided into three basic categories: the first is proactive federal spending an action meant to boost the flagging economy. It includes:

  • $300 billion for roads, bridges, energy efficiency systems and other infrastructure

  • $20 billion in school modernization funding

  • Boosting funding for agencies that regulate trade, to better enforce fair trade policies

  • Funding to states to hire teachers, public safety workers and other public employees.

Then, the bill deals with ensuring long-term stability for the middle class. These provisions include:

  • Increased child care subsidies for working parents

  • Ensuring that workers, particularly white-collar workers categorized as independent contractors, earn time-and-a-half overtime pay

  • Raising the minimum wage

  • Strengthening the National Labor Relations Act, making it easier for workers to join unions and increasing penalties on employers for blocking unionization.

To help pay for the increased spending, and with an eye on reversing widening income inequality, the bill has many dramatic tax proposals:

  • Raising the capital gains rate and closing the carried interest loophole

  • A Wall Street speculators tax, of three basis points on common financial securities trades

  • Ending tax breaks for companies that outsource jobs

This may read to you as a wish list for progressive economists and policy experts, and it is. Former labor secretary Robert Reich, who testified before Harkin’s Senate committee last year as it was crafting the plan, said that a bold response was needed beyond the half-measures being proposed by the mainstream Democratic Party.

“The middle class still doesn’t have the capacity to do its part in buying the goods and services that will boost the economy and keep the economy going. Without bold action the destruction of America’s middle class is going to continue,” Reich said on a conference call this morning. "We have not licked this problem. Even though I am enormously proud to have been a part of the Clinton administration, and I also think the Obama administration has tried to do what it can do, we need a broader approach.”

Harkin said this morning he realizes the votes for his bill don’t exist in the Senate right now, but that the discussion is skewed too far right. “I want to get this in. I want to makes sure that it’s part of our national dialogue and national conversation as we go through this campaign year,” he said.

There is broad overlap between the “Rebuild America Act” and the Congressional Progressive Caucus “Budget for All” in the House, and Harkin said he anticipates working with House progressives to push both budget plans.

Conservatives have been extremely successful in recent years at moving the center of their party rightward—and this is due in part to aggressive steps to influence candidates for federal office. I asked Harkin if he would employ a similar approach.

“I firmly believe that anyone running for election this year to the House or the Senate—if they take up this bill, if they take up the direction of this bill… I believe that will be a winning formula,” he said. “I think the American people are hungry, looking for some way out of this mess that we’re in and I think they’re saturated  [with] these sort of quick-fix type things—that we can’t be bold, we can’t grow, we’ve got to, as the Ryan budget says, just keep shrinking and shrinking and shrinking.” 

At Capitol Hill Hearing on Trayvon, Strong Words on Gun Control

The parents of Trayvon Martin attended a somber, angry forum on Capitol Hill yesterday about racial profiling and discriminatory stand-your-ground laws. Much of that terrain has been well-covered in recent weeks, but an interesting portion of the hearing focused directly on gun control—and how Florida’s loose gun restrictions helped facilitate George Zimmerman’s vigilantism.

Despite having an arrest record and a history of violence, Zimmerman was allowed to purchase a gun and obtain a concealed carry permit. And even if he were to be arrested tomorrow and charged with murder, he would still likely be able to obtain a gun permit the day he eventually walked out of prison.

In Florida, gun permits are issued by the Department of Agriculture. All one has to do is visit their website—FreshFromFlorida.com—and apply. Providing your Social Security number is optional, and they’ll just mail you a permit—no need to actually see anyone or provide identification. And it's apparently easy for people convicted of a crime to obtain gun permits, even though it's technically not allowed--1,400 convicted felons, at least, are said to have concealed carry permits in Florida today, though it’s hard to know for sure since the state doesn’t make the permit list public.

For decades now, the National Rifle Association has used Florida as a petri dish for extreme measures that make getting firearms easy—and the state has some of the loosest laws in the country.

At yesterday’s hearing, Dan Gross, president of the Brady Campaign to Prevent Gun Violence, drew a direct line between the state’s gun laws and Trayvon Martin’s death:

The results of Florida’s relentless pandering to the NRA have been year after year of carnage. Since Florida enacted the NRA’s concealed weapons law more than two decades ago, Florida has led the nation in violent crime—consistently ranking in the top five every year for states with the worst violent crime rates in America.The shooting of Trayvon Martin by George Zimmerman is a heartbreaking tragedy. But it is not a surprise that it happened in Florida. This is what happens in the NRA’s armed utopia. George Zimmerman is the embodiment of the gun lobby and its dark vision for America.

George Zimmerman is the NRA.

Now the NRA wants to export its Florida model nationwide. The NRA has made it clear that its vision is of an America like Florida, a nation where it’s easy for dangerous people to get, carry and use guns on our streets, parks and playgrounds.

Gross noted that the NRA is currently backing two US Senate bills, introduced after the Martin shooting, which would vastly expand concealed carry in the United States—the measures would allow residents of states like Florida with lax gun laws to travel to other states and still have their concealed carry permit respected as valid. 

If the Mandate Fails, Single Payer Awaits

Dr. Sonia Nagda puts on a pin supporting the healthcare reform law signed by President Obama as she gathers with other healthcare professionals in front of the Supreme Court in Washington, Monday, March 26, 2012. (AP Photo/Charles Dharapak)

There is much consternation in liberal circles this afternoon, as the arguments before the Supreme Court about health care reform’s crucial individual mandate don’t seem to have gone very well. “A bad day for Obamacare’s supporters,” writes Ezra Klein. “I think this law is in grave, grave trouble,” said Jeffrey Toobin.

I tend to give more credence to the accounts that things weren’t actually that bad—the questioning during these proceedings is not predictive of the final outcome, and Justice Anthony Kennedy has plenty of room to side with the government—but it’s worth considering what would happen if, indeed, the individual mandate is junked.

To give a nickel-version of the dispute here: under health care reform, the federal government will begin requiring people to purchase private health insurance in 2016, or face a $695 penalty. (People who can’t afford it would get an exemption). Opponents of the law argue this is an unconstitutional coercion of individuals by the federal government, while the administration argues it is within Congress’s right to require the purchase of health insurance under the Commerce Clause of the Constitution. The reasoning is that the federal government clearly has the power to regulate the health insurance industry under that clause, as it spans every state in the nation.

If the Court strikes down the mandate, then the part of health care reform that forbids health insurance companies from denying coverage to people with pre-existing conditions would almost certainly be repealed. If the government forbid those denials but didn’t force people to first buy a plan, then plenty of people would just wait until they got sick to buy insurance.

This would be a critical blow to one of the central premises behind health care reform. Re-instituting the individual mandate would be unconstitutional. So what then?

One obvious option, besides just doing nothing and allowing health care costs to continue their exponential growth while more people lose coverage, is a single-payer health insurance plan. There is no doubt about the constitutionality here—the government is clearly allowed to levy taxes to fund public benefits. Medicare, for example, is not challengeable on the same grounds as Obama’s health care reform.

So if health care reform goes down, the next logical step may well be just extending Medicare to everyone. This was not politically possible in 2009, but perhaps the demise of “Obamacare” would make it moreso as legislators looked for other solutions. This is exactly what former Labor Secretary Robert Reich argued in the Huffington Post today:

With a bit of political jujitsu, the president could turn any such defeat into a victory for a single-payer healthcare system -- Medicare for all.

If the Supreme Court strikes down the individual mandate in the new health law, private insurers will swarm Capitol Hill demanding that the law be amended to remove the requirement that they cover people with pre-existing conditions.

When this happens, Obama and the Democrats should say they're willing to remove that requirement - but only if Medicare is available to all, financed by payroll taxes.

If they did this the public will be behind them -- as will the Supreme Court.

Representative Dennis Kucinich sounded similar notes yesterday, saying that single-payer is on the way regardless:

The cost of health care continues to grow because the costs cannot be constrained within the context of that for-profit system. Whether the Supreme Court upholds the law or strikes it down, single-payer is the only alternative that can meet our nation's needs.

As Kucinich is presumably suggesting, the health insurance exchanges set up under health care reform could be used as a vehicle for single-payer. Vermont is currently toying with that idea. That’s no doubt going to be a focus for progressives in coming years—and, paradoxically, the death of the individual mandate might aid that effort.  

Barney Frank: Press Obama on Defense Cuts

Ask any defense lobbyist in Washington—spending on defense is threatened like no time in recent memory. Under the Budget Control Act, the budget for defense will be subject to a strict cap (a process known as sequestration) beginning in 2014 and lasting until 2021. This would necessarily create steep, across-the-board reductions in defense spending.

But nobody on either side of the aisle is enamored with this defense cap. The House GOP budget plan, written by Paul Ryan, does away with the sequester, and not only protects defense spending from cuts, but boosts the level of spending. House Speaker John Boehner plans a bill this year to officially junk the sequester.

As we’ve been flagging here for weeks, President Obama’s budget also does away with the defense sequestration. This has concerned some liberals—since an overall cap on discretionary spending will presumably remain in place, many worry that removing the limit on defense will lead Congress to take a vast majority of the reductions from social programs and leave defense untouched.

This morning I spoke with Representative Barney Frank, a leading voice in Congress for cutting defense spending. (He has frequently advocated a 25 percent reduction in the Pentagon budget, a goal he repeated at a public event before we spoke). Frank blasted the Ryan/Boehner plans for defense spending as “outrageous”—but he was not concerned with Obama’s removal of the defense sequester per se.

Frank’s issue with the defense sequester is that it mandates across-the-board cuts—meaning that military pensions and salaries would come under the knife right along with everything else.

“I would like to keep the sequester in place but have more flexibility as to how it’s done,” Frank said. But even if the sequester goes, and there’s a single discretionary spending cap until 2021, Frank said he wasn’t overly concerned.

“Things have changed,” he said. “[Cuts slanted heavily to domestic programs] would clearly have been the case ten years ago. But I think Medicare versus military, we have a much better chance now. I prefer not to do that, but I believe the single cap—we would still get substantial military cuts.”

In any case, Frank sees the battle playing out in the public sphere, not according to relatively arcane provisions of the Budget Control Act. “Mechanics don’t do this, it’s political will,” he said. “If we have the votes to make substantial defense reductions, we’ll have it. If you don’t, the sequester is not made out of steel. It’s like the Great Wall of China, it looks tougher than it is.”

While Frank is generally behind Obama’s plan to ease the defense sequester while continuing to cut defense, he thinks the president doesn’t cut far enough, and he needs to be pushed. “He’s better than Republicans, he’s not good enough. He needs to be pressed to do more in reductions,” Frank said. “The president is for too much military spending but he’s not where Boehner is. The president specifically said he’s not going to exempt defense from further cuts and make them up elsewhere.”

In all, as Frank noted several times, this is a battle that can only really be played out after the presidential elections. The sequester will loom, and if Republicans take Congress and the White House, you can virtually guarantee a version of the Ryan budget comes to fruition—no cuts in defense spending, perhaps even an increase, with the difference made up in domestic programs. If Democrats prevail, or if the result is mixed, then the bargaining begins. But don’t count on the defense sequester as-is to survive.  

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