Health insurance industry: just a bunch of other people to make wealthy on the suffering of others

The frightening story of a rape victim who was denied Magellan managed care in the name of cost containment:

TNInvestco Tax Credits Potential Shelter & Subsidy to Solidus & SouthComm

Yesterday I analyzed the venture capital context of local news corporation SouthComm and I argued that the context was not necessarily consistent with priorities of covering local news. In this post I take a look at the dilemmas of the state subsidizing SouthComm's venture capitalism. The Governor's office has perfected the art of giving tax money away to corporations. Phil Bredesen's latest plan, TNInvestco, stands to benefit local media mogul SouthComm by giving tax breaks to insurance companies that invest in its parent venture capital company Solidus, which the state chose as a finalist in the TNInvestco competition. With the spoken intention of producing "the state's next top business models," the Governor's new law provides $120 million to insurance lenders who invest in Tennessee venture capital

But those business models are not simply successful because they provide people with the proverbial widgets that they demand, for which they are willing to pay. The new law minimizes the obstacles that stand in the way of success by providing government subsidies to private businesses. They eliminate risk and complexities of other tax credit programs for insurance companies. They are a form of corporate welfare. Given that Governor Bredesen has always sweetened private deals with tax dollars, TNInvestco cannot be spun into an exceptional exercise in stimulus. But the jeopardy of investment doesn't simply disappear with the new tax credits, it is foisted on tax payers.

In the case of Solidus and SouthComm tax credits are welfare for a media conglomerate that has a readership as large as that of Gannett Corporation's Tennessean. SouthComm also staffs publications in Louisville and has plans to expand to "other cities." Meanwhile, TNInvestco is marketed by its legislative supporters as a means to help small businesses and eventually support the state's "Rural Development Fund." It looks to me like another version of the tale of enough wealth to spread around to everybody. But that is only if the TNInvestcos succeed. There is also no data I've been able to find on how much of a return Middle Tennesseans will see to public programs and services from Solidus, especially if we assume that there may be other forms of tax credits that limit venture capitalists' obligations to Tennessee.

SouthComm reporter E. Thomas Wood described the selection of TNInvestco finalists as, among other things, a judgment about "strength of character," as if investment and speculation are now among the civic virtues. More reliable tests of character in my opinion involve the question of whether SouthComm reporters are transparent by providing disclaimers that Solidus is competing for the dollars on which they report and the matter of how those journalists report the news of Solidus' bid itself. Framing a bid for money as a test of character is itself biased. But reporter Wood acknowledges only one criticism of TNInvestco: the boiler plate corporate sideswipe that government bureaucrats may not be up to the task of evaluating business beauty queens.

Indeed, most venture capitalists say they rely more on "gut feelings" than objective financial metrics to evaluate investments. Since there is no way to operationalize "gut feelings" for the benefit of bureaucrats, the potential for conflict between state and business is clear. Yet, the onus for reform is not put on investors, but on government. The wealthy get their exemptions from reform lest their fragile pocketbooks be disturbed. Investors both want money from the government and want money without strings but with unchecked trust in their judgment.

Should they win the TNInvestco competition, Solidus will be enjoying tax breaks at the expense of tax payers, since some of the financial risk will be passed along to tax payers. The state's justification is that if subsidiaries like SouthComm expand and hire more employees, the new hires will spend disposable income, part of which will come back into state coffers in the form of taxes. Essentially, the state is willing to compel less powerful future employees to pay taxes while excusing powerful investors from meeting their obligation to support public works. Tax payers are tools in the TNInvestco trade.

However, reporters don't seem to be willing to question the TNInvestco double standard. Nor do they seem willing to challenge the attempts by market forces to open government revenues to private interests. But if the costs of expanding start-up businesses like SouthComm are too high to encourage investment, then perhaps the problem is with the market and not the government. Will SouthComm reporters and editors have the will to dissect TNInvestco deficiencies on the market side if SouthComm paychecks hinge on a TNInvestco win?

SouthComm's adopted motto, "Our passion is designing and producing magazines that truly tell your story," seems at odds with the high finance/quasi-government race for money and influence. I'm not convinced that they can ever tell the story of the hundreds of thousands of common Middle Tennesseans who may be jeopardized because TNInvestco removes some of the risks of consolidating newspapers, launching online news services, and making promises to expand local coverage while working to expand to other cities. But even if they could do so, the question remains: is it right to expose Tennesseans to such risk?

Employee Death Becomes a Tax Break for Employers

Tennessee's Lamar Alexander and Bill Frist Supported Insurance Industry's Definition of Domestic Violence as a Pre-existing Condition

According to the SEIU blog, not only do some states permit insurance companies to deny medical coverage to victims of domestic violence on the basis of a "pre-existing condition," but in 2006 10 U.S. Senators including both of Tennessee's voted against legislation that would have forced insurance companies to stop revictimizing domestic violence victims. I wonder if Tennessee's latest Republican senator and potential presidential candidate Bob Corker would join Lamar Alexander in denying victims of domestic violence medical coverage?

And Tennessee State University Would Pass Higher Insurance Costs on to Tennessee Taxpayers

Betsy Phillips pulls out the Army Corp of Engineer maps that I first referred you to in March to point out the opportunity TSU provides May Town Center developers to unload some floodplain land they never would have built on anyway:

Who wants to buy flood insurance if they don't have to?

Of course, if TSU is going to build there, they'll need flood insurance.

It doesn't matter how many community leaders and ministers they trot out to say how great it is, the truth of the matter is that this isn't just a gift from the generosity of the Mays' hearts. This is a gift that solves a lot of problems for the May Town Center folks, gives them enthusiastic advocates in North Nashville, and hands off some big headaches to TSU to deal with.

Not just headaches to TSU, but to Tennessee taxpayers who will have to bankroll flood insurance perpetually inflated by the risk of catastrophic failure of the Wolf Creek Dam upstream from Nashville. Engineers are now in a second phase of repairs to sections of the Kentucky dam that failed to respond to attempts at a first fix in 2007 when failure was imminent.

So, while Nashvillians wait and hope to see the latest round of dam repairs work, higher-risk flood insurance is sure to be an expense line in Tennessee's future if TSU builds agricultural research centers on Bells Bend floodplain. As Betsy points out, May Town won't be saddled with those expenses, and the presence of university institutions will increase its property values. Advocates of the May Town Center, especially those in the TSU administration, should be transparent about the substantial cost of insuring the proposed resource.

AIG: The Third Revision of Bonuses Total, Four Times Higher Than the First

Just in case you were lulled into thinking that AIG could not make you any angrier than they already have. Don't put up the pitchforks and torches just yet.

Bailed Out AIG Fought Half of Its Serious Insurance Claims

Just in case you were beginning to think that AIG was finished pissing people off:

UPDATE: If AIG has trouble paying its insurance claims, how can they afford to keep four PR firms on the payroll?

Maybe the Wall Street bubble boy missed the memo

Matt Taibi dresses down another self-entitled commodities trader about the real world that most of us live in:

Out in the real world, when your company burns a house down, you're not getting paid by that client. It's only on Wall Street, where the every-man-for-himself ethos is built into an insanely selfish and greed-addled compensation system, that people like you expect to get paid in a bubble -- only there do people expect their performance bonuses no matter how much money the shareholders lose overall, no matter how many people get laid off after the hostile takeover, no matter how ill-considered the mortgages lent out by your division were ....

Only a person with a habitually overinflated sense of self-worth could think he deserves a $700,000 retention bonus, even if it has to be paid by taxpayers, when in reality no one "deserves" that much money. It may be that some people do get paid that much, but most people who make that much money have enough sense to realize their cushy lifestyles are an accident of fate, of birth, of class, not something that is "supported" by some unwritten natural law of compensation ....

Thanks to a completely insane, horribly skewed set of societal values that puts a premium on greed and severely undervalues selflessness, communal spirit and intellectualism -- values that make millionaires out of people like you and leave teachers and nurses, the people who raise your kids and clean your parents' bedpans, comparatively penniless -- you made a lot of money.

So, shaming and stigmatizing greed looks pretty effective

Amazing what some public outcry, a 90% tax "claw back," and an Attorney General's investigation can do to motivate 9 out of 10 bonus recipients to give taxpayer money they did not earn back.

Nashville AIG Subsidiary Shamed by Reputation of Its Parent Company

A local insurance headquarters is no longer satisfied to be branded with the bailout equivalent of scarlet letters: AIG (a company that has been insisting that it pay its Gordon Gecko executives huge bonuses with taxpayer dollars). They have scrubbed and veiled the AIG trademark on their signs to boost their sales. Look for AIG to rebrand itself very soon, too.

Not the Bonus Amounts, But the Driver's Seat in the Balance

Josh Marshall underscores why the AIG crisis is Obama's first significant crisis of leadership:

the real issue of who's in control, and whose interests are being served, cuts through every dollar we've dedicated to this project. And when you look closely at the much bigger AIG counter-party issue, the same disconnect is there every bit as much as it is with the bonuses.

Whether Geithner and Summers are too close to the people on Wall Street, either through interest or affinity, is an interesting and possibly important question. But fundamentally Obama needs to start showing that he's in charge, that he's operating as the American people's advocate and that he has the power to do it -- which these stories of getting jacked up by some Gordon Gecko wannabes in London just terribly undermines.

Past the issue of amounts of money is indeed the issue of power and who exactly is going to control the flow of our money. If Obama does not the Geckos of the world will.

Arbitrary and Capricious Insurance

What sets millionaires apart from slumdogs:  insurance companies respond to some catastrophes by embracing legal obligations to contracts with the former; they respond to other catastrophes by shunning their legal obligations to contracts with the latter. 

100% Tax to Reclaim AIG Bonuses?

A Harvard law professor insists to the Atlantic's blog that it would not be hard or unconstitutional for the federal government to "claw back" the London bonuses as long as the relevant legislation was general, regulatory, and nonretributional. I say go for it.

And the government shall be upon his shoulders

While Senator Bob Corker thinks it was plain common sense for auto workers to vote to eighty-six their bonuses, AIG executives giving up their bonuses seem to look to the Tennessee Republican more ethically gray, hazy and dependent on nuanced factors. If Sen. Corker is demanding sacrifice from the people who do most of the working in the market, why can't he demand that those at the top of the power pyramid agree to sacrifice their bonuses with the same lack of regard for conditions that he showed auto workers?

UPDATE:  More on Bob Corker's brand of hypocrisy, Gail Kerr notwithstanding, at TPM:

Have Richard Shelby and Bob Corker held their press event demanding that AIG break their contracts with their overpaid Financial Products workers for their shoddy work?

Triple A Rating Fed the Con Game at AIG

The NY Times spells out how the insurance giant took us for a ride:

When you start asking around about how A.I.G. made money during the housing bubble, you hear the same two phrases again and again: “regulatory arbitrage” and “ratings arbitrage.” The word “arbitrage” usually means taking advantage of a price differential between two securities .... When the word is used to describe A.I.G.’s actions, however, it means something entirely different. It means taking advantage of a loophole in the rules. A less polite but perhaps more accurate term would be “scam.”

As a huge multinational insurance company, with a storied history and a reputation for being extremely well run, A.I.G. had one of the most precious prizes in all of business: an AAA rating, held by no more than a dozen or so companies in the United States ....

In effect, A.I.G. was saying if, by some remote chance (ha!) those mortgage-backed securities suffered losses, the company would be on the hook for the losses. And because A.I.G. had that AAA rating, when it sprinkled its holy water over those mortgage-backed securities, suddenly they had AAA ratings too. That was the ratings arbitrage. “It was a way to exploit the triple A rating,” said Robert J. Arvanitis, a former A.I.G. executive who has since become a leading A.I.G. critic.

Where is the AIG bailout money going? Does the Treasury even care?

No specifics from Treasury Sec'y Timothy Geithner on where taxpayer subsidies for fat cat AIG will be going:

Cavalcade of Capitalists: The Biggest Loss Ever

AIG had the largest private jet fleet, the most lobbyists, the best bonuses cash awards, and the hottest executive resort retreats. Oh, they also had no costs associated with those annoying labor unions.

And now they hold the record for the biggest loss ever by an American company.

A New South Rising? Not in Tennessee, Where SCHIP Would Sink

While House Democrats are looking forward to the days when an American President doesn't deny American children health insurance, Tennessee's House Republicans all voted against insuring the kids.  Why do southern Republicans deny care to the most vulnerable in our society? What have Tennessee Republicans got against supporting families?

UPDATE:  R. Neal also has news that Tennessee's Congressional Republicans voted against paying women the money they've earned on their own hard work and initiative. Keep in mind that Republicans tend to prefer "hookers and blow." Meet the new south. Same as the old south.

AIG's Self-Afflictions and Exposed Tax Shelters Threaten to Bring Down Public Transit in Major Cities

The Dollars & Sense blog has the disturbing news on banks demanding millions back from mass transit agencies around the country now that stumbling insurance giant AIG cannot guarantee tax shelters that agencies provided for banks:

The impact of the AIG collapse is being felt far and wide. Thirty municipal transit agencies, including those in Atlanta, Chicago, DC, San Francisco, and Los Angeles, are facing the prospect of being forced to come up with hundreds of millions of dollars. The crisis is a result of complicated (but legal) tax dodges between the transit agencies and private banks (explained here in the Washington Post). Basically, the banks paid the agencies large sums upfront that would be repaid in installments over time. Exploiting a loophole in the tax code, the banks saved hundreds of millions in taxes, but split the profit with the transit agencies. The deals were guaranteed by AIG, but now that the insurer is on the skids and the federal government has declared an end to the tax dodge, the banks are demanding that cash-strapped transit agencies hand over hundreds of millions in cash in the next few weeks.

AIG Uses Up 75% of Its Bail Out Capital, Says Taxpayer Handout Not Enough to Cover Its Gambling Depts

Like some strung out gambling addict, AIG has already depleted most of the $123 billion the federal government loaned it to guarantee partners who made risky mortgage investments. Now they're in denial and holding their own existence over the heads of taxpayers by saying that $123 billion is not going to be enough.

Why is it that government is always expected to get leaner and meaner in rough economic times, but businesses can continue to feast?

Like any hopeless gambler, AIG responded to the bail out by resorting, literally resorting when they should have instead stopped digging the hole.