Crony Capitalism

It is funny to think back to the late 1990s when "hot money" from foreign investors disappeared and economies collapse all over southeast Asia. At the time, American politicians and economists piously claimed this was the just deserts of "crony capitalism".

Now that the corruption inside the US has caused a financial collapse and a Great Recession on Main Street, we find crony capitalism is alive and well in the US. There have been hundreds of billions in "bailout" to help big Wall Street firms, big gamblers like AIG, and the big auto companies. There is no bailout for the 70 small banks that have been seized by the FDIC.

Add to this the obvious corruption behind the "debate" over health care. Here's a bit from a paper by Arindrajit Dube, an economist at UC Berkeley Institute for Research on Labor and Employment from the blog site The Baseline Scenario:

Why have pivotal members of the Congress been reluctant to allow individuals the choice to buy into a public health insurance option? A political-economic reason is that the “bipartisan” group of six senators responds more to the interests of health insurance companies than public opinion, including the median voter. While this is hard to assess directly (although we do know they receive substantial campaign finance from insurance companies), we can however observe the effects of (a somewhat unanticipated) decision they made on those who stand to privately benefit from that decision.

Here is how the share prices of three major insurance companies (Cigna, United Healthcare Group, Aetna) responded on Tuesday, July 28 to the Monday night announcement that the group of six senators is going to eliminate the public option from their version of the health care reform legislation [graph produced using Yahoo Finance]. We have basically an 8-10 percent gain for these companies from the Senate announcement. And as the graph below shows, the S&P 500 index (yellow) was essentially flat. The market caps of these three companies together are around $53 billion, which suggests a $4-5 billion value from the announcement by the group of 6.

That sure looks like "crony capitalism" to me. You buy off the "people's" representatives and then pocket $4-5 billion. How much more corruption does it take before the American people decide enough is truly "enough"?

Update 2009aug01: Here is Brad DeLong's posting on the above paper. He makes a very good point of how poorly the US media covers this "insider deal" and how worthless the reporting is to any citizen trying to understand what this US Senate committee was up to:

In 30 paragraphs, Herzhenhorn and Pear provide their readers with only three nuggets of anything that could be called information:

1. "The group of six has tossed aside the idea of a government-run insurance plan that would compete with private insurers, which the president supports but Republicans said was a deal-breaker. Instead, they are proposing a network of private, nonprofit cooperatives..."


2. "They have also dismissed the House Democratic plan to pay for the bill’s... cost partly with an income surtax on high earners. The three Republicans have insisted that any new taxes come from within the health care arena..."


3. "The Senate group... seems prepared to drop a requirement... that employers offer coverage to their workers..."

But they do not drop a single clue as to how a reader would go about trying to figure out whether these are good or bad decisions, or why these are the decisions being made.

Go read the DeLong posting to get an idea of how the media colludes with the paid for politicians to make sure that the fleecing of citizens is done in an orderly way. It reminds me of the sign at Auschwitz: "Arbeit macht frei (Work brings freedom)". A helpful little message to kept the sheep calm before the slaughter.