The Issue No One Is Talking About: Exploding Federal Commitments

Somehow in the political season, there come to be issues of the day that everyone talks about on that day.  These issues can range from the relatively important (e.g., Hillary's breaches of national security while Secretary of State) to the relatively trivial (e.g., Trump's re-tweet of an image of a six-pointed star, alleged to be anti-Semitic).  Meanwhile, as these issues of the day draw away all the attention, everyone's gaze is diverted from what ought to be the main issues.  Even for candidates who constantly protest that they want to get away from whatever they are being asked about right now and "talk about the issues," they almost never want to talk about the really important issues.

For the federal government, in my opinion far and away the overriding issue is:  what the hell are they spending all that money on?  For those not on top of these things, the federal budget for the current 2016 fiscal year (October 1, 2015 to September 30, 2016) is just a hair under $4 trillion (and only a fool would bet on the final total coming in under the $4 trillion by the time things are done).  And the big question is, does the $4 trillion represent intelligent choices of appropriate priorities for the government, or are various programs that have once established a toe-hold now exploding out of control while nobody is paying attention?  

Given the progressive world view of government as the infinite source of costless free money, you would be right to suspect that everyone in the government is only too happy to see spending explode while nobody is watching.  Hey, we're creating perfect fairness and justice here!  Of course, somehow the exploding spending goes for programs just happen to be the domains of the progressive activists and Democratic party supporters.  But it's not corrupt because it's the government!

So let's consider a few examples:

• Student loans.  When Barack Obama took office in 2009, the amount of outstanding federally-backed student loans was $657 billion according to federal data here.  When I first covered the issue in 2012, the total had just hit $1 trillion; and when I returned to the issue in early 2015 it had broken $1.1 trillion.  Now?  The Q2 2016 number is $1.255 trillion.  Oh, and these numbers don't appear anywhere in the federal budget.  A student loan hits the budget only when the borrower fails to pay and the government has to take the loss.  So how much of the trillion and a quarter will actually be repaid?  Just try to find that out.  It used to be that you could look up the "default rate" and get a good idea, but then the government got into granting every kind of deferment and forbearance you can think of -- like "income-based" repayment plans and write-offs of balances for people who go to work in non-profits and "public service" -- so that they could make the "default rate" look small.  Today they claim the "default rate" is down to 11.7%, but that's only because they are hiding millions and millions of borrowers who are going to be excused without repaying in full.  Easily half of the tril-and-a-quarter will not be repaid; and of course, the tril-and-a-quarter continues to grow daily.  Who benefits from this huge handout?  Of course it's the key Democratic constituency of the Higher Education Blob.
• Pension guarantees.  Charles Blahous at E21 writes on July 5 about "The Worsening Pension Problem Nobody Talks About."  This one is the crisis in federally-insured multi-employer pension plans.  Haven't heard of those?  The "multi-employer" plans cover workers in industries with lots of employers of workers who all do the same thing.  The classic example is trucking.  Most of the plans are sponsored by unions.  According to a chart in Blahous's article, when President Obama took office in 2009 the federal multi-employer program was thought to be solvent.  The most recent figures are a "$52.3 billion deficit estimate consist[ing] of $54.2 billion in liabilities against only $1.9 billion in assets."  That was quick!  And believe me, this is just the beginning of an explosion to come.   Supposedly the taxpayers are insulated from having to pay for this disaster through the PBGC, which charges premiums to the plans; but of course, when they set this up nobody took account of the fact that unions gradually put their employers out of business.  So like all government insurance programs eventually, the PBGC is dead broke.  The biggest disaster for the moment is the Teamsters' massive so-called "Central States" pension fund, which is coming close to running out of money.  They have recently been knocking on the government's door seeking the inevitable bailout.  Who benefits?  Another key constituency of the Democratic party, labor unions.
• Food stamps.  When Obama took office in 2009 the number of food stamp recipients was about 33 million, and the annual budget of the program was about $54 billion.  Since then, it's been eight years of economic "recovery."  In the past, food stamp usage increased during recessions and went back down during recoveries.  This time it was the opposite.  Today, the number of recipients is around 46 million, and the budget for the program soared to about $80 billion in 2013, before falling back in 2015 to about $74 billion.  How has that happened?  Part was a loosening of eligibility restrictions, for which the Congress bears much of the responsibility; but a bigger part was overt and aggressive promotion of expansion of the program by the Obama administration.  The good news for this one is that the budget and number of recipients have both declined marginally in the last couple of years.  But why aren't we back down to levels well below where we were in 2009?  Without doubt, this administration believes -- with a good deal of justification -- that recipients of monthly federal handouts are likely to vote for continuation of same.
• Medicare/Medicaid.  According to data available from CMS here, in 2009 expenditures on Medicare were $499 billion and  on Medicaid $375 billion.  By 2014 it was $619 billion for Medicare and $496 billion for Medicaid.  It all just marches forward on autopilot. Obamacare in particular has caused a great expansion in the ranks of Medicaid beneficiaries.  

I could go on, but you get the picture.  The federal government has long left the world of rational consideration of cost-effectiveness of spending, in favor of massive autopilot increases for whatever programs got themselves in the door at some magical historical moment.  Anyway, it's all way too complicated to focus political attention on.  Let's get back to calling Trump a racist!   

Third-Party Pay Health "Coverage" Meets The Real World

One of the accepted propositions of modern progressivism, on which it is difficult to find dissent in the precincts that I inhabit, is that in any "decent" society, everybody "should" have healthcare "coverage."  I put the word "coverage" in quotes because that word is often intentionally used by advocates to create confusion with the very different idea of insurance.  The word "coverage" gives the impression that somehow magically somebody else will take care of all of your expenses in the medical area, and you can consume as much medical care as you feel like while paying nothing.  And we come to a world where some large majority of people have healthcare "coverage" that takes care of not just major and unexpected expenses like a hospital stay or a heart attack, but also all kinds of routine and ongoing expenses like routine checkups, doctor visits, and prescription drugs.  Nobody in their right mind would buy insurance for such things absent massive government arm-twisting (in the form of tax-deductibility for employer-provided "coverage" as well as Obamacare mandates).  Would you buy insurance for the cost of your daily lunch?  As I wrote in that linked article (from 2013), in a world of third-party pay for routine expenditures, "you can be sure that [people] will buy the most expensive options and that the cost will zoom out of control."

In the medical arena, people have been pointing out the problematic incentives of third-party pay for a long while.  But it seems only in the last few years that medical providers like hospitals and pharmaceutical companies have perfected their pricing strategies to get the absolute last dollar out of the third-party payers like government and insurance companies.  Two examples recently came to my attention in my personal life, that I thought I should share with readers.

The first involves the former Official Manhattan Contrarian Summer Intern, who was my research assistant for this blog in the summer of 2014.  Today she is off attending the University of Chicago.  A few months ago, she fainted briefly while at school.  It turns out that she had also fainted a couple of times previously, in circumstances where she had let herself become a little dehydrated.  On those occasions she had thought little of it, and hadn't gone to a doctor or hospital.  But this time the U of C packed her off to their affiliate University of Chicago Medical Center.  With a well-insured (or "covered") warm body in their clutches, the hospital staff took the opportunity to run up every expense that their creative minds could think of, and then a few more.   The bill was $6000.  And the diagnosis?  "Nothing wrong that we can find."  

In this instance, the insurance company negotiated the bill down to about half that.  The parents got a bill for a co-pay of $75, which they gladly paid.  But do you get an idea of why health "coverage" may be getting so pricey?

The second example involves one of my own daughters.  Several months ago she jumped out of a tree (don't ask what she was doing in the tree) and landed the wrong way on one of her feet.  By the next morning, the foot was swollen and painful to walk on.  She hobbled over to the very fancy new "urgent care" center in our neighborhood in Manhattan, run by a hospital system known as North Shore/LIJ (currently in the process of changing their name to Northwell), and made the mistakes of first telling them that she had insurance and then allowing them to examine her without agreeing to a price in advance.  They took an x-ray, and, after a wait of a couple of hours she spent about 5 minutes with a physician, who evaluated the x-ray.  He said that it was not clear whether the bone needed to be set, and he did not treat her; but he recommended that she see an orthopedist promptly.  A couple of days later she got an appointment with an orthopedist, who also recommended that no treatment was necessary.  However, he advised her to keep weight off the foot and it would heel within a few weeks.  Sure enough, it did.

The bill from the orthopedist was about $400.  Expensive, but hey, this is Manhattan.  The bill from the urgent care center was $4700.  My daughter has insurance through her job, and again, the insurance company negotiated the bill down, in this case to about $2600, of which they paid about $1300.  That left a remainder of about $1300 that consists of various deductibles and co-pays applicable to various parts of the bill. 

I don't know about you, but I live in Manhattan and pay outrageous Manhattan prices for everything, and still $4700 -- or even $2600 -- struck me as rather wildly out of line for a visit that involved five minutes of doctor time evaluating an x-ray and no actual treatment of any kind.  

Meanwhile, I have recently become aware of a new kind of walk-in medical clinic springing up around our area, catering to an uninsured clientele that pays cash on the spot.  So in recent weeks I walked into a couple of those, described the circumstances of my daughter's visit to the urgent care center, and asked what their price would be for the same service to an uninsured patient walking in and paying cash.  The two were Union Square Urgent Care, on 14th Street, and CityMD, on 23rd Street.  In both cases their answer was the same:  $185.

I would be 100% sure that no individual paying out of his or her own pocket has ever paid North Shore/LIJ the $4700 -- or even the $2600 -- for a visit of this type.  Very few people would have that kind of money for an unexpected expense of this type, and the few who did would rightly refuse to pay it.  These numbers are purely picked out of the air by the hospital to see what they can game out of the insurance company, and in circumstances where if the insurance company refuses to pay the hospital knows that the insured will first blame the insurance company rather than the hospital.

The $185 price of the walk-in clinics is a clear demonstration that a functioning market of people paying with their own money has no trouble finding a reasonable price.  Sure, some people can't pay even that.  That's why there's charity in the world.  Or do you think that replacing "third-party pay" with "single payer" can suddenly magically do away with the phenomenon that everybody games whatever system there is to their own advantage?  Good luck with that! 

Two Ways To "Help" The Middle Class

A recurrent theme here is that there are two ways of looking at the world.   One arena where those two visions play out is the current competition by politicians to demonstrate that they will "help" the middle class.  Nearly all politicians claim to make "helping" the middle class a priority, but there are two completely different ways of going about it.  One proposed method of "help" is government handouts; the other is facilitating increased self-sufficiency.

There are inevitably some things about this discussion that are not completely intuitive.  Here in my business of commercial litigation -- that is, the fight over who gets the money -- it is taken totally as a given that getting more money is always better and getting less is always worse; that the quantity of money that you gain or lose is the measure of how much better or worse off you are; and that the source of the money doesn't really matter -- you could earn it from a job, or have a good trade in the stock market, or it could fall from the sky, and it's all equivalent.  But I would argue that the principle that it's always better to get more money from whatever source actually does not apply in all circumstances.  For example, suppose that I could somehow supply my children with so much money that they could have everything they possibly want in life without ever having to work -- would that be a good thing for them?  And would it really be better for them than having to work and earn their own way?  I think this would be the worst possible thing for them.  Maybe that's because I think that the thing that makes life worth living is figuring out how to achieve individual and family self-sufficiency in a complex world.  I've known multiple people in my life who got too much money from their parents and found themselves lost and adrift, and quite unhappy.

So where do government handouts fit into this picture?  The political Left completely follows the principle that we use in litigation -- more money is always better, and the fact that the money comes from the government as handouts and obviates the need for the recipients to figure out how to live independently is of no consequence.  Values like hard work, self-sufficiency and, for that matter, freedom, get weighed at zero.  I could give lots of examples, but let's take a few.

The food stamp program (aka SNAP) is a frequent subject of commentary, perhaps because it is a regular target of budget cutters.  It didn't become a target of budget cutters randomly, but rather because it has exploded in size and cost totally out of proportion to any ability to explain that from underlying economic conditions.  According to data compiled here by the Food Research and Action Center, the number of food stamp recipients was 17.2 million in January 2001 (last month of the Clinton administration), 32.2 million in January 2009 (last month of the GW Bush administration) and -- after six years of supposed economic "recovery" -- 46.3 million in December 2014 (last data provided).  Here is what the Center on Budget and Policy Priorities (left-wing think tank) had to say in January 2015 about a proposal to reduce that 46.3 million by about 1 million:

Roughly 1 million of the nation’s poorest people will be cut off SNAP (formerly known as the Food Stamp Program) over the course of 2016, due to the return in many areas of a three-month limit on SNAP benefits for unemployed adults aged 18-50 who aren’t disabled or raising minor children. . . .  The loss of this food assistance, which averages approximately $150 to $200 per person per month for this group, will likely cause serious hardship among many.

No mention of any value placed on loss of self-sufficiency by people who have no reason why they can't take care of themselves.  And that CBPP comment is actually tame compared to a September 2013 article in the New York Daily News reacting to a then-proposed 5% cut in the food stamp program (then at more than 48 million recipients), which within a span of a few sentences used all of the following descriptors: "heartless" "devastating," "sheer meanness," "repugnant," "hunger crisis," "repulsive," "cruel," and "disastrous."

Or consider the dozens of amicus briefs filed in support of the government in the King v. Burwell Obamacare litigation.  The question there is whether the federal government can provide healthcare premium subsidies to people on the federally-established exchanges -- or to put it another way, whether permanent government hand-outs to millions of not-poor citizens (if they were poor they would be getting Medicaid) on balance help those people (because more money is always better) or hurt them (by taking away self-sufficiency).  As far as I can see all of those who support the government, and for that matter the government itself, see the Obamacare subsidies as a dollar-for-dollar gain for the recipients, with no value at all placed on independence or freedom.

An alternative way to help the middle class is to enable and facilitate private sector technological development that has the effect of increasing incomes and reducing costs throughout the economy and making the people richer.  Exhibit A is the "fracking" revolution for oil and gas, which has suddenly led to the price of oil dropping by more than half in the last several months.  Just that alone makes every American who consumes energy (all of us) a couple of percent richer -- and a couple of percent better able to lead independent lives.

Reaction on the Left?  Ban it!  And thus we have the Obama administration in the last few days coming out with restrictions on fracking on federal lands.  This is not a complete ban, and only applies to federal lands, but the regulations appear clearly intended to hobble fracking to the maximum extent that the administration can get away with right now.  And how did environmental groups react?  With outrage, of course -- according to the Washington Times here.  They want fracking outright banned immediately and everywhere.  I guess then we can all live off federal hand-outs while we freeze in the dark. 

The Unfolding Pension Disaster, Federal Edition

If you are a politician, what is the perfect way to pay off your supporters to the tune of hundreds of billions of dollars while totally hiding from the public what is going on until long after you're gone?  The answer is pensions.

I've previously covered multiple times the ongoing disaster of state and local government employee defined benefit pension plans, for example here.  Today's topic will be the related issue of the federal government guaranteeing all private defined benefit pensions through something called the Pension Benefit Guaranty Corporation, or PBGC.  In one of PBGC's programs called the "multiemployer" pension plan program, there is taking place an ongoing transfer of some hundreds of billions of dollars from the taxpayers to union supporters of the President and of the Democratic Party.  Literally nobody knows about it.

On November 14 the PBGC came out with its latest annual report covering the year ended September 30, 2014.  Do you recall reading about that in any news source?  My own Google search cannot find any reference to it outside of specialty stuff for lawyers.  I came across it because I happen to get at work something called Bloomberg BNA Pension and Benefits Reporter, which is of course pay wall protected.  Who in their right mind would read something like that if they didn't have to?  Just another reason why pensions are the perfect place to hide a few hundreds of billions of dollars of payoffs to your supporters.

Anyway, here's the lead sentence of the BNA article:

The deficit of the Pension Benefit Guaranty Corporation's multiemployer plan program rocketed to an all-time high in fiscal year 2014 of $42.4 billion -- more than five times its previous high in 2013 -- the agency said in its annual report.

Yes, that's an increase of a factor of five -- 500% -- in just one year, from around $8 billion to over $42 billion -- and it was a year in which the stock market had a huge increase.  What could possibly be going on?  Here is the PBGC annual report.  The answer is that they re-classified a bunch of these "multiemployer" plans as "probable" to fail, which caused them to register the liability as to those plans on their balance sheet.  From page 20 of the Report:

The $34,176 million increase in the multiemployer program’s deficit is primarily due to losses from financial assistance stemming from the addition of two large new probables with a net claim of $26,335 million and 14 additional new probables with a net claim of $8,987 million.

But you ask, don't they have some assets, let alone premium income, to cover these losses? HAH!  The assets they hold against the $42 billion of multiemployer plan losses come to $1.769 billion (page 25); the annual premium income is a big $130 million (page 25).  Yes it's that bad.

Actually, much worse.  They only register the full liability when a particular plan becomes "probable" to fail.  In case you don't know, these so-called "multiemployer" plans are the things sponsored by unions in their unionized industries.  Essentially all of them are gradually going out of business.  There are hundreds and hundreds of these plans.  What is the dollar amount that the PBGC/taxpayers are on the hook for assuming that most to all of them fail over the next ten to thirty years?  You will not find that number in the PBGC report.  It's easily in the hundreds of billions of dollars.

Now you might think from this that the PBGC must have learned its lesson about the danger of dangling out an open-ended federally-backed guaranty to anyone who comes along.  You would be wrong.  You just have no idea how much fun this infinite credit card thing can be when you can use it to pass out lots of goodies to those who will support you politically.  And thus it seems that today, November 26, the PBGC has published a "final rule" by which it says it will now guarantee all private defined benefit pension obligations that have been created out of 401(k) plan rollovers.

Wait a minute!  Isn't that another tens or hundreds of billions of dollars of new implicitly-federally-guaranteed obligations, let alone from an organization that is already broke?  Doesn't that at least take an act of Congress?  You, my friend, are so old-fashioned, so pre-Obamacare and pre-Immigration Executive Action.  Here from back in April is PBGC's proposal for the new Rule and its statement of the statutory basis.  Some of the key text:

Rev. Rul. 2012–4 treats the amounts rolled over as mandatory employee contributions for purposes of section 411(c) of the Code.9 The ruling states that the plan satisfies section 411(c)(2) of the Code with respect to the rollover because—

1. The benefit resulting from the direct rollover is provided as an immediate annuity determined as the actuarial equivalent of the amount rolled over, where actuarial equivalence is determined using the applicable interest rate and mortality table under section 417(e)(3) of the Code; and

2. The plan further provides that, in the event payment is delayed after the rollover, interest on the rollover contribution is accumulated in accordance with the requirements of Code section 411(c)(2)(C)(iii) and the benefit derived from the rollover is not forfeitable upon death prior to the annuity starting date.

Sorry to subject you to all that bureaucratic doublespeak.  But if you make the effort to read it, you'll see that it's basically the same argument as the one for subsidies on the federally-created exchanges under Obamacare:  we'll just take a pre-existing hopelessly complicated statute that obviously deals with something else and re-interpret it to allow us to spend a few hundred billion of taxpayer money on whatever we feel like without Congressional authorization.  We will treat a voluntary contribution to a defined contribution plan as a mandatory contribution to a defined benefit plan!  Why?  Because we can!  Try to stop us!

Don't worry, Obama will be long gone when the PBGC finally blows up.  Meanwhile, it will have put the taxpayers on the hook for hundreds of billions of dollars that will go to bail out union-backed pension plans and keep the contributions flowing to the Democratic Party for decades to come.  Can't somebody but me pay at least a little attention to this?

UPDATE, December 1:  The Wall Street Journal catches on, with an op-ed on page A15 by Alex Pollack of AEI.  Good job guys!  The headline really is the key point:  "A Federal Guarantee Is Sure To Go Broke".  Hmmm.  Fannie, Freddie, flood insurance, FSLIC, PBGC.  Might as well add Social Security, Medicare, Medicaid.  FDIC definitely went broke in the last financial crisis, and only got covered over by TARP.   Can anybody come up with an example of a federal guarantee program that has not gone broke?

Gov. Cuomo's Latest Plan To Buy Out Sandy Victims

I know I keep coming back and back to this topic, but the latest from Governor Cuomo confirms all my worst fears about upcoming Hurricane Sandy giveaways.  Thomas Kaplan has the story in yesterday's New York Times.

With both houses of Congress having passed the $51 billion Sandy relief bill, Cuomo aides met with Federal officials in Washington on Friday to present plans for use of some large part of that money for "buyouts" of people whose homes were damaged.

For the 10,000 or so homes in the 100-year flood plain that were substantially damaged by Hurricane Sandy, Mr. Cuomo would offer owners the pre-storm full market value of their houses. Homeowners who chose to relocate within their home county would receive a 5 percent bonus above the market value, as part of a government effort to encourage them to stay nearby. State officials said they were planning for the possibility that 10 to 15 percent of those eligible would take the buyout.

Residents of more vulnerable areas would receive a further enticement: they would be allowed to sell their homes even if the homes suffered little, or possibly even no, damage from the hurricane, and the state would pay them an additional 10 percent bonus, above market value, to sweeten the deal.

In a few dozen blocks located in areas of extreme risk, the state would offer another 10 percent bonus if every homeowner on the block agreed to sell. Local officials would be expected to determine how best to use the new open space, though they would not be allowed to build on it.

Or, to put it in simple terms, if you didn't buy the flood insurance you get a far, far better deal than if you did buy the insurance.  For those who don't know, all the Federal flood insurance you can buy for a 1 - 4 family house is $250,000 for the house and $100,000 for contents; and the premium for that is $3289 per year if you are in Zone A.  Well, forget that, you suckers who bought flood insurance, now we're going to pay full pre-flood value of the house plus up to 20% for those who didn't bother to buy the insurance.

And by the way, what is that about "a few dozen blocks located in areas of extreme risk."  As far as I know, the entire run of the barrier islands is an "area of extreme risk."  New York has 100+ miles of them and New Jersey has another 100+ miles of them, and the rest of the East Coast and Florida and Texas have hundreds and hundreds of more miles of them.

The article suggests that Cuomo says this won't cost all that much because most people will want to rebuild and won't take the buyouts.  Well, maybe this time, but once the word of such a program gets out sooner or later every house on the whole coast of the United States is going to get bought out.  I just wonder if any of our governing geniuses understand how impossible this is.  Cuomo gets to look like a sugar daddy to the beleaguered Staten Islanders for a few moments, and next time around the taxpayers have to buy out the mega-billionaires in East Hampton or Palm Beach.

Meanwhile, suppose your house just burns down.  As of today, we still have that old-fashioned rule that you either buy insurance, in which case you get whatever it pays, or you don't, in which case tough luck.  And the poor souls in Toledo or Topeka whose houses burn down aren't playing heads-I-win-tails-you-lose with the taxpayers looking to live the good life on the beach for a few years and then get bought out at a premium when the flood comes.  The press should be all over Cuomo with the mindlessness of this.  Are they?  Well, here is the lead editorial from this morning's New York Post.  "We'll have to see the details, but the governor's plan strikes us as an excellent way to save lives and dollars."  And the Post is usually at least somewhat sensible on issues of government spending.  Is there no hope?

Can We At Least Get Rid Of Federal Flood Insurance?

One of the main places where I differ with the Manhattan Conventional Ignorance is on the concept that the Federal government has the ability (and therefore the obligation) to take all the downside risk out of life by acting as the infinite insurer of all major risks.  Most people know that the Federal government provides insurance against old age in the form of annuities for all (Social Security), and against medical expenses in old age (Medicare), and for the poor (Medicaid).  Fewer know about other massive government  interventions into the world of insurance, including insuring nearly all home mortgages (Fannie, Freddie, FHA), all private pensions (PBGC), risks from terrorism (TRIA), risks of loss of crops, and on and on.   How do intelligent people convince themselves that it is possible for this level of risk-bearing to persist for a long period without creating its own disaster?

Out of them all, my pet peeve is the National Flood Insurance Program (NFIP), the one that pays when your house on the barrier island gets washed away in a hurricane.  The program was originally created in the 1960s, when the idea of the government as infinite insurer of everything was just taking hold.  The program was supposed to be self-sustaining, but of course that's not how the government works.  In the 90s, when I owned a house on the barrier island, I got into an argument with the president of the Fire Island Association, with him claiming that the program always had and always would make money off the ocean-area people, and me saying that it was just a matter of time until the Big One put the program tens of billions of dollars "under water."  Guess who was right.

The original "Big One" was Katrina in 2005.  The NFIP promptly ran out of money and "had" to be bailed out, to the tune of $20 billion of borrowing authority from the Treasury.  They promptly blew through $18 billion of that.  Then came Sandy, and they just got another $7 billion a few weeks ago.  And so it goes.

But could it be?  An article in the current issue of Business Insurance says that proposals are circulating in Congress to privatize the flood insurance business.  The Chairman of the House Financial Services Committee, Jeb Hensarling (R, TX) actually seems to be hostile to this thing, and is quoted as calling it "ineffective, inefficient and indisputably costly to hard-working American taxpayers."  But of course, there is no mention of anyone in the Democrat-controlled Senate taking any kind of a skeptical look.  And for every industry player quoted in the article as thinking that privatization would be a good idea, another is quoted pointing out problems and risks.  My favorite is this quote from Nathaniel Wienecke, an executive of the Property Casualty Insurers Association of America:  "[T]he cost would be significantly higher because the industry would have to charge rates that were actuarially sound."  Imagine that!

Back in my Fire Island days, I did some back-of-the-envelope calculations of what kind of rates it would take to make a real business out of barrier-island flood insurance.  Based on a hurricane taking out a town or two every 30 - 50 years I figured that rates would need to be about 2 - 3 times the then-current Federal rates, except for the ocean front houses.  For the ocean front houses, the rates would need to be at least 10 times the Federal rates.  Why?  Because the ocean front houses are greatly at risk not just from major tropical storms and hurricanes, but also from run-of-the-mill nor'easters that come around most every year.  During the eight years we owned a house on Fire Island, there was no major tropical storm or hurricane, but about a third of the ocean front houses (and no non-ocean-front houses) were taken by the ocean.

Oh, I hadn't mentioned that the NFIP saves its hugest subsidies for the richest of the rich, the ocean front homeowners?  I hope you are not surprised.

Current status is that the program has no reserves at all and is about $27 billion in the hole to the Treasury from Katrina and Sandy, with no real prospect of ever paying that back.  Meanwhile, Katrina mostly missed the most valuable parts of New Orleans (Downtown, French Quarter, Garden District), and Sandy was a bare minimum category 1 hurricane.  The next one could be far, far worse.  Next time you are in South Florida, check out the build-up on the barrier islands from about Palm Beach to Miami.  A good category 5 strike right there could easily be a $100 billion event, maybe $200 billion.  Not a dollar of that is included in any debt or deficit projections you will see.

The biggest problem with privatizing the flood insurance program, or even increasing the rates, is that lots more people would then just go uninsured and figure that when the hurricane comes they can buffalo the government into paying them off in a "disaster relief" bill.  My solution is that the government should go around to every corner within the coastal flood zones and put up signs in huge print saying:  THIS AREA NOT ELIGIBLE FOR FEDERAL DISASTER RELIEF IN THE EVENT OF OCEAN FLOODING.  Of course, that kind of plan doesn't offer good prospects for vote-buying for the likes of Schumer.  So for now, I'm not holding out much hope.