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Macroprudential policy Risky business

 THE new big hope of central banks is called macroprudential policy. During the boom, central banks used the fairly blunt instrument of interest rates as their main weapon. But since inflationary pressures were low, thanks to the deflationary shock stemming from China and eastern Europe, rates were kept low. This led to a splurge of asset-backed lending. Meanwhile, banks found easy ways to exploit the rules of the Basle accords – designed to ensure the system was well-capitalised. As a result, when mortgage-backed securities started to plunge in value in 2007, the banks were much less robust than was previously thought.

The Bank of England has set up a financial policy committee, which is just starting the arduous task of sorting out which principles it should follow and which policy buttons it can push. In a paper out today, it sets out its options. It starts by discussing the potential flaws in financial markets such as

incentive distortions which can, for example, arise from contracts that reward short-term performance excessively

informational distortions such as those linked to buyers doubting the quality of assets (adverse selection) or less than fully rational processing of information

co-ordination problems, where collective action, for example to step away from lending in a boom, may be in the interests of individual banks but there is no way to co-ordinate on this outcome

As the paper points out (and as Hyman Minsky famously noticed) there is a tendency for banks to get overexposed to risk in the upswing of a credit cycle. After all, it is the banks that are driving the cycle. As they become more confident about lending against assets, more funds are available to investors/speculators and asset prices rise, increasing the confidence of all involved. As a proportion of GDP, commercial lending to real estate doubled between 2002 and 2008. In the UK banking system, leverage (as measured by total assets to shareholders’ claims) increased from 20:1 to 50:1 within a decade. Both measures ought to have caused alarm but nothing was done.

There is little new in this, as the paper recognizes. Credit cycles have nearly always been marked by lending against property. But property is an illiquid market and prices fall very sharply when the balance of supply and demand shifts, often wiping out of all of a bank’s collateral. Meanwhile, the duration of bank funding was steadily falling, from an average maturity of 10 years in the early 1980s to four years by 2008 (the US followed a similar trajectory). This left the banks very vulnerable to a run on liquidity.

The FPC says the authorities have, in principle, three types of measure to deal with these risks.

those that affect the balance sheets of financial institutions

those that affect the terms and conditions of loans and other financial transactions

those that influence market structures

For example, balance sheet measures include maximum leverage ratios and liquidity buffers; the second group includes caps on loan-to-value ratios and minimum margins; the third includes requirements for disclosure to reduce uncertainty about the market exposure of individual banks, but also the use of central counterparties to clear trades.

The paper then conducts an excellent and clear-eyed assessment of the pros and cons of these measures, without coming to any definite conclusion (the paper is part of a consultation process). What is clear is that the authorities cannot rely on just one or two measures, esepcially given the proved willingness of banks to game the system. Of course, the authorities cannot prevent all future financial crises, but they can still be a lot more alert than they were in the early 2000s. The paper shows the FPC is making a good start.

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Health Care Reform Debate

dr-toby-cosgrove

Health Care Reform Debate

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Healthcare reform is a general rubric used for discussing major health policy creation or changes—for the most part, governmental policy that affects healthcare delivery in a given place. Healthcare reform typically attempts to:

  • Broaden the population that receives health care coverage through either public sector insurance programs or private sector insurance companies
  • Expand the array of health care providers consumers may choose among
  • Improve the access to health care specialists
  • Improve the quality of health care
  • Decrease the cost of health care

Contents

  • 1 Netherlands
  • 2 Russia
  • 3 Taiwan
  • 4 United Kingdom
  • 5 United States
  • 6 Elsewhere
  • 7 See also
  • 8 References
  • 9 External links

United States

The debate over healthcare reform in the United States centers around questions of a right to health care, access, fairness, sustainability, and quality purchased by the high sums spent. The mixed public-private health care system in the United States is the most expensive in the world, with health care costing more per person than in any other nation, and a greater portion of gross domestic product (GDP) is spent on it than in any other United Nations member state except for East Timor (Timor-Leste).

A study of international health care spending levels in the year 2000, published in the health policy journal Health Affairs, found that while the U.S. spends more on health care than other countries in the Organisation for Economic Co-operation and Development (OECD), the use of health care services in the U.S. is below the OECD median by most measures. The authors of the study concluded that the prices paid for health care services are much higher in the U.S.

The U.S. is the only wealthy, industrialized nation that does not have a universal health care system, according to the Institute of Medicine of the National Academy of Sciences and others. The number of people in America without health insurance coverage at some time during 2006 totaled about 16% of the population, or 47 million people. In addition, many or most of those with insurance are not sufficiently insured, with high-deductible policies, policies that do have limits on what they will pay for or policies that cost a significant percentage of their income.

In spite of the amount spent on health care in the US, according to a 2008 report, the United States ranks last in the quality of health care among developed countries. The World Health Organization (WHO), in 2000, ranked the US health care system 37th in overall performance and 72nd by overall level of health (among 191 member nations included in the study).

International comparisons that could lead to conclusions about the quality of the health care received by Americans are subject to debate. The US pays twice as much yet lags other wealthy nations in such measures as infant mortality and life expectancy, which are among the most widely collected, hence useful, international comparative statistics.

Brian Gratzer of the Manhattan Institute is at the forefront of individuals who argue that these differences have little to do with the lack of universal health insurance.

Whether a universally accessible health care system should be implemented in the U.S. remains a hotly debated political topic. Reform proposals include the removal of the private health insurance market, the establishment of a “public option,” premium subsidies to help individuals purchase health insurance, increased use of health information technology, research and incentives to improve medical decision making, reduced tobacco use and obesity, reforming the payment of providers to encourage efficiency, limiting the tax federal exemption for health insurance premiums, and reforming several market changes such as resetting the benchmark rates for Medicare Advantage plans and allowing the Department of Health and Human Services to negotiate drug prices.

A fundamental problem in evaluating reform proposals is the difficulty of estimating their cost and potential impact. In an effort to cut drug costs and potential drug-related toxicities, medical doctors have been instructed by the FDA only to prescribe those medications which are “absolutely indicated” in the management of patient’s illnesses. The empirical data and theory underlying cost estimates in this area are limited and subject to debate, increasing the variation between estimates and limiting their accuracy.

Another impediment to implementing any reform that does not benefit insurance companies or the private health care industry is the power of insurance company and health care industry lobbyists in the United States. Possibly as a consequence of the power of lobbyists, key politicians such as Senator Max Baucus have taken the option of single payer health care off the table entirely.

Public opinion on health care reform, sometimes called health system reform, suggests a high percentage desire reforms; however, do not want to see their taxes raised. According to The Patient Poll, a study of Pennsylvania adults age 21 and older conducted in July 2008 by The Institute for Good Medicine at the Pennsylvania Medical Society, 63.4 percent believed that the United States should enact some form of universal health care.

But, when asked how this care should be funded, only 26.8 percent were willing to have their taxes increased. On a national polling level, similar results were found in a USA TODAY/Gallup Poll that suggested high interest in overhauling the health care system, but less enthusiasm on the funding mechanisms. Another survey of Pennsylvanians conducted in July 2009 through The Patient Poll from The Institute for Good Medicine at the Pennsylvania Medical Society suggests that the majority of Pennsylvania adults (68.2 percent) believe that health care is neither a right nor a privilege, and that both government and individuals bear some degree of responsibility.

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