Has Obama's Handling of the Bank Bailout Undermined Health Care Reform?

If we don't learn from the botched bank bailout, we are in danger of getting the same patchwork, reform-in-name-only outcome on health care.
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Given the media's ADD, I imagine the discussion on health care will quickly revert to where it was before Ted Kennedy's death -- filled with chatter about the Gang of Six's latest pronouncements, and whether there are or aren't death panels in the House bill.

But before we move on to the minutiae and the moronic, let's do some big picture stocktaking, using the valuable perspective last week's look back at Kennedy's career and speeches provided.

This weekend, Sam Tanenhaus, the senior editor at the New York Times Book Review, wrote that Kennedy's passing brought to an end a vision of liberalism that "holds that the forces of government should be marshaled to improve conditions for the greatest possible number of Americans, with particular emphasis on the excluded and disadvantaged."

But shouldn't the vision of marshaling forces to improve conditions for the greatest possible number of Americans be the appropriate goal for any civilized society? We can argue about what precisely should be the proper balance between government, the private sector, and philanthropy. But is there any doubt that this goal is what our political discourse should revolve around?

After all, the vision of improving conditions for the greatest possible number of Americans is not the exclusive province of liberalism. And because it is the ultimate goal of society, it is about right versus wrong, rather than right versus left.

Looking at the last nine months through this perspective, it's hard to understand many of the decisions the Obama administration has made. Has improving conditions for the greatest possible number of Americans really been its goal? If not, why not? And if yes, what a funny way to go about it!

Take the bank bailouts. The dust is finally beginning to settle on that front, and what we are seeing doesn't bode well for the ongoing health care fight.

Two days after Senator Kennedy's death, and thus not given much attention, there was a shocking piece in the Washington Post about how America's "too-big-to-fail" banks have gotten even bigger since the meltdown. Four banks (Chase, Bank of America, Wells Fargo and Citi) now issue 50 percent of America's mortgages and control two-thirds of the nation's credit cards. According to FDIC chair Sheila Blair, this kind of consolidation of power "fed the crisis, and it has gotten worse because of the crisis."

And the consolidation isn't over. As WaPo's David Cho points out, these mega-banks now get even more favorable treatment from creditors because the creditors know the banks will be bailed out by taxpayers if they take on too much risk. This favorable treatment includes lower borrowing costs than other banks are able to get. This, in turn, will put even more of these smaller banks out of business, furthering the concentration of wealth and power. And Democrats are ceding the populist field of trust busting to Republicans.

Though the big four banks have all recently announced multi-billion dollar profits (with a bottom line handsomely padded by all of us), three dozen smaller banks have gone under in the last two months.

As Mark Zandi, chief economist of Moody's Economy.com puts it: "the oligopoly has tightened." Which is what oligopolies tend to do when left untended.

And what of those who are supposed to be tending the oligopoly? Here's Tim Geithner's rose-colored take:

Our system is not going to be significantly more concentrated than it is today. And it's important to remember that even now, our system remains much less concentrated and will continue to provide more choice for consumers and businesses than any other major economy in the world.

Is it me, or is Geithner starting to sound more and more like "Baghdad Bob," the absurdist Iraqi Information Minister who predicted that U.S. forces were going to surrender even as American tanks were rolling down the street outside his press conference?

So what can the bank bailout teach us about health care? Quite a bit. Unfortunately.

With the August recess ending, and Sen. Kennedy's funeral over, we resume a health care battle in which the administration has been surprised by the declining fortunes of its health care plan (to the extent that there is, in fact, an administration health care plan).

I am surprised by their surprise.

They are too smart not to know that actions have consequences. And one of the main consequences of the one-sided bailout of Wall Street is the way it has undermined public trust in government.

Rob Johnson, director of the Economic Policy Initiative of the Roosevelt Institute, and former Chief Economist of the Senate Banking Committee, blogging on HuffPost, nailed it:

By refusing to stand up to the oligarchs and set proper boundaries in defense of society, they fed the cynics and dissipated the magic that Obama had created for real change. The administration seemed closer to Jamie (Dimon) and Goldman Sachs than to us. The lesson: if you fail to defend society once, people lose faith. The loss of faith carries a high price, and we're paying that price now in the arena of health care reform.

And yet the administration is shocked -- shocked that Americans aren't rallying behind its vague health care plan. They can try to blame it on Fox News or town hall crazies, but I hope they know that much of the health care anger is a proxy for bailout anger.

Americans feel it in their gut that the White House is treating the big business health care establishment the same way it handled the big business Wall Street establishment. The president seems to believe that what's good for Goldman Sachs and PhRMA is, ipso facto, good for the country. We keep hearing from the administration how its health care plan is good for "choice and competition." But we see how well "choice and competition" have fared in the financial sector.

I asked Elizabeth Warren, the Harvard Law professor tasked with chairing the Congressional Oversight Panel in charge of TARP, what worries her the most.

"My biggest concern is what's happening to the middle class," she told me. "The middle class has been the foundation of America in every way. It has been the key not just to economic prosperity but to political stability as well. But, brick by brick, the foundation that supports the middle class is being removed. At a certain point, it's going to collapse. And when it does, when the middle class crumbles, we are going to end up with such disparity between the haves and the have nots, that America will come to resemble Mexico or Colombia -- with the wealthy living behind walls, unsafe in their own country and protected by armed security guards while everyone else struggles on the outside."

Looking over the horizon, she warns: "If we don't learn from this crisis, we will be doomed to repeat it."

And if we don't learn from the very recent history of the bank bailout, we are in danger of getting the same patchwork, reform-in-name-only outcome on health care.

Using the litmus test of improving conditions for the greatest number of Americans, the bailout was a bust.

There is still a chance to save health care. But only if Obama takes control of the debate. Maybe spending the last few days surrounded by the impassioned spirit of Ted Kennedy will prod the president to push the reset button.

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