Thursday, September 10, 2009

Obama's talk on healthcare

"They argue that these private companies can't fairly compete with the government. And they'd be right if taxpayers were subsidizing this public insurance option. But they won't be. I have insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects." -President Obama

The same was said about Fannie Mae and Freddie Mac. They were government sponsored entities that were considered to be "off-budget" of the government. And, for some strange reason, they paid around 40bps less than similarly-held investment grade bonds. You can devise any nomenclature that you want, but the fact remained that the government paid for that difference with its implicit guarantee of the bonds. (Financial interpretation: the default risk declined so the premium was reduced).

The exact same thing will happen again if a public option were to go forward.


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