Monday, July 28, 2014

Thoughts on downed airplanes and regulation

Thoughts on the downed airplanes and regulation

Downed Airplanes:

The whole situation in the Ukraine is surreal.  President Obama’s response has been weak but it is hard to blame him because even the Ukrainian government appears indifferent to what the Russians are doing.

I Googled flights between Kiev and Moscow

Google listed a bunch of options including Expedia below.



Is this possible?   Russia invades Ukraine, takes Crimea, and arms insurgents who commit mass murder.  Ukraine does not even declare war.  Air travel between Moscow and Kiev is uninterrupted.  

The Europeans are more concerned about natural gas supplies that are transported through Ukraine than the murder of their citizens.

Many of the civilian airlines running through Ukranian air space are Russian airlines.  Aeroflot being one.  It was probably not an accident that the downed plane was not Russian.

Regulation:

It makes sense to me that planes should avoid war zones.  However, there is no legal restriction that private airlines do so.  The airline industry argued that they were not responsible for the loss of the plane because this was the government’s call.



I think this argument is pure BULLSHIT!!!!!!

Governments can’t or won’t make tough calls on banning flights over war zones.    The recent reversal of a flight ban to Israel despite the existence of rocket fire suggests that it is politically impossible for governments to prohibit travel. 

The primary purpose of having governments not airlines make safety calls is to shield industry from litigation.

This benefit from regulation is not unique to the airline industry.   FDA approval and DOT safety tests help reduce respective industry exposure to litigation.  Bank regulations of mortgages reduce the scope of anti-predatory lending laws. 

Most economists will oppose banning travels through war zones even if the downing of planes becomes routine.  This is because the economic benefits from air travel and the economic costs associated with it disruption are huge.




Interestingly, economists also tend to argue against regulations requiring the use of technology that will help planes evade regulations.  Also, many economists vigorously argue against strict measures to contain pandemics either because they view the probability of a pandemic to be very low or the cost of the foregone activity to be too high. 

Cost benefit analysis is a subjective exercise because both cost and benefit estimates are imprecise.  Costs often not fully considered include the loss of credibility and the consumer confidence. 


Tuesday, July 22, 2014

Decision in ACA court case.

A decision on the ACA tax credit:

An ACA court case that I described in a previous post has been decided.





My thoughts from the time this case was filed are presented below. 

I have moved to Denver and am still unpacking.  One of my first posts next week will be on the ramifications of this case.


More ACA litigation

This article on litigation brought by business groups attempting to overturn key aspects of the ACA is fascinating. This post provides a quick summary of the litigation and my comments.


Summary:  Plaintiffs in at least two court cases argue that tax credits for the purchase of health insurance in state exchanges are only available for insurance sold on health exchanges established by the state.   According to this argument, tax credits are not allowed in states that refused to set up an exchange and left the task to the federal government.

Plaintiffs argue that the lack of a tax credit for the purchase of health insurance in certain states makes other key aspects of the ACA invalid or less applicable.

o   Since penalties imposed on employers who fail to provide health insurance are only triggered if employees received tax credits the employer mandate does not exist in states that do not create an exchange.


o   The individual mandate does not pertain to households if health insurance is unaffordable.  A policy is deemed unaffordable if premiums exceed 8.0% of income.  The lack of a tax credit would result in health insurance premiums exceeding the 8.0% threshold.  These households are not required to purchase health insurance.


This situation arose because the Senate version of the ACA was enacted after the Democrats lost the Massachusetts Senate seat. The Plaintiffs argue that this interpretation accurately reflects the intent of the Senate bill, which became the basis for the ACA.  The IRS has argued that Congress intended the tax credit to apply both to states that created their own exchange and states where exchanges were created by the Federal government.  The plaintiffs argue the plain language of the law states otherwise.

Comments:

Comment One:  Very clever!!!

Comment Two: If the plaintiffs win their case states would still be subject to rules banning pre-existing conditions and underwriting based on health status.  However, a key subsidy for mitigating the costs associated these changes would not be available in states that did not establish an exchange.


Comment Three:  Is this the way laws are made in Washington?   What is the gang of eight currently putting in the immigration bill?  Would the Administration also capitulate on key language in order to achieve a comprehensive budget deal?  I hope that the progressive Democrats in the Senate are willing to scuttle the immigration law and a budget deal or any future legislation unless there is clarity on key provisions.

Comment Four:  There have been a number of instances where the IRS has had to interpret aspects of the ACA.  (Instances include regulations governing eligibility for a tax credit when small employers offer health insurance and rules governing the value of benefits that a large firm must offer.)  The IRS tends to argue that the plain language of the statute requires them to rule in a narrow way.  In this case, the IRS rules they had authority to more broadly interpret the statute.  I tend to find that previous IRS rulings lacked credibility and common sense.

Comment Five:  The business groups arguing this case want to deny the citizens of their state a valuable tax credit; thereby, increasing the cost of health insurance for individuals in their state.  A ruling overturning tax credits and the employer mandate could actually benefit the Democrats politically. Opponents of the ACA that are bringing this court case need to be careful what they wish for!!!!

Comment Six:  The DC circuit court could play the key role in deciding this case.   Last I heard there were four vacancies on this court.  This is not payback for Bork.  This is unprecedented.  Senator Reid and President Obama need to take a stand on their judicial nominees.  The time for compromise on this issue is long past.  Senate rules need must be modified to allow up or down vote for judicial nominations after a certain point in time.

#DC circuit
#ACA
#Affordable Care Act



Saturday, July 19, 2014

Oldest Men versus Oldest Women -- implications


  
The oldest man in the world died a few months ago.  He was 111 at the time of his death.



At the time of his death 66 women were older than him.

This article motivated me to provide some quick thoughts on life expectancy, retirement planning and Social Security.

Some thoughts:

Longevity risk – the possibility that a person might outlive his or her resources – is a problem for both males and females.  But the risk of outliving ones resources is more severe for women than for men.

See my previous daily math problems on gender, retirement planning and annuities.





The issue of longevity risk is – or at least should be – an important factor guiding the debate on altering Social Security.  Social Security provides an inflation adjusted lifetime annuity.  Most proposals to shore up the finances of Social Security involve cutting benefits.   Social Security benefit cuts of any type increase longevity risk.

One commonly proposed benefit cut involves reduction of the Social Security COLA.  Reductions in Social Security COLAs will most adversely impact finances for individuals who live the longest. 


  


The Republican approach to Social Security favored by Shelly Moore Capito would create private accounts. 



Under the current Social Security system men and women receive the same annuity despite the longer life expectancy for women.  Under a market orientated approach women with their longer life expectancy would likely receive a lower annuity payment.

I do not believe the Republican approach to Social Security is evidence of a war on women.   But the Republican approach is much better for men than for women.


#Shelly Moore Capito
#Social Security
#life expectancy
#annuities




Wednesday, June 11, 2014

Forced Condominium Sales in Florida

A disturbing article on forced condo sales.


A June 10, 2014 CNBC article discusses the plight of Florida Condo Owners who might be forced to sell their homes even though they are current on their mortgage.


Florida state law allows termination of a condominium when 80% of the owners support termination.   The law used to require 100% support. 

 One owner in the article will be forced to accept $40,000 even though she owes $90,000 on her mortgage.

Questions

People buy a home in order to lock in future housing costs.   What is the point of home ownership if you can be forced to sell and forced to move?

Why should condominium owners have fewer rights than owners of other forms of real estate?


Could a town pass a law requiring all homeowners to sell if 80% of voters wanted a sale to occur?

How does allowing a group of investors the right to force home sales of some condo owners protect homeowners from financial problems caused by a hurricane?   


Couldn’t financial risks stemming from a large loss in property value be more effectively reduced by allowing cram downs on mortgages when house values fall precipitously?

Comment:

I see few benefits from a law that allows a group of owners in a community to require other owners to sell their property.  This is not an eminent domain issue where the public gains from a new project.  Even when there is a grand public use for property seizures should occur sparingly.

What is happening in Florida is that a group of investors has noticed that real estate is reaching its nadir and is buying.  Once they have a majority status they are legally entitled to get the other homes at bargain prices.  It is similar to a merger situation where once a hostile takeover occurs minority shareholders are forced to sell.  Of course, minority shareholder who are disappointed in the price they receive for stock in one company in their portfolio still have a place to live.

The way to help people who are decimated by natural or financial disasters is to allow a cram down in a mortgage.  Unfortunately, the mortgage industry and their paid consultants have successfully exaggerated the impact of this sensible policy change on interest rates.

Some people claim that we are approaching another real estate bubble.    This article suggests that fears of a new real estate bubble are exaggerated.  In Florida and elsewhere there are people who bought their house ten years ago or or eight years ago who are still underwater.    The case could be made for some Fed tightening because of the stock market but certainly  not for real estate.

The main lesson I get from this sad article is that rules really are stacked against normal people and in favor of the investor class.



#realestate
#florida
#CNBC