Relevant and even prescient commentary on news, politics and the economy.

SCOTUS Rules Again . . .

As found on our Open Thread of June 28, 2013, jurisdebtor decided to leave a gem behind. Juris debtor can be found on his Blog J.URIS D.EBTOR, My Own Meanderings Through Economics, Law, and Policy Having been in the courts for the last decade, I find this to be a good interpretation of what one might expect from the courts. It is never what you believe it to be coming from the gods dressed in black sitting behind their pulpit looking down at you (there is distinct reason for this). The days of Gideon are forever past (happy fiftiest Gideon in 2013). Try writing SCOTUS yourself today.

Don’t Let DOMA Fool You — the Supreme Court is Restricting Your Rights By David Cole, Washington Post, 6/28/2013. As taken from the Open Thread, jurisdebtor posts David Cole’s appraisal of SCOTUS decisions as rendered by the Kennedy Court (my interpretation).

The Supreme Court’s 5 to 4 decision to strike down a key part of the Defense of Marriage Act was undeniably historic, a victory not just for gay rights advocates but for anyone committed to advancing equal rights in America.

It was also an anomaly.

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Health Care Thoughts: Obamacare Meets Immigration Reform

by Tom aka Rusty Rustbelt

Health Care Thoughts: Obamacare Meets Immigration Reform

With the passage of the Senate version of immigration reform we have some details to ponder.

Illegals who become “provisional” for up to 13 years will not qualify for some Obamacare credits and subsidies.

Workers who receive “unaffordable” insurance coverage from employers will be available for Obamacare subsidies, and the employer penalized up to $3,000. Provisional aliens would not be qualified for the subsidies, which could give provisionals up to a $3,000 cost advantage over U. S. workers.

Whether this was intended or just thoughtless drafting remains to be seen.

And of course, the Senate bill is just a starting point in a long hot political debate, so this may become nothing at all.

 

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Subprime securities – still being downgraded

Lifted from comments by reader Juan comes this article from the Finacial Times:

Subprime securities – still being downgraded

Some two weeks ago Moody’s announced it was downgrading 28 tranches of various bonds (as well as upgrading two tranches, and confirming others) in an action that covered roughly $1.2bn worth of mortgage-backed securities (MBS).

Today’s rating action concludes the review actions announced in March 2013 relating to the existence of errors in the Structured Finance Workstation (SFW) cash flow models used in rating these transactions.

In the impacted deals, all collected principal and interest is commingled into one payment waterfall to pay all promised interest due on bonds first, then to pay scheduled principal from the remaining funds. The cash flow models used in previous rating actions, which mistakenly applied separate interest and principal waterfalls, have been corrected, and today’s rating action reflects the commingled payment waterfall.

Whoops!

There are additional mistakes…

 

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Recess Appoint Mel Watt

Congress is in recess, actual recess with no pro forma sessions.  Barack Obama can recess appoint people.  Tomorrow Ed DeMarco could cease to be acting director of the FHFA (Federal Housing Finance Agency).  I think that Obama should, indeed must, recess appoint Mel Watt to be FHFA director.

As acting director DeMarco has blocked all efforts to relieve homeowners who can’t pay their mortgages.  His argument was that his job as Fannie/Freddie conservator was only to minimize the loss to the Treasury from the rescue.  Note the past tense.  This argument ceased to be operative when he vetoed a  proposal to use TARP money so that relief would cost Fannie and Freddie less than nothing.

I think the easiest way to reconcile DeMarco’s behavior with the rational utility maximizing hypothesis is to assume his aim is to minimize US GDP.

As is well known the current recovery is anomalous because of declining public spending and stagnant home construction at an extremely low level.  In contrast consumption, investment in equipment and software an net exports have behaved normally.  It is clear that nothing will be done about public spending.  An oddly widespread view is that the very sluggish recovery of housing construction shows that we must focus on the Fed, because … well I don’t get the rest.  I think it is clear that the key public entities which is failing to do its job is the FHFA and Congress.  While Congress is out of town, Obama can solve one of those huge problems.

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One Place Where Mankiw Makes Absolutely No Sense at All

In his Defending the One Percent paper, Greg Mankiw is rather grudgingly acknowledging rent-seeking (and -getting) in the financial industry, and the allocation of top talent to that industry. He sez:

The last thing we need is for the next Steve Jobs to forgo Silicon Valley in order to join the high-frequency traders on Wall Street. That is, we shouldn’t be concerned about the next Steve Jobs striking it rich, but we want to make sure he strikes it rich in a socially productive way.

Talk about turning straightforward logic on its ear. The whole point is that if somebody makes their money by financial-industry rent-seeking, they by definition will not be the next Steve Jobs.

So yes: we should be concerned if lots of people are striking it rich in the financial industry, because the lure of those rent payments will prevent potential Steve Jobs from creating real value in real businesses. Incentives matter.

Cross-posted at Asymptosis.

 

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U.S. Median Wealth Only 27th in the World

As I discussed last week, U.S. median wealth per adult is lower than many other countries. To be exact, it comes in at #27 for 2012, at $38,786 per adult. This is more than 1/4 lower than had been reported by Credit Suisse’s Global Wealth Databook for 2011. I contacted one of the authors, Professor James Davies of the University of Western Ontario, to find out the reason for the big change for the United States as well as the even bigger change for Denmark.

Professor Davies was kind enough to lay out the technical issues for me. First, of all, data for mean wealth is more reliable than median wealth. For rich countries like the United States, there is usually household balance sheet information which provides high-quality information on total wealth and, when combined with population data, wealth per adult.

Wealth distribution data is more difficult to estimate accurately, although it is known to be more unequally distributed than income for every country, as the 2012 Databook reports. The reason Denmark had such a sharp increase in its estimated median wealth is that its wealth distribution survey information was becomingly increasingly questionable, so the authors changed to a different estimation method that is not comparable with previous figures.

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Credit ratings

Via Mark Thoma Economist’s View comes this note on credit rating company incentives:

While the US Department of Justice did not give any statistical evidence in its deposition, our new research (Efing and Hau 2013) suggests that rating favors were indeed systematic and pervasive in the industry.

In a sample of more than 6,500 structured debt ratings produced by Standard & Poor’s, Moody’s and Fitch, we show that ratings are biased in favor of issuer clients that provide the agencies with more rating business. This result points to a powerful conflict of interest, which goes beyond the occasional disagreement among employees.

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Health Care Thoughts: California Assembly Bill 880 (pending

by Tom aka Rusty Rustbelt

Health Care Thoughts: California Assembly Bill 880 (pending)

It was a no brainer to predict Obamacare would have a major impact on restaurant and retail employers, especially in the throes of a weak economy. The composition of the work forces and often slim margins guarantee problems.

Darden Corp. (Red Lobster and Olive Garden) is infamous for whining and threatening layoffs, and of course Wal-Mart is well know as the “evil empire” of employers (the ACA part-time employment provision is often referred to as the “Wal-Mart loophole).

A clear result of Obamacare was for employers to consider cutting as many employees as possible under 30 hours. In California this would make many employees of corporate giants eligible for Medi-Cal, and California politicians are not happy, thus the pending legislation.

Employers with more than 500 employees would pay a penalty (possibly $6,000 or more per year) to the state treasury for every employee on Medi-Cal. This appears to apply to seasonal workers, although the commentaries I have read are rather murky on the details. More research to follow. This could have a major impact on seasonal agricultural employment.

It occurs to me one solution would be to reduce the number of part-time employees and just make the full-time employees work harder. I’m not certain that is what the Assembly intends.

Stay tuned, this is a giant laboratory.

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