Tuesday, March 29, 2005

Schiavo: Federalism and Separation of Powers
What is, from the legal analyst for CBS News:
Terri Schiavo's parents did not lose their federal case because they didn't try hard enough, ... because everyone conspired against them, ... because Congress ticked off the judiciary over the weekend with its over-the-top custom-made legislation, ... for lack of money or because they failed to file a court paper on time, ... because the laws are unfair or because bureaucrats sometimes can be arbitrary and capricious.

The Schindlers lost their case and their cause — and soon probably their daughter — because in the end they were making claims the legal system has never been able or willing to recognize. They lost because they long ago ran out of good arguments to make — those arguments having been reasonably rejected by state judge after judge — and thus were left with only lame ones. And they lost because in every case someone has to win and someone has to lose. That's the way it works in our system of government.
...
Especially during this final round of review, orchestrated by Congress' extraordinary attempt at a "do-over" for the couple, Schiavo's parents lost appeal after appeal specifically because they were asking the federal courts to declare that their constitutional rights had been violated by the Florida state court rulings in the case. They were arguing, in other words, thanks in part to their custom-made congressional legislation, that the federal Constitution gave them the right as losers in state court to get a new, full-blown trial in federal court.

If you ponder that notion you will realize just how astounding it is. If accepted, it would have meant the end of state courts as we know them. No decision at the state level ever would be final, because every losing litigant at the state court level would be able to walk into federal court and declare a federal constitutional violation. State court trials thus would become like practice sessions and the federal courts, which are supposed to be of "limited jurisdiction," resolving only certain kinds of disputes, would become free-for-alls.

It's true that there are many federal claims that run concurrent with state law. And sometimes, in rare cases, it is necessary for the federal courts to look behind the curtain of a state court ruling. And sometimes it is required. In capital cases, for example, the law requires a federal review of a state court death penalty conviction. In such cases, the government is seeking to kill someone on behalf of the people. In the Schiavo case, a private guardian (a husband) was seeking permission to fulfill his wife's wishes, as determined by the state court of Florida. Yes, there is a difference, one that has been recognized in law and tradition.

If we were to open the doors of federal courts to every losing side in a guardianship case, or a child custody case, or any other matter traditionally left to state courts, we would be changing the very nature of the balance between federal power and states' rights. And we would be doing so at the request of politicians who have spent a generation trumpeting states' rights over the intrusion of federal power.

So how has the federal judiciary reacted to this terrible idea? ... The federal trial judge in this latest case, U.S. District Judge James D. Whittemore, specifically rejected it. The argument by Schiavo's parents, he wrote, "effectively ignores the role of the presiding judge as judicial fact-finder and decision-maker under the Florida statutory scheme …. [Michael Schiavo] is correct that no federal constitutional right is implicated when a judge merely grants relief to a litigant in accordance with the law he is sworn to uphold and follow."

It is no wonder that the federal appeals court refused to reverse Whittemore's ruling. And it is no wonder that the conservative U.S. Supreme Court decided for a fourth time to stay out of the case. This harsh reality won't make it any easier for the Schindlers, but government cannot run on passion or emotion or sympathy. As the U.S. 11th Circuit Court of Appeals wrote: "There is no denying the absolute tragedy that has befallen Mrs. Schiavo…. In the end, and no matter how much we wish Mrs. Schiavo had never suffered such a horrible accident, we are a nation of laws."

I don't blame the Schindlers and their lawyers for coming up with any and every argument they could think of. Grief expresses itself in many ways. By refusing to accept the Florida court decisions, Congress and the White House enabled this grief, falsely encouraged it and then used it, and the Schindlers, for political purposes. The federal courts, on the other hand, by refusing to change the Constitution for one family, acknowledged this grief and tried to deal with it as humanely as possible while still providing the finality that our legal system provides and that our society needs.
What is not, from Hullabaloo:
By now most people who read liberal blogs are aware that George W. Bush signed a law in Texas that expressly gave hospitals the right to remove life support if the patient could not pay and there was no hope of revival, regardless of the patient's family's wishes. It is called the Texas Futile Care Law. Under this law, a baby was removed from life support against his mother's wishes in Texas just this week. A 68 year old man was given a temporary reprieve by the Texas courts just yesterday. ... [We] are also aware that Republicans have voted en masse to pull the plug (no pun intended) on medicaid funding that pays for the kind of care that someone like Terry Schiavo and many others who are not so severely brain damaged need all across this country. ... [We] also understand that that the tort reform that is being contemplated by the Republican congress would preclude malpractice claims like that which has paid for Terry Schiavo's care thus far. ... [We] are aware that the bankruptcy bill will make it even more difficult for families who suffer a catastrophic illness like Terry Schiavo's because they will not be able to declare chapter 7 bankruptcy and get a fresh start when the gargantuan medical bills become overwhelming. ... And [we] also know that this grandstanding by the congress is a purely political move designed to appease the religious right and that the legal maneuverings being employed would be anathema to any true small government conservative.

Those who don't read liberal blogs, on the other hand, are seeing a spectacle on television in which the news anchors repeatedly say that the congress is "stepping in to save Terry Schiavo" mimicking the unctuous words of Tom Delay as they grovel and leer at the family and nod sympathetically at the sanctimonious phonies who are using this issue for their political gain.

Monday, March 07, 2005

Bankruptcy: "$400 per household"
As this debate goes forward, it is important for all to understand that according to some experts, a conservative estimate is that every American family pays about $400 a year in a hidden tax associated with bankruptcies, taxes they should not have to pay. I am told that others place the fair estimate of this hidden bankruptcy tax in the range of $550 per person per year. There are numerous examples of people who take advantage of loopholes today at the expense of everyone else tomorrow.
. . .
Bankruptcy abuse also hurts our Nation's small businesses. Without reforms from this bill, losses from bankruptcy abuse will continue to break the backs of the Nation's small businesses and retailers, which work with slim profit margins and have even smaller margins for error.

The roots of this widely cited figure [of $400 per household] as applied to bankruptcy are obscure, as there are no firm national figures on the amount of debt discharged in bankruptcy. Nevertheless . . . it is probably about right.

The Staten/Barron study indicated that chapter 7 debtors have an average of $41,228 in unsecured debt, and chapter 13 debtors report an average of $20,953 in unsecured debt. Assuming that these averages (based on a study of 3,798 personal bankruptcies filed in 13 cities during mid-1996) are fairly representative of all personal bankruptcies—a fairly big assumption—one can make a rough estimate of total unsecured debt nationwide in non-business cases. Applying these averages to FY 1997 non-business filings yields an estimate of approximately $46 billion in unsecured debt. The amount actually discharged would be reduced somewhat by the debts that are not discharged in the approximately 50 percent of chapter 13 cases that end up being dismissed, non-dischargeable debts and payments made through liquidation of assets in chapter 7 cases, chapter 13 plan payments, reaffirmations and other repayments. There are about 100 million households in the United States, so the $400 per household estimate is also in the right ball park.
Ed Flynn, March 1998
ABI Journal, Vol. XVII, No. 2
But Prof. Elizabeth Warren convincingly shows that the $400 per household number is not the correct number for analysis.
In 1997, when the "$400 fact" was released, there were about 101 million American families. That same year, about 1.3 million families filed for bankruptcy. [FN24] In order for the 1.3 million families to repay enough to produce the $44 billion that Tassey implied would be passed on to their fellow citizens, the families in bankruptcy would have to come up with about $33,800 apiece--plus transactions costs for collection and redistribution. For bankrupt debtors with a median pre-tax income of about $21,000, this would be problematic. [FN25]

How about squeezing the "abusers" harder? The credit industry hired its own researchers to estimate the number of debtors who might repay something. The research was discredited, as the General Accounting Office (GAO) sharply questioned the assumptions and methodology of the study. [FN26] But even the credit industry researchers could identify only 185,000 debtors who might be able to pay anything. [FN27] In order to raise the $44 billion Mr. Tassey promised, these 185,000 families would need to come up with about $237,839 apiece. [FN28] The numbers simply do not add up.
Prof. Elizabeth Warren, 2004
13 J. Bankr. L. & Prac. 2 Art. 4
So what we have now is that some tens of billions of dollars (say $40 billion) are discharged each year in personal bankruptcy. The optimistic estimate for collections from BAPCA is a few billions of dollars ($3 billion). The US economy, as measured by 2004 GDP, is some $11 trillion. If we only look at consumer credit, the total is some $2.1 trillion, which is 700 times the $3 billion estimated benefit from the means-testing provision.

I'm currently unconvinced that the Harm of "substantial losses" is a substantial problem worth addressing. Sure, finance is a world of basis points, but a solvency of 14 basis points (0.0014%) of payable-but-discharged debt is quite underwhelming.

Sunday, March 06, 2005

Bankruptcy: Billions not Millions
I'm still trying to learn more about S. 256, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. S.256 is not all bad; it has real advantages that need to be balanced against the costs. Until that time, allow me to correct a member of the Volokh Conspiracy.
By targeting high-income bankrupts with substantial repayment capacity, it is estimated that means-testing will recover roughly $3 million of the $40 million discharged in bankruptcy every year. Although means-testing will affect only 7-10% of bankruptcy filers, but focusing scrutiny on those high-income debtors who can repay a substantial portion of their debts without significant hardship, the Bill makes possible the recovery of substantial losses with minimal administrative cost.
Prof. Todd J. Zywicki, February 10, 2005
Senate Judiciary Committee Hearing
CBO estimates that implementing S. 256 would cost $392 million over the 2006-2010 period primarily to pay for increased responsibilities of the United States Trustees (U.S. Trustees). . . . Although the private trustees would be responsible for conducting the initial review of a debtor's income and expenses and filing the majority of motions for dismissal or conversion, CBO expects that the workload of the U.S. Trustees would increase under the means-testing provision. . . . As a result, CBO estimates that implementing this [means-testing] provision would cost $150 million over the 2006-2010 period, assuming appropriation of the necessary funds.
Congressional Budget Office, February 17, 2005
Senate Judiciary Committee Hearing
I believe Prof. Zywicki means billions of dollars not millions, or else the BAPCA fails the sanity test: While some of that "$40 million discharged in bankruptcy every year" is probably abuse, spending $24 million a year to "recover roughly $3 million" seems to me more like a recipe for bankruptcy than a solution for bankruptcy. We should be talking billions, not millions.
The Staten/Barron study indicated that chapter 7 debtors have an average of $41,228 in unsecured debt, and chapter 13 debtors report an average of $20,953 in unsecured debt. Assuming that these averages (based on a study of 3,798 personal bankruptcies filed in 13 cities during mid-1996) are fairly representative of all personal bankruptcies—a fairly big assumption—one can make a rough estimate of total unsecured debt nationwide in non-business cases. Applying these averages to FY 1997 non-business filings yields an estimate of approximately $46 billion in unsecured debt. The amount actually discharged would be reduced somewhat by the debts that are not discharged in the approximately 50 percent of chapter 13 cases that end up being dismissed, non-dischargeable debts and payments made through liquidation of assets in chapter 7 cases, chapter 13 plan payments, reaffirmations and other repayments.
Ed Flynn, March 1998
ABI Journal, Vol. XVII, No. 2
I have more to say about the bill; stay tuned.

Saturday, March 05, 2005

A Framework for Policy Analysis
Many years ago, due to a smart and kind student two years my senior, I became involved in highschool debate. I will always be grateful for my good fortune to meet him; it is difficult to exaggerate just how much I learned in three years of highschool debate.

One of the things I learned was a valuable framework to analyze policy proposals. Since I expect to opine about various policies on this blog, here is the roadmap of analysis:
  1. Harm: The status quo has a problem.
  2. Inherency: The Harm will not be solved without a policy intervention (i.e., waiting won't help).
  3. Plan: This is the proposed policy.
  4. Solvency: The proposed Plan will solve the Harm.
  5. Net Benefit: The proposed Plan has more Advantages than Disadvantages compared to either the status quo or another Plan. The Advantages and Disadvantages include the Solvency (solving an Inherent Harm is an advantage), but usually include other consequences of adopting the Plan.
Here is an illustrative example of the framework in practice:
  1. Harm: Deceptive "psychics" prey on the public by falsely advertising "free" phone readings, then threatening collections.
  2. Inherency: State Attorneys General can deal with this problem somewhat, but not if scammers are using non-jurisdictional methods to evade prosecution (e.g., scam via federally regulated means of communication, or by off-shoring).
  3. Plan: Enact federal consumer protection laws and enforce them through a government agency, the Federal Trade Commission.
  4. Solvency: The FTC can bring charges on behalf of the consumers and end the deception.
  5. Net Benefit: The advantages outweight the disadvantages.
    • Advantages:
      1. Harm of fraud on consumers is prevented, and legitimate commerce benefits.
      2. Broader principles of fair trade is reaffirmed, thus increasing legitimate trade.
      3. The reputations of legitimate psychics, if any, will improve and the public will benefit from dependable predictions.
      4. Successful enforcements raise government revenue from levied fines.
    • Disadvantages:
      1. The psychic network is worse off.

Thursday, March 03, 2005

A Greenspan PSA
I apologize for the lack of posts. I'm working on some long posts, but until then, here's something worth remembering.

The Chairman of the Board of Governors of the Federal Reserve System gave this public service announcement in November 2004:
"[R]ising rates have been advertised for so long and in so many places that anyone who has not appropriately hedged this position by now obviously is desirous of losing money."
Alan Greenspan, November 19, 2004
European Banking Congress in Frankfurt
Are you one who "obviously is desirous of losing money?"