Peatey

Fool me twice, shame on me

2006-04-29T06:11:00.000-05:00

WaPo's Dafna Linzer provides context to her article on the IAEA report issued yesterday on Iran's nuclear activities.

Cary, N.C.: Why does not the media makes very clear to us that the Iranians are allowed to do what they are doing. So the mere suspicion message is published in such a way that the public tends to think the Iranians are building a nuclear bomb. Should not the media (and The Post) make it bold faced that the Iranians are allowed to enrich uranium for energy related use? Thank you.
Dafna Linzer: We haven't reported that the Iranians are building a bomb - we've reported that the administration says the Iranians are building a bomb. U.N. inspectors have no proof of that, but they also aren't getting full cooperation. We also report that Iran says it has no interest in building a bomb. A (sic) urge readers to take careful looks at the stories and the language that all players are using on this issue.
In response to the report today, for example, John Bolton, the U.S. ambassador to the United Nations said:
"I think if anything the IAEA report shows that Iran has accelerated its efforts to acquire nuclear weapons," but he then added: "although the report doesn't make any conclsusion in that regard."

I may be nitpicking, but the wording of her article surely gives the wrong impression that the IAEA slammed Iran:

The IAEA will include these findings, sources said, in what they characterized as a brief and highly negative report to be delivered today, the end of a 30-day deadline the Security Council set for Iran to stop enriching uranium until inspectors are confident the program is exclusively peaceful. (emphasis added)

Notice that "they" refer to the "sources," not the IAEA. Who are these sources? My guess is from the previous paragraph:

It remains unclear whether Iran managed to enrich a small quantity of uranium to a level of 3.5 percent, as President Mahmoud Ahmadinejad announced April 11. That level would suffice for nuclear energy but is far too low for a weapons program, which the Bush administration contends Iran is clandestinely developing. (emphasis added)

Remember, the administration "had proof" on Iraqi WMDs. If the administration doesn't even try to "prove" Iranian nukes, I remain highly skeptical on the real proof of an imminent Iranian nuke threat. Professor Juan Cole is skeptical too. Read the IAEA report for yourself and draw your own conclusion.

With the IAEA report, we draw one step closer to "Operation Iranian Freedom." Reuters says Iran just offered to address the report's concerns (except for continuing the enrichment) if the UNSC drops the case back to IAEA. I'm skeptical that the administration will take Iran's offer.

Core Inflation

2006-04-20T22:42:00.000-05:00

The rise in price of oil is well documented and its importance in Iraq and Iran are well speculated. But only a few sources discuss uranium like Eric at Wampum. Check out his wisdom.

A Bartlett PSA

2005-12-16T20:42:00.000-05:00

Dan Bartlett says taxes will have to increase in future years.

As the end of the year approaches, tax bills loom. That may not seem particularly pleasurable, but enjoy it while you can - taxes are going up. Not right away, economists say, but almost certainly in the coming years.

And not just liberals are saying such things.

While the Bush administration and its Republican supporters in Congress still contend that they can deal with fiscal imbalances by clamping down on unnecessary spending, some of their close allies are beginning to argue that the budgetary circle cannot be squared with spending cuts alone.

"The current trend points to tax increases in the long run," said Brian M. Riedl, lead budget analyst at the Heritage Foundation, a conservative research group opposed to raising taxes. "The political will to make the difficult decisions on spending is lacking."

Some in big business also seem ready to bite the bullet. The Committee for Economic Development, a research group that often represents the views of Wall Street and major corporate figures in public policy debates, issued reports this year arguing for tax increases plus spending restraints to avert what it called a fiscal crisis in the offing.

Unhappiness over the projected budget deficit is eroding conservative support for the White House. Bruce Bartlett, a leader of the supply-side tax revolution who worked as an economic aide to President Reagan and the first President Bush, has turned on the current president in a coming book, "The Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy," excoriating what he sees as the government's spending spree over the last five years.

Mr. Bartlett, a conservative economic thinker who for years argued that cutting taxes was the best way to "starve the beast" and restrain government's growth, now recommends the introduction of a value-added tax - a kind of sales tax used in Europe and most other advanced industrial nations - to bring in the large amounts of new revenue he deems necessary to close the enormous budget gap.

"I do believe tax increases are absolutely inevitable," Mr. Bartlett said.
Eduardo Porter, NYTimes, December 5, 2005

Kash at Angry Bear has this great graph of Federal Revenues and Spending excluding Social Security from 1962-2010. Doesn't it seem like revenue is a bit low at present?

It appears that the agenda is for Value Added Tax (VAT).

Mr. Bartlett would go further. Reversing his previous stance that low taxes would force lawmakers onto a spending diet, he now says that adding a steadily increasing value-added tax is the best way to deal with what he now sees as an inevitable rise in federal spending, to as much as 30 percent of the gross domestic product, to cover expanding entitlements for baby boomers.

"Whose beast was being starved?" Mr. Bartlett asked. "There's no evidence that it was working. We need to deal with reality."

Triple Witching Winter

2005-12-13T22:46:00.000-05:00

USN&WR sounds the "triple threat" alarm for this winter: Shortage of natural gas and electricity could make "a frozen New Orleans" in areas like New York City. It may be a bit of a post-Katrina hysteria, but add in high prices of other petroleum fuels, inflation, slowing economy, bursting real estate bubble, rising trade deficit, and crushing household debt levels: it sure looks like something wicked this way comes...

With the season's first snowfall hitting the Northeast last week, it is becoming apparent that Hurricanes Katrina and Rita did far more to the nation's energy equation than spoil Labor Day vacation drives. The storms upset the already precarious balance of the nation's supply and demand for fuel. So much Gulf of Mexico oil and natural gas production remains in disarray that even with a mild winter, Americans face a Big Chill: astronomical heating bills--on average, 38 percent higher than last year's record costs for natural gas and 21 percent higher for oil.

...

It is not just about money. Damage to rigs, pipelines, and processing facilities means a shortage of natural gas, the fuel that heats 52 percent of U.S. homes. The industry says 2.3 billion cubic feet per day, or 23 percent of the Gulf of Mexico's natural-gas production, will be offline through March. But even before the deadly storms struck, the country was consuming more natural gas than it produced and prices were at record highs. Demand grew nearly 16 percent from 1990 through 2004, driven mainly by the companies that generate electric power. Policymakers viewed natural gas as cleaner than coal and more palatable than nuclear, so it was easy to get required government approvals to build much-needed electric power plants that run on natural gas. And everyone bet heavily--and incorrectly--that prices would stay cheap. The United States now relies on Canadian imports by pipeline and has begun to call on a new source, tankers from Africa and the Middle East filled with liquefied natural gas, or LNG. But the imports haven't been enough. "The hurricanes--they hit a sick patient," says Roger Cooper, executive vice president of the American Gas Association, representing utilities. "We're vulnerable. If we were hit in the 1990s, we would not have been in this situation. But when you are consuming 100 percent of your supply, there's not much room to maneuver."

...

The second threat is a severe electricity shortage in the Northeast--with possible brownouts or blackouts. Deregulated natural-gas-fired power generators, under no legal obligation to serve customers as the old monopoly electric companies were, can simply stop generating power. Some plants will be interruptible customers with no backup fuel source. But in other cases, power plants that have firm natural gas contracts will stop generating electricity anyway and sell their fuel at enormous profit. That is precisely what happened during the three-day January 2004 cold snap, when more than 25 percent of New England's generating capacity went off line and the reserve margin was near zero. The market weathered that storm, but ISO New England, the organization responsible for managing the electric grid, says that even under normal weather conditions, electricity demand this winter most likely will set a new record surpassing that of the perilous 2004 cold snap. The grid operator has taken steps to head off a shortage, spearheading a public-relations campaign to urge New Englanders to conserve electricity, attempting to work out agreements with big customers to curtail demand, and asking the Coast Guard to station ice-breaking barges in locations that will assure fuel oil deliveries can make it downriver to electric plants. But Connecticut Attorney General Richard Blumenthal says as long as power generators are allowed to shut down and sell natural gas during a weather crisis, there is a risk of the kind of market chaos, as well as manipulation, that roiled California in 2000 and 2001. "The result could be a calamity," he says.

...

A winter failure could prove catastrophic, because any extended loss of heat could cause water pipes to burst in residential and commercial buildings alike. Also, the thousands of "traps" where steam escapes (and billows from manhole covers) could freeze and fail, causing distribution pipes to crack or lose pressure. Former Central Intelligence Agency chief Jim Woolsey, now active on energy issues, argues that parts of the city "could resemble a frozen New Orleans." Also, repressurizing the system could prove laborious and hazardous, because of the power of steam escaping from cracks. "Nobody could simulate the kind of disaster that could happen," says Adam Victor, president of TransGas Energy, a company that has been trying to build a backup power plant in the city but has run into opposition from residents and city officials who prefer building parkland at the old industrial waterside location. Con Edison downplays concerns about the system. "You can't say never because something can always break," says Chris Olert, utility spokesman. "But we've upgraded the plant so it's in tip-top condition, and we've bought plenty of gas for the steam system." Power will be available for New Yorkers, he says, though at a cost up 30 to 35 percent over last year.

Whether because of cost or cold, officials are bracing for human suffering across America this winter. "Forces can come together that turn crisis for some into disaster--that's really what I think we could be looking at this winter," says Iowa energy assistance director McKim. "I hate to sound like the voice of doom, but somebody has to say this stuff. It's just like Hurricane Katrina. They knew it was coming, but little was done to prepare an effective response. And the same thing is happening here."
Marianne Lavelle, USNews.com, December 19, 2005

Hurricane Trends

2005-12-04T11:25:00.000-05:00

Via LATimes:

Sure looks like we're in for hurricanes next few years. I wonder if oil/gas prices reflect this.

Godwin's Law

2005-05-30T12:01:00.000-05:00

The Principle:

As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches one.
Godwin's law, Wikipedia

The Archetype:

[In] a staged attack against a German radio station in Gleiwitz (nowadays Gliwice) on the night of August 31, 1939 . . . a small group [of Germans] seized the station and a message was broadcast that urged the Poles (of Silesia) to strike against Germans. German convicts dressed in Polish uniforms and carrying Polish weapons were used to stage the attack. They were given lethal injections and firearm wounds and placed in attacking positions as a 'proof' to the invited press and police officials.

The next day in the Reichstag, Hitler announced that there were 21 border incidents in total, including three very serious ones, and used this as an excuse for the "defensive" attack launched earlier in the morning against Poland, thus starting the Second World War.
Attack on Gleiwitz radio station, Wikipedia

The Derivative:

RAF bombing raids tried to goad Saddam into war

THE RAF and US aircraft doubled the rate at which they were dropping bombs on Iraq in 2002 in an attempt to provoke Saddam Hussein into giving the allies an excuse for war, new evidence has shown.

The attacks were intensified from May, six months before the United Nations resolution that Tony Blair and Lord Goldsmith, the attorney-general, argued gave the coalition the legal basis for war. By the end of August the raids had become a full air offensive.

The details follow the leak to The Sunday Times of minutes of a key meeting in July 2002 at which Blair and his war cabinet discussed how to make “regime change” in Iraq legal.

Geoff Hoon, then defence secretary, told the meeting that “the US had already begun ‘spikes of activity’ to put pressure on the regime”.

. . .

Tommy Franks, the allied commander, has since admitted this operation was designed to “degrade” Iraqi air defences in the same way as the air attacks that began the 1991 Gulf war.

It was not until November 8 that the UN security council passed resolution 1441, which threatened Iraq with “serious consequences” for failing to co-operate with the weapons inspectors.

The briefing paper prepared for the July meeting — the same document that revealed the prime minister’s agreement during a summit with President George W Bush in April 2002 to back military action to bring about regime change — laid out the American war plans.
Michael Smith, The Sunday Times, May 29, 2005

The Conclusion:

There is a tradition . . . that once such a comparison is made, . . . whoever mentioned the Nazis has automatically lost whatever argument was in progress. In addition, it is considered poor form to invoke the law explicitly.
Godwin's law, Wikipedia

Marriage History

2005-04-20T09:48:00.000-05:00

Note: this post originally posted on July 20, 2004. I'm reposting it because I thought this would be helpful to Adam O'Neill (it's about time, I've taken without giving back long enough).

Mawage. Mawage is wot bwings us togeder tooday. Mawage, that bwessed awangment, that dweam wifin a dweam...”
Todd Pierce's #9 All Time Favorite Movie Quote

Many conservatives and Christians fear that the traditional family values are under siege. They feel that they must combat any beachhead on the assault against the institution of marriage. Thus, many slippery-slope arguments are used to multiply the arguments against the two main offenders, same-sex marriages and legalized abortions. But what is the traditional family?

From the Percent of Population chart, we see that less people are married in recent decades than in the 1960-1970 because more Americans have divorced or have never married. But looking back to even more "traditional" times, we see that, compared to recent decades, even larger percent of Americans were never married in the first four decades of this century.

While marriage rate per 1,000 population has decreased since 1980, the divorce rate per 1,000 population has decreased the same proportion, so that the ratio has remained constant since 1977. Each year, Americans marry twice as often as they divorce.

It is very likely that a large factor of the rise in the divorce rate from 1965 to 1975 was the advent of no-fault divorce laws. However, I hypothesize that the increase in divorce rate is merely the delayed consequence of the prior increase in marriage rate.

I suspect that the marriage rate data paints a worse picture for the institution of marriage because more of the denominator of 1,000 population is constituted from the againg baby-boomers, whose marriage/re-marriage pattern is less important for the health of the institution of marriage. Furthermore, the already-married status of the immigrants are not counted, further diminishing the rate per 1,000. The immigration bias probably does not exist for divorces because emigrants seem to be a lot fewer in numbers. It would be nice to be able to isolate marriage and divorce rates among only the younger generation, or only the first-time marriages and divorces, but such data are unavailable to me.

Americans seem to be marrying less, but maybe not. Americans are definitely getting divorced less, but still at a higher rate than "traditionally." However, about the same percent of Americans are married at the end of the 20th Century as at the beginning. In that century, about 10% of Americans have been "liberated" from the never married category, but the ranks of the divorced Americans have swelled by almost 10%.

In the future, I will examine other measurements of "traditional family values." But as expressed through marriages and marital rates, I do not see an unprecedented crisis of the institution of marriage. If I am blind, help me see through your comments.

Is the conservative goal to have 70% of American males in holy matrimony again?

Bubble Trouble

2005-04-04T22:33:00.000-05:00

Morgan Stanley's Andy Xie sees a three-pillared bubble.

Three Pillars of the Global Bubble

American optimism, Japanese pessimism, and the Chinese labor surplus are the three pillars of the global bubble economy, ... American optimism turns liquidity into rising asset markets and, through the wealth effect, consumption. Japanese pessimism has channeled the liquidity from BoJ’s easy monetary policy into demand for the US Treasuries, capping the US bond yield despite the strong US economy. The Chinese labor surplus allows global companies to decrease production costs and keeps inflation down despite strong demand.

The above factors form the conditions for but do not automatically lead to a global bubble economy. An accommodative Fed allows the bubble to happen. The Fed sees CPI inflation as the only warning signal for slowing economic growth. In today’s global economy, CPI inflation is the second-to-last price to move up after wages. When CPI inflation is significant, the bubble is already gigantic. The Fed’s easy attitude towards asset inflation has ... led the global economy to where it is today.

In addition to the Fed’s accommodative attitude, the behavior of the Asian central banks is also a factor in maintaining the global bubble. The large US trade deficits that result from asset-based consumption flood the world with dollar supply. The oversupply depresses the dollar’s value, which should cause inflation in the US that forces the Fed to tighten. Instead, the Asian central banks have been mopping up the unwanted dollars in the world to buy Treasuries. From the perspective of Asian central banks, they see a higher US interest rate, not a weak dollar, as the key to a stable equilibrium. So they are propping up the dollar and hope that the Fed will step up its pace of raising interest rates. Instead, the Fed sees that the Asian central banks are holding its bag and that, therefore, it can afford to take things slow and keep the ‘measured pace’ policy in raising interest rates.
Andy Xie, March 30, 2005

Stephen Roach sees the bubble popping.

America’s income-short, consumer-led recovery is the aberration -- not the norm .... It is all about ever-declining personal saving rates, ever-widening current account deficits, mounting debt burdens, and increasingly wealth-dependent consumers. It ... is one of the most precarious macro models that has ever existed for a major economic power ... that not only puts pressure on future prospects in the US but also underscores the tensions bearing down on the rest of the world. In my view, income-short growth models are not sustainable -- the only question pertains to the circumstances of their demise.
...
Coping with the global labor arbitrage could well test an unbalanced world’s commitment to globalization. The temptation of politicians in the developed world is to react to pressures on voters by indulging in scapegoating -- in effect, pinning the blame on the China and Indias of the world. Consequently, to the extent that developed nations fail to address the excesses of deficit-financed lifestyles, the risks of trade tensions and protectionism may only mount. Courtesy of the unrelenting pressures on labor income that arise from this cross-border labor arbitrage, high-wage workers have found it exceedingly difficult to sustain life-styles. Asset-dependent US consumers ... have consciously elected to draw down saving and go deeply into debt in order to defend the most cherished of American values -- excess consumption. Liquidity-prone central banks have been the great enabler of this process. The Federal Reserve has led the charge with its post-bubble zero real interest rate policy. And by freely funding the US current-account deficit, foreign central banks -- especially those in Asia -- have done more than their fair share in subsidizing US interest rates. That not only keeps the asset party going but also provides the cut-rate refinancing rates that have allowed American consumers to keep on extracting purchasing power from increasingly over-valued assets such as homes.

The endgame is not in doubt, in my view. The American consumer will ultimately cave. It is the only means by which the US will ever “fix” its twin saving and current account problems. It is the timing and circumstances of that fix that we endlessly debate. But the clock is ticking -- especially now as interest rates and energy prices rise. Yet another in a long string of crummy US labor market reports only serves to underscore the obvious: Excess consumption is on a collision course with subpar labor income growth. Courtesy of an unrelenting global labor arbitrage, the “big squeeze” is getting tighter and tighter on the world’s only real consumer.
Stephen Roach, April 4, 2005

Schiavo: Federalism and Separation of Powers

2005-03-29T12:14:00.000-05:00

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.
Andrew Cohen, March 25, 2005

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.
digby, March 20, 2005

Bankruptcy: "$400 per household"

2005-03-07T04:51:00.000-05:00

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.
Senator Orrin Hatch, February 28, 2005
151 Cong. Rec. S1786

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.

Bankruptcy: Billions not Millions

2005-03-06T07:24:00.000-05:00

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.

A Framework for Policy Analysis

2005-03-05T08:15:00.000-05:00

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:

Harm: The status quo has a problem.
Inherency: The Harm will not be solved without a policy intervention (i.e., waiting won't help).
Plan: This is the proposed policy.
Solvency: The proposed Plan will solve the Harm.
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:

Harm: Deceptive "psychics" prey on the public by falsely advertising "free" phone readings, then threatening collections.
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).
Plan: Enact federal consumer protection laws and enforce them through a government agency, the Federal Trade Commission.
Solvency: The FTC can bring charges on behalf of the consumers and end the deception.
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.

A Greenspan PSA

2005-03-03T13:48:00.000-05:00

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?"

A beginning of sorts...

2005-01-01T01:01:00.000-05:00

2005 is here. I miss my Bloomberg.