Monday, January 23, 2012

America's Ongoing Tort Litigation Nightmare

When companies break the law or produce a defective product, they should, and are, held accountable. But the problem with our nation’s tort system is that so often companies are punished when they haven’t done anything wrong – sometimes to the tune of tens of millions of dollars. And the problem is only getting worse.

Tort litigation costs Americans more than $250 billion, that’s the equivalent to 2.2 percent of GDP and roughly $838 per person, according to Towers Watson. This has real economic consequences. In healthcare alone, it’s estimated that tort reform could eliminate up 27 percent of medical costs. In other words, 27 cents of every healthcare dollar goes toward litigation. How does that help lower- and middle-class families struggling to make ends meet?

A case study on America’s tort crisis is playing out in New York. In 2004, a young physical therapist was tragically paralyzed after she pulled a piece of exercise equipment on top of herself. The equipment, a Cybex leg extension machine, was not broken or faulty. Rather, the machine tipped because the therapist wasn’t using it properly – she was standing on the side of the machine pulling backward in order to stretch. Nevertheless, she was awarded the largest personal-injury verdict in Western N.Y. history, a whopping $65 million.

Now, no one argues that what happened to this woman wasn’t terrible. But to punish a company that’s product was not faulty and is safe when used properly is a travesty of our justice system. What about the hundreds of Cybex employees, whose very livelihoods are in danger?

But Cybex is just the tip of the iceberg in Americas’ tort nightmare. With the public policy debate heating up on how to get the economy started and secure the middle class, its obvious tort reform deserves to be front and center.

The force behind the abuse is the well-heeled trial lawyer lobby which claims that tort reform would hurt the average American. In truth, tort reform would only hurt trial lawyers and would provide an immediate boost to the economy.

According to the Center for Responsive Politics, which tracks campaign contributions, the lawyer/law firm industry invested a staggering $234 million in federal political campaigns during the 2008 cycle. Barack Obama was the biggest benefactor, receiving more than four times as much as the nearest Republican, John McCain. Trial lawyers have already spent almost $50 million in the current cycle, with more than $4 million of it going to Obama. The industry is consistently in the top 3 in political giving, beating out energy, pharmaceutical, insurance, commercial banks, entertainment and a host of other industries for prominence in the Washington favor-buying game.

All that donating to Democrats pays big dividends. In 2009, Obama appointed Kathleen Sebelius as his Secretary of Health and Human Services, and directed her to “move forward” on tort reform. Right. Sebelius spent eight years as the director of a trial lawyers association. Not surprisingly, Sebelius hasn’t “moved” anywhere on tort reform, except perhaps backwards.

Democrats love to crow about how Republicans only do the bidding of their Wall Street fat cat buddies. Et tu, Brute? Time and again meaningful tort reform is blocked by Democrats lest they lose the cash hose that is their trial lawyer donation stream.



It’s Credit, Not Race, that Drives Mortgage Pricing

One would think that after a housing boom driven by cheap credit, we would have heard the end of the “minorities charged higher rates regardless of credit” narratives. But our friends at the Economic Policy Institute continue to spin the myth that it is really race, and not credit history, that determines a borrower’s interest rate.

EPI cleverly starts out by lumping most borrowers into the same category: “In recent years, Latino and African American consumers with good credit scores of 660 and higher have too often ended up with high interest rate mortgages, mortgages which are supposed to go to risky borrowers.” First of all, 660 is not a good credit score. We can debate whether it’s poor or mediocre, but it isn’t good. According to the Federal Reserve, loans with a FICO of around 660 default at a rate of almost nine times that of loans with a FICO of 720 or higher (see table below). To mix the two and claim they are the same risk is misleading, at best.

So let’s start with some basic facts:

For a variety of reasons, including differences in age, Latino and black borrowers have lower credit scores than white borrowers. This still holds even when you exclude loans to borrowers with credit scores below 660 or 620. Second, defaults continue to vary, by large magnitudes, even for rates above 660. To imply 660 is equal to 700 or that 700 is equal to 780 is false.

There have also been a number of studies that reject the claim of large, or even any, differences in mortgage pricing by race, when one includes relevant variables. A recent NY Federal Reserve Bank study concludes: "We find no evidence of adverse pricing by race, ethnicity, or gender in either the initial rate or the reset margin. Indeed, if any pricing differential exists, minority borrowers appear to pay slightly lower rates."

A recent study in the peer-reviewed Journal of Real Estate Research concludes "that up to 90% of the African American APR gap, and 85% of the Hispanic APR gap, is attributable to observable differences in underwriting, costing, and market factors that appropriately explain mortgage pricing differentials. Although any potential discrimination is problematic and should be addressed, the analysis suggests that little of the aggregate differences in APRs paid by minority and non-minority borrowers are appropriately attributed to differential treatment".

We all should be offended by racial discrimination. But these vast claims of discrimination, where none actually appears to exist, contributed to the federal push to get everyone a mortgage. This push has come at great cost to the taxpayer, our economy, and—as importantly—to the very families it claimed to help.



Obama's Phony War on the Rich

Ever since the First Couple entered the White House, their social life has swirled around the very rich. Hollywood actors, pop star singers, Wall Street hedge fund managers, billionaire investors — these are the fabled "top 1 percent" in terms of income and wealth.

The Obamas invite them to White House dinners. They vacation with them on Martha’s Vineyard. They party with them. They sup with them at $35,000-a-plate fundraisers.

(Have these affairs ever included an auto worker? A mine worker? How about someone who is unemployed and looking for a job? What about someone who has lost his home? As far as I can tell, the bottom 99 percent never seems to make the cut.)

Here is what we are being asked to believe. During his three years in office, the president has come to realize that all of the people he plays golf with, has dinner with and collects millions of dollars from have too much. All of the people he never sees, never talks to and never socializes with have too little. So the president’s campaign-for-re-election theme will be: take from his friends and give to all those strangers.

Is any of this believable?

If you are inclined to take it seriously, let me remind you that you have heard it all before. Remember the 2008 presidential campaign? Health care was the number one issue. Remember the Democratic primary mantra? It was "universal coverage." And how was it to be paid for? Almost every serious candidate for the Democratic nomination gave the same answer: taxes on the rich. Barack Obama was explicit: "If you make less than $200,000 your taxes will not go up at all."

So what happened? We got Obama Care, at a cost of almost $1 trillion over the next ten years. And who is going to pay for all that? You are. And so is everybody else. My best estimate is that only about one-fifth of the cost of this measure will fall on the shoulders of the "rich." The vast bulk of the burden will fall on everyone else.

According to the Congressional Joint Committee on Taxation, about 73 million Americans earning less than $200,000 a year will see their direct taxes rise as a result of ObamaCare.In addition there are indirect taxes that no one will be able to avoid. These include:

-A "medical devices" tax that will reach everything from bedpans to wheelchairs and crutches will raise $20 billion over the next ten years; it will hit pacemakers and artificial hips and knees, as well.

-A tax on health insurance plans will raise about $60 billion.

-A tax on prescription drugs will raise another $27 billion.

The Republican staff of the Senate Finance committee estimates that these three taxes alone will ultimately push up health insurance premiums for a typical family of four by about $1,000 a year.

A tax on tanning salons is already collecting revenues from ordinary folks. Because of new restrictions on the use of medical accounts (Health Savings Accounts, Health Reimbursement Arrangements, and Flexible Spending Accounts), people are now paying more for such over-the-counter items as Claritin, aspirin and Advil. All told, "medicine cabinet" taxes are expected to raise about $45 billion over the next ten years.

Then there is the tax on sickness. Right now, people can deduct medical expenses in excess of 7.5 percent of their income. That figure will soon rise to 10 percent. Families who have the misfortune of incurring high medical bills will have to pay more to Uncle Sam as a result.

Pity the elderly and the disabled. More than half the cost of the health reform bill will be paid for by reduced spending on Medicare — a whopping $523 billion reduction over the next ten years. Although this is technically a spending reduction rather than a tax increase, the economic impact is the same.

Medicare’s chief Actuary predicts that in eight more years, Medicare will be paying doctors and hospitals less than what Medicaid (for poor people) pays. If so, senior citizens will be lined up behind welfare mothers, seeking care at community health centers and at the emergency rooms of safety net hospitals.

Will seniors be able to survive by paying more out of pocket to offset the reduction in Medicare spending? Maybe. But if they do so, it’s going to them 10 percent of their Social Security checks within eight years.

Here’s the bottom line: when President Obama talks taxes on the rich, expect even more taxes on the middle class.

But what about the rich? Is the president really going to sock it to his friends and golfing buddies?

Would you believe that under the president’s higher-taxes-on-the-rich proposals most of Warren Buffett’s income won’t be taxed at all. More on that in a future column.




US aircraft carrier enters Gulf without incident: "A U.S. aircraft carrier sailed through the Strait of Hormuz and into the Gulf without incident on Sunday, a day after Iran backed away from an earlier threat to take action if an American carrier returned to the strategic waterway. The carrier USS Abraham Lincoln completed a 'regular and routine' passage through the strait, a critical gateway for the region's oil exports, 'as previously scheduled and without incident,' said Lieutenant Rebecca Rebarich, a spokeswoman for the U.S. Fifth Fleet."

Croatia: Voters back EU membership: "Near complete results from Croatia's referendum on European Union membership suggest that a large majority of people want to join the EU in 2013. With nearly 99% of the votes counted, 66% of voters backed the membership. About 33% were against. But officials expressed disappointment at the low turnout of about 44%."

U.S. drones active in Somalia: "An alleged al-Qaida member from London is reported to have been killed in a missile attack from a US drone while fighting alongside Islamist insurgents in Somalia. Bilal el-Berjawi is said to have died when three missiles fired from the unmanned aircraft hit his car on the outskirts of Mogadishu."

Egypt: Islamists take almost half of parliament: "Islamists will dominate Egypt's first parliament following Hosni Mubarak's ousting almost a year ago, as the country prepares for the anniversary of the protests that ended his three-decade rule. The alliance led by the Muslim Brotherhood's Freedom and Justice Party won 235 of the 498 elected seats (47 per cent) in the lower house, while the ultra-conservative Nour party won 25 per cent."

BBC’s biased coverage of capitalism: "On the BBC website an interview was featured recently with the famous orthodox Marxist, Eric Hobsbawm, who promptly denounced capitalism as if he had established definitively its inferiority as a political economic system. Is the BBC such an irresponsible news organization that it will feature Mr. Hobsbawm’s characterization of capitalism with no one who champions that system featured responding to him?"

True religious freedom means freedom for all: "True religious liberty is impossible when leviathan involves itself in every intimate avenue of our personal, social, and economic lives. This is because the state itself compels all its subjects to act in ways that may very well violate their consciences and deeply held values. To allow it to do so when religious values would be undermined is a threat to religious freedom. To make exceptions that declare only religion can exempt people from state obligations is also a problem, for then the state is involved in deciding what is and is not a valid religious belief."

There is a new lot of postings by Chris Brand just up -- on his usual vastly "incorrect" themes of race, genes, IQ etc.



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