I'm not sure what the argument is about.
The United States already has an effective, working system of universal healthcare. It's called Medicare.
It covers substantially all the population, without regard to ability to pay, pre-existing conditions, or anything of the sort. All a person has to do is meet the age-based enrollment requirement. I'm not sure what the policy justification is for the extremely high minimum age requirement, but we have age requirements related to voting, the consumption of alcohol and tobacco, driving an automobile, and so on, so I don't have any problem in the abstract with an age requirement.
If the opponents of universal medical coverage had any political courage or intellectual integrity, they would be working hard to repeal Medicare and get the government the hell out of the health insurance business. If the supporters of universal medical care were clever, they would be working hard to repeal (or at least lower) that minimum age requirement.
But, no, we are all knotted up in our underwear not quite sure what to do with an incoherent health care delivery system that perversely expects private for-profit entities operating in a free market to ration medical care in an efficient, fair and politically acceptable way. Wrong tools for the job, fellas.
Tuesday, July 28, 2009
Monday, July 27, 2009
Ruthless Default
Now let us praise Ruthless Defaults.
In the lexicon of financial institutions that extend consumer credit, a 'ruthless default' is a decision of a consumer borrower to discontinue servicing his or her debt obligations even though current cash flow (or unused borrowing capacity) would allow that borrower to do so. Rather than being recognized as a prudent financial decision in some circumstances, it is subject to mockery and denigration on a blanket basis. The mockery tends to focus on the past bad financial decisions the borrower made to get into the current financial bind (such as overpaying for a house or incurring uninsured medical expenses). The denigration tends to focus on the sanctity of contract, which is an escalation in to the moral sphere of earlier warnings about damaging one's credit rating.
Leaving the mockery and denigration aside, as I understand the concept, a ruthless default occurs when a person assesses their current financial situation and makes a 'zero based' decision on how to go forward. The priority given to staying current on the mortgage, the credit card debt and car payment, versus buying groceries, continuing the 401(k) contribution and keeping the utilities turned on, is matter of personal decision. The borrower disregards how he or she came to be in the present situation, and prioritizes and makes decisions on the basis of what makes the most sense going forward.
To the chagrin of commercial lenders, consumers stupid enough to have succumb to all sorts of insane credit blandishments in a prior incarnation, are turning out to be intelligent enough to realize that it's more important to keep the lights turned on than to protect the vanished equity in a house that they will eventually lose to a short sale or a foreclosure. And retirement plan balances frequently have greater protection in a personal bankruptcy than the personal goods bought on credit.
So, call it ruthless, call it self-interested, default is apparently beginning to occur with sufficient frequency that it's gotten the attention of industry and of the main stream media. It's not clear whether it will become so widespread as to impact general public attitudes towards indebtedness, but is becoming clear that earlier industry and rating agncy assumptions about the behavior of consumers in financial distress are no longer operative.
There should be no surprise in this. People are going to put protecting themselves before protecting the people who have lent them money. What is a little surprising is the reasonable conclusions people are reaching about how best to protect themselves. At a minimum, people have lost faith in the proposition that house prices only go up, and that your house is the best investment you'll ever make. Beyond that, I'm getting the sense that the weird belief that a good credit rating, or credit score, was some kind of financial 'asset' is beginning to fray, though I'm not ready to announce a return to a 'pay as you go' mentality.
One interesting thing about ruthless default is that it is an alternative to entering the chute of credit counselling, debt repayment plans or personal bankruptcy. In each of those officially sanctioned alternatives, the debtor relinquishes autonomy over his or her personal finances in exchange for some form of forbearance and accomodation. By contrast, ruthless default is a zen move. The debtor simply does nothing (more precisely, stops making paymens) and leaves the response up to the creditor.
The mortgage servicer can initiate foreclosure, foreclose and pursue any deficiency. The credit cards can be cancelled. The car can be repossessed. Foreclosure takes months. The cancelled credit card issuer is still stuck as a general unsecured debtor for a bad loan. Only the repo man gets his collateral back promptly and in immediately saleable condition. But in everyone of these situations, the transaction costs and the administrative effort associated with pursing the remedy was simply not factored into the original extension of credit. And the machinery to accomplish the remedy is not in place, at least systemically at the levels of activity required to respond to widespread ruthless default.
Or perhaps I should say 'rational default'?
In the lexicon of financial institutions that extend consumer credit, a 'ruthless default' is a decision of a consumer borrower to discontinue servicing his or her debt obligations even though current cash flow (or unused borrowing capacity) would allow that borrower to do so. Rather than being recognized as a prudent financial decision in some circumstances, it is subject to mockery and denigration on a blanket basis. The mockery tends to focus on the past bad financial decisions the borrower made to get into the current financial bind (such as overpaying for a house or incurring uninsured medical expenses). The denigration tends to focus on the sanctity of contract, which is an escalation in to the moral sphere of earlier warnings about damaging one's credit rating.
Leaving the mockery and denigration aside, as I understand the concept, a ruthless default occurs when a person assesses their current financial situation and makes a 'zero based' decision on how to go forward. The priority given to staying current on the mortgage, the credit card debt and car payment, versus buying groceries, continuing the 401(k) contribution and keeping the utilities turned on, is matter of personal decision. The borrower disregards how he or she came to be in the present situation, and prioritizes and makes decisions on the basis of what makes the most sense going forward.
To the chagrin of commercial lenders, consumers stupid enough to have succumb to all sorts of insane credit blandishments in a prior incarnation, are turning out to be intelligent enough to realize that it's more important to keep the lights turned on than to protect the vanished equity in a house that they will eventually lose to a short sale or a foreclosure. And retirement plan balances frequently have greater protection in a personal bankruptcy than the personal goods bought on credit.
So, call it ruthless, call it self-interested, default is apparently beginning to occur with sufficient frequency that it's gotten the attention of industry and of the main stream media. It's not clear whether it will become so widespread as to impact general public attitudes towards indebtedness, but is becoming clear that earlier industry and rating agncy assumptions about the behavior of consumers in financial distress are no longer operative.
There should be no surprise in this. People are going to put protecting themselves before protecting the people who have lent them money. What is a little surprising is the reasonable conclusions people are reaching about how best to protect themselves. At a minimum, people have lost faith in the proposition that house prices only go up, and that your house is the best investment you'll ever make. Beyond that, I'm getting the sense that the weird belief that a good credit rating, or credit score, was some kind of financial 'asset' is beginning to fray, though I'm not ready to announce a return to a 'pay as you go' mentality.
One interesting thing about ruthless default is that it is an alternative to entering the chute of credit counselling, debt repayment plans or personal bankruptcy. In each of those officially sanctioned alternatives, the debtor relinquishes autonomy over his or her personal finances in exchange for some form of forbearance and accomodation. By contrast, ruthless default is a zen move. The debtor simply does nothing (more precisely, stops making paymens) and leaves the response up to the creditor.
The mortgage servicer can initiate foreclosure, foreclose and pursue any deficiency. The credit cards can be cancelled. The car can be repossessed. Foreclosure takes months. The cancelled credit card issuer is still stuck as a general unsecured debtor for a bad loan. Only the repo man gets his collateral back promptly and in immediately saleable condition. But in everyone of these situations, the transaction costs and the administrative effort associated with pursing the remedy was simply not factored into the original extension of credit. And the machinery to accomplish the remedy is not in place, at least systemically at the levels of activity required to respond to widespread ruthless default.
Or perhaps I should say 'rational default'?
Sunday, July 26, 2009
Animal Spirits
Not yet dead. And that carries with it an immediate and an intermediate implication.
Short term--we'll have a period of incomprehensible but irritating giddiness in the financial markets which will significantly grate on both the general public and the political classes. Ballooning bank profits will highlight the different fates of Main Street and Wall Street while rising unemployment and credit card defaults plague the middle and working classes. But, bankers will get highly publicized base salary increases, equity markets will remain bouyant (despite anemic corporate profits), and the public's suffering and misery will remain oddly invisible.
Intermediate--the adjustment to the 'new normal' will be sour and seriously constrain the ability of policymakers and the regulatory apparatus to respond to the next systemic crisis. The refusal of animal spirits to die will undermine any meaningful reform initiatives, which in turn will absolve the political classes of any meaningful commitment to defend or sustain the institutions that survive the current financial crisis. Efforts by those institutions at some point down the line to call of public resources to save their private bacon will not exactly be rebuffed, but will result in an outcome currently unforeseen by anyone and that will be the product of a gesalt that has yet to develop a recognisable identity.
A year ago, under the leadership of President Bush and Secretary Paulson, the financial services sector was politicized. The implicit government guarantee of the leverage of the 19 TARP institutions forever changed the character of those institutions and made them quasi public entities. They continue to be run for private purposes, but that situation cannot last forever.
And won't.
Short term--we'll have a period of incomprehensible but irritating giddiness in the financial markets which will significantly grate on both the general public and the political classes. Ballooning bank profits will highlight the different fates of Main Street and Wall Street while rising unemployment and credit card defaults plague the middle and working classes. But, bankers will get highly publicized base salary increases, equity markets will remain bouyant (despite anemic corporate profits), and the public's suffering and misery will remain oddly invisible.
Intermediate--the adjustment to the 'new normal' will be sour and seriously constrain the ability of policymakers and the regulatory apparatus to respond to the next systemic crisis. The refusal of animal spirits to die will undermine any meaningful reform initiatives, which in turn will absolve the political classes of any meaningful commitment to defend or sustain the institutions that survive the current financial crisis. Efforts by those institutions at some point down the line to call of public resources to save their private bacon will not exactly be rebuffed, but will result in an outcome currently unforeseen by anyone and that will be the product of a gesalt that has yet to develop a recognisable identity.
A year ago, under the leadership of President Bush and Secretary Paulson, the financial services sector was politicized. The implicit government guarantee of the leverage of the 19 TARP institutions forever changed the character of those institutions and made them quasi public entities. They continue to be run for private purposes, but that situation cannot last forever.
And won't.
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