No Credit Check Payday Loans

Sic Transit The Individual Mandate

Doing a rare Thursday night dump, the Obama administration announced that the individual mandate for some is no longer operative and catastrophic plans, heretofore referred to as “junk insurance”, should be made available to those who choose that course. The lucky few, at least for now, are those whose insurance has been cancelled. Ezra Klein, no less, explains the Kafkaesque logic applied here.

1. The individual mandate includes a “hardship exemption.” People who qualify can either ignore the individual mandate altogether or purchase a cheap, bare-bones catastrophic insurance plan that’s typically only available to people under age 30.

2. According to HHS, the exemption covers people who “experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage under a qualified health plan.”

3. Today, the administration agreed with a group of senators, led by Mark Warner of Virginia, who argued that having your insurance plan canceled counted as “an unexpected natural or human-caused event.” For these people, in other words, Obamacare itself is the hardship. You can read Sebelius’s full letter here. HHS’s formal guidance is here.

Klein offers some further perspective on the illogic of the new regulations. For instance:

6. But this puts the administration on some very difficult-to-defend ground. Normally, the individual mandate applies to anyone who can purchase qualifying insurance for less than 8% of their income. The Obama administration is erasing that threshold for people whose insurance has been canceled. If they decide insurance costing 5% of their income is too expensive, then they can simply opt out. But if someone who’s currently uninsured decides 5% of their income is more than they can pay, then they have to pay the individual mandate’s penalty. What’s the logic in that?

7. The same goes for the cheap catastrophic plans sold to customers under age 30 in the exchanges. A 45-year-old whose plan just got canceled can now purchase catastrophic coverage. A 45-year-old who didn’t have insurance at all can’t. The Obama administration argues that they’re just giving a bit of extra help to people who lost what they already had. But why don’t people who couldn’t afford a plan in the first place deserve the same kind of help?

I recommend his entire post.

I think that we’ll probably find out in short order that the panic inherent in this latest move merely reflects an attempt to do anything to avoid the catastrophe they can’t abide. Specifically, more uninsured after January 1st than existed before the advent of this disaster. They know the real enrollment numbers they’re not turning over to anyone else and they have to be awful to inspire this Rube Goldberg fix. Panic, however, rarely results in intelligent action, rather it simply delays an imminent reckoning.

If you like, shed a tear for the insurance companies who opted for nationalization in exchange for dreams of millions of captive customers. Tonight they’re faced with the disintegration of their carefully (imaginary?) risk pools, not to mention the unenviable task of offering, possibly creating, insurance products which will afford unanticipated coverage for an untold number of people within two weeks. Just how good does this administration imagine the private sector is?

It’s not hard to imagine this as the beginning of the end for the individual mandate. Since the Supreme Court defined the mandate as a tax, and since taxes can’t be constitutionally levied in a discriminatory manner, the exemption is certain to be subject to legal challenge. More to the point, politically anointing winners and losers in this manner is a non-starter. The fate of the mandate and perhaps even the law itself rests with the resolve of Congressional Democrats. The resolve to preserve the mandate under these new circumstances will certainly be tested and most likely found lacking. The resolve to preserve the rest of the law is going to be sorely tested. With this latest move, the President has put them in a precarious position and placed his entire project in real jeopardy.

1 Comment »

Simplifying The ObamaCare Enrollment Data

From Coyote Blog, an attempt to look through the government doublespeak about the progress of ObamaCare.november-obamacare-exchange

You might also want to look at his companion piece concerning the amount of subsidy implicit in the numbers to date. Bottom line, this might get really expensive.

No Comments »

The Bond Market Won’t Allow An End To QE Any Time Soon

A couple of days ago I linked to this article which suggested that were Hayek alive today he might well counsel to proceed with caution in its use of unconventional policies, e.g. QE. The gist of the piece was that economists, indeed all social scientists, tend to certitude based on quantitative models which are anything but certain. In other words, a model of employment and aggregate demand while engaging, is in no way infallibly descriptive of what actually will transpire under differing sets of circumstances in the same way that, say, Einstein’s theory of relativity is.

Humility is probably not going to cause the Fed to question what they have wrought, let alone incent them to begin withdrawing QE. That appears to be solely up to the vagaries of the economy, particularly the health of the labor market, and the Fed thinks that it is far from robust. Greg Mankiw in a New York Times essay doesn’t disagree that by some measures the market for jobs is still quite weak – relatively high unemployment, a declining labor force participation rate, abnormally high number of long-term unemployed – but also points to data which tell a different tale.

Another clue to what’s happening in the labor market is the vacancy rate. Although less widely followed than unemployment figures, this rate is its mirror image. To compile the unemployment rate, the Bureau of Labor Statistics surveys households to find workers without jobs. To compile the vacancy rate, the bureau surveys employers to identify jobs without workers. In short, the vacancy rate measures the percentage of available jobs that are currently unfilled.

Not surprisingly, the vacancy rate is highly cyclical. In recessions, when customers are hard to find, businesses post fewer new jobs. In addition, because the number of job seekers expands, the posted openings are filled quickly. As a result, the vacancy rate falls. Conversely, when the economy recovers, businesses start posting new openings, and jobs are harder to fill, so the vacancy rate rises.

The recent recession is a case in point. Seven years ago, the vacancy rate was a bit over 3 percent. It fell to a low of 1.6 percent in July 2009, a month after the official trough of the recession. The most recent reading puts it at 2.8 percent. So according to this measure of labor-market tightness, the economy is almost back to normal.

Data on wage inflation also suggest that the labor market has firmed up. Over the past year, average hourly earnings of production and nonsupervisory employees grew 2.2 percent, compared with 1.3 percent in the previous 12 months. Accelerating wage growth is not the sign of a deeply depressed labor market.

The point he makes is that the data present conflicting pictures of the labor market and that this particular recession has tended to break historical molds. To put it less charitably the past is not prologue. He concludes by suggesting that Ms. Yellen might need to be adaptive if the signals she’s watching turn out to be wrong.

So here we have one economist suggesting humility and another that the Fed might be reacting to the wrong signals. Then we have Felix Salmon coming forth with a good post which lays out a scenario for the Fed being trapped in QE.  He posts a couple of intriguing charts which show a marked change in both the demand for bonds and the mix of buyers of those bonds. Essentially, since 2008 buyers, save for pension funds, have exited the market having been replaced by foreign official and G4 central banks. The supply of bonds now comes preponderantly from government entities, though the amount raised is decreasing. He concludes:

…Instead, step back and look at the big picture, which is pretty simple: as a stylized fact, the bond market is dominated on both sides by the official sector. Private participants might sit in the middle as market-makers, or try to borrow money here or there, but overall what you’re looking at, when you look at the bond market, is government issuing debt and governments buying it.

The good news is that this large transfer of money from the official sector’s left hand to its right hand is slowing down, but that’s going to take a while. In any case, there doesn’t seem to be any conceivable way that the private sector could possibly be able to fund the still-substantial government deficits which have been bequeathed to us by the financial crisis. As a result, I suspect that QE is likely going to be around for a while, just as a matter of mathematical necessity. The world’s national deficits can’t get funded any other way.

So Brough and Mankiw might well make excellent points but the inexorable logic of the math, at least at this point in time, would seem to dictate QE for an indeterminate time. It’s certainly possible that the demand side for government bonds could expand to include previous market participants, but that seems unlikely given the current regulatory environment as well as the near certainty of loss of principal given the low current coupons. For the time being most of the buyers are going to be those who intend to hold to maturity. It also seems unlikely that interest rates will rise enough in the near future to compensate for this problem given the bias of the Fed and other central banks towards the idea that economies are still sick and in need of support, as well as a political and economic imperative to keep rates low in order to lessen the strain on government budgets. Felix is right, the structure of the mark dictates the continuation of robust QE.

Go buy stocks!

No Comments »

Fannie/Freddy Reform Nowhere In Sight

Since 2008, the mostly agreed upon date for the onset of the Great Recession, lots of responses to the crisis have occurred. Stimulus came and went, Dodd Frank passed, the Volker rule was enacted yet not to date implemented, the CFPB was let lose on the land, the Fed embarked on a continuing mission to better the economy via asset purchases, various banks have been fingered as agents of the financial crisis and meltdown of the housing market. Oh, and Fannie Mae and Freddie Mac basically went toes up and were put into government conservatorship where they languish to this day.

Actually languishing is not quite correct, they’re thriving. The two have gone from commanding a lions share of the mortgage market to effectively being the only game in town. In the process they are minting money. Together the two expect to have returned by the end of this year virtually all of the $180 billion they borrowed from the government to stay afloat. Note that this gusher of money is not coming to an end anytime soon as Fannie and Freddie are just forking over their profits as dividends to the Treasury, technically they haven’t repaid a dime. It’s entirely possible that these two companies are the most profitable enterprises in the Universe, such being the rewards which flow to virtual monopolies.

Now from the day that Frannie collectively came under the wing of the government there have been righteous statements (do politicians make any other sort?) about getting the government out of the mortgage business, reforming the entire system and along the way making sure that the ultimate solution is bullet proof enough to survive until the end of time. So far we’ve not progressed beyond the bloviating phase.

That’s not to say that there haven’t been plans floated about to change the status quo. Most recently several hedge funds have come forward with proposals to take over the two. Mostly this amounted to a fair bit of financial engineering which would reward their speculative position in the still trading shares of the two companies and leave them in charge of the monopoly. If you want to get down in the weeds, Matt Levine has an excellent analysis of their proposal. Somewhat predictably the Obama administration in the person of economic adviser, Gene Sperling, suggested that no they didn’t think they would be selling Frannie to hedge funds at this time. All sorts of difficulties remain to be ironed out and , well,  the optics just aren’t all that good.

Mr. Sperling then went on to offer some further comments on the two and their future. Actually he mostly went back to righteous comments and affirmed, as every other politician does as well, that Fannie and Freddie needed to go away but there still isn’t a clear way to that goal. The one serious bipartisan (a rare bird indeed) effort to reform the two is known as Corker-Warner. It replaces Frannie with, well, kind of a new Frannie but this time they really, really mean to play tough with borrowers and absolutely, positively not turn the new Frannie into a slush fund for politicians. Mr. Sperling says the administration sort of likes this.

We were very engaged in helping when asked with the drafting of the Corker-Warner legislation. That doesn’t mean that we agree with every aspect of it, but we saw it as a good and constructive effort and it was worthy of our cooperation. What Sens. Corker and Warner put together is an important start … but ultimately for this bill to happen, we will need the leadership of Chairman Johnson and Ranking Member Crapo. And we are working very closely with them on that. We believe that there is no reason that we should not try to move as quickly as we can to explore the possibilities of how fast we could pass out of the Senate Banking Committee bipartisan legislation.

Does the phrase, “damning with faint praise,” jump to mind? I’d say that Corker-Warner has only a smidgens more chance of getting past the President than did the hedge fund proposal.

Realistically, 5 years after the crisis, we are no closer to any sort of resolution of the Fannie/Freddie issue. In fact, I’d argue that we will probably not see any serious reform effort until 2017. If that suggests politics to you, as in 2016 elections, well then you’re on the same page with me, but 2014 is playing a big part as well. Here are some things that are going to get in the way of any real movement.


The government has a claim on all of the profits of Fannie and Freddie until 2018. In the third quarter of this year the two posted a combined operating profit of $15 billion. Keeping in mind that they still have a historically high amount of nonperforming assets dragging down their results, it isn’t unreasonable to assume they’ll rack up somewhere in the neighborhood of $60 billion per year to shovel to the government. That’s probably conservative, but let’s go with it. The deficit for fiscal 2013 came in at $680 billion. Assuming similar results for 2014 and the same level of profits for the two, they impact just under 10% of the overall deficit. Even in Washington that’s real money. There are 60 billion reasons for both sides of the aisle to slow walk any reform. Count on that result.

Mel Watt/2014/Filibuster

Up until yesterday, the Fannie/Freddie honey pot was pretty much off limits guarded as it was by Edward DeMarco, the acting director of the FHFA which is the conservator of Fannie and Freddie. DeMarco is a rare bird in that he took seriously his charge to preserve and conserve the the assets of the twins. To say he has been a thorn in the side of the crowd who have pushed for an activist stance to resolve the housing crisis is to minimize the aggravation of a thorn embedded in any part of one’s body. Until the last few months the administration has been content to grumble about the man, but finally gave into pressure and nominated Mel Watt, a former congressman, to become the permanent head of FHFA.

Watt is, by profession a lawyer, but has since since 1993 represented North Carolina in the House. His political career has been heavily financed by the banking and real estate industries, so there is an element of the fox and the hens clouding his nomination. Just to bury the guy a bit more, he has nothing in terms of expertise as it relates to the mortgage business to recommend his nomination. Watt was dead in the water in terms of confirmation, for reasons we shall get to in a brief moment. He will likely now be close to first in line as a result of the decision to modify (if that’s the right word) the filibuster rules in the Senate.

That Mr. Watt’s nomination was dead in the water represented nothing personal on the part of the Republicans, they just weren’t anxious to turn over Fannie and Freddie’s honey pot to an appointee of the Obama administration. With DeMarco in charge about the only place money was going to flow was into the Treasury’s coffers, with Watt in the drivers seat on the cusp of an election year they rather reasonably expected the powers of the two to be unleashed in a manner designed to, shall we say, sway voters. DeMarco for example has resisted all calls for radical mortgage modifications including principal forgiveness. Watt is unlikely to be so reticent. After all a few million well targeted underwater borrowers who suddenly find themselves with positive equity are likely to be more than a little favorably disposed towards Democratic candidates. Opening the spigots to the affordable housing crowd serves to fund another constituency not noted for its support of conservative causes. And, thanks to Jamie Dimon, Mr. Watt will find himself with around $4 billion burning a hole in his pocket.

Do you really think that the Democrats have any interest in upsetting this apple cart in 2014?

2016 Elections 

Any meaningful reform of the mortgage GSEs is going to have to past muster with the housing industry. That group includes Wall Street, realtors, home builders and mortgage bankers. Together they’re one of the most powerful lobbies in the country given that they operate at both the national and local political level. To date, passing muster with them has meant pretty simply the maintenance, in one form or another, of an overwhelming federal government support mechanism for the mortgage market. No viable candidate for president can afford to get on the wrong side of this group going into the 2016 elections and that means that neither party is likely to place their candidate in jeopardy by pushing reform beyond merely the cosmetic. Serious reform is out of the question until a new president is sworn in.

With luck it’s possible that sometime in 2017, nearly a decade after the crisis, somebody will step up and actually force through some serious new system of mortgage finance for the US. Then again, it’s entirely possible by then that memories will be so dim that many will ask, “What’s the problem, everything seems to be going along just fine. Why fix what ain’t broke.”


What Would Hayek Have Thought About QE?

No real comment to offer on this essay about what Hayek might have thought of QE. It’s just interesting reading, so I thought I would pass it along.

No Comments »

ObamaCare: Changing The Subject

This hardly seems to signal an abundance of optimism from the Obama administration.

President Barack Obama plans to push back the second-year start of enrollment in Affordable Care Act health plans, a move that would let insurers adjust to growing pains in the overhaul and potentially stave off premium increases before the 2014 congressional elections.

The enrollment period, previously scheduled to begin Oct. 15, 2014, will now start Nov. 15, said an official with the U.S. Department of Health and Human Services who asked not to be identified because the decision isn’t public.

A cynic might suggest that perhaps the initial premiums were set artificially low. A fortune teller might suggest that the early signs point to a bad mix of enrollees thus necessitating significant increases next year. I’d suggest that while there’s truth in both propositions, the political guys are scared and just want to bury the entire subject as soon as possible. Look for as many “Wag The Dog” moments as the President can possibly manufacture over the coming months.

No Comments »

ObamaCare Going To The Dogs

Obamacare signs up its first dog, so there's that, at least

A new Colorado enrollee in ObamaCare. Actually, it’s just a website snafu, understandable and pretty funny. I only posted this as an excuse to put up a dog picture. Hey, beats kittens!

No Comments »