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Wednesday, August 28, 2013

Hidden Horrors of The New ObamaCare Regulations

The new ObamaCare individual mandate regulations, just released Tuesday and available this morning, will lead to some really perverse gamesmanship as people try to shift the burden or shirk it altogether. Why pay for a meal if you can get it for free and stick someone else with the bill?

(1) HOPSCOTCH, or CATCH ME IF YOU CAN. As long as you are covered for one day in a month, you are in compliance with the mandate.  Even in year one, the mandate penalty is one percent of gross household income, so avoiding the . But you can have people play hopscotch (jump in, jump out) until and unless regulations are adopted or revised to deter this practice.  The result is that people in full-time, good faith compliance will bear a larger burden.

(2) WHO'S YO' DADDY? But not everyone has the burden.  Taxpayers with dependents (spouse + children) now face liability for the "shared responsibility payment," even if the taxpayer does not claim that person as a dependent.  Therefore, if a taxpayer may claim someone as a dependent, the taxpayer is on the hook for the dependent's mandate responsibility.  

The dependent child -- or lower-earning spouse -- can avoid all responsibility because there is still a primary taxpayer in the household. But imagine the horror when you have the acrimony of bitter child-parent relations (and remember, children are covered by their parents through age 26) or divorces and separations. Separating (or wayward spouses) and slacker children can stick the higher-earning spouse (or parent) with the mandate responsibility -- and the penalty -- even if the other taxpayer/parent does not have custody.  A wayward spouse can violate marital vows, fight any motions for divorce or separation, and all the while pass on the mandate responsiblity to the "innocent spouse."  Shockingly, this scenario is actually addressed -- and rejected -- in comments to the regulations.

In reality, this is an anti-man, anti-father provision in effect. While a short term effect will be to deter divorces because this is a new and heavy hammer on couples considering a divorce (and this observation presumes that financial considerations sometimes affect decisions involving marriage, divorce and custody), a dangerous long-term effect will be to strongly discourage responsible men from ever getting married. Those of us with daughters, granddaughters or sisters should be very concerned.  So, who's YOUR daddy?

(3) Another deterrent to productive behavior is contained in regulations including a child's income in the calculation of household income.  This has far-reaching consequences for a family's eligibility for government subsidies. The regulations allow a taxpayer to make an election to have a child's income treated as his own, so that the child is treated as having no gross income.  

But remember that in Bailout Nation and Slacker World, a child is now a child through age 26,  Perverse incentives abound. Slacker young adults in arrested development can now use the ObamaCare subsidy to justify sloth and avoid work, while families on the margin will be incentivized to throw onto the street their kids who -- horror of horrors -- produce income.  After all, extra income from young adults pushes a family to the subsidy ceiling.  This is a strong disincentive to work for any family getting a subsidy; worse, the income counts against the household income upon which the mandate penalty (which for anyone above the poverty level is calculated as a straight percentage of income, rising from one percent in 2014 to 2.75% of gross household income in 2016).

(4) Are you a foreign national and want to work in the U.S.? ObamaCare discourages you from working here, unless you get an American approved health care plan. Having foreign providers of "minimum essential health care" will not relieve you of the mandate penalty. The foreign provider may apply to be recognized as a provider of "minimum essential coverage," but pending that determination, foreign health insurance subjects the holder to the American penalty.

(5) Are you an American citizen or permanent resident living or working abroad? You are still subject to the ObamaCare penalty. Yes, even if you are abroad 365 days a year, your tax home is another country and you are a bonafide resident of that other country for an uninterrupted one year period. 

(6) If the American Commonwealth of Puerto Rico does not establish its own exchange, it appears that Puerto Ricans on the island will not have access to a compliant health care plan and should be subject to the mandate penalties.  ObamaCare requires all states to have exchanges, and states are defined as the 50 states plus the District of Columbia. This should spark a full-fledged run to the mainland -- Puerto Ricans are statutory American citizens -- and possibly a renewed move towards statehood.  The same calculus may be made by residents in the U.S. Virgin Islands and Guam.

(7) Religious exemptions are available, but only through a de facto government test to determine the validity of your faith. People "who are members of a recognized religious sect...and who are adherents of the established tenets or teachings of the sect or religion...are eligible to receive a religious conscience certification exemption from an exchange.  Just read this last sentence slowly. Furthermore, and interestingly, children may not apply for the religious exemption (although they can get abortions), only parents of children under the age of 21 may apply on behalf of the children, and after age 21 the children must apply themselves.  Yet the same children can stick their parents with the responsibility for their health care for another five years (as explained above).

(8) Finally, illegal aliens are exempt from the ObamaCare mandate and penalties. But there is a small victory. The IRS rejected some commentators' proposal to extend the illegal alien exemption to the entire family -- including legal residents and citizens!  Take your small victories for common sense where you can.


Tuesday, August 27, 2013

Breaking The Horse: Controlling Miley Cyrus

While Syria is ready to explode in civil war, most of America cannot get enough of an endless loop of former child star Miley Cyrus gyrating on stage, on camera in a sexually suggestive way. (Full disclosure: I haven't even watched the video. Manhattan is full of stupid young women acting stupid -- or worse -- to get attention, and if I choose I can see that...for free! Only a moron pays to see this!)

Conservative commentators have been full of disapproval for the antics. No attention is paid, however, to a solution to stopping this and other former child stars from becoming the latest train wreck, another Britney Spears, another Lindsay Lohan, another Drew Barrymore.

Miley Cyrus shot to fame initially as the daughter of country singing star Billy Ray Cyrus.  That is how she got her main claim to fame among the teenybopper girl set as the star of Disney's "Hannah Montana." But since turning 18 and leaving Disney, Miley has progressively gotten more adult.  

Let's focus on the damage, not to Miley, but to Disney. This entertainment behemoth markets its amusement parks and media channels as family-friendly entertainment.  There is tremendous value in this; indeed, Disney's Florida amusement parks just posted record attendance this year.

While Miley is free to act as she pleases, to destroy her reputation as she pleases, or simply to pretend to do so in order to trade reputation for fame (my theory: this is all an act to get attention), let's focus on the damage she has done to Disney's brand (never mind her own) and how this can be prevented.

If I'm Disney, I'm going to the agents for all its child talent and revising contracts to include both a 10-year morals clause "tail" (that is, starting on the day after the contract expires so the tail governs conduct going forward and penalizes intentionally bad brand-damaging behavior) and deferred money.  These measures protect the brand of both company and performer, and lest you fret, the star keeps his or her freedom -- but is incentivized to keep it very discreet.  

This lack of contractual control and foresight is costing Disney millions as Miley destroys the syndication value of its Hannah Montana franchise with every narcissistic display.  The solution: Creative, foresighted and innovative legal advice that is by no means cookie-cutter.  But you won't get this from the Park Avenue don't-rock-the-boat legal establishment.

Tuesday, August 20, 2013

Being Real and Being Successful: Part 1

I've been advising people that genuineness is a prime element in one's success in any endeavor. You will see this is the case in both personal and professional matters. Character matters, and like the spots of a leopard or stripes on a zebra, character doesn't change. It only gets revealed.

Genuineness has many advantages. It conveys that you can be trusted, that you mean what you say, that your actions and deeds carry more weight than your words and that you are perfectly happy to be judged on your record.

Contrast that approach with the people who demand that you trust them. These are the people who implore you: "Trust me." I'm not talking about the ones with decades of experience who really are saying, "Look at what I've done the last 20 years." That is not asking someone to trust you; it is asking someone to look at what you've done! I'm talking about the people who try to make you feel obligated to trust them.

Trust is not health care; it is not an entitlement. (I didn't really just write that, did I?). Business -- or any successful relationship, for that matter -- is not about one party sacrificing. A successful relationship is symbiotic, featuring a mutual benefit, a willingness to act for that mutual benefit, and an act of trade.

What is the opposite? The act of taking. Someone who demands your respect, your trust, your business, without having demonstrated his character or credentials, has not only not earned your business, but is demanding something FROM you. The code word is trust. The stated meaning is "trust me." The real meaning, the scary but true meaning, is "Give me." It's no different from the stickup man who points a (presumably) loaded gun at you and demands, "Give me all your money!"

This act is not respectful. It is not symbiotic. Rather, it is what biologists call parasitic behavior. And in nature, successful animals -- survivors -- run like hell.

Learn to trust your instincts, or what some people have called, "peasant wisdom." The world is full of stupid people -- after all, that is why the average IQ is 100 and for all you smart bankers and white-collar professionals out there, that means there's someone who's as far below average intelligence as you are above average intelligence.

This means the world is full, chock full, teeming in fact, with some really stupid, dull and boring people.

This is why the lexicon of the upper classes of England -- a declined former superpower from whose aristocracy we can learn much -- includes the word "common" as a pejorative. As in, "that is so common."

But the common people have a nose for who can be trusted. Unlike those of us who are overeducated -- and some who are overmedicated, overtherapied and overindulged -- the commoners have not learned to ignore instincts to indulge an egotistic need to prove their intelligence or affirm their educational, professional or socioeconomic status (the latter really being a form of narcissistic approval-seeking).

This listening to instinct, the survival instinct, explains why many lower-intelligence people survive (a form of success, if survival comes from self-sufficiency instead of dependency) and some lower-intelligence people are far more successful in business than many far more highly-intelligent people. Don't get me wrong; there are many pure frauds and phonies who are in positions of apparent success. But that image of success is transitory and unlikely to be sustainable. Remember, almost all frauds unravel or get discovered, and all frauds have a common core of a person who is a pure fraud at his or her core.

Genuineness, at its core, requires honesty with oneself.

The absence of this trait from your life may explain why you are not successful, why you aren't retaining clients, why you are still stuck in a cubicle, and probably why you're still single (and very likely to remain that way) despite your good looks and superficially charming personality.

The presence of this trait shows why some people will be happy and successful, sometimes despite facing incredible adversity.

In future articles I will expand on this theme to explain how to determine why you aren't successful, and how to change that.
Eric Dixon

Monday, August 12, 2013

Stiglitz's Detroit Bankruptcy Solution: The Road To Serfdom

STIGLITZ: BANKS SHOULD BEAR BURDEN OF DETROIT BANKRUPTCY. Joseph Stiglitz's Monday New York Times op-ed calls for investors and lenders to assume most if not all of the burden of -- that is, the loss from -- Detroit's bankruptcy so that essential municipal obligations, i.e., workers' pension payments and jobs, remain untouched. Stiglitz argues that banks and insurers got their return and now must accept the risk, even the risk of total loss. (In other words, the opposite of the bailouts of AIG, Chrysler, et al. in 2009.)  

Of course, Stiglitz ignores that his proposal would add to creditors a risk for which they did not bargain. Call this the risk of government interference. But unilateral reformation of contracts to allocate a "fair" amount of risk to select parties (which is really a different way of adjusting the risk/return relationship, so you might as well cap their "fair return" at the same time), will cause every party to a contract to think twice to making any investment, loan or transaction. 

As many of us know, reducing the potential return on a given assumed risk reduces the incentive to take any risk. You cannot function in this system, not with your own money, unless you don't mind capital losses by bureaucratic fiat. This is the same type of risk as Powerball -- you can lose everything -- but your upside is limited to what's "fair" and your odds aren't very good either. It's an impotent Powerball.  

As for Stiglitz, the problem is not that he fails to understand this relationship; rather, he very much understands it. This is why arguing or reasoning with people with his perspective is meaningless. This is not a difference of the theory of how risk and reward and economic incentives interact.  The difference is one, a fundamental one, of values.

We need to understand Stiglitz's moral judgment -- that lenders and investors are by definition suspect classes which are "fair game." This is not so much an economics debate as it is one of values. The argument is that it is permissible -- no, it is desirable -- to stick bankers, insurers and investors with losses.  It is their fair and just return, goes the sentiment, to reward them thusly for their untoward desire to make money on an investment.  And the flip side is equally cruel; it's perfectly fine to have these groups lose 100% of their investment.  After all, it's a risk you take with an investment. Of course, it is conveniently ignored -- not because it's not understood but because it is the value -- that the possible return that will be allowed will not adequately compensate you for your risk.

I think we need to understand the goal of this theory.  Discouraging and penalizing investment is not merely the unfortunate collateral result.  I think it is the object of the moral judgments underlying Stiglitz's column.  This is a column that seeks to move us towards a command-and-control economy.  But when it's open season on the capital class, is it any surprise that banks are not lending, even in an era of quantitative easing?  These sentiments will encourage more hoarding, and this is an entirely rational if not foreseeable response.

Wednesday, August 7, 2013

Jersey Shore Is Inflating Home Prices With Government Ripoff

Under the guise of Sandy relief, the State of New Jersey has started taking applications for low and middle-income homebuyers to get up to $50,000 in interest-free forgivable loans to buy perfectly good real estate anywhere in counties which sustained storm damage from last year's Hurricane Sandy.

The state will use up to $25 million in federal funds it recently received for Sandy relief and repair. The money will be used to issue second, or subordinate, mortgages on homes anywhere in Atlantic, Bergen, Cape May, Essex, Hudson, Middlesex, Monmouth, Ocean and Union counties.  This means that if you're poor enough (keep reading), you can buy low-priced property anywhere in a county touching the ocean or one of the flooded rivers (think the Raritan or Passaic Rivers) and get a really good deal.  That property doesn't have to be storm-damaged; it can be on top of the Palisades cliffs or another hilly section miles from any flood zone!

And guess what? You get to have your neighbors pay for it! And there's more --

You do not even have to be a victim of Hurricane Sandy!  You don't have to have lost your home or rental apartment. You don't have to have lost furnishings. You just have to meet the income levels and other requirements.

To qualify, a prospective homebuyer must have an income no greater than 80% of the applicable area median income, a credit score of at least 620 and otherwise qualify for the first mortgage.  The state forgivable mortgage would be a second lien on the property but would be forgiven entirely if the borrower uses the property as his or her primary residence for five years after purchase.  

What this means is the state government -- already billions of dollars in debt -- will now be giving money away to low-income homeowners buying low-priced properties.  Whose values will now spike thanks to the so-called free money, free if you're receiving it.

Of course, if you're middle class or up, you get to pay for this, and sustain your own storm damage and the future risks of further damage. Furthermore, your properties are probably too expensive to benefit at all from this artificial price stimulus at the bottom of the market.

Since the income restriction will put a de facto cap on the value of purchasable properties, it virtually ensures only low-priced properties will be purchased with this assistance. 

This program is being funded in the name of helping storm victims.  Its real impact will be to inflate home prices at the low-end of the market so that low-income homebuyers who do not get the subsidy will be priced out of even the lowest priced homes and condos.  Without a subsidy, the lower and working class home buyer will be priced out of the market.  More brilliance. But this is what passes for "fair" these days.

Monday, August 5, 2013

Will The Fed Declare War...on Homeowners?

The concept of municipalities using their powers of seizure of private property through eminent domain to provide relief to selected "victim" homeowners by seizing and reselling the mortgages on the homes of those underwater borrowers has slowly gained traction.  I have previously criticized the plan in both my July 2012 article and my more recent critique of U.S. Senate candidate Cory Booker's proposal last month.  

Now, other economic commentators are chiming in against the concept.

Jonathan Weil of Bloomberg warns that eminent domain powers may encourage local government graft and new waves of corruption in communities where governments are already somewhat corrupt, systemically or otherwise. 

Jeffrey Dorfman of writes that eminent domain will help a select small group today, but the costs of the program will be borne by all borrowers, everywhere, in the indefinite future. 

This recent Federal Reserve Bank of New York white paper simply ignores the effects of eminent domain on the lending practices of banks. The fact that the New York Fed actually chose to publish this, in and of itself, should be alarming.  It is one thing for the Fed to declare war on savers by imposing de facto negative interest rates on savings accounts.  It is quite another to suggest the Fed will declare war on homeowners.  

Sunday, August 4, 2013

Standard Practice: Feds Allow Informants To Commit Crimes

Prosecutors at all levels (federal or state) use the testimony of informants to investigate and solve crimes and gain convictions at trial.  There is a downside: the informants are most often criminals themselves, and have a character that lends itself to continuing to commit the same or new crimes. But here is a new twist: the federal government is now admitting that it has allowed -- permitted -- many of its informants to commit crimes, and nearly 6,000 in one recent single year.  (See this heavily redacted January 2012 memo listing the total of Tier I and Tier II crimes as 5,658.)

This is NOT necessarily big news.  The federal government for years has permitted informants to engage in various types of what it calls "otherwise illegal activity." The federal government has procedures governing its agents' (sometimes called "handlers") use of informants, and some of this information is even public. This Bush-era manual (signed by former Attorney General Alberto Gonzales in December 2006) is worth a read (specifically pages 5-7, but the entire manual is worth reading).

The federal government -- and the states -- has long if not always had to rely on inside information about how criminal enterprises work. There often is little other way to get this information.  But there are problems.  The credibility of the informants is suspect to begin with, and ongoing criminal activity or even new crimes just makes that informant's testimony that much more suspect.  Remember, the informant is almost always hoping to get a looming prison term reduced or even eliminated entirely.  This is a powerful incentive to say whatever is necessary to get the government to recommend to the sentencing judge a lenient sentence (less time) or even a non-custodial sentence (such as probation or house arrest). (In the federal system, the local U.S. Attorney's Office will customarily issue something called a 5K1.1 letter, in reference to the section of the federal sentencing guidelines that permits a sentencing judge to make a downward departure from the sentence range for the applicable total number of culpability "points" a defendant is determined to have. The government, of course, will be most inclined to make this recommendation if its informant has been most helpful or productive -- and such help or production is best quantified in the number of defendants the informant has fingered, implicated and help result in guilty pleas or convictions.

Clearly, you can see there is a powerful systemic reason to lie.

Perhaps if you want a solution, you have to look towards the staffing of cases and investigations. Perhaps the easiest solution is to increase the manpower of law enforcement agencies, and increase the pay as well so you attract and retain the best.  In a bloated government bureaucracy, perhaps there is no better use of taxpayer dollars and deployment of able human capital than to investigate ongoing crimes, especially if the tradeoff is reduced reliance on the questionable if hardly reliable testimony or other reporting of already-admitted criminals.  That may prove to be a bargain!

Friday, August 2, 2013

Unemployment Situation Persists Despite Data Manipulation

The new Bureau of Labor Statistics employment report holds dire news for Main Street, and may be good news for Wall Street but only for the moment.

The employment rate increased by only approximately 162,000, the smallest gain in four months.  This is anemic by any measure. However, most people will be fooled by only concentrating on the "headline" figure which is the announced unemployment rate.  This "jobless rate" has fallen from 7.5% to 7.4%.  But as some of us have been saying for years, the important data is not the number, but how it is calculated.  

If you think this jobs report is a sign of "economic growth" or a validation of the massive regulatory hit that the Patient Protection and Affordable Care Act (aka, ObamaCare) holds on the nation, go ahead and invest in equities. There are smart investors who will be happy to sell you -- at a price favorable to them, naturally -- what remaining equities they hold.  Losing money as an investor is part of the risk of being either an idiot, to be frank, or having an attention span disorder.

Here are some other conclusions to glean from the report. First, the employment figures for the last two months were adjusted downward by an aggregate of 26,000. Those figures weren't much to brag about, either, so the economy persists -- at best -- at stall speed.  Secondly, the metrics for both average workweek (hours worked per week) and wages per hour are down.

A plane at stall speed risks falling like a stone. Just consider the analogy.

Other interesting factoids:

Here's one to make you question the data. Black unemployment is down 1.1 percent from June to July 2013. That's a huge move. What explains that?  Oh, by the way, Asian unemployment is UP 0.7 percent and Hispanic unemployment is UP 0.3 percent month to month.  Remember, these are estimates from a small sample size.

The number of discouraged workers is estimated to be 15% higher in July 2013 than in July 2012.

So what will you believe? The data? Or your lying eyes?