Category: Law
Kartik Athreya on making bankruptcy law tougher
Everyone’s responded to the guy’s essay on blogging, but what about his research? I gave it a peek and found the following opinion piece on bankruptcy.
The law says that people have a right to avoid unsecured debts by seeking bankruptcy protection. Creditors know that everybody they lend to has this option. It’s expensive to borrow in this kind of world because lenders must charge extra for the very real possibility that they won’t be able to fully collect. In effect, bankruptcy law disables those who possess few assets from making commitments to fully repay debts.
Why do we foist this “protection” on all households? If we lived in a society that allowed borrowing but forbade defaulting under any circumstances (an admittedly extreme and unrealistic scenario) it would become significantly cheaper to borrow. In the models I’ve looked at, the gains accruing per U.S. household would be equivalent to as much as $280 a year. These gains encompass everything from cheaper borrowing costs to eliminating after-the-fact punishments like stigma.
He concludes:
…I believe we should offer some form of bankruptcy, albeit with strings attached. Means-testing, while piecemeal, seems like a small step in the right direction…
His research page is here and it includes many articles on bankruptcy. He argues here for harsh default penalties, again to lower the cost of credit. For a contrasting perspective, defending relative leniency, here is Megan McArdle.
Who’s preposterous?
I don't usually pull out media quotes to mock them, but this one caught my eye. There is a new book out — Lucy — and it is the (fictional) story of a woman who is part human, part bonobo chimpanzee, but who looks quite human. Michiko Kakutani wrote this criticism about the story:
It seems preposterous that the United States government or its agents would throw this teenage girl into a cage on an Air Force base.
Huh? If the point is that they would sooner use a Navy base, that can be granted. More generally, don't we live in a world where the U.S. government tries to assassinate some of its citizens, arbitrarily detains and holds many people — even innocent people –, and until recently tortured many people, and how about the still-legal Judge Rotenberg Center? As an aside, how do we treat full-blooded chimpanzees?
Kakutani's sentence made me want to buy the book.
Waterless Urinals
I found this sign over the waterless urinal at the Woods Hole Oceanographic Institute (where I am hanging out this summer) difficult to parse (or follow).
Ordinarily I wouldn't devote a blog post to this kind of thing but believe it or not, this month's Wired has an excellent article on the science, economics and considerable politics of waterless urinals. Here's one bit:
Plumbing codes never contemplated a urinal without water. As a result, Falcon’s fixtures couldn’t be installed legally in most parts of the country. Krug assumed it would be a routine matter to amend the model codes on which most state and city codes are based, but Massey and other plumbers began to argue vehemently against it. The reason the urinal hadn’t changed in decades was because it worked, they argued. Urine could be dangerous, Massey said, and the urinal was not something to trifle with. As a result, in 2003 the organizations that administer the two dominant model codes in the US rejected Falcon’s request to permit installation of waterless urinals. “The plumbers blindsided us,” Krug says. “We didn’t understand what we were up against.”
One thing that does annoy me is the claim that these urinals "save" 40,000 thousand gallons of water a year. Water is not an endangered species. With local exceptions, water is a renewable resource and in plentiful supply. At the average U.S. price, you can buy 40,000 gallons of water for about $80.
Le Club Pigou?
French tourists who run into trouble after taking unnecessary risks overseas could have to pay for their rescue and repatriation under legislation debated today by MPs in Paris.
The proposed law, put forward by a government tired of having to foot the bill, would enable the state to demand reimbursement for "all or part of the costs … of foreign rescue operations" if it deems that travellers had ventured knowingly and without "legitimate motive" into risky territory.
According to the foreign ministry, the bill is an attempt to encourage a "culture of responsibility" among French travellers at a time of frequent kidnappings, hijackings and civil instability across the world.
Germany already does this to some extent; for instance a German backpacker rescued in Colombia had to pay twelve thousand euros to cover the cost of her helicopter trip. The full story is here.
How much do Somali pirates earn?
I am unsure of the generality of the sources here, but the author — Jay Bahadur — is writing a book on the topic and at the very least his investigation sounds serious:
The figures debunk the myth that piracy turns the average Somali teenager into a millionaire overnight. Those at the bottom of the pyramid barely made what is considered a living wage in the western world. Each holder would have spent roughly two-thirds of his time, or 1,150 hours, on board the Victoria during its 72 days at Eyl, earning an hourly wage of $10.43. The head chef and sous-chef would have earned $11.57 and $5.21 an hour, respectively.
Even the higher payout earned by the attackers seems much less appealing when one considers the risks involved: the moment he stepped into a pirate skiff, an attacker accepted a 1-2 per cent chance of being killed, a 0.5-1 per cent chance of being wounded and a 5-6 per cent chance of being captured and jailed abroad. By comparison, the deadliest civilian occupation in the US, that of the king-crab fisherman, has an on-the-job fatality rate of about 400 per 100,000, or 0.4 per cent.
As in any pyramid scheme, the clear winner was the man on the top. Computer [a man's name] was responsible for supplying start-up capital worth roughly $40,000, which went towards the attack boat, outboard motors, weapons, food and fuel. For this investment he received half of the total ransom, or $900,000. After subtracting the operating expenses of $230,000 that the group incurred during the Victoria’s captivity in Eyl, Computer’s return on investment would have been an enviable 1,600 per cent.
There is a very good chart on the right-hand side bar of the article.
The Haitian social fabric is fraying
You may recall that the immediate aftermath of the earthquake brought relatively high levels of order and even a decline in crime. Yet norms are evolving to meet the new and desperate environment which most Haitians face.
The Haitians are now figuring out how to rob and murder visiting Americans; the body count is suddenly at four. The level of rape is escalating.
The Haitian Presidential election is now set for November 28, and that is likely to bring a good amount of violence. And since so many voting records have been destroyed, it will be difficult to limit fraud, accusations of fraud, and the winner may not be seen as legitimate.
One simple hypothesis is that people behave fairly calmly, and even passively, during shocking experiences and in their immediate aftermath. The medium-term response can be quite different.
Most people are ignoring the Haitian situation, as they have mistakenly concluded it has stabilized. It has not. You still have a milion and a half people, in a basically untenable situation, more or less homeless, with the heart of the country destroyed and not much ongoing reconstruction or reform.
Barbados vs. Grenada, the demand for own-goals, 1994
There was an unusual match between Barbados and Grenada.
Grenada went into the match with a superior goal difference, meaning that Barbados needed to win by two goals to progress to the finals. The trouble was caused by two things. First, unlike most group stages in football competitions, the organizers had deemed that all games must have a winner. All games drawn over 90 minutes would go to sudden death extra time. Secondly and most importantly, there was an unusual rule which stated that in the event of a game going to sudden death extra time the goal would count double, meaning that the winner would be awarded a two goal victory.
Barbados was leading 2-0 until the 83rd minute, when Grenada scored, making it 2-1. Approaching the dying moments, the Barbadians realized they had no chance of scoring past Grenada's mass defense, so they deliberately scored an own goal to tie the game at 2-2. This would send the game into extra time and give them another half hour to break down the defense. The Grenadians realized what was happening and attempted to score an own goal as well, which would put Barbados back in front by one goal and would eliminate Barbados from the competition.
However, the Barbados players started defending their opposition's goal to prevent them from doing this, and during the game's last five minutes, the fans were treated to the incredible sight of Grenada trying to score in either goal. Barbados also defended both ends of the pitch, and held off Grenada for the final five minutes, sending the game into extra time. In extra time, Barbados notched the game-winner, and, according to the rules, was awarded a 4-2 victory, which put them through to the next round.
The full story is here and I thank Solomon Gold for the pointer. Angus also blogged this story, with video evidence as well.
Disclosure for airbrushed models in Israel?
A bill (note: linked site is written in Hebrew) submitted to Israel's parliament, the Knesset, by lawmaker Rachel Adatto — a doctor who devoted much of her career to women's health issues — pushed for legislation to keep underweight models out of commercials; to prohibit modeling agencies from employing them; and to bar advertising agencies and media from airbrushing models into stick figures.
The bill has since been modified to allow for airbrushing, provided it is identified as such in a transparent manner. The original pointer comes from Berliner Morgenpost.
Greece fact of the day
I had never thought about this before, but once you ponder all of those islands, relatively close to Africa and the Middle East, it makes sense:
The vast majority of all illegal immigrants detected attempting to enter the 25-nation EU do so from Greece. The bloc's southernmost member accounted for 75 per cent of all attempted illegal border crossings in 2009 and 88 per cent in the first part of 2010…
Wisdom on financial regulation
As a hedge funder, I'd love to see banks' proprietary trading limited (I hate competition), and it is certainly conceivable that a bank could blow itself up through unwise prop activity. Yet the vast majority of failed and nearly failed banks didn't have meaningful prop books. They made foolish decisions in ordinary lending activity.
That's HFM, who apparently is anonymous. The post is interesting throughout and hat tip goes to Interfluidity at Twitter.
Can we expect real reform from Basel III?
You can be for or against these interventions, but I find it amazing (though not surprising) that the biggest financial crash in recent history hasn't so much changed the political equilibrium. Here is a recent report about interest group machinations behind the process of financial regulation:
Economic growth in the eurozone, the US and Japan will be cut by three percentage points between now and 2015 if current proposals to force banks to hold more capital and liquid assets go forward unchanged, the world’s leading banking industry group warned on Thursday.
As a result, 9.7m fewer jobs would be created in those areas over the period, according to an impact assessment issued by the Institute of International Finance at a meeting in Vienna.
The group is pushing hard for the Basel Committee on Banking Supervision to rewrite or at least delay implementation of the proposals, known as Basel III, which are slated to be voted on later this year.
You will recall that the Obama administration had been claiming that Basel III will be responsible for the single most important piece of financial reform, namely tighter general restrictions on financial institution leverage. Might this slip away? Do you still hear serious talk of reforming the mortgage agencies? When the choice is "jobs and homes before the next election" vs. "limiting a small probability of extreme tail risk," guess which one wins out?
Concerning BP: very good sentences
And if we aren’t careful, we will encourage companies that have enough money for collection to leave the drilling to those that don’t.
That's from Richard Thaler and the entire column is worth reading. Here is his wise conclusion:
We are left in a difficult place. Neither the private nor the public sector seems up to handling these kinds of problems. And we can’t simply wait for the next disaster, because, as people might say if they had to use G-rated language, stuff happens.
GMOs come to Europe, sort of
The potato, the first genetically engineered organism to be allowed in the European Union in more than a decade, was planted on 16 acres of land on the fringes of this town in southwestern Sweden, after a quarter century of bureaucratic wrangling.
Although inedible, Amflora is a kind of miracle potato on two counts: for one, there is its starch content, which makes it precious to the starch industry, a major employer in Sweden; and then there is its feisty resilience in surviving some 25 years of tests, regulations, rules, ordinances and applications for approval by both Sweden and the European Union, of which Sweden is a member.
Here is more information. I had not know that GMOs were given partial European clearance in 2004, though they still face very stringent regulatory obstacles.
FDA Overreach
From the Washington Post:
The Food and Drug Administration on Friday ordered five companies that offer genome-sequencing tests to consumers, or that provide the scientific services for them, to prove the validity of such products.
The FDA said the tests, which scan a person's DNA for gene variants associated with specific diseases, are medical devices requiring the agency's approval.
The ability of genetic tests to predict diseases is currently limited; if the FDA were simply to require firms to acknowledge this point, say with a clear statement of probabilities, that would be one thing (although this task is better met by the FTC under advertising regulation). But the FDA is brazenly overreaching in trying to regulate genetic tests as medical devices. First, there is no question that these tests are safe–safer than brushing your teeth!–and also effective in identifying genetic markers. Thus, there is no medical reason whatsoever for regulation.
Moreover, genetic tests provide information, personal information about our bodies and our selves. The FDA has no standing to interfere with the provision of such information.
Consider, I swab the inside of my cheek and send the sample to a firm. The idea that the FDA can rule on what the firm can and cannot tell me about my own genes is absurd–it's no different than the FDA trying to regulate what my doctor can tell me after a physical examination or what my optometrist can tell me after an eye examination (Please read the first line. "G T A C C A…").
The idea that the FDA can regulate and control what individuals may learn about their own bodies is deeply offensive and, in my view, plainly unconstitutional.
The Opaque Society
In response to a flood of Facebook and YouTube videos that depict police abuse, a new trend in law enforcement is gaining popularity. In at least three states, it is now illegal to record any on-duty police officer.
More here.
Hat tip: Robin Hanson.
Addendum: Tom Bell offers legal commentary and an interesting idea, a bumper sticker which serves as legal warning.