Sunday, 27 November 2011

Illegal Washing Machines

"How Washington Ruined Your Washing Machine" talks about regulations banning washing machines that cost less but use more electricity:
Efficiency standards for washing machines aren't as well-known as those for light bulbs, which will effectively prohibit 100-watt incandescent bulbs next year. Nor are they the butt of jokes as low-flow toilets are. But in their quiet destruction of a highly affordable, perfectly satisfactory appliance, washer standards demonstrate the harmfulness of the ever-growing body of efficiency mandates.....

Front-loaders meet federal standards more easily than top-loaders. Because they don't fully immerse their laundry loads, they use less hot water and therefore less energy. But, as Americans are increasingly learning, front-loaders are expensive, often have mold problems, and don't let you toss in a wayward sock after they've started.

When the Department of Energy began raising the standard, it promised that "consumers will have the same range of clothes washers as they have today," and cleaning ability wouldn't be changed. That's not how it turned out.

In 2007, after the more stringent rules had kicked in, Consumer Reports noted that some top-loaders were leaving its test swatches "nearly as dirty as they were before washing." "For the first time in years," CR said, "we can't call any washer a Best Buy." Contrast that with the magazine's 1996 report that, "given warm enough water and a good detergent, any washing machine will get clothes clean." Those were the good old days....

Now Congress is at it once again. On March 10, the Senate Energy Committee held hearings on a bill to make efficiency standards even more stringent. The bill claims to implement "national consensus appliance agreements," but those in this consensus are the usual suspects: politicians pushing feel-good generalities, bureaucrats seeking expanded powers, environmentalists with little regard for American pocketbooks, and industries that stand to profit from a de facto ban on low-priced appliances. And there are green tax goodies for manufacturing high-efficiency models—the kind that already give so many tax credits to Whirlpool, for example, that the company will avoid paying taxes on its $619 million profit in 2010.

Amazingly, the consensus also includes so-called consumer groups such as the Consumer Federation of America and Consumers Union. ...

Do these regulations address a market failure? Why would anybody support them if they do not? Should consumers be allowed to buy the old 1996 washing machines?

Proposed New Air Quality Regulations

In "EPA rules could shut 13,000 megawatts of Midwest coal plants," Reuters says that to remain compliant with proposed EPA rules, Midwestern coal-burning electric utilities might have to invest $33 billion on 62,000 of the 70,000 megawatts of generation capacity. One regulation, on reducing sulfur dioxide and nitrogen dioxide, has already been finalized. Mercury reduction is the most important of the new rules.

How can the voters know whether these new rules are a good thing or not? How can you yourself form an opinion? Why would the utilities oppose such regulations, when they will be allowed to raise their rates to match any cost increases?

Monday, 21 November 2011

No Posts Thanksgiving Week

There won't be any posts this week. Week 12 of the blog (the final week) will be the week after Thanksgiving.

Saturday, 12 November 2011

Nevada's New Anti-Foreclosure Law

Foreclosures in Nevada plunged 88% in Nevada in October after a new law was passed, the WSJ says in "Nevada Foreclosure Filings Dry Up After ‘Robo-Signing’ Law":
Nevada’s state Assembly passed a measure that took effect on Oct. 1 designed to crack down on “robo-signing,” where bank employees signed off on huge numbers of legal filings while falsely claiming to have personally reviewed each case. Banks suspended their foreclosure filings one year ago and have gradually restarted them after those and other improper foreclosure-processing practices surfaced....

Real estate agents and housing investors say the law could have unintended consequences if it hinders the ability of the housing market to clear. In hard-hit housing markets like Las Vegas, foreclosures have been among the fastest-selling properties. They accounted for around half of all home sales there during the third quarter, according to SalesTraq, a local real-estate firm....

Banks initiated foreclosures on around 10% of all mortgages that hadn’t made any payments in more than two months, double the historical lows from one year ago. That is still below the average 14% rate for the past decade.

Who gains and who loses? Is the law a good idea? How does this relate to market failure?

The European Sovereign Debt Problem

A syndicated newspaper story, "Euro zone sovereign debt is the new subprime," is the best telling of the current European bank problems that I've seen. Some excerpts:
PARIS — As the bets that European banks made on United States mortgage investments went bust a few years ago, bankers piled into what they saw as a safe refuge: bonds issued by countries in Europe’s seemingly ironclad monetary union.

Now, the political and financial crisis engulfing the Continent has turned much of that European sovereign debt into the latest distressed asset, sending tremors through global financial markets not seen since the demise of the investment bank Lehman Brothers more than three years ago.

This week, shortly after European leaders formally conceded that Greece could not pay its debts and forced banks to accept losses, the shock waves reached Italy, the third-largest economy in the euro zone after France and Germany. And despite frantic efforts by politicians to contain the damage, market analysts said that France, one of the strongest countries in the euro zone, may soon feel the impact.

“When people started buying more European sovereign debt, there was not a cloud in the sky,” said Yannis Stournaras, director of the Foundation for Economic and Industrial Research, based in Athens. Now, he said, “This crisis is going to last because the perceptions of risk have changed dramatically.”

European banks face tens and possibly hundreds of billions of dollars in losses on loans to nations that use the euro. Worried about even greater losses if the crisis worsens, the banks have been scrambling to reduce their holdings of an investment that, like triple-A-rated subprime mortgage bonds, was once thought to be bulletproof....

How European sovereign debt became the new subprime is a story with many culprits, including governments that borrowed beyond their means, regulators who permitted banks to treat the bonds as risk-free and investors who for too long did not make much of a distinction between the bonds of troubled economies like Greece and Italy and those issued by the rock-solid Germany....

Some regulators realized that allowing banks to set aside no capital for sovereign defaults could be a problem and moved to address it in a 2006 accord known as Basel 2. They mandated that big, complex banks use their own models to determine if individual countries were at risk and hold some capital against them. But the European Union never enforced the stiffer regime. And amid the subprime mortgage crisis, Europe’s regulators added to the problem by demanding that banks hold more safe assets, much of it sovereign debt.

As a result, banks were not discouraged from placing their most liquid assets “into the worst possible government debt,” Achim Kassow, a former Commerzbank board member, wrote in a study published by the European Parliament.

In what ways is this like the subprime debt crisis? Who is to blame?

Monday, 7 November 2011

Disability Insurance as a Fringe Benefit

The WSJ asks: "Is Disability Coverage a Buy?"
Some 47% of companies required employees to pay all or part of long-term disability insurance in 2011, up from 41% in 2007, according to a survey of close to 2,000 plans by benefits consultant Aon Hewitt. For the most part, companies are still footing the full bill for short-term disability insurance, which typically covers workers' pay for up to six months.

Why would more employers cover short-term disability than long-term?

Sunday, 6 November 2011

Mandates in Health Insurance Policies

The Wall Street Journal has an editorial last week on "New York's Mandate Disorder"
On Tuesday Governor Andrew Cuomo signed a bill that will require Empire State insurance companies to cover autism, including screening and a variety of treatments. Mr. Cuomo called it "inexcusable that financial constraints would stand in the way of a brighter future for those affected by this disorder." ...

The economics of mandates are simple: Benefits aren't free, and their costs will be built into insurance premiums. If the government requires insurers to, say, allow "children" as old as age 26 to remain on a family plan, the plan will be more expensive. This is especially true for autism, where therapy can cost as much as $72,000 annually and even $67,000 for a moderate case, according to a study by the Harvard School of Public Health.

The academic rule of thumb is that the average mandate increases premiums by 0.5%, which doesn't sound like much except that states usually go in for dozens. New York has more than 50, which means premiums are at least 20% more expensive than they might be if individuals and small businesses were allowed to make the cost-benefit tradeoffs for themselves. Premiums in New York are roughly twice the national average.

Since the worst of New York's coverage and pricing rules passed in 1994, the individual market has contracted by 96%. Research in 2009 by University of Minnesota economist Stephen Parente and Tarren Bragdon of the Manhattan Institute found that 36% of the New York uninsured would have coverage today if state regulations were merely in line with the national trend.

New York does not say that a company has to provide insurance for employees, just that any insurance company operating in New York must provide coverage for autism and other specific things. Should New York have any such mandates, or should it let the marketplace decide what insurance is offered?

Tuesday, 1 November 2011

Using Credit Histories for Employment

The Wall Street Journal story "Next Frontier in Credit Scores: Predicting Personal Behavior," tells how credit report companies are developing new numerical predictors. The company Fair Isaac developed the FICO score which is a standard predictor of whether someone will repay loans. They are now developing products such as the Medical Adherence Score that tries to predict whether someone will take the pills they've been described without needing a reminder. The data collected for one purpose are increasing used for others. The story says:
About 60% of employers check credit histories of some or all prospective hires, according to a 2010 survey by the Society of Human Resource Management....

A credit history may have hurt Deborah Aston, who managed the city-owned parking lot at the Eugene, Ore., airport from 2006 to 2010, after the city hired a new company, Republic Parking System, to run the lot. Republic required a background check for employees who wanted to keep their jobs.

Ms. Aston, who had filed for bankruptcy in 2009, wasn't re-hired. She said a Republic manager initially cited her bankruptcy filing, then later told her she had a poor attitude. She filed a complaint under an Oregon law that took effect in July 2010, limiting employers' use of credit information.

Should companies be allowed to use credit histories in deciding which job candidate to hire?

Sunday, 30 October 2011

Which Loans Should Be Paid Off First?

From an interview with Professor Dan Ariely of Duke:

ARIELY:Imagine you have two credit card debts, one is for $10,000, one is for $4,000. The one that is for $10,00 you're paying 10 percent interest rate, the one that is $4,000 you pay 4 percent interest rate. Which one would you pay first?

Ryssdal: I'm going to pay down the $10,000 one because it's got the higher interest rate, and it's the larger principle.

ARIELY: That's right. And it seems quite trivial that that's what people should do.

Ryssdal: All right, just for the record I think that's the first time in one of your hypothetical studies that I've actually gotten the right answer. I'm just saying. Anyway, go ahead.

ARIELY: So it sounded quite a simple problem to solve. And we assumed initially that people would just get it right, but nevertheless we did an experiment. We gave people six different loans, that's varied on how much money they owed, and how big the loan was, and what was the interest rate. And people played this game over time, with 36 periods. And what we saw was that people overemphasized closing loans. So if you had four loans, and you could put some money into closing one of them, this was too tempting for people, and they did it very often. And they did it instead of putting the money where it could work the best.

Why do you think people don't reduce their high-interest loans first?