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02/07/2010

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Enrique Armijo

Some states require the physical presence of an attorney or delegate at residential real estate closings. (In the case of North Carolina, where I am a member of the bar, this is accomplished through attorney professional responsibility and unauthorized practice rules.) If we stipulate that the consumer competence problem is a real one, could one intermediate solution less costly than a federal CFPA be for states to impose similar representation requirements on borrowers at the promissory note-signing stage of the purchase process?

Some might complain that this would impose an additional homebuying cost on those least likely to afford it, but I'd have to think that a market for low-cost home loan legal advice would arise (I think Prof. Becker would agree). And those buyers who don't lack for competence and understanding on the borrowing end would choose the best-matched mortgage product on their own, well in advance of hiring the lawyer, so they could keep their legal expenses to a minimum.

For no other reason, this proposal might ensure that a less-than-"competent" homebuyer could have someone explain to them the ramifications of certain nonconventional mortgage products before signing the note.

And one more thought - haven't some of these consumer competence issues been mooted, at least for the time being and in the residential real estate market, by the financial crisis itself? I imagine that not too many prospective buyers are now being steered toward adjustable 2/5 and 1/6yr ARMs, interest-payment-only ARMs, mortage/home equity combos, and all of the other nonconventional products that were pushed on me and my wife when we bought our first home back in 2001. And once the bubble burst, the number of first-time aspiring home-flippers in high-default states like FL and CA plummeted, which reduced the pool of prospective homebuyers lacking the necessary "competence." (As Judge Posner has pointed out, it was entirely rational for buyers to jump on the home buying bandwagon, given the potential returns the bubble's expansion promised. With no bubble, those buyers are all out of the market.) Both the definition of "eligible buyer" and the range of financing options therefore seem to have narrowed, and the 30yr/20% down mortage we wanted (and finally got, after fending off all of the aforementioned steering) may now be the lender's first choice as well as the borrower's.

jimbino

If the gummint were really interested in curing the stupidity of the American people, it would have to start with advisories against religion and other superstitions, including "sanctity of marriage," followed by advisories against voluntary insurance of all kinds.

Nothing is more non-sensical than those. Indeed, sex (kissing) and owning pets like cats and dogs would be proper subjects of advisories as well, since a plethora of deadly and debilitating diseases are transmitted by them as well. Unlike genetic and environmental illnesses, they can be easily avoided by an educated public.

Obesity, on the other hand, is not easily avoided, being part genetic and part a product of poverty.

Indy

There's an important corollary - relevant to US health-care-reform efforts - to the statement that American obesity rates are significantly higher than in other developed countries.

One often hears the statement that "US real per-capita health spending is much higher than in any other country, and yet our average lifespan is no greater. *We don't get anything for our extra spending!*"

But that statement contains a logical error because "longevity" is not the proper measure of what one gets out of health-care spending. "Maintenance costs" are a more apt analogy. Imagine two individuals who buy identical automobiles. One drives sensibly and conducts routine oil changes, while the other drives recklessly, and perform no regular care on the vehicle, crashes often, and occasionally has to spend significant amounts in repairs.

Now, if both cars last 15 years, but the reckless driver spent twice as much on maintenance and repairs as the safe one over that time, it would be ridiculous for him to say, "Well, I spend twice as much as that guy over there, but our cars lasted for the same amount of time, so *I didn't get anything for my extra spending!*"

What he got was 15 years, where his choices at an equivalent level of lifetime spending would have left him with significantly less longevity.

I think the American health-care expenditure example is analogous. We drive our bodies more recklessly on average, of which our obesity rate is a symptom, and a lot of our "extra" spending may be what it medically costs (in any country) to preserve the longevity of people with unhealthy lifestyles.

This was a principle reason I was highly skeptical on the administration's claim to be able to "bend the curve" in health-care outlays through comparative-effectiveness and best-practices research because, after all, "Other countries with state-run plans are able to spend less than we are, so there's no reason our own central planners shouldn't be able to achieve similar results".

But there is a reason - that reason is Americans cost more to keep alive. And if we can't lower those costs or change habits, and we accept collective responsibility for the provision of all medical services - we will quickly go bankrupt.

We might anyway. Time will tell.

Peter Pearson

So, to put it in less euphonious terms, first you compel me to pay my neighbor's medical bills, and then, because his obesity now has externalities, you tax my ice cream to control his weight. Surely there's a better way.

N.E.H.

This sounds like the arguments used against the creation of the Food & Drug Administraion and other consumer protection groups like the Dep't. of Agriculture. "Why do we need an Agency that regulates Food and Drugs? Can't people determine for themselves when food is rotten or contaminted and drugs like Laudanum or Dr. John's Miracle Medical Elixr are worthless or downright dangerous?"

As for regulating and controlling the Financial and Commercial Industries in the interest of the Public Welfare; the Creators of those toxic Finacial Instruments and other obtuse, exotic, and downright bizarre Financial instruments
which have been the bane of the American and World Economy as of late; the creators, even have no idea of what they are, how they work (if they work at all) and their impact on the Public Welfare. And you want the general public to fend for themselves? Talk about legitimizing "pigs in a poke", "shell games", "ponzi schemes" and other bizzare business practices as the Hallmark of World Economic Order and Enterprise.

No wonder we have economic problems we can't seem to get straightened out.

N.E.H.

Now..., in terms of regulation and control, of basic health care reform and obesity, there has to be a two pronged approach to the solution of the problem. That is, obesity has two components of the problem. Caloric Intake and Caloric Expenditure. By establishing Pigouvian Taxes and the like to drive the cost of consumables up and reduce consumption (based on the causal aspect of increased cost - less demand) and at the same time, reduce overall medical expenses for the problems caused by obesity; will in all probability not be a fully effective counter measure because of the second prong of the problem. Caloric Expenditure.

If an obesity solution is to be developed, the solution must solve both prongs of the problem, Caloric intake and Caloric expenditure. Driving food costs up will drive down consumption. The other solution that must be incorporated is the increase of Caloric Expenditure and that can only be achieved by a dramatic increase in physical activity. In other words, get the kids out of in front of the TV, Videos, Computers, Game boys and other sedentary activites and outside where they can walk, run, jump, swim, bicycle and participate in any and all types of physical activity.

e cigarette

Regulation should only be enforced on advertisements.

kevinearick

Government works for capital. Those who join capital under the umbrella of government necessarily become wards of government, a ward of capital, with the associated exponential opportunity costs. Those costs have now caught up to capital.

Subsidizing consumer decisions results in greater and greater subsidies, which sink the economy. The underlying problem is lack of transparency, encouraged by the worst culprit, the law, which ensures that system errors are assigned to individuals, so the system is never corrected, and losses are assigned to the taxpayer. Now the system is bankrupt, and capital is trying to escape. Capital is in crisis because it has no escape. All it can do is continually sacrifice parts as the implosive pressure increases.

Government, non-profits, and union hierarchy all work for capital. Capital gets 49% of the economy, and unprotected labor gets 51%. Regardless of the nonsensical misdirection, capital has a choice; it can increase the return to unprotected labor, decrease asset prices, or a combination of the two to get the 49 and 51 numbers. The amount of pain to capital and all its tentacles depends on capital. Everything else is misdirection.

Capital will continue to sink until it jettisons family law, which shorts the articulating mechanism between natural and government systems. Without durable new family formation, health, there is no economy, and legacy systems can only liquidate.

The only difference between this cycle and every other cycle is global communications, with several billion people watching the process, and 100s of cultures cross-checking the data. Capital is doing what is always does, trying to prove that it does not need small labor. It chose of its own free will to jump into that quicksand.

Placing an unbearable burden of controlling financial pyramids between producers and consumers, and then telling the economic slaves that they should get more nutritional food is a bit disingenuous. Leave it to the law to address symptoms for profit, and never the underlying cause. It wouldn't be quite so bad if doctors had not followed suit, along with the university system.

Every so often, the middle class needs to be reminded to keep its distance from capital. Capital creates wards of government, through family law, then argues that they need a nanny, government, a self-reinforcing system. Where exactly is family law listed as a power bequeathed by the people to government under the constitution? Oh, that's right, a hand full of people paid for by capital created that one out of thin air.

Real tax receipts will continue to fall, regardless of rates, social demand will continue to increase, regardless of legislative decree, and infinite monetary expansion to continue issuing the checks will end as it always ends, badly.

If you have an economic motor that will pull that $500 Trillion in global unfunded liabilities, you might want to present it soon. Biofuel, solar, wind, and, now, trains, are not going to get it, not by a long shot.

Tamara

Maybe profesor Becker could write a post explaning to us his views on the obesity issue with greater detail. As someone who is not american and lives in Mexico, a country with similar health problems among its population, Im aware that a lot americans are overweight. I dont consider that the goverment should be telling people how, what and how much to eat. Profesor Becker is looking at this problem as a trade off between a) becoming obese and b)paying less for food. Although I love to see economics everywhere it seems to me that this problem is more cultural and social than economical but I understand about the effects, specialy on budget.
But just take a look at tv programs, video games and so on. Kids dont play anymore so they are not use to physical activities and parents are too busy making more money to buy that big screen tv to watch football on saturdays, so they cant or dont want to lose their afternoon taking kids to play ball.Who wants to go outside with that shiny sun and clean air to ride around in a bike when you have wi fit at home where you dont need to talk or see anyone else. Maybe send a twitter about wanting to go outside XD. Well, I may have gone on a tangent there but its, sadly,truth.
Goverment in Mexico has something call PROFECO that is supposed to watch for the consumer safety but we havent gone as far as saying consumers are dumb...of course, PROFECO doesnt work. It just makes a bigger goverment budget.

kevinearick

Production & Consumption

Economic profit results when the SAME ACTION creates increased return and decreased cost. Only you can decide the value of return and cost for you. Over time, monetary (and fiscal) policy is self-correcting. Don’t fight it; ignore it.

Life can be extremely unfair in the short term, but it is extremely fair over the long term, because life is a distribution of unpredictable events. Don’t get hung up on the extremes. Set yourself up to be patient; that is the key to investing, at every level.

Don’t let the accountants fool you into letting the lawyers put a gun to your head. Returns and costs are not separable, and any law that attempts to violate that law will be overturn in due course. The law is a tiny spec in the universe. Productive habits always prevail.

Money is nothing more than a communication tool, a poor one at that when its definition is left in the hands of a few. The difference between capitalism, communism, and socialism are negligible compared to any one of the three and democracy.

Legal training in and of itself is less than useless. Combined with productive capacity, it is invaluable. If you must choose, choose the latter, and leave the Court to die of its own volition.

Give unto Caesar that which is Caesar’s in the short term, and always bet on democracy long term.

Ken Arromdee

Taxing people to stop a bad behavior creates perverse incentives where it's in the government's interest that the bad behavior not stop because it causes a loss of tax revenue. At a minimum, if the tax actually does succeed in reducing the behavior, the government will end up raising the tax higher to make up for the "lost revenue" that it's now addicted to. If the behavior stops entirely, the tax will be moved to some similar target--it's never going to go away just because the behavior does, so you just raised taxes in general.

Such taxes also have a way of expanding far beyond their initial mandate, for reasons far beyond their initial reasons. It might become a general public health tax, or a general consumer product tax, but it's guaranteed that a calorie tax won't be limited to calories.

Also, I have a modest proposal: along with video games, put a tax on movies. Just like people who play video games, people who watch movies are not out there exercising. In fact, we could add books to the tax. Of course, the point is that you can't just put a tax on video games on the grounds that someone playing them isn't exercising--you also have unstated premises about video games being less valuable than books and movies, premises which are necessary to your argument but which you may have trouble defending.

Brian Davis, Austin, TX

I hate to go against something Prof. Warren so strongly favors, but my seasoned extinct tells me the consumer financial protection agency is as much a financial services reform bill-breaker in Congress as the Medicaid backroom deals were to healthcare. Real estate law is State law, not national law. Contract law and negotiable instruments law are State law. Mortgage and lien law is State law. And the States are all over the map on land titles, inheritance and succession, rights upon marriage and divorce, a mortgage as legal title versus naked security for a debt, exemptions of property from judgment creditor and bankruptcy claims, private non-judicial foreclosures versus judicial-only, and whether a foreclosing creditor can sue the debtor for a deficiency. The law that affects consumer interests arising from these things has already been "federalized" to the limits of practicability - interest rates and fees, RESPA disclosures, TILA disclosures, FCRA recordkeeping and scoring, HOEPA protection against predatory lenders, and FDCPA protection from abusive debt collectors. If I were king I'd forbid "home equity" lending, securitization of residential mortgage loans, and adjustable rate homestead purchase money notes. That used to be the law in many States. Unsexy maybe, but it kept many families in shelter by keeping the deal simple. And the bank never had to puzzle even in the worst of downturns whether X's simple-interest loan was current or delinquent.

Joao Santa-Rita

Being fat is a habit. It will be easier to enforce good habits than to tax bad ones. We need to be proactive and stop children from getting fat in the first place. Mandatory physical exercise should extend through all four years of high school. This is even crazier than a fat tax, but I propose that every citizen be required to pass basis physical fitness test in order to get a driver's license. Grandfather everyone in, and make new 16 year old applicants pass a fitness test. Give kids a goal to work towards, and by the time they reach it, they will already have good habits. Seriously though, the processed food tax sounds pretty good to me. However, I prefer a solution that puts the burden on the individuals to improve themselves, rather than a more paternalistic option.

N.E.H.

As for State law being Sovereign... Well - yes and no. It's all tied up in Constitutional Law. Specfically, the applicability of Federal Law trumping State Law via the 14th Amend. not too mention the 13th, 15th, 18th, 19th, 23rd, 24th, 26th Amendments. As for that odd case of "City of Boerne vs Flores-1997?" it just threw in the principle of "Congruency & Proportionality".

State's Rights went out with Secesionism in 1865. Unless of course, you happen too be a born again Secesh.

Randy

Give kids a goal to work towards, and by the time they reach it, they will already have good habits. Seriously though, the processed food tax sounds pretty good to me. However, I prefer a solution that puts the burden on the individuals to improve themselves, rather than a more paternalistic option.

N.E.H.

In a perfect world, the individual might pickup the burden, but the world and humanity are less than perfect. Hence, the rise of Behaivorism and the rise of Positive and Negative Sanctions. Negative Pigouvian Tax, increased food cost- Negative Sanctions. Positive Pigouvian Tax, tax cut for proper body mass index level- Positive Sanction.

anonymous

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Nick

The externality of obesity is actually surprisingly low when all costs/benefits are netted. See Jeff Strnad, Conceptualizing the 'Fat Tax': The Role of Food Taxes in Developed Economies. 78 Southern California Law Review 1221.

Paul Rothstein

A different scenario is also plausible, and it leaves a little more room for a CFPA. In this scenario, the foolishness was heterogeneous. Some people were fooled by a bubble, like the people who bought the high risk Bear-Sterns fund that collapsed in summer 2007. Others didn’t worry about a bubble because they thought they were hedged through credit default swaps. That almost turned into a second disaster because no one knew the real exposure of the issuers like AIG. Send in the Feds, which gave us Maiden Lane III. Still others didn’t worry because their exposure was so brief (sub-prime originators), which is a kind of hedge. Others didn’t care because they made so much money during the boom that they didn’t mind losing whatever was on the table when the collapse, which they knew was eventually coming, came. Lucian Bebchuk nicely documents the money those folks made in a recent paper discussed here.

This scenario disputes the Posner-Becker “state of the world” which implies there was only one rational thing for everyone to do, and into this state of the world we put the homeowners. They are also heterogeneous. The “flippers” for example are another type of investor, some made money and other did not, some hedged and some did not. A CFPA is not for them.

A CFPA might have helped those who were risk averse and were looking for a home to live in for a long time. A CFPA might have explained to these folks that they, unlike many others, would not be hedged, and so they would be in big trouble if housing prices stopped rising. This might have gotten through to the risk averse. At least it would have been a different message than they were getting, e.g., "you are a sucker if you miss this." An ideal CFPA would have gone even further, pointing out "gloomy" facts everyone knew at the time, e.g., incomes were rising much more slowly than housing prices and this could not go on. These warnings--and their rational basis--might have gotten the attention of these homeowners and warned them away from option arms and the like.

Even apart from the bubble scenario one can ask whether a CFPA would take disclosures more seriously (i.e., do consumer testing) than the existing regulators. Becker-Posner argue as if the only rationale for a CFPA is to help homeowners avoid being injured by a bubble. That is not the only real rationale even if it was offered as the political rationale. The claim a CFPA will hurt consumers has to take seriously the extent they are being hurt right now and whether net benefits are higher.

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