Bits & Pieces (Thursday Night Open Mic)

Real-life superhero Phoenix Jones arrested for being over-enthusiastic with pepper spray.

In the mid-80s, Mick Fleetwood of Fleetwood Mac came up with a solo album. I loved the one video released from it, and the song, but it’s almost impossible to find. But, here it is.

For the video shoot, Mick Fleetwood shaved his beard. Probably shouldn’t have done that. Fans of Lindsey Buckingham will note that the video sounds very much like Lindsey Buckingham, both in terms of the singing and the writing.

I had a friend who was a musician during the 80s (he’s still a musician, but the story is from the 80s). He wrote a song called “Wrestling with Girls” that got picked up by local wrestler, Jerry “The King” Lawler. Amazingly, I was able to find it (or a segment featuring it, done on Jerry “The King” Lawler’s 80s talkshow) on YouTube. YouTube, is there anything you can’t do? The song starts at 5:56 . . .

What does this have to do with Mick Fleetwood’s “I Want You Back” sounding more like Lindsey Buckingham than Mick Fleetwood? Well, I had a copy of this song before Lawler decided he wanted to release it as a single. With the exception of the announcer segment, which is clearly Jerry Lawler, the song sounds identical. So imagine my youthful surprise when I heard the version with Jerry Lawler . . . and it was still Steve Cox. I think Jerry Lawler can be heard, off-tune, far in the background, if you listen closely.

A wrestler faking singing a song. Can you imagine it?

If you watch any of the leading in video (I did, for the first time since 1986), you’ll notice Steve was a uber-geek. I don’t remember him being such a big geek. Interesting how our perspectives change over time.

Anyway, for evidence that folks move in different directions as time passes, take a look at some of the traditional native American flute playing Steve was doing about 7 years ago as Voice of Golden Eagle. Same guy, extremely different vibe.

It’s really solid. “That was sunset song.”

— KW

The Cowled One Percent

Tort Reform Shmort Reform

One of the problems in discussing tort reform is that there seems to be a lack of agreement on what we are trying to accomplish. Evaluating the success, or lack thereof, of tort reform varies depending on whether you think the goal is to lower malpractice premiums for physicians (not very good at it), stop frivolous lawsuits (OK at it), lower the cost of health care (not very good at it), prevent outrageous verdicts (good at it but other reform could do this too), line the pockets of insurance companies (pretty good at it), promote justice (bad at it) or all of the above. The evaluation process is further complicated by the many variables that cause health care costs and insurance rates to increase and the near impossibility of isolating the role tort reform and law suits play in such trends. Overall, I think tort reform is red herring…well, unless you’re a medical practice attorney (plaintiff or defendant) then it’s a big deal.

For clarification, I am simply going to discuss tort reform as it applies to medical malpractice claims. There are two reasons for that, one is because I can speak knowledgeably about the topic and the second is that it is the sort of tort reform that is discussed when addressing health care reform. Maybe we can goad Quarterback into posting on class action reform at some point in the future (I think that would be worthwhile). I am also going to focus mostly on Michigan because I have personal experience with tort reform in Michigan and because they actually have adopted pretty comprehensive tort reform measures that have been in place since 1986.

Frivolous Lawsuits

Most attorneys can tell a story or two about dealing with a frivolous case and preventing or deterring them is something that should be pursued. Even if the case is quickly dismissed it will cost a party a couple grand in attorney fees (wait, why am I complaining about this?). In Michigan, one of the ways frivolous medical malpractice suits are deterred is through the requirement that plaintiffs file an Affidavit of Merit (“AOM”) signed by a qualified physician with their complaint. The AOM must contain specific things, but basically it’s a physician saying the claim is not frivolous. I’m not sure this is quite the deterrent tort reform proponents think it is. I knew of at least two law firms that had physicians who actually had offices at law firms. That isn’t to say it doesn’t work at all. Statistics show the number of medical malpractice claims filed have declined over the last 10-20 years. I just think the drop in malpractice suits is due to damage caps, which I’ll get into later, rather than fewer frivolous claims.

Another measure aimed at deterring frivolous claims is a loser pays system. I’m dubious of such a system since I think it promotes settlement more than anything and therefore does not particularly promote justice, a criticism that can be aimed at most tort reform measures. Michigan has a tame version of the loser pays system enforced through a requirement that all cases go to “Case Evaluation”, a form of mediation. Case Evaluation involves each party writing a summary of their case and making a presentation to a 3 member panel of attorneys. The panel values the case and each party can accept or reject the panel’s recommendation. Basically, if you reject the recommendation and it ends up a better deal than an eventual jury verdict, you are on the hook for the other side’s legal fees (possibly in addition to whatever the verdict is). Again, I think this mostly promotes settlement which isn’t inherently bad, but isn’t inherently good either.

Damage Caps

While ostensibly aimed at preventing runaway jury verdicts like the infamous $2.7 million verdict (later reduced to $480,000) in the McDonalds coffee case, damage caps are probably best at reducing the number of lawsuits in general. The reason for this is simple; lawyers, unlike more altruistic professional like doctors (I kid), like to make money. In Michigan, punitive damages are not allowed (goodbye $2.7 million) and non-economic (read pain and suffering) damages are limited at two different levels. The first level is currently $411,300 and the second is $734,500. Basically the first level applies unless you have a brain or spinal injury or lose a limb. To show how this deters filing a case, take a 70 year-old retiree who was relatively healthy, goes to the hospital and dies during surgery. Since she wasn’t working, her damages are basically limited to the lower cap amount plus medical bills. So the most an attorney could get is one-third of $411,300 minus expenses. However, most cases aren’t open and shut so the settlement is likely to be much lower. Add the expenses of an expert witness, depositions etc and that cases take 2 years or so to get to trial and it’s easy to see why an attorney would turn down a perfectly legitimate case (this is where a loser pays system may actually increase litigation expenses since an attorney may take on that case if the other side is scared of having to pay attorney fees). Perversely, the 70 year-old’s case is worth a lot more if she ends up alive and brain damaged, paralyzed or missing a limb. It’s pretty easy to see that while this saves money it doesn’t promote justice which is why some states have found caps to be unconstitutional (see Georgia and Illinois).

Health Care Costs

Most recently, tort reform has been talked about in the context of reducing health care costs. The CBO said the money saved would be a drop in the bucket and I tend to think that is true, particularly with respect to decreasing malpractice premiums and the amount paid out in settlements and verdicts. However, that doesn’t really address the cost of defensive medicine which is nearly impossible to measure. To be blunt, I think defensive medicine is largely nonsense. First, the cost of defensive medicine is almost always derived from polls or surveys of physicians who would most benefit from tort reform so color me skeptical. Second, when a doctor submits a bill for a service to Medicare, Medicaid or a private payer they essentially swear the services were medically necessary. So if a test was performed simply to avoid a lawsuit and it was not medically indicated they are committing fraud. Lastly, I think the motivation of being paid for the test is stronger motivation than the less likely scenario of being sued as a result of not performing a particular test.

Are You Done Yet?

This is already too long so a few more thoughts. First, after Texas passed tort reform, doctors rushed to practice there (wait, I thought they were altruistic) which led to more money being spent on health care, not less. Second, there are Constitutional concerns with Congress telling juries all over the country how much cases are worth. Since, tort reform is generally supported by Republicans and opposed by trial lawyer loving Democrats you get a lovely situation where small government conservatives support this big government intrusion and big government liberals (like me) get to point that fact out (yes, I realize this makes me a hypocrite, too). Lastly, there are other measure out there like joint and several liability and the collateral source rule among others, but they involve more legalese and would make this post even longer. I am happy to discuss those in another post or in the comments.

Morning Report

FYI, I do one of these on my other blog. It is easy enough to just copy it over here. Let me know if you find this worthwhile or not. Sold2u.

Vital Statistics: S&P futures -4, Eurostoxx – 1.5%, 10 year bond yield 2.18%, US dollar +21bp, Oil down 1.10 to 84.48, EURIBOR / OIS + 1.7bp.

JP Morgan reported earnings this morning. EPS and revenues were better than estimates, but the stock is down slightly based on earnings quality issues. They expect the Durbin rule to reduce consumer banking net by $600MM. They are very cautious about 2012 investment banking revenue, and headcount continues to fall. Euro exposure is about $15 billion, of which 65% is sovereigns. Tier 1 (Basel III) was 9.9%. Mortgage origination was $37B. Refis will drive business for the near future.

Harrisburg, PA filed for bankruptcy yesterday, mainly due to an ill-advised incinerator project that dwarfs the city’s budget. Harrisburg’s munis have been in the doghouse for a while, and this is not a surprise. Most are insured at any rate. The state will probably end up taking over the city’s finances. While the downturn has caused fiscal issues for many localities, we have not seen the mass bankruptcies / muni bloodbath that Meredith Whitney has been predicting.

Martin Feldstein has an editorial in today’s NYT link: How to Stop the Drop in Home Values discussing yet another plan to halt the decline in house prices by intervening in the market. This one involves reducing principal to 110% of the value of the house, and making the new mortgage full recourse – in other words, the bank can go after the other assets of the homeowner. The government and the banks would split the costs of the principal reduction. Washington seems fixated on this idea that foreclosures are reason why house prices are falling, and if we just stop the foreclosures, prices will stop falling. As I have argued in another post Robert Samuelson: The only thing we have to fear is fear itself this is premised on the idea that house prices are too low at the moment. Which is nonsense. If anything prices are sort of back in their historical relationship with incomes, but since incomes are falling, so should housing.

The magical thinking is on full display here: “

Without a program to stop mortgage defaults, there is no way to know how much further house prices might fall. Although house prices in some areas are already very low, potential buyers continue to wait because they anticipate even lower prices in the future.

Before the housing bubble burst in 2006, the level of house prices had risen nearly 60 percent above the long-term price path. So there is no knowing how far prices may fall below the long-term path before they begin to recover.”

Martin’s underlying assumption is that buyers are stupid. They aren’t. They won’t believe the government has the ability to support the housing market. And they aren’t going to start paying up for “fairly priced” property. For that matter, underwater homeowners need buyers to bid property back into “overvalued” territory. Anyone who has spent any time in the financial markets as a professional understands that markets don’t work that way, especially ones where underwater sellers dominate.

The low lending standards of the bubble years allowed first time homebuyers to purchase property without a downpayment. Essentially, the housing market “borrowed” first time homebuyers form the future. The only buyers left in this market are pros and the very young first time homebuyer. The very young first time homebuyer is lucky to have a job and is saddled with student loan debt. They are years away from amassing the downpayment that is needed in this tight credit environment. That leaves the pros. And they aren’t going to pay up for a fairly priced (at best) asset. Though some are moving into the MBS market, they are more or less front-running the Fed.

"Free Trade" ?

I don’t see how anyone on the right or the left can deny the influence of money in politics. I don’t think it’s a partisan issue. The middle class keeps slipping further and further behind and last time I checked they weren’t all Democrats.

On Wednesday afternoon, the House was steamrolling toward passage of a trio of free-trade agreements without a whisper of objection from the Republican side. Finally, hours into the debate, Rep. Walter Jones (R-N.C.) rose to appeal to his fellow Tea Partyers to heed the people who elected them.

“Here we have roughly 9.1 percent unemployment in this country, due in no small part to the Washington elite jamming these job-destroying trade agreements down our throats,” Jones pleaded on the House floor. “It’s time we started listening to the will of the American people, doing what’s in the best interest of the American people, not in the best interest of the foreign nationals who desperately want to take our jobs.”

It was a passionate speech but useless. Lawmakers, including the overwhelming majority of Tea Party Republicans, voted in support of the three trade deals, which had been at the top of corporate America’s wish list.

For all the talk of populist foment – the Tea Party on the right and the new Occupy Wall Street movement on the left – business interests remain firmly in control. Forced to choose between their voters and their donors, lawmakers don’t hesitate before choosing the latter.

There is little doubt about where the Tea Party faithful stands on free trade. A year ago, a Wall Street Journal-NBC News poll found that 61 percent of Tea Party supporters thought free-trade agreements had hurt the country, compared to 53 percent of Americans overall who held that view. Shortly after that, a Pew Research Center poll found that only 24 percent of Tea Party supporters thought free-trade agreements were good for America.

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