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Thursday, March 29, 2012


Con Law 101

If you read the transcripts, or better yet, listened to the oral arguments (no cameras allowed, sadly) in the case of Everyone v US re the Patient Protection and Affordable Care Act, you got the best lesson in Constitutional Law since Judge Bork tried (in vain) to educate the Senate Judiciary Committee during his ill fated Supreme Court nomination. Many observers thought they detected Justice Kennedy, and therefore a 5-4 majority leaning toward invalidating the individual mandate, and because of the lack of a severability clause in the law, possibly the entire Act. However, veteran Court watchers know that the judges' questions and comments are aimed at eliciting complete and cogent arguments, and do not really indicate much about the eventual ruling. So I for one am not putting this one in the bank just yet. However, I would say that the attorneys for the plaintiffs, Michael Carvin and Paul Clement, ran circles around the US Solicitor General Donald Verrilli, although that doesn't mean much either.

Here are some observations you might not read in the papers.

Age has taken none of the edge off of Justice Scalia's philosophical bias in favor of liberty, sense of humor or brilliance. Justices Alito and Roberts have a less charismatic, though no less wise, understanding of conservative constitutional principles. Justice Thomas remains ever the silent, steadfast sphinx. During his time on the bench, no one has written more sound and sagacious decisions. But Thomas never says anything, never asks a question during oral argument. Never. Reportedly, his current silent streak during oral arguments has reached 6 and a half years. On the left wing blog I follow, one observer gave him an A+ (as in the famous punchline, why speak and remove all doubt?).

On the liberal wing, clearly Justice Breyer is the most comfortable and erudite in engaging the attorneys, and I thought his questions were fair, thoughtful, and revealed someone working the issues seriously. I was less impressed by Justices Ginsberg and Kagan, who to my mind, came off not much better than your average Democratic politician or academic, simply assuming that the result they are clearly seeking should be obvious to everyone else. But Justice Sotomayor has real chops. She knows the law and can think on her feet. As a comparatively young Justice, she figures to be a formidable figure for a long time.

Clearly Justice Kennedy is uncomfortable being the swing vote so often, and who wouldn't be? He takes that role seriously, and has long since abandoned his role as a reliable conservative.

The first day of oral argument clearly showed that the Court wanted to get to the real issues and dispose of the phony precedent represented by the 19th century position that taxes can not be litigated before they are paid. Whether you consider the penalty for failing to buy insurance a fine (the conservative block) or a tax called something else (the liberal wing), no one wanted to decide the case on such narrow grounds. That part of the case is likely to be 9-0.

On the third day, the Court really dug into the question of severability, as if the invalidation of the mandate could simply be assumed. That was a useful hypothesis for framing the discussion about severability, but I would say it was no more than that. To me, the severability question is an easy one. Most laws carry a severability clause, so that if one part of an Act is not valid, it doesn't invalidate the other provisions. The Dems purposefully left out the severability clause from PPACA for two reasons. The honest brokers among them realized that without the individual mandate, the Act would be financially ruinous (i.e., community rating makes no sense without a mandate as has been learned in New York and other states with community rating). The dishonest brokers among them simply wanted to make the Act and all of its provisions more difficult to invalidate and or repeal. As if on cue, today, the liberal media is pointing out the mess that would ensue if the entire Act goes down, as seems probable if the individual mandate goes down.

Of course, that ignores the mess that already exists and the financial debacle that we will have if PPACA is not struck down or repealed. As for the bleating about 22-26 year olds losing their insurance if the law doesn't require insurers to protect them on their parents' policies, this is nonsense. Insurers are likely to simply increase the age they can stay on their policy to at least 26 voluntarily, since this represents one of their most profitable covers.

In fact, the method to insurers' madness continues to be the most puzzling aspect of the whole mess. It is now apparent that health insurers did not merely go along with the Dems in passing PPACA, but were prime movers. Somehow, they didn't realize they will be crushed just as badly in a world with PPACA as one without it. The whole scheme is set up to evolve to a single payor system where insurers, if they have any role at all, will be merely administrators. They were sold a bill of goods, not just by Democratic pols, but by their trade group CEO, Karen Ignagni. Hopefully, she will get the good old fashioned firing she deserves and soon.

In the irony of the week, the Educational Testing Service, enabled by Nassau County's ever opportunistic District Attorney Kathleen Rice, has decreed that the way to prevent future cheating scandals on the SAT (such as the one that occurred in the County last year) is to require test taking students to present a photo ID when appearing for the exam. I agree that should work, although it is not unheard of for teens to obtain false ID'S (been in a bar recently?). What I want to know is, if it's OK to require SAT test takers to present a picture ID, why is it so horrible and discriminatory to require the same of voters at polling places? Or are we going to hear that the new requirement amounts to "test taker" suppression?

Thank goodness, it's baseball season. We have to slog through three more college basketball games, though they should be pretty good ones. But baseball has always been my favorite sport (I know it's too slow for most), and I am one of those who is always optimistic about my team when they are 0 and 0. So at the risk of sounding ridiculous, i will assert yet again that it looks like the Mets are coming together, the pitching will be better than anyone else thinks, and if they can have a healthy season for a change, their starting 8 are mostly representative (OK, we don't have a center fielder, but otherwise). Sadly, we are in a division which has no bad teams, and for some reason, we have to play the Yankees 6 times and the Red Sox interleague usually, so the schedule is also a problem. But I will be in CitiField nevertheless. Look for me in the front row of the Pepsi Porch on Monday nights, in the seats closest to the Met bullpen.

In order to make up for the transactions that didn't happen while I was imprisoned in the hospital, we have been trading every day. On 3/21, we bought 15 shares of the SPDR Gold ETF (GLD) for the IRA at 160.61. If you believe inflation is not cooked into the mix, I have a bridge I can sell you. On 3/22, we sold 100 shares of Devon (DVN), getting 71.15 for shares we bought 11/9/01 for 16.73. I could say I sold the shares because of the natural gas glut, but regular readers know the truth, which is that we sell stock from our biggest position when cash gets under 20%. Anyway, what's wrong with a four timer? On 3/23, we bought 1800 shares of hapless Frozen Food Express (FFEX) at 1.18, a value buy. Some of that value disappeared from the financial statements at the close today when the company reported a $36 million loss for 2011, and showed a balance sheet with considerably more bank debt than before. This is why you don't try these tricks at home. Not that we didn't know this was coming, but we retain the name on our buy list in hopes it will rise from the dead yet again. On 3/26, we sold 100 shares of Schulman (SHLM) for 27.50. We paid 23.31 on 7/19/06. On 3/27, we sold 200 shares of Con Ed Preferred, which is being redeemed anyway, for 105.95. We accumulated these shares between November 2009 and July 2011 and finished with a capital gain of about $2,900 for the IRA. Of course, you really don't go into preferred's for capital gains, so this was a bonus.

On 3/28, we bought 200 shares of Harsco (HSC), a new name recommended by our full service broker. We paid 23.79. Today, we bought 100 shares of SunTrust Bank Preferred (STI.PR.A) for the IRA paying 20.85. Most think that bank preferred's are going to be called in next year because under Dodd Frank, preferred's are no longer counted as tier 1 capital. However, Sun Trust is making a nice comeback from the financial crisis and if they call it in, I won't mind taking a little gain on this new name.

One other nice piece of largess was that Kaydon (KDN) paid all of us shareholders a dividend of $10.50 a share. That's a much better and more efficient way to return money to shareholders than stock buybacks. Why not reward the shareholders that stay with you instead of providing a lovely parting gift for the shareholders as they leave?

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