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Economix Blog: Bundled Households

November 13, 2012 by Leave a Comment

As I wrote on Friday, lots of young Americans are finally moving out of their parents’ basements and forming their own households now that the economy is picking up. But the bundled-household phenomenon remains large, and Mark Zandi, chief economist at Moody’s Analytics, has just shared some interesting data showing its extent.

Based on demographics and previous trends in household formation, it looks as if the country still has about 1.8 million fewer households today than it would have in a more “normal” economy, and most of that total household deficit is accounted for by the lower numbers of households formed by those in the 15-34 age group. Demographics suggest that there should be about 1.1 million more households headed by younger Americans today than there actually are.

As a result, we’re still see an unusually high number of people living with parents, other relatives or friends.

This chart shows the total number of additional adults living with a home’s official householder, broken down by the relationship to the householder: nonrelative, child or other relative.

Sources: Census Bureau, IPUMS USA, University of Minnesota, Moody’s Analytics. Sources: Census Bureau, IPUMS USA, University of Minnesota, Moody’s Analytics.

As you can see there are about 17.2 million adult children living in their parents’ homes this year, compared with around 15.3 million in 2007, the year the recession began.

Mr. Zandi has also broken out the employment status of those adult children crashing with their folks. And the numbers show that the greatest increases are accounted for by unemployed adult children who have moved in with parents.

Sources: Census Bureau, IPUMS USA, University of Minnesota, Moody’s Analytics. Sources: Census Bureau, IPUMS USA, University of Minnesota, Moody’s Analytics.

In 2007, 1.3 million unemployed adult children were living in their parents’ homes. This year, the total is about 2.5 million.

Article source: http://economix.blogs.nytimes.com/2012/11/12/bundled-households/?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

U.S. Health Insurance Cost Rises Sharply, Study Finds

September 27, 2011 by Leave a Comment

A new study by the Kaiser Family Foundation, a nonprofit research group that tracks employer-sponsored health insurance on a yearly basis, shows that the average annual premium for family coverage through an employer reached $15,073 in 2011, an increase of 9 percent over the previous year.

“The open question is whether that’s a one-time spike or the start of a period of higher increases,” said Drew Altman, the chief executive of the Kaiser foundation.

The steep increase in rates is particularly unwelcome at a time when the economy is still sputtering and unemployment continues to hover at about 9 percent. Many businesses cite the high cost of coverage as a factor in their decision not to hire, and health insurance has become increasingly unaffordable for more Americans. Over all, the cost of family coverage has about doubled since 2001, when premiums averaged $7,061, compared with a 34 percent gain in wages over the same period.

How much the new federal health care law pushed by President Obama is affecting insurance rates remains a point of debate, with some analysts suggesting that insurers have raised prices in anticipation of new rules that would, in 2012, require them to justify any increase of more than 10 percent.

In addition to increases caused by insurers getting ahead of potential costs, some of the law’s provisions that are already in effect — like coverage for adult children up to 26 years of age and prevention services like mammogram screening — have contributed to higher expenses for some employers.

The Kaiser survey includes both big and small companies using employer-sponsored coverage representing about 60 percent of all insured Americans of working age. The annual growth in premiums, according to the survey, had slowed in recent years to 5 percent, rising just 3 percent in 2010, in part due to the lingering effects of the recession. After years of double-digit increases, the moderation was a welcome relief.

The unexpected increase in premiums raises questions about whether health care costs are, in fact, stabilizing at all, as people have postponed going to the doctor or dentist and have put off expensive procedures. “No one quite knows,” said Mr. Altman.

Throughout this year, major health insurers have defended higher premiums — and higher profits — saying that their expenses would rise once the economy recovered and people believed they could again afford medical care. The struggling economy will probably keep suppressing demand for medical care, particularly as people pay a larger share of their own medical bills through higher deductibles and co-payments, according to benefits consultants and others. About three-quarters of workers now pay part of the bill when they go see a doctor, and nearly a third have a deductible of at least $1,000 if they have single coverage, up from just one in 10 in 2006, according Kaiser.

Although demand for care appears to be growing relatively slowly, insurers and benefit consultants also say prices for medical care continue to climb as prescription drug makers and hospitals charge more. “If they’re a popular brand or anchor hospital, they’re going to negotiate a significant increase if they can,” said Edward A. Kaplan, a benefits expert with the Segal Company, which recently surveyed insurers about medical costs.

The question for employers and insurers is whether the lackluster economy, as well as recent efforts by employer and insurers to better manage the medical care of workers, will keep premiums increasing at a more moderate level. Early responses to a survey by Mercer, a consulting firm, suggest employers are expecting the cost of providing health benefits to go up about 5 percent next year, according to Beth Umland, Mercer’s director of research for health and benefits. These companies may be factoring in the more pessimistic view of the economy, she said, where any recovery seems further off than it did a few months ago.

Employers are reporting that their workers are using less medical care, said Ms. Umland, but they and insurers have been slow to estimate costs that reflect the lower demand. “It always takes a while for underwriting to catch up with reality,” she said.

Some small business say they expect their premiums to moderate, but only because of changes in their work force — partly caused by younger, healthier employees — that make it less likely that the companies will incur high medical claims. “Up until last year, we saw very hefty increases — double digits,” said Heather Gombos, an executive for R. M. Jones Company and affiliated businesses in New Britain, Conn., a group that insures about 50 of its 80 employees.

Article source: http://www.nytimes.com/2011/09/28/business/health-insurance-costs-rise-sharply-this-year-study-shows.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Fair Game: A Crack in Wall Street’s Defenses

April 24, 2011 by Leave a Comment

A few weeks ago, the pair was awarded a total of $54.1 million in a securities arbitration case against the Smith Barney unit of the company — the largest amount ever awarded to individuals in such a case, according to the Financial Industry Regulatory Authority.

This legal dust-up involved supposedly conservative municipal bond investments that Smith Barney had peddled to its wealthiest clients. The investments, which were big money-makers for Smith Barney, turned out to be anything but safe for the firm’s clients: various portfolios lost between half and three-quarters of their value during the financial crisis.

Arbitrators rarely, if ever, discuss such cases, and the materials turned over by both sides are kept under wraps. But the outsize award, which included $17 million in punitive damages, is not the only thing that is noteworthy. The arbitrators appeared to reject — resoundingly — three defenses that Wall Street often employs when clients sue:

No. 1: We didn’t blow up your portfolio. The financial crisis did.

No. 2: If you’re wealthy and sophisticated, you should have understood the risks.

And, No. 3, the most common defense of all: The prospectus warned that you could lose your shirt, so don’t come crying to us if you do.

The investors who prevailed here are Gerald D. Hosier, 69, a wildly successful intellectual-property lawyer, and Jerry Murdock Jr., 52, a prosperous venture capitalist. Mr. Hosier and a trust he set up for his adult children received $48 million. Mr. Murdock got about $6 million.

The men, neighbors in Aspen, Colo., suffered $27 million in out-of-pocket losses on their investments. The big clunker was a municipal bond arbitrage strategy that their Smith Barney broker had characterized as safe, according to the men’s complaint. The deal was supposedly designed to eke out more income than a simple portfolio of bonds would generate.

Not only did the men recover all their losses in the award, they also received damages. Mr. Hosier was awarded $15 million in punitive damages and $6.3 million in market-adjusted damages. The arbitrators also awarded $3 million for the men’s legal fees.

Alexander Samuelson, a Citigroup spokesman, said: “We are disappointed with the decision, which we believe is not supported by the facts or law.” He noted that the bank had won a number of arbitrations involving such leveraged municipal bond strategies and said that the bank was considering its legal options in this case.

Mr. Hosier invested in the bank’s municipal arbitrage strategy from 2002 through 2007. Requiring a minimum investment of $500,000, the deals employed the wonders of leverage, borrowing 8 to 10 times the value of the municipal bonds in an underlying portfolio to generate higher income. Calling the strategy conservative and ideal for investors’ safe money, Smith Barney sold the trusts to wealthy investors.

But Smith Barney and its brokers were the prime beneficiaries of the strategy, which generated fees not only on the money that had been borrowed to juice the returns but also through the life of the investment. Clients paid 0.35 percent annually on the portfolios, plus a fee of 20 percent of all income earned by the investors above a 5.5 percent threshold each year.

Smith Barney’s sales representatives kept 40 percent of the total fees paid by their investors, far exceeding what they would have earned selling ordinary municipal bonds. This arrangement encouraged Smith Barney to lever up the portfolios, Mr. Hosier’s lawyers argued, putting the interests of their clients and those of Smith Barney at odds.

Investors who bought these deals agreed to lock up their money for two years and had to pay a substantial fee if they redeemed their holdings during the next three years.

Mr. Hosier was the single biggest buyer of Smith Barney’s municipal arbitrage deals, with $26 million invested over time. But four different portfolios in which he invested raised almost $2 billion from all investors. All of the portfolios performed badly.

“Citigroup mismarketed this product to high-net-worth investors as an alternative to municipal bonds with a slightly higher return,” said Philip M. Aidikoff, a lawyer at Aidikoff, Uhl Bakhtiari in Beverly Hills, Calif., who represented Mr. Hosier and Mr. Murdock. “Our clients never knowingly agreed to risk a significant loss of principal for a few extra points of interest.”

 

AS for Citigroup’s three defenses, Mr. Aidikoff, along with the co-counsel Steven B. Caruso, at Maddox, Hargett Caruso in New York, demonstrated that municipal bonds did not suffer catastrophic losses during the period. This squelched the bank’s argument that the financial crisis did in the strategy.

Regarding their clients’ sophistication and wealth, the lawyers agreed that both men were comfortable taking risks in certain circumstances, but not with the money they had given to the bank. “Citigroup misled their wealthiest clients and then tried to blame them for relying on what they were told,” Mr. Caruso said.

Arguing that the risks were laid out in the prospectus also seems to have run into a stone wall. Mr. Hosier’s lawyers produced seven different notices on the topic published by Finra and its predecessor regulator since 1994, including a notice from 2009 that states: “Providing risk disclosure in a prospectus or product description does not cure otherwise deficient disclosure in sales material, even if such sales material is accompanied or preceded by the prospectus.”

Mr. Hosier’s victory is particularly noteworthy, given the nominal amounts typically extracted by regulators in cases against major banks. The punitive damages awarded to Mr. Hosier, for example, are more than triple the $4.45 million penalty levied against Wachovia Securities by the Securities and Exchange Commission this month in a suit that the S.E.C. settled with the bank. The S.E.C. accused the bank of selling about $10 million of mortgage-related securities to investors at above-market prices and at excessive markups. Wachovia, now part of Wells Fargo, neither admitted nor denied wrongdoing in the settlement.

The arbitrators in Mr. Hosier’s case seemed keen to hold Wall Street accountable. And his win against Citigroup does not appear to be an anomaly. Since April 2010, his lawyer, Mr. Aidikoff, has argued 16 other arbitrations involving the same type of investment. Mr. Aidikoff and the lawyers who assist him have won every one.

In an interview, Mr. Hosier said the experience had opened his eyes to the disturbing ways of Wall Street.

“Instead of the financial world being the lubricant for business, they are out there manufacturing products with no utility whatsoever except for generating fees,” he said. “Somebody’s got to do something about Wall Street. It is destroying the country.” 

Article source: http://feeds.nytimes.com/click.phdo?i=94521b9f5aa8e3bc365483d79ebcccc1

Filed Under: Business News Tagged With: , ,