Legislators Say Sheriff Who Declined to Arrest Michael Drejka for Killing Markeis McGlockton Is Misrepresenting Florida’s ‘Stand Your Ground’ Law

Several prominent Florida Republicans have criticized Pinellas County Sheriff Bob Gualtieri’s misrepresentation of that state’s Stand Your Ground self-defense law in connection with the July 19 shooting of Markeis McGlockton. Three key legislators who had a hand in writing the law and the National Rifle Association lobbyist who helped get it passed told Politico that Gualtieri was simply wrong when he claimed the standard for using lethal force is “largely subjective.”

That point is crucial in this case, because Michael Drejka told police he shot McGlockton, who had just shoved him to the pavement in the parking lot of a convenience store in Clearwater, because he was afraid the other man was bent on continuing the attack. Under Florida law, someone is justified in using lethal force if he “reasonably believes” it is “necessary to prevent imminent death or great bodily harm.” Yet surveillance video of the incident, which began with a dispute over a handicapped parking spot, shows McGlockton backing away when Drejka draws his pistol.

At a press conference the day after the shooting, Gualtieri conceded that brandishing the gun “probably” would have sufficed to protect Drejka from further attack. But Gualtieri insisted that Florida’s law prevented him from making an arrest, because “Stand Your Ground allows for a subjective belief by the person that they are in harm’s way,” and “we don’t get to substitute our judgment for Drejka’s judgment.”

Not so, says the NRA’s Marion Hammer, who lobbied Florida legislators to pass the Stand Your Ground law in 2005 and strengthen its protections for defendants in 2017. “Nothing in either the 2005 law or the 2017 law prohibits a Sheriff from making an arrest in a case where a person claims self-defense if there is probable cause that the use of force was unlawful,” Hammer told Politico.

State Sen. Dennis Baxley, who sponsored the 2005 law, agreed. “Stand Your Ground uses a reasonable-person standard,” he noted. “It’s not that you were just afraid. It’s an objective standard.” State Sen. Rob Bradley, who sponsored the 2017 law, made the same point, as did state Rep. Bobby Payne, who sponsored the House version of the bill.

While Hammer, Baxley, and Bradley did not want to comment on the facts of the shooting, Payne suggested that Drejko’s fear was not reasonable. “Based on what I saw in the video, the assertion of Stand Your Ground was weak, based on the victim’s retreat or de-escalation of the event once he saw the gun,” Payne said in a statement to Politico, adding that there was “no additional fear of great bodily harm or imminent death.” Now that Gualtieri has declined to arrest Drejka, Bernie McCabe, the state attorney for Pinellas and Pasco counties, has to decide whether to prosecute him.

Hammer et al. said Gualtieri also was wrong to suggest his office could face civil liability if it arrested Drejka. The provision to which the sheriff referred concerns someone who is sued based on his justified use of force. In such a case, the law says, “the court shall award reasonable attorney’s fees, court costs, compensation for loss of income, and all expenses incurred” in defending against the suit. That provision has nothing to do with a law enforcement agency’s decision to arrest someone when there is probable cause to believe his use of force was not lawful.

Another red herring that Gualtieri repeatedly mentioned was the right of someone who claims he used force in self-defense to a pretrial hearing at which prosecutors must disprove that claim by “clear and convincing evidence,” a standard added by the 2017 law. While prosecutors have to make that showing before proceeding with a trial, the standard for making an arrest is still probable cause.

Gualtieri, who has a law degree from Stetson University and once served as his office’s general counsel, certainly should have a better understanding of what the law says. You might surmise that, like many law enforcement officials, he does not like the Stand Your Ground law and is using this case to discredit it. But at his press conference, Gualtieri, a Republican, said he agrees there should be no duty to retreat for people attacked in public places, the feature that gives the law its name.

The sheriff seemed less keen on the 2017 revision. “The state attorney has the burden of proof, by clear and convincing evidence, that the defendant, the shooter, is not entitled to Stand Your Ground,” he said. “Nowhere else is there anything like this in criminal law….That’s a very heavy standard, and it puts the burden on the state.” But neither that provision nor the rule allowing victims of public attacks to stand their ground was relevant in deciding whether there was probable cause to arrest Drejka. The one aspect of the law that was relevant, its supposedly “subjective” standard for self-defense, is purely imaginary.

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A Jump in Soda Prices Should Make it Clear that Tariffs Are Just Taxes on Ourselves

Coca Cola plant in PortugalYou don’t have to go to progressive-run cities like Philadelphia and Seattle anymore to have economic ignorance drive up the cost of your sodas.

Coca-Cola has announced that, partly due to increased tariffs on metal imports, the prices of its sodas will be going up. The company is being vague about how much of a price hike we should expect, but tariffs of 10 percent have been implemented on imported aluminum and 25 percent on imported steel—and that’s not even getting into how the trade barriers might affect how much the soda ingredients cost.

Coca-Cola Chief Executive Officer James Quincey says he expects bottlers and retailers to pass the increased prices of the sodas onto consumer, but what that looks like may vary from store to store and community to community.

Some press coverage has needled President Donald Trump about the fact that his favorite soda (Diet Coke) is going to increase in price, as if Trump notices or cares or even knows how much a can of soda costs. What people should really take note of is how this easily predictable consumer response matches the consequences of soda taxes levied in cities across the country.

City leaders have been acting shocked at what happens when you deliberately drive up the cost of selling a product. Back when Philadelphia introduced 1.5 cent-per-ounce tax on sodas, the products’ prices naturally skyrocketed. Mayor Jim Kenney then had the gall to turn around and accuse local businesses of “gouging” customers because they jacked up the prices. In Kenney’s brain, the businesses were just going to pay the taxes to the city and then absorb the costs. But these new taxes were way too high to be absorbed. The tax increase on a box of soda syrup was more than twice the amount of profit sellers had been making.

You might think Trump’s tariffs would make it clear that tariffs are ultimately a tax on ourselves. And you might think that those on the left who rage against the president’s policies would then grasp that soda taxes, like Trump’s tariffs, end up rolling downhill and hurting poor and working-class Americans. But that would involve people taking time off from trying to “own” each other and instead pay attention to policy outcomes.

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The Minimum Wage Doesn’t Do What You Think It Does

Authored by Jordan Setayesh via The Mises Institute,

The assumption that the minimum wage helps low-wage workers permeates public discourse on the topic. One of the most curious political phenomenon is how the idea of the minimum wage is mindlessly accepted by the public as a policy that undoubtedly helps the poor.

This transformation of the minimum wage from a policy originally intended to keep minorities out of the labor force to one aimed at protecting marginalized workers has been a stunning political magic trick.

How We Frame the Debate is Important

Such confusion is partly caused by how minimum wage rhetoric frames the topic. Oftentimes people argue if businesses can afford to pay higher minimum wages to workers, if a law mandating a minimum wage is philosophically moral, or if increasing the minimum wage increases unemployment. However, we must be careful not to give the minimum wage credit for doing more than it is capable of. If an employer pays out $100 per hour in wages in total to their employees, then increasing the minimum wage from $10 to $13 per hour does not increase the total amount of wages paid to employees. It merely mandates that those $100 in wages be paid out in no less than $13 increments per employee. Thus, minimum wage laws can only change the distribution of wages paid out by employers, and, ironically, the change in the distribution is often in the direction of increased inequality between low-wage workers.

The Minimum Wage Only Addresses One Component of Salaries

Annual salaries have three components: hourly wage, hours worked, and non-monetary benefits. A person’s annual salary is calculated by multiplying their hourly wage by the number of hours they worked and adding the value of their non-monetary benefits such as health insurance. The practical problem with the minimum wage is that it only addresses the hourly wage component of total annual salary. The minimum wage mandates that a person must make a certain amount of money per hour but says nothing about the total amount of money an employer must pay out to their employees in total. Any mandated increase in hourly wage can be offset by a decrease in number of hours worked and the value of non-monetary benefits.

Is it possible for any government policy addressing salary to help poor people? A government policy aimed at helping poor people via salary would have to force businesses to increase the total amount of money it pays its employees as a collective. Otherwise, the policy is merely shifting the distribution of that money amongst workers rather than the total amount of money paid to them. Since businesses can keep their labor costs at an equilibrium by adjusting wages, number of hours, and non-monetary compensation accordingly, such a government policy would have to address all three components. Thus, this would require forcing businesses to hire workers at a higher minimum wage, use a minimum number of total hours of labor, and provide a minimum value of non-monetary compensation.

What would that policy look like? Instead of just increasing the minimum wage, we would also hypothetically have a law requiring businesses to hire each worker for at least 40 hours per week and provide a minimum level of health benefits (or other non-monetary benefits). Such a law would ensure that each worker’s total annual salary would increase and that businesses could not get around the minimum wage by decreasing hours or benefits. Unfortunately, we run into yet another problem. These laws say nothing about how many employees a business must hire.

Mandating Higher Total Salaries Would Require Tyranny

Thus, businesses could still get around paying out more money in total to their employees by hiring fewer workers. To address this, the government would have to engage in tyranny and pass an additional law mandating a minimum number of employees per business to ensure that the number of jobs available does not decrease. Yet, mandating that each company employ a certain number of workers would not guarantee a certain number of jobs available since the number of companies is still able to fluctuate.

Therefore, to truly mandate an increase in total salary paid out to low-wage workers in aggregate, the government would have to mandate a minimum hourly wage, number of hours, value of non-monetary benefits, number of employees, and number of businesses. Given that the two events are logically dependent on each other, the idea of the government mandating that a minimum number of businesses exist in the economy is as absurd as the idea that the minimum wage can increase the amount of money paid by employers to low-wage workers in total.

Businesses Do Have Fixed Labor Costs

The caveat to the conclusions of this thought experiment is they assume businesses keep their labor costs approximately fixed. It is hypothetically possible for businesses to respond by raising prices. However, we should not be focused necessarily on increasing the absolute amount of dollars paid out to low-wage workers but rather increasing the purchasing power of their annual salaries. If a significant number of businesses respond to minimum wage increases by increasing prices, then the purchasing power of the salary of low-wage workers will be reduced by price increases, making minimum wage increases ineffective.

The other possibility is that businesses decrease their profit margins to accommodate larger labor costs. However, if this were actually how businesses responded to increased labor costs, then we would expect the total compensation of low-wage workers to increase as a result of minimum wage increases. However, a ground-breaking study on the minimum wage increase in Seattle from $11 to $13 showed that the average low-wage worker experienced a $1,500 decrease in annual income due to the minimum wage increase. Additionally, a review of the minimum wage literature in 2006 indicates that 85% of the most robust minimum wage studies found negative employment effects due to minimum wage increases. Furthermore, the 15% that found insignificant or positive employment effects only focused on the restaurant industry or used data from a short time-span. Using the restaurant industry as a proxy for low-wage workers was proven to bias the disemployment effects of minimum wage increases toward zero by the aforementioned study in Seattle.

Ultimately, we need to change the questions we ask about the minimum wage. We should stop asking if workers deserve a “living wage” and start asking if the minimum wage actually helps workers obtain one.

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“It’s Different This Time”: One Bank Has Some Very Bad News For Bulls

By Christopher Metli, Executive Director in Morgan Stanley’s Institutional Equity Division

Many investors have said ‘it’s different this time’ about Tech stocks over the last few years, and so far they’ve been right – despite numerous warning signs of Tech, growth, and momentum being crowded, these stocks have continued to go up and dips have meant to be bought.  Looking over the last 5 years, selloffs like that seen over Thurs/Fri last week (-2.8 sigma event) have been a good signal to buy Tech, momo, etc.  But it’s likely different this time.

First off, MS Research lays out the case why Tech and growth are at risk – these stocks have not derated with the broader market and look rich relative to future expected earnings growth

There is also the well discussed crowding in Tech.  The crowding hasn’t mattered so far as there has not been a fundamental catalyst to unhinge it, but recent Tech earnings may well be that catalyst.  You can’t have a >$100bn loss in a well held name and not have collateral damage.  A coarse estimate of the performance of HF longs based on 13F holdings shows the last few weeks have been a ~2 standard deviation loss event, and more actively held Tech stocks vs more passively held Tech stocks suffered a 3 sigma drawdown last week. 

While many times big losses have preceded bouncebacks, note that in Aug 2011, April 2014, Feb 2016 the pain got worse before it got better.  While some derisking has occurred already this summer, there easily could be more to come.

The risk to the broader market of any Tech weakness is high as well.  Tech accounted for 65% of the S&P 500’s gain YTD going into last week (55% now), near the post Tech-bubble highs and an unsustainable pace (Tech’s weight in the S&P 500 is ~26%, also a post Tech bubble high).

And a different measure of breadth – the percent of stocks moving more than the S&P 500  – is near ~14 year lows, indicating an increasingly small proportion of stocks are driving the overall market

If those stocks (Tech) crack, there will be much less support for US equities – note that weak breadth has been a negative signal for both the market and Tech vs the market historically.

The fact that Tech is so large and that Tech represents such a large proportion of the ‘winners’ i.e. the long side of momentum makes contagion from a positioning unwind more likely now than in 2016, 16, or 17.  Tech is a potential market issue because it represents the intersection of so many different investor types, including fundamental HFs, quant HFs (who tend to have a momentum bias), and active mutual funds.

So far the moves over the last few days have driven dispersion to near historical highs (i.e. wide variation in performance across names). 

And overall drawdowns in the space have been mitigated by the fact that gains in parts of Tech have added ~$100bn in market cap to offset $200bn in market cap losses from the decliners this earnings season.  

But the drawdowns in some names mean pain is being felt for at least some funds, and the risk is that investors across the spectrum de-risk more broadly, taking correlations between stocks higher.

Michael Wilson / MS Research suggest rotating portfolios towards defensives and value / away from growth, small caps, and Tech to position for more drawdowns ahead.  From a hedging perspective investors should consider:

  • Shorting the MS growth factor basket, MSZZGRW (long / short portfolio of Russell 3000 names)
  • Shorting the MS momentum factor basket, MSZZMOMO (long / short portfolio of Russell 3000 names)
  • Shorting the MS high HF ownership basket, MSXXHOWN (long only high HF ownership)
  • MS offers optionality on the above baskets for investors looking for more convexity on the trade
  • Buying NDX puts – QQQ Sept 170 puts (25^) for ~1.34%
    • Volatility on Tech is far from low but it still offers good value relative to the risks in the space
  • Buying SPX put spreads – Sept 2775/2676 (35/15^) for ~57bps, 5.25x max risk reward
    • Skew is steep and continued rotations could limit overall market drawdowns (i.e. buy the tail on crowded Tech, buy only a modest drawdown range for the broader market)

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Rand Paul Says He Will Vote Yes on SCOTUS Nominee Brett Kavanaugh

Last week, Sen. Rand Paul (R-Ky.) said he was “very concerned” about Supreme Court nominee Brett Kavanaugh’s “position on privacy and the Fourth Amendment.” As Paul explained, “Kavanaugh’s position is basically that national security trumps privacy…that worries me.”

Today, Paul announced that he is no longer worried. “After meeting Judge Kavanaugh and reviewing his record, I have decided to support his nomination,” Paul declared.

Paul’s concerns centered on Judge Kavanaugh’s 2015 statement concurring in the denial of rehearing en banc in Klayman v. Obama, which was then before the U.S. Court of Appeals for the District of Columbia Circuit. That case centered on the constitutionality of the National Security Agency’s controversial information-gathering program, which involved the NSA collecting the telephony metadata of all Americans. “In my view,” Kavanaugh wrote, “the Government’s metadata collection program is entirely consistent with the Fourth Amendment.”

Klayman put Kavanaugh at odds with Paul, who has repeatedly maintained that, “the bulk collection of all Americans’ phone records all of the time is a direct violation of the Fourth Amendment.”

So what caused Paul to stop worrying about Kavanaugh’s Klayman opinion? “In reviewing his record,” Paul announced today, “and through my conversation with him, I have hope that in light of the new precedent in Carpenter v. United States, Judge Kavanaugh will be more open to a Fourth Amendment that protects digital records and property.”

In Carpenter v. United States, decided just last month, the Supreme Court ruled that a warrantless government search of a criminal suspect’s historic cellphone location records violated the Fourth Amendment. This precedent does indeed cut against Kavanaugh’s previous legal justifications for warrantless data collection.

Paul’s announcement today suggests that in his private meeting with Kavanaugh, the SCOTUS nominee signaled his willingness to take a new view of the Fourth Amendment in light of Carpenter. If that is the case, Kavanaugh should say so publicly during his Senate confirmation hearings.

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Abortion Is Murder Isn’t a Winning Argument for Pro-Life Conservatives

With the nomination of Brett Kavanaugh to the Supreme Court, for the first time in 45 years, the pro-life lobby has a shot at overturning Roe v.Pro Choice Wade, the admittedly flawed Supreme Court ruling that acknowledged that women have a constitutional right to make reproductive choices. However, at the same time, it seems, public support for banning abortion has dipped post-Trump, perhaps due to his harsh talk.

Until now, the pro-life lobby has been very careful not to demonize mother who have abortions. However, now they might be tempted to whip up flailing support by doubling down on their argument that “abortion is murder” and women who opt to have abortions are murderers.

But that would be a big mistake both philosophically and strategically, I note in my column at The Week. Mothers are best placed to balancing and maximizing their own and their child’s wellbeing because they are the only ones who have a direct and vital interest on both sides here. “There is no other situation in life where this is the case,” I note. “The state can regulate murder because in every murder, even one in self-defense, the perpetrator has an interest only in himself, not the person killed. So someone needs to ensure that the victim’s interests are adequately represented. That is not the case with abortion.”

Go here to read the piece.

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Tech Wreck Pukes $350 Billion In 3 Days As FANGover Bites

Since Mark Zuckerberg pulled the curtain back on the ugly reality of things, the S&P 500’s tech sector has lost over $350 billion in market cap…

Of that, over 60% of the loss in capitalization is due to the four FANG horsemen on the apocalypse…

Nasdaq has broken below its key 50-day moving-average support…

“Sentiment is turning sour in FANG, especially after earnings,” Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co, said in an email.

“They are dragging the Nasdaq 100 down by its feet.”

Or to put it another way – there’s tech, and then there’s everything else…

And if tech is losing its faithful followers then that lowly yellow line in BofA’s chart above does not hold much hope for supporting the world’s equity markets – especially as central bank balance sheets start to contract.

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Ruth Bader Ginsburg Thinks She Has ‘At Least 5 More Years’ Before Retirement

Ruth Bader Ginsburg, the oldest Supreme Court justice on the bench, says she’s not retiring any time soon.

“I’m now 85,” Ginsburg said Sunday, according to CNN. “My senior colleague, Justice John Paul Stevens, he stepped down when he was 90, so think I have about at least five more years.”

Ginsburg’s comments suggest the liberal justice doesn’t want to give President Donald Trump the chance to pick her replacement. Trump has already nominated two conservative justices—Neil Gorsuch and Brett Kavanaugh—to the Court. The former was confirmed last year, while the Senate has yet to vote on the latter. If Trump gets another pick, he could have the opportunity to solidify the Court’s conservative majority for decades to come.

Ginsburg, nominated by President Bill Clinton, has reportedly hired law clerks to last her through the 2020 term. And she has previously expressed her desire to stay on the Court until she’s no longer able to do so. “As long as I can do the job full steam, I will do it,” she said in October.

Speaking in New York on Sunday after viewing The Originalist, a play about the late Justice Antonin Scalia, Ginsburg said she doesn’t think justices should be forced to step down if they don’t want to. “You can’t set term limits, because to do that you’d have to amend the Constitution,” Ginsburg said. “Article III says…we hold our offices during good behavior.”

As The Washington Post notes, Ginsburg’s fans have obsessed over her well-being ever since Trump became president, particularly after Justice Anthony Kennedy announced his retirement last month.

There’s no denying that Ginsburg is getting up there in age. Kennedy is three years younger than Ginsburg, and the next oldest justice—Stephen Breyer—is 79. According to Business Insider, the average age of the last 11 justices to announce their retirement is 80.

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A Recession In 2019? Kolanovic Warns There Is An Event That Could “Finish Off The Cycle”

JPMorgan’s head quant, Marko Kolanovic underwent a curious transformation in late 2017 and early 2018: while not fully abandoning his traditional skepticism, at the start of the year he predicted that volatility and tail risk would be modestly higher in 2018 (even if he explicitly said that an event like the February VIXtermination was unlikely just one week before it struck), while pushing a consistently bullish view immediately after the February crash (so far stock have yet to take out the late January melt up highs). One other thing that Kolanovic failed to predict was that the ongoing trade war would reach its current level of escalation and mutual retaliation.

Fast forward to today, when in his latest note, Kolanovic explains why JPM has now turned bullish on Emerging Markets (surely the recent acceleration in fiscal and monetary easing by China is the main driver here, even if it is not explicitly stated), updates on the current state of the trade war, and most importantly admits that his optimism may be somewhat displaced, presenting a gloomy scenario that sees a recession come notably sooner than most expect: some time in 2019.

As the JPM head quant writes, his views remain constructive “despite the trade war which we did not foresee to reach the current level of intensity” and explains that a “critical premise behind these views was that economic cycle stays intact this year.” It is here that his conviction appears to be faltering and notes that “a number of our clients assume that the cycle is likely to end in 2019 or 2020. Some of the negative sentiment and reasoning behind some investors’ below-average equity exposure (e.g., HF beta) comes from the notion that if the cycle were to end soon, the risk-reward for chasing the last leg up is poor.

Is a recession in the coming year possible?

In his “devil’s advocate” rationale of why a recession could hit in 2019, Kolanovic writes that “as the US fiscal boost starts wearing off, Fed hikes will start putting stress on consumers, corporates, and market conditions.” And once earnings start slowing down and fundamentals deteriorate, “a market event similar to ‘February 2018’ can finish off the cycle.”

Remember this chart? This is what Kolanovic is talking about:

Indeed, monetary tightening  historically was and will be a likely trigger for the next recession. The impact of rising rates on financial markets is not well understood given structural changes in the markets – in terms of liquidity and tail risk, leverage, the impact of a strong USD, reliance on bond-equity correlation, etc., which likely make the cycle more vulnerable to rates than in the past.

But does tightening guarantee a recession? Aren’t there benefits from higher rates? Kolanovic explains:

It might be beyond anyone’s analytical ability to forecast how rates impact inflation in the age of rapid technological advances, changes in demographics trends, and globalization. For instance, it is not clear there is a mechanism by which hiking short-term interest rates contains the rising cost of college tuition or drug prices. The argument that higher rates build a cushion against the next crisis is also confusing for market practitioners. It may be akin to walking towards the edge of a cliff, only so that you can reduce the risk of falling by backing off (while not knowing exactly where the edge of the cliff is).

So while Kolanovic remains optimistic, he admits that “regardless on views of whether rate hikes are justified or not at this point, a rates-driven end of the cycle in 2019 is a possibility that needs to be kept in mind.”

He also lays out an optimistic scenario: one where a recession next year, or even in 2020, is delayed by “waves of fiscal easing globally”, something which China has already started but which as we will show shortly may be terminated prematurely. Here is Marko’s upside case:

In contrast to this gloomy scenario, there is a much brighter and, in our view, more likely one – the cycle is extended by waves of fiscal easing globally. The US often sets global trends, such as the introduction of QE in the aftermath of the 2008 financial crisis. QE was later replicated (and taken to another level) in Europe and Asia. At the end of his term, chairman Bernanke said that there are limits to monetary policy and that pro-growth fiscal measures need to play a bigger role. Trump fully on-boarded this as a part of his platform. Corporate tax cuts can also be viewed as a part of the trade war. Corporate tax cuts outside of the US might be a necessary step in order to compete in trade, especially after the massive reduction in US tax rates. Fiscal measures are also popular with voters and can help reduce various political tensions, e.g., exposed by the recent rise in populist movements in Europe. For this reason, we think that is quite possible that in coming quarters Europe and Asia will move towards fiscal easing.

The conclusion: Trump’s fiscal stimulus – or rather its imitation by the rest of the world – could be the catalyst that pushes back a recession until well into a potential second term for the president, to wit:

Instead of a 2019/2020 recession, we may see a boost to the global cycle driven by Trump-style fiscal measures outside of the US.

While feasible in theory, one wonders just how much debt the world would be encumbered by some time in the 2020s to make this outcome possible, and just what the ensuing and inevitable debt “normalization” would look like just to kick the can for another few years…

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Bankrupt Philadelphia plunders its property owners for cash

Like a lot of major cities in the United States, the city of Philadelphia is in pretty rough financial condition.

One of the city’s biggest problems is its woefully underfunded public pension, which has a multi-billion dollar funding gap.

In 2001, Philadelphia’s pension fund was still in decent shape with a funding level of 77%, meaning that it had sufficient assets to meet 77% of its long-term obligations.

By 2017 the funding level had dropped to less than 50%.

Part of this is just blatant mismanagement; while most of the market soared in 2016, for example, Philadelphia’s pension fund lost about $150 million on its investments, roughly 3.17% of its capital.

It’s interesting that, along the way, the city has actually tried to fix the problem. Between 2001 and 2017, the amount of money that the city contributed to the pension fund actually increased by 230%.

Yet despite increasing contributions to the fund, the fund’s solvency level keeps shrinking.

Mayor Jim Kenny summed it up the grim situation in his budget address last year:

The City’s annual pension contribution has grown by over 230 percent since fiscal year 2001. . . These increasing pension costs have caused us to cut important public services while the pension fund’s health has grown weaker. In fact, our pension fund has actually dropped from 77 percent funded to less than 50 percent funded during the same time our contributions were so rapidly increasing.

So, desperate for revenue, the local government has been relying on an old tactic to get their hands on every spare penny they can.

The city of Philadelphia owns the local gas company– Philadelphia Gas Works (PGW). It’s essentially a local government monopoly.

And over the last few years, PGW developed an automated system to comb its billing records, find delinquent accounts, and file a lien on those properties.

If you’re not familiar with real estate law, a ‘lien’ is a formally-registered security interest in which your property serves as collateral for a debt.

When you borrow money from the bank to buy a home, for example, the bank registers a lien over your home for the value of the mortgage.

The lien prevents you from selling the home until you satisfy the debt. It also means that if you don’t pay the debt, the lienholder (the bank, or the gas company) can seize the property.

In PGW’s case, the gas company is filing liens over people’s properties due to unpaid gas bills as little as $300.

There is essentially zero due process here. It’s not like the gas company has to go in front a jury and prove that there’s an unsatisfied debt.

They just have their automated system file some papers, and, poof, the lien is registered.

So someone could have their home encumbered for a $300 late bill that ended up being an administrative error.

More importantly, it’s curious why the gas company is filing a lien against the property… because it’s entirely possible that the delinquent customer isn’t even the property owner.

Let’s say you’re a landlord and renting out your investment property to a tenant… and the tenant doesn’t pay his gas bill: PGW will put a lien on your property, even though it’s not your bill.

Even worse, you wouldn’t even know about it, because PGW would be sending the late notices to the tenant… not to you.

At that point it turns into a total bureaucratic nightmare.

If you’re lucky enough to even find out about it, you call PGW to try and get the lien removed.

But (according to court documents), PGW tells angry landlords that they have no control over the lien process, and tell people to file a complaint with the Pennsylvania Public Utility Commission.

But then the Pennsylvania Public Utility Commission tells you that they have no jurisdiction over liens in Philadelphia, and that you should talk to the utility company.

Classic government bureaucracy. You just get bounced around between various departments and nothing ever gets resolved from a problem that you didn’t even create.

Well, a bunch of landlords finally had enough of this nonsense, so they got together and sued the city in federal court.

It seemed like a slam dunk case. Why should property owners be held liable for the actions of their tenants?

If tenants don’t pay for their own gas, the tenants should be held responsible… not the property owners.

Common sense, right?

Wrong. The landlords lost the case.

Two weeks ago the US District Court for the Eastern District of Pennsylvania ruled that the City of Philadelphia was well within its rights to hold property owners responsible… and to file a lien on the property without even notifying the owner to begin with.

This is a pretty strong reminder of how low governments will sink when they become financially desperate.

Source

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