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On March 1, 2011, the European Court of Justice, the EU's Supreme Court, declared illegal the widespread practice of charging men and women different rates for insurance, setting in motion an overhaul of how life, auto and health policies are written across Europe. Although tied to commerce, the ruling involves non-economic elements as per the high court's citation of the EU's Charter of Fundamental Rights, which enumerates 14 categories on which discrimination is prohibited; sex is the first. A separate provision states that "equality between men and women must be ensured in all areas." Because fundamental rights go to the core of what a political domain stands for, at least in the case of a republic, an implication is that the EU is indeed a political federal state, rather than simply a WTO for Europe. The fact that the states of the EU must abide by the ECJ's ruling on the fundamental rights means that some governmental sovereignty has indeed shifted from the state governments (and their respective constitutions) to the EU.  Like the US, the EU is a federal system of governance characterized at its core by dual governmental sovereignty, which in turn is sourced in popular sovereignty.  Other, less fundamental, implications can also be drawn from an analysis of the ruling.

Ironically, the court's decision means that women drivers will pay higher premiums (possibly up to 25% more) to be treated equally; premiums for young men would fall. Hitherto, European insurance companies could use the statistical correlation between being male (and young) and risky driving to charge young men higher premiums.  Positive correlation is not causation, however; there is no known causal relationship between a female biology and relatively risk-averse driving. The advocate general, Juliane Kokott, argued that there was "no compelling evidence that women live longer or drive more safely because they are biologically women. Underlying factors affecting longevity or prudent driving—such as drinking habits or the desire to engage in risky behavior—might be associated statistically with one or other sex. But that, she said, doesn't mean insurers can choose a price for a particular customer based on sex," acccording to The Wall Street Journal.

Generally speaking, David Hume argued in the eighteenth century that we don't really understand causal connections even when we think we do. In other words, we tend to make assumptions--essentially over-extending our minds from what we do in fact know. I would add that presumption itself might be hardwired in the human mind even in simply being able to have a coherent (i.e., unitary) consciousness.  Unavoidably, we make assumptions about what we perceive in order for the world to make sense.

In addition to the political and philosophical implications, the case provides an illustration of the nature of business regarding regulatory obstacles. In short, it is in the nature of a profit-seeking machine to get around the dams.  The Wall Street Journal reports that European insurers "had been bracing" for the March 1 ruling. Philip Jarvis of the law firm Allen & Overy in London "says insurers may have to collect more individual data on policy holders to compensate for the loss of sex as a quick dividing line. That could accelerate, for instance, the adoption of vehicle "black boxes" or other devices to plug into onboard diagnostic computers to give insurers a direct look at driving habits." Such a closer tie between a driver's premium and his or her actual driving would be fairer than going on market-segmentation correlations (i.e., groupings).  However, to the extent that correlations are more cost-effective than equipping every car with a black box, insurers could simply find other variables that are not gender but essentially give the same results. For example, if women tend to buy a product, insurers could use owning that product in lieu of gender in pricing premiums. That would probably set off another round of legal proceedings, but it would give insurers additional time under essentially their old rubric.  In short, I contend that business is inherently oriented to getting around things in its way profit-speaking. A regulation that a firm cannot use strategically (i.e., giving it a comparative advantage over competitors less well-equipped to comply) is apt to be viewed from a managerial standpoint as a challenge to get around with the least inconvenience or cost. To be sure, there was no evidence of such behavior as of the ECJ's March 1st ruling; I am merely pointing to how it might look.

Source: http://online.wsj.com/article/SB10001424052748704506004576173832873341162.html?KEYWORDS=EU+Closes+insurers%27

In 2009, Congress appropriated $16 billion in earmarks. In March of 2010, that the House eliminated earmarks to for-profit companies. However, enterprising managers soon found a way to get around the restriction. I contend that figuring ways to get around restrictions is the default in corporate responses to regulations where the latter cannot be used for strategic advantage.

In Marcy Kaptur’s (D-OH) district, a defense contracting company incorporated a nonprofit organization, the Great Lakes Research Center, at the same address and doing the same work. The center received earmarks of $10.4 million to sell the Pentagon small hollow metal spheres for body armor. Kaptur, who had received tens of thousands of dollars in campaign contributions from the owner’s family and the company’s lobbyists told the media that the center “met the requirements of the Reform.” If this is true, the reform was in effect nugatory—so one might ask: why did the House go to the trouble unless for the short-term PR benefit? There is a deeper problem in even the appearance of a conflict of interest wherein a lawmaker has a role, whether direct or indirect, in money going to an organization that has contributed to the lawmaker’s campaign. Even if not intended, the conflict of interest should be sufficient as a red-light, yet as long as money is not being used by the company’s owner for personal use, such conflicts of interest are typically ignored.  I contend, however, that both types are equally sordid and hence that we should be on guard for them both.  If I am correct, there is an unduly lax and restrictive attitude in the US toward institutional conflicts of interest. This lapse has in turn enabled corruption in the Congress.

Source: Eric Lipton and Ron Nixon, “Companies Find Ways to Bypass Earmarks Ban,” NYT (7/5/10), 1A.

See http://www.nytimes.com/2010/07/05/us/politics/05earmarks.html?_r=1&hpw

According to The New York Times, Wall Street bankers were busy working on how to weaken the regulations or otherwise profit from them before the ink was dry on the financial reform law of 2010 . First, regarding trying to profit from the new regulations, BOA, Wells Fargo and other big banks that were faced with new limits on fees associated with debit cards were imposing fees on checking accounts. Compelled to trade derivatives in the daylight of closely regulated clearinghouses rather than in murky over-the-counter markets, titans like J.P. Morgan Investment Bank and Goldman Sachs were building up their derivatives brokerage operations. Their goal was to make up any lost profits — and perhaps make even more money than before — by becoming matchmakers in the vast market for these instruments. That critics were pointing to them as a principal cause of the financial crisis made no difference to those bankers. Even when it comes to what is perhaps the biggest new rule — barring banks from making bets with their own money — banks found what they thought was a solution: allowing some traders to continue making those wagers as long as they also work with clients.

Lest one conclude from the banks’ stretegic responses that the new law passed in the wake of the financial crisis of 2008 goes strongly against their interests, it is important to remember that the reform is more geared to giving government officials adequate power to mop up a future mess than to enabling them to prevent one in the first place by clamping down on the banks. The devil is in the details. This in itself can be an opportunity for banking lobbyists to work over regulators who depend on information from the industry and can be swayed by legislators who have received campaign contributions and fund-raisers from the bankers. Regulators are tasked under the new law with writing the specific rules of the road governing limits on risk-taking by financial firms and previously unregulated trading. By leaving so much to the discretion of existing regulators, the new law is “a boon to Wall Street lobbyists, who will now be working behind the scenes to influence the regulators,” according to John Taylor, president & CEO of the National Community Reinvestment Coalition. Furthermore, in enforcement, there is evidence that regulators are apt to look the other way. The wave of predatory lending that sank the housing market, for example, could have been largely prevented if the Federal Reserve had enforced existing rules on mortgage lending, according to Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University.

Under the financial reform law of 2010, banks and other financial institutions are overseen by a council of  regulators. That group is charged with identifying the kinds of “systemic” risks that spun out of control in the collapse of Bear Stearns and Lehman Bros. in the financial panic of September 2008. But there’s little to be gained by entrusting that task to the same regulators who failed to spot the causes of the panic the first time, said Isaac, the former FDIC head. “If a bank went to the regulators and said, ‘We’ve got a good idea: we’re going to put our lending officers in charge of risk management,’ that bank would be put out of its misery immediately,” said Isaac. “That’s what the government just did. It put the regulators in charge of assessing their own performance. It’s a very bad system.” While the law creates a separate agency with a single consumer mandate, even it remains beholden to those regulators, who retain the power to veto its regulations and enforcement actions. That setup, said Taylor, could seriously hamper the board’s effectiveness. “That club of regulators is very insular, and usually in agreement,” he said. “They can kill serious reform, and the financial lobby remains much more influential with regulators than consumer advocates.”

The problem can be broadened by considering that President Obama brought to head his economic team people like Larry Summers, who while in the Clinton Administration lobbied against regulating derivatives, and Tim Geithner, who had been appointed as President of the New York Federal Reserve at the urging of Citigroup and its major stockholder. In other words, it is not just a matter of relying on the same regulators; the construction of the law involved the same advisors.  Indeed, that members of Congress listened to the banking lobby at all even as the banks were complicit in the financial crisis of 2008 can be viewed as going back to the same. At a fundamental level, the banking industry may have too much leverage over top government offiicals, whether legislators or regulators.

Sadly, according to Newsweek, “the bill does more to help regulators detect and defuse the next financial crisis than to actually stop it from happening. In that way, it’s like the difference between improving public health and improving medicine: The bill focuses on helping the doctors who figure out when you’re sick and how to get you better rather than on the conditions (sewer systems and air quality and hygiene standards and so on) that contribute to whether you get sick in the first place.” This might be because it is in the big bankers’ interest that the government come in and clean up, but not restrict them in the meantime.  In the 1980s, the financial sector’s share of total corporate profits ranged from about 10 to 20 percent. By 2004, it was about 35 percent. According to Newsweek, “What you get for that money is favors. The last financial crisis fades from memory and the public begins to focus on other things. Then the finance guys begin nudging. They hold some fundraisers for politicians, make some friends, explain how the regulations they’re under are onerous and unfair. And slowly, surely, those regulations come undone.”

In the wake of the financial crisis, the American people had a chance to brake up the banks too big for our republics, but even then the bankers were able to quietly get this option off the airwaves. I contend that the too big to fail systemic risk is actually greater with respect to the viability of the US than to the financial system. That is to say, the ability of Wall Street to dodge the bullet even when it was culpable for a near melt-down of the financial markets may mean that we are living in a plutocracy rather than a democracy—the latter being mere window-dressing. Even when Wall Street is “bad,” it owns Congress, according to Sen. Dick Durbin of Illinois.  This ought to tell us that the game is over, yet with regard to the regulators I suspect the games will go on for some time.

Sources:
http://www.msnbc.msn.com/id/38266914/ns/business-eye_on_the_economy/  http://www.newsweek.com/2010/07/15/five-problems-financial-reform-doesn-t-fix.html  http://www.cnbc.com/id/38272518

See Related:
http://euandus3.wordpress.com/2010/07/09/is-the-us-too-banker-friendly-relative-to-the-eu/
http://euandus3.wordpress.com/2010/06/23/regulating-financial-and-commercial-derivatives/