Sushi Money

Some strange news out this week that illustrates, for me, how legislation is often very misguided.  Rep Charles Schumer (D- N.Y.) is apparently pushing legislation that will help “bail out” the “victims” of the subprime mortgage mess.  Laura Rowley on Yahoo wrote an excellent article, Footing the Bill for the Subprime Fiasco, describing this initiative.  Now I’m all for prosecuting illegal activity by predatory lenders and helping consumers find out how to rectify loans and deals that were brokered illegally.  But Ms. Rowley makes an excellent case regarding the fact that most of these mortgage loans were taken out by people who simply made poor decisions.  And she reiterates that the vast majority of borrowers, some 85%, are paying the mortgage on time.  I think Rep Schumer is making political hay out of this opportunity… having taxpayers foot the bill for a legislative remedy is just plain wrong.  Imagine if they tried to do this with the stock market!

On another note of legislative foolishness, the State of Florida is finding out the hard way that capping property insurance rates is doing more harm than good.  The intention is well-founded, as many Florida homeowners are being priced out of the insurance markets.  But at some point, insurers simply cannot do business in a state where the risks outweigh the costs of doing business.  Motely Fool wrote an interesting piece titled Stupid Florida! in which they describe the problem.  They illustrate the issue with an example of a major insurer, USAA, basically pulling out of the property insurance market in Florida.  In a letter by the USAA CEO, he cites some interesting data:

1. Over the past 10 years, USAA has paid approximately $220 million more in Florida homeowner insurance losses and expenses than it has collected in Florida homeowner premiums.

2. Florida residents account for 49 percent of USAA’s exposure to natural disaster risk, yet make up only 9 percent of USAA policyholders and pay 12 percent of USAA’s property insurance premiums.

3. With more than $2 trillion in coastal property exposed to the risk of catastrophic hurricanes – and a history of frequent, strong storms across the state – Florida has the most challenging property insurance market in the country.

Therefore, the State of Florida has left us no choice but to take the following actions in order to limit potential future losses, and to protect the association and its members.

I feel the issue personally because I am a USAA member, and they carry most of my personal insurance business.  I read this very letter myself the other day. This is an excellent company and I’m proud to see the company take necessary steps to protect their viability as a company.  I feel bad for the Florida members and retirees who may need the coverage, but the Florida legislators have created the situation.  Legislation can do wonderful things… and it can also do great harm.  I think back to how the boat and yachting industry was nearly destroyed by the institution of the “luxury tax”…   What our legislators do locally and nationally really does matter.  I shudder to think of the changes that may take place with tax laws over the next few years with the Democrats leading the charge!

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