Weak arguments presented by "team Obama" lawyers supporting Obama's healthcare legislation took a beating yesterday, and the beating continued even more so today.
Today was the final marathon session of oral arguments over ObamaCare. It began this morning with the question of what to do with the rest of the law if the individual mandate is struck down, a very real possibility after yesterday's hearing.
On this issue, both sides agree that if the mandate falls, at least some of the other provisions must fall with it. Most of the Justices seemed skeptical that the entire law should be thrown out, but where to draw the line was a question the Court was clearly struggling with.
Some of the justices hinted that the difficulty in drawing that line could mean disaster for the whole law. Others noted that the Court has never struck down the heart of a statute but left an empty shell. At one point, Justice Kennedy expressed his concern that it might be worse to pick and choose which parts to strike down than to just overturn the whole law. Justice Scalia joked that forcing the Court to go through the law's thousands of pages and provisions one by one would be cruel and unusual punishment.
The four liberal justices appeared highly critical of the state's argument that conditioning pre-existing Medicaid funding on new expansions is too coercive. The conservative justices also expressed some skepticism that the forced expansion was unconstitutional, though they did press the administration to define the outer limits of that power.
Justices Ask if Health Law Is Viable Without Mandate
On the third and final day of Supreme Court arguments over President Obama's health care overhaul law, several justices on Wednesday indicated a reluctance to pick and choose among the law's other provisions should the requirement that most Americans have health insurance be struck down.
The questions from the justices indicated that at least some of them were considering either striking down just the requirement, often called the individual mandate, or the entire law.
Paul D. Clement, representing 26 states challenging the law, urged the court to overturn the entire law. Edwin S. Kneedler, a deputy solicitor general, took a middle ground, suggesting that the court remove the mandate and only a couple of other provisions.
The court separated the day's arguments into two sessions. After the morning session, which focused on the effect of overturning the mandate, the afternoon's hearing dealt with the law's expansion of Medicaid, part of its attempt to reduce the number of Americans without health insurance.
In the second argument, the court's more conservative justices expressed concern that the law's Medicaid expansion was unduly coercive to states.
"My approach would be to say that if you take the heart out of this statute," Justice Antonin Scalia said, "the statute's gone."
Justice Scalia, who suggested that the whole law would have to go, appeared to go further than some of the other justices, but many of them expressed skepticism that the rest of the law could remain intact if the court ruled the mandate to be unconstitutional.
Justice Ruth Bader Ginsburg called the court's task, should the key provision fall, a choice between "a wrecking operation" and "a salvage job."
Wrecking Operation or Salvage Job?
There is nothing of merit to salvage in Obamacare. Even if there was, the Supreme Court should not have to read through thousands of pages to find it.
The only things to "salvage" if key provisions are struck down, are Obama's inflated ego and his ability to say he passed healthcare legislation.
Memo to Nancy Pelosi
Hello Nancy: It seems the Supreme Court does not want to read the bill to find out what's in it.
Sorry Team Obama, your bill was more like "Healthwreck" than "Healthcare".
By the way, I have to ask: If the Supreme court strikes Obamacare, does it strike any provisions of Romneycare that passed in Massachusetts?
PIMCO founder and co-CIO Bill Gross spoke with Bloomberg Television's Margaret Brennan today, telling Bloomberg TV that the Fed will likely shift focus to mortgage securities to keep borrowing rates low when Operation Twist ends in June.
On Gross's view that we may see a sign from Bernanke in April that QE3 will be rolled out:
"I think [Chairman Bernanke] is very satisfied…I think the Fed is outcomes-oriented. They want an outcome in terms of a higher stock market, in terms of housing starts and lower unemployment. What [Bernanke] said on Monday, in terms of the employment, he suggested that up until now, we've done very well in terms of reducing unemployment but it'll be tougher going forward if only because of structural impediments that he outlined. Going forward, he's looking at jobs, at unemployment and the housing markets. You know, future QEs will the outcome-oriented type of strategy which seeks to provide jobs and provide higher housing prices and housing starts to continue on."
On the tool that Gross thinks the Fed might deploy in April:
"I have a sense that they'll continue with the Operation Twist, but not necessarily in terms of buying longer-term bonds and selling shorter dated Treasuries. I think that's basically been played out and the pension market itself in terms of liability structure has been damaged to some extent by lower 30-year yields. I think [Bernanke] will try to do is Twist in the mortgage market. Basically, buy current coupon mortgages in agency spaces and then basically Twist by repo-ing out the Treasuries that they currently own in short-term space. So, you know, a twist on another Twist I suppose, going forward."
On the ticker change for PIMCO's new ETF (to BOND):
"It is easy to recognize. I told my wife about it last night and in the middle of the night she started saying something about James. I hope she was referring to the ETF but you get the point… It's more easily recognizable. In this business you want to go with a ticker and a sticker that people can recognize and pass on to their neighbors."
On Gross's warnings to investors about management fees:
"We've noted that for a long time. This is simply a cautionary element that suggests that when interest rates come down close to zero and when the discounting of those interest rates and equity prices and other financial assets produce a perspective of 4-5% total return for the combined asset class is in our view, then it's incumbent upon a manager to keep expenses low and to alert investors as to the importance of expenses relative to lower returns in this new financial world that we speak to."
On investor appetite for PIMCO's new ETF:
"We wanted to be able to give investors a choice. We recognized the tremendous importance of the retail distribution network for PIMCO and for the Total Return Fund, which is now $253 billion. Thank you very much, we don't to discourage that. But there are investors in the $10,000-$20,000 category, who find it difficult to buy PIMCO Total Return. We thought this would be a good way to do this in the actively managed ETF space. By the way, we're outperforming the market in the first month or so by a good 200 basis points."
On PIMCO's appetite for Treasuries:
"We have an average appetite in terms of duration space. And to the extent that five-year Treasuries, which are being issued today and seven-year Treasuries tomorrow - they reflect a relatively firm commitment on the part of PIMCO, which reflects a relatively firm commitment on the part of the Fed that they'll keep interest rates firm until late 2014. Bernanke mentioned yesterday that that wasn't a commitment in total but it's subject to a relatively slow economy and contained inflation, which is what we see now. A five-year security at slightly above 1%, to our way of thinking, as it rolls down the yield curve and becomes a four-year, produces close to a 2% return and is that a super, deeper attractive type of return? Well it's up to history. No, it's not….but it's certainly better than nothing."
"We have reduced our Treasury commitment slightly. From the standpoint of duration, we have average duration of an average maturity across the board but we have been reducing Treasuries and investing in shorter duration corporates and rather heavily in the agency mortgage market. You can get, with a Fanny or a Freddie coupon that is a 4% coupon, you can realize 3% as opposed to the 2% or 1% - I mentioned in terms of five-year space. We're really focusing on spread and the lack of volatility going forward for the next two to three years which is really the domain of 30-year and 15-year mortgages."
On finding investing opportunities in developing countries:
"Where is that attractive growth? Countries like Brazil, countries in Asia, China-related of course. These countries don't come without risk. They don't come without a rather volatile situation in terms of inflation or potential currency disorder. If an equity investor is looking for growth, you want to go developing as opposed to developed. Even a bond investor, if you are looking for higher real rates such as in Brazil, you want to go to developing as opposed to developed."
On buying hedges against fat tail possibilities:
"What we're suggesting now is not an extremely negative possibility. That would be the fat left tail. But also the fat right tail, we've had a fat right tail in equity markets for the past 3-6 months…On the left-hand side, you know, the bi-model possibility in terms of a downturn are simply a reflection of the high degree of leverage, the high degree of debt and the policy coordination which may or may not be helpful in terms of producing this smooth, rather bell-shaped mode or median we're all used to."
No Real-World Point to Mortgage Twist
Note that Bill Gross' call on QE3 is not what he thinks the Fed should do, rather his take on what the Fed will do.
30-year mortgages are below 4% and 15-year fixed mortgage rates are near 3%. Other than goosing financial markets that are already back to nose-bleed level (if not outright bubble territory), there is no real-world point to an "Operation Twist" for mortgages.
February orders increased 2.2 percent but economists expected a 3 percent rise.
January durable goods orders fell 3.6 percent.
Orders for non-defense capital goods excluding aircraft rose 1.2 percent. Analysts' expected of a 2.0 percent gain.
Non-defense capital goods' orders fell 5.2 percent in January.
Excluding transportation which had an unsustainable sharp increase in civilian plane orders, durable goods orders were only up 1.6%.
Boeing received 237 aircraft orders in February, up from 150 in January, accounting for the 3.9 percent jump in transportation orders.
Motor vehicles and parts orders rose 1.6%.
Inventories of manufactured durable goods rose for the twenty-six consecutive month and are now at the highest level since the series was first published on a NAICS basis in 1992
High inventories and falling demand for non-defense capital goods' orders does not portend well for future GDP growth.
If the government can force you to buy health insurance, what can't they force you to do or buy?
That was the question posed by a number of Supreme Court justices throughout today's oral argument on the constitutionality of ObamaCare. And that was the question President Obama's lawyers couldn't seem to answer.
That question didn't seem to bother the four liberal justices, who appeared ready to uphold the law. At one point, Justice Breyer suggested that the government could force you to buy things such as cellphones and burial insurance. The remaining justices, however, appeared highly skeptical of the government's argument. Justice Kennedy and Chief Justice Roberts, largely believed to be the "swing votes" in this case, pressed the administration's lawyer hard for any kind of limit to the President's theory.
Chief Justice Roberts harshly noted that the type of insurance ObamaCare forces people to buy was completely different from the type of health care these people actually use. Justice Kennedy countered the administration's argument by saying that the government will say that every market is "unique."
The fact that the Obama administration didn't have a good answer for these questions could spell doom for the President's signature legislation. That doesn't mean the law will ultimately be struck down. After all, the government needs to convince only one of the conservative justices. But today's hearing illustrated just how uncomfortable they are with a law that, as Justice Kennedy proclaimed, "changes the relationship of the federal government to the individual in a very fundamental way."
The Obama administration's health insurance mandate faced severe skepticism Tuesday from conservatives on the Supreme Court during a pivotal morning of oral arguments on the landmark legislation.
Justice Anthony Kennedy, the court's most consistent swing vote, repeatedly voiced doubts about the mandate's constitutionality, suggesting he could side with the court's four staunch conservatives to overturn President Obama's healthcare law.
"That changes the relationship of the federal government to the individual in a very fundamental way," Kennedy said.
Jeffrey Toobin, a lawyer and legal analyst who writes about legal topics for The New Yorker called Tuesday a "train wreck for the Obama administration."
"This law looks like it's going to be struck down. I'm telling you, all of the predictions, including mine, that the justices would not have a problem with this law were wrong," Toobin said Tuesday on CNN. "I think this law is in grave, grave trouble."
Supporters of the law had seen Chief Justice John Roberts and Justice Antonin Scalia as possible supporters of the mandate in addition to Kennedy, but the two offered aggressive questions during the two hours of arguments.The debate hinged largely on whether the mandate requires people to enter the market for health insurance or regulates the market for healthcare. Verrilli argued that everyone either uses healthcare or is at risk of unexpectedly ending up in the market for healthcare services. The mandate simply ensures that those services are paid for, he said.
Scalia wasn't buying it.
"I don't agree with you that the relevant market here is health care. You're not regulating health care. You're regulating insurance," Scalia said. "It's the insurance market that you're addressing and you're saying that some people who are not in it must be in it."
Following an exchange between Verrilli and Scalia, Justice Sonia Sotomayor spent a full two minutes outlining the three main elements of the Justice Department's position, then she asked Verrilli, "Which of these three is your argument? Are all of them your argument?"
Roberts pressed Verrilli to explain where Congress's power to issue new mandates would stop. The lack of a "limiting principle" has dogged the Justice Department's case throughout the process, prompting one lower-court judge to question whether Congress could also require citizens to buy broccoli, because a healthy diet would cut down on healthcare costs.
The Supreme Court justices revived the broccoli analogy and ran through several more, asking whether the government could mandate the purchase of cellphones, gym memberships, cars, prescription drugs or burial insurance.
Conservative judges in lower courts have upheld the mandate on the grounds that healthcare is unique, due to the risk of accidents and the nature of its cost-shifting. Although other goods also get more expensive when people don't buy them, there are few parallels to the requirement to treat uninsured patients.
The mandate is also considered essential to effectively implementing other parts of the healthcare law. Provisions requiring insurance companies to cover sick people, and prohibiting them from charging those patients higher prices, could dramatically raise the price of insurance if not counterbalanced with the mandate.
"That seems to me a self-created problem" that could be solved by not imposing those regulations, Scalia said.
Senator Lee Says 5-4 Ruling Against Individual Mandate
Sen. Mike Lee (R-Utah) predicted Tuesday that the Supreme Court will rule against President Obama's signature healthcare legislation and declare the individual mandate unconstitutional.
"Based upon the questions from the bench, I am predicting that there's likely to be a 5-4 ruling in this case. I tend to think it's a 5-4 ruling holding that the individual mandate is unconstitutional," said Lee on Fox Business Tuesday.
Lee said that he sensed Kennedy, who is considered the traditional swing vote on the court, appeared "very skeptical" about the Justice Department's argument in defense of the mandate.
Lee, who clerked for Supreme Court Justice Samuel Alito on the U.S. Court of Appeals for the Third Circuit Court, also noted that today's hearing was uncharacteristically "lively."
The Illinois Policy Institute asks the correct question "If the government can force you to buy health insurance, what can't they force you to do or buy?"
Regardless of whether or not one thinks we need national healthcare, legislation ought to pass strict constitutional muster. Obamacare doesn't, and thus deserves to be flushed down the toilet. Congress can try again.
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