4 ms·

Aside from the Justice Preening, this raises some interesting ethical questions about time preference. I mean, in a lot of cases they understood exactly what t

Aside from the Justice Preening, this raises some interesting ethical questions about time preference. I mean, in a lot of cases they understood exactly what they were doing - giving up some money tomorrow in exchange for some today. They just made a more drastic tradeoff than, say, traders selling treasury bonds, but less drastic than, say, the millions of people taking payday loans, or those same traders if they expected interest rates to rise to 30%. It's unclear what exactly it means to "not understand" the tradeoff - presumably if you said the words to them they would repeat them back and tell you they "understand" that this will happen in the future; it's not exactly a difficult calculation, just an if-then. Does competency then require some kind of accurate estimation on their part of future regret? This seems like a really high bar that millions of, eg, high functioning alcoholics or one-night-stand partakers fail each day. Does lead screw with time preference specifically? I would assume so, but is it more or less than would be expected given the effect on general mental capacity? How high of time preference is "too high"? Is it unethical to transact with someone who wants things NOW just a little too strongly, maybe even so strongly that they don't bother to comparison shop? Do our ethics require them to be pariahs, even though they're not "incompetent" enough for someone else to be responsible for their affairs? Would cashing them in at parity with the estimated present value (which, given their condition, they're likely to squander over roughly the same time period they squandered the larger amount) be more un/ethical? Equally?

harryh 11y ago
Excellent comment and similar to a thought I had while reading this. Sure, in this case there are legitimate competency questions that make us wonder if the individuals in question should even be allowed to enter into a contract of this nature. But it's not that hard to imagine Access Funding making similar deals with other owners of structured settlements. Can a man who was hit by a car and lost the use of his leg sell his settlement at a drastic discount like we see here? How big a discount is too big? I suppose this is why some states have usury laws. Above a certain interest rate the state decides that willingness to take the loan is, in and of itself, evidence of lack of competency.
- deleted 11y ago
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- tanzam75 11y ago
  I don't see why structured settlements should be allowed to be sold off at all. The whole point of choosing a structured settlement is to prevent the person from spending a one-time windfall. So why allow that arrangement to be undone after the fact? When you retire, you cannot assign your Social Security payments to a company in return for a lump sum. Many pension plans also prohibit you from assigning your pension checks. As a society, we've decided that preventing retirees from becoming destitute is more important than allowing those retirees to access their benefit as a lump sum. Why is it different for structured settlements?
  - Pyxl101 11y ago
    Structured settlements are not exclusively used for those reasons: > Structured settlement cases became more popular in the United States during the 1970s as an alternative to lump sum settlements. The increased popularity was due to several rulings by the IRS, an increase in personal injury awards, and higher interest rates. The IRS rulings changed policies such that if certain requirements were met then claimants could have federal income tax waived. Higher interest rates result in lower present values, hence annuity premiums, for deferred payments versus a lump sum. https://en.wikipedia.org/wiki/Structured_settlement https://en.wikipedia.org/wiki/Structured_settlement They are presumably easier for the person paying the settlement as well. They can pay it from their cash flow over time, instead of liquidating businesses for up front payments, etc. It's possible that the article is drawing a false connection between the nature of the injury that the settlement is redressing, and structured settlements. It seems like people who are properly unable to care for themselves will require legal guardianship or conservatorship by another, and a trust set up on their behalf, etc. I don't get the impression that structured settlements alone are meant to deny the person who was awarded the settlement a right, so much as that they provide an advantage to one or both parties.
    - tanzam75 11y ago
deleted 11y ago
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lotu 11y ago
>It's unclear what exactly it means to "not understand" the tradeoff - presumably if you said the words to them they would repeat them back and tell you they "understand" that this will happen in the future; it's not exactly a difficult calculation, just an if-then. I think the mean these people don't understand they are giving up +70% of the present value of the settlement. They probably don't understand what present value means, and figuring out 70% of a large number might not be something they could do even with a calculator. They do know this is bad and embarrassing so they will try to cover up their ignorance by saying, "Yes I understand" even if they do not. I would expect they would be unable to correctly explain un-assited, and un-promted, why they got a structured settlement in the first place, how the structured stealement plays into their everyday finances, why they now think a structured settlement was a bad idea, and how the plan to make up for the loss of monthly checks in their day-to-day expensies. As I side note I feel you could make a convincing argument that alcoholics should lack legal competency when dealing with matters that involve them getting alcohol. They routinely do things that I don't think can be called competent (much less legal) for example putting people they care about at risk of death by driving while very drunk. We even have special rules for these people related to drinking and driving namely ignition interlocks, that we don't require non-alcoholics to use.
- fiatmoney 11y ago
  "Present value" is definitionally what you can trade the income stream for in the present, which amongst other things depends on your discount rate or time preference. It begs the question to say that they sold it for "less than the present value (to them)".
- brandonmenc 11y ago
  > I think the mean these people don't understand they are giving up +70% of the present value of the settlement. They probably don't understand what present value means, and figuring out 70% of a large number might not be something they could do even with a calculator. Cripes, they probably don't even know what the word "percent" means. These people need far greater protection from the law than they're receiving.
  - 11y ago
lifeisstillgood 11y ago
Honestly, rubbish - getting an illiterate, brain damaged person to sign a contract they never read and signed without advice on their side for 1/5 of the face value is not about time preference - it's fraud, or undue pressure or something illegal. Jail time.
d--b 11y ago
Ethics have nothing to do with it. Time preference is very well defined in financial terms, because it can be replicated easily. That is why the author can say that the value of her judgement is 338k today. Any substantial divergence from that number is just plain fraud, regardless of how 'strongly' the person wants it. You can't just swap dollars for pennies, you can't allow that for an awful lot of reasons.
rdl 11y ago
This is particularly screwed up because they had the option of a structured settlement vs. lump-sum at the outset, and were shepherded into the structured settlement. Later, when their circumstances generally have NOT changed, it's absurd that they'd give up 70-90% of NPV to transition. I wonder if there could be a requirement written into the structured settlements that the settlement provider handle a market-rate transition to lump sum at any time, as part of creditworthiness of the settlement provider. Then, petition a judge in jurisdiction of residence to do the transition. I'm pretty far-right libertarian, but this is just gratuitous abuse of people who aren't able to take care of their own affairs. Selfishly, I want it destroyed with fire because otherwise people will see this abuse and think they need more regulation even in other areas where it's not necessary.

harryh 11y ago

Excellent comment and similar to a thought I had while reading this. Sure, in this case there are legitimate competency questions that make us wonder if the individuals in question should even be allowed to enter into a contract of this nature. But it's not that hard to imagine Access Funding making similar deals with other owners of structured settlements. Can a man who was hit by a car and lost the use of his leg sell his settlement at a drastic discount like we see here? How big a discount is too big? I suppose this is why some states have usury laws. Above a certain interest rate the state decides that willingness to take the loan is, in and of itself, evidence of lack of competency.

deleted 11y ago
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tanzam75 11y ago
I don't see why structured settlements should be allowed to be sold off at all. The whole point of choosing a structured settlement is to prevent the person from spending a one-time windfall. So why allow that arrangement to be undone after the fact? When you retire, you cannot assign your Social Security payments to a company in return for a lump sum. Many pension plans also prohibit you from assigning your pension checks. As a society, we've decided that preventing retirees from becoming destitute is more important than allowing those retirees to access their benefit as a lump sum. Why is it different for structured settlements?
- Pyxl101 11y ago
  Structured settlements are not exclusively used for those reasons: > Structured settlement cases became more popular in the United States during the 1970s as an alternative to lump sum settlements. The increased popularity was due to several rulings by the IRS, an increase in personal injury awards, and higher interest rates. The IRS rulings changed policies such that if certain requirements were met then claimants could have federal income tax waived. Higher interest rates result in lower present values, hence annuity premiums, for deferred payments versus a lump sum. https://en.wikipedia.org/wiki/Structured_settlement https://en.wikipedia.org/wiki/Structured_settlement They are presumably easier for the person paying the settlement as well. They can pay it from their cash flow over time, instead of liquidating businesses for up front payments, etc. It's possible that the article is drawing a false connection between the nature of the injury that the settlement is redressing, and structured settlements. It seems like people who are properly unable to care for themselves will require legal guardianship or conservatorship by another, and a trust set up on their behalf, etc. I don't get the impression that structured settlements alone are meant to deny the person who was awarded the settlement a right, so much as that they provide an advantage to one or both parties.
  - tanzam75 11y ago

deleted 11y ago

[deleted]

lotu 11y ago

>It's unclear what exactly it means to "not understand" the tradeoff - presumably if you said the words to them they would repeat them back and tell you they "understand" that this will happen in the future; it's not exactly a difficult calculation, just an if-then. I think the mean these people don't understand they are giving up +70% of the present value of the settlement. They probably don't understand what present value means, and figuring out 70% of a large number might not be something they could do even with a calculator. They do know this is bad and embarrassing so they will try to cover up their ignorance by saying, "Yes I understand" even if they do not. I would expect they would be unable to correctly explain un-assited, and un-promted, why they got a structured settlement in the first place, how the structured stealement plays into their everyday finances, why they now think a structured settlement was a bad idea, and how the plan to make up for the loss of monthly checks in their day-to-day expensies. As I side note I feel you could make a convincing argument that alcoholics should lack legal competency when dealing with matters that involve them getting alcohol. They routinely do things that I don't think can be called competent (much less legal) for example putting people they care about at risk of death by driving while very drunk. We even have special rules for these people related to drinking and driving namely ignition interlocks, that we don't require non-alcoholics to use.

fiatmoney 11y ago
"Present value" is definitionally what you can trade the income stream for in the present, which amongst other things depends on your discount rate or time preference. It begs the question to say that they sold it for "less than the present value (to them)".
brandonmenc 11y ago
> I think the mean these people don't understand they are giving up +70% of the present value of the settlement. They probably don't understand what present value means, and figuring out 70% of a large number might not be something they could do even with a calculator. Cripes, they probably don't even know what the word "percent" means. These people need far greater protection from the law than they're receiving.
- 11y ago

lifeisstillgood 11y ago

Honestly, rubbish - getting an illiterate, brain damaged person to sign a contract they never read and signed without advice on their side for 1/5 of the face value is not about time preference - it's fraud, or undue pressure or something illegal. Jail time.

d--b 11y ago

Ethics have nothing to do with it. Time preference is very well defined in financial terms, because it can be replicated easily. That is why the author can say that the value of her judgement is 338k today. Any substantial divergence from that number is just plain fraud, regardless of how 'strongly' the person wants it. You can't just swap dollars for pennies, you can't allow that for an awful lot of reasons.

rdl 11y ago

This is particularly screwed up because they had the option of a structured settlement vs. lump-sum at the outset, and were shepherded into the structured settlement. Later, when their circumstances generally have NOT changed, it's absurd that they'd give up 70-90% of NPV to transition. I wonder if there could be a requirement written into the structured settlements that the settlement provider handle a market-rate transition to lump sum at any time, as part of creditworthiness of the settlement provider. Then, petition a judge in jurisdiction of residence to do the transition. I'm pretty far-right libertarian, but this is just gratuitous abuse of people who aren't able to take care of their own affairs. Selfishly, I want it destroyed with fire because otherwise people will see this abuse and think they need more regulation even in other areas where it's not necessary.