Author: A.T.

“Mr. T: I have before me an application for a mutual fund. It says, ‘Neither the Fund nor its transfer agent will be liable for any loss or expense for acting upon written, telephone or computer on-line access instructions reasonably believed to be genuine and in accordance with the procedures described in the Prospectus.’ In these days of identity theft and computers loaded with personal information about individuals, it doesn’t seem smart to sign such an application. What do you think?” — Bruce

Well, Bruce, far be it from me to say it is smart and then have you be the one guy in a million (or some large number, anyway) who gets shafted and has to see whether boilerplates like that would stand up in court. I forwarded your query to Fidelity for their opinion, and here’s what I got back:

“The SEC permits fund companies to disclaim liabilities [this way]. But if the fund company elects to do so (as Fidelity does), disclosure is required. At Fidelity, we allow telephone exchange transactions and we disclaim liability for this in both fund prospectuses and account applications. We would be happy to send these documents to you if you’d like to see them. We believe that we have reasonable procedures in place designed to verify the identity of a caller. He or she must provide certain personal information in order to access his/her account. If the investor prefers not to have the ability to exchange over the telephone, he/she can call Fidelity to block this service.”

There’s no question, an awful lot of trust is involved in today’s modern financial world. We take it on faith that our banks and brokerage firms won’t somehow scramble all their records, and ours. We take it on faith that a company that pays no dividends will nonetheless be perceived by others to have value, because it one day could pay dividends (or buy back its stock), and that it is thus prudent to part with our hard-earned money for an electronic blip representing our tiny share of ownership in those nonexistent dividends. We take it on faith that a $20 bill is as good as the gold in Fort Knox that no longer stands behind it.

My own feeling is that if you deal with reputable companies, keep your receipts and statements (and check them for accuracy promptly as they arrive in the mail), you have little to worry about. It’s highly unlikely someone would go in and start switching your money from one mutual fund to another — to what end? Of course, the real concern is that they might move the money from your account to theirs. But in that case, in addition to having the broker or mutual fund to go after, there would be a criminal case against whoever got your money. And if someone is intent on stealing from you, they can probably mail in a forged, notarized document instructing withdrawal of your funds just about as easily as they can commit fraud over the phone.

According to the latest issue of SmokeFree Air, here are some sample tobacco taxes around the world:

The table is a little misleading, because it shows only U.S. federal tax. For the comparison to be fair, you would add state taxes, which range from 2.5 cents in Virginia (for a total there of 26.5 cents) to a more typical 20 to 45 cents in states like California, Colorado, Florida, Illinois, Iowa, Ohio, Pennsylvania, Texas and many others, up to the top tier — Connecticut, New York, Arizona, Hawaii, Rhode Island, the District of Columbia, Oregon, Michigan, Massachusetts, and Washington — which range, in ascending order, from 50 cents up to a whopping 82 cents (for a total tax of $1.06).

Cigarette taxes hit hardest those with the least money — children and low-income adults. Studies have shown that high prices lower smoking among kids. And while one recoils at tax hikes on the poor, this one is a little different. Not only can anyone avoid it — hard as it is to overcome the addiction, it can be done — there are two rewards for doing so. First, longer life and better health. Second, significant financial savings, because not only are you avoiding the tax, you’re avoiding the underlying cost of the cigarettes themselves. For a typical smoker, that might come to $700 a year.

Just as the tax falls most heavily on the poor, so would those savings bring them the most benefit. Seven hundred bucks doesn’t mean much to somebody earning $80,000 a year, but it sure can make a difference to someone at the minimum wage earning $10,000.

So if we were to raise our federal tobacco tax — perhaps to help rescue Medicare — the poor would be most likely to quit as a result, reaping the most significant gains.

A tax hike, though it would reduce consumption, would still raise money. A simple example shows why. Say we added $1 to the federal tax. If consumption fell by a third, the government would be collecting five times as much federal tax on two-thirds as many packs, which works out to about 350% as much as now. If this helped save Medicare, helped keep kids from becoming smokers, and helped low-income people, especially, to live longer, healthier lives and save money, it might not be the worst tax hike we ever imposed.

Not long ago I reported on the census of 1790. I noted that the census takers highlighted counties where there were more women than men. What struck me was how few such counties there were, considering that the men were frequently doing things like dying in the Revolutionary War. Mostly it was the other way around — more men than women. (I was also struck by the number of slaves in places like Yonkers and Vermont.)

As usual, your comments were a good deal more interesting and insightful than mine.

Mike Schiffer writes: “You should consider just how many women used to die in childbirth. Prior to antisepsis — and by this period, with doctors going straight from doing autopsies to delivering babies without washing — each pregnancy was a life-threatening condition. And without contraception, women tended to go through many of them. War and revolution were dangerous, but they were temporary conditions. Bearing six or eight or ten children more than evened the odds of dying before one’s time.”

And from Jay McInnis: “I may be able to shed some light on what life was like back then. I live in a small town (Francestown, N.H., incorporated 1796, I think). In the town history there is an excerpt from a local farmer’s diary. He describes how, during a cold snap in the winter, he stayed up all night going from room to room keeping the fires in his fireplaces going. This in addition to his regular chores during the day. I know from other sources that the typical house back then required about 16 to 18 cords of wood each winter, so this was no small task. As if that weren’t bad enough, all those fireplaces would only keep those drafty, uninsulated houses about 10 to 20 degrees above outside ambient temperature. (For you city folks, a cord is a volume of wood 4’x4’x8′. I think it weighs about a ton.)

“Two points to all this: 1.) Anybody who got what we would consider a minor illness under these conditions would probably be looking at a visit from the Grim Reaper. This would doubtless account for some of the population fluctuations you noticed, and 2.) A workload like this must have made the owning of slaves or indentured servants very tempting to those who could afford them (the rich folks needed to get that 16 – 18 cords in too!).

“Another thing you notice in the old town cemeteries is that a man is often buried alongside three or four or more wives. The reason is that the childbirth mortality (and infant mortality) back in those days was staggering. So the men would periodically go off to wars or other adventures, and get themselves killed, leading to a surplus of women. The surviving men would come back, make whoopee with the wives who would then die in childbirth, leading to a surplus of men (who presumably would become surly and start another war).

“Kinda makes you glad you live in the late Twentieth Century, doesn’t it.”

Sure does.

“I’ve been given the hard sell by a Honolulu financial advisor on a limited partnership in Low Income Housing Tax Credits (section 42 federal tax code). He claims this investment to be the greatest tax credits since the invention of electricity. Do you agree, or is this another repackaged 70’s style shelter with no merit? I’m told that for a $10,000 investment into a Low Income Housing Tax Credit limited partnership, I can get a $1300 tax credit per year for 10 years. Return of principle is in doubt as the property may be worthless at the end of the holding period. The financial advisor pushing this tells me not to be concerned about that because the ‘internal rate of return’ is great. All I know is that if my $10,000 disappears all I have is a $3000 return after 10 years. Is internal rate of return a good measure of an investment?” — Carl Paradise

I’m no expert in this and haven’t seen your particular deal, let alone the real estate in question (have you?), but let’s start with the easy part — the math. And the first thing to say here is that, yes, internal rate of return is a good measure of an investment. In fact, properly calculated, it is the only proper measure. (It’s kind of like asking: “Is height a good measure of how tall someone is?” Except you need a financial calculator, not just a tape measure, to determine it.)

So what is the internal rate of return on this investment?

If you wind up losing the $10,000, then to have received 10 annual $1,300 “payments” by way of tax credit is to have “earned” almost exactly 5% a year on your money. If you get the $10K back at the end of the 10 years, but no more, your internal rate of return jumps to 13% a year. And of course if the value of this real estate zoomed — which it may not because it is low-income housing with, I presume, rent caps — then your return would be even higher.

The tax credits, I’m told, are real — this isn’t some wild bull semen tax shelter from the Seventies. (In the Seventies, the top federal tax bracket was 70%, so people would jump at anything.) But there may be other ramifications and pitfalls that make the worst case worse than the aforementioned 5%. One, I suppose: the possibility that you might not need a tax credit some year, rendering it valueless. Another: the possibility that you’ll spend a little extra time and money each year on tax preparation. The biggest: If the general partner should fail to perform as required by the law that set all this up, it’s possible that the tax credits would be disallowed or even “recaptured” (meaning you have to pay them back, with interest and penalties).

Not to deal your financial advisor out of the $700 or $800 he might get from each $10,000 you invest in this . . . it could work out just fine. But if it makes you at all nervous, I wouldn’t do it.

I’m going to Hong Kong next week, which is a big deal to me — I’m not one of those guys who’s constantly jetting off for a quick trip to Japan or Brunei. Getting my airline ticket just now reminded me of two things.

First, of course: King Kong. I know there’s no relation, and that King Kong was fiction, while Hong Kong is very real, and home to the most expensive real estate in the world. (Funny what the threat of a little Communist takeover will do to prices. Boy, were the naysayers wrong, at least so far.) What I love most about King Kong is the time I spent with producer Dino DeLaurentiis as he filmed the remake, which he billed as — and to me it was the ultimate lesson in chutzpah — “the most original motion picture event of all time.” Hey, listen: the best defense is a strong offense.

The second thing this airline ticket reminded me of: Australia, the closest I think I’ve ever been to Hong Kong (although these things are deceptive — did you know Bermuda is closer to Boston than New York?). It was a long time ago, and my baby cousin was running a good chunk of Pan Am. (Pan Am cratered, but not my baby cousin. He went on to run Hyatt’s marketing, then United Airlines’, then captained a cruise line, now runs Vail Resorts. His name is Adam Aron. He was close to taking a top spot with Ramada Inns once when he realized that his name, backwards, spelled: No Ramada.)

The point is, Adam called one day out of the blue, when I was a lowly financial writer (much as I am now) and asked, with the kind of tone in his voice one would use when one had a royal straight flush, so confident was he of success: “How would you like a first-class round-trip ticket to Australia on Pan American World Airways, plus a week at a luxury hotel in return for making a breakfast speech?”

I didn’t think of this as a negotiation — this was my baby cousin, whom I love dearly.

“Gosh,” I said honestly, being less than the intrepid adventurer. “I don’t know anybody in Australia.” I wasn’t declining, by any means, just mulling over what it would be like to go half way around the world alone.

“OK,” said my cousin, before I really had a chance to decide, “how about two first-class round-trip tickets?”

“Now you’re talking.” I said happily. But it gets even a little better.

As the date of the trip and my breakfast speech approached, Adam called to say that my visit was generating a good bit of enthusiasm (either things were very dull Down Under, or else they were confusing me with someone else) and to ask whether, on top of the breakfast speech, I’d be willing to have lunch that same day with Pan Am’s Sydney station manager and a couple dozen of the airline’s best customers.

Obviously, I had to say yes. But . . . well, I’m a little shy by nature (no, really), and my idea had been to do this one breakfast speech and then go off and see kangaroos. So I paused a split second.

Had I said “yeah, sure” and sighed a bit, that would have been that. Instead, I sighed a bit first. Then, just as the “yeah, sure” was forming on my lips — the back of my tongue was already touching the roof of my mouth — Adam said, “OK, I’ll throw in a first-class round-trip U.S. ticket.”

Which goes to show two things. First, Pan Am had a lot of empty seats back then, so the cost of all this to the airline was maybe $300 in extra meals and fuel. My speeches may not be great, but if George Bush is worth $80,000 on the lecture circuit, I’m worth $300. Second, the smartest thing you can do in a negotiation is often to keep your mouth shut. A kiss may be just a kiss, but a sigh — well, a sigh can be worth $2,200.

“When a mutual fund manager states that he looks at a company’s earnings growth when valuing a stock, what generally (or exactly) is he looking at and how can I get access to this info. It seems that it would be either projections and guesswork or hindsight and old news.” — Mitch Hagens

Well, you’re right. Indeed, all too often it’s both: guesswork based on old news.

But let me back up a minute. In theory, a company’s value is based on two things: its future earnings and the value of any assets that might not be needed to produce those earnings. A company that earns $1 million a year, and always will, never more, never less, might be valued in today’s interest-rate environment at, say, $12 million — 12 times earnings. If it also owned a $3 million art collection that had nothing to do with the widgets it made, and could be sold off without hurting earnings, then the company would be worth $15 million — the $12 million from its earning power plus the $3 million from the art collection. If it’s divided into a million shares, you might consider them a bargain if they were selling for $7 each, say; way overpriced if they were selling for $29.

The actual price today’s market might pay for such a company would depend on things like what proportion of its $1 million earnings was paid out in dividends each year, how certain everyone was that the earnings would never rise or fall, and what chance they’d have of persuading management to sell the art collection. And on and on.

In reality, no company can guarantee future earnings. It’s a matter of projection. So whatever you (and the market as a whole) might pay for the company I just described will depend in no small measure on two things. First, our guess as to how fast earnings will grow, if at all; second, what underutilized assets might be hiding on the balance sheet.

Clearly, a company whose profits are likely to grow 30% a year for the foreseeable future (because they have a patent on some great new cellular phone and everyone is dying to have one?) is more valuable than a company with equal profits — today — but no prospect of appreciable growth (because they make thumbtacks, and nothing seems to be changing their business very much).

As a practical matter, in looking at earnings growth, mutual fund managers look at past growth (as you say: old news), at management’s stated objectives and projections (guesswork at best), and at the research reports of “sell side” analysts employed by Wall Street brokerage firms like Merrill Lynch, Morgan Stanley and Goldman Sachs, among many, many others.

(Mutual funds managers are on the “buy side,” because they’re in the driver’s seat. They get to decide which brokerage house ideas to buy and whom to favor with their business. They’re the customer: they get to scream at brokers. Brokers never get to scream at money managers — only after they hang up the phone. They’re on the “sell side,” because they hope to sell clients on using them to make trades. One way they do it: providing research.)

Wall Street analysts (and some conscientious mutual fund managers) will look at a host of things in trying to predict future earnings growth. For example, they might check out demographic trends to see how many young families are likely to be buying homes and what effect that might have on the sales of kitchen appliances. They might try to know an industry so well as to be able to have a feel for which management teams are strongest, which competitive strategies most likely to succeed — and how all this will affect market shares, sales growth and profits. They might consult biochemists to assess the prospects for a particular hoped-for breakthrough, interview customers to get a sense of future purchasing plans . . . all sorts of things.

Yet when all is said and done, because there are SO many variables, the earnings projections of Wall Street’s best respected analysts are notoriously unreliable. They tend to project that past growth rates will continue into the future until management cautions otherwise, at which point they begin projecting something else.

For what it’s worth, Wall Street research is available almost instantly to mutual fund managers and almost anyone else willing to pay for it via services like the “Bloomberg” terminals money managers have on their desks — yours for about $18,000 a year — and services like First Call, which are an almost instant way to get research analysis from the Wall Street houses with which your institution does business. What’s that? You’re not an institution? Well, a lot of this probably won’t be available to you. But for the long-term investor, I’m not sure the lack of these resources is such a handicap.

The stock market is a tough, tough game, because as hard as it is to guess at future earnings, that’s only part of the job. You then have to consider the degree to which those prospects are already “in” the price of the stock. If most people agree with your earnings assessment, the price of the stock will already reflect that and thus be no bargain.

I’ve been going around interviewing hugely successful money managers for a PBS series Jane Bryant Quinn and I will be hosting in the fall (BEYOND WALL STREET: The Art of Investing). If I had to summarize what impresses me most about them, besides the occasional Monet or Renoir hanging on their walls, it would be two things. First, that a rare few people can do appreciably better than the relevant market averages over the long term — it’s not all luck as “efficient market” purists believe. But second — at least if you’re managing large sums of money — it takes tremendous dedication. These people really do their homework.

I don’t know why these figures take so long to come out, but numbers for 1995 average automobile insurance premiums have only recently been released. Countrywide, we paid $666 on average, up from $650 the year before.

In California, they paid $831, up from $781.

In Michigan, they paid $645, down from $665.

But it’s not just that Michiganders paid less, or saw a small decrease instead of an increase. It’s what they got for that money. In Michigan, if they were hurt in a car crash, all their medical expenses and rehabilitation would be paid, no matter what. If the bills came to $2 million, they would still be paid. In California, by contrast, auto insurance compensation depended on two things: being able to prove the other guy was at fault and then praying he had enough insurance.

Close to half the accident-causers in California have no insurance or appreciable assets to sue for. Of those who do have insurance, many carry the legal minimum — $15,000. If the bills and future wage loss come to $2 million, tough noogies. You get $15,000 less your lawyer’s fee.

America’s trial lawyers, and Ralph Nader & Co., vigorously urge you to believe Californians are getting the better deal. They say it’s because Californians have the precious right to sue each other over auto accidents. But it’s hard to see why the right to sue — and get little or nothing most of the time — is better than the right to get significantly more without having to sue.

Consumers deserve better.

* * *

A note on the premium comparisons at the top of this comment. They’re for all insurance, including theft and damage to cars. But if you look at just the portion involving personal injury, which is what most of the controversy is about, the difference is at least as stark. Under California’s lawsuit system, that portion averaged $519, up 4.6% from the year before. In Michigan, only $343, down 4.2% from the year before. How can Michigan provide so vastly much more protection for considerably less money? Simple. In California nearly two-thirds of the money goes to lawyers and fraud. In Michigan, it does not.

Tomorrow: What Exactly is Earnings Growth?

Two sharply contradictory responses to the story of David’s leg (smashed by an uninsured motorist as he walked his bike across a busy Los Angeles intersection). If you missed it, David will probably get nothing for his pain and loss of income and be stuck with his share of a $50,000 hospital bill. Or if he can squeeze $10,000 out of the woman who owned the car that hit him (even though she wasn’t driving it), I said, $4,000 of that would go to his attorney. It’s an awful system that encourages massive waste and fraud at the expense of real victims, like my friend David.

Wrote Brian Budenholzer: “I loved your comment. But having been recently a victim of a plaintiff’s attorney, I would like to correct one error you made. Before David could get his share of any settlement, not only would the attorney’s contingency fee be deducted, but also any expenses incurred by the legal action. If those costs came to two or three thousand dollars, David’s share of the $10,000 you spoke of would be only $3,000.00 or $4,000.”

A distinctly different view came unsigned from someone who wrote: “Stating that the ‘lawyer will be $4,000 richer’ [from his 40% of the $10,000 David might conceivably get] is a sad commentary. Moreover this is a conception that lawyers have taken a vow of poverty. The practice of law is a business. . . lawyers have overhead expenses of: utilities, copiers, laptops, law libraries, secretaries, malpractice insurance, license fees, seven years of educational loans etc. Ask Fred Goldman if his team of counsel endeavored the recent civil trial for the ‘riches.’ David’s chance of securing any monetary relief without the professional assistance of counsel is probably 10% to nil. There was NO statement that the hospital was $50,000. richer from capitalizing on David’s leg injury.”

This unsigned message was absolutely correct: Under today’s awful system, David’s chance of securing any monetary relief without the professional assistance of counsel is probably 10% to nil.

But what if we could have a system where David was taken care of without needing a lawyer? Wouldn’t that be better? I don’t know how metal rods could have been implanted in David’s leg without a surgeon and a hospital — that $50,000 may have been unavoidable — but I do know how it could have been done without a lawyer.

Prop 200, the no-fault plan I helped put on California’s March 1996 ballot, and which the lawyers pulled out all necessary stops to defeat, would have provided pedestrians like David up to $1 million in medical, rehab and wage loss coverage automatically, without any need to sue or prove fault, plus up to $250,000 more for pain and suffering.

In cases where the injury was caused by a hit-and-run driver or by an uninsured motorist (as in David’s case), the claim would have been handled via what’s known as an “assigned claims plan.” All the auto insurers in the state would have been assigned their proportionate share of such claims. And if the insurer assigned David’s claim had failed to pay promptly, it would have been subject to a 2%-a-month interest charge and, ultimately, damages for dealing in “bad faith,” as determined by a jury of David’s peers. (As a practical matter, Prop 200 would actually have expanded an injured person’s right to sue recalcitrant auto insurers for bad faith.) Right now, auto insurers know that by dragging their feet, they can “borrow” from crash victims at zero interest. Under Prop 200, it would have cost them 24% a year. That would have changed their incentives and, I think, their behavior.

Today in California, consumers pay $7 billion annually for the lawsuit auto insurance injury system (separate from what they pay for theft and dented fenders). Of that, two-thirds goes to lawyers and fraud. Prop 200 would have redirected those wasted dollars to people with genuine injuries, especially those most seriously hurt. Today, on average, according to RAND, the worst-hurt recoup just 9% of their actual economic losses from that $7 billion pool.

We should never eliminate the little guy’s right to sue the big guy. General Motors. Allstate. The City of Los Angeles. But the little guy’s right — and need — to sue other little guys over auto accidents has proved horribly expensive, leaving all but a lucky few of the most seriously injured woefully undercompensated. Is 9% really enough? Does it really make sense to spend two-thirds of our money on lawyers and fraud?

In Michigan, the only state with a strong no-fault system, consumers pay significantly less than in California and yet have vastly better protection if badly hurt. How is this possible? It’s because they’ve traded the right to sue each other for the right to be compensated without having to sue.

In Michigan, very little of the premiums go to lawyers or fraud. With a true no-fault system, there’s little need of lawyers. (Prop 200 made this exception: you could sue convicted drunk drivers.) And there’s little incentive for routine fraud. (Michiganders are less than a third as likely to claim “whiplash” after an accident as Californians. It only makes sense for them to say their necks hurt if they really do. There’s no cash prize for inventing or padding claims.)

My comments over the last couple of days were not meant to insult or knock individual lawyers. After all, they didn’t invent the current awful auto insurance system. But I do criticize those who fight so hard to defeat efforts to fix it. How do they sleep at night?

Tomorrow: Michigan vs. California

Yesterday, I told you about my friend David’s accident. Ten days in the hospital, two rods in his leg, many weeks of rotten sleep and much needed painkillers. Fifty thousand dollars or so in hospital bills, not entirely reimbursed by his health insurance, plus loss of income from his work. From today’s lawsuit auto insurance system, staunchly defended by Ralph Nader and the trial lawyers, he will likely get nothing.

Well, the trial lawyers and Nader say, it’s the price we pay for justice. If the wrongdoers have nothing to sue for (or leave the scene or can’t be proven to have been at fault), that’s just tough luck.

(Under the system Nader and the lawyers fooled voters into rejecting, David would have been fully and promptly compensated for his medical, rehab and wage loss, and been awarded a sizable payment for pain and suffering.)

The irony — and I think it is perhaps beginning to annoy my normally unflappable friend — is that at the same time as he is getting nothing for his injury from the system, he is being sued by someone else, in connection with a separate accident.

In that one, David was not even involved. He was at home. It was his partner who, at the wheel of David’s 1992 Nissan Sentra, was turning a corner — it was nighttime — when he heard a loud thump. He got out of the car and found that a young man on a bike had smashed into the car and was bleeding from the head. Fortunately, it was not too serious. The young man was back at work a couple of days later.

So here is David, who had insurance, getting nothing or next to nothing for a smashed leg, ten days in the hospital, metal implants, pneumonia, and what are likely to be months on painkillers. He is likely to be out of pocket $10,000 or $20,000.

On top of which, here he is being sued for an accident he was nowhere near, by a kid who may well have been at fault (but insurers can’t afford to take all these things to trial, and how do you prove exactly what happened in a split second on a dark night?) and who was, in any event, back at work a couple of days later. There’s a reasonable chance that the injured bike rider will get several thousand dollars, his lawyer will get several thousand, and my friend’s insurance rates will go up.

It’s a system only a lawyer could love. In California, it transfers $2.5 billion a year from the pockets of consumers and crash victims into the pockets of plaintiff and insurance company lawyers.

I called to wish an old friend Happy Birthday and discovered it was more of a Get Well Soon call instead. Unbeknownst to me, he had been walking his bike across the street in Hollywood (he rides it down Lexington but then walks it across Highland, a busy intersection), when he was hit by a Honda.

In California, pedestrians have the right of way. The first car stopped; the second didn’t.

Lying in the street with a badly smashed left leg, David recalls, five different people were thrusting cell phones at him, in case there were people he needed to call. Very LA, he says. Very Nineties.

“I hope you have insurance,” David said amicably to the 34-year-old who’d hit him. (My friend is a highly amicable type, and he was, in any event, in shock.) But — surprise, surprise — the driver didn’t have insurance and neither did his sister, who owned the old car. (In California, premiums are so high that at least 5 million vehicles, perhaps as many as 7 million, are driven uninsured.)

Off the ambulance sped to Cedars Sinai, where after ten days and a bout of pneumonia, David was released with a prescription for painkillers and two metal rods in his leg. He’ll be fine, basically, and his Writers Guild group health policy is expected to pay 60% or 80% of the $50,000 or so in hospital costs. So the accident will only leave David $10,000 or $20,000 out of pocket, plus the cost of whatever income he might have lost from being out of commission. (It’s hard to write on painkillers — or at least hard to write coherently.)

For 40%, a lawyer has agreed to see if there’s any money to be gotten from the driver or the sister, who owned the car, but it’s unlikely. If $10,000 can somehow be squeezed from the sister, it will be a devastating financial blow to her young family. The lawyer will be $4,000 richer. And David will have $6,000 toward his costs. A lousy result for David; a lousy result for the sister (and her kids); a fine result for the lawyer.

Under Prop 200, which would have lowered auto insurance premiums (but which the voters defeated a year ago this month, because the lawyers advertised that it would have raised rates 40%), David would have had all his medical and rehab costs paid for, would have been reimbursed for his lost income, or at least a good portion thereof, and would have gotten a modest payment for his — very real — pain and suffering. Probably on the order of $10,000 or $25,000. (The exact amount would have been determined by a schedule set by the insurance commissioner ranging up to $250,000 for really catastrophic injuries. All pedestrians/skateboarders/bicyclers/etc. would have been covered for pain and suffering no matter what. For motorists, it would have been an inexpensive option.) The driver, meanwhile, would have faced as much “punishment” as today — a possible fine, if he was found to have been operating his vehicle recklessly, just as today; a hike in his auto insurance premiums (which today is meaningless, because he’s one of the millions who doesn’t buy it in the first place, but which under Prop 200 would have had an effect); and, of course, the rotten feeling of knowing he had hurt someone else — which you may pooh-pooh, but which I think an awful lot of people, though not all, would indeed feel.

No lawyers would have been required, no juries impaneled, no long delays. (Had there been long delays, the insurance company assigned his case would have been subject to a 2% a month penalty and, ultimately, a lawsuit for bad faith. Which is why, acting in its own selfish best interest, the insurer would have tried hard to avoid delays.)

The downside: there would have been no chance for a multi-million dollar jackpot, as there is today, in case the driver had been, say, Michael Ovitz (he of the $93 million Disney severance agreement). But here’s a newsflash: the proportion of accident-causers in California who are Ovitz-like, or even just heavily insured, is minuscule.

One solution would be to pass a law that only rich or heavily insured drivers can cause accidents. A more practical solution — certainly for my friend — would have been Prop 200.

Tomorrow: An Ironic Postscript