Tuesday, July 26, 2011

The Great Big Government Poker Game with Our Economy

For a time in my career, I worked in-house for an insurance company. One part of my job was to supervise cases in litigation against our insureds, and decide which should be settled for what amount and which should be taken to trial. So, for example, if Sally hit Joe in a car accident and caused some serious injuries, what should we pay Joe to make it go away? If Fred's defective ductwork caused a carbon monoxide leak that killed Mike, what should we pay for that? If Jane is claiming serious injuries from a fall on Wilma's property, but no matter how you look at it, Wilma didn't do anything to cause her to fall, what's that worth? If Rob is alleging injuries that appear to be in his imagination, what would we pay to avoid a trial?

Settlement negotiations are routine for attorneys, but must be a nightmare for the laypeople involved. By the time they occur, you're usually at least a year or two out from the initial accident that caused the injury. The immediacy of the pain or damage has been softened somewhat by this passage of time. Both parties are a little intimidated by the thought of trial, but both are hopeful that they can reach an agreement that will let them get what they want and get on with their lives. And, basically, they're thrown dead in the middle of an insane poker game between the lawyers without the slightest explanation of the rules. For example, most attorneys know that it costs a certain amount to take a case to trial. Rationally, one should therefore pay anything less than that amount to avoid trial. Unless, of course, you believe that the person is trying to scam you. Then it makes more sense to pay the extra money to go to trial and retain the reputation of a company one should not try to scam, because the plaintiff's lawyer not only will not have collected any fees (most work on contingency) but will be out the amount of cash it took to go to trial. High dollar value cases are more difficult. Plaintiffs are very invested emotionally, and rightly so because they were hurt badly. They are often not able to see the flaws in their case, like the possibility that the person they are suing isn't really at fault or is only partially responsible. In defense work, you often come up with a formula based on what your experience tells you a jury will award. Mine was something like: multiply the medical bills times either three or five depending on the amount of fault. Then proportion it out based on how much fault each person has. Get several opinions from others,including defense counsel, and compare it to the awards in similar cases. Adjust up or down if there are any particularly egregious or exculpatory facts. If everything is pretty spot on, you've got a good number and stick with it. Plaintiff's attorneys have their own set of numbers, usually arrived at in a similar fashion.

You can see by the above paragraph that the ultimate goal is for the plaintiff's attorney to try to get as much money as s/he thinks they will get at trial, minus a tad for trial expenses. The ultimate goal for defense is to pay less than if taken to trial. We're not so interested in hearing most of the things that matter the most to the people actually involved in the accident. This is very disconcerting for them. We also have little "skin in the game" in that we're not the ones who will have to be on the witness stand and have our lives decided by the roll of the dice that is a trial by jury. The consequences of being wrong, while serious, are all figured into our business model. I am a very good poker player with other people's money.

Once at the table, there are a number of approaches. You know that you're going to get to a "middle" point near the number that you've worked out. There are many different ways to get there. Some attorneys attempt to make outrageous demands, trying to artificially move the window so that the middle is close to their best day goal. They start high or low, depending on the side they're on, and refuse to move except in very small increments. The proper response is to go equally as far in the opposite direction and move only as much as they do, keeping the window in the true middle. If that happens, you know you're going to be there all day and you might as well order lunch. Mediators will try to get you to make a big move, hoping for a reciprocally big move. I've found that to be overly optimistic. The negotiator who will start out trying to bully you and ask for the moon will not be moved by perceived capitulation. As a matter of fact, the kind of negotiator who is overtly aggressive is also more likely to get angry if you respond in a calm, statistically sound manner, and make a mistake. I had one who started well over half a million over any reasonable settlement. I couldn't go low enough to be proportionate from the middle. I did go low enough to sound equally ridiculous. He then attempted to raise his demand. I started packing. The poor mediator finally got him calmed down, but it took until nearly ten hours later before we reached the place we should have been, and could have been much earlier but for his posturing.

Other attorneys are all business. I had one negotiation that took exactly three moves. Then we all went home and I enjoyed the rest of the afternoon off. I'm not so sure that the parties were as pleased, though. We got to the number we would have gotten to if it had taken 10 hours. But the people didn't get to process the weaknesses of their respective cases and feel like they fully vented their frustration to the mediator. For me, it didn't much matter since the defendants weren't there and the company doesn't give a damn about processing emotions. But I wonder how the plaintiff's counsel handled it, since emotional satisfaction is nearly as important as the actual cash. The plaintiff may not have felt like their attorney really worked all that hard or advocated strongly for them, and may have wondered if they left money on the table. I can tell you: they did beautifully efficient work, and I wouldn't have paid a cent more. But the clients don't know that. On the other hand, the posturing attorney in the 10-hour negotiations had gotten his clients so worked up about the alleged value of their case that they weren't prepared to accept anything less than their best-day scenario. By the time we were done talking them back down, they were so angry at me that they couldn't be in the same room. We had to wait for them to leave before going to our cars. On some level, anger is just part of the process for people who are emotionally invested in the outcome.

It is axiomatic for negotiations is that if the deal is fair, everyone will hate it equally. The plaintiff will think always the case is worth more than defense. If the attorneys are competent and haven't over- or under-estimated their case, the real value - the likely outcome at trial - is somewhere in the middle between the two. So plaintiff will be taking less than s/he wants. Defense will be paying more. And it will be fair, though no one is happy.

Which brings me to debt ceiling negotiations.

What a nightmare these things have to be. Not just two negotiators, but 535, who run the gamut in negotiating tactics. Some appear to be quite reasonable. They know the consequences of default, they understand where the deals need to be made, and they come willing to talk about what's best for the country and economy as a whole. But over half the politicians involved appear to be trying instead to play the hardball tactic, hoping to move the window in their direction through posturing. They have an additional incentive to do so, since we've got elections coming up. They want to make damn sure their "clients" think they're working very hard for them and getting unfairly stonewalled by the other side. Finally, there is also a rather significant minority of extremist/fringe politicians who appear to confuse themselves with the client. They have gotten their emotions and ego tied up in the rhetoric, and may be absolutely unable to see where the settlement window truly lies. These will be hailed by their more radical constituents as "real (insert party here)s," not like the sellouts who have compromised their principles. When, in fact, they are merely incompetent.

So my prediction: we will go to the absolute last minute, through extra innings and overtime. That will let the "hardball" politicians blow enough hot air to make their constituents think they've moved the window of settlement in their favor. Then a deal will be done which the more realistic politicians could've put through two months ago, without all the posturing and expense of these press conferences and midnight negotiations. The lunatic fringe will go ballistic about the compromises made by the hardballs, calling them no better than hypocrites and actually believing their own campaign fodder. Then everyone will go home and try to put the best spin on what happened so they can get re-elected and we can go through the whole shebang again on another issue.

Because I like to get involved where it is painless, I am one of the geeks who contacts their congresscritters to let them know what I think. I've written the following:

I am writing in regards to the debt ceiling issue currently facing the legislature. As I understand it, there have been several proposals floated from both sides and negotiations have reached an impasse. I won't bore you with my opinion of the relative merits of each proposal, as I'm sure they've been discussed at great length. What is very concerning to me is the rhetoric of intransigence that I am seeing. It seems to me that many of our legislators are more concerned with posturing for the next election than actually doing their jobs. The appearance of being unmoveable on any given pet issue is more valuable to them than actually doing the hard work and reaching a compromise. In my experience, when working with parties that oppose or hate one another or their positions, the definition of a compromise is a deal that "everyone hates equally." It is more than time to make that compromise, before even more serious damage is done to our economy. I realise that some are claiming that default won't be that bad, or that it really will have no effect at all. I believe that you are an experienced enough politician to know the falsehood of that belief. I respectfully request that you reach a compromise with those across the aisle politically. A combination of cuts and raising taxes is in order. Do the deal that everyone hates, and you will have done the right thing.

Respectfully,

This is not so much out of an idea that it will actually do any good - we're going to go to the last minute in this poker game - as a deep desire to talk about something else already. I mean, seriously. If we're going to start next year's campaign already we need to bring on the crazy quotes. I want my "I'm not a witch" commercials. Then it'll be time to pop the popcorn and sit back for the show. . .

No, not really. I'm seriously hoping that we elect fewer incompetents this next time around. Running a government is a serious, difficult business. It demands a cool head, the intelligence to accurately read and understand material on a wide variety of subjects, the experience to know what works well and what doesn't, and the intelligence to know what's best for the country as a whole. Much of the political speech has descended to the lowest common denominator, and is nothing more intelligent than animals chattering in the night, cowering before whoever makes the loudest noise and acts the most aggressive as the leader of the pack. I'd like to think we've evolved. I'd like to think we value wisdom more than posturing. I'd like to think that we want to make ourselves better as a society than the jungle. I'd like to think that the good of the nation is still our highest priority.

Please don't prove me wrong.

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