They want you to quit smoking tobacco, not to quit buying tobacco.

The Daily Pundit:

It appears that Americans are responding to the taxes, exhortations, health risks and other anti-smoking efforts and have actually been reducing their smoking at rates faster than experts initially calculated.

Some of you are old enough to remember the tobacco boondoggle settlement from 1998. That was a $200 billion+ settlement from the tobacco companies to the states as downpayment on cartelization compensation for the damages that smoking had caused over the years. Of course, states being the patient fiscally responsible entities that they were, couldn’t wait for the dollars to flow in from the tobacco companies. So, taking their cue from the investment banks who can basically take any cash flow, package it up and sell it off as a bond (and I am sure at the urging of the investment banks), states and municipalities “securitized” these expected future cash flows. In other words, states took the money now (by raising it from investors) and sold the investors the rights to a fixed stream of future cash flows based on the expected future payments from tobacco companies…. A final observation from this entire incident (and indeed there is a LOT more interesting stuff to learn here) is that we cannot even model out cigarette smoking a decade out, based on millions of observations about cigarette smoking and prices, yet the all knowing planners in Brussels, Washington, and beyond seem to think they can model out responses to a warming planet 100 years out.

What is that overriding law? You know, The Law of Unintended Consequences.

These future payments were in part a function of how many cigarettes the tobacco companies sold, and hence how much people smoked. Oops. People are smoking a lot less than we anticipated 14 years ago, and even 9 years ago when studies were commissioned to estimate this.

What does this mean?

Well, the “securitization” means that the issuing entities (not all of them are states) are liable for any shortfalls. And it appears likely that the amount of cigarette settlement money expected to come in will fall short of what the issuers have promised to pay investors.