The Opioid Crisis: Holding Pharmaceutical Companies Responsible

Tiny Vinton, Ohio, where massive amounts of opioids were shipped.

Much has been said about who is to blame for the opioid crisis impacting America, especially portions of rural America.  Some would blame the users, others would blame physicians, others blame economic distress, but, in my view, the real villains are the pharmaceutical companies, who like gun manufacturers, care nothing about the consequences of their product.  Rather their sole focus is seller ever larger quantities and to make more and more money.  Part of this effort includes wining and dining physicians and other prescribers and pushing them to prescribe more and more product.  Part of it is advertising campaigns to encourage patients to ask their doctors for prescriptions.  Yet another part is turning a blind eye to what even in passing would be insane quantities of opioids being shipped to small communities. Now, as the Washington Post reports, localities and states are seeking to hold pharmaceutical companies for the damage their products and their negligence have done.  Here are article highlights:

Vinton Ohio — The opioid epidemic has affected nearly every aspect of life in Vinton County. Teachers buy shoes for students whose addicted parents send them to school in footwear held together with tape. Overdose deaths have surged. Foster care is overwhelmed. The jail is bursting at the seams.

The expenses related to caring for the children of drug abusers and locking up drug offenders here eat up about 25 percent of the Ohio county’s $4 million annual budget, a hole that it can’t plug. Now, Vinton officials think someone should help foot the bill: Big Pharma.

“It almost feels like Vinton County was preyed upon,” said Lily Niple, who got addicted to prescription opioids here but managed to push through, having been clean for more than two years. “It’s like a huge exploitation of the people here. And it was negligent. Just complete disregard for the future.”

[T]he biggest fight against the opioid epidemic is being waged in a federal courthouse in Cleveland, where hundreds of lawsuits brought by cities, counties, Native American tribes and unions have been brought together into one case with a scope that rivals anything seen in the U.S. legal system. Vinton County and hundreds of other municipalities across the nation are suing companies that manufactured and distributed powerful painkillers and others up and down the supply chain, arguing that they knowingly peddled massive amounts of a highly addictive product that set in motion a public health crisis. The plaintiffs argue that the vast network of opioid businesses should pay for the damage the drugs wrought.

“This is probably the most complex piece of litigation in the history of our country,” said Paul J. Hanly Jr., one of the lead plaintiffs lawyers.

The consolidated case is being compared to the one that led to hundreds of millions of dollars in settlements against tobacco companies and restricted the sale and marketing of cigarettes. Some of the same tobacco lawyers are now working on the opioids trial.

Plaintiffs are making different, but similar, claims and suing various companies in the drug pipeline. Some allege the drug companies created a public nuisance with their products. Others argue that deceptive marketing led to an epidemic. Some say state consumer protection laws were violated. Some of the lawyers allege that the distribution system, which includes wholesalers and distributors of powerful narcotics, amounted to a criminal enterprise. A small group is suing pharmacy benefit managers. Some are suing pharmacies. One lawyer is suing on behalf of children born to mothers who were addicted to opioids.

The Justice Department filed a motion this past week requesting that it be allowed to participate in settlement discussions as a friend of the court. Attorney General Jeff Sessions said the department would seek repayment for the cost of the drug crisis because the federal government has borne substantial expenses. The sheer number of defendants in the case — more than a dozen — also is staggering and unprecedented. And they could start pointing fingers at one another. They include the manufacturers Purdue Pharma and Janssen Pharmaceuticals, the distributors AmerisourceBergen, McKesson and Cardinal Health and pharmacy benefit managers such as Express Scripts. The litigation comes as people at all levels of government have identified opioid abuse as a major public health — and societal — woe, one that thus far has defied solution. And in many ways, lawyers and legal experts say, the opioid lawsuit is different and far larger in scope than efforts such as the action against Big Tobacco.

The opioid epidemic kills hundreds of people each day, akin to the 1918 flu pandemic. The judge overseeing the case, Dan Aaron Polster of the Northern District of Ohio, said during a January hearing that this scourge was man-made and that lawyers need to reach a resolution quickly, because approximately 150 people are dying each day.

 The White House Council of Economic Advisers estimates that the economic cost of the opioid crisis was $504 billion just in 2015, or 2.8 percent of that year’s gross domestic product. Altarum, a nonprofit organization that studies health care, estimates the opioid crisis cost the country more than $1 trillion from 2001 to 2017. Mark Chalos, a lawyer who represents communities in Tennessee and some unions, said the toll is tremendous, “a preventable catastrophe . . . made entirely by an industry that operates in plain view.” [Judge] Polster is taking a unique tack — he is not interested in litigation for the sake of litigation. Instead, he wants to help solve the crisis and do something to “dramatically reduce the quantity” of opioids being disseminated, manufactured and distributed, he said in a January hearing. He also wants to ensure the drugs are being used properly. It is not the first time that some of the companies have been pursued in the courts. In 2003, Hanly sued Purdue Pharma, which makes the powerful synthetic opioid painkiller OxyContin. The company paid out $600 million, and three executives pleaded guilty to criminal charges that they misled doctors, regulators and patients. But the epidemic raged on. The judge also put a protective order on what lawyers say is likely the linchpin of the case: information from a database kept by the Drug Enforcement Administration that monitors the flow of prescription painkillers from manufacturer to distribution point.

After initially resisting, the DEA said it would disclose some of the data, including identifying the manufacturers and distributors that sold 95 percent of the opioids in each state from 2006 to 2014. Lawyers say the full set of data could provide a road map for the crisis, perhaps showing a correlation between where the drugs flooded and where people died. . . . . but some information that has been released and analyzed is staggering: In two instances, millions of pills were shipped to pharmacies in tiny West Virginia towns.

In Vinton County, where 13,000 people live among the rolling hills and creeks, an average of 113.5 doses of opioids were dispensed per resident here in 2012, according to state data.

Despite what Republicans will bloviate, industries cannot be trusted to regulate themselves.  They have only one true god:  money.  Who gets hurt or dies as a consequence all too often is nowhere in the equation.  The quantities of opioids shipped to tiny Vinton, Ohio,  make it clear that manufacturers and suppliers knew something was seriously wrong, but did nothing.  All they cared about was profit.   The GOP effort to create a new Gilded Age is witnessing the same kind of abuses that ultimately were reined in during the first decades of the 20th Century.  It seems Republicans learned nothing. 

No More Liberal Apologies

Some of my former Republican colleagues - especially those who seem to have suffered a "Stepford Wife" like transformation and ceased thinking independently, preferring instead to imbibe gallons of "Kool-Aid" - claim that I have gone all mindless liberal.  I maintain that I haven't changed but that it is the GOP which has changed.  It's changed into something ugly, selfish, racist and anti-Christian despite its self prostitution to the Christofascist.  Much I my "liberalism" I would describe instead is a continuing grasp on common sense and a realization that the GOP's war on workers and other groups hated by the Christofascists and Tea Party is steadily destroying the lives of average Americans and creating a toxic business climate in the long run.  While I make no claim to have her savvy, Senator Elizabeth Warren makes some points that support my view.  Here are excerpts from a column in the Washington Post:

What all the descriptions miss is Warren’s most important contribution to the progressive cause. She is, above all, a lawyer who knows how to make arguments. From the time she first came to public attention, Warren has been challenging conservative presumptions embedded so deeply in our discourse that we barely notice them. Where others equivocate, she fights back with common sense.

Since the Reagan era, Democrats have been so determined to show how pro-market and pro-business they are that they’ve shied away from pointing out that markets could not exist without government, that the well-off depend on the state to keep their wealth secure and that participants in the economy rely on government to keep the marketplace on the level and to temper the business cycle’s gyrations.

Warren doesn’t back away from any of these facts.  . . . .  “There is nobody in this country who got rich on his own,” she said. “Nobody. You built a factory out there? Good for you. But I want to be clear: You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for.” It was all part of “the underlying social contract,” she said, a phrase politicians don’t typically use. 

Warren’s book tells her personal story in a folksy way and documents her major public battles . . . But the book is most striking for the way in which her confident tone parallels Ronald Reagan’s upbeat proclamations on behalf of his own creed. Conservatives loved the Gipper for using straightforward and understandable arguments to make the case for less government. Warren turns the master’s method against the ideology he rhapsodized.
Would you rather fly an airplane without the Federal Aviation Administration checking air traffic control? Would you rather swallow a pill without the Food and Drug Administration testing drug safety? Would you rather defend our nation without a military and fight our fires without our firefighters?”  How often are our anti-government warriors asked such basic questions?

But doesn’t being pro-government mean you’re anti-business? Well, no, Warren says, quite the opposite. “There’s nothing pro-business about crumbling roads and bridges or a power grid that can’t keep up,” she writes. “There’s nothing pro-business about cutting back on scientific research at a time when our businesses need innovation more than ever. There’s nothing pro-business about chopping education opportunities when workers need better training.”

At the end of a long liberal era, Reagan electrified conservatives by telling them they didn’t have to apologize anymore for what they believed. Now, Warren insists, it’s the era of liberal apologies that’s over. 

Lynchburg Train Derailment/Fire Underscore Need for Regulations

The proponents of unrestricted oil and gas exploration, pipeline construction, and a laissez-faire government approach to regulations of the same - a crowd that includes the Virginia GOP - suffered a possible set back yesterday.   A CSX train carrying fracked oil derailed in downtown Lynchburg setting off a fire storm that cause portions of the city's downtown to be evacuated and dumped 50,000 gallons of the oil into the James River, force the city of Richmond to shift to alternate water supply sources.   The accident is but one of many that highlight the risks associated with pipeline and rail transportation of oil.  The only good news was that no serious injuries or deaths resulted. The Lynchburg News-Advance reports on the mess.  Here are highlights:

About 50,000 gallons of crude oil were unaccounted for late Wednesday after a CSX train derailed in downtown Lynchburg and sent three flaming tanker cars careening into the James River.

The ensuing conflagration ignited oil on the surface of the river, sent flames and smoke hundreds of feet into the air, forced evacuations of downtown businesses and homes and rattled the nerves of hundreds of downtown workers.

Businesses and residences between Fifth and Washington streets and from Main Street to the riverfront had to be cleared for several hours, as firefighters and hazardous materials workers charged toward the blaze.

Evacuees swarmed Main Street, peering around buildings and police barriers, craning for a better view of the disaster that might provide some explanation as to what went so terribly wrong.

City officials said drinking water is unaffected. Lynchburg typically gets its water from the Pedlar Reservoir in Amherst County. Downstream, Richmond began Wednesday afternoon to switch to an alternate water supply.

NTSB Chairwoman Deborah Hersman discussed oil train wrecks last week at a two-day safety forum in Washington.

Hersman said the Obama administration needed to take steps immediately to protect the public from potentially catastrophic oil train accidents even if it means using emergency authority.

The Transportation Department was in the midst of drafting regulations to toughen standards for tank cars used to transport oil and ethanol, as well as other steps prevent or mitigate accidents. But there isn't time to wait for the cumbersome federal rulemaking process - which often takes many years to complete - to run its normal course, Hersman said.

A piece in the New York Times underscores that such derailments are a growing problem.  Here are highlights:

Train traffic carrying crude was relatively rare until four years ago, when oil companies in North Dakota began shipping large quantities of Bakken shale crude out of the state by rail because there was insufficient pipeline capacity to do the job.

Now, much of the production of the Bakken region is sent by rail on trains that can stretch up to a mile long and carry roughly 85,000 barrels of oil.

When a runaway train carrying Bakken crude derailed and exploded last July in the Quebec town of Lac-Mégantic, killing 47 people, the safety issues surrounding the transportation of crude through populated areas rose in importance for both American and Canadian regulators.

Then, in December, an oil train passing through Casselton, N.D., derailed and exploded, sending flames high into the air and forcing some residents to evacuate. That followed an accident in November, when another oil train derailed in Alabama, spilling crude oil.

Many of the trains are destined for refineries on the East Coast, which have a strong desire to replace expensive imported crude from the Middle East and Africa with the high-quality, and less expensive, crude from North Dakota.

In response to the rising concerns, federal regulators and railroads agreed in February to a series of voluntary measures to improve safety, including lower speed limits for oil trains in urban areas, increasing the frequency of track inspections and adding more brakes on trains.

And last week, Canada issued tough new rules requiring emergency plans from railroads on responding to catastrophic accidents and requiring companies to retire older models of tank cars within three years. The new model of tank car, developed in 2011, would effectively set a new standard of safety for rail companies in the United States since many lines cross the United States-Canadian border.

But despite years of discussion, American regulators have lagged on requiring stronger tank cars, which are generally owned by oil companies and private investors, not by railroad companies.

Safety experts have warned for more than 20 years that the older tank cars, called DOT-111s, are prone to rupture in a derailment.

The GOP's Phony Fear Factor

The GOP always has to have someone or something to blame for the state of society or the state of economy. In respect to the state of society, it's gays, blacks, immigrants (both legal and illegal), non-Christians, etc. who always bear responsibility in the GOP/Christianist warped world view. In economic matters, it's almost always taxes and/or government regulation. The fact that none of these supposed culprits and causes is not true never matters in the GOP/Christianist fantasy land. Many business owners would increase hiring if the business demand was present - I would do so personally if anyone in Washington would make the effort to stabilize the housing market and get real estate sales flourishing once again. Unfortunately, in that realm, there's too little regulation to require banks and mortgage lenders to restructure loans and stop pushing loans to foreclosure where they know they will be bailed out by FHA, HUD, mortgage insurers, etc. - leaving taxpayers to bear the expense and generating legions of evicted families and further depressed housing prices as the end product. In the New York Times Paul Krugman looks at the GOP phony mantra that government regulation is blocking economic recovery

The good news: After spending a year and a half talking about deficits, deficits, deficits when we should have been talking about jobs, job, jobs we’re finally back to discussing the right issue.

The bad news: Republicans, aided and abetted by many conservative policy intellectuals, are fixated on a view about what’s blocking job creation that fits their prejudices and serves the interests of their wealthy backers, but bears no relationship to reality. . . . . The answer, repeated again and again, is that businesses are afraid to expand and create jobs because they fear costly regulations and higher taxes.

The first thing you need to know, then, is that there’s no evidence supporting this claim and a lot of evidence showing that it’s false.

[I]sn’t there something odd about the fact that [big] businesses are making large profits and sitting on a lot of cash but aren’t spending that cash to expand capacity and employment? No.

After all, why should businesses expand when they’re not using the capacity they already have? The bursting of the housing bubble and the overhang of household debt have left consumer spending depressed and many businesses with more capacity than they need and no reason to add more.

Republican assertions about what ails the economy are pure fantasy, at odds with all the evidence. Should we be surprised? At one level, of course not. Politicians who always cater to wealthy business interests say that economic recovery requires catering to wealthy business interests. Who could have imagined it?

Yet it seems to me that there is something different about the current state of economic discussion. Political parties have often coalesced around dubious economic ideas . . . . but I can’t think of a time when a party’s economic doctrine has been so completely divorced from reality. And I’m also struck by the extent to which Republican-leaning economists — who have to know better — have been willing to lend their credibility to the party’s official delusions.

[T]his reflects the party’s broader slide into its own insular intellectual universe. Large segments of the G.O.P. reject climate science and even the theory of evolution, so why expect evidence to matter for the party’s economic views?

The truth is that we’re in this mess because we had too little regulation, not too much. And now one of our two major parties is determined to double down on the mistakes that caused the disaster.

Will Virginia GOP Risk Uranuim Contamination of Major Drinking Water Supply?

I've noted before how some in the Republican Party are trying to turn safety regulations back to a level last seen in the 19th century when the robber barons flourished during the so-called "Gilded Age." An ongoing story relevant to this issue here in Virginia involves the efforts of a Canadian company and some members of the Republican party of Virginia to rescind a thirty year old ban on uranium mining in Virginia. The center of the controversy involves uranium deposits in Pittsylvania County that are upstream to the water supply sources for much of southeastern Virginia, including all of the cities on the south side of Hampton Roads: Norfolk, Chesapeake, Portsmouth, Suffolk, and Virginia Beach. Studies indicate that the area of the deposits is subject to flooding and could lead to radioactive mining wastes washing into the water supply system which, of course, would endanger hundreds of thousands of citizens (actually, well over a million) all so that a foreign owned company - and probably some bribed members of the Virginia General Assembly - could make some bucks. Not surprisingly, Attorney General Ken "Kookinelli" Cuccinelli is missing from action in terms of protecting far over a million Virginians. Kookinelli would rather spend his time oppressing gays and denying global warming. Here are some highlights from a new study prepared by the BLUE RIDGE ENVIRONMENTAL DEFENSE LEAGUE:

Roanoke, VA – Today the Blue Ridge Environmental Defense League released a report documenting the presence of frequent and pervasive flooding at Coles Hill, the proposed uranium mine and mill site in Pittsylvania County, Virginia. The report, titled, Historic and potential flooding at proposed uranium mine and mill site: Coles Hill, Pittsylvania County, Virginia, demonstrates not only that pervasive flooding regularly occurs throughout the Coles Hill site but also that flooding and other hydrological features would increase the risk of radioactive contamination, should the site eventually be used to store uranium mill tailings.

The principal finding of the BREDL’s report is: Above- and below-ground features at Coles Hill suggest that any uranium mill tailings storage operation there would create high risk of chronic and/or catastrophic release of radioactive contamination into the aquatic environment.

Virginia Uranium, Inc., the company proposing to mine and mill uranium at Coles Hill, has been providing Virginia legislators expense-paid visits to decommissioned uranium mine and mill sites in France and Canada. Ann Rogers, the author of the League’s report, criticized this practice, saying, “These company-paid junkets must not be substituted for hard science as the basis on which the Virginia General Assembly decides whether to keep the ban on uranium mining in Virginia.” A vote on the ban may occur as early as January, 2012.

The League’s report links evidence of flooding at Coles Hill with warnings from the International Atomic Energy Agency. IAEA contradicts many industry assurances that uranium mill tailing disposal sites are essentially maintenance free, stating, “There is no such thing as 'fail-safe' facilities for tailings management. Neither regulations, design specifications, nor management systems can be relied upon in isolation to provide assurance against containment failure: all three must be applied, in a framework of quality assurance and post-closure care and maintenance, to deliver a high probability of tailings containment security.”

BREDL calls for a systematic study of the hydrology at Coles Hill to determine whether mill tailings can be stored there with any assurance of safety throughout the 10,000 to 100,000-year period during which the tailings remain radioactive. This type of study has never been performed for Coles Hill.

Will common sense and proper scientific evidence hold sway with the Virginia GOP's members in the General Assembly? Sadly, I'm not holding my breath. Meanwhile the cities in southside Hampton Roads need to be raising hell over this danger.

Regulations and Taxes Aren't What Is Killing Small Business

As members and demagogues of the GOP endeavor to turn back the clock to the days of the robber barons when regulations and unions were far and few between one of the mantra's is that taxes and government regulations are the principal obstacles to small business success. Like so much coming out of GOP demagogues like Eric Cantor, et. al, it's a lie. A new survey of small business owners underscores the disingenuousness of the GOP's story line. And not surprisingly, one of the biggest drains on small business after the depressed economy is the sky rocketing costs of insurance of all kinds (for my firm, malpractice insurance and health insurance are big ticket items). Here are highlights from McClatchy on the findings:

Politicians and business groups often blame excessive regulation and fear of higher taxes for tepid hiring in the economy. However, little evidence of that emerged when McClatchy canvassed a random sample of small business owners across the nation.

McClatchy reached out to owners of small businesses, many of them mom-and-pop operations, to find out whether they indeed were being choked by regulation, whether uncertainty over taxes affected their hiring plans and whether the health care overhaul was helping or hurting their business. Their response was surprising.

None of the business owners complained about regulation in their particular industries, and most seemed to welcome it. Some pointed to the lack of regulation in mortgage lending as a principal cause of the financial crisis that brought about the Great Recession of 2007-09 and its grim aftermath.

"Higher taxes are not good for business, but some of the loopholes and deductions should be looked at," he said. The answer from Rick Douglas — the owner of Minit Maids, a cleaning service with 17 employees in Charlotte, N.C. — was more blunt. "I think the rich have to be taxed, sorry," Douglas said. He added that he isn't facing a sea of new regulations but that he does struggle with an old issue, workers' compensation claims.

Then there's Rip Daniels. He owns four businesses in Gulfport, Miss.: real estate ventures, a radio station and a boutique hotel/bistro. He said his problem wasn't regulation. "Absolutely, positively not. What is choking my business is insurance. What's choking all business is insurance. You cannot go into business, any business — small business or large business — unless you can afford insurance," he told Biloxi's Sun Herald.

"I think the business climate is so shaky that I would not want to undergo any expansion or outlay capital," said Andy Weingarten, who owns Almar Auto Repair in Charlotte. He's thinking about hiring one more mechanic.

Added Barry Grant, the regional president of Meritage Homes Corp., in California, "It starts with jobs. ... There's an awful lot of people sitting on the fence; they're waiting for a sign." One reason hiring remains dampened is the prolonged slump in the housing sector, a driver of the pre-crisis economy.

Jobs - something that the GOP is doing NOTHING to foster is one key to recovery. To that I'd add a return to realistic mortgage and business loan approval procedures (currently, many good borrowers cannot get financing)and a stabilization of the housing market. The later, of course is not on the radar of the GOP.

Housing is Killing the Recovery

At the risk of beating a dead horse, it's time again to look at the engine that drove the Great Recession and which is now killing any real recovery: the housing market. Both the Los Angeles Times and FrumForum have pieces that look at the continuing debacle and the abject failure of Congress and the White House to do anything meaningful to address the problem. Dealing with distressed homeowners every day, I can testify that the so-called Home Affordable Modification Program is little more than a joke. And a sick joke at that. Lenders have no accountability and frankly, most personnel one deals with are utterly incompetent and have about as much reasoning skill as a trained circus dog - no offense intended towards dogs. For almost FOUR years now I have been railing about this issue and nothing meaningful has been done other than a huge bailout to lenders who have done nothing to assist homeowners with legitimate hardships. First, here are highlights from the LA Times:

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Almost anywhere you look, assessments of the state of the economic recovery are muddled — job growth is positive but fading, consumer spending ebbs and flows, corporate profits are surging but corporate spending is not. The exception is housing, on which everyone agrees. The housing market stinks.
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The latest national Case-Shiller index of home prices fell again in April from a year earlier. It was up modestly from March, but since that month marked a new recession low, pushing average prices back to levels not seen since 2002, at best we're bumping along the bottom. About 4.5% of all mortgages are still in foreclosure, more than four times the historical average . . .
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Yet housing is the area in which the government's remedial efforts have been consistently the weakest. The gap between the government's effort to bail out bankers and its effort to bail out homeowners is a national scandal. Under the Troubled Asset Relief Program, the government's bank bailout, some $50 billion was earmarked for mortgage relief; by late last year, according to the Congressional Budget Office, only $8 billion had been committed and much less had been spent.
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HAMP hasn't been a total flop. The redefault rate of less than 20% on its mortgages is about half that of other mortgage relief programs. But it's enough of a disappointment that Treasury officials recently took a step almost unique in their regulatory record: They penalized three big banks for their shortcomings in managing HAMP. The banks are Wells Fargo, Bank of America and JP Morgan Chase.
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The shame of HAMP is that federal mortgage relief didn't have to be so halfhearted. HAMP's drafters had a successful model to work from. That was the New Deal-era Home Owners' Loan Corp., or HOLC, a program that saved 1 million homes from loss in the depths of the Great Depression and completely remade the country's mortgage market in the process.
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What really enabled HOLC to succeed was that its incentives were all aimed at keeping borrowers in their homes. That's not the case with today's mortgage market, where the incentives are canted toward foreclosures. HAMP has done very little to correct that.
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The key to keeping a financially strapped borrower in a home is to modify the mortgage to cut the monthly payment, whether by cutting the interest rate or loan balance or by stretching out the repayment term. What makes this difficult is that often the loan servicer — the bank or office that bills the homeowner and tracks his or her payment history — doesn't own the loan, which has been packaged and sold to investors.
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In fact, servicers have powerful incentives to do the wrong thing — wrong for borrowers, wrong for investors, wrong for the economy. They make more money, and have better guarantees of payment, if they delay modifications, even if they force homeowners into foreclosure.
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[A] bigger flaw is that the government's housing policy doesn't acknowledge that a genuine, lasting solution to the housing crisis means reducing the loan balances of financially stressed homeowners to levels that make sense in terms of today's sharply reduced home values.
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No stimulus program would be as effective today as fixing the residential market. Yet, typically, the momentum in Congress is in the other direction, with House Republicans plotting to repeal HAMP. It's not that they have any better idea; it's that when it comes to helping the economy, they abhor anything but a vacuum.
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The FrumForum column repeats much of the same territory and flat out says that the continued housing disaster is killing the economy. Here are some highlights:
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For those who may think that the housing market has bottomed out and there is a light at the end of the tunnel, think again. That isn’t a light at the end and it’s not a train coming either. It might just be a blistering ray of solar radiation that could evaporate everything it is path, a wave of housing supply that will quickly overwhelm any hope for home price stabilization, much less an actual recovery. There is a shield, however, if politicians, policy makers and regulators can find the fortitude to redefine the American Dream.
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Over the last 6 months, the nation’s housing supply has been artificially (and temporarily) held at bay by moratoriums imposed on the big servicers over foreclosure practices while buyer demand has remained relatively constant. Econ 101 would instruct us that, under this scenario, home prices should rise. Instead, during the same period home prices continued their decline, falling an additional 4-5% on an adjusted basis. According to an increasingly number of economists, including Robert Schiller, we should expect to see this trend continue another 20-25% over the next several years. Why? Because the supply of homes expected to hit the market is more than double all of the homes sold in 2010 and YTD 2011 combined. Large banks, private investors and the GSE’s know this and are racing to the bottom to unload their existing homes before the tsunami hits.
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Recent CNNMoney headlines are telling. “Walk Away from your Mortgage: Time to Get Ruthless” (June 7) highlights the driving force behind all of this supply: underwater homeowners. The number of “strategic” defaulters is accelerating as more people make a basic economic decision to walk away.
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In a recent Fannie Mae survey, 27% of homeowners would consider walking away from their mortgage if home prices keep falling, nearly double from a year ago, and more than 50% no longer believe owning a house is a good investment.
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The number of people who fit into these buckets is staggering: More than 4 million mortgage borrowers are either in foreclosure or are seriously delinquent. Most of their houses will end up on the market as short sales or foreclosure sales. Private estimates put the figure, often referred to as “shadow inventory” at more than 6 million.
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Supply will increase and demand will decrease, driving home prices down, which in turn will create a self-perpetuating cycle. So how do we stabilize home prices if there is limited homeowner demand? The answer, of course, is to reduce the supply through other means.
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What are required are bold governmental initiatives to promote renting as a means to stabilize home prices. Start by accelerating the sale of entire GSE and FHA REO positions, which are worth on the order of $40-$50 billion, to private investors who could form large scale leasing portfolios. Divert what remain of federal and state funds from loan modification programs to rental-assistance programs. Rather than pay mortgage servicers to modify deeply delinquent borrowers who, after modification of the payment, are still underwater on their homes, reward servicers to convert them into tenants at reduced housing payments. Keeping people in homes and kids in schools while avoiding foreclosure signs on front lawns is almost always a good thing. Modifying borrowers to buy time without addressing negative equity is rarely an optimal outcome. And maybe, just maybe, adjust tax incentives to take into account all forms of housing payments, not just mortgage interest.
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I don't necessarily agree with the proposed solution, but at least it would be doing SOMETHING as opposed to nothing which is what is the current reality.

An Indictment of Those Who Oppose "Government Regulation"

I often note on this blog the glaring disconnect between the self-congratulatory religion worn on the sleeves of the falsely pious Republican Party base and their political actions which would strip away assistance to the poor and unemployed, repeal and expansion of health cares services to citizens, and decrease governmental regulation of industry to protect workers and the public. Even in the wake of the financial market meltdown that was caused by the lack of financial market regulation during the eight years of Chimperator Bush's regime of misrule. Nowhere is this disconnect more shocking than among many Republican elected officials who would appear to want to go back to the worse abuses of the robber baron era. One Republican member of Congress has even questioned the constitutionality of child labor laws (here). The hypocrisy is indeed breath taking and makes a strong argument for not wanting to call one's self Christian if these folks represent what Christians are about. David Mixner has a post on his blog that reminds us of what things were like in the days before labor unions and government regulation. It was not a pretty era and inflicted horrors on many individuals including children. Exemplifying this era that the GOP would seem to want return to is the Triangle Shirt Waist fire that occurred 100 years ago next month. The video below recalls the horror that took place before unions and government regulation. First these comments from David's blog:
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This year marks the 100th anniversary of the horror called the Triangle Shirtwaist Fire in New York City. The fire, which killed 146 garment workers, is one of the largest workplace disasters in the history of America. Most of the workers were women and some were as young as thirteen years old. Italian and Jewish immigrants dominated the workforce. The workers had horrendous conditions and were forced to work 12 hours a day for seven days a week.
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The inferno engulfed the top three floors of a ten story building with the workers concentrated on the 9th floor. The bosses had locked many of the exit doors to keep workers from leaving early. The choice facing the workers was to jump to their deaths or die in the flames.

GOP Spending Goals Show Launch of New Culture War

It should come as no surprise to anyone who follows the GOP and its delusional party base that the now GOP controlled House of Representatives is about to launch a new culture war to curry favor with the Christianists who ultimately control the party while trying to dress up their attack as deficit cutting. You can put a cheap whore in a fancy dress, but she's still a whore and that's what the GOP is in terms of the Christian Right. No amount of shameless prostitution to Christianist demands is too much - especially when the Tea Party crowd is factored in since once again the Christianists are deeply involved in that movement no matter what pretenses might be put forward. Job creation and reviving the economy mean nothing to the likes of Family Research Council and similar conservative hate groups that try to wrap their poison in the cloak of religion. Those who were duped into voting Republican in the hope that jobs and the economy would be the first priority are in for an unpleasant surprise even though it should have been foreseeable. Dana Milbank has a column in the Washington Post that looks at the coming assault on all things deemed liberal and/or not in keeping with Christian fundamentalists beliefs. Here are highlights:
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Mr. Speaker, 63 percent of voters said the economy was the most important issue, according to exit polls for the November election. Voters asked for jobs - and you're giving them a culture war.
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About 30 minutes after Boehner left the studio, leaders of the Republican Study Committee, a group that claims most House Republicans as members, walked into the same room to announce its new spending bill. Among the items the group proposes to eliminate or decimate: the National Endowment for the Arts, the National Endowment for the Humanities, the Corporation for Public Broadcasting, Title X birth control and family planning, AmeriCorps, the Energy Star program and work on fuel efficient cars, and the United Nations Intergovernmental Panel on Climate Change.
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Ostensibly, their cuts were about reducing the deficit, but their list clearly had more to do with settling old scores. Many of the items - including the renewed targeting of Big Bird and the rest of PBS - were holdovers from Newt Gingrich's '95 wish list.
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Also coming in for special cuts would be labor (the bill would repeal rules requiring federal contractors to pay the prevailing wage); international relations (funds for the U.S. Agency for International Development and the Organization for Economic Cooperation and Development would be slashed); the poor (housing and other anti-poverty programs that fund soup kitchens and the like would take big hits); and federal workers (a halving of the federal travel budget could mean half as many food safety, mine safety and immigration inspections).
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It's going to be a long two years until the 2012 elections when one can only hope that moderates and independents wake the hell up and realize that regardless what the GOP may promise, the real GOP agenda is not that of moderates and independents - or rational thinking Americans.

Obama's Fatal Error in Failing to Crack Down on the Corruption of the Bush Years

I have been extremely harsh on President Barack Obama on many fronts, particularly broken campaign promises that as of this moment still have not been kept. In respect to the Gulf oil spill disaster, I have been equally harsh. Why British Petroleum - which created the disaster by its utter disregard to safety regulations and the complaints of the drilling staff - has been left in charge of addressing the disaster is mind numbing. From my oil and gas industry background, I continue to believe that BP is more concerned in salvaging the blown out well than it is in stopping the oil flow. Equally disturbing is the fact that the USA in its typical hubris has refused better technology offered by The Netherlands and Norway, both nations with major experience with offshore oil exploration - Norway from its own deep water production and The Netherlands as home of Royal Dutch Shell, the world's eight largest corporation.

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However, what must not be lost in all of the Fox media and GOP noise is the fact that Obama's biggest error - and it was a huge error - was not to promptly overhaul the deregulation nightmare put in place by the Bush/Cheney regime. Under Bush/Cheney - and I suspect mostly under Cheney - the supposed regulators of the oil industry were in effect members of a revolving door operation staffed by either former oil industry officials or people more than willing to turn a blind (maybe even accept a bribe) eye toward criminal misconduct. Surprisingly, it is the Rolling Stone that has one of the most comprehensive articles that traces the blame back to the handiwork of Bush/Cheney. Yes, Obama screwed up an incredible scale by his failure to fully clean house at MMS. But the ultimate blame traces back to Bush/Cheney - a fact that needs to be shoved down the throats of the Fox News talking heads and Republican windbags. We need comparable investigative reporting stories that look at the torture programs and other foul initiatives put in place by the Chimperator and Emperor Palpatine Cheney that Obama has yet to overhaul. Here are highlights from the Rolling Stone article (NOTE: I urge you to read the full story even though it may make you sick):
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For weeks, the administration had been insisting that BP alone was to blame for the catastrophic oil spill in the Gulf – and the ongoing failure to stop the massive leak. "They have the technical expertise to plug the hole," White House spokesman Robert Gibbs had said only six days earlier. "It is their responsibility." The president, Gibbs added, lacked the authority to play anything more than a supervisory role – a curious line of argument from an administration that has reserved the right to assassinate American citizens abroad and has nationalized much of the auto industry. "If BP is not accomplishing the task, can you just federalize it?" a reporter asked. "No," Gibbs replied.
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Now, however, the president was suddenly standing up to take command of the cleanup effort. "In case you were wondering who's responsible," Obama told the nation, "I take responsibility." Sounding chastened, he acknowledged that his administration had failed to adequately reform the Minerals Management Service, the scandal-ridden federal agency that for years had essentially allowed the oil industry to self-regulate. "There wasn't sufficient urgency," the president said. "Absolutely I take responsibility for that." He also admitted that he had been too credulous of the oil giants: "I was wrong in my belief that the oil companies had their act together when it came to worst-case scenarios." He unveiled a presidential commission to investigate the disaster, discussed the resignation of the head of MMS, and extended a moratorium on new deepwater drilling. "The buck," he reiterated the next day on the sullied Louisiana coastline, "stops with me."
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Like the attacks by Al Qaeda, the disaster in the Gulf was preceded by ample warnings – yet the administration had ignored them. Instead of cracking down on MMS, as he had vowed to do even before taking office, Obama left in place many of the top officials who oversaw the agency's culture of corruption. He permitted it to rubber-stamp dangerous drilling operations by BP – a firm with the worst safety record of any oil company – with virtually no environmental safeguards, using industry-friendly regulations drafted during the Bush years.
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Most troubling of all, the government has allowed BP to continue deep-sea production at its Atlantis rig – one of the world's largest oil platforms. Capable of drawing 200,000 barrels a day from the seafloor, Atlantis is located only 150 miles off the coast of Louisiana, in waters nearly 2,000 feet deeper than BP drilled at Deepwater Horizon. According to congressional documents, the platform lacks required engineering certification for as much as 90 percent of its subsea components – a flaw that internal BP documents reveal could lead to "catastrophic" errors.
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During the Bush years, the Minerals Management Service, the agency in the Interior Department charged with safeguarding the environment from the ravages of drilling, descended into rank criminality. According to reports by Interior's inspector general, MMS staffers were both literally and figuratively in bed with the oil industry. When agency staffers weren't joining industry employees for coke parties or trips to corporate ski chalets, they were having sex with oil-company officials. But it was American taxpayers and the environment that were getting screwed. MMS managers were awarded cash bonuses for pushing through risky offshore leases, auditors were ordered not to investigate shady deals, and safety staffers routinely accepted gifts from the industry, allegedly even allowing oil companies to fill in their own inspection reports in pencil before tracing over them in pen.
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"The oil companies were running MMS during those years," Bobby Maxwell, a former top auditor with the agency, told Rolling Stone last year. "Whatever they wanted, they got. Nothing was being enforced across the board at MMS."
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Salazar was far less aggressive, however, when it came to making good on his promise to fix MMS. Though he criticized the actions of "a few rotten apples" at the agency, he left long-serving lackeys of the oil industry in charge. "The people that are ethically challenged are the career managers, the people who come up through the ranks," says a marine biologist who left the agency over the way science was tampered with by top officials. "In order to get promoted at MMS, you better get invested in this pro-development oil culture." One of the Bush-era managers whom Salazar left in place was John Goll, the agency's director for Alaska. Shortly after, the Interior secretary announced a reorganization of MMS in the wake of the Gulf disaster, Goll called a staff meeting and served cake decorated with the words "Drill, baby, drill."
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"Employees describe being in Interior – not just MMS, but the other agencies – as the third Bush term," says Jeff Ruch, executive director of Public Employees for Environmental Responsibility, which represents federal whistle-blowers. "They're working for the same managers who are implementing the same policies. Why would you expect a different result?"
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The tale of the Deepwater Horizon disaster is, at its core, the tale of two blowout preventers: one mechanical, one regulatory. The regulatory blowout preventer failed long before BP ever started to drill – precisely because Salazar kept in place the crooked environmental guidelines the Bush administration implemented to favor the oil industry.
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MMS has fully understood the worst-case scenarios for deep-sea oil blowouts for more than a decade. In May 2000, an environmental assessment for deepwater drilling in the Gulf presciently warned that "spill responses may be complicated by the potential for very large magnitude spills (because of the high production rates associated with deepwater wells).
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Enter the Bush administration. Rather than heeding such warnings, MMS simply assumed that a big spill couldn't happen. "There was a complete failure to even contemplate the possibility of a disaster like the one in the Gulf," says Holly Doremus, an environmental-law expert at the University of California. "In their thinking, a big spill would be something like 5,000 barrels, and the oil wouldn't even reach the shoreline." In fact, Bush's five-year plan for offshore drilling described a "large oil spill" as no more than 1,500 barrels. In April 2007, an environmental assessment covering the area where BP would drill concluded that blowouts were "low probability and low risk," even though a test funded by MMS had found that blowout preventers failed 28 percent of the time.
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Nowhere was the absurdity of the policy more evident than in the application that BP submitted for its Deepwater Horizon well only two months after Obama took office. BP claims that a spill is "unlikely" and states that it anticipates "no adverse impacts" to endangered wildlife or fisheries. Should a spill occur, it says, "no significant adverse impacts are expected" for the region's beaches, wetlands and coastal nesting birds. The company, noting that such elements are "not required" as part of the application, contains no scenario for a potential blowout, and no site-specific plan to respond to a spill. Instead, it cites an Oil Spill Response Plan that it had prepared for the entire Gulf region.
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Under Salazar, MMS continued to issue categorical exclusions to companies like BP, even when they lacked the necessary permits to protect endangered species. A preliminary review of the BP disaster conducted by scientists with the independent Deepwater Horizon Study Group concludes that MMS failed to enforce a host of environmental laws, including the Clean Water Act. "MMS and Interior are equally responsible for the failures here," says the former agency scientist. "They weren't willing to take the regulatory steps that could have prevented this incident."
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BP is the last oil company on Earth that Salazar and MMS should have allowed to regulate itself. . . . The company applied the same deadly cost-cutting mentality to its oil rig in the Gulf. BP, it is important to note, is less an oil company than a bank that finances oil exploration; unlike ExxonMobil, which owns most of the equipment it uses to drill, BP contracts out almost everything. That includes the Deepwater Horizon rig that it leased from a firm called Transocean. BP shaved $500,000 off its overhead by deploying a blowout preventer without a remote-control trigger – a fail-safe measure required in many countries but not mandated by MMS, thanks to intense industry lobbying. It opted to use cheap, single-walled piping for the well, and installed only six of the 21 cement spacers recommended by its contractor, Halliburton – decisions that significantly increased the risk of a severe explosion. It also skimped on critical testing that could have shown whether explosive gas was getting into the system as it was being cemented, and began removing mud that protected the well before it was sealed with cement plugs.

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[O]n the eve of the 40th anniversary of Earth Day, the Deepwater Horizon rig went off like a bomb. From the start of its operation in the Gulf, BP had found itself struggling against powerful "kicks" from gas buildup, just as MMS had warned. Now, on April 20th, the pent-up methane exploded in a fireball that incinerated 11 workers. Like a scene out of a real-life Jerry Bruckheimer film, the half-billion-dollar rig – 32,000 tons and 30 stories tall – listed over and sank to the bottom two days later, taking a mile of pipe down with it.
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[T]he effort, has been "like a drunk driver [BP] getting into a car wreck and then helping the police with the accident investigation." Indeed, the administration has seemed oddly untroubled about leaving the Gulf's fate in the hands of a repeat criminal offender, and uncurious about the crimes that may have been committed leading up to the initial sinking of the rig.
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The failure of the Obama administration to crack down on BP – and to tackle the crisis with the full force of the federal government – is likely to haunt the Gulf Coast for decades to come. Oil continues to lap up onshore in Louisiana, Alabama, Mississippi and Florida. Pelican rookeries are fouled, their eggs and nests soaked in oil. The region's fisheries – some of the richest in the world – are imperiled; anglers and shrimpers have been barred from more than a third of the Gulf's waters, which may never fully recover from the toxic stew of crude and chemical dispersant now twisting in its depths. The region's beaches are empty, and tourist towns are dying. Administration officials now admit that the oil may continue to gush into the Gulf until August, when relief wells are finally in place.

Subprime Loans Defaulting Even Before Resets

This story from CNN Money.com (http://money.cnn.com/2008/02/20/real_estate/loans_failing_pre_resets/index.htm?cnn=yes) illustrates why it is foolish to “let the market” decide and police itself. Don’t take this statement to mean that I am a big government liberal. It only is pragmatic and faces the business reality that where there is an opportunity to make fast money, there will ALWAYS be some who abuse the system and work it to their own advantage with no concern for the consequences of others. The mortgage loan industry is no exception and the fact that loans were bundled and resold to foolish/greedy investors left the main players in creating the mess free from consequences since the risk had been transferred to other investors. Had mortgage companies had to hold the loans they originated in the own portfolios, I suspect that sensible underwriting standards would not have been thrown to the wind. Given the fact that what happens in the housing market significantly impacts the larger economy, I believe that we are in for a very rough ride as increased numbers of foreclosures force home values down even further. Here are some story highlights:

For months, we've fretted about the Armageddon that will hit when subprime adjustable rate mortgages start resetting to much higher interest rates. What's happening is even worse: Many of these loans are defaulting well before their rates increase. Defaults for subprime loans issued in 2007 - none of which have reset yet - hit 11.2 percent in November. That represents perhaps 300,000 households, and is twice the default rate that 2006 loans had 10 months after being issued, according to Friedman, Billings Ramsey analyst Michael Youngblood. Defaults are spiking well before resets come into play thanks to the lax lending environment of the past few years. Many borrowers were approved for mortgages that they had little chance of affording, even at the low-interest teaser rates.

In late 2006, the Center for Responsible Lending (CRL), predicted that 2.2 million subprime ARM borrowers would lose their homes in the following two years due to reset shock. But these mortgages were doomed from the start. For instance, in both 2006 and 2007, well over 40 percent of subprime borrowers were awarded mortgages with either little or no documentation of their ability to pay. With these so-called "liar loans," borrowers did not have to show proof of either earnings or assets. In 2007 subprime originations, the DTI hit 42.1 percent, up from 41.1 percent in 2006. Borrowers were simply taking on more debt that they could afford. What's more, many borrowers started out with low- or no-down payment loans, which left them with almost no equity in their home. During the boom, rapid price appreciation meant borrowers built up home equity quickly. That minimized defaults, since owners could draw from that equity to pay their bills - including their mortgages - through home equity loans. But prices fell starting in 2006,leaving borrowers with less home equity to draw upon when they run into financial problems.

But instead of cutting back on risky loans, lenders kept lending. Why? "Because investors continued to buy the loans," said Doug Duncan, chief economist of the Mortgage Bankers Association. Despite their quality, subprime mortgages were as profitable as any other for lenders like Countrywide (CFC, Fortune 500) and Wells Fargo (WFC, Fortune 500), who were able to quickly securitize the loans and sell them in the secondary market. The loans sold easily because they carried the promise of high yields. "As long as you could sell the loan, you made the deal," Duncan said.