Monday, August 27, 2007
Below the Fold: While the Watchman Sleeps: Fraud in Today’s America
Count them up: a bridge collapse, sleazy mortgage-writing, record home foreclosures, killer pharmaceuticals, deathly toys, a stock market meltdown, e. coli and salmonella outbreaks. Would you like to add to my list?
Even if you believe in nothing positive about the role of government, doesn’t this litany give you pause? This side of sanity, there are a scant few who don’t believe at least in a watchman state that protects its citizens against violence, theft, fraud, and breach of contract. This is the maximum a state should provide, according to the late libertarian philosopher Robert Nozick, perhaps the most famous believer in the minimal state of our time. The state is our watchman, the minimal protector of our rights not to be robbed, violated or killed by another, and is the guarantor that we will not be defrauded and that contracts we make will be enforced.
Well, the watchman is asleep, drugged and nearly done in by 31 years of neoliberal rule. That’s right Clintonites and those who still feel sorry for Jimmy Carter. Oh, and you irreconcilable Nixon-haters (yes, me still, I admit), recall that he helped start Medicaid, the last Great Society program of the last century. After Nixon then, and for 31 years, the foxes have run the federal chicken coup, and they have cleaned out the hens that once laid the golden eggs of protection and regulation. The malicious and ideological government haters, the industry lobbyists running departments that regulate their industries, and flimflammers that pretend that self-regulation is really regulation, have made sure that even if the federal government wanted, it could not protect us from the fraud and the theft of our well being now in full swing.
For many of our problems, there are simply no watchmen left. The Food and Drug Administration has 1962 food inspectors (down from 2200 in 2003) that must assure the safety of food imports. They sample 1% of the imported food we eat. As you know, even Fido needs to worry about poisoned pet food. They are also charged with assuring that the 12,000 food production facilities states-side are not slipping us poison.
The Department of Agriculture and state departments of agriculture, have 7,700 inspectors – a seemingly bountiful staff when compared with the FDA. Yet, they must account for the safety of all animals and the food products that are produced from them. You may recall the Jack-in-the-Box e.coli outbreak that arose from infected ground beef. Because of over-stretch, these departments must rely in part on self-regulation, which usually means that employees in slaughter houses and packing plants are designated to monitor the everyday through-put onsite and report possible violations to designated state or federal inspectors. A fair-minded person might doubt whether an employee would rat on his firm, or how a boss would resist firing the employee who ratted. She might even think it irresponsible to leave the public safety in the hands of potential code and law violators.
Do you wonder now why 73,000 people, of whom 60 die, come down with e.coli in a typical year? There is listeria and salmonella to think about too.
Speaking of self-regulation, how about those 12 million Mattel and Fischer-Price toys in America’s play pens contaminated with lead? The producers recalled the products upon discovery, it’s been reported. Less well known is the statement of the US Consumer Product Safety Commission that it doesn’t test toys for dangerous substances or even for dangerous designs and parts. It too relies on the self-regulation of toy makers, who seemed to have missed the problem 12 million toys ago.
Then there are the dangerous drugs. (I reported on TV pharmaceutical advertising in my last column.) Recall the Vioxx scandal? An estimated 100,000 people suffered unnecessary heart attacks and strokes because they took Vioxx. A former FDA higher-up in 2004 reported to Congress that the FDA is approving questionable drugs. Download this list and check your medicine cabinet:
1. Accutane, an acne drug that can cause birth defects
2. Crestor (remember Mandy Patimkin walking down that endless flight of stairs, presumably on his way to catch an ax murderer?), a cholesterol drug that can cause a muscle-wasting disorder
3. Baycol, another cholesterol drug related to muscle-wasting
4. Bextra, a Cox-2 inhibitor like Vioxx that may increase cardiovascular risks in some people
5. Prilosec and Nexium, the most popular drugs in America, have recently been cited in research as possible causes of heart failures and premature heart-related deaths
There are likely more. This is just a list I scraped up in an hour’s time. Once more, not only do the pharmaceutical companies do the efficacy studies themselves for drug approval, they pay doctors directly to produce additional studies. Medical ethics presumably protect us from the worst fraud, but it is important to keep in mind that data are highly interpretable. Like the glass, results can be interpreted as half-full or half-empty. The subtleties of drug-testing results could enable doctors to honor their paymaster while not blemishing their careers. How many have tipped the scientific scales in favor of the pharmaceutical companies, we will never know. But, again, does it seem reasonable to you to leave those who will profit from a positive outcome in charge of the efficacy research?
The Minneapolis bridge collapse. Danger noted, no one notified, nothing done. No one knows who is the watchman in this case, but each party is fearful that they will be named, blamed, and billed for building a new one.
The mining accident in Utah. 47 miners in the United States died last year, a small number considering mining fatalities in China said to be in the thousands, Russia (approximately 1000), and the Ukraine, where an average of 300 miners die a year. Thus far, the thinking is that it was an unfortunate accident not attributable to misfeasance or malfeasance on the company’s part. But again, if you listen to the whole story, you hear about hundreds of safety violations discovered in the company in question’s mines on a yearly basis. Note too that the cost of the fines probably doesn’t add up to a day’s receipts. Would you stop driving because of a parking ticket? In parts of Boston where I live, people in some neighborhoods consider parking tickets as simply part of the cost of living in a trendy surrounds. The mining companies may treat fines this way too. However, miners die because the fines don’t interrupt the flow of business and have a minimal impact on company profits. Here we have the weak watchman.
Then, there is the swindle of the month – subprime mortgage loans. Have you ever tried to read a mortgage contract? In a comfy middle class world, people hire a lawyer to do it, and given that banks like to keep middle class customers happy, the lawyer doesn’t have to do much because their isn’t much to worry about. The fine print is not friendly but at least it is relatively benign.
On late-night television, on smarmy and network channels, you begin to sense that there is another world out there filled with people who would be thieves and con artists if the watchman weren’t drugged and asleep. From the depths of America’s financial world come the debt consolidators, the credit card purveyors for the bankrupt, and the Wimpy salesmen who will give you a loan on your civil suit judgment today in return for the settlement money tomorrow, a hefty interest charge, of course, appended.
Then there was my favorite. I found him so despicable that I cannot remember his name or his firm, which, come to think about it, might save me litigation costs, if his dubious little business has escaped the sub-prime landslide. He, the president of the firm, was there to give you mortgage money, even if you had been turned down elsewhere. The tag line of the commercial says it all: “When the bank says no, we say yes!”
And so did they all. And this year, 760,000 households will lose their homes. Another estimated 940,000 households will be dispossessed of their homes in 2008. The causes are many: adjustable rate mortgages, balloon payments, high mortgage insurance, high late charges, as well as job loss, family disruption, and bankruptcy. (N.B. Did you know that the medical bills are the single biggest cause of personal bankruptcy in the United States?) And don’t forget; they don’t call them sub-prime mortgages for nothing. Borrowers were paying at interest rates 3%, 4% and sometimes 5% above the going rate.
Many times, people did not know what could happen to them. They lacked that lawyer who, in their cases, would have had a lot to do protecting their clients from unfair lending conditions. Sometimes, borrowers were simply in over their heads, and no one told them how fragile their toehold of the American Dream was. A tiny slip in world financial markets could ruin them.
And so it did. But there’s more. There was still more money to be made off the struggles and sacrifices of the subprime borrowers. The Alfred E. Newmans of the banking world packaged the risky loans in with the good, sort of like when the fish vendor slips a smelly fillet in among the others on the scale. The bundled mortgages backed bonds, “structured investment vehicles,” and back room credit swaps. Even German banks got taken in. So much for their legendary probity.
No American watchmen took notice. Not the state legislatures, the Congress, the White House, the Federal Reserve, or the federal agencies that could or do regulate lending. Nope, not a one. Like Sergeant Schultz, they knew nothing. But all it took was to watch late night TV. Or read the corporate reports. Or watch investment banks gobble up the subprime lending firms. The only people for whom this scam was a secret were the now hard-pressed borrowers.
Now the watchmen are awake and worried about the financial world tanking over the swindle of the sub-prime mortgage borrowers. There are calls, not unanimous by any means, to help out the victimized households with refinancing. Add up the figures provided above. By the time Congress or the Federal Reserve acts, say by the end of 2008 – there is an election going on after all – 1.7 million households may have lost their homes.
Is it asking too much for a watchman to be put back out on the perimeters of the state once again? Can the government at least guarantee us protection from violence, fraud, theft, and breach of contract?
It would not be the dawn of a new age, but simply the recreation of the American conservative dream. Chump change politically for our bankrupt political class.
Posted by Michael Blim at 12:01 AM | Permalink