The Bottomless Pit

The Housing Doldrums
by MIKE WHITNEY

“There are many good reasons to believe that the 5.5 million foreclosures we have seen are barely halfway through their full course. The United States may end up with a total of 8-10 million foreclosures before we are finished.”– Barry Ritholtz, The Big Picture

It all gets down to supply and demand. The banks have been keeping millions of homes off the market until a settlement was reached in the $25 billion robosigning scandal. Now that the 49-state deal has been finalized, the banks are preparing to put more of their of distressed homes up for sale. That will lead to lower prices and the next leg down in the 6-year long housing crisis.

According to Reuters, new foreclosures “begun by Deutsche Bank were up 47 percent from 2011. Those of Wells Fargo’s rose 68 percent and Bank of America’s, including BAC Home Loans Servicing, jumped nearly seven-fold — 251 starts versus 37 in the same period in 2011.”

So BofA, which unwisely purchased Countryside following the Crash of ’08, is scrambling to get its house in order by removing the deadwood from its balance sheet. Good luck with that.

In order to avoid a sudden plunge in prices–which would be devastating for bank balance sheets–the banks will continue to control the number of homes that are released onto the market. In 2011, existing home inventory shrunk by 20 percent year over year while the shadow backlog of distressed homes continued to grow in leaps and bounds. This shows that the banks are managing inventory to minimize their losses.

But even though “visible” inventory has shrunk by as much as 30 percent in some markets, housing prices have continued their downward trek, dropping roughly 4 percent in 2011. This reflects the truly dismal condition of the underlying economy that is wracked by high unemployment, flat wages, and soaring personal debt. Absent another round of fiscal stimulus, there’s little chance that housing sales will rebound in 2012 despite historic low rates and myriad government loan modification programs.

The biggest problem facing housing now is that ordinary working people can’t make their monthly payments. An article in Reuters summed it up like this: “The subprime stuff is long gone,” said Michael Redman, founder of 4closurefraud.org. “Now the folks being affected are hardworking, everyday Americans struggling because of the economy.”

So what we’re seeing now is the knock-on effects from high unemployment, tight credit, shitty wages and deep protracted economic stagnation. This is a policy issue, but policymakers refuse to address it, so housing will bump along the bottom for years to come. Now take a look at this article in the Wall Street Journal:

“Delinquent mortgage borrowers, take note: Banks still aren’t moving very fast to kick you out of your homes. February’s foreclosure settlement between big U.S. banks and state attorneys general should have been bad news for mortgage deadbeats — and for house prices. Having resolved charges that they had filed bogus documents to speed up repossessions, the banks should have felt free to move ahead with millions of foreclosures. They should also have started selling more repossessed houses, an influx of cheap supply that would weigh on the market. 

So far, though, that’s not happening. …. as a result, the average number of days since the last mortgage payment had been made on homes in the foreclosure process rose to 667, up from 660 the previous month and 253 in February 2008. In other words, the average delinquent borrower could live rent-free for nearly two years without getting evicted, assuming the borrower chose to stay in the house.” (“The Foreclosure Deal Spares the Housing Market (So Far)”, Bloomberg)

Just to be clear, we do not agree with the author that the people who were victims in this vast criminal mortgage laundering scam– that destroyed the financial system and pushed the global economy into a Depression–can be fairly characterized as “mortgage deadbeats”. Even so, the point he makes is important, because it illustrates how the banks are fiddling with supply to avoid the losses on non performing loans. Screwball accounting regulations allow the banks to keep mortgages on their books at fictitious prices (artificially high) until the house is sold. Only then, are they required to write down the difference. Considering that they still have millions of distressed homes on their books, this is no small matter. An accurate accounting of bank real estate inventory would show that most of the biggest banks in the country are technically insolvent.

So what does this mean for people who are thinking about buying a house in the near future? Should they hang on to their money and wait for another year or so or jump at that $450,000 McMansion with the Gothic parapets and custom Swedish sauna that’s been marked-down to a mere $185,000?

That’s hard to say. It depends on one’s own priorities. But one thing is certain, housing prices won’t be going up for a very long time. Maybe never. Moody’s ratings agency forecasts that we’ll see ”an 8% to 10% decline in housing prices” due to a 25 percent uptick in repossessed properties from 1 million in 2011. Unfortunately, Moody’s calculations are far too optimistic. In fact, “top housing analyst Laurie Goodman estimates the amount of shadow inventory at between 8 and 10 million homes, and Michael Olenick, using a different methodology, comes in at just under 9 million homes.” (“Moody’s Foresees 10% Drop in US Housing Prices“, naked capitalism)

Even if Goodman-Olenick’s predictions are wrong by half–which is unlikely–prices have a long way to go before they hit bottom.

Pfizer: The Drug Giant That Makes Bank from Drugs That Can Kill You

To say that Pfizer has been accused of wrongdoing is like saying BP had an oil spill.
By Martha Rosenberg, AlterNet
July 10, 2010

The drug company Pfizer is best known for Lipitor, a drug that brings cholesterol down and Viagra, a drug that brings other things up.

But the "world's largest research-based pharmaceutical company" which sits between Goldman Sachs and Marathon Oil on the Fortune 500, is also closely associated with a seemingly never-ending series of scandals.

To say Pfizer's been accused of wrongdoing is like saying BP had an oil spill. Other drug companies have a portfolio of products, Pfizer has a portfolio of scandals including, but not limited to, Chantix, Lipitor, Viagra, Geodon, Trovan, Bextra, Celebrex, Lyrica, Zoloft, Halcion and drugs for osteoarthritis, Parkinson's disease, kidney transplants and leukemia.

During one week in June Pfizer 1) agreed to pull its 10-year-old leukemia drug Mylotarg from the market because it caused more, not less patient deaths 2) Suspended pediatric trials of Geodon two months after the FDA said children were being overdosed 3) Suspended trials of tanezumab, an osteoarthritis pain drug, because patients got worse not better, some needing joint replacements (pattern, anyone?) 4) Was investigated by the House for off-label marketing of kidney transplant drug Rapamune and targeting African-Americans 5) Saw a researcher who helped established its Bextra, Celebrex and Lyrica as effective pain meds, Scott S Reuben, MD, trotted off to prison for research fraud 6) was sued by Blue Cross Blue Shield to recoup money it overpaid for Bextra and other drugs 7) received a letter from Sen. Charles Grassley (R-Iowa) requesting its whistleblower policy and 8) had its appeal to end lawsuits by Nigerian families who accuse it of illegal trials of the antibiotic Trovan in which 11 children died, rejected by the Supreme Court. And how was your week?

Nor does Pfizer back down when faced with legal troubles.

Even as it was under the probation of a 5-year Corporate Integrity Agreement (CIA) with Health and Human Services for withholding $20 million in Lipitor rebates owed to Medicaid in 2002, it off-label marketed its seizure drug Neurontin and entered into another CIA in 2004.

Worse, it bought Warner-Lambert in 2000, which made Neurontin, knowing the drug's marketing practices were under criminal investigation. (And knowing its Rezulin had been withdrawn.)

And even as it entered into its 2004 CIA for Neurontin, it was off-label marketing the seizure drug Lyrica, called Son of Neurontin, and three other meds, and had to enter into a third CIA, last year's $2.3 billion Bextra settlement which was the largest health care fraud settlement in US history.

The same day the settlement news broke, Pfizer announced it bought the drug giant Wyeth despite its thicket of Fen-Phen heart valve suits and Prempro cancer suits.

And there was more "bring 'em on" chutzpah.

After Vioxx and Pfizer's Bextra were withdrawn from the market for cardiovascular risks, Pfizer sought FDA approval for its Celebrex, the last legal COX-2 inhibitor, also suspected of cardiovascular risks, for use in children as young as two.

And in June, days before Pfizer suspended development of the osteoarthritis drug tanezumab for worsening joints, it touted the drug as "well-tolerated."

As a company, Pfizer, based in New York City with research headquarters in Groton, CT, looks better from the outside than the inside. Its Pac-Man like acquisition of drug companies, Warner-Lambert, Pharmacia (Searle, Upjohn), SUGEN, Vicuron, Rinat and Wyeth (also creating the world's biggest animal drug company) has created a silo structure in which the company's 90,000 employees in 90 countries feel unconnected to a corporate heartbeat. Loyalty is rare as employees in absorbed companies bought for their products alone fear getting pfired and 14,000 scientists bemoan that the company's biggies like Lipitor, Celebrex, Neurontin, Zithromax, Zyrtec and now Wyeth's Prempro weren't created inhouse.

Despite flying doctors to Caribbean resorts to attend drug pitches (by other paid doctors) and bestowing four figure honorariums on them, and Enron moments like a Bextra sales extravaganza with acrobats, dancers and gigantic "fist" logo, Pfizer's Midtown Manhattan offices consist of unimpressive cubes.

After becoming the world's biggest drug company in 2000, Henry A. McKinnell, former Pfizer CEO and a Bushmate (replaced by less conservative Jeffrey B. Kindler) vowed to make Pfizer the "the world's most valued company to patients, to customers, to business partners, to colleagues, and to communities where we work and live." But thanks to the parade of damaging safety and ethics scandals, Esprit de corps is lacking except in some sales units.

"Pfizer is a black hole," Peter Rost, MD, author of The Whistleblower: Confessions of a Healthcare Hitman and probably Pfizer's most famous former employee told AlterNet. "It is nothing but a maze of cobbled together drug companies that aggressively markets drugs it didn't create in a military-like command structure."

Still, Pfizer's vast product line, its $50 billion a year revenues -- exceeding some states' entire budgets -- and reputation for having the best trained sales reps make it the team to beat for competing salesmen and examples of Pfizer envy dot Cafepharma, the drug industry chatroom considered pharma's washroom wall.

"Glad they did it," wrote a poster about last year's Department of Justice (DOJ) Bextra settlement. "Pfizer is only sticking it to the American person when they perpitrate a fruad (sic) of this magnitude. The rest of you who sat by and said nothing are no better than a bunch of crooks. My father always said, 'you lie, you cheat, you steal; you can't do one without doing them all'. You must be so proud...I would take that name badge off when I walk into an office if I were you."

"If you think that Pfizer is the only drug company that has dealt with off-label promotion issues you are sadley (sic) mistaken," perpitrated the next poster.

"You are so right. All the other companies are doing it, so we did too. Waaah, waaah, waaaaah! (stomping my foot). It's not fair! It made us so much money! Patients don't matter, money does," wrote the next poster. Characterizations about wives and mothers followed.

Patients also resent Pfizer and have sued over Chantix, Lipitor, Celebrex, Bextra, Neurontin, Lyrica, Viagra, Zoloft and other drugs. Pfizer downplayed Lipitor's "serious and irreversible side effects" says Mark Jay Krum, an attorney representing plaintiffs in a class-action suit, and "is willing to promote the drug at any cost." Say that.

Even the DOJ calls Pfizer incorrigible. "...illegal conduct was pervasive throughout the company and stemmed from messages created at high levels within the national marketing team," it wrote in the Bextra sentencing memo. "Employees, including district managers, explained that they did not question their supervisors about the illegal conduct that they were being instructed to carry out, because to do so would be considered a 'CLM' or 'Career Limiting Move.'"

Still the FDA needs to take some blame for waving iffy Pfizer drugs through, especially under the 1992 Prescription Drug User Fee Act (PDUFA) in which drug companies "buy" accelerated approvals.

Why did the FDA allow Pfizer to make money for ten years on the leukemia drug Mylotarg, which was given an accelerated approval, and allow people to take it as guinea pigs for ten years while "confirmatory" studies establishing its safety and efficacy were still outstanding? Patients who took Mylotarg while on chemotherapy had more deaths than those just on chemotherapy in a clear example of the lethal metrics of rushed through drugs.

Why was Pfizer's pain drug tanezumab, an injected monoclonal antibody made from bio-engineered immune cells, even considered for knee pain except for the profits in such Frakendrugs?

Why was Pfizer allowed to continue clinical trials on children, or anyone, after the FDA found Geodon overdoses in April -- and why is Geodon, rejected once by the FDA and promoted by Richard Borison MD who is in Hancock State Prison for research fraud -- hello -- on the market? Obama appointees Commissioner Margaret Hamburg, MD and principal deputy commissioner Joshua Sharfstein, MD come from public health backgrounds but it will be hard to turn the FDA ship around.

And speaking of dangerous drugs, what's up with Pfizer's anti-smoking drug Chantix?

In 2007, Texas musician Carter Albrecht, who played with Sorta and Edie Brickell & New Bohemians, became a poster boy for Chantix' unpredictable mental effects when he was fatally shot trying to kick in a neighbor's door. In 2008, with 988 adverse effects reported including seizures, heart trouble and suicides, the FDA banned airline pilots and air traffic controllers from taking it. Thanks for that. Last year it gave Chantix a black box warning to "highlight the risk of serious mental health events including changes in behavior, depressed mood, hostility, and suicidal thoughts when taking these drugs."

Most pharma watchers agree that financial penalties, including last year's $2.3 billion Bextra settlement, won't upend Pfizer whose one year budget for R & D alone is in the billions. Yet the DOJ repeatedly lets Pfizer pawn off guilty pleas to the False Claims Act (which include a ban on Medicare, Medicaid and VA eligibility) on its shell companies and keep doing business with the government. Why?

"Pfizer is the largest drug company in the world and if you include its generics unit it makes literally hundreds of different drugs. Getting tough would mean no Lipitor, no Viagra, no Bacitracin, no Cipro, no Zithromax, no Sutent, et cetera," says Jim Edwards, a pharmaceutical reporter on Bnet and former managing editor of Adweek. "The government is not really in a position to be cutting itself off from all that medicine."

"So many Medicaid, Medicare and VA drugs come from Pfizer, the government would never convict them," agrees Peter Rost. "It would stop the drug flow."

And then there's lobby power.

Just as former Louisiana Republican representative Billy Tauzin left the House Committee on Energy and Commerce which oversees the drug industry and resurfaced as head of PhRMA, Pfizer recently hired Gregory Simon who served on Obama's transition team and as chief domestic policy advisor to Vice President Gore to head its "global policy effort." Its senior corporate counsel until 2008, Arnold Friede, had an FDA background and Pfizer's former senior vice president for worldwide public affairs, Richard Bagger, has re-emerged as New Jersey Governor Christopher Christie's chief of staff. Hey, you guys look familiar!

Even the Bextra settlement arouses cynicism since $102 million of it went to a doctor and five former Pfizer reps who served as whistleblowers on the case, one getting $51 million.

Isn't making big money off pharma how the trouble started?

Hollywood's Big Wall Street Smackdown

Big finance is used to getting its way in Washington.
But the movie lobby had other ideas.
By Nick Baumann | Mon Apr. 26, 2010

It was a Hollywood happy ending—for Hollywood, that is.

For weeks, big movie studios have been fighting an effort by two financial firms to launch a new market in movie futures that would allow investors to bet on box office takings. The financial firms think this is an Oscar-worthy scheme. The movie studios panned it. Wall Street is used to getting its way in Washington. But this time, the James Camerons of the world appear to have outsmarted the Gordon Geckos.

This Capitol Hill clash began with the Hollywood Stock Exchange [1] (HSX), a fake-money internet game in which players try to predict the box office takes of Hollywood's biggest flicks. In 2001, Cantor Fitzgerald, a Wall Street investment firm, bought the five-year-old HSX with the intention of perhaps starting a real-money market [2] along the same lines.

But then came the terrorist attacks of September 11, 2001. Cantor was headquartered on the top floors of One World Trade Center, right above the impact zone. It lost 658 employees—two-thirds of its staff—in the tragedy. It wasn’t until 2008 that Cantor applied to the Commodity Futures Trading Commission (CFTC), which regulates futures trading, for approval for a real-money HSX.

At first, everything went according to plan. At the beginning of this year, anticipating that the CFTC would soon give the thumbs-up, Cantor began a publicity push to draw attention and potential investors to its new market. That’s when Hollywood got mad.

The studios freaked. They were worried that movie futures could be vulnerable to manipulation and insider trading, and that if investors lost confidence in a film it would bomb at the box office. The head of the Motion Picture Association of America (MPAA), Bob Pisano—essentially Hollywood's top lobbyist—wrote (PDF [3]) to the CFTC, warning regulators that film futures would be the "economic equivalent of legalized gambling on movie receipts."

Despite these objections, the CFTC gave the green light. Both Cantor's proposed exchange and another submitted by Media Derivatives Inc (MDEX), were approved in mid-April.

The MPAA is a formidable foe, however. Over the past five years, the trade group has spent around $2 million a yea [4]r lobbying Congress. Its political action committee has handed out tens of thousands of dollars in campaign contributions to key members. It has what DC insiders call "suction."

Cantor Fitzgerald may be a big deal on Wall Street. But it doesn't have nearly as much pull on the Hill. It hasn't lobbied the Senate directly since 2002, according to disclosure databases. And while its employees give generously to congressional candidates, it doesn't have a PAC exclusively promoting its interests. MDEX—an Arizona-based firm started in 2007—is even less of a Washington player.

Hollywood’s lobbying paid off. On April 16, as MDEX executives were no doubt celebrating their good fortune, Sen. Blanche Lincoln (D-Ark.) released her draft financial regulatory reform bill (PDF [5]). In it, she proposed the first exclusion of a product from futures markets since angry onion farmers descended on Congress in 1958 to accuse Chicago-based traders of capturing the market and artificially driving down prices. The current law lays out rules governing the trade of derivatives of any product "except onions." If Lincoln’s bill passes, it will read "except onions and motion picture box office receipts (or any index, measure, value, or data related to such receipts)."

This unexpected plot twist has bipartisan backing. California’s two senators, Dianne Feinstein and Barbara Boxer wrote to the CFTC last week, urging the agency to delay further approval of movie futures trading until Congress finishes work on financial regulatory reform. The letter was also signed by Al Franken (D-Minn.), Jeanne Shaheen (D-NH.), and George LeMieux (R-Fla.).

On Thursday, a House agriculture subcommittee held a hearing on the matter in which the overwhelming conclusion was that the proposal deserved to go straight to video. "What you’re basically talking about, then, is authorizing gambling," scolded the chairman of the agriculture committee, Collin Peterson (D-Minn.). "The bottom line here is we're not really talking about a commodity," said Virginia Republican Bob Goodlatte. "I would think the person who would vote for this thing would be absolutely insane," said Oregon Democratic Rep. Kurt Schrader.

The MPAA has no knowledge of "any" opposition in the Senate to Lincoln's ban on movie futures. And when Mother Jones caught up with Lincoln on Thursday, she said that "everybody seems to be on board" with letting the proposal join onion derivatives in the dustbin of history. The bottom line is, if you own any futures on movie futures, now’s a good time to sell.