Post-Katrina (still?!) formaldehyde exposure is at the center of this Congressional dust-up. It seems that Our Congress is debating whether the manufacturers or the government should shoulder responsibility for the dangerous condition of FEMA trailers provided to people displaced by Katrina.

I can’t help but think there’s a more basic question that isn’t getting asked.  Exactly why are people still living in dangerous post-Katrina trailers?  It’s tempting to go all caustic here and wonder about race and class and poverty. But I won’t.

One of the political ironies is that the Republicans want to blame the government for failing to have formaldehyde standards. Interesting. They are now wanting more regulation? But of course, neither side gets all the blame or all the credit. You have to wonder whether the Democrats can’t find a more expedient approach to solving the underlying problem.

As for the legal side, it’s pretty simple. A manufacturer that sells a dangerous product bears responsibility for the harms and losses caused by the product. That would include toxic trailers.

Manufacturers don’t get to blame the government. The government didn’t make or sell the trailers. The government didn’t make hundreds of millions of dollars selling the trailers.  Since they made and sold the goods, the manufacturers have to take the bitter with the sweet. If the product that they sold is dangerous, they pay what is necessary to cover the harms and losses caused by the dangerous product. Simple rule.

But of course, the whole discussion is sickening, in that the first priority has to be prevention of injury by getting people out of toxic buildings.

David Sugerman

Double dose of irony in this report in today’s Oregonian. It seems that a lobbyist for the Oregon Coalition of Mortgage Originators, Shane Jackson, filed suit in Multnomah County Circuit Court to collect his unpaid fees of $20,000. According to the news report, he sued both the Oregon Coalition of Mortgage Originators and its president, William Ridge.

Back story: Jackson and the Oregon Coalition of Mortgage Originators worked to stop reforms aimed at tightening the rules on mortgage lending. Alert readers might immediately connect this effort to the whole lack of regulation that got us into the mortgage lending crisis.

More detail: The Oregon Coalition of Mortgage Originators took great glee in killing SB 965 in the 2007 session. The bill,  Senate Bill 965, would have required plain language disclosures and use of underwriting standards.  It would also have allowed consumers harmed by mortgage lenders misconduct to directly sue.

According to the news report, the real estate market downturn put Mr. Ridge in a position of being unable to meet the payments on his new South Waterfront Condo.  Ridge apparently defaulted. That’s apparently part of the reason why Mr. Jackson has not been paid.

So here’s the first level of irony. These cowboys were so busy protecting their “rights” (read: positions at the trough) that they wouldn’t acknowledge the obvious. Lack of regulation and market oversight caused the mortgage lending meltdown.  And that is the main culprit in the real estate slide that bit Mr. Ridge in the backside.  While no one knows whether prompt action would have boosted consumers’ confidence in the market, it’s easy to see how Mr. Ridge, the Oregon Coalition of Mortgage Originators, and their lobbyist have all gotten swept up by the under-regulated markets.

And as for the second level of irony, my vague recollection is that the Oregon Coalition of Mortgage Originators opposed reforms in part because they allowed consumers harmed by misconduct to…gasp…file a lawsuit if the lender’s misconduct injured the consumer.  I guess Mr. Jackson didn’t lose any sleep over filing a lawsuit when he got stiffed for his rightfully owed $20,000. Maybe he now has a different take on the need to be able to pursue claims in court?

The whole thing would be little more than a belly laugh if so many others weren’t otherwise harmed by the collapse.  Can’t help but wonder what my friends at Our Oregon think of all this. They fought valiantly for consumers on SB 965. Angela Martin from Our Oregon was demonized for taking the lead. A number of good people–my friend Phil Goldsmith, for example–spent countless hours working on behalf of consumers on these issues.

I wonder now if Mr. Ridge and Mr. Jackson have had second thoughts about their work opposing lending  reform or about Our Oregon’s work on SB 965?

David Sugerman

Good article today online in the New York Times about how consumer safety is threatened by the Bush administration’s push for greater federal preemption. The article explains how in this new era, the Federal Drug Administration claims that injury lawsuits arising from a claim that a drug is dangerous should be barred because the FDA’s safety standards will take care of the problem.

Amazing. This is the same agency that admits that it can’t force manufacturers to issue warnings about unsafe drugs. It is the same federal agency that has seen a run of failures in protecting consumers from unsafe or ineffective drugs, including Zyprexia, Vioxx, and Rezulin to name just a few of the recent problems. And then let’s not get started on Vytorin.

The problem is that the FDA is not fully funded. It often doesn’t independently test drugs. In fact, it has in the past acknowledged that civil lawsuits aid it in its mission.

The goal is, of course, to provide safe and effective drugs to consumers. Seems like we have two clear choices. If we really want to eliminate lawsuits, we simply have to fully fund the FDA and tightly regulate drug manufacturers. That approach is completely at odds with the drum beat for less regulation. So if we’re not going to do that, seems that the only choice is to have a functioning civil justice system so that consumers injured by less-than-tight regulation will not be straddled with the harms and losses caused by unsafe products.

David Sugerman

In its current session, U.S. Supreme Court issued a number of pro-business rulings including this one about federal preemption. “Federal preemption” is a legal term that means that federal law trumps or displaces state laws and claims based on the laws of the state.

The theory behind federal preemption is that when the federal government regulates in a uniform way, allowing state law rules or even state law claims would undermine the ability to enforce federal standards. Sounds reasonable in theory, I suppose. But in practice it’s a killer.

Here’s a good example. The FDA faces serious questions about its failure to inspect tainted Heparin. Patient deaths have resulted from import of tainted Heparin from China. Lax FDA enforcement is the best argument against preemption. If we can’t count on our federal agencies to protect us from unsafe products, consumers must have access to the courts. Otherwise, we’re all at the mercy of a market place that puts profits first.

The fact of the matter is that product safety lawsuits protect consumers. If the government won’t take oversight seriously, the Court must stand aside.

David F. Sugerman

The news reports over the weekend of the Bear Stearns bail out tell the remarkable story of federal intervention to avert a complete melt down. The Wall Street investment bank was about to go down the tubes when the feds intervened and helped JP Morgan purchase Bear Stearns for a price reported to be two dollars per share.
Apparently, when Bear Stearns is circling the drain, the feds get really concerned and even work over the weekend. This is a remarkable thing. Of course, when consumers go into crisis over bad mortgage loans, the fed doesn’t do so much.

Interestingly, when consumers sought relief from Congress, the problem wasn’t urgent. Many opposed consumer relief, including this master of one-sided rhetoric. When it finally came, consumer relief was thin, to be charitable.

We are told that regulation is bad and free market is good. When consumers get into trouble with predatory loans, we are told that this is a market problem, and some go so far as to blame consumers for agreeing to bad deals. I get that. But I haven’t heard any squawking about the free market when it comes to Bear Stearns’ bail out. Maybe it’s early.
David F. Sugerman