GLG News by Martin Alpert

Implications: Are product recalls down this year because of the CPSC?Will litigation be reduced by the lack of recalls?

Analysis: The old adage statistics are made for the statistician certainly holds true with numbers like toy recalls down 46% this year.  Most people would read this & think finally the CPSC is doing its job.  While the CPSC has certainly played a role in these numbers, the fact of the matter is toy & general product recalls where simply very high last year.  As to toy's there was an explosion of recalls due to lead paint so naturally when that massive recall was over the total number of recalls would be down.  Also, resources to implement the recalls were low for this year & likely focused to other areas so again the numbers would be down.  That is not to mean, nor should it be taken as toys or products are finally being made in accordance with all standards.  Another way of putting this article is that it is somewhat of a false positive.  Great that recalls are down, but just keep in mind why?  There remains an overall concern that year end will bring a flood of inventory release with less focus on the new product standards, but time will tell!  Importantly, consumers should not become lackadaisical  with filing complaints where necessary or simply assume product manufacturers are following all applicable guidelines just because of some recent seemingly positive numbers. The CPSC has been instrumental in effectuating safe products, just do not lull yourself into a false sense of security. http://www.cpsc.gov/cpscpub/prerel/prerel.html

Implications: Overturning the State Court action in Wyeth v. Levine could be the end of a State Court remedy for mislabeling drugs!Does the Supreme court really want to issue a definitive rule for Federal Preemption?

Analysis: With all the recent election hype & economy issues, it is likely that the Supreme court will not come close to resolving once & for all Federal Preemption. Dedicated analysts predict the Supreme Court will almost undoubtedly issue a very narrow ruling that will not come close to ending this long debate.  For all too long has Congress had the ability to stop this basic dispute with a bill outlining requirements, but for what some perceive as obvious reasons has chosen not to do so. Nonetheless, as it has happened many times in history the problem has been placed in the lap of the Supreme Court & like Solomon it is likely to essentially split the outcome. This all seems a little contrary to the basic principle that congress makes law & the courts enforce it! Worse case scenario envisioned by some is that the drug companies essentially get a get out of jail free card, exempting them from State Court action, or the Supreme Court realizes it would be overstepping its bounds to find Federal Preemption in the FDCA, thereby assuming the FDA is the be all end all on drug labeling. What should not seem surprising is that those on one side of the fence refuse to see possible options on the other side of the fence.  Welcome to litigation, said the spider to the fly!  http://www.forbes.com/opinions/2008/11/10/wyeth-levine-fda-oped-cx_rae_1111epstein.html  

Implications: Will New potential FDA changes balance the scales on possible federal Preemption?

Analysis:      Our country has long been a system of checks & balances.  So just when many thought Federal Preemption was going to be nirvana for entities like drug companies, the FDA may have the last say. New leadership within the FDA has all indications of making it much tougher on companies to pass muster. Congress seems to be fully backing this charge & it appears that resources will be added to add to the less than optimal stable of scientists necessary to be in place to make this system work the way it should. Additional departments & facilities may be added to aid in compliance review. There is, however some dispute as to exactly how in house policies should be changed.   http://pn.psychiatryonline.org/cgi/content/full/40/7/1

Implications: Will the Supreme court finally put to bed the issue of Federal Preemption?How likely is this ruling to affect entities other than the drug Companies?

Analysis: The Supreme Court clearly could have the final say in the legal system on whether to make Federal Preemption a reality, other the Legislature coming out of hibernation.  It currently has before it the Wyeth case involving a Drug company's attempt at shielding itself from liability.  Of course, the Drug company presents its case as one of this is what the law should provide. If the drug company wins, not only will the 6.7 million verdict for the original Plaintiff in Vermont, Diane Levine, get wiped out, but many entities will attempt to use this ruling as a cloak of invisibility in State courts. Moreover, in all likelihood if this case goes to Wyeth many entities will not voluntarily amend their labels. While the underlying Plaintiff, as a basic injured person, never envisioned her case would turn into this sort of contention, she like many others make get sucked into this black hole. Frivolous litigation should clearly have its controls & the law should provide certain safeguards against abusing the system, but this is not the way to go about it.  The real surprise to some may be that the Supreme Court may severely limit its ruling to just affect a portion of this case, or like in many cases, sidestep the big picture entirely. After all, this issue has extensive ramifications & has been the bone of contention for quite some time. http://www.law.com/jsp/tal/PubArticleTAL.jsp?id=1196279825356

Implications: This trial acts as a model for corporate executives that think their exposure ends in civil litigation!How likely are criminal verdicts after successful litigation?

Analysis: Some say this criminal indictment reminds them of the Magnificent 7, even thought the numbers are down to six.  This, however,  is far from a group of gun fighters trying to right an injustice, & is certainly not executives who always protect their shareholders & would do nothing to endanger citizens.  Do we live in a fairy tale world of make believe.  Long have been almost forgotten the knights of the round table within King Arthur's court.  Now greed & pure advancement is the tunic of many executives, humility & integrity have waned into an abyss. The Supreme Court, however, has cleared the way to possibly right a wrong. https://www.istockanalyst.com/article/viewarticle+articleid_2305954.html   On February 19th, many Libby residents may get some sense of justice as WR Grace & its executives are being tried for their alleged crimes.  While it will not bring back the many lost lives of this tragedy or heal many of those impacted by those who turned their back on humanity, it will nonetheless have some hollow sense of justice.  WR Grace will vigorously defend their position with data & fancy color charts attacking any causal connection, but after all is said & done people need some sense of closure or at the very least some notion that someone will be held accountable.  America must maintain its system of checks & balances!  While this certainly will not have a fairy tale ending, it should have at the very least a moral to the story. Someone knew what was going on, & someone should be held accountable!

Implications: Be careful what you essentially ask for in court: Accountability!Can Foreign companies get a fair trial in the US?

Analysis: There is an old, but very wise adage of be careful what you wish for! Parmalat wanted accountability for their losses & they received it. Unfortunately, Parmalat was in essence held accountable when their lawsuit to recover money turned into a debt. Many have lost optimism for the value of their shares. http://www.bloomberg.com/apps/news?pid=20601205&sid=aOEIxfrFQcUY&refer=consumer  Some feel that this was the wrong time to ask people to recover for losses you may have had a role in, especially with all that is going on in the market.  If you followed this case closely it certainly had its ups & downs & procedural twists & turns, most of which will not surprisingly be the subject of a lengthy & costly appeal process. Those that want justice, including foreign companies that can get a fair trial in the US, better not forget a very old & somewhat basic principle of law; the Doctrine of Clean Hands.  Although this principle may not having been legally applied here, it was in theory.  When Parmalat asserted they had in essence been duped, it appears they had difficulty doing it with a straight face & certainly not with a credible posture that they were not somewhat heavily involved in their own misfortune.  Not only did they not get the 2 billion they wanted, the jury tagged them with Citigroup's counterclaim for $364 million. This will not bode well for there cases against B of A & Grant Thornton, unless they strategically realign their allegations & objectives 

Implications: Bush's latest attempt at litigation control could deny millions access to the court house! Bush's tactics could restructure how legislature controls policy change!

Analysis:

Bush has long stood for tying the hands of many prominent trial lawyers. Between Federal preemption & this latest Fulton's Folly, no Product Safety suits, he his clearly overstepping his bounds.  It is certainly one thing to help enact changes, it is yet another to deny those who deserve access to the system of justice our for fathers created.  How could anyone in their right mind basically suggest we should put a lock on the court house doors. This thought may seem a bit over the top, but no more so then canceling out the basic rights we were born to inherit!  Bush's trail has already created unfettered protection for many industries in areas like mattress flammability, drug labeling and railroad safety.  He is reminiscent of Don Quixote. The american people are all for stopping frivolous suits, but we seem to be attempting to throw the baby out with the bath water.   http://findarticles.com/p/articles/mi_qa3975/is_200107/ai_n8975976 

The real problem is what he has taken so long to put into place, may even take longer to undo or at least fix.  The legislative & basic review process to make changes takes a LONG time & is alot more tedious than getting out that knot in your sneakers.  It is clearly a time for change, but we are not dealing with an Etch-O-Sketch.

Implications: Subprime lawsuits will unravel many secrets but who really will pay the tab?Will the end result be sweeping legislature changes? 

Analysis: The ink is yet dry on many of the dot com lawsuits, which took 7 to 8 years to resolve, yet the same lawyers are lining up to file the next way of allegations: undercapitalizing & failure to properly disclose subprime liabilities.  Interestingly, it is not just Fannie Mae & Freddie Mac heading the list of Defendants, but many of the same or similar defendants in the dot com litigation like Merrill Lynch, Goldman Sachs, UBS & Wachovia. Few seemed to learn their lesson, let alone stay out of traffic before dusting themselves off. The coming trend is inevitable.   http://classactionblawg.com/2008/10/13/trends-in-subprime-crisis-class-action-litigation/   While the named plaintiffs in all of these class actions have not been fully defined the allegations are crystal clear.  Not only are many courts being barraged with filings, but the FBI can not even keep up with all the investigations. Unfortunately, as is usually the case the true cost of all of this will likely fall on middle class Americans. Many remain optimistic that the real outcome lies in the legislature waking up and taking off its rose colored glasses, No longer should we look the other way or just hope that tomorrow will be different.  The ultimate ripple for this disaster will be ongoing for many more years than can be imagined. Despair not, for there is light at the end of a tunnel, if nothing else an a wake up call to our foundation of checks & balances. 

Implications: Will this credit card company settlement really end the ongoing turf wars?Industries in general will likely be affected by this growing intolerance for trade infringements!

Analysis: The credit card industry, among others, has long fought the battle of trade infringements.  This more recent fiasco between Discover & several other card companies like Visa & Mastercard has been in litigation since at least 2001.  While a settlement in this battle has been reached for around 3 Billion, the war is far from over. The basic dispute was in these cards leveraging banks to choose between their cards as opposed to just letting them compete.  Interestingly, the court initially told these companies to stop these practices back in 2001 & even the Supreme Court wouldn't review the issue.  While most would think that would have been the end of it, almost 7 years went by before Discover was set to go to trial.  A court house steps settlement what a surprise in what some perceive as the poker game of litigation. Nonetheless, many seem skeptical that companies will change their basic tactics, as opposed to refining their delivery. These type of Antitrust violations have been around for a long time in one form or another.  Importantly, this settlement may likely have some rippling effects with other industries as it should send a message that these type of practices will not be tolerated, even at a basic level.  When potentially faced with a jury being told your practices were illegal, the question is just how much you should get, seems to make a roll of the dice less likely, especially with the value of credit card purchases in 2007 being 2.17 Trillion.   http://www.bloomberg.com/apps/news?pid=20601103&sid=axrdWpuRyQPQ&refer=us

Implications: This case on the right of inheritance could spill over to the financial sector.Could this Wisconsin decision affect the backbone of our over all judicial system & the theme of accountability?

Analysis: Some may interpret this Wisconsin decision as an anomaly, but Katie bar the door if it spills over. If you can recovery financially for committing a crime then all those involved in our economy issues may do some time but be very well compensated.  What could this do to the fabric of our legal system & corporate governance on accountability.  Many thought that fruit from the poisonous tree, realizing this is a criminal postulation, was the core of helping prevent injustice.  This case may just seem to be a blip on the radar screen or likely something that may be overturned, but many will use this as a stepping stone to suggest some should be allowed to keep financial windfalls from certainly less than meritorious ventures. If for a moment considering the mortgage crisis, would it be more or less likely that people would commit fraud if they knew they could keep all proceeds.  In drug cases they could now keep all the profits, in murders when they write books or help promote movies they could keep the profits, & on & on we go.  We are starting a whole new wave of capitalism. People would surely be less inclined to think twice before getting involved with questionable situations, especially when there is a big payoff.  Yes, this may not affect those so intertwined in morality, but when the rose colored glasses come off it will affect many.  Even though we still have laws to protect some of this, maybe we should follow the UK mentality.  http://en.wikipedia.org/wiki/Proceeds_of_Crime_Act_2002

Implications: Have governmental regulations failed us?Are we simply going to repeat history?

Analysis: The handwriting is certainly on the wall & its time to take off our rose colored glasses. http://www.thirdday.com/boards/showthread.php?p=1831110 Wake up & smell the coffee America.  With all the brilliant minds we have in the financial industry, we have essentially gone back in time to 1929.  What's different, some say the magnitude of the dollars involved, but maybe not if we actually compare it to the value of then dollars.  At least one thing is for sure, despite all our legislative changes & exponential corporate governance we ended up in a very similar place; essentially spinning out of control.  The dollar is in the toilet, we are basically in a recession (even if we don't want to admit it), the deficit is busting at the seams,  mortgage foreclosures are said to be at 300,000 a month & the overall financial projection isn't just gloomy but to many dismal, etc., etc., etc.!  What else does it take for a realization that enough is enough. All the controls, regulations & bailouts mean nothing if we do not learn anything & actually apply it.  This was not an over night process, nor will it go away quickly.  We need, however to begin somewhere & the buck really stops with all of us, as most played a part in getting here.  Admit it or not, almost all are responsible in some way or another.  So what should we do about it?  Start now, cut back.  Realize what are wants versus needs, just one step at a time.

Implications: What do some analysts opine was the real reason for AIG's debacle?What real lessons can be learned from this financial predicament?

Analysis: Is any company immune from failure; likely not!  Some are fairly adamant that AIG's problem largely revolved around Credit Default Swap(CDS). http://www.time.com/time/business/article/0,8599,1723152,00.html  While this may have been a factor, it seems clear there were many deeper issues.  As to CDS, it is just another form of gambling & unfortunately AIG & many other financial institutions lost.  The only sure bet is not to not bet at all, but at least save for a rainy day. Or, possibly more aptly put the only sure thing is change.  Realizing we all are in a storm, saving & taking on less risk would certainly have gone a long way in riding this out! CDS was simply to much in one basket, an estimated over 60 trillion.  AIG sold over 440 billion CDS, but bought none.  What happened to hedging?  Like with many things that become one sided, it topples. What seems ironic is despite all these apparently brilliant financial advisors AIG still ends up where it does. Liddy is good, but not a magician. Once again, when the loose thread is pulled all may unwind. What will even be as equally unfortunate is that many other financial institutions are in a similar boat. Even though they ooze diversification in their advertising they do not always practice what they preach. The old moral still holds true, you play with fire you can get burnt! 

Implications: Preemption may be the death knell for State law suits, but does it alleviate your ultimate avenue of redress?Will preemption create more problems than what its worth?

Analysis:      The debate on preemption has certainly been a see saw & remains ongoing. http://www.druginjurylawyerblog.com/2008/09/preemption_update_fdas_new_rul_1.html The drug companies may think it's the be all end all to rising costs, but the American people are clearly fearing there goes big brother choking our avenues of recovery.  We all should keep in mind that preemption does not translate into immunity.  It will, however, be something raised as a defense by for instance the drug companies.  If this ultimately passes muster, drug companies will unquestionably stand up and claim as a defense that once we comply with the FDA our responsibilities are somewhat concluded.  So those that are of the mindset that the FDA is on board with preemption, it is not for the reasons you think!   

Implications: The Legal fall out to the Fannie Mae debacle is daunting! Is Freddie Mac next & what will this mean to the mortgage market?

Analysis: Katie bar the door to the flood gate of potential litigation. Is this really a surprise?  Many knew this would simply be a race to the courthouse, an inevitable result.  After all, look what we had as a gauge with all the law suits from the overall mortgage crisis. Nothing seems immune from what in essence are simple business decisions. The interesting feature is that any decision or ultimate shortcoming by the Federal government will not make its way to the courthouse. Anyone else that can be or might be a target should gather their acorns & take cover as we are in for a rough ride, wilder than Mr. Toad's at Disney. Look out banks, accountants & financial advisors!      http://www.tehrantimes.com/index_View.asp?code=177362 The Southern District of New York may be the first venue for Fannie Mae being a target, but it will likely not be the last. Not surprising is the basic allegations within the first blood complaint, misrepresenting the companies capital needs.  Next up to bat will likely be accusations of breach of contract, Fraud, fiduciary issues, potential misappropriation & a multitude of others.  Freddie Mac get ready you are invariably the next course.  Many will certainly not just stand up and say maybe we over extended ourselves or did not budget our finances effectively.

Implications: What will be the true affect of this bailout?Will this in essence take over fix the real problem?

Analysis: The actual length of this ripple is only beginning to be envisioned. http://community.investopedia.com/news/IA/2008/Analyzing_The_Fannie_Mae__Freddie_Mac_Fallout_FNM_FRE.aspx?partner=YahooSA  Banks  will take a significant hit to their balance sheets & a similar drain on capital. Early estimates may be at least 25 to 30 billion. At least one result seems to be less funds available for loans, translating into a continual spiral in the housing market.  Another likely affect to the Federal government taking over is that there will be no dividends & there may ultimately be little value to GSE's. This all comes on the heals of the initial thought process that this may help the mortgage market. Help what! Defaults & foreclosures are getting worse, home prices continue to drop & there seems to remain to many houses that can not be in actuality sold. Was this really the best coarse of action.  The Federal government has given the impression that it was because of the strong ties these to institutions have to foreign investors.  So is the real reason here to save our face for those outside the US. This may seem easy to say, but the handwriting for all of this was on the wall a long time ago.  This did not happen over night, just when everyone was simply talking about what to do. Instead of just talking about the problem, maybe more should have been done about it. All may ponder longer about this as the American people pick up the pieces 

Implications: Is the subprime mortgage debacle the driving force behind so many recent bankruptcies? Will the federal government step in with regulations to in essence help itself: no money for bills, no money for taxes?

Analysis:

Implications: How far will the SEC go to recoup subprime mortgage losses & is anyone really immune?Are SEC deep investigations into broker transactions simply the result of Corporate Governance?

Analysis:

Implications: Did Exxon simply put money into defense costs, which beat down plaintiffs?Is there really any victory in this type of timeless litigation?What will happen to the interest issue?

Analysis: This is just another example of some problems with the judicial system. It has been almost 20 years since the Exxon Valdez spill & only recently there is a partial settlement (383.3 million).  Is something wrong with that timeline? More & more cases are getting drawn out in court, to the favor at times to those with the biggest bank account.  What seems even more amazing is that Exxon really thinks it should not owe interest!  The issue of interest on these type of awards has always been very controversial, especially when the clock should start ticking.  Many favor the position that in order to enhance the likelihood of people or entities gambling less on the outcome that some greater teeth needs to be in this process.  If you knew that you would have to pay interest from day one, would you really roll the dice so easily.  More importantly, every entity known to mankind generally charges something for the time value of money, whether it be interest or the incentive to get involved! The legal arguments of Exxon are well known on why they believe they should not pay interest, but really it has been 20 years in this case! Then again, if the Supreme Court punts on this issue does that bode well with our system in general. http://calpunitives.blogspot.com/2008/08/us-supreme-court-punts-on-exxon-valdez.html

Implications: Will ARS settlements minimize potential lawsuits & regulatory review?

Analysis: Is the concept of buybacks in the ARS disaster really such a novel approach to risk management? With the market & economy the way it is, this is certainly not the type of case you want to defend in court.  Some say this is worse than the used car salesman, in that many over zealous brokers puffed up the liquidity aspect of these type investments.  What is always interesting is that few had any negative input when all was going according to Hoyle. The settlements in these ARS cases will clearly take the wind out of any ones sails, especially the typical cast of class action attorneys, relative to either a lawsuit or investigation.  Any form of common damages will be minimized or become nonexistent. Problem is are we really just sweeping the real issue under the rug?  Should some safeguards be enhanced to prevent this from occurring again?  If not in the form of fines, then modifying the governing rules & regulations. Nonetheless, it is always refreshing to see entities step up to the plate in lieu of having to take the dispute to court.  While one doubts it was out of the kindness of their heart or what is ethically & morally appropriate, it is just the same a good way of resolving what should be resolved.  If for know other reason than to stop the flood gate of litigation & fueling an already problematic situation.   http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080422/REG/323114373/1010/rss01&rssfeed=rss01

Implications: What will be the ripple affect to financial institutions if Fannie Mae and/or Freddie Mac are bailed out or taken over?  

Analysis: If you listened to the SEC, the Treasury and/or the FRB testify on Capital Hill recently Fannie Mae & Freddie Mac appear to be on their last leg, especially with total losses over 25 billion. Loans to these entities clearly did not work & if anything made the situation worse.  The problem is, if it is true that these 2 entities make up half of the US mortgage market then if they do not in some form rebound the housing market will certainly stay where it is. Unfortunately, all of this may just get aught up in politics as the some fear any assistance will not come until after the election or at least until they expend all their cash.  What many fail to realize time may not be a luxury they have.  Both are some what on track to breach their mandatory surplus threshold limits within the third quarter of this year.  Many foresee this train fully derailing within the next 2 to 3 months & some say it is chicken little again.  No matter which it is, one thing is for certain if the government gets a hold of this market it may never let go.  Watch the banks as they maneuver during this cash call. These financial issues have been around for awhile. http://www.mortgagedaily.com/ConventTab.asp