Review — The Divide: American Injustice in the Age of the Wealth Gap
By Matt Taibbi
Review
The Divide is a critical examination of the US justice system. Matt Taibbi juxtaposes the temperament of the justice system on each side of this “Divide.” Basically Gandhi for the winners, Stalin for the losers. Dave Chappelle did it better, but it’s a good premise for a book too.
It’s pretty hard to read without becoming angry to some extent. The section on justice in the immigration system was particularly absurd. I mean I already knew it was absurd, but I didn’t fully appreciate it. The frequent extended use of case studies was an effective tool. Some human experiences can’t be fully appreciated with stats. Still I didn’t try to summarize those parts as much since they can’t be done justice in a couple sentences. That’s kind of the point of a case study. Case studies combined with legitimately complicated explanations of financial crimes that span years, countries, and endless names made for a tedious summary, but I think it came out well.
The premise of the book isn’t exactly mind blowing at first glance. Obviously powerful people get away with stuff. People with not so much power get away with not so much stuff. Going in I’d expect these obviously true statements would simply be based on more information than they were, but Taibbi isn’t satisfied simply confirming what we already know. He goes into some detail about the universally acknowledged, yet invisible systems that perpetuate The Divide.
“This goes far beyond the oft-quoted liberal cliché about how we now have “two Americas,” one for the rich and one for the poor… the new truth is infinitely darker and more twisted.”
Summary
“What deserves a bigger punishment — someone with a college education who knowingly helps a gangster or a terrorist open a bank account? Or a high school dropout who falls asleep on the F train.”
Lots of people aren’t even aware of the divergent standards of justice… at least not the full extent.
Abacus Bank: was the Lee Harvey Oswald of banks taking the fall for the 2008 crash. It was a small bank owned by an immigrant family in Chinatown that had nothing to do with the crash.
Defending lawyer said “You can’t throw a rock without hitting a bank that cost Fannie Mae billions of dollars in loss but you know it’s not in this courtroom.”
“It isn’t just that some clever crook on Wall Street can steal a billion dollars and never see the inside of a courtroom. It’s that plus the fact that some black teenager a few miles away can go to jail just for standing on a street corner.”
Cases of large scale systemic crime are selected for success rate and media coverage rather than what deserves prosecution. This phenomenon was underway at the same time boardrooms were at their most criminal.
The crash was not an accidental market screw up. It was a widespread crisis of institutional policy and a core part of this policy was crime. Actual crime.
“Specifically, this was a massive criminal fraud scheme, something akin to a giant counterfeiting operation, in which banks mass-produced extremely risky, low-quality subprime mortgages and with lightning-quick efficiency sold them off to institutional sucker-investors as highly rated AAA bonds. The hot potato game targeted unions, pension funds, and government-backed mortgage companies like Fannie Mae on the secondary market.”
Ratings agencies which “performed the critical to the fraud function of overrating the toxic mortgage securities. High ranking executives openly discussed in emails the corrupt corporate strategy of giving phony ratings in exchange for cash from the big banks. ‘Lord help our fucking scam wrote one executive from Standard and Poor’s.’” Yet consequences were minimal if when they existed at all.
“For the small subset of offenders who are guilty of truly systemic transformative organized crime… let’s carefully consider the collateral consequences of criminal prosecution. But for everybody else, let’s ignore them more than ever before.”
Examples:
For laundering money for terrorists and drug cartels, HSBC apologized and had to promise not to do it again. Even Forbes & NYT were outraged. The biggest drug laundering crime in history was not being prosecuted as thousands of small offenders are locked up under quotas.
UBS Libor Scandal interest rate manipulation faced no US or European criminal prosecution. Fines amount to a few weeks worth of time.
Apparently it is common to seek advice from Wall St on when and who to prosecute… On Wall Street. There is an argument used that prosecuting harshly will hurt the hard working honest employees etc. This argument should be used at maximum 1 time. If a firm is too systemically important to face consequences then it must be cut down. (I think we call that a moral hazard.)
No criminal prosecution means financial crime becomes basically legal. Settlements just set the price.
Policing
The idea of an impotent government justice system isn’t inherently dystopian. However the double standard between low level victimless crime and large scale systemic crime is highly problematic. All of this was going on as police were basically farming homeless or just poor people for greater and greater quota harvests. Even people who were clearly innocent are being coerced to take a plea deal.
There was a drop in crime in the 90s, the source for which is still largely unclear.
CompSTAT: Officer’s arrests are compared by quantity, not quality. Every arrest is entered into a database. New goal was make as many arrests and collect as much data as possible.
When crime goes down in this atmosphere and quotas advance careers, you have to improvise, adapt overcome. Create arrests. Marijuana arrests went up 10x in a few years. Affluent people didn’t even notice obviously.
The prosecutorial culture has completely adjusted to this new reality almost always pushing plea deals for bullshit arrests. Plea deals have implications on jobs, welfare, education, housing, loans, etc.
Punishment for officers making false arrests is not considered. Officers can lie in court, illegally search whomever, harass or assault citizens etc. They’ll still be on the job even if the department is successfully sued and paying out settlements. We foot the bill.
“Low class people do low class things.” -Lawyer for a defendant who was arrested for standing outside his own apartment building.
There is no shortage of bullshit made up crimes that affluent people are blissfully unaware of. “Almost everyone you talk to in criminal courts complains that they spend far too much of their time dealing with bullshit cases.”
“It’s impossible to overestimate the impact in terms of time and sheer frustration that all these mindless arrests and summonses have on the people targeted.”
Only 4% of public drinking charges go to white people. (White people probably do a bit more than 4% of public drinking.)
Stealing a nice car can get you 7 years, stealing $600 million apparently gets you 1. Judges can be merciful when the defendant is on the winning side.
“The deals the government and wall street worked out that weekend to save the likes of AIG, Goldman, Deutsche Bank, Morgan Stanley and Merrill Lynch were unprecedented in their reach and political consequence, transforming America into a permanent oligarchical bailout state. This was essentially a formal merger of Wall Street and the US Government.”
The fall of Lehman Brothers cost hundreds of cities and thousands of union members their financial security.
“Everyday on Wall street money is stolen, embezzled, burgled & robbed, but the mechanisms of these thefts are often so arcane and idiosyncratic that they don’t fit neatly into the criminal code, which is written for the dumb crimes committed by common stick up artists and pickpockets… much like common street grifters who bank on the victims feelings of shame and guilt preventing him from going to the police, Wall Street criminals bank on the terminal intellectual insecurity of their regulators. They dare prosecutors to call what they’ve done crimes knowing they’ll be hesitant to disagree with the hot shot defense lawyers from New York and Washington who make 40 or 50x what they do.”
Immigrants are literally put in chains and deported for crimes like fishing without a license or having a tail light out. “On the local level, the police and the courts get to hit detainees with big tickets before they get chucked out of the country… the money is so good police will show up anywhere where they’re likely to find an undocumented Mexican near a car.”
“ICE even has a UPS style tracking system that allows immigrant families to punch in a number and see where their deported relative is.”
Basic rights don’t apply as these are civil not criminal violations. The bar for evidence is also lower. Immigration judges also work for homeland security and report to the same superiors with the same goals. Leads to a permanent culture of fear of police. Meanwhile no foreign born banker caught up in recent fraud and manipulation scandal on Wall Street has been deported yet.
“So we’ve built a massive and ruthless police apparatus for the ordinary immigrant population complete with a sprawling essentially extralegal detention complex to catch and detain people who have not committed any actual crimes. This gigantic menacing complex of bars chains buses and airplanes built to deal with the immigrant poor, stands in stark contrast to the tiny disorganized confederation of perhaps a few hundred lawyers policing transnational financial companies… Hundreds of thousands of people go to jail without committing crimes. Thousands or tens of thousands more commit extremely serious crimes and no jail even exists to detain them.”
“There’s a new class of people whose goal is to become above citizenship. Live in America conduct your trades in the weaker regulatory arena in London, pay your taxes in Antigua or the Isle of Man. Keep the rights, but offshore the responsibilities. The flip side is that there is a growing subset of people like undocumented immigrants who live below the level of full citizenship. If the first group is stateless by choice these people are involuntarily stateless and have virtually no rights at all.”
Any organization/legislation created to help crackdown on criminals is used to crack down on people just trying to go to work or take their kids to school, often for the profit of private prisons which are partially owned by the too big to fail banks which commit real crimes with impunity.
“The jailing Hispanics business is the perfect mix of politics and profit. Companies like CCA donate generously to politicians everywhere, particularly at the state level.”
Local police forces are compensated by the federal government for their detention of immigrants. “State Criminal Alien Assistance program SCAAP pays local police forces out of the federal kitty for any detained immigrants who meet certain criteria.”
Local politicians go along with it because new detention facilities bring jobs. CBS local affiliate called such a facility an “economic boost to the community.”
“It turns out that we prosecute administrative political violations like serious crimes, and serious crimes like administrative violations.”
Fairfax Fiasco: “The Fairfax fiasco is a tale of harassment on a grand scale, in which the cream of America’s corporate culture followed executives, burgled information from private bank accounts, researched the Canadians’ sexual preferences for blackmail purposes, broke into hotel rooms and left threatening messages, prank-called a cancer-stricken woman in the middle of the night.”
Hard to adequately explain. Suffice to say narcissistic/sociopathic behavior is rewarded not punished. Since this is an economics blog we’ll go with uhh flawed incentive structures.
Financial crimes can pick and choose where they take place to minimize prosecution.
“Here again we have a major difference between the prosecution of ordinary street crime and the regulation of global finance. If you jump a fair on East 125th street in Harlem there’s no question which police force in which city’s set of laws apply to you. No lawyer is going to stand up in court and make the pseudometaphysical argument that the bus was actually built in Conway, Arkansas, or that the injured parties were actually the Chinese buyers of a transportation bond issued by the city of New York. No, you jump a fare in Manhattan, and it’s Manhattan cops who will knock you on the head and throw you in jail. And no judge will excuse you from the New York City Dock because your home address happens to be Paterson, New Jersey.
But this sort of thing happens all the time in global financial crime. Crimes happen everywhere and nowhere, and unless a major federal regulator asserts jurisdiction, defense lawyers can keep their clients from ever going near a courtroom simply by challenging the venue.”
He lists a few other issues that frighten prosecutors. There’s a perception that it’s just too hard to go after the real sharks, to which he says “Real police will go after the bad guy no matter who he is or how well protected he might be. In fact the best of them will take on the villain even when winning is a long shot. There’s value even in trying and losing sometimes.”
He also points out the fact that prosecutors are able to justify billions in fines, but are unable to justify jailing the responsible criminals in which is a bizarre and very broad middle ground. Failing to jail responsible parties sets a bad precedent.
Less philosophically it just hasn’t been given the priority (budget) it merits.
“The increase in the national drug enforcement budget for the year of the biggest financial crisis since the Depression was roughly 200 times the size of the sole executive branch effort at formally investigating the causes of financial corruption.”
The Welfare State as it exists is extremely abusive, intrusive, & humiliating all in the interest of preventing the massive fraud of not being quite poor or morally worthy enough. Inspectors come to make sure the fridge isn’t “too stocked with food” or that an applicant is so hypocritically being poor and sexually active at the same time. Employing a small army of welfare inspectors isn’t exactly frugal. The goal is not some banal idea of balanced budgets. It’s designed to be punitive. Searches were also violations of rights but rights do not apply to the poor. I’m reminded of Thomas Frank’s assertion in Pity the Billionaire that we’ve become more interested in punishing the poor than helping them.
This is a long quote but it’s worth reading in full.
“So the standard is, anyone who receives aid from taxpayers forgoes his rights, because the state has a “strong interest” in rooting out fraud. But of course not everyone who receives state aid forgoes his or her rights, not really. To whom does this legal principle apply?
Well, we know to whom, but we can’t put it on paper. It’s like pornography, you know it when you see it. As Americans, we’re all beginning to develop a second sense about who gets to feel the business end of the criminal justice system, and when, and who doesn’t, and why.
That second sense we all carry around in our minds is our true government. It’s very different from the Schoolhouse Rock! official version, and different from the one we see celebrated every four years in our presidential campaign system. Schoolhouse Rock! teaches us that everyone is treated equally under the law, and that our government is one we’ve chosen in free elections, but at the same time we somehow know not to be surprised when that turns out not to be completely true. This has been hammered home to all of us in the recent years following the financial crash, when the dichotomy in the system has grown more and more visible, creeping higher and higher in our collective consciousness.
For instance, while the San Diego District Attorney’s Office spent more than a decade sifting through thousands of dresser drawers and bringing felony cases all the way to court for frauds as small as four hundred dollars, executives in the same general area of Southern California, at companies like Countrywide and Long Beach Mortgage, were pioneering the brilliant mass fraud scheme that involved the sales of toxic mortgage-backed securities.
One of the favorite targets of that fraud scheme was government and the taxpayer. These companies, along with their bankers, loved more than anything to sell worthless mortgage bonds to Fannie Mae and Freddie Mac, the government-backed housing agencies.
Just one Southern Californian company, Countrywide, dumped as much as $26.6 billion on the taxpayer and the state when it sold overvalued bonds to Fannie and Freddie. Bank of America, its eventual parent company, sold another $6 billion to Fannie and Freddie. Fifteen other companies also targeted the federal government for hundreds of millions and billions more. The state of California’s pension fund, CalPERS, was also the target of massive fraud schemes, as banks, mortgage lenders, and ratings agencies conspired to sell California workers billions more in worthless securities in exchange for their life savings.
By the time all these companies were finished first inflating and then crashing a huge global asset bubble based on overvalued mortgages, the world had lost trillions of dollars — one extremely conservative estimate by the IMF put the losses at $4 trillion. But despite having been warned about the possibility of widespread mortgage fraud by the FBI as early as 2004, financial cops in regulatory agencies like the SEC and the OCC didn’t respond to the problem at all until well after the crash. When they finally did respond, they did so by bringing civil suits against companies like Countrywide, JPMorgan Chase, Bank of America, Wachovia, TD Ameritrade, Goldman Sachs, Charles Schwab, and others.
In the twenty-one biggest federal settlements over mortgage fraud abuses — $300 million from State Street for lying to investors, $153 million from Chase in the Magnetar settlement, and so on — those companies and a few others paid a total of $26 billion in damages to the government. In every single one of those cases, the relevant companies were allowed to settle without admitting wrongdoing. Not a single individual was charged in any of those cases. Not a single individual had to pay so much as a dime of his own money in damages.
Not one home was searched. No banker ever had someone pick up his underwear by a pencil end and wave it in his face. Twenty-six billion dollars of fraud: no felony cases. But when the stakes are in the hundreds of dollars, we kick in 26,000 doors a year, in just one county.
You can drive yourself crazy trying to figure out how this makes sense, financial or otherwise. But it does make sense. It’s just not about money. It’s about fucking with people. It’s the logic of our new shadow government. It turns out that we’re too lazy to govern ourselves, so we’ve put society on bureaucratic autopilot — and autopilot turns out to be a steel trap for losers and a greased pipeline to money, power, and impunity for winners.
This goes far beyond the oft-quoted liberal cliché about how we now have “two Americas,” one for the rich and one for the poor, with different sets of laws and different levels of punishment (or more to the point, non punishment) for each. The rich have always gotten breaks and the poor have always had to swim upstream. The new truth is infinitely darker and more twisted.
The new truth is a sci-fi movie, a dystopia. And in this sci-fi world the issues aren’t justice and injustice, but biology and mortality. We have a giant, meat-grinding bureaucracy that literally alters the physical makeup of its citizens, systematically grinding down the losers into a smaller, meeker, lower race of animal while aggrandizing the winners, making them bigger than life, impervious, super-people. Again, the poor have always faced the sharp end of the stick. And the rich have always fought ferociously to protect their privilege, not just in America but everywhere.
What’s different now is that these quaint old inequities have become internalized in that “second government” — a vast system of increasingly unmanageable bureaucracies, spanning both the public and the private sectors. These inscrutable, irrational structures, crisscrossing back and forth between the worlds of debt and banking and law enforcement, are growing up organically around the pounding twin impulses that drive modern America: burning hatred of all losers and the poor, and breathless, abject worship of the rich, even the talentless and undeserving rich.
No one is managing these bureaucracies anymore. They are managing us. Just as corporations are brainless machines for making profits, this sweepingly complex system of public-private bureaucracies that constitutes our modern politics is just a giant, brainless machine for creating social inequity.
It mechanically, automatically keeps the poor poor, devours money from the middle class, and sends it upward. And because it’s fueled by the irrepressibly rising vapor of our darkest hidden values, it attacks people without money, particularly nonwhite people, with a weirdly venomous kind of hatred, treating them like they’re already guilty of something, which of course they are — namely, being that which we’re all afraid of becoming.
In the Orwellian dystopia the original sin was thoughtcrime, but in our new corporate dystopia the secret inner crime is need, particularly financial need. People in America hide financial need like they hide sexual perversions. Why? Because there’s a direct correlation between need and rights. The more you need, the more you owe, the fewer rights you have. Conversely, the less you need, the more you have, the more of a free citizen you get to be. On the extreme ends of this spectrum it is literally a crime to be poor, while a person with enough money literally cannot be prosecuted for certain kinds of crimes.
What keeps the poor poor and rushes the money upward is the complexity of the bureaucracy. If you’re the wrong kind of person and you get caught up in the criminal justice system, or stuck in the welfare bureaucracy, or mired in debt, you can’t get out without navigating a maze so complex and dispiriting and irrational that it can’t possibly even be mapped. It’s not brains that you need to get through it, but time, energy, strength. You have to stand on line after line, send letter after letter, make call after call.”
This is the logical conclusion of what psychologists call the Just World Phenomenon. As we try harder and harder to justify our victim blaming tendencies, it will only become more jarring when we finally snap out of it.
“The system eats up rich people, too, because it’s not concerned with protecting any individuals, even the rich ones. These bureaucracies accomplish just two things: they make small piles of money smaller and big piles of money bigger. It’s a system that doesn’t care whose hands end up holding the bag, or how long those hands get to hold the bag. It just relentlessly creates and punishes losers, who get to sit beneath an ever-narrowing group of winners, who may or may not stay on top for long.
What does get preserved, in all cases, is a small constellation of sprawling, interconnected financial companies, whose names and managements may change (Bear becomes Chase, Wachovia becomes Wells Fargo, etc.), but whose entrenched influence remains the same. In other words, this is a machine that loves and protects money but somehow hates all people.
Of course this mechanism hates some people more than others. In particular it hates black people. Again, this is not so much about skin color as it is about culture. There is a cultural spectrum these bureaucracies are attuned to that roughly ranges from black poverty to white wealth. Where you are on that spectrum determines how much of a citizen you get to be.”
Wall Street seems to have an implicit belief that if someone isn’t “sophisticated” enough to prevent their own swindling then they deserve it. Ethics or god forbid compassion is equal to weakness, a pitiable trait, ripe for justified swindling by someone superior. Rand in full effect.
“Bill Clinton’s political formula for seizing the presidency was simple. He made money tight in the ghettos and let it flow free on Wall Street… Clinton’s ‘third way’ political strategy in which democrats laid down their arms of business regulation allowed his party to compete with the Republicans for the campaign contributions of the big banks on Wall Street. By 1996 Bill Clinton’s single biggest private campaign contributor would be Goldman Sachs, a distinction he would share with the next Democratic president, Barack Obama. The other side of the new strategy also stole the Republicans political thunder by preemptively bashing black dependency through the welfare issue allowing democrats to sink their fangs into a big chunk of Richard Nixon’s ‘Southern strategy’ based on white voters in the south.”
This created a bipartisan consensus.
“Both parties wanted the financial services sector to become an endless naked pillow fight, fueled by increasingly limitless amounts of cheap cash from the Federal Reserve (Literally free cash, eventually.) If they turned life in the projects into a police state they turned life on Wall Street into its opposite.”
“The United States is also a one-party state, but with typical American extravagance, they have two of them”
— Julius Nyerere
Conclusion
A few months back one of my more woke friends said something along the lines of “If you make less than $40,000 a year here you basically live in an authoritarian state.” I didn’t really get it at the time. I’m generally aware being poor isn’t so fun at the moment, but I feel like I get the point more now. It’s like we got the bureaucratic Vogons from Hitchhiker’s Guide to the Galaxy and made them work for the Empire from Star Wars.
In real life among all but a few of my friends I’m hesitant to bring any of this up. We all know this type of thing is going on, but going into specifics it’s almost too disgusting to believe. Even when we believe it, it’s tempting to just say it’s their own fault. They should have worked harder, studied harder, shouldn’t have done drugs, shouldn’t have had kids, shouldn’t have been born there, born to those parents, born at all.
If you’re not careful, the newspapers will have you hating the people who are being oppressed, and loving the people who are doing the oppressing.”― Malcolm X
