Your browser may have trouble rendering this page. See supported browsers for more information.

This page shows the source for this entry, with WebCore formatting language tags and attributes highlighted.

Title

<i>The Divide: American Injustice in the Age of the Wealth Gap</i> by <i>Matt Taibbi</i> (2014; read in 2020)

Description

<abstract>Disclaimer: these are notes I took while reading this book. They include citations I found interesting or enlightening or particularly well-written. In some cases, I've pointed out which of these applies to which citation; in others, I have not. Any benefit you gain from reading these notes is purely incidental to the purpose they serve of reminding me what I once read. Please see Wikipedia for a summary if I've failed to provide one sufficient for your purposes. If my notes serve to trigger an interest in this book, then I'm happy for you.</abstract> This book is nearly evenly divided between stories of how the poor in America are squeezed for all they are worth, made to pay with money and time for crimes that shouldn't even be crimes---or that they haven't even committed--- while the wealthy, the elite, the so-called Masters of the Universe not only avoid punishment for much larger crimes that destroy countless lives, all in the name of consolidating filthy lucre to a self-selected elite: <iq>men and women who essentially as a matter of policy now will never see the inside of a courtroom, almost no matter what crimes they may have committed in the course of their business.</iq> And let's all remember the huge difference: the people who steal a <i>lot</i> of money when they <i>already have</i> a lot of money are not being prosecuted. They are instead promoted to positions of power and influence. Those who have nothing and are stealing---or failing to properly report---<i>small</i> sums just in order to <i>survive</i> go to jail immediately and pay with time and money they cannot afford. <bq caption="Position 117-119">Unquestionably, however, something else is at work, something that cuts deeper into the American psyche. <b>We have a profound hatred of the weak and the poor, and a corresponding groveling terror before the rich and successful</b>, and we’re building a bureaucracy to match those feelings.</bq> <bq caption="Position 144-146">[...] giant idiosyncratic bureaucracies that are designed to criminalize failure, poverty, and weakness on the one hand, and to immunize strength, wealth, and success on the other.</bq> This works not because those in power are exceptionally clever or better than we are. They're just initially luckier, be it by birth or by just dumb luck. Hard work does not necessarily get you into the special class, but any number of stupid trivialities can. They don't even have to be more clever than to <i>divide</i> and <i>conquer</i> (or control). They've, <bq caption="Position 162-163">[...] arranged things so that the problem is basically invisible to most people, unless you go looking for it.</bq> This is nothing new, going back to the late 70s and early 80s---and having gotten a high-energy kick-start during Ronald Reagan's two terms (see <a href="{app}/view_article.php?id=4138#the_reagans">my review of the 4-hour documentary <i>The Reagans</i></a> for more information). <bq caption="Page 13">The cleaving of the country into two completely different states—one <b>a small archipelago of hyperacquisitive untouchables</b>, the other <b>a vast ghetto of expendables with only theoretical rights</b>—has been in the works a long time.</bq> Taibbi recounts the interesting mechanics of the fraud that led to the financial crash of 2008. To illustrate the "divide", he juxtaposes what happened to people who orchestrated the greatest theft of all time versus people who break minor laws. <bq caption="Page 40">Once the bubble burst, lawsuits were filed everywhere and whistle-blowers emerged by the dozen, showing, in graphic documentary detail, how nearly every major financial company in America had chosen to participate in this enormous fraud. <b>It was the very definition of systemic corruption, but</b> curiously, despite what looked like mountains of evidence, <b>almost nobody with any connection to the crisis was even threatened with criminal prosecution.</b></bq> <bq caption="Page 50">And as every individual who’s ever been charged with a crime knows, anyone facing criminal arrest can expect collateral consequences. <b>A single drug <i>charge</i> can ruin a person’s chances for obtaining a student loan or a government job. It can nix his or her chances of getting housing aid or a whole range of services—even innocent members of your family may lose access to government benefits. You can lose your right to vote and your access to financial aid. You can even have your children taken away.</b></bq> It's not that no-one cares, but that it seems to be unstoppable somehow. <bq caption="Page 115">The public defenders [...] can’t do much about the convictions factory. They’re like partisans trying to slow an invasion by throwing their bodies under tank treads.</bq> The political will is with continuing this situation because it benefits all of the right people and doesn't affect anyone important, by definition. The law tiptoes around businesses and for a decent reason, <bq caption="Page 67">Unless a company was corrupt through and through, it did seem reasonable to try to avoid destroying it and to protect the jobs of innocent employees if possible.</bq> But it got to the point where <iq>[t]he attorney general of the United States [admits] that he asks Wall Street for advice before he prosecutes Wall Street.</iq> This was easier because the big boys could afford a lot of lawyers and put up a real fight, so <iq>[...] incompetent and lazy officials with a defense-lawyer mindset [would] avoid difficult contested trials and simply take cash up front and declare victory for the cameras.</iq> On the other hand, <iq>You’ll never see a local prosecutor call a press conference and pat himself on the back for letting a car thief or a mugger of old ladies off with a fine.</iq> Instead, police were vociferously encouraged to <i>create</i> crime on that side of the ledger with incentives that spoke directly to their own personal gain---a nearly sure-fire method with most people, for whom principles are far down the list of priorities relative to enriching themselves. <bq caption="Page 95">But the steep drop in violent crime presented police with a problem. If making arrests is the only way to advance in your career, but crime is dropping, what do you do? Furthermore, what to do if the only way to make a living wage is to rack up as much overtime as possible? In the Safir era, NYPD starting salaries were on the low end for professional police forces in America, beginning at about forty thousand dollars. How do you add hours in an era when crime is dropping? The answer turned out to be, you simply create arrests. By multiplying marijuana arrests by a factor of ten in the space of a few years, Safir’s police force drastically increased its workload.</bq> I think that the the starting pay of $40,000 as being "too low" is odd, though. I made less than that in 1994 when I started as a software developer. I might have been making that by 1998. We weren't living "rich". We had no car and rented an apartment, but we were getting by without issue. I suppose a police officer isn't satisfied with living lower middle-class like we were and figured working overtime arresting people who hadn't committed crimes was an ethically defensible way of escaping that life. In one case that Taibbi writes about, the main reason the state used to flush one man's life down the drain was that he had "obstructed traffic" on a sidewalk after he stepped out of a car at one in the morning to discover a cop who'd popped up out of nowhere---on an otherwise empty sidewalk---to get between him and his own apartment's entrance. To a normal person, this seems like the cop is obstructing the poor guy returning home from work. Since a cop can't be liable for something like that, it <i>must</i> be the <i>other</i> guy who committed a crime. The goal was to <i>create</i> a crime. <bq caption="Page 102">The obstructing traffic section is meant to apply to people who are willfully blocking cars or people on the sidewalk, or to be used as a tool for crowd control at things like protests, but in practice it’s code for being black on a Tuesday night.</bq> It gets more insidious, as charges are turned into convictions without sufficient proof simply by applying the punishment <i>before</i> trial. <bq caption="Page 117">[...] if you don’t make bail, you’ll almost automatically spend at least [15-90 days] in jail waiting for trial. The state knows this, so essentially, charging a person who can’t make bail with a B misdemeanor is the same as convicting that person. You file the charge, the judge sets high bail, you go back inside, and then you eventually plead to time served, because, well, why not? You’ve already done the time. The only difference is, you’ve got a conviction now, which means the next time you get arrested, the denial of bail—or a punishingly high bail—will be even more automatic.</bq> Innocent people end up with criminal records because <iq>[...] the speedy trial concept [...] is easily reduced to a complete joke.</iq> and the system <iq>applies disproportionate punishment to the guilty.</iq> Remember that, with the successful division of America, people aren't even aware that this is the system. They don't know that <iq>failure to follow a police order, no matter how stupid or unreasonable, is cause for an arrest or a summons.</iq> Combine that with the foot-dragging above, and a <iq>prosecutor can essentially turn any misdemeanor case against almost anyone into a de facto conviction [...]</iq> That <iq>[...] puts an entire segment of the population constantly on the defensive, gives it a criminal record essentially in advance.</iq> Taibbi now moves on to contrast that system with what happens when Dick Fuld and Lehman Brothers steal and waste a truly tremendous amount of money. Unlike with poor people, where petty, mostly victimless crime is manufactured, in this case large-scale theft from thousands---if not hundreds of thousands---of victims is completely ignored, letting the criminals steal more and more from more and more victims until the criminal finally stops on their own when the system---rather than the regulators---decide that enough's enough. <bq caption="Page 152">What’s amazing about this is that the Fed saw fit as early as January 2008 to warn Chase about Lehman’s instability. But nobody ever warned the public. Nobody stepped in after the bank cooked its books in Repo 105, or misreported taxes, or made fake disclosures, or lied outright to investors. Nothing was done. The government merely sat back and watched the catastrophe unfold, allowing new victims to pour money into the walking-dead bank right up until its collapse.</bq> <bq caption="Page 156">The deals the government and Wall Street worked out that weekend [...] transform[ed] America into a permanent oligarchical bailout state. <b>This was, essentially, a formal merger of Wall Street and the U.S. government.</b></bq> Barclays stepped in to "bail out" Lehmen Brothers for what they claimed was "cost" but ended up skimming $5B from the top, <i>stealing</i> it from the owners of Lehman Brothers, who were <i>already</i> being screwed from the original mismanagement. Now, Barclays was stealing even more money from them, all with the oversight and blessing of the government. Instead of a candy bar from a bodega, it was $5B from retirement accounts. Next, Taibbi takes us to Georgia, where we learn how the police milk the local immigrant population by inventing crimes to produce fines and settlements to bolster the local tax base. <bq caption="Page 201">The squad cars perch on the sides of the road like ticks on a vein, hauling in alien after undocumented alien and tossing them into the criminal justice/deportation hopper. From there, in a complex, arbitrary, and mindlessly cruel legal process that puts people literally in chains for the crime of going to work or taking their kids to school, the detainees get ground up into a rich financial and political meal, shared in nearly equal parts by state and federal authorities on the one hand and private prison companies on the other.</bq> Because of the residency status of these people, they are de-facto afforded fewer rights. This amounts to conditional rights, depending on how much money you have. <bq caption="Page 208">For a country founded on the idea that rights are inalienable and inherent from birth, <b>we’ve developed a high tolerance for conditional rights and conditional citizenship.</b> And the one condition, it turns out, is money. If you have a lot of it, the legal road you get to travel is well lit and beautifully maintained. If you don’t, it’s a dark alley and most Americans would be shocked to find out what’s at the end of it.</bq> It is about money, and it's definitely a class thing, but how can we do this to fellow human beings, just because they don't have that much money? That, alone, wouldn't be enough, which is why we mix in race-based alienation to make <i>everything OK</i> <bq caption="Page 229">This seemed to represent the ultimate white-folks win-win: local chicken-plant owners got to keep their cheap labor, while local police still got to milk the immigrant community for any money they made working at those plants.</bq> On the other side of the ledger, if you're rich and white, you can run a scam for 13 years and nothing happens until the scam collapses under its own weight (pretty much how Lehman brothers did). <bq caption="Page 256">Madoff actually went more than thirteen years without making a single stock purchase and yet somehow survived several SEC investigations [...]</bq> So there's Madoff, who scams millions, if not billions, out of other rich people by <i>not</i> making trades. And then there are the guys who coordinate to generate artificial trades---and interest---to drive a stock price up so they can sell at that artificially inflated rate. <bq caption="Page 257">To <a href="https://www.investopedia.com/terms/p/paintingthetape.asp">paint the tape</a> on ADM, Graber and Israel would call eight different brokers and put in buy orders simultaneously to run up the price—at a time when Graber was holding lots of the stock ready to sell into a rising market. It was a racket the Securities and Exchange Commission was hopelessly ill-equipped to stop.</bq> In case it wasn't clear how that worked: this in insider trading. The hedge funds have prior access to information that no-one else in the market has access to, simply because they pay the analysts more for it. Everyone else gets screwed in a market that ends up reflecting only the interests of the already ultra-rich. And these people are just getting richer because they're already rich and stealing from others. They're worth billions and stealing <i>more</i> from those who have, relatively, nothing to give. Where that should be a <i>greater</i> crime because it's more morally bankrupt than stealing to buy food, <i>this</i> is the crime that goes unpunished. <bq caption="Page 267">Tipping off a hedge fund that your analyst is going to give a “buy” rating to a stock weeks before that research is made public can be enormously valuable to the hedge fund, for the obvious reason that the fund now has a pretty good idea of a concrete date and time when the stock is going to tick upward.</bq> It's essentially like when Biff had that almanac of sports facts when he traveled back in time in <i>Back to the Future II</i>. Hedge-fund traders know the future and are no longer taking any risk. No-one else in the market has access to this information and, mysteriously, they don't seem to do as well as these hedge funds. Next, Taibbi tells the story of a how a cabal of these hedge-fund traders convinced themselves to go short on a Canadian company (they were gambling that the value of the company would go down by a certain date). When they realized they were wrong, instead of eating their losses---as the rest of us would---they instead employed clumsy, quasi-Mafia tactics to try to force the company to lose value. This is the alternative to predicting the future. If, for whatever reason, you still guessed incorrectly (or the information you stole turns out to not be reliable), then you can still commit <i>other</i> crimes try to <i>change</i> the future so your bet <i>still</i> pays off. Naturally, since you're rich, none of these things count as crimes. <bq caption="Page 275">[...] in a city where police in some neighborhoods define crime as standing on the sidewalk the wrong way, these idiots took their stock-trading act-like-a-thug life, screwed it up a hundred different ways, and not only couldn’t get arrested, they couldn’t even get police of any kind to notice.</bq> <bq caption="Page 323">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.</bq> It seems the police just weren't looking for crime where they knew it wouldn't be (i.e. they weren't manufacturing it there). And this isn't just grossly unfair, but the larger, ignored crime has a <i>ton</i> of collateral damage, in the form of investors (often pension and index funds and 401K mutual funds) who lost money on completely fictitious and artificially generated market movement. There was no actual economic benefit---the common defense the finance industry has for itself---because <iq>[t]he entire thing was a battle of public relations. It had nothing to do with real economics.</iq> Anyone who claims that the free market is doing its job of "price finding" is either a fool or a liar. This is a system with two, quasi-official sets of rights. <bq caption="Page 319">Over and over again, we hear that if you owe money in a certain way, or if you receive a certain kind of public assistance, you forfeit this or that line item in the Bill of Rights. If you’re a person of means, you get full service for all ten amendments, and even a few that aren’t listed. But if you owe, if you rent, you get a slightly thinner, more tubercular version of the Fourth Amendment, the First Amendment, the Fifth and Sixth Amendments, and so on.</bq> <bq caption="Page 321">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. <b>That second sense</b> we all carry around in our minds <b>is our true government.</b> [...] Schoolhouse Rock! teaches us that everyone is treated equally under the law [...] but at the same time we somehow know not to be surprised when that turns out not to be completely true.</bq> It's more about class than race. The line is drawn between the reprehensible, mooching poor and the deserving, job-creating wealthy. <bq caption="Page 319">It’s not that it’s written anywhere that if you’re black and you live in the projects, you don’t get protection against illegal searches—it just sort of works out that way. And if this makes any sense at all, it’s not about skin color. This is a cultural kind of bias. White people who live the wrong way get caught in the net, too.</bq> Hatred of the poor is more deeply embedded and unchangeable than racism. Racism has actually decreased over the years. It's obviously still a problem, but it's much better than it was---albeit because it was so appallingly bad before---whereas inequality has <i>increased</i> dramatically. Middle-class blacks are just as disdainful of poor blacks as middle-class whites are (do you remember when Chris Rock had a long bit about <a href="https://en.wikipedia.org/wiki/Niggas_vs._Black_People'">Niggas vs. Black People</a> in <i>Bring the Pain</i>?) <bq caption="Page 324">[This system] 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.</bq> Almost as strong as hatred of the poor is reverence for the rich, something I haven't noticed in any other country. It's deep-down, bone-stupid to revere the rich, sucking up their fairy tales about how they got to be that way and you didn't. As Taibbi puts in, hand in hand, these <bq caption="Page 324">[...] twin impulses [...] drive modern America: burning hatred of all losers and the poor, and breathless, abject worship of the rich, even the talentless and undeserving rich.</bq> You don't need to be smart or good or anything commendable to get into the privileged club. You just have to somehow have a lot of money: inherit it, steal it, it doesn't matter. Once you have it, you're protected. Go big or go home...or to jail. If you commit crimes <i>while</i> you're big, though...you just add to your fortune, but don't have to worry about going to jail. You have to worry about the size of your fan club growing too big. <bq caption="Page 326">These bureaucracies accomplish just two things: they make small piles of money smaller and big piles of money bigger.</bq> Taibbi tells the story of Marishka, a young woman---one who's made mistakes, yes---trying to make ends meet. Does she get even a real first chance, to say nothing of a second one? No. She's not rich. Instead, <bq caption="Page 333">[...] she was about to become more heavily scrutinized by the state than any twelve Wall Street bankers put together.</bq> Helping her would cost nearly nothing and could help her a lot. Helping hedge-fund brokers steal billions costs a tremendous amount and helps only a small group of thieves who already had more money than they knew what to do with in the first place. But we are trained to believe that Marishka is guilty until proven innocent and that the hedge-fund trader doesn't even exist. Taibbi has a way of presenting the facts in a way that shows the glaring irony of this two-class system. <bq caption="Page 341">For instance, in 2011, the state of Ohio—the same state that lost tens of millions in the early 2000s when its pension fund bought severely overpriced mortgage-backed securities from a Lehman Brothers banker named John Kasich, who would later become governor—tried to recoup some of its losses by sending out 22,000 notices to Ohioans seeking “overpayments” in either welfare or food stamps.</bq> In other words, Ohio elected the guy whose company bilked its state-pension fund out of <iq>tens of millions</iq> to be <i>its governor</i> while it scrambled to bolster its budget by scrabbling back amounts in the tens to hundreds of dollars for what it called <iq>overpayments</iq> (a claim that, in many cases, was highly dubious) from <i>welfare recipients</i>. Because the rich are unassailable, we attack the poor. Not only are the rich unassailable, they are <i>rewarded</i> with <i>governerships</i>. <bq caption="Page 349">[...] the only offenders the local burghers will spend money to embarrass publicly are young, single, nonwhite mothers guilty of the [alleged] crime of improperly receiving benefits.</bq> This was not just a Reagan or Bush thing. This was also a Clinton and Obama thing. This is an American Ruling Class thing. <bq caption="Page 351">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. He showered the projects with cops and bean counters and pulled the cops off the beat in the financial services sector. And in one place he created vast new mountain ranges of paperwork, while in another, paperwork simply vanished.</bq> It is the way that they keep themselves as the ruling class. For 99% of the participants, there is no discernible difference from a monarchy. There is no underlying principle except for the rich to get much richer and the poor to feel guilty about not being richer, all the while being milked <i>every damned day</i>. A self-selected and smug minority can't fail, while everyone else can do nothing <i>but</i> fail. It's no wonder people are angry, but their anger is wildly misdirected. This is the American Myth. It is a palace of lies built by many, but benefitting only a few. Many that support it would probably do at least as well or even better under a fairer, more just, more moral, and more principled system, but they're terrified of changing horses and falling into the giant crack of poverty they've created. They won't rock the boat for a <i>principle</i>, for fear that they'll lose the unearned gains they've accrued---and continue to accrue---from the unprincipled system that they do support. So they hear, believe, and repeat to themselves the stories that the losers in this system deserve what they get---just as the winners do. To admit anything else would lead to a psychic collapse. <a href="https://youtu.be/VImnpErdDzA">Are We the Baddies?</a> One of the big problems is that hating a poor person for not reporting they got an extra $25 of benefits per week is somehow easy. At any rate, it's easy to understand what they're being accused of---and feeling righteous about it. Hating a bank for setting up laws that put its president in charge of bailouts to <i>his own bank</i> at a federal organization, effective loaning himself billions in government money at 0% interest to buy out competitors at bargain-basement prices, prices that were artificially depressed by a collapsed bubble that he and his bank created is ... somehow more difficult to understand. Taibbi provides the details below: <bq caption="Page 359">[...] WaMu and its $307 billion in assets were delivered by the state into the hands of Chase and its CEO, Jamie Dimon, for the preposterously low price of $1.9 billion, a bargain deal that was struck just a few weeks before Chase was given $25 billion in cash by the government as part of the TARP bailouts. This was Chase’s second sweetheart deal in less than a year. Six months before, in March 2008, Chase had “rescued” the imploding investment banking giant Bear Stearns, buying the venerable firm with the aid of $29 billion in guarantees extended by the New York branch of the Federal Reserve—whose chairman of the board of directors at the time was, get this, JPMorgan Chase CEO Jamie Dimon. That means that six months after Jamie Dimon was the lucky recipient of his own Federal Reserve bailout in order to acquire Bear Stearns, his bank was given another $25 billion in cash by the state to go on another shopping spree, cash he used, among other things, to buy Washington Mutual.</bq> You see? It's so complicated that the average mortal will doubt their ability to judge whether something shady happened or not. But it's <i>brainwashing</i>. They've brainwashed you into believing that you are completely able to judge the indigent---without needing any background information, which is almost always morally, if not legally, exonerating---but are utterly incapable of judging financial malfeasance and fraud several orders of magnitude larger and more damaging, even when it stinks to high heaven. In the first case, we <i>know</i> they're guilty because we can judge <i>downwards</i>, but in the second, we <i>defer</i> to the criminals, who we assume are just much smarter than us. We are jealous of their success and attribute it to their being superior---else we'd have to think we were somehow inferior or had been suckered in some way. If they don't do too much damage to us personally, we let it slide, rather than examine that whole house of psychological cards. <bq caption="Page 383">The crucial thing to understand is that if businesses like consumer credit cards are going to give cards away in the mail to everyone with a pulse, then the process almost by definition has to involve fraud.</bq> Why doesn't our bullshit detector go off for this stuff? We take to the streets to protest COVID, we believe the Earth is flat, that the towers were taken down by the Bush administration, that Russia stole the election---we fight like mad for stupid, unsubstantiated shit <i>that doesn't even affect us</i> (not really), but then don't trust ourselves to say anything when someone is blowing smoke up our collective asses in <i>to steal everything we have</i>? This leads to people like Obama telling us with a straight face that <i>nothing actually illegal happened</i>, that <iq>Banks are in the business of making money [...a]nd they find loopholes.</iq>, which is <i>bullshit</i>. They break laws that are unenforced. They <i>undo</i> laws that they don't like. They <i>illegally</i> bribe legislators to add loopholes for themselves before <i>driving through them</i>. They are the kids on the playground who change the rules mid-game, then declare victory <i>and we believe them</i>. Not only that: <i>we worship them</i>. The final financial sector volume deals with a woman whose job was to sniff out credit-card fraud. She found it in her own bank, blew the whistle, and was fired for it. The transactions all proceeded unfettered. All of it was vastly illegal---fraud of the highest order---with several layers of beneficiaries all sucking illegal gains out of a helpless target, already mired in poverty and debt. This is a "market" built on obvious subterfuges intended to generate predictable outcomes and revenue. <bq caption="Page 374--376">[...] in a huge percentage of credit card cases, the cardholder never even sees the summons and consequently never appears in court to defend himself. [...] the bulk of the credit card collection business is conducted without any supporting documentation showing up or being seen by human eyes at any part of the process. The meat of the business is collecting unopposed default judgments from defendants who either never receive a summons or receive one and never appear in court. [...] At no time in the process do most collectors ever actually need to produce evidence of a legitimate debt or a legitimate judgment.</bq> What's stopping them from making them up wholesale? You wouldn't be able to tell the difference. If no-one checks, then you don't serve and just make up a number for a nonexistent card and garnish their wages after judgment. Why even buy accounts from Chase? You don't need them for this scam. This is largely how it works, although they do seem try to get actual outstanding debts---which is not that hard to do in 21-century America. Once they've obtained a judgment against a wholly unaware victim without ever having shown any evidence, they then leverage other laws they've engineered that let them garnish wages in most states. The company doing the garnishing almost never has anything to do with the company to which that person actually owes money. You borrow from A and B ends up garnishing your wages with no accountability or evidence and nothing other than a court proceeding with a default judgment in favor of the plaintiff because the defendant was never aware that it had even occurred. The first they know about it is when the notice a line item on their paycheck. This is a business model that actually exists---but only affects people you've never met, so it's OK. <bq caption="Page 382">What this means is that the entire business model for something like Chase’s credit card business is not much more than a gigantic welfare fraud scheme. These companies borrow hundreds of billions of dollars from the Fed at rock-bottom rates, then turn around and lend it out to the world at 5, 10, 15, 20 percent, as credit cards and mortgages, boat loans and aircraft loans, and so on. If you pay it back, great, it’s a 500 percent or 1,000 percent or 4,000 percent profit for the bank. If you don’t pay it back, the company can put your name in the hopper to be sued. A $5,000 debt on a credit card for the now-defunct Circuit City, which was actually a Chase card, became a $13,000 or $14,000 debt by the time the bank finished applying fees and penalties.</bq> Banks profiting from fraud perpetrated on welfare recipients is a direct relationship across the "divide" described in the book's title. It really pulls everything together. <bq caption="Page 383">When the state brings a fraud case against a welfare mom, it brings it with disgust, with rage, because in addition to committing the legal crime, <b>she’s committed the political crime of being needy and an eyesore.</b> Banks commit the legal crime of fraud wholesale; [...] But they’re not charged, because there’s no political crime. <b>The system is not disgusted by the organized, mechanized search for profit. It’s more like it’s impressed by it.</b></bq> And thing to remember is that, while the bank has <iq>entire departments committed to [fraud]</iq>, the individual often <i>doesn't commit a crime at all</i>, as Taibbi repeatedly pointed out throughout the book. The welfare cheating is sometimes or even often just clerical errors. Credit card debt is active fraud. Instead of prosecuting giant crimes by unacceptable perpetrators, they're inventing and then prosecuting smaller ones, on victims who've been made politically acceptable by brainwashing campaigns sponsored by the perpetrators of the fraud. They teach us to hate the poor (and ourselves) and revere the rich (them), then make themselves richer than the obscenely rich that they already are, while we cheer them on as they rob our comrades and neighbors. That this is how it's ended up bespeaks a corruption, a failure at the institutional level on a grand scale. If the government <i>chooses</i> to avoid prosecutions in favor of a non-controlling financial settlement, then that amounts to <i>the government getting a cut of the action.</i> This is the established model now. Fool me once, shame on you; fool me twice, shame on me. The banks will do it again and the government will get its fee. This drives a conveyor belt of lucre from a permanent impoverished underclass to increasingly unassailable royalty. That's a business relationship or I can't tell the difference. <h>Citations</h> <bq caption="Position 97-101">Of course, on the other end of the spectrum are the titans of business, the top executives at companies like Goldman and Chase and GlaxoSmithKline, <b>men and women who essentially as a matter of policy now will never see the inside of a courtroom, almost no matter what crimes they may have committed in the course of their business.</b> This is obviously an outrage, and the few Americans who paid close attention to news stories like the deferred prosecution of HSBC for laundering drug money, or the nonprosecution of the Swiss bank UBS for fixing interest rates, were beside themselves with anger over the unfairness of it all.</bq> <bq caption="Position 117-119">Unquestionably, however, something else is at work, something that cuts deeper into the American psyche. We have a profound hatred of the weak and the poor, and a corresponding groveling terror before the rich and successful, and we’re building a bureaucracy to match those feelings.</bq> <bq caption="Position 127-129">[...] the common justification for the failure to prosecute executives in corrupt corporations for any crimes that they might commit is that <b>their offenses aren’t really crimes per se but mere ethical violations, morally unfortunate acts not punishable by law.</b> President Obama himself would hint at this in an infamous 60 Minutes interview.</bq> <bq caption="Position 144-146">It’s come around to that point of view at the end of a long evolutionary process, in which the rule of law has slowly been replaced by <b>giant idiosyncratic bureaucracies that are designed to criminalize failure, poverty, and weakness on the one hand, and to immunize strength, wealth, and success on the other.</b></bq> <bq caption="Position 158-160">If you grew up well off, you probably don’t know how easy it is for poor people to end up in jail, often for the same dumb things you yourself did as a kid.</bq> <bq caption="Position 162-163">This is a story that doesn’t need to be argued. You just need to see it, and it speaks for itself. Only <b>we’ve arranged things so that the problem is basically invisible to most people, unless you go looking for it.</b></bq> <bq caption="Page 12">We’re creating a dystopia, where the mania of the state isn’t secrecy or censorship but unfairness. Obsessed with success and wealth and despising failure and poverty, our society is systematically dividing the population into winners and losers, using institutions like the courts to speed the process.</bq> <bq caption="Page 13">The cleaving of the country into two completely different states—one a small archipelago of hyperacquisitive untouchables, the other a vast ghetto of expendables with only theoretical rights—has been in the works a long time.</bq> <bq caption="Page 19">There were also horrific regulatory surrenders like the Securities and Exchange Commission’s 2004 decision to lower capital reserve standards for the top five investment banks, <b>a move that eventually helped three of those banks (Merrill Lynch, Bear Stearns, and Lehman Brothers) to borrow themselves out of existence.</b></bq> Love that expression. <bq caption="Page 21">Here was a major company, an employer of thousands, using its innocent employees as a kind of human shield in a desperate last-ditch attempt to stave off a criminal prosecution. It was a high-stakes stare-down in which Andersen’s lawyers all but dared the government to pull a My Lai and machine-gun its innocent employees into a ditch.</bq> <bq caption="Page 27">Such flip-flops are so common among this type of lawyer that most finance-sector observers scarcely even raise an eyebrow at them. <b>“You’ll have a guy who as a prosecutor was tossing everyone in jail,” laughs one Wall Street reporter, “and six months later he’s a partner at some firm, and it’s almost like he thinks insider trading should be legal.”</b></bq> The definition of amorality is not having any principles. <bq caption="Page 28">A key feature of the Spitzer settlement was the way the evidence was laid out openly so that the public could see the companies’ internal communications. At Lehman Brothers, for example, analysts admitted to giving cushy ratings to companies in exchange for more investment banking business, not caring if ordinary investors who were not in on the game got screwed.</bq> <bq caption="Page 29">These agreements sometimes have a less adversarial feel than the cops-and-robbers approaches of Spitzer, Robert Morgenthau, and the S&L prosecutors. They often read like <b>agreements hashed out in friendly meetings by like-minded legal colleagues from similar cultural backgrounds</b>, which is often exactly what they are.</bq> <bq caption="Page 35">Breuer announced a plan to revamp the Justice Department’s Criminal Division’s Fraud Section, whose chief failing seems to have been that it had been created during the Bush administration. In fact, the Fraud Section had been productive during the Bush years, expanding its footprint in several areas that had been overlooked, from securities fraud to violations of the Foreign Corrupt Practices Act to corporate accounting cases from the Enron era. Health care fraud prosecutions had gone from basically nil—fraudsters stole from Medicare wantonly in the 1990s—to thriving, reportedly saving more than $7 billion.</bq> <bq caption="Page 38">By Barack Obama’s second term, it was clear to most rational observers of the financial sector that the crash of four years before hadn’t been some kind of accidental market screw-up—not a “thousand-year flood,” as some pundits first called it. Instead, it had been a widespread crisis of institutional policy. And a core part of this policy, it turned out, was crime.</bq> <bq caption="Page 39">They used a technique called securitization that allowed banks and mortgage lenders to take vast pools of home loans belonging to underemployed janitors and immigrants and magically convert them into investments that were ostensibly as safe as Microsoft corporate bonds or the sovereign debt of Luxembourg, but more lucrative than either.</bq> Naked fraud, let's not forget. <bq caption="Page 40">Once the bubble burst, lawsuits were filed everywhere and whistle-blowers emerged by the dozen, showing, in graphic documentary detail, how nearly every major financial company in America had chosen to participate in this enormous fraud. <b>It was the very definition of systemic corruption, but</b> curiously, despite what looked like mountains of evidence, <b>almost nobody with any connection to the crisis was even threatened with criminal prosecution.</b></bq> <bq caption="Page 40">Once the sixth-largest bank in America, <b>WaMu</b> was selling $29 billion worth of subprime loans every year during the height of the crisis. After its collapse, investigators from the Senate’s Permanent Subcommittee on Investigations uncovered evidence that the bank had conducted its own internal investigations into the mortgage markets as early as the mid-2000s, and had <b>found fraud in as many as 83 percent of the loans produced by some of its own regional offices. Yet the bank did not alert regulators, did nothing to stop the fraud, and continued to sell billions in subprime for years.</b></bq> <bq caption="Page 40">Under “Hustle,” Bank of America intentionally removed underwriters and compliance officers from the loan origination process, explicitly aiming to make sure that loans “moved forward, never backward.”</bq> <bq caption="Page 50">And as every individual who’s ever been charged with a crime knows, anyone facing criminal arrest can expect collateral consequences. <b>A single drug <i>charge</i> can ruin a person’s chances for obtaining a student loan or a government job. It can nix his or her chances of getting housing aid or a whole range of services—even innocent members of your family may lose access to government benefits. You can lose your right to vote and your access to financial aid. You can even have your children taken away.</b> But no police anywhere were officially asked to weigh the collateral consequences of arrests for prostitution, stealing cars, assault, selling weed, jumping turnstiles, even the simple offense of being homeless. There’s no memo in the Justice Department that wonders aloud what happens to the families of those sorts of arrestees. Instead, the new trend in policing is and has been to aggressively no longer care about any of it.</bq> <bq caption="Page 56">They stopped him, asked him for ID, searched him, no probable cause other than that he looked dirty and high. Classic use of New York’s stop-and-frisk program, with Tory being white the only thing weird about it.</bq> <bq caption="Page 57">In 2011, the year before Tory got arrested, another year when exactly nobody on Wall Street was arrested for crimes connected to the financial crisis, New York City police stopped and searched a record 684,724 people. Out of those, 88 percent were black or Hispanic.</bq> <bq caption="Page 57">Or sometimes, like in Tory’s case, you get your pockets emptied and suddenly you’re standing there on the corner of Eighth Avenue and Twenty-First Street with half a joint sitting in your open hand. Now that’s not “private use” anymore. Now you’re “knowingly or unlawfully possessing marijuana and such is burning or open in public view.” Now you’ve got a chargeable offense and your arresting officer gets to make his summons pad one sheet thinner.</bq> <bq caption="Page 57">The point is, Tory Marone went from privately having a joint in his pocket to publicly waving it around on Twenty-First Street with the help of one of New York’s finest, and he went off to jail once again.</bq> <bq caption="Page 60">“This is a corporate flack who was such a zero, you had twenty-five-year-olds in Congress who wouldn’t return his phone calls,” recalls one. “And suddenly we all look up, and he’s head of the Criminal Division of the Justice Department. We’re all like, ‘How did that happen?’</bq> <bq caption="Page 62">“I don’t think the banks got off easy,” he said, adding, “We’ve held them very much accountable. I’m not sure you can find a more robust resolution.” But Breuer was standing less than a mile from a homeless drifter who at that very minute was getting a “more robust solution” for having half a joint in his pocket.</bq> <bq caption="Page 63">Even high-ranking former prosecutors were appalled. “The message this is sending is if you want to engage in money laundering, make sure you’re doing it within the context of your employment at a bank,” former assistant attorney general Jimmy Gurulé said. “And don’t go small. Do it on a very large scale, and you won’t get prosecuted.”</bq> <bq caption="Page 64">The anger and resentment of federal investigators toward greedy corporate criminals who inexplicably stole money when they were already rich—the anger that bled through in scenes like the Adelphia perp walk in the early Bush years—that was a thing of the past.</bq> <bq caption="Page 67">The attorney general of the United States had just admitted, in front of a room full of reporters, that he asks Wall Street for advice before he prosecutes Wall Street.</bq> <bq caption="Page 67">In a way, the original Holder memo had some sense to it. Unless a company was corrupt through and through, it did seem reasonable to try to avoid destroying it and to protect the jobs of innocent employees if possible. This was certainly an appropriate area to think about using prosecutorial discretion.</bq> <bq caption="Page 69">Even Barron’s was appalled. “The nation’s chief law-enforcement official admitted the decision to prosecute depends not on the law, but the impact on the financial markets,” wrote columnist Randall Forsyth.</bq> <bq caption="Page 70">But Holder’s testimony had at least ended the mystery. It was obvious now that the once-modest selective-leniency idea that he had cooked up in 1999 had grown exponentially and was now loosed from its cage, running wild in American society like a strung-out lab animal, wrecking things and mutating by the minute. <b>It had gone from a simple tool to save a few jobs to a magical thing that was enabling the transformation of the world’s biggest banks into bona fide organized crime operations, companies that had now gone far beyond shredding a few documents and were engaged in everything from rigging energy prices to manipulating interest rates to drug trafficking.</b></bq> <bq caption="Page 71">The attorney general of the United States was saying that the economy had grown so complicated that his own office was now and henceforth helpless to decide on its own when it was okay to prosecute, that <b>before it moved against any high-powered target, it needed to ask the “experts” on Wall Street if the economy would survive such an action.</b></bq> <bq caption="Page 71">Minus any effort to make the companies safer for prosecution, Collateral Consequences appeared far more likely to be what some line prosecutors believed it to be—<b>an excuse that allowed incompetent and lazy officials with a defense-lawyer mindset to avoid difficult contested trials and simply take cash up front and declare victory for the cameras.</b> None of the settlements proposed anything like breaking up the companies, or even hinted at a thwarted desire to bring white-collar offenders to trial.</bq> <bq caption="Page 79">In a case like that, where the fine is insignificant compared to the company’s revenue, <b>the settlement</b> is almost an antideterrent. It <b>just helps set the price for getting caught, and it makes the cost-benefit analysis for criminal behavior simpler.</b></bq> <bq caption="Page 80">The street criminal is hated, despised. It’s understood that sending him anywhere but to jail is grounds for public outrage. You’ll never see a local prosecutor call a press conference and pat himself on the back for letting a car thief or a mugger of old ladies off with a fine.</bq> <bq caption="Page 80">Nowhere did it indicate any regret or apology to the public that no individual would have to face any penalty for what prosecutors themselves were describing as an “astonishing” record of dysfunction and “stunning” failures of oversight. Indeed, everybody seemed pleased as punch with the result.</bq> <bq caption="Page 81">It’s a particular feature of modern American government officials, particularly Democratic Party types, that they often expect the press and the public to give them credit for their unspoken excuses. They’ll vote yea on the Iraq war and the Patriot Act and nay for a public option or an end to torture or a bill to break up the banks. Then they’ll cozy up to you privately and whisper that of course they’re with you in spirit on those issues, but politically it just wasn’t possible to vote that way.</bq> <bq caption="Page 81">And then at trial, you might find out that some reputable firm like Ernst & Young or even, perhaps, an actual federal regulator knew about and okayed your target’s conduct all along and did so on paper. This is something you don’t often have to worry about with a Lincoln Park gangster—a permission slip to deal coke from the local precinct captain.</bq> <bq caption="Page 81">What’s happened now, in this new era of settlements and nonprosecutions, is that the state has formally surrendered to its own excuses. It has decided just to punt from the start and take the money, which doesn’t become really wrong until it turns around the next day and decides to double down on the less-defended, flooring it all the way to trial against a welfare mom or some joker who sold a brick of dope in the projects.</bq> <bq caption="Page 84">[...] it’s the jurisprudential version of Pravda, where the facts in the paper might have all been true on any given day, but the lie was all in what was not said.</bq> That's the mainstream media too. But he knows that. Still, the example of Pravda seemed a bit out of place. <bq caption="Page 84">[...] the two approaches to justice may individually make a kind of sense, but side by side they’re a dystopia, where common city courts become factories for turning poor people into prisoners, while federal prosecutors on the white-collar beat turn into overpriced garbage men, who behind closed doors quietly dispose of the sins of the rich for a fee.</bq> <bq caption="Page 94">Curiously, for instance, the drop in violent crime is most pronounced in cities with high immigrant populations.</bq> <bq caption="Page 95">But the steep drop in violent crime presented police with a problem. If making arrests is the only way to advance in your career, but crime is dropping, what do you do? Furthermore, what to do if the only way to make a living wage is to rack up as much overtime as possible? In the Safir era, NYPD starting salaries were on the low end for professional police forces in America, beginning at about forty thousand dollars. How do you add hours in an era when crime is dropping? The answer turned out to be, you simply create arrests. By multiplying marijuana arrests by a factor of ten in the space of a few years, Safir’s police force drastically increased its workload.</bq> I made less than that in 1994. Might have been making that by 1998. <bq caption="Page 102">Here again you get into the weird nature of this new policing system. The police in this case actually wanted to send Andrew home. Their strategy is to roust up everybody, search them for guns or drugs, run their names for warrants. If you get a hit, great. Finding guns, making arrests, and writing summonses is what turns line patrolmen into sergeants and lieutenants. But if you don’t find anything, well then, you’ve just brutalized some guy walking home, for no reason at all, and the last thing you want is a paper trail. So better just to let the guy go, hope the situation goes away.</bq> <bq caption="Page 102">The obstructing traffic section is meant to apply to people who are willfully blocking cars or people on the sidewalk, or to be used as a tool for crowd control at things like protests, but in practice it’s code for being black on a Tuesday night.</bq> <bq caption="Page 114" quote-style="none">He fingered my business card, stared at it. “What exactly are you doing here again?” “I’m writing a book,” I said. “It’s about the criminal justice system. Among other things, about cases like this.” “But what about a case like this could possibly be the subject of a book?” he asked. “Well,” I said, “we just watched, in court, a policeman admitting to falsely arresting someone. You don’t find that interesting?” He shrugged. “Also,” I said, “have you ever heard of a white person being arrested for obstructing pedestrian traffic?” “Well, white people don’t live in those neighborhoods,” he said. “But white people live somewhere,” I said. “And nobody arrests them for obstructing pedestrian traffic.” “That’s because that’s not where the crime is. The crime is out there.” He jerked a thumb in the direction of Brooklyn. “Low-class people,” he said, “do low-class things.”</bq> <bq caption="Page 115">The defendant’s court-appointed attorney is an attractive, idealistic young white woman with shoulder-length brown hair and a long skirt who looks like she should be an academic, a sociologist maybe. The public defenders in these higher courts are almost all workaholic do-gooders, passionate and almost unreasonably committed to their jobs. On the macro level, they can’t do much about the convictions factory. They’re like partisans trying to slow an invasion by throwing their bodies under tank treads.</bq> <bq caption="Page 115">The complaint says an undercover officer—a UC—offered the woman twenty dollars for a sexual act outside a park somewhere north of three in the morning, and the defendant accepted. Why we’re paying detectives to offer people twenty bucks for sexual acts in parks after three in the morning is a question nobody’s much interested in answering at that moment.</bq> <bq caption="Page 117">Lawyers in this courthouse have yet another saying: “If you go in, you stay in. If you get out, you stay out.” If you get arrested for a B misdemeanor in New York City—let’s say it’s prostitution—you might face a punishment of fifteen to ninety days. But if you don’t make bail, you’ll almost automatically spend at least that long in jail waiting for trial. The state knows this, so essentially, charging a person who can’t make bail with a B misdemeanor is the same as convicting that person. You file the charge, the judge sets high bail, you go back inside, and then you eventually plead to time served, because, well, why not? You’ve already done the time. The only difference is, you’ve got a conviction now, which means the next time you get arrested, the denial of bail—or a punishingly high bail—will be even more automatic.</bq> <bq caption="Page 117">So if you’re a prostitute with no fixed address and a long criminal history hauled in during the wee hours of a Tuesday morning for accepting some undercover cop’s sting offer of twenty bucks for a sex act outside a park, you’re pretty much automatically looking at two weeks to three months in jail, plus a two-hundred-dollar fine (“That’s like ten blowjobs,” comments one public defender righteously) from the moment the city decides to file the charge. And even in the relatively rare instance where God smiles upon you and sends an undercover officer your way who doesn’t know how to make a legal arrest, you will still plead guilty and pay the violation for loitering.</bq> <bq caption="Page 119">And that’s the problem with Justice by Attrition. It’s not just that it catches up innocent people in its massive dragnet. It’s also that it applies disproportionate punishment to the guilty.</bq> <bq caption="Page 125">This was a man who was literally trying to go to jail instead of paying a hundred-dollar fine, and he couldn’t do it without multiple court dates and nearly a dozen hours of waiting and court time. 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.</bq> <bq caption="Page 127">Thus the speedy trial concept, what some lawyers call the crown jewel of the Anglo-American legal system, is easily reduced to a complete joke. Prosecutors won’t say so openly, but privately, they will admit that when their cases are weak, they drive their cases through this Lincoln Tunnel of a procedural loophole, dragging things out as long as possible to force a plea. It usually works.</bq> <bq caption="Page 130">There are two important concepts here that work hand in hand. One, there’s the idea that failure to follow a police order, no matter how stupid or unreasonable, is cause for an arrest or a summons. The second idea is that the prosecutor can essentially turn any misdemeanor case against almost anyone into a de facto conviction, simply by filing charges and following through long enough with pretrial pressure to wrest a plea out of the accused.</bq> <bq caption="Page 132">And once you take one plea, you might lose all kinds of things. Financial aid for schooling is out if you have a joint-in-your-pocket case. Welfare payments, beds at homeless shelters, Section 8 housing—it all might go up in smoke the instant you look at a police officer the wrong way.</bq> <bq caption="Page 133">[...] puts an entire segment of the population constantly on the defensive, gives it a criminal record essentially in advance, puts everyone in the dragnet up front, so that one false move leads to real time.</bq> <bq caption="Page 145">Nicknamed “the Gorilla,” Fuld is a tall, cavern-eyed, hollow-cheeked bully who was famous for his quick-twitch meanness, his screaming intransigence, and his apparently congenital inability to blame himself for any problem. Fuld is the kind of person who would fall drunk down a spiral staircase and then sue the architect for building blurry steps.</bq> <bq caption="Page 148">It had started with borrowing cash in three-month loans, then it was one-month notes, and then the cycle got even tighter and crazier. By the end of 2007, Lehman was sometimes borrowing $100 billion or even $200 billion a day or more just to stay afloat. The life-saving cash injections came from overnight “repo” loans from banks like Fidelity that Lehman took out at the end of every single business day. And the first thing in the morning, it was paying off those loans by taking out matching amounts of “intraday” loans from banks like JPMorgan Chase. Then it was rinse, repeat: continue the cycle by rolling the loans later that night.</bq> <bq caption="Page 152">What’s amazing about this is that the Fed saw fit as early as January 2008 to warn Chase about Lehman’s instability. But nobody ever warned the public. Nobody stepped in after the bank cooked its books in Repo 105, or misreported taxes, or made fake disclosures, or lied outright to investors. Nothing was done. The government merely sat back and watched the catastrophe unfold, allowing new victims to pour money into the walking-dead bank right up until its collapse.</bq> <bq caption="Page 156">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. <b>This was, essentially, a formal merger of Wall Street and the U.S. government.</b></bq> <bq caption="Page 160">This second deal was done in the ether, in an extralegal dimension where so much of Wall Street business is increasingly transacted. It was the legal equivalent of “dark liquidity” or “dark pools,” places where huge blocks of stock trades are executed between major institutional buyers and sellers without passing information on to the hayseed public, which knows only how to buy and sell stocks on regulated stock exchanges. A dark pool trade is conducted between two huge players who don’t want to deign to let the NYSE or any other stock exchange know their business.</bq> <bq caption="Page 176">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 hotshot defense lawyers from New York and Washington who make forty or fifty times what they do.</bq> <bq caption="Page 183">Transactions of this type, used to move billion-dollar hunks of money around, are couched in language that is essentially foreign to the layperson, as foreign as Swahili or Esperanto are to most Americans. It is a difficult, frustrating, atonal, counterintuitive, and thoroughly unattractive language. This place is a foreign nation all to itself, as unique and proud of its peculiar culture as, say, France. Because of the language problem, the only people competent to prosecute the crimes committed within its borders are other French people. Only the problem is, to stretch this strained metaphor just a little further, if you spend enough time in France, you start thinking like a French person. If you follow enough of these Wall Street cases, you start to see this phenomenon all over the place. You go into court the first day, and everyone in the room, right down to the judge and even the plaintiffs’ attorneys, looks like Marcel Marceau. And they talk in blasé tones about acts of perversion that would shock a normal person to the point of screams.</bq> <bq caption="Page 186">Essentially, paragraph 13 unterminated the terminated repo, then reterminated it on Barclays’s own terms. Ingeniously lunatic mind-loops like this are why one pays certain lawyers a thousand dollars an hour.</bq> <bq caption="Page 187">The quiet filing of that letter, with its inscrutable paragraph 13 buried in thousands of words of even more inscrutable legalese, was how Judge Peck was “informed” of the Barclays decision to keep the $5 billion from the repo.</bq> <bq caption="Page 191">Peck’s point was that since Barclays was the only known buyer at the time, if in September 2008 it needed to make $13 billion on the deal to pull the trigger and buy the Lehman assets, it would always need $13 billion to do the deal—therefore its method of securing that $13 billion should not be reinvestigated. But this is wrong on its face. What might or might not have happened if all that information had come out is completely unknowable, even to someone as close to God as a federal judge. Nobody else was willing to buy Lehman at the “official” sale price, but <b>are we really to believe that no other company would have been willing to do the deal with a $12 billion discount? That no other firm would have been willing to take on a first-day $5 billion gain?</b></bq> Excellent point. So good. <bq caption="Page 195">When asked why he didn’t contact the Department of Justice to help it begin a criminal investigation, Geithner essentially said that the DOJ had access to the information from media reports and didn’t need his help. The primary banking regulator in America didn’t contact the Justice Department because he said it could read about the case in the newspapers!</bq> <bq caption="Page 200">Today every local official with a badge—every cop, sheriff, ranger, or even game warden—has the power to instantly separate children from mothers, husbands from wives. All America, from the smallest town on up, has become a dragnet.</bq> <bq caption="Page 200">[...] a ferocious federal immigration rule called 287(g) that essentially deputizes any and all state and local law enforcement officials to arrest undocumented aliens on behalf of the U.S. Immigration and Customs Enforcement agency (ICE). Today every local official with a badge—every cop, sheriff, ranger, or even game warden—has the power to instantly separate children from mothers, husbands from wives. All America, from the smallest town on up, has become a dragnet.</bq> This was in 2012, 4 years before Trump, at the beginning of Obama's second term. <bq caption="Page 201">The squad cars perch on the sides of the road like ticks on a vein, hauling in alien after undocumented alien and tossing them into the criminal justice/deportation hopper. From there, in a complex, arbitrary, and mindlessly cruel legal process that puts people literally in chains for the crime of going to work or taking their kids to school, the detainees get ground up into a rich financial and political meal, shared in nearly equal parts by state and federal authorities on the one hand and private prison companies on the other.</bq> <bq caption="Page 203">So the undocumented alien who kills a room full of Rotarians with an ax has a right to counsel, a phone call, and protection against improper searches. The alien caught crossing the street on his way to work has no rights at all.</bq> <bq caption="Page 206">But the truth is, she’s likely to lose her case and will almost certainly be deported soon. Her seven children and her husband will almost certainly stay here in America. So she has a year left with her family. All because she got her fender nicked on the way to pick up some milk. The number of stories like this boggles the mind. Three hundred ninety-six thousand, nine hundred and six people were deported from the United States in 2011.</bq> <bq caption="Page 207">“Obama has broken all the deportation records,” says Nieblas. “One million people in just a few years. Incredible.”</bq> <bq caption="Page 207">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. We don’t have special jails for foreigners or executives from foreign firms who steal by the million or billion.</bq> <bq caption="Page 208">For a country founded on the idea that rights are inalienable and inherent from birth, we’ve developed a high tolerance for conditional rights and conditional citizenship. And the one condition, it turns out, is money. If you have a lot of it, the legal road you get to travel is well lit and beautifully maintained. If you don’t, it’s a dark alley and most Americans would be shocked to find out what’s at the end of it.</bq> <bq caption="Page 211">The giant dragnet created by 287(g) is inspiring a whole new generation of epic survival tales. The stories you hear from people who’ve disappeared at checkpoints and roadblocks sound eerily like the literature of the Soviet gulag, with the same themes of repeat interrogations, marches, chains, total alienation from family, and clashes with harsh nature, lunatic bureaucracies, and petty human predators of every imaginable species, some wearing uniforms and some not.</bq> <bq caption="Page 229">This seemed to represent the ultimate white-folks win-win: local chicken-plant owners got to keep their cheap labor, while local police still got to milk the immigrant community for any money they made working at those plants.</bq> <bq caption="Page 256">It even came out, in the famous Bernie Madoff case, that despite numerous complaints to the SEC over the years from reputable sources, nobody in the government even checked to make sure Madoff’s hedge fund even made trades at all. <b>Madoff actually went more than thirteen years without making a single stock purchase and yet somehow survived several SEC investigations</b>—that’s how flimsy government regulation of hedge funds has been and still is.</bq> <bq caption="Page 257">To paint the tape on ADM, Graber and Israel would call eight different brokers and put in buy orders simultaneously to run up the price—at a time when Graber was holding lots of the stock ready to sell into a rising market. It was a racket the Securities and Exchange Commission was hopelessly ill-equipped to stop.</bq> <bq caption="Page 266">We know this because traders for Chanos and Cohen and others sent one another reams of emails and texts blithely bragging about their access to this nonpublic information</bq> <bq caption="Page 267">As it happens, this sort of behavior—bank analysts sharing their research with hedge fund clients—was so common at the time that it ultimately became the centerpiece of the so-called Global Settlement arranged by Eliot Spitzer and the SEC with big Wall Street banks like Goldman Sachs, Lehman Brothers, Bear Stearns, and Piper Jaffray.</bq> <bq caption="Page 267">Tipping off a hedge fund that your analyst is going to give a “buy” rating to a stock weeks before that research is made public can be enormously valuable to the hedge fund, for the obvious reason that the fund now has a pretty good idea of a concrete date and time when the stock is going to tick upward. If the release of the research will have a material impact on the value of the stock, it becomes illegal and improper to trade on knowledge of such a report ahead of time.</bq> <bq caption="Page 263">So say you borrow a share of IBM at 10. You sell it immediately for that ten bucks, then wait for something bad to happen (IBM forced to announce a product recall, say). The stock drops to 9. You can then go out and buy a share of IBM on the open market, return that share to your original source, and pocket a one-dollar profit. But what if IBM goes up? What if there is no product recall, and the next product IBM comes out with puts the iPad out of business? What if the stock goes past 10—to 15, 20, 40, 50 dollars? You still eventually have to return the stock. The higher the stock climbs, the more money you owe. And there’s no zero down there to stop the bleeding. You could pick wrong, bet against Google or Microsoft in its infancy, and end up beyond broke, hurtling down a bottomless financial pit.</bq> <bq caption="Page 263">When you short a stock, you first borrow shares in the company, then sell them off immediately for cash. Then, after the stock’s value has dropped, you go out and buy the same amount of shares in the open market and return them to the original source.</bq> <bq caption="Page 275">Like most privileged, overeducated Americans who try it, they would suck at being real tough guys. They tried, however, and here’s the crazy thing: in a city where police in some neighborhoods define crime as standing on the sidewalk the wrong way, these idiots took their stock-trading act-like-a-thug life, screwed it up a hundred different ways, and not only couldn’t get arrested, they couldn’t even get police of any kind to notice.</bq> <bq caption="Page 283">Rivett, Watsa, and the rest of the Fairfax executives had no way of knowing it at the time, but all this activity had been orchestrated by millionaire and billionaire hedge fund managers with bets against Fairfax, men who had gotten together and hired the aforementioned shadowy fixer extraordinaire Spyro Contogouris to commence a wide-ranging campaign of harassment against the</bq> <bq caption="Page 296">The scam depicted in the chart was an Enronesque maze of phantom revenues and hidden budget holes, an ingenious robbing-Peter-to-pay-Paul scheme in which Fairfax was essentially borrowing billions against its European assets and capitalizing its subsidiaries with shares in other subsidiaries, a complex and indecipherable bookkeeping merry-go-round. Far different and more complex from the original charge of simply being undercapitalized, the new charges were a lurid and compelling suspense tale, complete with all the bells and whistles of great storytelling that had been absent from the original dry Gwynn report.</bq> <bq caption="Page 301">In all, in the eight months after July 26, 2006, Fairfax regained about $2 billion in stock value. The two critical events, the filing of the lawsuit and the arrest of Contogouris, said absolutely nothing about the company’s performance as an insurer. The only thing that changed in that time was the attitude of the global investing community toward the company. It had nothing to do with justice, the regulatory system, or the wisdom of the good old-fashioned Adam Smith capitalist marketplace. Instead, what began as a confidence game ended as a confidence game. <b>The entire thing was a battle of public relations. It had nothing to do with real economics.</b></bq> <bq caption="Page 305">In another sense, though, the crime occurred nowhere in particular. If a hedge fund magnate in Westchester or Long Island sends an email to a bank analyst in Tennessee (where Morgan Keegan keeps its headquarters) to discuss the manipulation of the stock of a Canadian insurance company that’s listed on the New York Stock Exchange but retains a major subsidiary in New Jersey, where did the offense take place? It depended, entirely, on how you looked at things.</bq> <bq caption="Page 310">When Harlem residents Michael McMichael and Anthony Odom drove down 161st Street in a new-looking Range Rover, police immediately profiled the car as being bought with illegal income. But when Stevie Cohen claimed to be 400 percent more efficient than the entire investing world fifteen years running, talked publicly about his billion-bucks-a-year income, and bought a 6,000-square-foot, Zamboni-treated skating rink for his mansion just a few years after opening his own business, nobody blinked until decades had passed and multiple companies had been destroyed.</bq> <bq caption="Page 319">In fact, courts have been slowly chipping away at the Fourth Amendment protection against unreasonable searches and seizures for a long time, and the dominant theme in this gradual legal erosion has been an innovative new form of institutional racism, and a creepy inverse correlation between rights and need.</bq> <bq caption="Page 319">Over and over again, we hear that if you owe money in a certain way, or if you receive a certain kind of public assistance, you forfeit this or that line item in the Bill of Rights. If you’re a person of means, you get full service for all ten amendments, and even a few that aren’t listed. But if you owe, if you rent, you get a slightly thinner, more tubercular version of the Fourth Amendment, the First Amendment, the Fifth and Sixth Amendments, and so on.</bq> <bq caption="Page 319">It’s not that it’s written anywhere that if you’re black and you live in the projects, you don’t get protection against illegal searches—it just sort of works out that way. And if this makes any sense at all, it’s not about skin color. This is a cultural kind of bias. White people who live the wrong way get caught in the net, too.</bq> <bq caption="Page 321">But Douglas was overruled, of course, because the implicit intent of Wyman—not its explicit intent, but very much the implied meaning—didn’t cover everyone, just black welfare moms like Barbara James. No one else had to trade the Bill of Rights for government aid. So the state got to keep its “gentle means” of checking to make sure tax dollars were reaching appropriate destinations.</bq> <bq caption="Page 321">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.</bq> <bq caption="Page 322">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.</bq> <bq caption="Page 323">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.</bq> <bq caption="Page 323">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.</bq> <bq caption="Page 324">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.</bq> <bq caption="Page 324">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.</bq> <bq caption="Page 326">These bureaucracies accomplish just two things: they make small piles of money smaller and big piles of money bigger.</bq> <bq caption="Page 326">There’s 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.</bq> <bq caption="Page 326">Things that are jailable crimes on one end of that spectrum become speeding tickets on the other. We find white people on the jail end and black people on the speeding ticket end, but for the most part … well, for the most part, you know what I mean. That winking understanding we all share about who gets the book thrown at him and who doesn’t, that’s where American racism has gone: unspoken and hidden, but bureaucratized and automated, and therefore more powerful than ever.</bq> <bq caption="Page 327">At the top end of American society, we’ve found out in recent years that lying for profit is actually considered a virtue, and a certain sector of the population fiercely defends its right to earn a living that way.</bq> <bq caption="Page 329">When you see, up close, where the awesome power of the American criminal justice space station is directed, you will begin scratching your head, no matter what you think of people on welfare.</bq> <bq caption="Page 332">[...] she went to the local welfare office—a “Family Resource Center,” known as an FRC—and walked inside. She was barely sober, emotionally a wreck, literally penniless, and her entire ambition in life was to keep and maintain a room and a half in a rundown section of west San Diego without having to sell her body to pay the rent.</bq> <bq caption="Page 333">This is the kind of person at whom the weight of the state’s financial fraud prosecution apparatus tends to be trained in America. Markisha entered the financial fraud patrol zone when she walked through those doors at the FRC. For three hundred dollars a month, she was about to become more heavily scrutinized by the state than any twelve Wall Street bankers put together.</bq> <bq caption="Page 336">[...] they then tell you to go home and sit tight for your P100 search. And they don’t tell you when that will be, except to say that it’s generally within a week and a half. You then have to be at home at all times until they show up—it’s like sitting shivah, except you have to do it for more than a week. “If the investigator shows up and no one’s there,” says Halpern, “they shove a card under your door that says, ‘We could not verify your eligibility,’ and you don’t get your benefits.”</bq> <bq caption="Page 341">For instance, in 2011, the state of Ohio—the same state that lost tens of millions in the early 2000s when its pension fund bought severely overpriced mortgage-backed securities from a Lehman Brothers banker named John Kasich, who would later become governor—tried to recoup some of its losses by sending out 22,000 notices to Ohioans seeking “overpayments” in either welfare or food stamps.</bq> <bq caption="Page 341">For instance, in 2011, the state of Ohio—the same state that lost tens of millions in the early 2000s when its pension fund bought severely overpriced mortgage-backed securities from a Lehman Brothers banker named John Kasich, who would later become governor—tried to recoup some of its losses by sending out 22,000 notices to Ohioans seeking “overpayments” in either welfare or food stamps. Many if not most of these “overpayments” were actually the state’s own errors, but they went as far back as 1986 anyway, seeking checks as small as $78.</bq> <bq caption="Page 343">But according to the state, they’d also committed fraud at least three times: when Diego received benefits without qualifying for them, when Diego “lied” about his January income, and when Anna overcollected in cash aid without paying the money back.</bq> Absolutely fucking Kafkaesque. <bq caption="Page 344">The system therefore clearly doesn’t really work for the state, either. It’s like opening a hospital where no doctor could ever see the same patient twice—the bureaucratic version of Memento, where the characters have to go back in time to re-create a whole universe of facts from the beginning in each new scene.</bq> <bq caption="Page 345">These associations have effectively lobbied for increased welfare fraud prosecution and investigation and have helped create a new cottage industry within government. Some states have actually increased funding for fraud investigation because the programs are paid for by federal funds they would lose if they weren’t spent—in other words, rather than lose funding because of reduced welfare rolls, states simply increase the amount of staff for welfare fraud investigation.</bq> <bq caption="Page 346">These cases are often felony fraud cases, and DAs are hot for them because (a) they never, ever lose them and (b) it boosts their records. Fans of The Wire will connect to this dynamic: nothing quite jukes the stats like forty unopposed felony convictions a month. “DAs love these cases,” says Gustafson. “It raises their profiles before elections.”</bq> <bq caption="Page 349">No, the only offenders the local burghers will spend money to embarrass publicly are young, single, nonwhite mothers guilty of the crime of improperly receiving benefits. And as we’ve seen, it’s a stretch to assume that they’re all really guilty. The one thing we do know is that the people on this list every month are all flat broke and incapable of hiring a decent lawyer—and who knows, the fancy folk in Palm Springs might have an interest in shaming these people for that crime, as well.</bq> <bq caption="Page 351">[...] banking watchdogs like the Office of the Comptroller of the Currency and the Office of Thrift Supervision simply stopped pursuing criminal investigations; groups that had referred thousands of cases a year to the Justice Department for prosecution during the S&L crisis completely stopped that activity by the turn of the millennium. In 2009 the OCC referred zero cases for prosecution. On the other hand, welfare fraud was prosecuted like never before, and welfare fraud investigators multiplied like rats in every state of the country, forming unions and lobbying agencies.</bq> <bq caption="Page 351">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. He showered the projects with cops and bean counters and pulled the cops off the beat in the financial services sector. And in one place he created vast new mountain ranges of paperwork, while in another, paperwork simply vanished.</bq> <bq caption="Page 351">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.</bq> <bq caption="Page 353">Both parties wanted to merge the social welfare system with law enforcement, creating a world that for the poor would be peopled everywhere by cops and bureaucrats and inane, humiliating rules.</bq> <bq caption="Page 353">And on the other hand, 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. One lie in San Diego is a crime. But a million lies? That’s just good business.</bq> <bq caption="Page 357">WaMu knew that the loans it was getting from Long Beach were fraudulent. A Senate investigation later revealed that the bank had, among other things, done internal audits of two of Long Beach’s most productive loan officers. They found fraud in 58 percent of the loans coming from one of those officers’ operations and in 83 percent of the other’s. Instead of firing the two men, they were given prizes for loan production.</bq> <bq caption="Page 359">In that highly sordid and mostly overlooked chapter in the history of the bailout period, WaMu and its $307 billion in assets were delivered by the state into the hands of Chase and its CEO, Jamie Dimon, for the preposterously low price of $1.9 billion, a bargain deal that was struck just a few weeks before Chase was given $25 billion in cash by the government as part of the TARP bailouts. This was Chase’s second sweetheart deal in less than a year. Six months before, in March 2008, Chase had “rescued” the imploding investment banking giant Bear Stearns, buying the venerable firm with the aid of $29 billion in guarantees extended by the New York branch of the Federal Reserve—whose chairman of the board of directors at the time was, get this, JPMorgan Chase CEO Jamie Dimon. That means that six months after Jamie Dimon was the lucky recipient of his own Federal Reserve bailout in order to acquire Bear Stearns, his bank was given another $25 billion in cash by the state to go on another shopping spree, cash he used, among other things, to buy Washington Mutual.</bq> <bq caption="Page 360">But Almonte had arrived at Chase in the first place only by means of a government-approved scheme to conceal toxic assets from the public. The company’s state-sanctioned job was to hide fraud from the public. So when she found more fraud at Chase, where was she supposed to go? To the same government that used Chase to cover up two earlier scandals?</bq> <bq caption="Page 364">Here we should digress for a moment to talk about a legend that’s been circulating about the financial crisis, a legend our leaders like to tell over and over. It goes something like this: Yes, bad things happened, but none of those bad things were crimes. Greed isn’t illegal. Making too much money isn’t illegal. Nothing to see here, move along.</bq> <bq caption="Page 364">Obama gave a simple explanation. “Banks are in the business of making money,” he said. “And they find loopholes.” So what kind of “loophole finding” went on in Chase’s credit card litigation office? Not only did the bank apparently have full-time employees assigned to the job of committing mass perjury, it even went so far as to rope the entire department into the cause when the normal robo-signing staff couldn’t handle the workload.</bq> <bq caption="Page 369">Once Linda was out the door, Chase put the sale back on, errors or no errors. They quickly found a buyer, and 23,000 “judgments” went out into the world—a teeming school of little mutant fish, swimming blindly into courthouses from one coast to the other, each in search of a human being to collect from.</bq> <bq caption="Page 371">But the business of credit card litigation by its very nature has to be half-assed, brutal, reckless, and stupid. The business model just doesn’t work otherwise. The giant consumer credit merchants like Chase who file lawsuits against cardholders by the tens of thousands couldn’t even begin to make real money, real margins, if they had to do anything like real legal work or meet anything like a real evidentiary standard.</bq> <bq caption="Page 373">Many process servers and law firms engage in a wink-wink-nudge-nudge business called gutter service or sewer service, in which the law firm hands the list of summonses to the server, and the server simply dumps them (in the “gutter,” hence the name). In return, the process server hands the law firm an “affidavit of service,” swearing that he properly served the customer. Process service once required a signature of the defendant to prove proper service; now all that’s needed is the server’s own word that he did the job.</bq> <bq caption="Page 374">Thus not only may a credit card customer legally be served at some ancient address without her knowledge, it’s highly possible that the server won’t even bother to extend her that courtesy. This is why, in a huge percentage of credit card cases, the cardholder never even sees the summons and consequently never appears in court to defend himself.</bq> <bq caption="Page 376">What all this means is that the bulk of the credit card collection business is conducted without any supporting documentation showing up or being seen by human eyes at any part of the process. The meat of the business is collecting unopposed default judgments from defendants who either never receive a summons or receive one and never appear in court.</bq> <bq caption="Page 376">At no time in the process do most collectors ever actually need to produce evidence of a legitimate debt or a legitimate judgment.</bq> What's stopping them from making them up wholesale? You wouldn't be able to tell the difference. If no-one checks, then you don't serve and just make up a number for nonexistent card and garnish their wages after judgment. Why even buy accounts from Chase? You don't need them. <bq caption="Page 376">So how do you collect money from a cardholder who doesn’t answer his or her summons? That’s easy: you take it! The laws are different from state to state, but in most places in America, once the bank or debt buyer has that default judgment in hand, it can legally do just about anything to the cardholder. It can put a lien on his property, it can attach her salary, it can even take his car or her office furniture.</bq> <bq caption="Page 378">[...] executives soon realized that in the overwhelmed modern court system, simply attesting to having the right documentation works just as well as really having it. This is the same realization that struck Bank of America when it found that saying it had foreclosure documents was almost as good as having them—and the same one that touched process servers at American Legal Process, who found that claiming to have delivered a summons was almost as good as (and certainly cheaper than) actually doing it.</bq> <bq caption="Page 378">Also, Chase never informed any of its customers that their debt had been assigned to a new company, which according to the judge’s ruling was a red flag in light of recent experience. “On a regular basis this court encounters defendants being sued on the same debt by more than one creditor alleging it is the assignee of the original credit card obligation,” he wrote. “… Without receiving such notice of the assignment, a debtor seeking to make any application to the court would not have any idea as to which alleged creditor is to be served.”</bq> <bq caption="Page 378">All Straniere saw was the broad sloppiness and inattention to procedure that attended the entire deal in general. The DebtOne deal was simply a typical transaction in a consumer credit industry that depends upon robo-signing, mass fraud, and intentionally thin paperwork as essential elements of its profit model. Straniere didn’t nix the DebtOne judgments because he knew, as Almonte knew, that a large percentage of them were rife with errors and might not even have been valid judgments. He did it because the accounts had been so sloppily transferred that it was impossible to tell the difference.</bq> <bq caption="Page 381">The final irony in all this? At the same time that Chase was pumping out tens of thousands of bogus collection notices into the economy, the company was being supported, financially, by the federal government in a dozen different ways.</bq> <bq caption="Page 381">Less well known is that Chase was extended billions more in guarantees to help buy the corpse of Bear Stearns. It was allowed to borrow $33 billion more against the state’s credit card—if it defaulted on those loans, we’d have picked up the bill—through an even more obscure Federal Reserve program called the Temporary Liquidity Guarantee Program. A whole alphabet soup of other Fed bailout programs, like the Commercial Paper Funding Facility, the Term Auction Facility, and the Primary Dealer Credit Facility, allow banks like Chase to borrow billions of dollars at near-zero or zero interest.</bq> <bq caption="Page 382">What this means is that the entire business model for something like Chase’s credit card business is not much more than a gigantic welfare fraud scheme. These companies borrow hundreds of billions of dollars from the Fed at rock-bottom rates, then turn around and lend it out to the world at 5, 10, 15, 20 percent, as credit cards and mortgages, boat loans and aircraft loans, and so on. If you pay it back, great, it’s a 500 percent or 1,000 percent or 4,000 percent profit for the bank. If you don’t pay it back, the company can put your name in the hopper to be sued. A $5,000 debt on a credit card for the now-defunct Circuit City, which was actually a Chase card, became a $13,000 or $14,000 debt by the time the bank finished applying fees and penalties.</bq> <bq caption="Page 382">[...] every single one of those hundreds of thousands of credit judgments—be they foreclosures or credit card accounts—contains a line item with a court-mandated collection fee or other such payout to local law enforcement.</bq> People are charged for their own evictions. <bq caption="Page 383">It’s not just that there’s no criminal penalty for fraud on such a grand scale; your business doesn’t even have to suffer. You can defraud the state over and over again, and the state will still be happy to do business with you. You can still issue municipal bonds, and you can still be one of twenty-one banks given the privilege of being primary dealers of government debt.</bq> <bq caption="Page 383">Plenty of people—consumers and merchants both—are probably glad that so much credit is available, but they don’t realize that systematic fraud is part of what makes it available.</bq> <bq caption="Page 383">The crucial thing to understand is that if businesses like consumer credit cards are going to give cards away in the mail to everyone with a pulse, then the process almost by definition has to involve fraud.</bq> <bq caption="Page 383">When the state brings a fraud case against a welfare mom, it brings it with disgust, with rage, because in addition to committing the legal crime, she’s committed the political crime of being needy and an eyesore. Banks commit the legal crime of fraud wholesale; they do so out in the open, have entire departments committed to it, and have employees who’ve spent years literally doing nothing but commit, over and over again, the same legal crime that some welfare mothers go to jail for doing once. But they’re not charged, because there’s no political crime. <b>The system is not disgusted by the organized, mechanized search for profit. It’s more like it’s impressed by it.</b></bq> <bq caption="Page 395">Of course this reads like a shocker story only because Patrick Jewell is a white, college-educated musician. Imagine the same story a few hundred thousand times over, and you’re starting to plug into the ordinary urban nonwhite experience. And that, too, is a collateral consequence we’ve decided we can live with.</bq> <bq caption="Page 395">Patrick Jewell most likely was some plainclothes policeman’s fleeting visual error—a rolled cigarette mistaken from a distance as a joint. But instead of simply walking up to him and asking him what he was smoking, law enforcement’s first move was to assault him, then frame him, toss him in jail, and run him all the way through the system without apology, rather than admit the mistake.</bq> <bq caption="Page 395">Being white and middle class never meant your kids breezed into Yale with a C average. That kind of privilege was always reserved for a special kind of wealth. But it did once mean that police would think twice before bouncing your head off a sidewalk. Not anymore.</bq> <bq caption="Page 397">Obama was echoing the main mantra that continued to emanate from Wall Street after the crash, in which high-level executives involved in this or that scandal repeatedly insisted that what they had done was not actually against the law. The thing that’s interesting about this claim isn’t that it’s factually wrong, which incidentally it almost always is, often to a humorously enormous degree. What’s interesting is that the people who make this claim usually believe it to be true.</bq> <bq caption="Page 399">Lawyers admire the right kind of “aggressive” for the same reason we love heist movies: we sympathize with anyone clever enough to penetrate the impenetrable. But those same attorneys sometimes have a hard time seeing past the daring all the way to the consequences on the other end, which might very well be something like seventy thousand creditors losing thousands of dollars apiece, or a whole company’s shareholders losing a total of $600 million.</bq> Here, even Taibbi falls into the habit of using the wrong verb. They didn't <i>lose</i> it. It was stolen. <bq caption="Page 403">There were tens of thousands of cases just as insidious as the Simpson case, and each one of them was a truly despicable criminal fraud. But no individuals were ever prosecuted for this kind of crime. Meanwhile you can open up the newspaper virtually any day of the week—not just in Riverside County, California, but just about anywhere—and read about someone who’s been criminally sentenced for welfare fraud.</bq> <bq caption="Page 404">The total amount of money reportedly laundered in his case was somewhere in the area of $16 million. HSBC admitted to laundering more than $800 million. Trevino laundered for the Zetas; HSBC, for their rivals, the Sinaloa cartel. Trevino could get twenty years. At HSBC, again, nobody got even one day. These are enormous discrepancies. There’s a huge difference between twenty years and nothing—that is, a banker slapped with fines he doesn’t even personally pay. So what justifies the difference? Is there any conceivable reasonable explanation?</bq> <bq caption="Page 407">[...] in all but a very few of these cases, the narrative is exactly the same. There is somehow just enough evidence to extract hundreds of millions or even billions of dollars in penalties, but somehow not quite enough evidence to force any individual to do so much as a day in jail. Every single time, the state lands itself right in that oddly enormous sweet spot between spectacular leverage (to extract fines) and no leverage at all (to hand down criminal penalties).</bq> <bq caption="Page 408">This is an important distinction, that in this period of extreme crisis, we not only didn’t allocate funds to investigate the crash, we actively did increase the budget to tackle street crime, incidentally at a time of declining street violence.</bq> <bq caption="Page 408">[...] what it concedes is that there’s a concrete difference between how we treat an individual who commits fraud within the structure of a giant multinational company with a lot of settlement money lying around, and how we treat, say, an ordinary broke person who commits welfare or unemployment fraud.</bq> <i>Or doesn't commit a crime at all</i>, as Taibbi himself repeatedly pointed out. The welfare cheating is sometimes or even often just clerical errors. Credit card debt is active fraud. Instead of prosecuting giant crimes by unacceptable perpetrators, they're inventing and then prosecuting smaller ones, on acceptable victims. <bq caption="Page 409">This is coward’s language. No true cop would ever think like this. 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 a villain even when winning is a long shot. There’s value even in trying and losing sometimes. It’s not as tangible as a billion dollars, but it’s real enough.</bq> And that billion dollar settlement amounts to the government getting a cut of the action. The banks will do it again and the government gets its fee. It's a business relationship or I can't tell the difference. <bq caption="Page 412">At the end of 2011, the SEC bragged to Congress that it had completed 735 enforcement actions. It didn’t mention that fully one-sixth—131 of them—were 12(j) deals, shooting the corpses of companies like Longtop Financial or American Capital Partners or Austral Pacific Energy. It issues fancy press releases for a lot of these actions, often tossing in something sexy in the headline if there’s a Congress-friendly angle—“SEC Charges China-Based Longtop Financial Technologies for Deficient Filings” is an example.</bq>