Saturday, June 30, 2012
The exit at 36th Street subway station near Sunset Park in Brooklyn, New York, has something very peculiar about it.
The New York's Metropolitan Transportation Authority are now investigating. Crews were sent to the station to block off the staircase in preparation for repairs.
Friday, June 29, 2012
How America's biggest banks took part in a nationwide bid-rigging conspiracy - until they were caught on tape
Someday, it will go down in history as the first trial of the modern American mafia. Of course, you won't hear the recent financial corruption case, United States of America v. Carollo, Goldberg and Grimm, called anything like that. If you heard about it at all, you're probably either in the municipal bond business or married to an antitrust lawyer. Even then, all you probably heard was that a threesome of bit players on Wall Street got convicted of obscure antitrust violations in one of the most inscrutable, jargon-packed legal snoozefests since the government's massive case against Microsoft in the Nineties – not exactly the thrilling courtroom drama offered by the famed trials of old-school mobsters like Al Capone or Anthony "Tony Ducks" Corallo.
But this just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.
The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America. The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.
In fact, stripped of all the camouflaging financial verbiage, the crimes the defendants and their co-conspirators committed were virtually indistinguishable from the kind of thuggery practiced for decades by the Mafia, which has long made manipulation of public bids for things like garbage collection and construction contracts a cornerstone of its business. What's more, in the manner of old mob trials, Wall Street's secret machinations were revealed during the Carollo trial through crackling wiretap recordings and the lurid testimony of cooperating witnesses, who came into court with bowed heads, pointing fingers at their accomplices. The new-age gangsters even invented an elaborate code to hide their crimes. Like Elizabethan highway robbers who spoke in thieves' cant, or Italian mobsters who talked about "getting a button man to clip the capo," on tape after tape these Wall Street crooks coughed up phrases like "pull a nickel out" or "get to the right level" or "you're hanging out there" – all code words used to manipulate the interest rates on municipal bonds. The only thing that made this trial different from a typical mob trial was the scale of the crime.
USA v. Carollo involved classic cartel activity: not just one corrupt bank, but many, all acting in careful concert against the public interest. In the years since the economic crash of 2008, we've seen numerous hints that such orchestrated corruption exists. The collapses of Bear Stearns and Lehman Brothers, for instance, both pointed to coordinated attacks by powerful banks and hedge funds determined to speed the demise of those firms. In the bankruptcy of Jefferson County, Alabama, we learned that Goldman Sachs accepted a $3 million bribe from J.P. Morgan Chase to permit Chase to serve as the sole provider of toxic swap deals to the rubes running metropolitan Birmingham – "an open-and-shut case of anti-competitive behavior," as one former regulator described it.
More recently, a major international investigation has been launched into the manipulation of Libor, the interbank lending index that is used to calculate global interest rates for products worth more than $3 trillion a year. If and when that case is presented to the public at trial – there are several major civil suits in the works here in the States – we may yet find out that the world's most powerful banks have, for years, been fixing the prices of almost every adjustable-rate vehicle on earth, from mortgages and credit cards to interest-rate swaps and even currencies.
But USA v. Carollo marks the first time we actually got incontrovertible evidence that Wall Street has moved into this cartel-type brand of criminality. It also offered a disgusting glimpse into the enabling and grossly cynical role played by politicians, who took Super Bowl tickets and bribe-stuffed envelopes to look the other way while gangsters raided the public kitty. And though the punishments that were ultimately handed down in the trial – minor convictions of three bit players – felt deeply unsatisfying, it was still a watershed moment in the ongoing story of America's gradual awakening to the realities of financial corruption. In a post-crash era where Wall Street trials almost never make it into court, and even the harshest settlements end with the evidence buried by the government and the offending banks permitted to escape with no admission of wrongdoing, this case finally dragged the whole ugly truth of American finance out into the open – and it was a hell of a show.
1. THE SCAM
This was no trial scene from popular lore, no Inherit the Wind or State of California v. Orenthal James Simpson. No gallery packed with rapt spectators, no ceiling fans set whirring to beat back the tension and the heat, no defense counsel's resting a sympathetic hand on the defendant's shoulder as opening statements commence. No, the setting for USA v. Carollo reflected the bizarre alternate universe that exists on Wall Street. Like so many court cases involving big banks, the proceeding looked more like a roomful of expensive lawyers negotiating a major corporate merger than a public search for justice.
The trial began on April 16th in a federal court in Lower Manhattan. The courtroom, an aerielike setting 23 stories up, offered a panoramic view of the city and the East River. Though the gallery was usually full throughout the three-plus weeks of testimony, the spectators were not average citizens come to witness how they had been robbed blind by America's biggest banks. Instead, there were row after row of suits – other lawyers eager to observe a long-awaited case, one that could influence the outcome in a handful of civil suits pending across the country. In fact, the defendants themselves, whom the trial would reveal as easily replaceable cogs in a much larger machine of corruption, were barely visible from the gallery, obscured by the great chattering congress of prosecution and defense attorneys.
Only the presence of the mostly nonwhite and elderly jury, which resembled the front pew of a Harlem church, served as a reminder that the case had any connection to the real world. Even reporters from most of the major news outlets didn't bother to attend. The judge in the trial, the right honorable and amusingly cantankerous Harold Baer, acknowledged that the case was not likely to set the public's pulse racing. "It is unlikely, I think, that this will generate a lot of media publicity," Baer sighed to the jury in his preliminary instructions.
Once opening statements began, it was easy to see why the press might stay away. One of the main lines of defense for corrupt Wall Street institutions in recent years has been the extreme complexity of the infrastructure within which these crimes are committed. In order for prosecutors to win convictions, they have to drag ordinary Americans, people who watch and enjoy reality TV, up the steepest of learning curves, coaching them into game shape with regard to obscure financial vehicles like swaps and CDOs and, in this case, Guaranteed Investment Contracts.
So it was no surprise that both the prosecution and the defense began their opening remarks to the jury by apologizing for the hellishly dull maze of "convoluted" and "boring" and "tedious" financial transactions they were about to spend weeks hearing about. Only Wendy Waszmer, the feisty federal prosecutor with straight brown hair and an elfin build who presented the government's case, succeeded in cutting through the mountainous dung heap of acronyms and obfuscations and explaining what the case was about. "Even though some aspects of municipal bond finance are complex, the fraud here was simple," she told the jurors. "It was about lying and cheating cities and towns in a bidding process that was in place to protect them."
The "simple fraud" Waszmer described centered around public borrowing. Say your town wants to build a new elementary school. So it goes to Wall Street, which issues a bond in your town's name to raise $100 million, attracting cash from investors all over the globe. Once Wall Street raises all that money, it dumps it in a tax-exempt account, which your town then uses to pay builders, plumbers, the chalkboard company and whoever else winds up working on the project.
But here's the catch: Most towns, when they raise all that money, don't spend it all at once. Often it takes years to complete a construction project, and the last contractor isn't paid until long after the original bond is issued. While that unspent money is sitting in the town's account, local officials go looking for a financial company on Wall Street to invest it for them.
To do that, officials hire a middleman firm known as a broker to set up a public auction and invite banks to compete for the town's business. For the $100 million you borrowed on your elementary school bond, Bank A might offer you 5 percent interest. Bank B goes further and offers 5.25 percent. But Bank C, the winner of the auction, offers 5.5 percent.
In most cases, towns and cities, called issuers, are legally required to submit their bonds to a competitive auction of at least three banks, called providers. The scam Wall Street cooked up to beat this fair-market system was to devise phony auctions. Instead of submitting competitive bids and letting the highest rate win, providers like Chase, Bank of America and GE secretly divvied up the business of all the different cities and towns that came to Wall Street to borrow money. One company would be allowed to "win" the bid on an elementary school, the second would be handed a hospital, the third a hockey rink, and so on.
How did they rig the auctions? Simple: By bribing the auctioneers, those middlemen brokers hired to ensure the town got the best possible interest rate the market could offer. Instead of holding honest auctions in which none of the parties knew the size of one another's bids, the broker would tell the prearranged "winner" what the other two bids were, allowing the bank to lower its offer and come in with an interest rate just high enough to "beat" its supposed competitors. This simple but effective cheat – telling the winner what its rivals had bid – was called giving them a "last look." The winning bank would then reward the broker by providing it with kickbacks disguised as "fees" for swap deals that the brokers weren't even involved in.
The end result of this (at least) decade-long conspiracy was that towns and cities systematically lost, while banks and brokers won big. By shaving tiny fractions of a percent off their winning bids, the banks pocketed fantastic sums over the life of these multimillion-dollar bond deals. Lowering a bid by just one-100th of a percent, called a basis point, could cheat a town out of tens of thousands of dollars it would otherwise have earned on its bond deposits.
That doesn't sound like much. But when added to the other fractions of a percent stolen from basically every other town in America on every other bond issued by Wall Street in the past 10 to 15 years, it starts to turn into an enormous sum of money. In short, this was like the scam in Office Space, multiplied by a factor of about 10 gazillion: Banks stole pennies at a time from towns all over America, only they did it a few hundred bazillion times.
Given the complexities of bond investments, it's impossible to know exactly how much the total take was. But consider this: Four banks that took part in the scam (UBS, Bank of America, Chase and Wells Fargo) paid $673 million in restitution after agreeing to cooperate in the government's case. (Bank of America even entered the SEC's leniency program, which is tantamount to admitting that it committed felonies.) Since that settlement involves only four of the firms implicated in the scam (a list that includes Goldman, Transamerica and AIG, as well as banks in Scotland, France, Germany and the Netherlands), and since settlements in Wall Street cases tend to represent only a tiny fraction of the actual damages (Chase paid just $75 million for its role in the bribe-and-payola scandal that saddled Jefferson County, Alabama, with more than $3 billion in sewer debt), it's safe to assume that Wall Street skimmed untold billions in the bid-rigging scam. The UBS settlement alone, for instance, involved 100 different bond deals, worth a total of $16 billion, over four years.
Contracting corruption has been around since the construction of the Appian Way. The difference here is the almost unimaginable scope of the crime – and the fact that it's mobsters from Wall Street who are getting in on the action. Until recently, such activity has traditionally been the almostexclusive domain of the Mafia. "When I think of bid rigging, I think of the convergence of organized crime and the government," says Eliot Spitzer, who prosecuted two bid-rigging cases in his career as a New York prosecutor, one involving garbage collection, the other a Garment District case involving the Gambino family. The Mafia moved into bid rigging, he says, because it observed over time that monopolizing public contracts offers a far more lucrative business model than legbreaking. "Organized crime learned their lessons from John D. Rockefeller," Spitzer explains. "It's much more efficient to control a market and boost the price 10 percent than it is to run a loan-sharking business on the street, where you actually have to use a baseball bat and collect every week."
What Spitzer saw was gangsters moving in the direction of big business. When I ask him if he is surprised by the current bid-rigging case, which looks more like big business moving in the direction of gangsters, he laughs. "The urge to become a monopolist," he says, "is as old as capitalism."
2. THE TAPES
The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked together at GE, which was competing for bond business against banks like Chase, Wells Fargo and Bank of America. Carollo was the boss of Goldberg and Grimm, who handled the grunt work, submitting bids. Between August 1999 and November 2006, the three executives participated in countless rigged bids by telephone, conspiring with middleman brokers like Chambers, Dunhill and Rubin. We know this because prior to the start of the Carollo trial, 12 other individuals, including several brokers from CDR, had already pleaded guilty in a wide-ranging federal investigation.
How did the government manage to make a case against so many Wall Street scam artists? Hubris. As was the case in Jefferson County, Alabama, where Chase executives blabbed criminal conspiracies on the telephone even though they knew they were being recorded by their own company, the trio of defendants in Carollo wantonly fixed bond auctions despite the fact that their own firm was taping the conversations. Defense counsel even made an issue of this at trial, implying to the jury that nobody would be dumb enough to commit a crime by phone when "there was a big sticker on the phones that said all calls are being recorded," as Grimm's counsel, Mark Racanelli, put it. In fact, Racanelli argued, the conversations on the tapes hardly suggested a secret conspiracy, because "no one was whispering."
But the reason no one was whispering isn't that their actions weren't illegal – it's because the bid rigging was so incredibly common the defendants simply forgot to be ashamed of it. "The tapes illustrate the cavalier attitude which the financial community brought toward this behavior," says Michael Hausfeld, a renowned class-action attorney whose firm is leading a major civil suit against Bank of America, Wells Fargo, Chase and others for this same bid-rigging scam. "It became the predominant mode of transacting business."
How and when the government got hold of those tapes is still unclear; the prosecution is not commenting on the case, which remains an open investigation. But we do know that in November 2006, federal agents raided the offices of CDR, the broker firm that was working with Carollo, Goldberg and Grimm. Caught redhanded, many of the firm's top executives agreed to turn state's witness. One after another, these hangdog, pasty-faced men were led up to the stand by prosecutors and forced to recount how they'd been snatched up in the raid, separated and blitz-interviewed by FBI agents, and plunged into years of nut-crushing negotiations, which resulted in almost all of them pleading guilty. Prosecutors would eventually accumulate 570,000 recorded phone conversations, and to decipher them they worked these cooperating witnesses like sled dogs, driving them in for dozens of meetings and grilling them about the details of the scam.
The state's first witness, confusingly, was a CDR broker named Doug Goldberg (no relation to the defendant Steven Goldberg). Almost every executive involved in the trial was absurdly young; many were just out of college when the bid-rigging scam started in the late Nineties. Doug Goldberg graduated from USC in 1993, and his fellow CDR executive Evan Zarefsky still looks to be about 15 years old, suggesting a suit-and-tie version of Napoleon Dynamite. The extreme youth of some of the conspirators was an obvious subtext of the trial, underscoring the fact that far more senior executives from bigger banks like Chase and Bank of America had been permitted by the government to evade testifying.
Right off the bat, in fact, Doug Goldberg explained that while at CDR, he had routinely helped the cream of Wall Street rig bids on municipal bonds by letting them take a peek at other bids:
Q: Who were some of the providers you gave last looks to?
A: There was a whole host of them, but GE Capital, FSA, J.P. Morgan, Bank of America, Société Générale, Lehman Brothers, Bear. There were others.
Goldberg went on to testify that he repeatedly rigged auctions with the three defendants. Sometimes he gave them "last looks" so they could shave basis points off their winning bids; other times he asked them to intentionally submit losing offers – called cover bids – to allow other firms to win. He told the court he knew he was being recorded by GE. When asked how he knew that, he drew one of the trial's rare laughs by answering, "Either they told me or some of them, like Société Générale, you can hear the beeping."
Because of the recordings, he went on, he and the defendants used "guarded language."
"I might tell him, if I'm looking for an intentionally losing bid, 'I need a bid,' or something like that," he said.
Q: With whom specifically did you use this guarded type of language?
A: With Steve Goldberg and others.
Q: In your dealings with Steve Goldberg, what, if any, language or other signal did he use that you understood as a request for a last look?
A: He might ask me where I "saw the market," or he might ask me for, as I mentioned, an "indication of where the market is," an "idea of the market."
The broker went on to detail how he had worked with the GE executives to manipulate a number of auctions. In several cases, he was pushed to make deals with GE by his boss at CDR, Stewart Wolmark, who seemed smitten with GE's Steve Goldberg; jurors listening to the tapes couldn't miss the pair's nauseatingly tight, cash-fueled bromance. In December 2000, for instance, Wolmark helped Goldberg win a rigged bid for a bond in Onondaga County, New York. After the auction, he calls his buddy Steve:
WOLMARK: Hey, congratulations. You got another one.
GOLDBERG: Yeah. Yeah, thank you. Thank you.
WOLMARK: You're hot!
GOLDBERG: I'm hot? Hot with your help, sir.
Later on, Wolmark basically tells Goldberg he owes a service to his fellow gangster. "I deserve the big lunch now," Wolmark chirps.
"Yeah," says Goldberg. "I owe you something, huh?"
A few months later, in March 2001, Wolmark and Goldberg do another deal, this time for a $219 million construction bond for the Port Authority of Allegheny County, Pennsylvania. Wolmark rings up his payola paramour and scolds him for not calling him during a recent trip to Vegas, where Goldberg doubtless spent a nice chunk of the money Wolmark had helped him steal from places like Onondaga County.
"Good time in Vegas, you can't even call me back?" Wolmark laments.
"I don't have time to sleep in Vegas," Goldberg says suggestively.
"There's sleeping," Stewart Wolmark chides, "and there's Stewart."
From there, the clothes just start flying off as the pair jump into a steamy negotiation over the monster Allegheny deal. "I'm all set with $200 million," Goldberg says. "Everything's ready to go."
Then Wolmark asks if GE is ready to pay CDR its bribe. "You got some swaps coming up?"
Goldberg assures him they do. Wolmark then passes the deal off to his own Goldberg, Doug, who handles the actual auction.
When prosecutors tried to explain these telephone auctions at trial, projecting the transcripts of the calls on a huge movie screen set up across the courtroom from the jury, you could see the sheer bewilderment on the jurors' faces. The men on the tapes seemed to be speaking a language from another planet – an insanely dry and boring planet, where there's no color and no adverbs, maybe, and babies are made by rubbing two calculators together. One of the jurors, an older white man, spent the first few days of the trial yawning repeatedly, fighting a heroic battle to stay awake in the face of all the mind-numbing jargon about Guaranteed Investment Contracts. "Who needs Lunesta," joked one lawyer who attended the proceedings, "when you can hear a lawyer talk about GICs right out of the gate?"
The language of the auctions was a kind of intellectual camouflage. If you didn't listen closely, you'd have thought the two Goldbergs were a couple of airmen exchanging weather balloon data, rather than two Wall Street executives plotting a crime to rip off the good citizens of Allegheny County. In that deal, Steve Goldberg of GE originally bid "503, 4" on the $219 million bond, only to be guided downward by Doug Goldberg of CDR. The broker explained in court:
Q: Can you explain what you understood Mr. Goldberg to say when he was saying 503, 4? What was he bidding?
A: That was the rate he was willing to bid on this investment agreement.
Q: How much was it?
A: 5.04 percent.
Q: What did you do as a response to his bid of 5.04 percent?
A: I brought his bid down to 5.00 percent.
In other words, even though GE was willing to pay an interest rate of 5.04 percent, Allegheny County ended up earning just 5.00 percent on its $219 million bond. How much money that amounted to is difficult to calculate, given the way the bond account diminished each year as the county used it to pay contractors; even Doug Goldberg couldn't put a number on the scam. But if the account was full at the start of the deal, GE may have cheated the county out of as much as $87,600 a year to start.
In any case, GE certainly chiseled the Pennsylvanians out of a sizable sum, because soon after, the company paid CDR a kickback of $57,400 in the form of "fees" on a swap deal. The whole deal pleased CDR's higher-ups. "I went to Stewart Wolmark and told him that not only did Steve Goldberg win but that I was able to reduce his rate down four basis points," said Doug Goldberg. "Stewart was very happy and excited."
Over and over again, jurors heard cooperating witnesses translate the damning audiotapes. In one lurid sequence, the bat-eared, bespectacled CDR broker Evan Zarefsky explained how he helped the GE defendant Peter Grimm win a bid for a bond put out by the Utah Housing Authority. The pair had apparently reamed Utah so many times that it had become a sort of inside joke between the two of them. From a call in August 2001:
GRIMM: Utah, let's see, how we look on that?
ZAREFSKY: Good old Utah!
Grimm complains about how much he'll have to pay to win the deal. "These levels are really shitty," he says.
Zarefsky comforts him. "Well, I can probably save you a couple of bucks here," he says.
From there, Grimm rattles off numbers, ultimately settling on a bid of 351 – 3.51 percent. Zarefsky, in almost motherly fashion, guides the manic Grimm downward, telling him, in code, that his bid is 10 basis points too high. "You actually got like a dime in there," Zarefsky says. "You want to come down a dime?"
So Grimm comes back with a bid of 3.41 percent, which turned out to be the winning bid. Utah lost out on 10 basis points, GE bilked the state out of untold sums, and CDR got another nice kickback.
This, basically, is how a lot of the calls went. The provider would tentatively offer a number, and the broker would guide him to a new bid. "You have a little bit of room there," he might say, or "That's gonna put you about a nickel short." Guiding the bidders to the lowest possible bid was called "figuring out the level" or being "in the market"; obtaining information about other bids was called "giving an indicative" or "seeing the market."
The brokers and providers used a dizzying array of methods for rigging deals. In some cases, the broker helped the "winner" by simply excluding other bidders, who may or may not have been in on the scam. In one hilarious sequence that sounds like something out of a wiretap of a Little Italy social club, CDR executive Dani Naeh tells GE's Steve Goldberg that he's not sure he can guarantee a win on a bid for a New Jersey hospital bond. There were too many triple-A-rated companies interested in the bond, Naeh explains, and he couldn't control their bids the way he could those of the lesser, double-A-rated companies he usually did business with. "It would be easier for us to contact other providers who were rated double-A and ask them to submit an intentionally losing bid," Naeh testified. He sounded exactly like a mobster, talking about "our guys" and "our friends."
In some of the calls, jurors could hear the entirety of the dirty deals negotiated, including the bribe paid back to the broker. In one deal involving a bond for the Port of Oakland, California, Steve Goldberg of GE starts to ask his pal Stewart Wolmark of CDR what kind of kickback the broker wants for rigging the deal. Such conversations about payoffs were so commonplace that Wolmark doesn't even have to wait for Goldberg to finish the question:
GOLDBERG: What are we building in here for the...
In his testimony, Wolmark explained that he was asking for a swap deal in return for rigging the bid. "He wanted to know what we were going to get paid on the back end," Wolmark explained.
In the call, Wolmark and Goldberg start haggling over the price of CDR's kickback. Wolmark tells Goldberg he only wants what's fair. "Listen, I'm not a chazzer," Wolmark says.
Fans of the movie Scarface will remember Tony Montana's inspired translation of this Yiddish term: "Thas a pig that don' fly straight."
Wolmark reassures Goldberg that as pigs go, he's a straight flier. "You see the kind of mensch I am," he says.
Negotiations ensue. Goldberg tells Wolmark that he can pay him more on the bribe – the swap deal – if Wolmark can help GE save money on the Port of Oakland deal. "I'd like to see if we can pull a nickel out of that swap," Wolmark says. Translation: He wants to boost CDR's take on the kickback by five basis points.
"If I could get to the right level," Goldberg answers, referring to the Port of Oakland deal. Translation: Goldberg will help Wolmark get his "nickel" on the swap deal if Wolmark can help GE "get to the right level" on the bid.
3. THE POLITICIANS
The Carollo case provides far more than a detailed look at the mechanics and pervasiveness of bid rigging; it offers a clear and unvarnished blueprint of the architecture of American financial and political corruption. In an attempt to discredit the CDR witnesses, defense counsel hounded them about other revelations that surfaced in the government's investigation, particularly those that involved bribery, illegal campaign contributions and pay-for-play schemes.
The defense's cross-examinations were surreal. It was certainly true that some of the government's cooperating witnesses had dubious résumés, so it may have made sense to highlight their generally duplicitous history of tax evasion or lying to investigators. But in their zeal, defense counsel went far beyond simply discrediting the witnesses, spending an inordinate amount of time eliciting even more details about the grotesque corruption scheme their own clients had taken part in. The result was a rare and somewhat confusing spectacle: high-octane lawyers from Wall Street working to rip the lid off Wall Street corruption in open court.
Defense counsel showed us, for instance, how CDR employees were routinely directed by their boss, David Rubin, to make political contributions to select candidates, only to be reimbursed by Rubin for those contributions later on. This kind of corporate skirting of campaign finance limits is something we've always suspected goes on, but we rarely get to see direct evidence of it.
More interesting, though, were the stories about political payoffs. In 2001, CDR hired a consultant named Ron White, a Philadelphia bond attorney who happened to be the chief fundraiser for then-mayor John Street. CDR gave White two tickets to the 2003 Super Bowl in San Diego plus a limo – a gift worth $10,000. As his "guest," White took Corey Kemp, the city treasurer for Philadelphia, who, 16 days later, awarded CDR a $150,000 contract to advise the city on swap deals. But that wasn't the end of the gravy train: CDR doled out those swap deals to selected banks, who in return kicked back $515,000 to CDR for steering city business their way.
So a mere $10,000 bribe to a politician – a couple of Super Bowl tickets and a limo – scored CDR a total of $665,000 of the public's money. If you want to know why Wall Street has been enjoying record profits, here's your answer: Corruption is a business model that brings in $66 for every dollar you invest.
Even more startling was the way that a notorious incident involving former New Mexico governor and presidential candidate Bill Richardson resurfaced during the trial. Barack Obama, you may recall, had nominated Richardson to be commerce secretary – only to have the move blow up in his face when tales of Richardson accepting bribes began to make the rounds. Federal prosecutors never brought a case against Richardson: In 2009, an inside source told the AP that the investigation had been "killed in Washington." Obama himself, after Richardson bowed out, praised the former governor as an "outstanding public servant."
Now, in the Carollo trial, defense counsel got Doug Goldberg, the CDR broker, to admit that his boss, Stewart Wolmark, had handed him an envelope containing a check for $25,000. The check was payable to none other than Moving America Forward – Bill Richardson's political action committee. Goldberg then went to a Richardson fundraiser and handed the politician the envelope. Richardson, pleased, told Goldberg, "Tell the big guy I'm going to hire you guys."
Goldberg admitted on the stand that he understood "the big guy" to mean Wolmark. After that came this amazing testimony:
Q: Soon after that, New Mexico hired CDR as its swap and GIC adviser on a $400 million deal, right?
Q: You learned later that that check in that envelope was a check for $25,000, right?
A: Yes. I learned it later.
Q: You also learned later that CDR gave another $75,000 to Gov. Richardson, right?
Q: CDR ended up making about a million dollars on this deal for those two checks?
Q: In fact, New Mexico not only hired CDR, they hired another firm to do the actual work that they needed done?
A: For the fixed-income stuff, yes.
What we get from this is that CDR paid Bill Richardson $100,000 in contributions and got $1.5 million in public money in return. And not just $1.5 million, but $1.5 million for work they didn't even do – the state still had to hire another firm to do the actual job. Nice non-work, if you can get it.
To grasp the full insanity of these revelations, one must step back and consider all this information together: the bribes, yes, but also the industrywide, anti-competitive bid-rigging scheme. It turns into a kind of unbroken Möbius strip of corruption – the banks pay middlemen to rig auctions, the middlemen bribe politicians to win business, then the politicians choose the middlemen to run the auctions, leading right back to the banks bribing the middlemen to rig the bids.
When we allow Wall Street to continually raid the public cookie jar, we're not just enriching a bunch of petty executives (Wolmark's income in 2008, two years after he was busted in the FBI raid, was $2,464,210.18) – we're effectively creating an alternate government, one in which money lifted from the taxpayer's pocket through mob-style schemes turns into a kind of permanent shadow tax, used to maintain the corruption and keep the thieves in place. And that cuts right to the heart of what this case is all about. Wall Street is tired of making money by competing for business and weathering the vagaries of the market. What it wants instead is something more like the deal the government has – regularly collecting guaranteed taxes. What's crazy is that in order to justify that dream of regular, monopolistic tribute, they've begun to see themselves as a type of shadow government, watching out for the rest of us. Amazingly enough, this even became a defense at trial.
4. THE DEFENSE
There were times, sitting in the courtroom, when I wondered, How did this case even go to trial? What defense attorney would look at the thousands of recorded phone calls, the parade of cooperating witnesses, the stacks of falsified documents, and conclude that airing all of this in court was a smart play? Listening to tape after damning tape played in open court while the defendants cringed in a corner seemed increasingly like a gratuitous ass-kicking, one that any smart defense lawyer would have made a deal to avoid.
But as the weeks passed, I started to get a feel for the defense strategy, which made a kind of demented sense. The lawyers for Carollo, Goldberg and Grimm didn't even bother trying to argue the facts of the case. Instead, in one cross-examination after another, they kept hitting the same theme. Despite the fact that the rigged bids resulted in lower returns, wasn't it true that the cities and towns still received, technically speaking, the highest bid? If a town received a 5.00 percent return on a $219 million bond instead of 5.04 percent, who's to say that wasn't a good price?
John Siffert, the gray-faced and unlikable attorney for Steve Goldberg, put it this way in his cross-examination of CDR executive Stewart Wolmark. Asking about the Allegheny deal, he boomed: "Isn't it fair to say that you believed that by lowering... Steve's bid to 5 percent, Steve's bid was still a fair price to pay?"
Wolmark's answer was both quick and sensible: "I don't determine the fair price," he replied. "The market does." GE was supposed to pay the highest price the market would pay. It wasn't a competitive auction, as required by law.
But Siffert had made his point, and his rhetoric got right to the heart of the defense, which was going to center around the definition of the word "fair." The men and women who run these corrupt banks and brokerages genuinely believe that their relentless lying and cheating, and even their anti-competitive cartelstyle scheming, are all legitimate market processes that lead to legitimate price discovery. In this lunatic worldview, the bidrigging scheme was a system that created fair returns for everyone. If a bunch of Pennsylvanians got a 5.00 percent return on their money instead of 5.04 percent, and GE and CDR just happened to split the extra .04 percent, that was a fair outcome, because that's what the parties negotiated. True, the Pennsylvanians had no idea about the extra .04 percent, and true, they had hired CDR precisely to make sure they got that extra 0.4 percent. But hey, it's not like they were complaining: Until someone told them they were being brazenly cheated, they were happy with their bond service. And besides, it's not like ordinary people understand this stuff anyway. So how is it the place of some busybody federal prosecutor to waltz in here and say what's a fair price?
Siffert tried to lay this outrageous load of balls on the jury using a faux-folksy analogy. "When your refrigerator breaks down, if you're not mechanically inclined, you're at the mercy of that repair person," he told the jury. "And if he repairs the refrigerator, makes it work well, charges you a fair price, you're likely to call on him again when the stove breaks." What he was essentially telling jurors was: This shit is complicated, so best just to leave it to the experts. Whether they're fixing a fridge or fixing a bond rate, they get to set the price, because we're all morons who are dependent on them to make our world work. Siffert, in his scuzzy way, was actually telling us an essential economic truth: You're at the mercy of that repair person.
This incredible defense, which the attorneys for all three defendants led with, perfectly expresses the awesome arrogance of the modern-day aristocrats who run our financial services sector. Corrupt or not, they built this financial infrastructure, and it's producing the prices they genuinely think are fair for us – and for them. And fair to them is the customer getting the absolute bare minimum, while they get instant millions for work they didn't do. Moreover – and this is the most important part – they believe they should get permanent protection from the ravages of the market, i.e., from one another's competition. Imagine Jack Nicholson on the witness stand, dressed in a repairman's uniform and tool belt. Who's gonna fix those refrigerators? You? You, Lieutenant Weinberg? You can't handle the truth!
That, ultimately, is what this case was about. Capitalism is a system for determining objective value. What these Wall Street criminals have created is an opposite system of value by fiat. Prices are not objectively determined by collisions of price information from all over the market, but instead are collectively negotiated in secret, then dictated from above.
"One of the biggest lies in capitalism," says Eliot Spitzer, "is that companies like competition. They don't. Nobody likes competition."
To the great credit of the jurors in the Carollo case, they didn't buy Wall Street's ludicrous defense. On May 11th, nearly a month after the trial began, they handed down convictions to all three defendants. Carollo, Goldberg and Grimm, who will be sentenced in October, face as many as five years in jail.
There are some who think that the government is limited in how many corruption cases it can bring against Wall Street, because juries can't understand the complexity of the financial schemes involved. But in USA v. Carollo, that turned out not to be true. "This verdict is proof of that," says Hausfeld, the antitrust attorney. "Juries can and do understand this material."
In the end, though, the conviction of a few bit players seems like far too puny a punishment, given that the bid rigging exposed in Carollo involved an entrenched system that affected major bond issues in every state in the nation. You find yourself thinking, America's biggest banks ripped off the entire country, virtually every day, for more than a decade! A truly commensurate penalty would be something like televised stonings of the top 10 executives of every guilty bank, or maybe the forcible resettlement of every banker and broker in Lower Manhattan to some uninhabited Andean wasteland... anything to address the systemic nature of the crime.
No such luck. Instead of anything resembling real censure, a few young executives got spanked, while the offending banks got off with slap-on-the-wrist fines and were allowed to retain their pre-eminent positions in the municipal bond market. Last year, the two leading recipients of public bond business, clocking in with more than $35 billion in bond issues apiece, were Chase and Bank of America – who combined had just paid more than $365 million in fines for their role in the mass bid rigging. Get busted for welfare fraud even once in America, and good luck getting so much as a food stamp ever again. Get caught rigging interest rates in 50 states, and the government goes right on handing you billions of dollars in public contracts.
Over the years, many in the public have become numb to news of financial corruption, partly because too many of these stories involve banker-on-banker crime. The notorious Abacus deal involving Goldman Sachs, for instance, involved a hedge-fund billionaire ripping off a couple of European banks – who cares? But the bid-rigging scandal laid bare in USA v. Carollo is a totally different animal. This is the world's biggest banks stealing money that would otherwise have gone toward textbooks and medicine and housing for ordinary Americans, and turning the cash into sports cars and bonuses for the already rich. It's the equivalent of robbing a charity or a church fund to pay for lap dances.
Who ultimately loses in these deals? Well, to take just one example, the New Jersey Health Care Facilities Finance Authority, the agency that issues bonds for the state's hospitals, had their interest rates rigged by the Carollo defendants on $17 million in bonds. Since then, more than a dozen New Jersey hospitals have closed, mostly in poor neighborhoods.
As Carollo showed us, in open court, this is what Wall Street learned from the Mafia: how to reach into the penny jars of dying hospitals and schools and transform their desperation and civic panic into fat year-end bonuses and the occasional "big lunch." Unlike the Mafia, though, they were smart enough to do their dirt without anyone noticing for a very long time, which is what defense counsel in this case were talking about when they argued that towns and cities "were not harmed" by the rigged bids. No harm, to them, means no visible harm, i.e., that what taxpayers didn't know couldn't hurt them. This is logical thinking, to the sociopath – like saying it's not infidelity if your wife never finds out. But we did find out, and the scale of betrayal unveiled in Carollo was epic. It was like finding out your husband didn't just cheat, but had a frequent-flier account with every brothel in North America for the past 10 years. At least now we know how bad it was. The trick is to find a way to make the cheaters pay.
This story is from the July 5th, 2012 issue of Rolling Stone.
Wednesday, June 27, 2012
A guest post from our esteemed, super-smart friend, Charles Hugh Smith, publisher of the Of Twos Minds blog and author of the new book, Resistance, Revolution, Liberation: A Model for Positive Change
All centralized systems, open and shadow alike, act as heavy taxes on the society and economy. This is why they cannot compete with the forces of networked decentralization.
The primary “news” narrative may be the failure of the euro, but the master narrative is much, much bigger: centralization has failed. The failure of Europe’s “ultimate centralization project” is but a symptom of a global failure of centralization.
Though many look at China’s command-economy as proof that the model of Elite-controlled centralization is a roaring success, let’s check in on China’s stability and distribution of prosperity in 2021 before declaring centralization an enduring success. The pressure cooker is already hissing and the flame is being turned up every day.
What’s the key driver of this master narrative? Technology, specifically, the Internet. Gatekeepers and centralized authority are no match for decentralized knowledge and decision-making. Once a people don’t need to rely on a centralized authority to tell them what to do, the centralized authority becomes a costly impediment, a tax on the entire society and economy.
In a cost-benefit analysis, centralization once paid significant dividends. Now it is a drag that only inhibits growth and progress. The Eurozone is the ultimate attempt to impose an intrinsically inefficient and unproductive centralized authority on disparate economies, and we are witnessing its spectacular implosion.
Centralization acts as a positive feedback, i.e. a self-reinforcing loop that leads to a runaway death spiral. Centralize the entire banking sector into five corporations and guess what happens? They buy access to the highly centralized power centers of the Federal government. Like the HIV virus, centralized concentrations of capital like the five “too big to fail” banks disrupt the regulatory “immune response” that was supposed to control them.
This feedback between centralized capital and centralized government cannot be controlled by more rules and regulations—the two partners in domination will subvert or bypass any such feeble attempts with shadow systems of governance and control of the very sort we now see dominating economies and governments around the globe.
Centralization itself is the disease, and devolving power to decentralized nodes based on the transparent power of the Web is the cure. The authorities and Elites attempting to maintain their centralized fiefdoms of power are desperately trying to control the technology of the Web, but disruptive technology that offers stupendous improvements in efficiency and productivity cannot be put back in the genie’s bottle. The authorities can try, but they will fail.
The analog to the printing press is but one example. The centralized authorities of the Holy Roman Empire tried to limit the citizens’ access to the Bible and other books, and as their failure became evident they ramped up their oppression to extremes: printing the Bible was a “crime” punishable by death.
Despite their almost total dominance of society and the economy, the centralized authorities failed to limit the technology of printing and distributing books.
Centralized authorities face an impossible double-bind: if they limit access to the Web, their economic growth is doomed, and thus eventually so is their power as the impoverished and oppressed populace rises up to overthrow their failed Elites. But if they enable widespread access to the Web, then the populace eventually realizes the centralized authorities and Elites are burdensome hindrances to liberty and prosperity.
The highly centralized Elites controlling China are engaged in a desperate campaign to constrain the Web in China to what they deem supportive of their regime. The “Great Firewall of China” reportedly has tens of thousands of employees monitoring and censoring content. Hyper-nationalistic rants are “enabled” to spread virally, while inquiries into official over-reach and misconduct are quickly suppressed.
You can’t fool Mother Nature for long, and the Chinese are trying to tame forces akin to Nature.
We already saw this dynamic play out with the Soviet Union. In the former U.S.S.R., networked computers were understood to be a serious threat to political control by centralized authorities, so access was strictly limited. Scientists and mathematicians in the U.S.S.R. were relegated to working with paper and pencils because this was “politically acceptable.”
Denied access to transformative technologies, the economy and society of the U.S.S.R. withered and eventually expired.
China has played a very quick game of catch-up based on a unique set of factors:
1. An abundance of low-hanging fruit to be picked, both domestically and globally. If you watch documentaries filmed in China in the early 1980s, villagers were harvesting bamboo by hand and the village “theater” was one black-and-white television. By the time I first visited China in 2000, there was already a glut of cheap TVs and massive overcapacity in TV manufacturing.
2. An abundance of mobile global capital to fund the initial industrialization.
3. The ease of stealing/copying existing technology. It’s always easy to steal/copy existing technologies: strip down the motorbike to its parts, machine-tool a factory to make the parts and voila, you are soon producing “Yamaka” motorbikes in quantity (and drinking “Starbuck” coffee).
But once the low-hanging fruit has been picked, you have to develop new technologies on your own to keep growing. The U.S.S.R. was able to keep up by stealing technology for decades, but once the pace of innovation slipped from centralized labs (where spies could be highly effective) to decentralized networks of innovation, the game was over: stealing technology became inefficient and/or impossible on the necessary scale and timeline to keep up.
The Web also feeds social innovations. Centralized authorities move with glacial trepitude because any change, no matter how modest, steps on the exquisitely sensitive toes of some vested interest, protected fiefdom or favored Elite. So while the centralized Elites and their apparatchiks in government are detailing more regulations of the buggy-whip industry, the entire industry is bypassed by social and technological forces beyond the control of the Elites and their flunkies and factotums.
The forces of centralized authority will not relinquish their power easily. In Egypt and many other quasi-feudalistic nation-states, the Empire of centralized Elite authority is striking back, often via the “shadow” systems of governance and control they established behind the thin veneer of legitimacy created by their organs of propaganda.
But all centralized systems, open and shadow alike, act as heavy taxes on the society and economy. Their attempts to retain control will fail because of the conundrum outlined above: if they succeed in stifling the Web and the powers of decentralization, their economy will wither and their impoverished people will eventually tire enough of poverty to rise up and crush their oppressive Elites.
If they allow access to the Web and the innovation-driven power of decentralized networks of knowledge, collaboration and information, then their political and financial control will be eroded. Either way, disruptive technologies will dismantle their power base and wealth.
Here in the U.S., our Central State and Financial Elites are also desperately trying to maintain their control, even as their control strangles the economy and social innovation. Being controlled by five “too big to fail” banks and six media corporations is like being dominated by the buggy-whip industry and the horse-manure-collection industry.
The way forward is to dismantle the five banks and six media companies and allow 500 banks to compete in a transparent market but be unable to buy other banks or other companies. If there are 500 banks that are forced to compete in a transparent marketplace, it will be very difficult for those corporations to purchase the political power the “too big to fail” banks own.
The Federal Reserve is the ultimate centralized horse-manure-collection industry. Like the Catholic Church trying to control Gutenberg’s printing press, the Fed is terrified of transparency, liberty, competition and the technological forces of networked decentralization. Though those in power cannot dare contemplate it, their highly centralized institution and the chokehold of its authority are already doomed.
Centralized control leads to stagnation and poverty, which leads to the overthrow of oppressive political Elites. If the centralized Elites attempt to corral the Web to serve their own narrow self-interests, it will overflow their narrow channels and erode their power. Either way, their attempts to control disruptive technology will fail. Their only choice is which path to destruction they wish to tread.
Charles Hugh Smith’s new book is Resistance, Revolution, Liberation: A Model for Positive Change. Read the Introduction and Chapter One here.
Tuesday, June 26, 2012
Monday, June 25, 2012
Presidential candidates have used religion to attack each other for centuries. An expert explains why.
His silence about his faith notwithstanding, Mitt Romney will become the first Mormon to win a major-party presidential nomination. That could put more attention on his religion than any candidate has faced since John Kennedy in 1960, especially as Romney tries to attract skeptical evangelical voters. Meanwhile, President Obama’s endorsement of gay marriage and the ongoing social issues surrounding the war on women are bound to intensify criticism from the religious right and the crucial faction of conservative Latino voters.
But religion has profoundly influenced presidential politics since the days of George Washington. As Michael I. Meyerson argues in his new book, “Endowed by Our Creator: The Birth of Religious Freedom in America,” a scholarly account of how the framers of the Constitution viewed the role of religion in government, the current campaign has a lot in common with some of the country’s first electoral bouts. Then as now, Meyerson says, the debates were portrayed as a clash between a godless candidate who wanted a secular country and a true defender who was willing to restore the morals of a Christian nation. He says that the study of the formation of the American government can help us understand the reasons behind the growing partisan divide and help bridge the conflicting religious opinions of both political parties.
Salon spoke to Meyerson — a professor of law and a Piper & Marbury Faculty Fellow at the University of Baltimore. — about the framers of the Constitution, the upcoming elections, and religious discrimination.
Throughout your book, you highlight how some of the writings and actions of the framers of the Constitution have been taken out of their historical context to support the political agendas of both liberals and conservatives. How does the historical record compare to the way both parties portray the framers today?
The framers were generally far more nuanced, complicated and willing to be complicated than the modern political dialogue. They didn’t have to be purely on the left or on the right. Most of them were trying to make a compromise between multiple concerns and constituencies.
Compared to the late 18th century and the beginning of the 19th century, how would you describe the current discussion of religion in politics?
In terms of the role of religion in government, what I’ve found is that much of the modern dialogue is trying to make the framers entirely one thing or another. You have those who want to argue for a strict separation of church and state, and those who believe that America is a Christian nation. The former go through history assuming a lot and use writings by Madison and Jefferson with a very narrow desire to say that government should not have anything to do with religion. The latter look at the large amount of religious reference and activity in the colonies and say that there is a long history of government being entwined with religion. What neither side does is take into account the validity of the history of the other side. What you end up reading are two half-histories, and generally neither political side has been willing to put the two different components together, which is what I tried to do in my book.
You write that it is essential to create an “accurate picture of what freedom of religion meant at the time of the framing” of the Constitution. Why does that matter?
Even though we are a more pluralistic society, it is important to remember that the framers of the Constitution were dealing with a diversity of their own — and with very violent conflicts between the different denominations, some of which were caused and abetted by government. So what we can learn, first of all, is how to balance competing concerns. The debates that we are having about the role of religion in government are not new; we are dealing with a centuries-old debate. The framers, and especially the vastly underrated George Washington, were very aware of the fact that religion could be a force for good and a force for evil. That was what they were trying to balance.
Unlike Madison or Jefferson, Washington was very explicit in saying that he considered divine intervention one of the main reasons we won the Revolutionary War. He saw the hand of Providence in the writing of the Constitution, but he also understood — and this was where his genius was — that if you are sectarian, if you favor any particular religion, you end up dividing, rather than uniting, the nation. So, again, what we can learn from the framers is that government is not barred from acknowledging religion, but that it must do so in an extraordinarily careful and respectful way, in which the goal is making sure that every American feels a part of the country regardless of their religious beliefs.
In your book, Washington emerges as a practical thinker who saw religious freedom as a way of avoiding conflict and promoting morality. While he was in office, he used inclusive religious language in his speeches and was careful not to support the idea that the country was founded as a Christian nation, a belief that many people from the right accept today as an unquestionable truth. Why was the first president so vehement in his refusal to say that Christianity was the nation’s religion?
Washington knew that people don’t go to war for God; they go to war for a particular God. George Washington was unique in American history because he was the first person to look after a united country. He was the head of the military during the Revolutionary War, so he was forced to work with soldiers from all the different states, including those that had different religious backgrounds than his own. He knew that if he wasn’t careful and, more importantly, if his soldiers weren’t careful, then religion was going to destroy his army. Washington had to learn as a military person and as a political person that if you discussed religion, you had to do so in a respectful way. At the same time, he was not going to ignore either his religious views or those of the population.
How have the framers’ views on religious freedom shaped America as a whole?
First of all, they made America, ironically, a more religious country. A lot of the religious movements from the 19th century have their roots in the framers’ actions, given that there was no favored governmental religion. Especially in the newer states, there existed a sentiment that people could find the religion that spoke to them most. Second, once immigrants arrived — and despite the strong anti-Catholic and anti-Semitic views of most people throughout the 19th century — there was always a strong sense that the true American understanding was that all religions were welcome. It became part of the definition of what America was. You had, then, both a space for religion to grow on its own and a welcoming of religion. Finally, the Constitution also allowed for a secular view of society and life to also flourish as government was forced to step away. In the end, there was an ironic combination of more religion and more freedom of religion at the same time.
In your book, you mention the 1800 election between John Adams and Thomas Jefferson. It was framed in the Gazzette of the United States by the question: “Shall I continue in allegiance to GOD — AND A RELIGIOUS PRESIDENT; Or impiously declare for JEFFERSON — AND NO GOD!!!” There are some parallels with the current elections.
[Laughs] Yes, yes. The idea of a presidential battle being a proxy for a view of religion is very old. Indeed, there was the sense that the Adams side viewed their efforts as the only way to protect religion, and that Jefferson’s side viewed their efforts as the only way to stop an establishment of religion in a narrow sectarian government. One of my goals in the book is to show that the debates that we are having today are not a creation of our times. We can learn from the lessons of the election of 1800. One of the most radical parts of the Constitution said that no one had to take a religious oath to serve in government. It was a major step, a radical change, perhaps the most important moment in American religious history. However, that doesn’t mean that people can’t vote based on their religious beliefs. The vote of 1800 seems to suggest that the people then didn’t want to have a purely religious government. They were more comfortable with the Jefferson approach, which sought to limit the role of government, than with the Adams approach, which was far more sectarian than that of Washington and Jefferson.
Mitt Romney’s religion played a significant role in the Republican primary. Because of his faith, after winning the nomination, he’s been forced to reach out to some of the Christian groups that had previously shunned him. Do you think there’s an implicit faith test for candidates within the GOP and one for the president within the country?
First of all, I think that surely within the country there is. There are surveys that say people will vote for almost anyone over an atheist. There is a 30 or 40 percent part of the population that will not vote for someone who doesn’t believe in God, so there’s definitely a religious test for the highest office.
Within the Republican Party, I think there is also a small group that does have a sort of religious test. Sometimes the test, if you will, will be passed if the candidate abides by politics that mirror religious beliefs, and sometimes [it will be passed] by the adherence to a specific faith.
In the book I tried to avoid the ongoing debate surrounding what were Washington’s and Jefferson’s specific religious faiths. I think that most American voters get that people’s professed faith doesn’t matter, and that someone’s beliefs can be incredibly complicated. What matters is how they live their lives and their view of government. One of the points of the framing period is that there were people that were very conservative, devout and pious men, who believed in a very limited role of government — for example, my hero John Leland, the Baptist minister. On the other hand you had people that were largely irreligious, like Benjamin Franklin, who supported teaching religion because they thought it was good for the masses. In political thought, there’s a sense that people should not search for a candidate with their same religious beliefs, but rather for one whose politics support their religious beliefs and tenets.
Meanwhile, Obama’s spirituality has been questioned many times …
Yes, he has been forced to declare his religion far more than most other presidents. While George Washington would never say in public that he was a Christian, President Obama has to do it all the time. Whether he is comfortable with it or not is irrelevant, but it’s a shame. It’s sad that we have to brand him with a religion. First of all, it implies something very hostile, given that he’s had to say that he is Christian because he’s been accused of being a Muslim, as if that were something really bad. On the other hand, the fact that he has to declare his religion implies that that is the right religion for a political leader. I don’t think he believes in doing that, but he knows that politically he has to sort of fit in with this mindset.
Taking Romney into account, what I think you end up with, ironically, are two candidates who consider themselves to be Christian, even though the Mormon faith is not considered to be Christian by some Christians, and Obama is not considered to be a Christian by some Christians. Both of them need to present their bona fide credentials in a way that I think works to divide, rather than to unite, religious faith.
And those credentials are the faith test you mentioned earlier.
Exactly. In fact, it was understood by de Tocqueville and others that the governmental oath test was removed, but the individual’s religious test could remain. It has fluctuated over time, and I think you saw it in the Republican primaries. It might be muted a little in this campaign because I think that many people are going to vote for the candidates’ politics and not for a candidate who represents their faith.
Republicans have constantly accused Obama of waging a so-called war on religion. Many Catholic groups have filed law suits against the government claiming that their religious freedom was violated by the inclusion of contraceptives in basic health care coverage for women. His recent statements regarding gay marriage have only exacerbated that view among his opponents. Do you think those complaints have any legal standing?
Well, let’s break up the two issues. President Obama had to deal with the religious objections to gay marriage by giving his support in religious language, so that’s not a “war on religion.” Both sides can quote the Bible in support of their own beliefs. You can make a very strong religious argument, as he did, in favor of an inclusive view of society to combat those who use their faith to oppose that view.
In terms of the Catholic Church and other institutions being “forced” to provide contraception, the problem is more complicated. There are two different issues here. First, all institutions, religious or otherwise, must follow generally applicable laws. These are laws which require everyone to do something. For example, there’s a famous case in which the state of Oregon banned the use of peyote, the psychedelic drug. At the time, the drug was used recreationally and also for religious purposes by Native Americans. The Supreme Court said that the law didn’t target religion. It was universal: No one could use the law. Therefore, even though the law had the effect of crippling a religious practice, the law was considered to be constitutional because it was neutral.
However, there was a response to that case that [argued for making] exceptions so that religious groups can follow their faith. This was adopted in all sorts of cases, including conscious objectors to the draft. Since then, the government tries to accommodate minority religions, in part because majority religions are always accommodated. Only minority religions need special accommodations.
In the case of Obama and contraception, though, the administration learned from past mistakes and arranged for private insurance companies to be in charge of the distribution of contraception. Meanwhile, there are ongoing negotiations on how to be sensitive to religious needs.
The second issue has to do with those ongoing negotiations. While they are taking place, the Supreme Court is bound to rule on whether the health care act is unconstitutional. If the court rules against it, the whole issue will go away. Now, what’s incredibly sad is that a religious argument has been put in the midst of a political debate. I think that contraception is a very important and difficult issue because there are the rights of religious institutions and also the right of women to have health care. To drag this into court in the middle of the presidential campaign while the negotiations are under way smells more like politics than religion.
Their complaints aside, the Catholics don’t seem to be the religious group that the government has actually targeted. Since 9/11, Muslims have been singled out by, among others, the NYPD. Are there any similar historical precedents in America?
From what I know of the issue, what happened is similar to what was done with other minority religions in the past. Catholics were viewed as suspect because they were connected with foreign powers, be it the Pope or France. There was a suspicion of the whole group, an assumption that anyone who was Catholic couldn’t be loyal. John Kennedy had to deal with that in the 1960 presidential campaign — this presumption not of divided loyalty but of lack of loyalty to America because of your religion. I think you have the exact situation here. There’s an invidious presumption that if you believe in X religion, then you must be part of an alien culture that’s un-American. The widespread distrust of Muslims, whether in fighting where a mosque is built or regarding the monitoring of Muslim individuals, is part of this view that being a part of a minority religion make you un-American.
© 2012 Salon All rights reserved.
Sunday, June 24, 2012
Wealth is concentrated with the 1 percent because America no longer makes things: Financiers just manipulate money
BY NOAM CHOMSKY
The Occupy movement has been an extremely exciting development. Unprecedented, in fact. There’s never been anything like it that I can think of. If the bonds and associations it has established can be sustained through a long, dark period ahead — because victory won’t come quickly — it could prove a significant moment in American history.
The fact that the Occupy movement is unprecedented is quite appropriate. After all, it’s an unprecedented era and has been so since the 1970s, which marked a major turning point in American history. For centuries, since the country began, it had been a developing society, and not always in very pretty ways. That’s another story, but the general progress was toward wealth, industrialization, development and hope. There was a pretty constant expectation that it was going to go on like this. That was true even in very dark times.
I’m just old enough to remember the Great Depression. After the first few years, by the mid-1930s — although the situation was objectively much harsher than it is today — nevertheless, the spirit was quite different. There was a sense that “we’re gonna get out of it,” even among unemployed people, including a lot of my relatives, a sense that “it will get better.”
There was militant labor union organizing going on, especially from the CIO (Congress of Industrial Organizations). It was getting to the point of sit-down strikes, which are frightening to the business world — you could see it in the business press at the time — because a sit-down strike is just a step before taking over the factory and running it yourself. The idea of worker takeovers is something which is, incidentally, very much on the agenda today, and we should keep it in mind. Also New Deal legislation was beginning to come in as a result of popular pressure. Despite the hard times, there was a sense that, somehow, “we’re gonna get out of it.”
It’s quite different now. For many people in the United States, there’s a pervasive sense of hopelessness, sometimes despair. I think it’s quite new in American history. And it has an objective basis.
On the Working Class
In the 1930s, unemployed working people could anticipate that their jobs would come back. If you’re a worker in manufacturing today — the current level of unemployment there is approximately like the Depression — and current tendencies persist, those jobs aren’t going to come back.
The change took place in the 1970s. There are a lot of reasons for it. One of the underlying factors, discussed mainly by economic historian Robert Brenner, was the falling rate of profit in manufacturing. There were other factors. It led to major changes in the economy — a reversal of several hundred years of progress towards industrialization and development that turned into a process of de-industrialization and de-development. Of course, manufacturing production continued overseas very profitably, but it’s no good for the work force.
Along with that came a significant shift of the economy from productive enterprise — producing things people need or could use — to financial manipulation. The financialization of the economy really took off at that time.
Before the 1970s, banks were banks. They did what banks were supposed to do in a state capitalist economy: they took unused funds from your bank account, for example, and transferred them to some potentially useful purpose like helping a family buy a home or send a kid to college. That changed dramatically in the 1970s. Until then, there had been no financial crises since the Great Depression. The 1950s and 1960s had been a period of enormous growth, the highest in American history, maybe in economic history.
And it was egalitarian. The lowest quintile did about as well as the highest quintile. Lots of people moved into reasonable lifestyles — what’s called the “middle class” here, the “working class” in other countries — but it was real. And the 1960s accelerated it. The activism of those years, after a pretty dismal decade, really civilized the country in lots of ways that are permanent.
When the 1970s came along, there were sudden and sharp changes: De-industrialization, the off-shoring of production, and the shift to financial institutions, which grew enormously. I should say that, in the 1950s and 1960s, there was also the development of what several decades later became the high-tech economy: Computers, the Internet, the IT Revolution developed substantially in the state sector.
The developments that took place during the 1970s set off a vicious cycle. It led to the concentration of wealth increasingly in the hands of the financial sector. This doesn’t benefit the economy — it probably harms it and society — but it did lead to a tremendous concentration of wealth.
On Politics and Money
Concentration of wealth yields concentration of political power. And concentration of political power gives rise to legislation that increases and accelerates the cycle. The legislation, essentially bipartisan, drives new fiscal policies and tax changes, as well as the rules of corporate governance and deregulation. Alongside this began a sharp rise in the costs of elections, which drove the political parties even deeper into the pockets of the corporate sector.
The parties dissolved in many ways. It used to be that if a person in Congress hoped for a position such as a committee chair, he or she got it mainly through seniority and service. Within a couple of years, they started having to put money into the party coffers in order to get ahead, a topic studied mainly by Tom Ferguson. That just drove the whole system even deeper into the pockets of the corporate sector (increasingly the financial sector).
This cycle resulted in a tremendous concentration of wealth, mainly in the top tenth of one percent of the population. Meanwhile, it opened a period of stagnation or even decline for the majority of the population. People got by, but by artificial means such as longer working hours, high rates of borrowing and debt, and reliance on asset inflation like the recent housing bubble. Pretty soon those working hours were much higher in the United States than in other industrial countries like Japan and various places in Europe. So there was a period of stagnation and decline for the majority alongside a period of sharp concentration of wealth. The political system began to dissolve.
There has always been a gap between public policy and public will, but it just grew astronomically. You can see it right now, in fact. Take a look at the big topic in Washington that everyone concentrates on: The deficit. For the public, correctly, the deficit is not regarded as much of an issue. And it isn’t really much of an issue. The issue is joblessness. There’s a deficit commission but no joblessness commission. As far as the deficit is concerned, the public has opinions. Take a look at the polls. The public overwhelmingly supports higher taxes on the wealthy, which have declined sharply in this period of stagnation and decline, and the preservation of limited social benefits.
The outcome of the deficit commission is probably going to be the opposite. The Occupy movements could provide a mass base for trying to avert what amounts to a dagger pointed at the heart of the country.
Plutonomy and the Precariat
For the general population, the 99% in the imagery of the Occupy movement, it’s been pretty harsh — and it could get worse. This could be a period of irreversible decline. For the 1 percent and even less — the .1 percent — it’s just fine. They are richer than ever, more powerful than ever, controlling the political system, disregarding the public. And if it can continue, as far as they’re concerned, sure, why not?
Take, for example, Citigroup. For decades, Citigroup has been one of the most corrupt of the major investment banking corporations, repeatedly bailed out by the taxpayer, starting in the early Reagan years and now once again. I won’t run through the corruption, but it’s pretty astonishing.
In 2005, Citigroup came out with a brochure for investors called “Plutonomy: Buying Luxury, Explaining Global Imbalances.” It urged investors to put money into a “plutonomy index.” The brochure says, “The World is dividing into two blocs — the Plutonomy and the rest.”
Plutonomy refers to the rich, those who buy luxury goods and so on, and that’s where the action is. They claimed that their plutonomy index was way outperforming the stock market. As for the rest, we set them adrift. We don’t really care about them. We don’t really need them. They have to be around to provide a powerful state, which will protect us and bail us out when we get into trouble, but other than that they essentially have no function. These days they’re sometimes called the “precariat” — people who live a precarious existence at the periphery of society. Only it’s not the periphery anymore. It’s becoming a very substantial part of society in the United States and indeed elsewhere. And this is considered a good thing.
So, for example, Fed Chairman Alan Greenspan, at the time when he was still “Saint Alan” — hailed by the economics profession as one of the greatest economists of all time (this was before the crash for which he was substantially responsible) — was testifying to Congress in the Clinton years, and he explained the wonders of the great economy that he was supervising. He said a lot of its success was based substantially on what he called “growing worker insecurity.” If working people are insecure, if they’re part of the precariat, living precarious existences, they’re not going to make demands, they’re not going to try to get better wages, they won’t get improved benefits. We can kick ’em out, if we don’t need ’em. And that’s what’s called a “healthy” economy, technically speaking. And he was highly praised for this, greatly admired.
So the world is now indeed splitting into a plutonomy and a precariat — in the imagery of the Occupy movement, the 1 percent and the 99 percent. Not literal numbers, but the right picture. Now, the plutonomy is where the action is and it could continue like this.
If it does, the historic reversal that began in the 1970s could become irreversible. That’s where we’re heading. And the Occupy movement is the first real, major, popular reaction that could avert this. But it’s going to be necessary to face the fact that it’s a long, hard struggle. You don’t win victories tomorrow. You have to form the structures that will be sustained, that will go on through hard times and can win major victories. And there are a lot of things that can be done.
Toward Worker Takeover
I mentioned before that, in the 1930s, one of the most effective actions was the sit-down strike. And the reason is simple: That’s just a step before the takeover of an industry.
Through the 1970s, as the decline was setting in, there were some important events that took place. In 1977, U.S. Steel decided to close one of its major facilities in Youngstown, Ohio. Instead of just walking away, the workforce and the community decided to get together and buy it from the company, hand it over to the work force, and turn it into a worker-run, worker-managed facility. They didn’t win. But with enough popular support, they could have won. It’s a topic that Gar Alperovitz and Staughton Lynd, the lawyer for the workers and community, have discussed in detail.
It was a partial victory because, even though they lost, it set off other efforts. And now, throughout Ohio, and in other places, there’s a scattering of hundreds, maybe thousands, of sometimes not-so-small worker/community-owned industries that could become worker-managed. And that’s the basis for a real revolution. That’s how it takes place.
In one of the suburbs of Boston, about a year ago, something similar happened. A multinational decided to close down a profitable, functioning facility carrying out some high-tech manufacturing. Evidently, it just wasn’t profitable enough for them. The workforce and the union offered to buy it, take it over, and run it themselves. The multinational decided to close it down instead, probably for reasons of class-consciousness. I don’t think they want things like this to happen. If there had been enough popular support, if there had been something like the Occupy movement that could have gotten involved, they might have succeeded.
And there are other things going on like that. In fact, some of them are major. Not long ago, President Barack Obama took over the auto industry, which was basically owned by the public. And there were a number of things that could have been done. One was what was done: reconstitute it so that it could be handed back to the ownership, or very similar ownership, and continue on its traditional path.
The other possibility was to hand it over to the workforce — which owned it anyway — turn it into a worker-owned, worker-managed major industrial system that’s a big part of the economy, and have it produce things that people need. And there’s a lot that we need.
We all know or should know that the United States is extremely backward globally in high-speed transportation, and it’s very serious. It not only affects people’s lives, but the economy. In that regard, here’s a personal story. I happened to be giving talks in France a couple of months ago and had to take a train from Avignon in southern France to Charles De Gaulle Airport in Paris, the same distance as from Washington, D.C., to Boston. It took two hours. I don’t know if you’ve ever taken the train from Washington to Boston, but it’s operating at about the same speed it was 60 years ago when my wife and I first took it. It’s a scandal.
It could be done here as it’s been done in Europe. They had the capacity to do it, the skilled work force. It would have taken a little popular support, but it could have made a major change in the economy.
Just to make it more surreal, while this option was being avoided, the Obama administration was sending its transportation secretary to Spain to get contracts for developing high-speed rail for the United States, which could have been done right in the Rust Belt, which is being closed down. There are no economic reasons why this can’t happen. These are class reasons, and reflect the lack of popular political mobilization. Things like this continue.
Climate Change and Nuclear Weapons
I’ve kept to domestic issues, but there are two dangerous developments in the international arena, which are a kind of shadow that hangs over everything we’ve discussed. There are, for the first time in human history, real threats to the decent survival of the species.
One has been hanging around since 1945. It’s kind of a miracle that we’ve escaped it. That’s the threat of nuclear war and nuclear weapons. Though it isn’t being much discussed, that threat is, in fact, being escalated by the policies of this administration and its allies. And something has to be done about that or we’re in real trouble.
The other, of course, is environmental catastrophe. Practically every country in the world is taking at least halting steps towards trying to do something about it. The United States is also taking steps, mainly to accelerate the threat. It is the only major country that is not only not doing something constructive to protect the environment, it’s not even climbing on the train. In some ways, it’s pulling it backwards.
And this is connected to a huge propaganda system, proudly and openly declared by the business world, to try to convince people that climate change is just a liberal hoax. “Why pay attention to these scientists?”
We’re really regressing back to the dark ages. It’s not a joke. And if that’s happening in the most powerful, richest country in history, then this catastrophe isn’t going to be averted — and in a generation or two, everything else we’re talking about won’t matter. Something has to be done about it very soon in a dedicated, sustained way.
It’s not going to be easy to proceed. There are going to be barriers, difficulties, hardships, failures. It’s inevitable. But unless the spirit of the last year, here and elsewhere in the country and around the globe, continues to grow and becomes a major force in the social and political world, the chances for a decent future are not very high.
Noam Chomsky is Institute Professor (retired) at MIT. He is the author of many books and articles on international affairs and social-political issues, and a long-time participant in activist movements.
Saturday, June 23, 2012
Friday, June 22, 2012
Thursday, June 21, 2012
The paranoia infecting a broad swath of the American right-wing can be comical at times -- think about Orly Taitz and her fellow Birthers. But we laugh at our own peril, because what Richard Hofstadter famously characterized as "the paranoid style in American politics" poses a serious threat to our future: the right's snowballing conspiracy theories could ultimately lead to disaster.
Consider what's happening in Virginia's Middle Peninsula on the western shore of the Chesapeake Bay, among the areas in the U.S. most vulnerable to climate change. Earlier this month, Darryl Fears, reporting for the Washington Post, offered a glimpse into the madness that city planners have faced in recent months as a local Tea Party group, convinced that a nefarious plot by scientists and city officials is afoot, have disrupted their work trying to mitigate the potential impacts of rising sea levels.
"The uprising," wrote Fears, "began at a February meeting about starting a business park for farming oysters in Mathews County." He continued:The program to help restore the Chesapeake Bay oyster population was slated for land owned by the county, but it was shouted down as a useless federal program that would expand the national debt. The proposal was tabled."Agenda 21" is one of a number of silly but dangerous conspiracy theories sweeping through the fever swamps of the right. Although admittedly sinister-sounding, Agenda 21 is just a blueprint for sustainable development, especially in emerging economies. It outlines how wealthier countries can contribute to smarter growth through technology transfers and public education. It stresses the importance of fighting deforestation and conserving bio-diversity -- all things that normal people would consider wise.
As the opposition grew over the summer, confrontations became so heated that some planners posted uniformed police officers at meetings and others hired consultants to help calm audiences and manage the indoor environment, several planners said.
In James City County, speakers were shouted away from a podium. In Page County, angry farmers forced commissioners to stop a meeting. In Gloucester County, planners sat stone-faced as activists took turns reading portions of the 500-page Agenda 21 text, delaying a meeting for more than an hour.
The important thing to understand about Agenda 21 is that there is absolutely nothing binding or compelling member countries to implement any part of it. It's not a treaty -- it is entirely voluntary and certainly doesn't have any connection to local governments. Yet for the right, with its long John Birch Society undercurrent of paranoia about international institutions, Agenda 21 represents some kind of dark UN conspiracy to impose socialism on the "free world."
That craziness lies at the heart of Michele Bachmann's quixotic war on energy-efficient lightbulbs. Tim Murphy reported, "The Minnesota congresswoman is part of a movement that considers 'sustainability' an existential threat to the United States, one with far-reaching consequences for education, transportation, and family values."
Last year, during the Denver mayoral race, Tea Party candidate Dan Maes argued that a local bike-sharing program, a popular initiative among city residents, was a "very well-disguised" part of a plan by then-Denver mayor (and now Colorado governor) John Hickenlooper for "converting Denver into a United Nations community." Alex Jones constantly hawks the conspiracy. Glenn Beck warned it would lead to "centralized control over all of human life on planet Earth." And in September, Newt Gingrich, hoping to burnish his wingnutty creds, told a group of Orlando Tea Partiers that, if elected, his first order of business would be "to cease all federal funding of any kind of activity that relates to United Nations Agenda 21." (Currently, no federal funding of any kind is used for implementing Agenda 21.)
It's causing uprisings like that seen in Virginia at ordinarily dull city planning board meetings across the country. As Stephanie Mencimer reported for Mother Jones, "Agenda 21 paranoia has swept the Tea Party scene, driving activists around the country to delve into the minutiae of local governance... they're descending on planning meetings and transit debates, wielding PowerPoints about Agenda 21, and generally freaking out low-level bureaucrats with accusations about their roles in a supposed international conspiracy."
Agenda 21 is inextricably linked to the most dangerous conspiracy theory going: that 97 percent of the world's climate scientists are lying when they say human activities are contributing to global climate change. This, too, is supposedly in service of the goal of destroying capitalism, which means one has to believe that climatologists around the world are not only all very political -- enough to conspire to deceive the entire world -- but they also all share the same largely discredited ideology.
Back in Virginia, the Coastal Zone Management program is struggling to "help prepare for the predicted effects of climate change, especially sea-level rise on Virginia's coastal resources." The area is uniquely imperiled; in June, Darryl Fears, a science correspondent, reported that Hampton Roads is especially vulnerable because several rivers run through it on their way to the Chesapeake Bay. He continued:Unfortunately, this crowded, low-lying area also has long-term geological issues to deal with. Thirty-five million years ago, a meteor landed relatively close by and created the Chesapeake Bay Impact Crater. Hampton Roads is also home to a downward-pressing glacial formation created during the Ice Age. Scientists theorize that these ancient occurrences are causing the land to sink -- and together account for about one-third of the sea-level change.Fears notes that "the water has risen so much that Naval Station Norfolk is replacing 14 piers at $60 million each to keep ship-repair facilities high and dry," but "this geology is lost in local meetings, where distrust of the local and federal governments is at center stage."
And their harassment is having the desired effect of "freaking out low-level bureaucrats" trying to prepare the area for the changes to come, preparations that have absolutely nothing to do with the United Nations, Agenda 21 or "socialism." According to Fears, Shereen Hughes, a former planning commissioner, is "worried that some officials are giving ground to fearmongers. The uprising against smart growth 'is ridiculous' and 'a conspiracy theory,' she said. But it's effective."Planners aren't saying this is wrong, Hughes said, because "most are afraid they won't have a job if they're too vocal about this issue." Tea Party members have political allies who "might stand up" against planners who complain, Hughes said.In his excellent book, Collapse, scientist Jared Diamond looked at a number of societies that had seen their physical climates change. He tried to determine what made some cultures die out while others persevered. According to Diamond, it wasn't the severity of the change, or its speed that was the determining factor. One important variable was the foresight of those societies' leaders -- their ability to properly diagnose the problem and adapt, to come up with proactive solutions to the problems they faced.
Diamond, in an interview with the Australian Broadcasting Corporation, said, "one always has to ask about people's cultural response. Why is it that people failed to perceive the problems developing around them, or if they perceived them, why did they fail to solve the problems that would eventually do them in? Why did some peoples perceive and recognize their problems and others not?" Diamond explainedA theme that emerges...is insulation of the decision-making elite from the consequences of their actions. That is to say, in societies where the elites do not suffer from the consequences of their decisions, but can insulate themselves, the elite are more likely to pursue their short-term interests, even though that may be bad for the long-term interests of the society, including the children of the elite themselves.Today, oil and gas corporations are still funding a bunch of crank climate change deniers in order to avoid regulations that might slow their "short-term interests" in extracting as much wealth as they can from traditional hydrocarbons. And here we have Tea Partiers -- a "movement" nurtured by business-friendly Republican operatives and backed by the Koch brothers' dirty energy money -- being whipped into a frenzy by the likes of Glenn Beck and shouting down local planners trying to do something about rising water levels. They're freaking out about energy-efficient lightbulbs and bike-sharing programs, the very sorts of things we need in order to stave off disaster.
So the next time you hear a wingnut spewing feverish nonsense about "climategate" or the "globalist agenda," remember that this is not just fodder for late-night TV monologues, but the kind of stuff that has in the past brought societies faced with changing environments to their ultimate end.
Joshua Holland is an editor and senior writer at AlterNet. He is the author of The 15 Biggest Lies About the Economy: And Everything else the Right Doesn't Want You to Know About Taxes, Jobs and Corporate America. Drop him an email or follow him on Twitter.
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