Friday, 16 December 2016

The Divide

Speaking of hope and despair, I've just finished reading a horrible and wonderful book by Matt Taibbi called The Divide: American Justice in the Age of the Wealth Gap.

Taibbi is an American journalist who has written for publications such as the New York Times, Rolling Stone and many more.  He is no stranger to controversy and even seems to court it, once writing an article called "The 52 Funniest Things About the Upcoming Death of the Pope", which led to the sacking of the editor who approved it for publication.

The Divide was published in 2014 after years of research, and it shows he is far from being a cheap publicity-seeker.  It is a penetrating analysis of the way the 21st century American justice system works.

The book opens with a scene in a New York courtroom in 2013.  A group of bank executives and employees is paraded in chains, charged with fraud.  Their crime?  They signed up mortgages based on minimal and often false documentation, then on-sold these loans to the secondary mortgage market.

There was a lot of this going around in the 1990s and early 2000s.  It led to the Global Financial Crisis in 2007-08 as the weight of worthless US mortgages threatened the entire global banking system.  Lehmann Bothers went bankrupt and a number of other big banks had to be bailed out.  So which bank was getting it in the neck?  It was an outfit called the Abacus Federal Savings Bank.  Never heard of them?  It's not surprising - they were a small, family-owned financial institution operating out of New York's Chinatown, mainly serving that city's Chinese community.  Nor did their sloppy loan practices contribute even slightly to the GFC - the default rate on their loans was well below that of your average well-performing home lender.  Yet this two-bit community bank was the only financial institution to have its executives prosecuted, or to be prosecuted as a company, in the years after the financial industry went into meltdown.

It's not that there was a shortage of other candidates.  In this same period, the global mega-bank HSBC was revealed to have laundered hundreds of millions of dollars for criminal organisations including a brutal Colombian drug cartel and Al Qaeda.  They accepted deposits from these organisations and their proxies with no questions asked, turning them from proceeds of crime into legitimate investments.  Many of their executives were fully aware of what they were doing.  They were able to negotiate a non-prosecution agreement with the US financial regulators in return for agreeing to pay a large fine - not out of the pockets of the executives, note, but from the incredibly wealthy company as a whole.

Then there was Lehmann Brothers, the American mega-bank who took on literally billions of dollars worth of dodgy mortgages, selling them on as A-grade securities.  As the GFC hit they held unimaginable sums of worthless assets but kept up the front that there was no problem.  Then, as the whole thing finally unravelled, their senior executive team accepted huge personal financial incentives to do a late night merger deal with Barclays Bank based on hiding their loss-making assets in a "letter of clarification" filed with the bankruptcy court after the deal was approved.  In the process, creditors and shareholders were cheated out of billions through a misleading set of accounts.  Once again, no-one in either Lehmanns or Barclays was prosecuted.

This is all depressing but we've heard it all before.  Big banks get away with murder.  The excuse is something US corporate regulators call "Collateral Consequences" - if we prosecute this company, innocent people (staff, investors, customers, other banks) will suffer.  Plus, if we can get a negotiated solution which pays substantial fines and penalties, we save drawn out and hugely expensive prosecutions that may result in a "not guilty" verdict in any case.  These cases are hideously complex and involve examining literally millions of documents.

It all sounds plausible until you hear the other side of Taibbi's story.

On this side of the ledger a young homeless man with an intellectual disability is pulled over by the police as he is walking down a New York street doing nothing in particular.  He is made to turn out his pockets and discloses a half-smoked joint.  Private use of small quantities of marijuana is legal in New York, but he has now displayed his in public and is arrested.  The result is a few months in New York's notorious Robben Island prison.

Elsewhere in the city, two black men are pulled out of their car because police suspect it is stolen.  After all, how could black men own such an expensive car?  They are bundled into a paddy wagon full of other people similarly arrested, and taken to the watchhouse.  Turns out the car is not stolen and they are eventually released.  Another black man has a series of similarly mindless arrests including one for smoking inside a shop (he was smoking outside and his two year old son ran in, so he followed him without dousing the cigarette) and another for "obstructing pedestrian traffic" while talking with his neighbour on the footpath outside his home after the end of his bus-driving shift at 1 a.m.  And so it goes on.

All this is happening because in the past two decades US policing has progressively adopted a performance appraisal system based on the number of people arrested.  This is allied with a philosophy and a set of laws which allow them to stop and search anyone on the street without reason, backed by a number of wide-ranging categories of misdemeanour like "creating a public disturbance" which can be interpreted so broadly that anyone at all can be arrested and charged.  This "anyone" is completely theoretical - middle class white people are not arrested under these laws.  They are applied almost exclusively in poor neighbourhoods, and a huge majority of those arrested are black or hispanic.  These disadvantaged people are processed through a sausage machine of lower courts in front of bored judges, represented by duty lawyers who act more like prosecutors than defence lawyers.

The same approach is taken to "illegal immigrants" (like in Australia, the term is debatable), arrested for random or imaginary traffic offences and then detained and eventually deported (usually without trial) to Mexico where they are liable to be kidnapped by criminal gangs.  Even though much of American industry relies on these technically "illegal" immigrants and employers have at times pleaded with authorities to stop harassing their workforce, it is politically expedient to frustrate them at every turn.

And again, since the Clinton administration's welfare reforms anyone who applies for food stamps or income support will wait an entire day in an overcrowded welfare office (which they can't leave, even to go to the toilet, in case they lose their place in the queue) and then be subjected to humiliating and random home invasions by "welfare" investigators who go through their underwear drawers in search of evidence of deception such as a possible hidden male presence in the life of a single mother. Often they will find that not only is their payment cut off on the flimsiest evidence (or perhaps simply because they weren't home when the inspector called without notice), but they can be charged with fraud for falsely claiming assistance and risk jail.  All for a measly few hundred dollars.

All this plays well with the voters of middle America, who have been persuaded (despite the actual evidence) that they are facing a law and order crisis and that their community is being unsustainably burdened by people bludging off welfare and immigrants "taking American jobs".  Yet this system itself is a huge drain on the public purse, with increasing billions spent on this petty enforcement and imprisonment regime.  Meanwhile, corporate regulators struggle on with a tiny fraction of this budget, toothless in the face of sophisticated corporate criminals.

Taibbi is a brilliant journalist.  He tells compelling stories of real people. leavened with just enough data to contextualise them.  The stories are sometimes harrowing, always frustrating, sometimes funny in a macabre, shambolic way.  As you read them you feel a visceral sense of how trapped they are, how precarious their lives are and how constant is the surveillance under which they live.  On the other side of the divide, his detailed accounts of a number of flagrant, large scale crimes in the financial world, unpunished even when they are made public, give you a vivid sense of how the super-rich can break the law with impunity.

My first reaction to this was that America is crazy.  I felt glad to be Australian.  Our banks are better regulated than America's and we only suffered from the GFC because of what happened elsewhere.  Our criminal justice system, though far from perfect, still has a basic underlay of fairness and due process.

Then I thought, perhaps I only feel like this because I am white and middle class.  Aboriginal people make up only about 3% of Australia's population but 27% of its prison population - up from 14% 25 years ago.  Aboriginal people are 13 times more likely to be imprisoned than other Australians.  Between 2000 and 2010 the Indigenous imprisonment rate increased by 51.5% while the non-Indigenous rate increased by 3.1%.

Are the first Australians intrinsically more evil than other Australians?  By no means, but they are under far greater surveillance.  They are more likely to be homeless or live in overcrowded housing, so they spend much more time in public view.  Australian states are increasingly adopting policing ideas drawn from America - paperless arrests, move on powers, "three strikes" policies and heavy handed approaches to minor offences like public drunkenness that give police a license to harass poor and homeless people.  Our prisons too are bulging with minor offenders who in years past who would have been doing fines or community service.  If you are Aboriginal, or homeless, you are likely to feel much like Taibbi's poor informants, under constant surveillance and trapped by the system.

The same goes for undocumented asylum seekers or other migrants with visa problems.  Our increasingly militarised Australian Border Force can and will detain people without notice on the most trivial pretexts, keeping them locked up indefinitely while they pressure them into agreeing to return to countries where their lives are at risk.

As for our welfare system, it has become steadily more punitive over the past two decades.  The political rhetoric about cracking down on welfare fraud and "dole bludgers"; the steady increase in the number of jobs people are required to apply for each fortnight, no matter whether the applications are realistic or not; the pressure on sole parents and people with disabilities to return to work; the move away from cash benefits to cashless "welfare cards" (starting of course in Aboriginal communities)...need I go on?

All of this plays well politically with middle class white voters who are encouraged to see all these people as dysfunctional drains on society.  Meanwhile the real drains on society go untouched.  Each of our major banks has now been embroiled in its own scandal about dodgy financial advice which costs customers substantial sums of money.  None has yet been charged and most of those who provided the advice are still in their jobs.  Meanwhile, multinational companies get away with paying zero Australian tax while making huge profits in offshore tax havens, and mining companies are offered a rails run and public finance to pour more carbon into the overloaded atmosphere.  Yet governments say our corporate regulators are up to the task and everything is working as it should.

It's great to be a middle class Australian.  We enjoy freedoms and privileges undreamed of by billions around the world.  We are well housed, healthy (barring our self-inflicted obesity), financially comfortable and with powerful technology at our fingertips.  Yet we don't have to travel to the other side of the world to see how the other half live.  Often, we just have to walk down the road.  At most, a ten or fifteen minute drive will do it.  We simply have to step across the invisible divide that separates the rich from the poor and we enter another world.

Do we like it?  Are we happy to be helping create it?  I'm not, and I know plenty of others who feel the same.  It's up to us to keep working.  We can still be better than we are now.

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