The Deep State (18 page)

Bernanke's prediction of Armageddon if Congress did not give him and Paulson immediate carte blanche bears comparison with statements by national security officials in the aftermath of the September 11, 2001,
terrorist attacks. In order for policy makers to accomplish their goals, the initial targets in both cases were American public opinion and the legislators who represented them. In the wake of 9/11, the national security state did its best to instill in the public the fear that a stateless group of terrorist criminals represented an existential threat to the United States, and that they were in league with a foreign government whose leader conveniently happened to be the hereditary enemy of the Bush clan.

When fear is great enough, it justifies preemptive measures against anyone claimed to be a threat, even when the evidence of their wrongdoing is thin. Bush's national security adviser, Condoleezza Rice, insisted: “The problem here is that there will always be some uncertainty about how quickly Saddam can acquire nuclear weapons. But we don't want the smoking gun to be a mushroom cloud.” In both cases, rather than letting Congress fully deliberate the issues and examine alternative courses of action, the executive branch presented Congress with blank-check draft legislation and a deadline to pass it. The House and Senate did make a few changes to the draft bills, but the Deep State achieved what it wanted in both cases: the big banks got recapitalized amid a horrible financial crisis without having to fundamentally restructure, just as the military-industrial complex got the war it was hankering for.

Virtually all of the grotesque features of Wall Street that contributed to the 2008 crash—too big to fail, overcompensated executives responsible to nobody, exotic financial instruments designed to implode, impunity from criminal prosecution—remain to this day, sometimes in disguised form.
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Other than increasing capital requirements for banks,
Obama and his economic team have done little with the 2010 Dodd-Frank financial reform bill to remedy the defects of Wall Street's turbocharged financial operations.

Ever since the first ziggurats rose in ancient Babylonia, the so-called forces of order, stability, and tradition have feared a revolt from below. Beginning with Edmund Burke and Joseph de Maistre after the French Revolution, a whole library of political literature, some classical liberal, some conservative, some reactionary, has emphasized this theme. The title of Ortega y Gasset's most famous work,
The Revolt of the Masses,
tells us something about its mental atmosphere, a Freudian fear of defilement by the great unwashed.

But in our globalized postmodern America, what if this whole vision of order, stability, and who threatens those values is inverted? The idea of a revolution from below, still conceivable in 1933, is almost preposterously unthinkable now. What if Christopher Lasch came closer to the truth in his book
The Revolt of the Elites,
in which he said, “In our time, the chief threat seems to come from those at the top of the social hierarchy, not the masses.” Lasch held that the elites, by which he meant not just the superwealthy but also their managerial coat holders and professional apologists, were undermining the country's promise as a constitutional republic with their prehensile greed, their asocial cultural values, and their absence of civic responsibility. Lasch wrote this in 1995. Now, two decades later, the superrich have at last achieved escape velocity from the gravitational pull of the society they control. They have been able to do this in part because laws were bent or reinterpreted in their favor.

The abuse of buying and selling votes crept in and money began to play an important part in determining elections. Later on, this process of corruption spread in the law courts and to the army, and finally, when even the sword became enslaved by the power of gold, the republic was subjected to the rule of emperors.

—Plutarch,
Gaius Marcius (Coriolanus)
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There is something wrong in this country; the judicial nets are so adjusted as to catch the minnows and let the whales slip through.

—Eugene V. Debs, speaking at Terre Haute, Indiana, November 23, 1895

Equal Justice Under Law?

The motto inscribed on the frieze of the United States Supreme Court Building says, “Equal Justice Under Law.” A stickler for semantics would say that the modifiers “equal” and “under law” are redundant, since justice by definition is equal treatment under a system of written and publicly accessible rules. It is a noble sentiment in any case. The United States has undeniably made progress in fulfilling that ideal with respect to racial and gender equality over the course of the past century, but the rise of institutions with the power to seize government at its source and operate it for their own benefit is raising questions as to whether the United States is gradually slipping back into a condition that would have been recognizable in antiquity, when the Greek historian Thucydides remarked, “The strong do what they will, the weak suffer what they must.”

The financial meltdown of September 2008 has provided plenty of raw material for the belief that there is one law for the rich and another for the common clay. Practical as opposed to explicit inequality before the law is common in societies all over the world; it usually boils down to how legal procedures are applied as opposed to the letter of the law. Officials who pledged to uphold the law will always protest that they are neutral and unimpeachable executors of justice, and that it is insulting to suggest otherwise. But sometimes the truth slips out.

On March 6, 2013, testifying before the Senate Judiciary Committee about the state of banks in the aftermath of the financial crisis, Attorney General Eric Holder stated the following: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.” When banks hold a gun to the head of the economy, the relationship between regulator and regulated becomes a hostage relationship, made more complex in this instance by the fact that the hostage taker indirectly has political influence over the regulator by means of campaign contributions.

Holder made this statement shortly after his agency concluded a settlement with HSBC: the bank would pay $1.9 billion in fines and restitution for laundering $850 million in funds used by narcoterrorists. The penalty sounds huge, but it is almost derisory in view of the bank's $21.9 billion in global profits in the year the settlement was reached.
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The key fact is that no senior executive was prosecuted for money laundering, a serious crime. If anyone was going to suffer from the small subtraction from the bank's revenues, it would be shareholders and depositors who had nothing to do with the crime, rather than the managers who committed it. HSBC's executives purchased a get-out-of-jail-free card with their shareholders' money. And so we see another baleful example of what the doctrine of corporate personhood means in practice: blame is shifted to a conveniently nonliving entity while the executives who break the law continue in their jobs unpunished.

Despite Holder's contention that criminal prosecution could have negative consequences for the economy, what would actually happen if a bank's management committed a crime and the government prosecuted them? At its most extreme, Federal regulators could seize the bank and operate it as a conservator in the same way that the FDIC has done in hundreds of instances over many decades. Innocent stakeholders, whether low-level employees, shareholders, or depositors, would be protected. Holder's fearmongering about the risk of endangering the world economy has no basis. He seems not to have considered that
not
prosecuting financial institutions might have the more negative consequence of inviting banks to factor in fines as a cost of doing business as they continued the same reckless (or illegal) practices. He also ignored the corrosive effect that “too big to jail” has on the public's faith in the law.
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It is easy to conclude that it is not the size, complexity, or fragility of the financial system that stays the hand of criminal prosecution, but rather the status of those who committed the wrongdoing
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Apparently, robbing a bank is only a criminal activity depending on which side of the teller's window you stand, and whether you are upper management or a $12-an-hour cashier. Congress appears not to be overly concerned by the impunity of Wall Street executives. Shortly after Holder's astonishing admission, the Senate Banking Committee favorably recommended Mary Jo White, who spent years as a corporate lawyer defending Wall Street interests, to the full Senate for confirmation as chairman of the Securities and Exchange Commission. She was duly confirmed. Republicans, who often obstruct nominees purely out of habit, did not raise a peep.

White, like Holder, is not a fan of prosecuting the executives of big banks, as her confirmation testimony made clear. Since her confirmation, she has relentlessly fought against provisions in the Dodd-Frank financial reform legislation that would permit the Federal Reserve to subject asset management funds (for instance, mutual funds) to more stringent standards, such as higher capital requirements, standards that banks must adhere to. This would be prudent policy, as asset management firms collectively hold $53 trillion in funds, and if the 2008 meltdown taught us anything, it is that no segment of the financial services industry is immune from a panic-induced run. But White not only does not see a problem, she publicly lobbied against the measure at a forum sponsored by the financial services industry.
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Justice for the Rest of Us

Perhaps the big shots really are above the law. This does not mean, however, that the mighty wheel of justice does not turn in this country. Somebody must be getting prosecuted, given that the United States has more people in prison than any other country, including China, which has four times our population. Our incarceration rate is no accident: we have embraced a vast number of harsh punishments for essentially victimless crimes like drug possession, and “three strikes” provisions in many states virtually guarantee the highest rate of imprisonment since the days of Stalin's gulags. Thousands of juveniles—legally, they are children—are locked up every year for minor nonviolent “status offenses” such as school truancy or curfew violation.
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As ever in world history, increasingly unequal justice has been accompanied by an increasing militarization of the legal system. According to
The Economist,
SWAT teams were used about 3,000 times in 1980 but are now used around 50,000 times a year: “Baltimore and Dallas have used them to break up poker games. In 2010, New Haven, Connecticut, sent a SWAT team to a bar suspected of serving underage drinkers.”
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Now that the military's withdrawals from Iraq and Afghanistan have left the
Department of Defense with excess equipment, much of it is going to domestic police forces. Local constabularies across the country have obtained more than four hundred of the army's surplus MRAP (Mine Resistant Ambush Protected) vehicles, a fourteen-ton behemoth that is ludicrously impractical for typical police work and hideously expensive to operate, but whose appearance intimidates “civilians,” as police officers are now wont to call their fellow citizens.
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Police in thirty-eight states have obtained military surplus firearm silencers, which have no tactical use except for conducting covert assassinations.
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It makes you wonder just what the cops have in mind for us. It is not surprising that 2015 saw an outbreak of urban protest against harsh, militarized policing. Meanwhile, America waits in vain for the criminal prosecution (let alone SWAT-style bust) of the perpetrators of liar loans, investments deliberately designed to fail, and other swindles.

State legislatures have kept pace with Congress in creating unequal justice. One might think that the exposure of unsanitary conditions and animal cruelty in the corporate farming and food-processing industries would provoke lawmakers to punish the perpetrators and tighten laws protecting the safety of our food supply. But no, in several states they have instead directed their fury against the citizen-activists who exposed the wrongdoing by levying heavy penalties against the surreptitious photographing of inhumane outrages.
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Republican legislators in North Carolina introduced a bill to make it a felony to disclose the chemicals (some of which are toxic to humans and animals) employed in fracking for natural gas. The bill also authorized drilling companies to oblige emergency responders cleaning up chemical spills to sign a confidentiality agreement
promising not to disclose the names of the chemicals in their proprietary stew to the public—or their toxicity. So it is that even duly authorized state authorities may soon be unable to carry out their public health and safety duties if it inconveniences corporations.
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This bifurcation of law, with a few flamboyant transgressors virtually immune while the many are subject to the full force of the law, has been accompanied by some of the severest criminal sentencing guidelines in the developed world. With draconian prison terms looming over defendants, it is no wonder that most criminal processes end in plea bargains rather than jury trials: even an accused person believing himself innocent may plead guilty to lesser charges (charges that will still land him in prison, albeit for a shorter term) rather than face bankrupting legal fees or risk the possibility that an incompetent appointed counsel will secure him a sentence lasting decades. Human Rights Watch believes that the American justice system has practically abolished the constitutional right to trial for poorer defendants charged with certain crimes.
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Even the constitutional right to counsel (competent or not) is not always provided, as Holder admitted in a speech he gave in 2013.
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The big banks, with their extensive in-house legal departments and reserves of cash, have no such concerns. Their attorneys are skillful enough, and have sufficient resources, to file change-of-venue motions so as to escape the wrath of unfriendly judges or demagogic district attorneys itching for higher office and lusting for juries to inflame.

As a practical matter, ordinary citizens have no such recourse. The expense of purchasing adequate representation is only part of the problem. Local police departments have been aggressively applying civil asset forfeiture laws in order to deprive citizens of their property without any legal proceeding or presentation of evidence whatsoever. According to a
Washington Post
investigative series, police have seized $2.5 billion from citizens in tens of thousands of such actions since 2001. Many of these are no better than armed shakedowns of innocent motorists amounting to third-world–style police banditry, with corrupt law enforcement agencies pocketing the loot just as they would in Mexico or Guatemala.
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Some officials concede that it is inadvisable to lock up more and more people, perhaps less out of ethical concern than worry about the financial drain from incarcerating so many live bodies that have to be fed (mass incarceration is even a minor political theme these days, with officials as diverse as Barack Obama and Rand Paul having broached the subject). Traditionally a function of the state, prisons represent a large input of taxpayer dollars whose only output, other than license plates, is a social sense of safety and security, an intangible value. But corporate America has come up with an answer to that as well: the private prison industry. The growing private prison lobby can offer a much more tangible benefit to politicians than the promise of security: campaign donations. We can be sure that lobbyists and consultants will invent more and more ingenious felony statutes for state legislatures to pass into law so as to keep their prisons full and profits flowing, as we have already seen happen in Arizona, where lobbyists induced lawmakers to take up a bill to vastly expand the grounds for incarcerating undocumented persons.
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Justice for the Unpersons

Thus far we have dealt with the law: hatched with malign intent, corruptly enforced, and unequally applied, perhaps, but a law that can be found in the United States Code or the state statutes. But justice for foreigners and those American citizens who have been declared outlaws enters the realm of the Wild West, where there is neither law nor redress. International treaties such as the Geneva Convention or treaties against torture are assumed to be null and void for the purposes of U.S. government conduct.

Should a group like Amnesty International wish to argue on behalf of an injured party before a United States court and to take up a case involving unjust incarceration and torture, the plaintiff will be deemed to lack standing to sue because he is not the injured party. Should the injured party himself seek redress, he will be told that he lacks standing because of his status as an “illegal enemy combatant.” Should all else fail and the court wish to avail itself of some other excuse not to hear the case, it can
always turn to the state secrets privilege, a made-up doctrine derived from a case in which the executive branch committed perjury.

Let me explain. The Supreme Court first formulated the state secrets privilege in its 1953 ruling for
United States v. Reynolds
. When three civilian engineers died in an Air Force B-29 crash, their widows sought the accident reports and claimed damages for wrongful death. The government refused to hand them over, claiming that the mission was national security–related and that to do so would reveal secrets that could harm national security. The Supreme Court, which took the government at its word, dismissed the plaintiffs' claim. The justices explained their rationale with Catch-22 logic: “The court itself must determine whether the circumstances are appropriate for the claim of privilege, and yet do so without forcing a disclosure of the very thing the privilege is designed to protect.”
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