Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs
By Richard Teitelbaum | Bloomberg | February 23, 2010
When a congressional panel convened a hearing on the government rescue of American International Group Inc. in January, the public scolding of Treasury Secretary Timothy F. Geithner got the most attention.
Lawmakers said the former head of the New York Federal Reserve Bank had presided over a backdoor bailout of Wall Street firms and a coverup. Geithner countered that he had acted properly to avert the collapse of the financial system.
A potentially more important development slipped by with less notice, Bloomberg Markets reports in its April issue. Representative Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.
These were the deals that pushed the insurer to the brink of insolvency — and were eventually paid in full at taxpayer expense. The New York Fed, which secretly engineered the bailout, prevented the full publication of the document for more than a year, even when AIG wanted it released.
That lack of disclosure shows how the government has obstructed a proper accounting of what went wrong in the financial crisis, author and former investment banker William Cohan says. “This secrecy is one more example of how the whole bailout has been done in such a slithering manner,” says Cohan, who wrote “House of Cards” (Doubleday, 2009), about the unraveling of Bear Stearns Cos. “There’s been no accountability.”
CDOs Identified
The document Issa made public cuts to the heart of the controversy over the September 2008 AIG rescue by identifying specific securities, known as collateralized-debt obligations, that had been insured with the company. The banks holding the credit-default swaps, a type of derivative, collected collateral as the insurer was downgraded and the CDOs tumbled in value.
The public can now see for the first time how poorly the securities performed, with losses exceeding 75 percent of their notional value in some cases. Compounding this, the document and Bloomberg data demonstrate that the banks that bought the swaps from AIG are mostly the same firms that underwrote the CDOs in the first place.
The banks should have to explain how they managed to buy protection from AIG primarily on securities that fell so sharply in value, says Daniel Calacci, a former swaps trader and marketer who’s now a structured-finance consultant in Warren, New Jersey. In some cases, banks also owned mortgage lenders, and they should be challenged to explain whether they gained any insider knowledge about the quality of the loans bundled into the CDOs, he says.
‘Too Uncanny’
“It’s almost too uncanny,” Calacci says. “If these banks had insight into the underlying loans because they had relationships with banks, originators or servicers, that’s at the least unethical.”
The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured — more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.
These tallies suggest a possible reason why the New York Fed kept so much under wraps, Professor James Cox of Duke University School of Law says: “They may have been trying to shield Goldman — for Goldman’s sake or out of macro concerns that another investment bank would be at risk.”
Poor Performers
Goldman Sachs spokesman Michael DuVally declined to comment.
Schedule A also makes possible a more complete examination of why AIG collapsed. Joseph Cassano, the former president of the AIG Financial Products unit that sold the swaps, said on a December 2007 conference call that his firm pulled back from selling swaps on U.S. subprime residential CDOs in late 2005. The list shows that the $21.2 billion in CDOs minted after 2005, mostly based on prime and commercial mortgages, performed as badly as or worse than the earlier subprime vintages.
A lawyer for Cassano declined to comment.
As details of the coverup emerge, so does anger at the perceived conflicts. Philip Angelides, chairman of the Financial Crisis Inquiry Commission, at a hearing held by his panel on Jan. 13, questioned how banks could underwrite poisonous securities and then bet against them. “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars,” he said.
‘Part of the Coverup’
Janet Tavakoli, founder of Tavakoli Structured Finance Inc., a Chicago-based consulting firm, says the New York Fed’s secrecy has helped hide who’s responsible for the worst of the disaster. “The suppression of the details in the list of counterparties was part of the coverup,” she says.
E-mails between Fed and AIG officials that Issa released in January show that the efforts to keep Schedule A under wraps came from the New York Fed. Revelation of the messages contributed to the heated atmosphere at the House hearing.
“What date did you know there was a coverup?” Republican Congressman Brian Bilbray of California demanded of Geithner. Lawmakers used the word coverup more than a dozen times as they peppered Geithner with questions.
Geithner said that he wasn’t involved in matters of disclosure and that his former colleagues did the best they could. In a Jan. 19 statement, the New York Fed said, “AIG at all times remained responsible for complying with its disclosure requirements under the securities laws.”
The government has committed more than $182 billion to AIG and owns almost 80 percent of the company.
Document Withheld
In late November 2008, the insurer was planning to include Schedule A in a regulatory filing — until a lawyer for the Fed said it wasn’t necessary, according to the e-mails. The document was an attachment to the agreement between AIG and Maiden Lane III, the fund that the Fed established in November 2008 to hold the CDOs after the swap contracts were settled.
AIG paid its counterparties — the banks — the full value of the contracts, after accounting for any collateral that had been posted, and took the devalued CDOs in exchange. As requested by the New York Fed, AIG kept the bank names out of the Dec. 24 filing and edited out a sentence that said they got full payment.
The New York Fed’s January 2010 statement said the sentence was deleted because AIG technically paid slightly less than 100 cents on the dollar.
Paid in Full
Before the New York Fed ordered AIG to pay the banks in full, the company was trying to negotiate to pay off the credit- default swaps at a discount or “haircut.”
By March 2009, responding to a request from Christopher Dodd, chairman of the Senate Committee on Banking, Housing and Urban Affairs, AIG released the names of the counterparty banks. In a filing later that month, AIG included Schedule A, showing bank names while withholding all identification of the underlying CDOs and the amounts of collateral each bank had collected. The document had more than 800 redactions.
In May 2009, AIG again filed Schedule A, this time with about 400 redactions. It revealed that Paris-based Societe Generale got the biggest payout from AIG, or $16.5 billion, followed by Goldman Sachs, which got $14 billion, and then Deutsche Bank and Merrill Lynch. It still kept secret the CDOs’ identification and information that would show performance.
‘Right to Know’
“This is something that belongs in the public domain because it was done with public money,” Issa says. “The public has the right to know what was done with their money and who benefited from it.” Now, thanks to Issa, the list is out, and specific information about AIG’s unraveling can be learned from it.
At the Jan. 27 hearing, the New York Fed was still arguing that the contents of Schedule A shouldn’t be fully disclosed. Thomas Baxter, the New York Fed’s general counsel, testified that divulging the names of the CDOs could erode their value: “We will be hurt because traders in the market will know what we’re holding.”
Tavakoli calls that wrong. With many CDOs, providing more information to the market will give the manager a greater chance of fetching a realistic price, she says.
Jack Gutt, a spokesman for the New York Fed, declined to comment, as did AIG’s Mark Herr.
Bad to Worse
Tavakoli also says that the poor performance of the underlying securities (which are actually specific slices or tranches of CDOs) shows they were toxic in the first place and were probably replenished with bundles of mortgages that were particularly troubled. Managers who oversee CDOs after they are created have discretion in choosing the mortgage bonds used to replenish them.
“The original CDO deals were bad enough,” Tavakoli says. “For some that allow reinvesting or substitution, any reasonable professional would ask why these assets were being traded into the portfolio. The Schedule A shows that we should be investigating these deals.”
Among the CDOs on Schedule A with notional values of more than $1 billion, the worst performer was a tranche identified as Davis Square Funding Ltd.’s DVSQ 2006-6A CP. It was held by Societe Generale, underwritten by Goldman Sachs and managed by TCW Group Inc., a Los Angeles-based unit of SocGen, according to Bloomberg data. It lost 77.7 percent of its value — though it isn’t in default and continues to pay.
SocGen spokesman James Galvin and TCW spokeswoman Erin Freeman declined to comment.
Documentation Needed
Ed Grebeck, CEO of Tempus Advisors, a global debt market strategy firm in Stamford, Connecticut, agrees that more digging is necessary. “You need all the documentation and more than that, all the e-mails,” he says. “That would allow us to understand what went wrong and how to fix it going forward.”
Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, who delivered a report on the AIG bailout in November, says he’s not finished. He has begun a probe of why his office wasn’t provided all of the 250,000 pages of documents, including e-mails and phone logs, that Issa’s committee received from the New York Fed.
Schedule A provides some answers — and raises questions that need to be tackled to avoid the next expensive bailout.
To contact the reporter on this story: Richard Teitelbaum in New York at rteitelbaum1@bloomberg.net
The Savvy Mr. Blankfein
By Dean Baker | Center for Economic and Policy Research | February 15, 2010
Last week, when President Obama was asked about the $9 million dollar bonus for Goldman Sachs CEO Lloyd Blankfein, he described Mr. Blankfein as a savvy businessman, adding that Americans don’t begrudge people being rewarded for success. While Obama later qualified his comment about Mr. Blankfein and his fellow bank executives, it’s worth examining more closely some of the ways in which Blankfein and the Goldman gang were “savvy.”
Perhaps the Goldman gang’s best claim to savvy was in buying up hundreds of billions of dollars of mortgages and packaging them into mortgage-backed securities, and more complex derivative instruments, and selling them all over the world. Mr. Blankfein and Goldman earned tens of billions of dollars on these deals.
The great trick was that many of the loans put into these securities were issued fraudulently, with the banks filling in phony information so that borrowers could get loans that they would not be able to repay. But this was not Goldman’s concern. They made money on the packaging and the selling of the securities. Goldman did not care that the loans in their bundles might not be kosher.
In fact, Goldman actually recognized that many of these loans would go bad. So they went to the insurance giant AIG and got them to issue credit default swaps against many of the securities it had created. In effect they were betting that their own securities were garbage. Now that is savvy. (It says something else about the highly paid executives at AIG.)
Goldman doesn’t just confine its savvy to the U.S. economy; it shares it with the rest of the world as well. According to the New York Times, it worked closely with the Greek government over the last decade to help it conceal its budget deficit. The trick was to construct complex financial arrangements that appeared on the books as “swaps,” even though they were in fact loans. Greece was adding billions of dollars to its debt, and thanks to the ingenuity of the Goldman crew, no one knew about it until now.
But Goldman’s greatest triumph was to get the government to come to its rescue when the financial sector was melting down in the fall of 2008 as the housing bubble that they had helped to fuel began to collapse. Treasury Secretary and former Goldman CEO Henry Paulson rushed to Congress and demanded $700 billion for the banks, no questions asked. He dragged along Federal Reserve Board Chairman Ben Bernanke for support, along with Tim Geithner, then the important head of the New York Federal Reserve Bank and now President Obama’s Treasury Secretary.
Using exaggerations and half-truths, this triumvirate convinced Congress that we would have a second Great Depression if it didn’t cough up the money immediately with no conditions. At that point Goldman, Morgan Stanley, Citigroup and most of the other major banks were staring at bankruptcy. While this cascade of bank failures would have been bad news for the economy, there was no plausible scenario in which it would have led to a second Great Depression.
There was also no reason that Congress could not have put conditions on its money. For example, Congress could have dictated that as a condition of getting the money that bankers would get the same sort of paychecks as other workers, that they would get out of highly speculative activity, that the largest banks would be downsized and that the principle would be written down on bad mortgages. At that point, Congress could have told the bank honchos that they had to run around Wall Street naked with their underpants on their head. The bankers had no choice; their banks would crash and burn without government support.
But the savvy Mr. Blankfein and the other bankers got the money no questions asked. In fact, Goldman even got the government to pick up the bankrupt AIG’s debts. Thanks to the government’s intervention, Goldman got paid every penny on its bets with AIG. This came to $13 billion, enough money to pay for 4 million kid-years of health care under the State Children’s Health Insurance Program.
No one should doubt that Mr. Blankfein is a very savvy banker. Without his ingenuity Goldman Sachs would likely be out of business, its component divisions being auctioned off to the highest bidder. Instead it is making record profits and paying out record bonuses.
But unlike the successful ballplayers to whom President Obama compared Mr. Blankfein, Goldman’s success is inherently parasitic. It comes at the expense of taxpayers and the productive economy. Goldman and the other Wall Street banks are successful in the same way as the savvy Bernie Madoff was successful. It seems that President Obama must still decide whether he stands with the Wall Street banks or whether he stands with the workers and businesses who actually produce wealth.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of False Profits: Recovering from the Bubble Economy. He also has a blog on the American Prospect, “Beat the Press,” where he discusses the media’s coverage of economic issues.
Goldman Goes Rogue – Special European Audit To Follow
The Baseline Scenario | February 14, 2010
At 9:30pm on Sunday, September 21, 2008, Goldman Sachs was saved from imminent collapse by the announcement that the Federal Reserve would allow it to become a bank holding company – implying unfettered access to borrowing from the Fed and other forms of implicit government support, all of which subsequently proved most beneficial. Officials allowed Goldman to make such an unprecedented conversion in the name of global financial stability. (The blow-by-blow account is in Andrew Ross Sorkin’s Too Big To Fail; this is confirmed in all substantial detail by Hank Paulson’s memoir.)
We now learn – from Der Spiegel last week and today’s NYT – that Goldman Sachs has not only helped or encouraged some European governments to hide a large part of their debts, but it also endeavored to do so for Greece as recently as last November. These actions are fundamentally destabilizing to the global financial system, as they undermine: the eurozone area; all attempts to bring greater transparency to government accounting; and the most basic principles that underlie well-functioning markets. When the data are all lies, the outcomes are all bad – see the subprime mortgage crisis for further detail.
A single rogue trader can bring down a bank – remember the case of Barings. But a single rogue bank can bring down the world’s financial system.
Goldman will dismiss this as “business as usual” and, to be sure, a few phone calls around Washington will help ensure that Goldman’s primary supervisor – now the Fed – looks the other way.
But the affair is now out of Ben Bernanke’s hands, and quite far from people who are easily swayed by the White House. It goes immediately to the European Commission, which has jurisdiction over eurozone budget issues. Faced with enormous pressure from those eurozone countries now on the hook for saving Greece, the Commission will surely launch a special audit of Goldman and all its European clients.
This audit should focus on ten sets of questions.
- Which eurozone governments have worked with Goldman, and on what basis, over the past decade? All actions prior to and after the introduction of the euro need to be thoroughly reexamined.
- What transactions has Goldman facilitated and how has that affected the reporting of European government debt? (Under the Maastricht Treaty, eurozone government debt is not supposed to exceed 60 percent of GDP.)
- In the case of Greece, the accusation is that Goldman deliberately and in a premeditated manner conspired to hide the true degree of government debt. Is this true, and to what extent has Goldman helped other countries engage in similar transactions, e.g., countries now seeking entry to the eurozone?
- What is the full extent of Greek and other government liabilities, if these are accounted for properly? Without this reckoning, it is impossible to design a proper level of European Union (or any other) support for weaker eurozone countries.
- Are there non-eurozone countries that have also been aided and abetted by Goldman in this fashion? For example, are the UK and Switzerland implicated – and thus endangered?
- Has Goldman extolled the virtues of government debt in Greece, or other countries, while at the same time helping to deceive investors on the true risks inherent in those debts? What were Goldman’s own holdings of these securities?
- Is there evidence that Goldman has structured similar transactions for the private sector – enabling companies to conceal the level of their true indebtedness? Have securities issued by such firms also been endorsed by Goldman to the buying public?
- Were Goldman’s US-based supervisors aware of Goldman’s activities in Greece and other eurozone countries? Did they condone activities that undermine the integrity of the European Union?
- Where was the European Central Bank while all of this was happening? Has the ECB become dangerously enraptured with the new Wall Street and its “techniques”?
- Did any responsible official really think that what Goldman was constructing was really some sort of productivity-enhancing financial innovation – as opposed to a sophisticated form of scam?
The Federal Reserve must cooperate fully with this investigation. Ordinarily, the Fed might be tempted to sit on useful information, but they can now feel themselves in Senator Bob Corker’s crosshairs. Republican Senator Corker is willing to cooperate with Senator Dodd on financial sector reform, opening up the possibility of legislation that will pass the Senate, but he wants the Fed to lose its supervisory powers. If the Fed refuses to help – willingly and fully – the European Commission with bringing Goldman to account, that will just strengthen the hand of Senator Corker and his allies.
If the Federal Reserve were an effective supervisor, it would have the political will sufficient to determine that Goldman Sachs has not been acting in accordance with its banking license. But any meaningful action from this direction seems unlikely.
Instead, Goldman will probably be blacklisted from working with eurozone governments for the foreseeable future; as was the case with Salomon Brothers 20 years ago, Goldman may be on its way to be banned from some government securities markets altogether. If it is to be allowed back into this arena, it will have to address the inherent conflicts of interest between advising a government on how to put (deceptive levels of) lipstick on a pig and cajoling investors into buying livestock at inflated prices.
And the US government, at the highest levels, has to ask a fundamental question: For how long does it wish to be intimately associated with Goldman Sachs and this kind of destabilizing action? What is the priority here – a sustainable recovery and a viable financial system, or one particular set of investment bankers?
To preserve Goldman, on incredibly generous terms, in the name of saving the financial system was and is hard to defend – but that is where we are. To allow the current government-backed (massive) Goldman to behave recklessly and with complete disregard to the basic tenets of international financial stability is utterly indefensible.
The credibility of the Federal Reserve, already at an all-time low, has just suffered another crippling blow; the ECB is also now in the line of fire. Goldman Sachs has a lot to answer for.
By Simon Johnson
Car seizures at DUI checkpoints prove profitable for cities, raise legal questions
February 13, 2010 | California Watch | Ryan Gabrielson
Sobriety checkpoints in California are increasingly turning into profitable operations for local police departments that are far more likely to seize cars from unlicensed motorists than catch drunken drivers.
An investigation by the Investigative Reporting Program at UC Berkeley with California Watch has found that impounds at checkpoints in 2009 generated an estimated $40 million in towing fees and police fines – revenue that cities divide with towing firms.
Additionally, police officers received about $30 million in overtime pay for the DUI crackdowns, funded by the California Office of Traffic Safety.
In dozens of interviews over the past three months, law enforcement officials and tow truck operators say that vehicles are predominantly taken from minority motorists – often illegal immigrants.
In the course of its examination, the Investigative Reporting Program reviewed hundreds of pages of city financial records and police reports, and analyzed data documenting the results from every checkpoint that received state funding during the past two years. Among the findings:
Sobriety checkpoints frequently screen traffic within, or near, Hispanic neighborhoods. Cities where Hispanics represent a majority of the population are seizing cars at three times the rate of cities with small minority populations. In South Gate, a Los Angeles County city where Hispanics make up 92 percent of the population, police confiscated an average of 86 vehicles per operation last fiscal year.
The seizures appear to defy a 2005 federal appellate court ruling that determined police cannot impound cars solely because the driver is unlicensed. In fact, police across the state have ratcheted up vehicle seizures. Last year, officers impounded more than 24,000 cars and trucks at checkpoints. That total is roughly seven times higher than the 3,200 drunken driving arrests at roadway operations. The percentage of vehicle seizures has increased 53 percent statewide compared to 2007.
Departments frequently overstaff checkpoints with officers, all earning overtime. The Moreno Valley Police Department in Riverside County averaged 38 officers at each operation last year, six times more than federal guidelines say is required. Nearly 50 other local police and sheriff’s departments averaged 20 or more officers per checkpoint – operations that averaged three DUI arrests a night.
Law enforcement officials say demographics play no role in determining where police establish checkpoints.
Indeed, the Investigative Reporting Program’s analysis did not find evidence that police departments set up checkpoints to specifically target Hispanic neighborhoods. The operations typically take place on major thoroughfares near highways, and minority motorists are often caught in the checkpoints’ net.
“All we’re looking for is to screen for sobriety and if you have a licensed driver,” said Capt. Ralph Newcomb of the Montebello Police Department. “Where you’re from, what your status is, that never comes up.”
Additionally, the 2005 appellate court ruling includes exceptions, allowing police to seize a vehicle driven by an unlicensed motorist when abandoning it might put the public at risk. Examples include vehicles parked on a narrow shoulder or obstructing fire lanes.
But reporters attending checkpoints in Sacramento, Hayward and Los Angeles observed officers impounding cars that appeared to pose no danger.
Reporters also noted that many of the drivers who lost their cars at these checkpoints were illegal immigrants, based on interviews with the drivers and police. They rarely challenge vehicle seizures or have the cash to recover their cars, studies and interviews show.
Some tow truck company officials relayed stories of immigrant mothers arriving at impound lots to remove baby car seats and children’s toys before leaving the vehicle to the tow firm.
“I have to stand here for days and watch them take their whole life out of their vehicles,” said Mattea Ezgar, an office manager at Terra Linda Towing in San Rafael.
This wasn’t what lawmakers intended when they passed an impound law 15 years ago – the same law that the federal court has since questioned, said David Roberti, former president of the state Senate.
“When something is that successful, then maybe it’s too easy to obtain an impoundment, which should usually be way more toward the exception than the rule,” Roberti said.
The impound law granted police the authority to seize unlicensed drivers’ cars for 30 days. The California Attorney General’s Office said in a written statement that the state law is murky in terms of whether vehicles driven by unlicensed motorists can be taken at all.
Police do not typically seize the cars of motorists arrested for drunken driving, meaning the owners can retrieve their vehicles the next day, according to law enforcement officials.
To be sure, DUI checkpoints have saved countless lives on the nation’s roadways and have brought thousands of drunken drivers to justice. And by inspecting driver’s licenses, police catch motorists driving unlawfully, typically without insurance, and temporarily remove them from the road.
With support from groups such as Mothers Against Drunk Driving, California more than doubled its use of sobriety checkpoints the past three years.
State officials have declared that 2010 will be the “year of the checkpoint.” Police are scheduling 2,500 of the operations in every region of California. Some departments have begun to broaden the definition of sobriety checkpoints to include checking for unlicensed drivers.
Checkpoint impact not limited to drunken drivers
The checkpoints have rocked lives of sober motorists such as Luis Gomez.
In the early evening of Jan. 2 of this year, Gomez was driving his Chevy truck through downtown Los Angeles when traffic slowed to a stop.
A couple blocks from the Staples Center, orange cones narrowed Olympic Boulevard’s three westbound lanes to two. Los Angeles Police Department officers, stationed beneath a freeway overpass, began questioning drivers as part of a DUI checkpoint.
Gomez, a 42-year-old construction worker, said the roadblock didn’t concern him. He said he doesn’t drink alcohol.
But the illegal immigrant was driving without a license. Gomez received a traffic citation.
A tow truck operator took his truck.
Owners who do recover their vehicles pay between $1,000 and $4,000 in tow and storage charges and fines assessed by local governments, municipal finance records show.
Officers do not inquire about the drivers’ residency status. Nor do they contact U.S. Immigration and Customs Enforcement when they suspect unlicensed motorists are in the country illegally.
Gomez said he’d try to save whatever money he could to get back his truck. The Chevy is critical for him to continue finding work at construction sites, jobs that have supported him for two decades in the United States.
“It’s going to be hard, because times are hard,” Gomez said.
Impounds aid cash-strapped local governments
Cities have their own money problems.
Since 2007, the sales tax revenues of California municipalities have shrunk by $471 million, figures from the California State Board of Equalization show.
Property values have withered, too, causing financial woes at every level of government.
“If a city wants to try to raise revenue, in mostly all cases you have to go to the voters,” said Daniel Carrigg, legislative director for the League of California Cities. Local governments, instead, are adding to fees for services and fines for an assortment of violations.
Local governments often charge unlicensed drivers a fine to get their vehicles released from impound – on average more than $150, finance records show. Cities, increasingly, also get a cut of the fees that tow operators charge vehicle owners, generating hundreds of thousands of dollars a year.
Some local governments ensure they get a larger share as their police departments seize more and more cars.
In Los Angeles County, the city of Montebello requires its tow operator to increase its cut of impound revenue when the police department seizes a higher volume of cars.
Tow company Helms and Hill Inc. pays Montebello $200 per tow when officers order more than 151 cars hauled away each month, the city’s finance records show.
Montebello’s DUI checkpoints rank among California’s least effective at getting drunks off the road.
Last year, officers there failed to conduct a single field sobriety test at three of the city’s five roadway operations, state records show.
Montebello collected upward of $95,000 during the last fiscal year from checkpoints, including grant money for police overtime.
The California Office of Traffic Safety, which is administered in part by officials at UC Berkeley, continues to fund Montebello’s operations, providing a fresh $37,000 grant for this year.
Checkpoint location may influence impounds
Most of the state’s 3,200 roadblocks over the past two years occurred in or near Hispanic neighborhoods, the Investigative Reporting Program’s analysis shows. Sixty-one percent of the checkpoints took place in locations with at least 31 percent Hispanic population. About 17 percent of the state’s checkpoints occurred in areas with the lowest Hispanic population – under 18 percent.
Further, police impound the most cars per checkpoint in cities where Hispanics are a majority of the population, according to state traffic safety statistics and U.S. Census data.
For 12 years, Francisco Ruiz has run El Potro, a Latin music nightclub, at the northeast corner of A Street and Hesperian Boulevard in Hayward. Not once had he seen a DUI checkpoint. Then, in 2009, the city’s police department conducted four operations just outside his front door.
“They’re not taking drunk drivers,” Ruiz said as he watched cars crawl through a Dec. 18 checkpoint at the intersection. “They’re taking people without a license.”
An hour into the operation that evening, officers had yet to make a DUI arrest, reporters observed.
But about a half dozen cars were impounded, leaving drivers stranded. Only one of the drivers could show he was a legal U.S. resident.
The state does not consistently collect data on where local police departments set up checkpoints. A majority of California law enforcement agencies declined to release records showing which intersections they target, or what transpired at checkpoints, making it difficult to perform a statistical analysis of seizures in heavily minority communities.
But cities across the state operate checkpoints in high-minority communities, the Investigative Reporting Program found through demographic data and more than three dozen interviews with law enforcement officials at DUI crackdowns.
In the Los Angeles suburb of South Gate, Hispanics make up 92 percent of the population. The police department averaged 86 impounds each time officers shut down a road last year for a sobriety checkpoint. By comparison, they averaged a little more than four drunken driving arrests.
Checkpoints in cities where Hispanics are the largest share of the population seized 34 cars per operation, a rate three times higher than cities with the smallest Hispanic populations, the Investigative Reporting Program’s analysis shows.
The checkpoint data tells a similar story in two-dozen other cities. A majority of these communities are crowded together east of Los Angeles within the Inland Empire.
The disparity between vehicles impounds and DUI arrests exist in virtually every region of California.
Marin County checkpoints raise questions
San Rafael sits at the entrance to the northern Bay Area, crisscrossed by freeways from San Francisco and East Bay cities.
Hispanics comprise only a quarter of the city’s residents, according to demographic data from the U.S. Census Bureau. San Rafael’s Hispanic neighborhoods cluster along the freeways, near the water in what is called the Canal District.
During the past two years, 10 of the city’s 12 sobriety checkpoints took place on streets surrounding these neighborhoods. Those operations resulted in four DUI arrests and 121 impounded cars for driver’s license violations.
“We do not put checkpoints right there in the Canal District,” said Lt. Glenn McElderry, head of San Rafael police’s traffic unit.
While police have not staged operations directly inside the Canal District, the department’s records show San Rafael officers repeatedly conducted checkpoints right outside the neighborhood.
During the past two years, police sobriety checkpoints halted traffic on the Canal District’s two primary feeder streets – Francisco and Bellam boulevards.
McElderry said San Rafael police start their checkpoints in the southern part of the city, near the Canal District, and then move to intersections further north after 10 p.m. when traffic slows.
San Rafael’s data on drunken driving arrests, made independent of checkpoints during the past three months, show police made 20 DUI arrests, only three of which took place in the Canal District.
Impounds at DUI checkpoints are incidental, not intentional, law enforcement officials argue. And the operations do not target Hispanic communities, they say.
“Our checkpoints are sobriety and driver’s license, but one thing we always emphasize: The reason why we’re out here are drunk drivers,” said Officer Don Inman, grant administrator for the Los Angeles Police Department’s traffic division. “The driver’s license, that’s just a side issue that we deal with. We always try to make sure we pick in locations where we’re going to get drunk drivers.”
LAPD averaged six DUI arrests per checkpoint in 2009, state data shows, more than most California departments.
The state traffic safety agency requires that police wait until 6 p.m. to begin screening cars, though a few start earlier. The checkpoints typically last six hours over a single night.
Even still, the LAPD’s driver’s license impounds doubled the past two years. One operation in December netted 64 vehicle seizures and four drunken driving arrests.
One police agency, the California Highway Patrol, has far different results at its checkpoints. In 2008, state records show, the CHP arrested four intoxicated motorists for every one car that deputies seized.
The highway patrol does not charge a fee to release impounded vehicles and collects no revenue from seizures, said Sgt. Kevin Davis, who oversees checkpoints in CHP’s research and planning division.
Police say they consider a number of factors when setting up a checkpoint.
Sgt. Dennis Demerjian, of the El Monte Police Department, said he typically consults his agencies’ internal data to find intersections where clusters of alcohol-involved collisions have taken place.
Riverside County Sheriff’s Office Deputy Jarod Howe said roadways must have heavy traffic to justify placing officers there.
A street needs to be wide enough to allow cars to pull off safely. Officers also need space to conduct field sobriety tests and question motorists without licenses.
And the area needs to accommodate the tow trucks to remove seized vehicles, Howe acknowledged.
Police and state traffic safety officials contend that impounding the cars of unlicensed drivers is, like catching drunken drivers, a critical part of making California’s roads less dangerous.
“It’s well known that drivers driving without licenses are frequently involved in accidents,” said Sgt. Jeff Lutzinger, the head of Hayward’s traffic safety division.
Research by the National Highway Traffic Safety Administration has shown that motorists driving with a suspended or revoked license cause collisions at a higher rate. These drivers are also typically uninsured.
The state’s traffic safety office has declared vehicle seizures an effective way to remove risky, uninsured drivers.
“Law enforcement agencies have stated that these tools have helped decrease the number of unsafe drivers on public roads as well as reduce the number of hit-and-run traffic collisions,” a 2005 report from the state agency said.
Funding for DUI crackdowns plays major role
The federal government provides the California Office of Traffic Safety about $100 million each year to promote responsible driving that reduces roadway deaths. Of that, $30 million goes into programs that fund drunken driving crackdowns, particularly checkpoints.
Police officer overtime accounts for more than 90 percent of the expense of sobriety checkpoints. Departments do not assign officers to work checkpoints during their regular shifts.
Law enforcement agencies tend to use more officers than a checkpoint requires, according to guidelines established by the National Highway Traffic Safety Administration.
Statewide, police departments on average deployed 18 officers at each checkpoint, according to state data. The federal traffic safety agency advises that police can set up DUI checkpoints with as few as six officers.
The additional dozen officers typical at a California roadway operation cost state and federal taxpayers an extra $5.5 million during the 2008-09 fiscal year, according to the Investigative Reporting Program’s analysis.
The LAPD sent 35 officers, on average, to every sobriety crackdown.
At least a dozen officers spent hours sitting and chatting at an operation in early January in downtown Los Angeles. A couple of officers smoked cigars as they watched cars go through the screening.
Officers seized 22 cars that evening and made one DUI arrest.
The state data shows that last fiscal year LAPD spent $16,200 per checkpoint, all of it on officer overtime.
Impounds a lucrative business for cities, towing companies
Cities and private towing operators make tens of millions of dollars a year from checkpoints. This cash comes from tow fees and daily storage charges, finance records at a half dozen cities show.
If the car’s owner cannot afford to recover the vehicle, then after 45 days, the tow operator can sell it to pay the bill.
Cities are also increasingly charging franchise fees to tow operators.
The fees give cities a cut of the more lucrative side of towing, the long-term storage costs from 30-day impounds.
In early 2007, El Monte’s top officials went shopping for new tow contracts.
The suburb, east of Los Angeles, had called on tow operators to remove almost 5,000 cars a year from its streets, El Monte Police Chief Ken Weldon explained in a memo to the city manager.
The operators hauled the cars at no cost to El Monte; however the chief found the city was denying itself a source of cash.
“A survey of surrounding agencies revealed that many agencies are recovering costs by collecting a ‘franchise fee’ from the tow company,” Weldon, now retired, wrote.
On average, nearby cities charged tow operators $50 for every car the police department ordered towed or impounded. Weldon calculated the fee would provide El Monte $241,600 a year.
The city wrote the fees into its new contracts with Albert’s Towing and Freddie Mac’s Towing.
During holiday checkpoints last fiscal year, El Monte police seized 680 cars for driver’s license violations, state data shows.
Each of the impounds was worth at least $2,035 in tow charges and fees, according to city financial records. El Monte received at least $164,000 from the vehicle seizures.
The city’s tow operators likely collected about $1.2 million from the seizures. That figure might have been higher or lower, depending on how many car owners retrieved their vehicles and what price the companies got for the remaining impounded cars.
Owners abandon their cars at tow lots roughly 70 percent of the time, said Perry Shusta, owner of Arrowhead Towing in Antioch and vice president of the California Tow Truck Association.
Tow operators provide communities a kind of garbage service, removing junk cars that don’t operate and are worth only the value of their metal frame.
DUI checkpoints catch a higher quality of vehicle, Shusta said. “The good cars are how we afford to get rid of all the cities’ junk.”
Impounds spur search and seizure concerns
The Fourth Amendment specifically restricts law enforcement’s authority to seize private property without a court order.
“It is assumed under the law that the taking of personal property without a warrant is unconstitutional,” said Martin J. Mayer, a founding partner in the Fullerton law firm Jones & Mayer, which represents numerous police agencies.
The law protects everyone within the United States, regardless of whether they are in the country illegally.
California police have seized the cars of unlicensed drivers for 15 years under the state law that allows such vehicles to be impounded for 30 days.
But in 2005, the Ninth U.S. Circuit Court of Appeals ruled in an Oregon case that law enforcement can’t impound a vehicle if the only offense is unlicensed driving.
One exception is called the “community caretaker” doctrine, which permits police to impound a car if it poses a threat to public safety, is parked illegally or would be vandalized imminently if left in place.
The ruling dramatically altered the law regarding vehicle impounds. In response, the Legislative Counsel of California in 2007 called into question the legality of the state’s impound procedures.
“If a peace officer lawfully stops a motor vehicle on the highway and the driver of the motor vehicle is an unlicensed driver, that alone is not sufficient justification for the peace officer to cause the impoundment of the motor vehicle,” Legislative Counsel Diane F. Boyer-Vine, who advises state lawmakers, wrote in a response to Sen. Gilbert A. Cedillo, D-Los Angeles. The legislative counsel has no authority over police departments.
A lawsuit challenging the constitutionality of California’s 30-day impound law is awaiting oral arguments before the Ninth Circuit Court of Appeals later this year. The state and several cities that are defendants in the case argue that impounds are penalties for a criminal offense, and therefore car owners are not subject to Fourth Amendment protection.
Most California law enforcement agencies continue to seize vehicles based on driver’s license violations alone.
Reporters with the Investigative Reporting Program observed police at checkpoints in three different cities impound cars after the vehicles had been moved out of harm’s way and parked legally.
Mayer represents the California Peace Officers Association and also alerted law enforcement that the federal ruling prohibited the state’s police from seizing cars solely on the charge of unlicensed driving.
The attorney said he was startled by his clients’ angry response to his memo explaining the appeals court case.
“I never expected the volume of e-mails, phone calls and death threats all from law enforcement, especially motor officers,” Mayer said. “I’m being flippant you understand. They wanted to kill me though because I’m interfering with a process they’ve been doing for years.”
Former state Sen. Roberti, then chairman of the Senate’s Judiciary Committee, said he and his fellow lawmakers did not consider how the 1995 impound law might impact unlicensed drivers.
“It’s turned out to be a far more vigorous enforcement than any of us would have dreamed of at the time,” he said.
Ryan Gabrielson, the winner of the 2009 Pulitzer Prize for Local Reporting, is a reporter and fellow at UC Berkeley’s Investigative Reporting Program directed by Lowell Bergman, one of the founders of the Center for Investigative Reporting.
Charles Taylor: Pat Robertson was my man in Washington
By Colum Lynch | Foreign Policy | February 4, 2010
Former Liberian President Charles Taylor, testifying in his own war crimes trial today, said that the American conservative evangelist Pat Robertson was awarded a Liberian gold-mining concession in 1999 and subsequently offered to lobby the Bush administration to support his government.
The revelations came in the midst of a U.N.-backed trial of Taylor at The Hague on 11 counts of war crimes and crimes against humanity during Sierra Leone’s 1990s civil war. Taylor is accused of directing a Sierra Leone rebel group, the United Revolutionary Front (RUF), in a campaign aimed at securing access to the country’s diamond mines. The rebel movement stands accused of committing mass atrocities in the late 1990s in the West African country, including the mutilation of thousands of civilians.
The international prosecutors contend that Taylor offered concessions to Western individuals in exchange for lobbying work aimed at enhancing his image in the United States. The prosecution maintains that Taylor also spent $2.6 million on lobbying firms and public relations outfits in the hopes of influencing the policies of former President Bill Clinton and George W. Bush.
Under cross-examination, Taylor said that Robertson had volunteered to make Liberia’s case before U.S. administration officials, and had spoken directly to President Bush about Taylor. He also confirmed that Robertson’s company, Freedom Gold Limited, signed an agreement to exploit gold in southeastern Liberia, but that it never generated any profit.
“Mr. Taylor, indeed at one point you said that you can count on Pat Robertson to get Washington on your side,” he was asked by the lead prosecution counsel, Col. Brenda Hollis, a former U.S. Air Force officer. Taylor replied: “I don’t recall the exact words, but something to that effect.”
A spokesman for Robertson, Chris Roslan, confirmed that Robertson was awarded a gold exploration concession by the Liberian government during the 1990s. But he said that there was “no quid pro quo” to provide the government with anything in return. Roslan said the company, Freedom Gold, is no longer in operation and has never found any gold.
“This concession was granted by the Liberian government to promote economic activity and alleviate the suffering of the people of Liberia following a terrible civil war,” said Roslan, adding that Robertson had never met Taylor or paid him any money. “Freedom Gold accomplished this by employing some 200 Liberians in addition to providing humanitarian efforts including free medical care and installation of clean water wells for area residents.”
Adviser to Detained Americans in Haiti Linked to Child Trafficking
Marc Lacey, Ian Urbina | New York Times | February 11, 2010
The police in El Salvador have begun an investigation into whether a man suspected of leading a trafficking ring involving Central American and Caribbean women and girls is also a legal adviser to the Americans charged with trying to take 33 children out of Haiti without permission.
When the judge presiding over the Haitian case learned on Thursday of the investigation in El Salvador, he said he would begin his own inquiry of the adviser, a Dominican man who was in the judge’s chambers days before.
The inquiries are the latest twist in a politically charged case that is unfolding in the middle of an earthquake disaster zone. A lawyer for the group has already been dismissed after being accused of trying to offer bribes to get the 10 Americans out of jail.
Jorge Puello, who has been providing legal advice to a group of Americans jailed in Haiti.
© Lynsey Addario for The New York Times
The adviser, Jorge Puello, said in a telephone interview on Thursday that he had not engaged in any illegal activity in El Salvador and that he had never been in the country. He called it a case of mistaken identity. “I don’t have anything to do with El Salvador,” he said, suggesting that his name was as common in Latin America as John Smith is in the United States.
“There’s a Colombian drug dealer who was arrested with 25 IDs, and one of them had my name,” he said, not elaborating.
“Bring the proof,” he said when pressed about the child-trafficking accusations in the brief interview, which ended when he said he was entering an elevator. Reached later, he became angry and said he had broken no laws.
The 10 Americans have been imprisoned since Jan. 29 in the back of the same police station used by President René Préval as the seat of Haiti’s government since the earthquake. They had been told by their lawyers that at least some of them would be on their way home on Thursday. But the judge overseeing their case, Bernard Saint-Vil, recommended to the prosecutor that they be tentatively released from custody and permitted to leave the country as long as a representative stayed behind until the case was completed.
Mr. Puello has been acting as a spokesman and legal adviser for the detainees in the Dominican Republic.
The head of the Salvadoran border police, Commissioner Jorge Callejas, said in a telephone interview that he was investigating accusations that a man with a Dominican passport that identified him as Jorge Anibal Torres Puello led a human trafficking ring that recruited Dominican women and under-age Nicaraguan girls by offering them jobs and then putting them to work as prostitutes in El Salvador.
Mr. Puello said he did not even have a passport. When Mr. Callejas was shown a photograph taken in Haiti of Mr. Puello, Mr. Callejas said he thought it showed the man he was seeking. He said he would try to arrest Mr. Puello on suspicion of luring women into prostitution and taking explicit photographs of them that were then posted on Internet sites. “It’s him, the same beard and face,” Mr. Callejas said in an interview on Thursday. “It has to be him.”
Judge Saint-Vil also said he thought that the photo of the trafficking suspect in a Salvadoran police file appeared to be the same man he had met in court. He said he intended to begin his own investigation into whether a trafficking suspect had been working with the Americans detained in Haiti.
“I was skeptical of him because he arrived with four bodyguards, and I have never seen that from a lawyer,” the judge said in an interview. “I plan to get to the bottom of this right away.”
The judge said he would request assistance from the Department of Homeland Security to look into Mr. Puello’s background. A spokesman for the department said American officials were playing a supporting role in the investigation surrounding the Americans, providing “investigative support as requested.”
An Interpol arrest warrant has been issued for someone named Jorge Anibal Torres Puello, according to the police and public documents.
There were questions about whether Mr. Puello, the adviser, who said the Central Valley Baptist Church in Idaho had hired him to represent the Americans, was licensed to practice law. Records at the College of Lawyers in the Dominican Republic listed no one with his name.
Mr. Puello said he had a law license and was part of a 45-member law firm. But his office in Santo Domingo turned out to be a humble place, which could not possibly fit 45 lawyers. Mr. Puello’s brother Alejandro said that the firm had another office in the central business district, but he declined to provide an address.
Mr. Puello said in the interview that he had been representing the Americans free of charge because he was a religious man who commiserated with their situation. “I’m president of the Sephardic Jewish community in the Dominican Republic,” he said. “I help people in this kind of situation. We’re not going to charge these people a dime.”
But other lawyers for the detainees said that the families had wired Mr. Puello $12,000 to pay for the Americans’ transportation out of Haiti if they were released, and that they had been told by Mr. Puello in a conference call late Tuesday that he needed an additional $36,000. Mr. Puello said that he had not participated in a conference call.
One lawyer for the families said that Mr. Puello had told him that he was licensed to practice law in Florida, but the lawyer said he had checked and found no such record. Mr. Puello said in the interview that he had never said he was licensed in Florida.
Mr. Puello said that he had been born in Yonkers, N.Y., and that his mother was Dominican. He said that his full name was Jorge Puello and that he had no other names. But then in a subsequent interview he said his name was Jorge Aaron Bentath Puello. He said he was born in October 1976, and not in October 1977, which the police report indicates is the birth date of the suspect in the Salvadoran case.
The report said the police had found documents connected to the Sephardic Jewish community in a house in San Salvador where the traffickers had held women.
Blake Schmidt contributed reporting from San José, Costa Rica, and Jean-Michel Caroit from Santo Domingo, Dominican Republic. Kitty Bennett contributed research
New Phase, Not Just Another Recession
By Ismael Hossein-zadeh | February 12, 2010
It is becoming increasingly clear that the financial meltdown of 2008 and the subsequent economic contraction that continues to this day represent more than just another recessionary cycle. More importantly, they represent a structural change, a new phase, the phase of the dominance of “finance capital,” as the late Austro-German political economist Rudolf Hilferding put it.
Although the current domination of our economy by finance capital seems new, it is in fact a throwback or “retrogression” (as financial expert Michael Hudson puts it) to the capitalism of the late 19th and early 20th centuries, that is, the capitalism of monopolistic big business and gigantic financial institutions. The rising economic and political influence of powerful financial interests in the early 20th century led a number of political economists (such as John Hobson, Rudolf Hilferding and Vladimir Lenin) to write passionately on the ominous trends of those developments—developments that significantly contributed to the eruption of the two World Wars and precipitated the devastating Great Depression of the 1930s, by creating an unsustainable asset price bubble in the form of overblown stock prices.
The harrowing experience of the Great Depression, followed by the devastating years of World War II, generated momentous social upheavals and extensive working class struggles worldwide. The ensuing “threat of revolution,” as F.D.R. put it, and the “menacing” pressure from below prompted reform from above—hence, the New Deal reforms in the US and socialist/Social-Democratic reforms in Europe. Combined, these historic developments significantly curtailed the size and the influence of big business and powerful financial interests—alas, only for a while.
As those reforms saved Western capitalism from more radical social changes, they also provided grounds for its regeneration and expansion. By the 1970s, finance capital, headed by major US banks, had risen, once again, to its pre-Depression levels of concentration, of controlling the major bulk of national resources, and of shaping economic policy. Since then, big banks have created a number of financial instabilities and economic crises—usually through predatory, sub-prime loan pushing or unsustainable debt bubbles. These include the “Third World debt crisis” of the 1980s and 1990s, the 1997-98 financial crises in Southeast Asia and Russia, the tech or dot.com bubble of the 1990s in the U.S. and other major market economies, and the latest, housing/real estate bubble that burst in 2008
A number of characteristics distinguish the stage of the dominance of finance capital from lower phases of capitalist development. Under liberal capitalism of the competitive industrial era, a long cycle of economic contraction would usually wipe out not only jobs and production, but also the debt burdens that were accumulated during the long cycle of expansion that preceded the cycle of contraction. In the stage of finance capital, however, debt overhead is propped up through its monetization, or socialization, even during a most severe financial meltdown such as that which occurred in 2008. Indeed, due to the influence of the powerful financial interests, national or taxpayers’ debt burden is further exacerbated by the government’s generous bailout plans of the bankrupt financial giants, that is, by simply transferring or converting private to public debt.
In The Class Struggle in France, Karl Marx wrote, “Public credit rests on confidence that the state will allow itself to be exploited by the wolves of finance.” Today we see more clearly how the “wolves of finance” are hollowing out national treasuries and subjecting governments to unsustainable debt burdens. This explains the near bankruptcy not only of the US Government but also of many of the European states, especially those of Greece, Ireland, Spain, Portugal and a number of East European countries. Proposed government “solution” in all these cases is to have the general public pay for the gambler’s debt—in the form of extensive cuts in essential social programs and drastic reductions in living standards.
A major hallmark of the age of finance capital is domination of the State and/or political process by the financial oligarchy. Bank- or finance-friendly policies of the government have been facilitated largely through generous pouring of money into the election of “favorite” policy makers. Extensive deregulation that led to the 2008 financial crisis, the scandalous bank bailout in response to the crisis, and the failure to impose effective restraints on Wall Street after the crisis can all be traced to Wall Street’s political power. Wall Street spent more than $5 billion on federal campaign contributions and lobbying from 1998 to 2008, and its fervent spending on the purchase of politicians continues unabated.
Michael Hudson, Distinguished Research Professor at University of Missouri (Kansas City), aptly calls this ominous process of the buying out of policy-makers by major contributors to their election “privatization of the political process.” Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan administration, likewise argues that the political system “is monopolized by a few powerful interest groups that…have exercised their power to monopolize the economy for the benefit of themselves.”
Such sentiments regarding the class nature of the State are corroborations of Vladimir Lenin’s characterization of the capitalist state as “the executive committee of the ruling class.” Lenin was often scoffed at by the capitalist ruling elites when he made this statement over ninety years ago; they deviously dismissed him as having overstated his case. Perhaps it is time to dust off and read old copies of Lenin’s The State and Revolution, if only to better understand the incestuous politico-business relationship between the State and the financial oligarchy of our time.
Another hallmark of the stage of finance capital is that, under the influence of the powerful financial interests, government intervention in national economic affairs has come to essentially mean implementation of neoliberal or supply-side restructuring policies. Government and business leaders have for the last several decades used severe recessionary cycles as opportunities to escalate application of neoliberal economic measures in order to reverse or undermine the New Deal reforms. Naomi Klien has called this strategy of using periods of economic crisis to reverse the gains of the New Deal and other reform programs “the shock doctrine”—a strategy that takes advantage of the overwhelming crisis times to apply supply-side austerity programs and redistribute national resources from the bottom up. This explains how under the Bush-Obama administrations the financial oligarchy has been able to use the failure of the Lehman Brothers and the specter of “apocalyptic” failure of other financial giants to extract their gambling losses from the public purse.
It is generally believed that neoliberal supply-side economic policies began with the election of Ronald Reagan as the president. Evidence shows, however, that efforts at undermining the New Deal economics in favor of returning to the old-time religion of market fundamentalism began long before Reagan arrived in the White House. As Alan Nasser, emeritus professor at the Evergreen State College in Olympia (Washington), points out, “The foundations of neoliberalism were established in economic theory by liberal Democrats at the Brookings Institution, and in political practice by the Carter administration.”
Neither President Clinton changed the course of neoliberal corporate welfare policies, nor is President Obama hesitating to carry out those policies. His administration has made available more than $12 trillion in cash infusions, loans and guarantees to the financial industry, but for state governments that are facing massive budget deficits, it has thus far provided only one quarter of 1 percent of that amount in federal stimulus funds—about $30 billion. The White House is sitting by while states across the country lay off workers and slash spending on education, health care and other essential social programs.
The left/liberal supporters of President Obama who bemoan his “predicament in the face of brutal Republican challenges” should look past the president’s liberal/populist posturing. Evidence shows that, contrary to Barack Obama’s claims, his presidential campaign was heavily financed by the Wall Street financial titans and their influential lobbyists. Large Wall Street contributions began pouring into his campaign only after he was thoroughly vetted by the powerful Wall Street interests and was deemed a viable (indeed, ideal) candidate for presidency.
On ideological or philosophical grounds too President Obama is closer to the neoliberal, supply-side tradition than the New Deal tradition. This is clearly revealed, for example, in his The Audacity of Hope, where he shows his disdain for “…those who still champion the old time religion, defending every New Deal and Great Society program from Republican encroachment, achieving ratings of 100% from the liberal interest groups. But these efforts seem exhausted…bereft of energy and new ideas needed to address the changing circumstances of globalization. . . .” It is no accident that Mr. Obama has surrounded himself by neoliberal economic experts and financial advisors such as Larry Summers, Timothy Geithner, and Ben Bernanke.
Not only has the major bulk of the Obama administration’s anti-recession assistance been devoted to the rescue of the Wall Street financial magnates, but also the relatively small stimulus spending is funneled largely through the Wall Street (mainly through generous government loans and tax incentives) in the hope that this would create jobs. This stands in sharp contrast to what F.D.R. did in the earlier years of the Great Depression: creating jobs directly and immediately by the government itself.
The main purpose of the administration’s (or, shall we say, of the ruling kleptocracy, both Democratic and Republican) strategy of delaying direct job creation is to stall, and fraudulently keep the hopes of the unemployed alive, until the massive supply-side corporate welfare giveaways would eventually begin to gradually trickle down and slowly create jobs. In the absence of compelling pressure from below, this neoliberal scheme of further weakening the working class may eventually succeed. But even if successful, the jobs thus created would be supply-side jobs, subsistence or below-subsistence jobs, which would be grabbed by desperate workers at any price/wage, not union jobs that would pay decent wages and benefits.
Political theatrics within the ruling circles over “how to create jobs” should not mask the fact that delays in job creation are deliberate: they are designed to further subdue American workers and bring down their wages and benefits in line with those of workers in countries that compete with the U.S. in global markets. It is part of the insidious neoliberal race to the bottom, to the lowest common denominator in terms of international labor costs. It is, indeed, an application of the IMF’s notorious Structural Adjustment Program of austerity measures that have been vigorously pursued in many less-developed countries for decades—with disastrous results.
It is no accident that President Obama frequently pleads with the unemployed Americans to “be patient,” and “keep hope alive.” What he really means to say is: “look, we have invested trillions of dollars through bailout schemes and other supply-side recovery measures. So, please be patient and wait until they come to fruition and benefit you through trickle down effects.” At least, Ronald Reagan had the honesty and integrity to explicitly defend or promote his supply-side philosophy. Perhaps that is why Barack Obama can be called Ronald Reagan in disguise.
In the wake of the 2008 financial meltdown, many left/liberal economists envisioned an opportunity: a reversion back to the Keynesian-type economic policies. One year later, it is increasingly becoming clear that such expectations amounted to no more than wishful thinking—a dawning recognition that, regardless of the resident of the White House, economic policies are nowadays heavily influenced by the powerful financial interests.
The view that economic policy would be switched back to the Keynesian or New Deal paradigm by default stems from the rather naïve supposition that policy making is a simple matter of technical expertise or economic know-how, that is, a matter of choice—between good or “regulated capitalism” and bad or “neoliberal capitalism.” A major reason for such hopes or illusions is a perception of the State that its power is above economic or class interests; a perception that fails to see the fact that national policy-making apparatus is largely dominated by a kleptocratic elite that is guided by the imperatives of big capital, especially finance capital.
Historical evidence shows, however, that more than anything else the Keynesian or New Deal reforms were a product of pressure from the people. Economic policy-making is not independent of politics and/or policy-makers who are, in turn, not independent of the financial interests they are supposed to discipline or regulate. Stabilization, restructuring or regulatory policies are often subtle products of the balance of social forces, or outcome of class struggle. Policies of economic restructuring in response to major crises can benefit the masses only if there is compelling pressure from the grassroots. In the absence of an overwhelming pressure from below (similar to that of the 1930s), Keynesian or New Deal economic reforms could remain a (fondly-remembered) one-time experience in the history of economic reforms.
Ismael Hossein-Zadeh, author of the recently published The Political Economy of U.S. Militarism (Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines, Iowa.
The Netanyahu-Fayyad “economic peace” one year on
By Ziyaad Lunat, The Electronic Intifada, 10 February 2010
Israeli Prime Minister Benjamin Netanyahu was elected on a platform of “economic peace” with Palestinians in the West Bank. He contended that developing the Palestinian economy, by providing Palestinians with jobs and a better living standard, would render the “problems” between Israelis and Palestinians “more accessible for solutions.”
Salam Fayyad, the appointed Palestinian Authority (PA) prime minister in Ramallah and a former International Monetary Fund official, was quick to follow with his own complementary plan last August. His policies recently earned praise from Israeli President Shimon Peres who called Fayyad a Palestinian “Ben Gurionist,” in reference to Israel’s founding prime minister. Economic peace won broad backing from the UN, European leaders as well as the administration of US President Barack Obama — representatives of which form the self-appointed “Quartet” that dictates terms for the “peace process.
Tony Blair, the Quartet envoy for the Middle East peace process, characterized Fayyad as “absolutely first class — professional, courageous, intelligent.” Blair did not hold back praise for Netanyahu either, calling him a “peacemaker.”
A consensus has developed among the political elite, and even among Arab states, that improving Palestinians’ quality of life, even if under military occupation, is the long sought solution for Palestinian misfortunes. Netanyahu assigned Deputy Prime Minister Silvan Shalom to lead the economic peace task force and coordinate with both Blair and the PA.
The Netanyahu-Fayyad plan has been a magnet for foreign capital. The US Congress approved last July a deposit of $200 million into the PA treasury, under Fayyad’s direct control. In September donor countries pledged on the sidelines of the General Assembly $400 million to the PA by the end of 2009. Last month, the European Union transferred 21 million Euros to “help the Palestinian Authority pay the January salaries and pensions of 80,551 Palestinian public service providers and pensioners.”
This “West Bank First” policy of economic development replaced Bush’s failed policy of democracy promotion. In 2006, Palestinians in the West Bank and Gaza Strip elected Hamas but Israel and its western allies boycotted the movement because it did not conform to the demands of the Quartet, much of them at odds with international law.
The Quartet switched strategies towards finding “moderate” partners that can implement their vision of “peace.” One such person is PA President Mahmoud Abbas, whose term in office expired for the second time last month (after being questionably extended for an additional year in early 2009).
Western donors also hand-picked Salam Fayyad for the post of prime minister despite his Third Way party obtaining less than three percent of the popular vote in the 2006 legislative elections. His exclusive control of the Palestinian coffers give him immense power to implement policies to his own credit as speculation — and in some PA circles fear — grows that he is being groomed by the West to replace Abbas.
“Economic peace,” coupled with the “West Bank First” policy of economic development serves too as warning to Palestinians. They either conform to a political program approved by Israel and Western donors or risk sharing the dire fate of Gaza, under a crippling siege since June 2007. Hamas, under intense pressure, is gradually softening its positions, with cautious overtures to Israel and the West with the hope of inclusion in the process and perhaps a slice of the monetary rewards.
The results of the first year of Netanyahu’s economic peace are visible. While there has been no progress on the political front, security and economic cooperation with the PA has never been better. The American-trained security forces have kept a tight grip over West Bank towns squashing dissent and keeping “order.” When the Israeli army invades during the night, Palestinian security forces swiftly retreat. Intelligence sharing has enabled joint campaigns of arrest against members of the resistance.
The Guardian newspaper reported that Palestinians security forces have been working closely with the CIA to torture Palestinian dissenters. When Palestinians killed a settler last December, Abbas’ forces worked “overtime” to find the culprits arresting hundreds in the process. A PA spokesperson described the security situation up to the attack as “nearly perfect,” in reference to the diligent job of Palestinian security forces in preventing attacks against Israelis but ignoring the daily attacks Palestinians are subjected to at the hands of the Israeli military and settlers. Abbas’ clampdown didn’t prevent an Israeli death-squad from invading Nablus and killing in cold blood three Palestinians as an act of revenge.
Israel deems the PA a trusted partner for its diligent efforts to provide security for Israelis including settlers actively engaged in colonizing the West Bank. This perception motivated Netanyahu to order the dismantlement of a few dozen roadblocks and the lifting of strategic checkpoints to ease movement between Palestinian cities. Over 578 “closure obstacles” remain in place inside the West Bank. According to the UN, “while some of these measures have contributed to the easing of movement, they exact a price from Palestinians in terms of land loss, disruption of traditional routes, and deepening fragmentation of West Bank territory.” These “goodwill gestures” help give the impression of improvements nonetheless.
Other policies targeting the 17 percent of the West Bank controlled by the PA, otherwise designated as Area A under the 1993 Oslo accords, include the opening of a shopping center in Jenin and a cinema in Nablus. Netanyahu plans 25 other economic initiatives in the West Bank including more shopping centers, a light industrial zone in the Bethlehem area, a major industrial zone in the Jenin area and an agricultural processing and export zone in Jericho. Each ribbon cutting ceremony Fayyad attends reinforces the normalcy discourse propagated by the PA and Fatah-affiliated media that contrast it to the destruction and despair of Israeli-blockaded, Hamas-controlled Gaza.
There are fears these projects are attracting foreign speculators. “My message is very clear: there is an economic prize before us, there is a double dividend for you as companies” said British Prime Minister Gordon Brown to a conference of investors in Bethlehem. One such “prize” is the creation of a Palestinian equity market. The Palestine Investment Fund (PIF), the body leading such effort, expects to deliver an annual return of 15 percent. PIF plans to use cash deposits in local banks as well as money from investors to encourage growth in consumer spending. “Our banks have cash deposits of $7 billion, and they are saying there are not enough opportunities to invest,” said Mohammad Mustafa, the Fund’s chief executive and a former World Bank official.
Real Estate is the main target for foreign corporate investment. Rawabi, the first Palestinian planned city, is Fayyad’s flagship project. The Washington Post reported that Rawabi “is specifically designed for upwardly mobile families of a sort that in the United States might gravitate to places such as Reston, VA. The developments are also relying on another American import, the home mortgage, including creation of a Fannie Mae-style institution for the West Bank.” USAID, a branch of the American government, is funneling funds through nongovernmental organizations (NGOs) for the promotion of a mortgage culture in Palestine to support these initiatives from bottom-up. One such example is CHF International, a corporate-led development NGO, which is organizing community level focus groups and technical training as part of their “homebuyer education” program.
A year on, the cost of the Netanyahu-Fayyad plan is becoming clear. Low-income Palestinian families and small business are being encouraged to borrow to fuel a high-risk economy. Israel has proven time again that it won’t hesitate to strike a blow against Palestinian infrastructure should they dissent from the current consensus in its favor. Families are risking their possessions as collateral for their debts. Corporations responsible for the global financial collapse are applying their failed models in Palestine. Abraaj Capital, a Dubai-based investment fund that recently sparked fears for debt default, announced a $50 million private equity fund dedicated to “raising standards of living,” mirroring the predatory behavior that led to the collapse of the sub-prime mortgage system in the US.
Investors, Palestinian and internationals, are leading in the efforts for normalization of economic relations with Israel in violation of the boycott, divestment and sanctions (BDS) call of Palestinian civil society. There is concern about the growing power that the emerging Palestinian capitalist class can yield over the political process as the personal stakes rise as their economic relationships with Israel intensify. Abbas is said to have yielded to pressure from economic interests when he forfeited UN discussion of the Goldstone report last October causing popular outrage.
The economic peace model comes with a dose of cultural imperialism. Palestinians do not have basic freedoms but they are being told that they can enjoy the mundane and superfluous in cinemas and shopping centers. This is more vividly seen in wall-encircled Ramallah, the seat of the PA government. High-end clubs are appearing to cater for the western-oriented elite. These spaces draw invisible barriers of class and social status that the majority of people cannot relate to or simply cannot afford. This sort of social stratification inevitably leads to the creation of an individualist and self-interested culture and to contentment for the status quo. The availability of disposable income has even encouraged the presence of Russian chains of prostitution in the city. Fahmi Shabaneh, former head of the PA’s Anti-Corruption Department, was forced to quit from his position last year after uncovering a sex scandal involving one of Abbas’ top aides in Ramallah. As expected, the PA denies the accusations. Shabaneh said that “Abbas has surrounded himself with many of the thieves and officials who were involved in theft of public funds and who became icons of financial corruption.”
There is also a division being fostered between the urban and the rural populations. The Palestinians living in the 60 percent of the West Bank officially controlled by Israel, also known as Area C, are continuously dispossessed of their land and gradually being pushed to PA-controlled enclaves. The almost exclusive focus of Fayyad’s plan on the service sector, while ignoring the farming community, will inadvertently lead to acceleration of desertification of the rural areas as the young are pulled to new jobs in the city. The Bantustanization process is accelerating with the construction of Israel’s apartheid wall. The rural population, represented by the popular committees, is now leading resistance against Israel’s encroachment. They have been left without effective political representation, finding themselves in the front line of Israel’s annexationist policies. These two dichotomous realities, the urban and the rural, have left certain sectors of the population in urban centers like Ramallah to be completely oblivious to these struggles only a few miles away.
Hamas’ election in 2006 showed how vital is the Palestinian Authority’s dependence on foreign donors. It also showed how easily donors can turn off the money tap and cause the near destruction of the Palestinian social fabric as in Gaza. The plan that is being forged in the West Bank is fostering such dependence even more, raising the costs for sustaining the Palestinian struggle for liberation. Should the masses awaken from the current delusion, many of the rich elites would not hesitate to turn against their brethren to protect their status and power. Adding to the current political and territorial separation affecting Palestinians, the emerging economic stratification is yet another challenge in the way of Palestinian unity and liberation.
Ziyaad Lunat is an activist for Palestine.
The Culture of Cocaine
By Forrest Hylton | February 5, 2010
Cocaine is a central commodity of the neoliberal age; so, too, its re-processed form (“crack”) for the desperately poor in de-industrialized cities of the North and South Atlantic. First announced by Richard Nixon in 1971, the “War on Drugs” predates the rise of cocaine and crack by nearly a decade, but, in the 1980s and ’90s, the “War on Drugs” was redoubled in response to the explosion of the cocaine business. It now ranks as the U.S.A.’s longest running military-police campaign. Thus, if we look at cocaine as a social hieroglyph – not as a thing but as a complex relation between networks and organizations of people, as well as between states and bureaucracies – we may glimpse some of the distinguishing features of the contemporary world.
There is a strong argument to be made for the impact of the cocaine business on architecture, urban design and construction, fashion, media entertainment, sports, and aesthetics, not to mention banking and credit institutions. The war on cocaine producers, sellers, and users has radically changed the shape of states in relation to those who are, at least nominally, rights-bearing citizens, as states have become more militarized, policed, punitive and carceral, and citizens more powerless and less protected by the rule of law. As the French sociologist Pierre Bourdieu observed in his late work, states do not disappear under neoliberalism: rather, their repressive right wings are strengthened while their progressive, redistributive rights-based wings are weakened or eliminated. This is most notable in cities, where urban space has been re-made in line with the requirements of policing and surveillance to protect capital investment and affluent consumers.
Though it does not advance these arguments, except tangentially, Tom Feiling’s well-researched The Candy Machine: How Cocaine took over the World (Penguin, 2009) makes a similar claim for the importance of its subject.Yet, could not the same be said of any essential commodity: oil, for instance, or cars or clothes? What makes cocaine different? The answer, of course, would depend on whom one asks, but what makes cocaine extraordinarily profitable for its import-export merchants is the fact that it is illegal. The fact that one country – Colombia – supplies 90 per cent of the cocaine consumed in the U.S. also makes the commodity different. Ninety per cent of Colombian cocaine enters the U.S.A. through Mexico (and Guatemala); smuggling having been made considerably easier by NAFTA, which de-regulated trucking and shipping.
Plan Colombia and Plan Mérida (Mexico) – based on counternarcotics and counterterrorism – are the two most important U.S. foreign policy initiatives in the Western Hemisphere, with Plan Colombia and its successors costing U.S. taxpayers $8 billion between 2000 and 2008, and Plan Mérida, approved in 2008, costing $500 million in 2009. So, cocaine is not only big business, it is also high politics: Plan Colombia has been held up as a model of counternarcotics and counterinsurgency success for Mexico, Afghanistan and Pakistan. One senior U.S. official told CBS News, “The more Afghanistan can look like Colombia, the better.”
Public debate in the U.S. concerning the suppression of cocaine production and consumption – and the U.S. has determined international drug policy since the U.N. Single Convention on Narcotic Drugs of 1961 – is moralistic, due to the weight of conservative strains of Protestantism, even among non-evangelicals, not to mention neoconservative Catholicism: decent, responsible people should not consume drugs, and should not be allowed to consume them, because, if they do, they will become unproductive degenerates.
If supply is reduced, the official argument goes, prices will rise for consumers in the U.S.A., and demand will drop correspondingly. Nevertheless, Plan Colombia and related anti-drug initiatives in the Andes and Mexico have not reduced the supply of cocaine to the U.S., where prices have tended toward secular decline since the early 1980s and domestic demand has fluctuated from generation to generation. The volume of illicit drugs that U.S. citizens consume has not changed significantly over time, but the type of drugs they consume has, with cocaine coming back into fashion, together with pharmaceuticals, among young, affluent people during the Bush II period.
In terms of costs and benefits, fighting cocaine production and consumption is a disaster even by the standards of the Pentagon: according to a 1994 RAND Corporation study, to reduce cocaine consumption by 1 per cent in the U.S., it would be twenty-three times cheaper ($34 million) to spend on treatment and education for consumers than on coca eradication for producers ($783 million).
But the failure to achieve stated objectives has yet to affect policy-making, which is driven mainly by ideology. Empirical data have little bearing on the policy-making process. The logic driving the War on Drugs has been chiefly ideological and political, not economic: domestic politics in the U.S. have determined policy abroad. One of the defining policies of Cold War liberalism, President Johnson’s War on Poverty – which had less than one-tenth of the lifespan of the War on Drugs – took for granted that federal and state governments should take responsibility for improving the plight of the poor in northern cities and represented a semi-coherent response to African-American riots and insurgencies. But what if poor black people in cities could be held responsible for their poverty? What if, as industrial jobs disappeared by the millions, they became addicted to selling or consuming illegal drugs, produced and/or distributed by U.S. government allies in Cold War counterinsurgent campaigns? Then African Americans could be locked up for nonviolent drug offenses and warehoused in prisons at an accelerated rate.
It is to Feiling’s credit to have discovered this larger truth, albeit in bits and pieces: “As long as the focus stayed on drug sales and drug abuse, inner-city residents could be blamed for the poverty they had been driven into … what the politicians had to do was convince the American public that the inner cities deserved to be abandoned.”
In the 1970s, President Richard Nixon and Governor Nelson Rockefeller in New York campaigned for office by whipping up hysteria about “crime” and “drugs,” and then criminalized African-American communities, militarized policing, and increased incarceration. After a brief respite under Carter, fighting crime and drugs in urban African-American neighborhoods became the rhetorical coin of the political realm under Ronald Reagan. The idea was to put African Americans back in their place without Jim Crow segregation, and to get elected or re-elected by doing it. Fear was to be one of the most enduring weapons in the U.S. politician’s arsenal. In his diary in 1969, Nixon’s top aide, H.R. Haldeman, provided a succinct summary of the overall strategy: “Nixon emphasized that the whole problem is really the blacks. The key is to devise a system that recognizes that, while not appearing to do so.”
In a letter to Dwight Eisenhower, Nixon wrote, “Ike, it’s just amazing how much you can get done through fear. All I talk about in New Hampshire is crime and drugs, and everyone wants to vote for me – and they don’t even have any black people up here.”
Nixon’s War on Drugs,” Feiling notes, was “politically expedient, since it turned attention away from … Vietnam, while preserving the military culture that had inspired the war in the first place.”
Nearly all of those imprisoned in New York State for drug offenses have been African-American or Latino males, most of them from eight neighborhoods in New York City. Whereas the U.S. had 200,000 prisoners in the 1970s, it currently has 1.8 million in jail and 5 million on probation or parole, making it the largest carceral state-society in world history. The U.S. accounts for 5 per cent of the world’s population and 25 per cent of its prison population; 500,000 people are serving time for nonviolent drug offenses.
Needless to say, the profile of the U.S. prison population does not reflect consumption patterns: whites consume an estimated 80 per cent of cocaine in the U.S.A., while African Americans consume 13 per cent; whites consume cocaine in disproportionate numbers, while blacks do not. Yet 38 per cent of those arrested and 59 per cent of those convicted for drug offenses have been African Americans. And stereotypes notwithstanding, whites account for 46 per cent of all crack use, while African Americans consume 36 per cent and Latinos 11 per cent. That is to say that although African Americans use crack out of proportion to their numbers, probably because it is the least expensive of illicit drugs, they consume considerably less of it than whites do.
Just as Jim Crow succeeded slavery at the end of the 19th century after Reconstruction was reversed, militarized policing and prisons replaced Jim Crow after the civil rights movement was rolled back. Black freedom struggles determined the limits of U.S. democracy from the early 19th century through the 1960s, and the criminalization and incarceration of young African-American males through the War on Drugs at the end of the 20th century represented another dramatic constriction of democratic politics in the U.S., first under President Nixon and accelerating under Presidents Reagan, Bush and Clinton. As Feiling and others have stressed, it was through sentencing laws on crack vs. powder cocaine which passed in 1986 under Ronald Reagan – in cooperation with Democratic house majority leader Tip O’Neill – and a revolution in police tactics and organization, that this was achieved.
Such is the domestic context, without which it is impossible to make sense of U.S. foreign policy in producer countries in the Andes (Colombia, Peru and Bolivia) and transport countries in Mexico, Central America and the Caribbean (leaving aside Brazil, whose government does not respond to U.S. pressures). After Ronald Reagan was elected, aerial fumigation was undertaken against marijuana growers in Mexico, Jamaica and Colombia in the early 1980s, even as the Pacific Northwest became the leading supplier of the U.S. marijuana market thanks to its competitive advantage in transport costs; the region was soon to find itself subject to similar, if less toxic campaigns. In 1982, President Reagan became the first to appoint a high-level official, then Vice President George H.W. Bush, to run the South Florida Drug Task Force – composed of agents from the DEA, Customs, FBI, ATF, IRS, Army, and Navy – to deal with cocaine trafficking in Miami, by which time the city’s homicide rate had made headlines thanks to the violence that Colombians had unleashed in their bid to take over and maintain distribution networks.
Before launching the invasion of Panama and the Gulf War, in 1989 President George H.W. Bush created the Office of National Drug Control Policy, led by “drug czar” William Bennett, militarized anti-narcotics policing in Colombia, Ecuador, Peru and Bolivia, and doubled the anti-drug budget to $12 billion. Mexico had already become the major transshipment point for Colombian cocaine, but its dominance only increased with the end of U.S. counterinsurgency wars in Central America, the passage of NAFTA, and the fall of the two so-called cartels in Colombia – Medellín and Cali – under President Clinton.
The Candy Machine’s greatest strength may be its presentation of perspectives from former gang members and drug users, drug traffickers and retired narcotics enforcement officials in the U.S. Thus Rusty, a former narcotics officer for the Department of Corrections in Arizona: “When I talk about legalizing drugs, people say, ‘you can’t mean heroin and crack, right?’ But after 30 years of the drug war, spending a trillion dollars … the bad guys still control the price, purity, and quantity of every drug. Knowing that they control the drug trade, which drug are you going to leave under their control? Regulation and legalization is not a vote for or against any drug. It’s not about solving our drug use problem. It’s solely about getting some control back.”
“They” refers to drug barons, many of them large landowners, as well as warlords, in Colombia, Mexico, Afghanistan and Pakistan, but the problem with Rusty’s analysis is that U.S. government allies in such countries – the intelligence services, the judicial systems, the military and police, business and political elites – are either complicit with or directly involved in supplying U.S. and European markets with cocaine and/or heroin, generally in order to finance counterinsurgency wars. As Cockburn and St. Clair’s Whiteout [to be reissued, updated, in 2010 by CounterPunch Books] describes, this pattern was set in the 1950s, with opium and heroin in places like Burma, Marseilles and Cuba, repeated in the 1960s and ’70s in Vietnam and Laos, and updated with Colombian cocaine in Central America and Central Asian heroin in the 1980s.
The career path of “Freeway Rick” Ross in the 1980s, is illustrative. Unlike everyone else selling cocaine or crack, Rick Ross was supplied with cocaine at cut-rate prices by Danilo Blandon, a Nicaraguan employee of the CIA in the U.S. government’s war against the revolutionary Sandinista government, as documented in Whiteout and the late Gary Webb’s Pulitzer-prize winning Dark Alliance: The CIA, the Contras, and the Crack Explosion (2003). From prison, Ross explained to Feiling, “Me and Danilo Blandon were really tight. I knew from earlier that he was backing some war, and I knew that he was from Nicaragua, but I had no idea about the Contras. I was illiterate at that time, you know. I never read a newspaper or listened to the news. They say that Danilo was protected, and you can assume from the Feds that I was protected too, but I never knew that. I was just in it for the money, trying to get out of the ghetto.”
Blandon sold cocaine to Ross at a price, of a quality, and in quantities that none of Ross’s competitors could match. As former DEA agent Celerino Castillo III, who served in El Salvador, told Feiling, “They gave all the coke to Danilo Blandon, who was a CIA asset. He in turn fronted all that stuff to Ricky Ross. Ross became the Walmart of crack, distributing to the Bloods and Crips and everybody else all over the country… Hangars 4 and 5 at Ilopango airport in El Salvador were used as a trampoline for drugs coming in from Colombia and Costa Rica. Oliver North and a Cuban exile named Felix Rodríguez [a former CIA agent who supervised the execution of Che Guevara in Bolivia] were running one of them, and the other one was owned by the CIA.
All evidence pointed to Vice President George H.W. Bush’s office as overseeing the operation, but, of course, nothing came of it besides the Kerry Committee Report of 1989, which charged the State Department with making payments to Nicaraguan Contras involved in the cocaine business.
In the neoliberal economy of the 1980s, anchored in financial services, insurance, real estate, and speculative asset bubbles, many African-American males and immigrant males of color saw the cocaine-crack business as the way to achieve material security. Cocaine gave a shot in the arm to street gangs, who handled lower levels of wholesale and retail distribution in the U.S. Rick Ross describes his trajectory: “I was a youngster. Uneducated, uninformed, unemployed. I was looking for opportunities. I wanted to be important in the world, somebody who was respected. Basically, I wanted the American dream, so I guess I was ripe for the picking. The opportunity came in the form of drugs and I latched onto it. I just kept saving my money and buying more drugs. My childhood friends would be walking, but I’d be driving a nice car, and they’d want to know how I got the car. ‘Oh, I’m selling cocaine now,’ I’d say. ‘Teach me how to sell cocaine,’ they’d say. So my friends started to get involved, and, before long, we’re making a lot of money, and I’m eating at McDonald’s whenever I want to. At our height, some days a million dollars would come through our hands in a single day. Next thing I know, the whole neighborhood is selling, people were already gang-banging, but now we were able to afford more expensive weapons, more expensive cars, and better houses and the police started noticing it more.”
The comment about eating at McDonald’s speaks volumes about the depths of poverty from which Rick Ross escaped, only to wind up living most of his life in a prison cell. Indeed, for most of those serving hard time for nonviolent drug offenses, the crack business offered much less distance from poverty than it had for Ross. Marc, from South Jamaica neighborhood in the borough of Queens, N.Y. – currently the epicenter of the foreclosure crisis in New York City’s black and brown neighborhoods – described his work as follows: “It was the hardest job I ever had. It’s pure capitalism, you know. Say, you’re selling drugs in the South Bronx, say at 138th and 3rd Avenue, and another crew of guys is selling the same drugs as you two blocks away. The block they’re on is making $2,000 per day, and the block you’re on is making about $2,000 per day. They decide, ‘You know what? You’re a punk. You’re a pussy.’ So they move you.” It’s dog eat dog, to quote the title of a remarkable 2008 film about the cocaine business in Cali, Colombia: a Hobbesian capitalist world of all against all and murder for hire.
This pattern – with gangs as cell forms of organized crime – was repeated among a host of new immigrant groups in the U.S., involved in cocaine distribution and/or smuggling and money-laundering: Colombians, Mexicans, Salvadorans and Guatemalans in L.A.; Colombians, Mexicans and Puerto Ricans in Chicago; Colombians, Jamaicans, Dominicans, Puerto Ricans, Mexicans, Albanians, and Russians in New York. These gangs, of course, are bi- and transnational, just like the cocaine commodity circuit, in which they are embedded: in L.A., there are roughly 2,000 gangs; in Medellín, Colombia, there were reportedly 6,300 gangs in 2003; Chicago is said to have 70,000 gang members.
Gangs involved in distribution aim to reproduce the corporate organization of capitalism, from which their members have been excluded. Hip-hop music testifies to this, particularly the Brooklyn variety pioneered by Biggie Smalls and Jay-Z. Lance, a cocaine wholesaler from South Jamaica, Queens, described his outfit as follows: “The structure of the business is like a Fortune 500. We’d have different titles, but it all basically remains the same as in corporate America. You have your CEO, your supervisor, your treasurer. You might be the captain; you have your lieutenants, your soldiers.” Most Fortune 500 companies have different titles for their executives, though; only the Sicilian mafia uses such terms for its employees. This would seem to be an indication of the extent to which poor African Americans – not to speak of Jamaicans, Dominicans, Mexicans, Colombians, Salvadorans, and so forth – have seized upon mafia organization and ideology to justify the pursuit of employment, upward mobility, material abundance, and, most importantly, “respect.” If so, it provides evidence of delusion, desperation, or some combination thereof, for, as anthropologist Phillipe Bourgeois’ In Search of Respect: Selling Crack in El Barrio (1995) shows, the cocaine-crack business is much like any other low-wage service industry offering no benefits. Feiling found that “street-level sellers earn roughly the federal minimum wage, which at the time of writing stood at $6.55 per hour.” Most top dealers have day jobs and take no more than 25 per cent of total revenues. Only one in six brings home more than $5,000 per month, as 60 per cent of revenues go to wholesalers and retailers on the lower rungs of the distribution chain.
Yet, in spite of the new mafia ideology encapsulated in Jay-Z’s (typically self-glorifying) verse, “even righteous minds go through this” (when contemplating whether to participate in the crack game), the cocaine business offers only marginally more room for upward mobility than the service industries to which African-American and Latino youth are confined in the licit economy – with the added risk, or near-certainty, of prison or violent death at an early age.
For direct producers of tropical agricultural commodities like coffee, neoliberal policies in the countryside – nowhere else applied with greater blood and zealotry than in Colombia – have accelerated a long-term secular price decline: there are no options other than coca for people in isolated rural frontier areas, where there is no state presence or source of employment. A coca grower from the department of Sucre (Monterrey municipality) does the arithmetic: “Getting a sack of potatoes to market will cost a farmer between 3,000 and 5,000 pesos, and it will sell for between 10,000 and 12,000 pesos, depending on demand. Meanwhile, coca is a lot easier to sow and process, and doesn’t need transporting because the traffickers come to the village to buy it. They pay 1,500,000 pesos for a kilo of coca paste.” Making coca paste is and will remain the only option for survival for millions of impoverished peasant families on the Colombian agricultural frontier; the same is true for Peru and Bolivia.
As the experience of the Bolivians Yungas with northern Argentina demonstrates, a legal market for coca dramatically reduces the amount of coca leaf produced for the cocaine business. Bolivian President Evo Morales, whose political base remains the coca growers’ trade union federation in the Chapare that produced him, would like nothing better than to tour the world touting the medicinal benefits of the coca leaf and coca tea, and it is easy to imagine a successful “coca diplomacy” with leaders and consumers in the EU, the U.S., Australia and Japan. But, first, the U.N. Single Convention of 1961 would have to be revised so that companies and firms other than Coca Cola could use the leaf for industrial purposes. Until U.S. domestic politics changes, it will stand.
Decriminalizing Marijuana and Cocaine
Perhaps in recognition of this fact, a number of Latin American countries have de-criminalized personal consumption of cocaine and marijuana. Colombia was the pioneer: in 1994, as head of the Constitutional Court, created in the Constitution of 1991, Judge Carlos Gaviria legalized the personal consumption of up to 20 grams of marijuana, and/or a gram of cocaine, because, he argued, drinkers were much more likely to commit violent crimes, and no one had suggested prohibition of alcohol consumption since the 1920s. Gaviria, who has since moved on to a political career in Colombia’s turbulent electoral Left, said, “Legislators can proscribe certain forms of behavior toward others, but not how a person is behaving toward him or herself, as long as this doesn’t interfere with the rights of others.” Ecuador, Argentina and Mexico have since followed suit, which represents the extent to which Latin American countries have sought and attained greater autonomy from U.S. imperial control, as many of the anti-drug laws in Latin America were drafted under U.S. diplomatic pressure. Latin American countries have now joined the Netherlands in treating drug consumption as a public health problem rather than a police problem.
In the U.S., however, as Feiling points out, “legalization” is a “third-rail issue” for politicians, meaning that most will not mention it for fear of destroying their political careers. As President Obama’s drug czar, Gil Kerlikowske, put it in July 2009, “Legalization is not in my vocabulary nor is it in the president’s.” To understand why, it is helpful to ask who wins and who loses from legalization. The losers, not necessarily in order of importance, would include U.S. Immigration and Customs Enforcement, the DEA, U.S. Border Patrol, the FBI, the ATF, the IRS, state and local police forces, the U.S. Coast Guard, the U.S. armed forces, to name only some of the agencies whose budgets depend on the drug war for funding, as well as their counterparts in U.S. client states throughout the Americas; arms manufacturers like Sikorsky Helicopters; large pharmaceutical companies like Pfizer; suppliers of chemicals for fumigation like Monsanto; the banking sector as well as off-shore tax havens; the Republican Party; along with warlords, gangs and gangsters. The clearest winners would be consumers, direct producers, and societies that would be less militarized, less carceral, less moralizing, and would have stronger public health and education systems. But, as Jack Cole, who spent 26 years in policing narcotics in New Jersey and is now the executive director of Law Enforcement against Drug Prohibition, stressed to Feiling, “When you train your police to go to war, they’ve got to have an enemy.” Cole considers the War on Drugs a “terrible metaphor” for “policing in a democratic society.” Terrible, alas, but substitute “neoliberal” for “democratic,” and it is nothing if not apt. Predictably, Obama and Kerlikowske have dropped the nomenclature, but the policies remain intact.
Forrest Hylton is the author of Evil Hour in Colombia (Verso, 2006), and with Sinclair Thomson, of Revolutionary Horizons: Past and Present in Bolivian Politics (Verso, 2007). He can be reached at forresthylton@yahoo.com.
Climate draft offers new support for nuclear power
By Jim Snyder | The Hill | 02-02-10
Climate change legislation being written by a Senate climate trio includes additional loan guarantees, tax breaks and a streamlined regulatory approval process to boost the nuclear energy industry.
A draft of the title, obtained by E2 Wire from an energy lobbyist, shows Sens. John Kerry (D-Mass.), Joseph Lieberman (I-Conn.) and Lindsey Graham (R-S.C.) are contemplating a series of incentives for nuclear power.
The language is the first to emerge from the behind-the-scenes talks the three have led in hopes of striking an accord on climate change to attract centrists.
A spokesman for Kerry said the language was not current but declined to say how it had changed. The draft title reflects themes that Kerry, Lieberman and Graham have already laid out.
President Barack Obama also called for additional support for the industry in his recent State of the Union address. His budget includes $54.5 billion in loan guarantees for the industry, tripling the $18 billion in authority Congress has already approved.
A summary of the draft title attached to the legislative text lists several nuclear incentives:
“Regulatory risk insurance to increase investor confidence and minimize the financial risks associated with prolonged regulatory delays,
Accelerated depreciation for nuclear plants;
Investment tax credits to create parity with the benefits enjoyed by wind and solar power; and
A doubling the authorization for loan guarantees from $48.5 billion to $100 billion, of which $38 billion will be available for nuclear plants.”
Kerry confirmed that tax incentives and loan guarantees are part of the nuclear section.
“We have made huge progress on it and I think we have a terrific title,” he told reporters in the Capitol Tuesday.
Kerry said the distribution of the draft titles has been limited.
“We have not circulated any component of this widely because we are trying to tie all the pieces together before we start having any kind of dissection,” he said.
Kerry said there has also been progress on titles addressing renewable and alternative energy, natural gas and offsets.
He added that the lawmakers are still determining their exact mechanism for putting a price on carbon emissions.
Other provisions include support for worker retraining program to respond to concerns that “an aging nuclear workforce is on the brink of retirement,” according to the summary.
See also:
Nuclear energy firms seek more than loan guarantees for revival
Ben Geman contributed to this post.
The defense industry is pleased with Obama
By Laura Flanders | Online Journal | February 4, 2010
Who says the president is failing to show leadership? In one area at least, there’s no sign of flag or falter. If anything, the administration’s only becoming more forthright. Sad to say, that area is military build-up.
Last year, the White House made a big deal of cutting a weapons program — the F-22 fighter jet — and the cuts conveniently obscured the growth in spending on unmanned aircraft or drones (the weapons that Pakistanis say killed a record 123 civilians in 12 attacks last month; 41 for every alleged Al Qaeda member.)
This year, the president dispensed with window dressing. No big deal about cuts — except on the domestic side. While the administration’s record $3.8 trillion budget shrinks or freezes spending on domestic needs, it requests $708.3 billion for war. That’s $14.8 billion more than we’re spending now.
The total includes $548.9 billion for “regular” war, plus $159.3 billion for special spending on the wars in Afghanistan and Iraq. Oh yes, the administration’s also asking Congress to increase spending on new nuclear weapons by more than $7 billion dollars over the next five years — despite that peace prize-winning pledge to cut the US arsenal and seek a nuclear weapons-free world.
The quote of the day comes from the CEO of a military contractor-funded policy group called the Lexington Institute. Loren Thompson tells Tuesday’s New York Times, “The defense industry is pleased but bemused . . . It’s been telling itself for years that when the Democrats got control it would be bad news for weapons programs. But the spending keeps going on.”
Take that you Nobel committee!
And to think some whiners complain about Democrats suffering from a lack of direction.
Haiti an example of dictatorships that rely on Israeli weapons
Originally published in Ha’aretz/Hebrew, penned by Nirit Ben-Ari. This translation is from the February 1 WW4 Report: “Haiti and the Jews: Forgotten History.” Excerpt:
But it seems the Israeli involvement in the nation was not always so positive. On Dec. 27, 1982, the US newspaper Christian Science Monitor reported that since 1968 Israel had sold weapons to two Haitian dictators-Francois Duvalier, who became president in 1957; and his son Jean-Claude Duvalier, who succeeded him in 1971. The two, known as “Papa Doc” and “Baby Doc,” controlled and terrorized the country with a private army. On March 27, 1983, the New York Times reported that Israel was among the few countries that had agreed to sell weapons to Baby Doc, and provided him with the long-term payment arrangement that he requested.
Paul Farmer, who would serve as President Bill Clinton’s deputy UN representative to Haiti, previously reported that Gen. Prosper Avril, the head of the military junta that took power in Haiti in 1988, received temporary asylum in Israel in 1990. Avril was the head of Baby Doc’s notorious “Presidential Guard,” and a US court ruled that he was responsible for “scandalous human rights violations.” He would later serve prison time in Haiti for his crimes.
In 1990, four years after Baby Doc was ousted from power, the popular priest Jean-Bertrand Aristide was elected president of Haiti-in the first democratic elections the nation had seen. But in 1991 he was deposed in a military coup. Britain’s The Independent newspaper reported Oct. 14, 1991 that about 2,000 Uzi and Galil machine-guns from Israel were sent to Haiti in the weeks prior to the coup-with diplomats claiming the weapons went to military units especially loyal to the coup-plotters.
According to an Aug. 1, 2005 report in Jane’s Intelligence Review, weapons of Israeli origin were being smuggled through Florida and ending up with armed gangs in Port-au-Prince in this period-some in collaboration with the junta, and some opposed.
The Israeli Defense Ministry did not issue any reaction by publication time.
Now, as Israeli doctors and nurses work around the clock at the hospital that was established in Haiti, one can only hope that Israel’s contribution to the suffering nation will now focus on saving lives, and not on weapons shipments.
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