The ancient Scythian philosopher, Anacharsis, was reported to have remarked cynically that “Law’s are like spiders web; they hold the weak and delicate who are caught in their meshes, but are torn to pieces by the rich and powerful”, after learning the Athenian statesmen, Solon, had been employed to draw up a law of codes for Athens.
While the metaphor is over two and a half millennium old, it seems to be just as relevant in describing America today as it was in describing the ancient city. Almost four years after releasing The Financial Crisis Inquiry Report, which “catalogues the rising incidence of mortgage fraud” leading up to the crash, there has been a surprising lack of prosecutions or attempted prosecutions by the government. This is especially true for the big names on everyones “suspect” lists drawn up after the crisis. The justice department seems to be satisfied with collecting enormous fines from companies, like the recent $16.65 billion from Bank of America, rather than going after any particular individuals.
But while affluent speculators seem to be walking away from their crimes without punishment, the American prisons are certainly not lacking in inmates, as shown by the 501,500 people currently in state and federal prisons and jails for drug offenses. This statistic is up from just 41,000 in 1980, according to The Sentencing Project. And here’s another fun fact that I’m sure everyone knows by now: we have the highest incarceration rate in the world! 716 out of every 100,000 American residents are incarcerated. Compare that to the United Kingdom’s rate of 147 per 100,000 and its clear that somethings wrong here. Our prisons are jam packed, but we cannot seem to put any individuals responsible for turning the most secure investment we have into a game of roulette inside them. As if “everyone was doing it” is a valid defense.
Along with the news of Bank of Americas record fine, it was also reported that Angelo Mozilo, the former chief executive of Countrywide Financial, may be facing another civil suit from a U.S. government task force. In 2010, Mozilo agreed to pay $67.5 million (Countryside and Bank of america paid $45 million of it) to settle a civil fraud case with the Security and Exchange Commission. He reportedly earned $535 million from 1999 to 2008. Mozilo, who described one of his companies loan products in an internal email as “poison” and that in all of his years he had “never seen a more toxic [product]”, later told the commission that “Countrywide was one of the greatest companies in the history of this country and probably made more difference to society, to the integrity of our society, than any company in the history of America.”
In a recent interview with Bloomberg, Mozilo expressed confusion as to why people were angry with him. “Countrywide didn’t change. I didn’t change. The world changed.” He said, as if the people who couldn’t pay their mortgages held all the blame. “No, no, no, we didn’t do anything wrong...Countrywide or Mozilo didn’t cause any of that.” He said of the real estate collapse, referring to himself in the third person, like Gollum from “The Hobbit.” Maybe he’s working on an impersonation? This would explain the apparent personality changes he’s had. While saying Countywide “didn’t do anything wrong”, he also told his senior management in August 2005 that loans they were making could lead to “financial and reputational catastrophe” and that Countrywide should not market them to investors. But they did.
In February 2011, federal prosecutors dropped their criminal investigation of him for selling $140 million in Countryside stock while he clearly foreseeing the coming “financial catastrophe”. There has been no further report of the new civil suit, but with the federal prosecutors track record, I wouldn’t hold my breath.
Clearly the justice department is hesitant to actually go after any actual human beings involved with the financial madness. So what kind of cases do federal prosecutors manage to make? One example might be Dorothy Gaines, who was not a wealthy individual who could afford to pay million dollar fines. She was a nurse who lived in Mobile, Alabama, raising her three children as a devoted single mother. On August 1993, her house was raided for drugs by Alabama state police, where they found no evidence of her having possessed any drugs. Little did she know that her then boyfriend was a low level drug dealer. While the state police dropped charges, federal prosecutors charged her with “drug conspiracy”. She refused to plead guilty and was sentenced to 19 years and 7 months in prison. Taken from her children for an imaginary crime. After six years in federal prison, President Bill Clinton commuted Gaines sentence in December 2000.
State and federal governments have reportedly spent more than a trillion dollars over the past four decades to battle drugs, which has helped achieve unchanged addiction rates and the worlds highest level of incarceration. The “War on Drugs”, was very much an ideological reaction to the anti-establishment attitudes and drug use of the 1960’s, but it was not until the 1980’s that incarceration skyrocketed and the real war began under Reagan and Bush. “Casual drug users outght to be taken out and shot” said Daryl Gates, the former Los Angeles police chief and founder of the DARE program. This type of attitude created a sort of pathological hatred for anyone who used drugs, and the ideology spread through the media. Draconian laws were put into place by congress in the midst of the propaganda.
In the 1990’s, while Clinton continued the drug war, rejecting a U.S. Sentencing Commission recommendation to eliminate the difference between crack and powder cocaine sentences, a racist disparity, his administration also continued Reagan and Bush’s neoliberal policies of deregulation, signing into law the Financial Services Modernization Act of 1999, which paved the way for the derivative madness of the 2000’s.
Deregulation created a perfect environment for men like Ralph Cioffi and Matthew Tannin, who actually faced criminal charges, but were found not-guilty of conspiracy and securities and wire fraud by a federal jury in November 2009. They agreed to pay just over a million dollars together afterwards to settle with the SEC. Cioffi made about $41 million in compensation from 2005 to 2007 and in the year that his hedge fund filed for bankruptcy, he made $17.6 million.
Cioffi and Tannin’s Bear Stearn Hedge Funds were looking pretty bad by 2007. An internal risk exposure report for their High-Grade fund showed that 60% of the funds collateral were subprime mortgage-backed CDO’s, which were quickly losing market value. Privately they panicked, and Tannin recorded in his personal email that the Enhanced Fund (one of their hedge funds) “was going to subject investors to ‘blow up risk’”. But when it came to what they told investors at a March 12 conference call, their panic seemed to have subsided. They assured investors that both funds “have plenty of liquidity” and that they continued to invest their own money as evidence of their confidence. In reality, by April, Cioffi had redeemed $2 million of his $6.1 million from the Enhanced Fund. The internal panic and public calm continued until the hedge funds had both shrunk to almost nothing by July of that year. The High-Grade Fund had dropped 91% and the Enhanced Leverage Fund by 100%. Investors lost an apparent $1.6 billion.
So what is going on this country? Apparently our government has deemed snorting or smoking a chemical substance much more worthy of legitimate punishment than something like financial fraud. In 2012, 749,825 people were arrested for a marijuana law violation, 88 percent just for possession. Put something into your own body and you may face time behind bars. Damage the entire planets economy and put pensions funds and the financial well being of millions at risk and, well, pay us.
A man like Angelo Mozilo can afford to pay a twenty million dollar fine, but a woman like Dorothy Gaines might have trouble paying for a decent lawyer. If they could collect a million dollar fine from a drug addict, would they? I don’t believe it is purposely rigged, but the fact that this country is controlled solely by the mighty dollar has inevitably created this inequality before the law. But its not all bad news. We seem to be slowly weaning off of the drug war and throwing out our draconian past. And as of last weeks election, four states have legalized marijuana, a trend that is likely to continue. As far as justice on Wall Street, we’ll have to wait and see. But until politicians have the fortitude to stand up to big money, it seems the rich and powerful will continue to tear free from the web of law.
References:
1)http://time.com/...
2)http://www.prisonpolicy.org/...
3)http://www.bloomberg.com/...
4)http://www.sentencingproject.org/...
5)http://www.nytimes.com/...
6)http://www.gpo.gov/...
http://www.nytimes.com/...
7)http://www.bloomberg.com/...
8)http://www.bloomberg.com/...
9)http://www.huffingtonpost.com/...
10)http://www.drugpolicy.org/...