Does the United States have a pay-to-play justice system? Excerpted from Inforum’s “A Scathing Portrait of American Injustice,” April 10, 2014.

MATT TAIBBI, Former Contributing Editor, Rolling Stone; Author, The Divide

In conversation with
CLARA JEFFREY, Co-Editor, Mother Jones

 

CLARA JEFFREY: You start The Divide by unearthing the story of the Holder memo, which is pretty obscure. Tell us what it is and how did it come to play a role in the financial crisis?

MATT TAIBBI: The Holder memo goes back to the late 1990s when Eric Holder – who was then just an official in the Bill Clinton Justice Department – wrote a memo, which was originally thought of as a “get tough on crime” document. The memo provided federal prosecutors with guidelines that they could use to go after white-collar offenders. Most people at the time paid more attention to the tough aspects of this memo. Among other things, it allowed prosecutors to say to corporate offenders that we will only give you credit for cooperation if you do things like waive privilege, which was a powerful tool that federal prosecutors had never had before.

So for years, this was actually thought of as an anti-business document. But at the bottom of the Holder memo, there was this little addendum and it outlined something called the collateral consequences policy. All collateral consequences really said was that if you are a prosecutor and you’re going after a big, systemically important company that maybe employs a lot of people and you, the prosecutor, are concerned that there may be innocent victims if you proceed with a criminal case against this company – for instance, shareholders or executives who had no role in the wrongdoing – then you may seek alternative remedies apart from criminal prosecutions; in other words, fines, deferred prosecution agreements, non-prosecution agreements. All that it’s really saying is that you don’t necessarily have to criminally prosecute when you have a big company that’s done something wrong. This is a completely sensible policy. It makes a lot of sense. It even makes a lot of sense now.

The problem is that, when [Holder] returned to office, as attorney general, he came back to a world that was populated by this new kind of corporate offender, the too-big-to-fail bank, which was basically exactly the kind of company that collateral consequences could have been created for. A lot of these companies had done a lot of very shady things, and collateral consequences provided the government with a way to proceed that didn’t involve criminal prosecutions. It just gave the government an excuse to not go forward.

Furthermore, even though the original intent of this doctrine was to prevent prosecutions against companies, they’ve begun to conflate it and also not proceed against individuals in the companies as well, which I don’t think was the original intent of the Holder memo. But that seems to have been its legacy, because we’ve seen a series of settlements where they haven’t proceeded against either the companies or the individualsworking at the companies.

JEFFREY: There have been some massive fines, and trials can be lengthy and super expensive. So what do you think is the argument against just going the fine route rather than even trying to prosecute some of these folks?

TAIBBI: So this is a super important question, because in a vacuum a lot of this approach of very high fines coupled with strict deferred-prosecution agreements – where they may impose certain conditions on the company – in a vacuum that may make a lot of sense. It may seem like the best possible resolution. The state doesn’t have to waste five, six, seven years trying to prosecute a company and you don’t have to beat back thousands of motions and worry about losing a case where you have to expend enormous resources. So it does make a kind of sense, but the problem is that it falls apart when you think about who doesn’t have the option to just buy their way out of jail.

Here I should sort of make a confession that when I decided to write this book, this was right around the time of the Occupy protest, and ironically the financial crisis had been kind of a boon to my career. Before 2008, I was sort of a typical, political – I guess you would say humorist. I sort of made fun of politicians for a living. That was really all I did. I had this existential crisis about whether or not that work was valuable at all.

Then I got assigned to cover the financial crisis and look into the causes of it. I started doing these stories, and I discovered this whole complicated world of things I never knew about underneath. I was doing these pieces where I was basically translating these very complicated and elaborate scams and trying to help broad audiences understand what had happened in 2008, and I felt like this was a really worthwhile endeavor.

I was trying to think of what I would write about next, and it occurred to me that I should write about the fact that nobody was going to jail. Somewhat cynically, I thought, “This is going to be easy, because morally this is totally indefensible and all I have to do is tell a few stories about people who have done terrible things and gotten away with it and boy will that make people angry and it will sell a lot of books and that will be easy.” Then I started to do my due diligence.

I decided to look into who does go to jail in America and why, and I started to become overwhelmed by all these horrible, horrible stories of injustices that were being done to ordinary people who didn’t have money. One of the first days I went out, I heard of a story about a 13 year-old mentally disabled African-American boy in Brooklyn who had been picked up by a couple of cops; they threw him in the back of a squad car and told him that he couldn’t go home that day until he helped them find an illegal gun. So he ended up telling them that there was a gun at his grandmother’s house, and they descended upon that kid’s grandmother’s house. They hauled in the grandmother; they hauled in the kid; they hauled in the kid’s brother. It’s terrible. I heard story after story. An undocumented immigrant in Los Angeles gets arrested for driving without a license and she’s sentenced to 170 hours of community service and a $1,700 fine and she has to take her kids to the community service every night. She’s crying herself to sleep every night.

I was emotionally overwhelmed by all of these stories of people who were doing time, who were thrown in jail for varying degrees of absurdity. It struck me that there’s no way to talk about whether or not this collateral consequences policy is justified until you actually look in the mirror and ask yourself: Do you really know who’s going to jail in this country and why people are going to jail in this country? A lot of people just don’t know. But it’s morally indefensible when somebody can pay a fine and get out of a billion dollar theft while other people are doing two or three years in jail for reaching into a cash register in a liquor store.

JEFFREY: Who surprises you most who’s not been prosecuted amongst the Wall Street crew? Like, is there a specific example that  [makes] you think, “Wow I can’t believe these people didn’t go to trial?”

TAIBBI: Let’s talk about Countrywide, for instance. Of course there was a case. There was an SEC case involving Angelo Mozilo, the creator of Countrywide. Countrywide nearly blew up the entire world. The innovation of this company was basically that they were going to give a loan to anything with a pulse and this was part and parcel of the whole scam that underlined the entire subprime mortgage crisis. It was a very crude fraud scam, actually. It was just dressed up in a lot of camouflaging jargon.

Basically, banks lent billions of dollars to companies like Countrywide, who in turn went out to poor and middle-class neighborhoods and gave loans out to everybody that they could find. I talked to one former mortgage broker who worked for a company like Countrywide who used to go to 7-11s at night and hang around the beer cooler, and that was how he found clients to give mortgages to. It didn’t matter how much or whether the people had enough income to pay; it didn’t matter whether they were citizens, whether they had identification, whether they were real people at all. [Countrywide] created the loans and they sold them back to the banks. The banks pooled the loans and chopped them up into securities and then they more or less instantly turned around and sold these securities to institutional investors like pension funds, foreign hedge funds, foreign trade unions.

In other words, it was this giant scam. People thought they were buying triple-A-rated real estate here in the United States. In fact, they were buying the home loans of extremely risky home borrowers here in the United States. Countrywide was at the center of this whole thing. I talked to a whistleblower from Countrywide. He was hired to be part of their quality control team of all things. He tells the story of pulling into the parking lot to meet with Angelo Mozilo and his lieutenants and there’s a fancy car in the parking lot that has a personalized license plate that says, “Fund ‘em.” When he asks about it, they’re like, “Yeah, we give mortgages basically to everybody who asks.”

Their irresponsibility nearly blew up the entire national financial system. Angelo Mozilo made about half a billion dollars working at Countrywide, and he was fined by the SEC something in the order of $49 million, most of which was covered by an insurance policy by Bank of America, which by then had acquired Countrywide. He ended up, out of his pocket, only paying about $1 million, $2 million, and he walked away with something like $400 million that he got to keep, and he’s not doing any time. He’s patient zero of the financial crisis.

JEFFREY: So bankers clearly can’t go to jail. Why is crime down, but the prison population is five times what it was 20 years ago?

TAIBBI: I asked that question of so many people, and the answer I kept getting was, “It’s a statistical mystery.” Nobody really knows why crime started to go down in the early ’90s in the United States, but it’s plunged. Violent crime has plunged, something in the order of 44 percent since 1990. It’s across the board; it’s in all regions of the United States: cities, rural areas, it doesn’t matter. Crime is just down.

Some people ascribe it to the aggressive statistics-based policing strategies, like broken windows. You know, the whole idea that we’re no longer going to turn a blind eye to things like fare jumping or jaywalking and we’re going to pick up everybody who does every little thing. And that’s been a cornerstone of policing, for instance, in New York City, where I live. Last year, in New York City, they issued 600,000 summonses for things like riding the wrong way down a sidewalk on your bicycle – that [one] was 20,000 summonses. There were 80,000 for open container violations.

JEFFREY: What was the hardest part for you to slog your way through in understanding: the fiscal crisis or the criminal justice system?

TAIBBI: I remember the first time when I started to read about the financial crisis; it was after the Sarah Palin speech. It was September 3rd, 2008. I was at the convention and I was in the filing room after her speech. I was just about to write up her thing and I’m looking on the Internet and I’m seeing that the world is ending.

I was so worried about this because we didn’t know anything about the economy and it was blowing up before our eyes. But everybody I talked to just spoke in that impenetrable jargon, and it’s really, really difficult to get a read on it. I would call up people and say, “Tell me something about something.” That’s how desperate I was in the beginning. I just would randomly call up analysts and just say, “Tell me something understandable.”

It wasn’t until I found a guy who basically made cartoons about Goldman Sachs who sat me down and he walked me through some very basic things about how subprime mortgages worked and how collateralized debt obligations worked. I got the basics of it, but it took me three months.

JEFFREY: Your pieces can seem very fueled by rage. I’m wondering how that helps you propel yourself through a piece and also does it sometimes make you feel like, “Wait, I have to feel on my own personal level a sense of hope”? What is that thing that you’re hopeful about?

TAIBBI: I think it’s important for a journalist just to have a sense of outrage about things. This is one of the things that motivated me to kind of move in a certain direction with my career. A long, long time ago, I worked for a newspaper in Moscow called The Moscow Times. We would be writing about things that were sort of epic scandals like the loans-for-shares scandal, which was a thing where a bunch of Boris Yeltsin’s buddies privatized the jewels of the Soviet industrial empire to themselves for free. We would describe these things and we would use this sort of unemotional language. It occurred to me that if you’re writing about something that’s outrageous and you don’t write with outrage, then that’s deceptive.

JEFFREY: So after you left The Moscow Times, you helped found a really subversive publication called The eXile, which mercilessly attacked Russian officials and others. What would the Matt Taibbi of then say to the Vladimir Putin of now?

TAIBBI: Vladimir Putin was an officer the last couple of years when I was at The eXile. We were actually more upset not with Putin back then, but with the American reporters who were enabling him. When Putin came up through the ranks, he was thought of as a friend of the United States. People thought that he was going to be a continuation of the Yeltsin presidency. Yeltsin, of course, was basically a patsy for the United States government and Putin, being his handpicked successor, they would use terms like technocrat to describe him.

I remember, particularly, there was a New York Times story that talked about his past as a KGB agent. They went into this whole thing about how the KGB actually wasn’t that bad of an organization and that in the Leningrad of the 1970s, where Putin grew up, it was a cool career choice for a young man of talent and intelligence. They made all of these excuses for a guy who not only had been a KGB agent, but had basically been a bagman for one of the most corrupt mayors in Russia, which is saying a lot.

What would I say to him now? Look, he’s been horrible. I was personal friends with a couple of journalists who are no longer with us because of Vladimir Putin. Journalists like Anna Politkovskaya.

Putin’s a difficult character to sort of sum up easily because he’s a bit of a hero to the ordinary Russian person because he represents standing up to the West; he represents keeping Russia’s wealth in Russia, which he did achieve on some level. During the Yeltsin years, the Russian capital was flying out of the country and ending up in Swiss banks and the Russian people were suffering. So he’s a complicated character. I think he’s morphed into a classic Russian strong man. That type has reappeared over and over again in Russian history and it’s almost never a good thing.