The Divide (by Matt Taibbi): A Book Review
The book for today is The Divide: American Injustice in the Age of the Wealth Gap by Rolling Stones journalist, Matt Taibbi. The edition I'm holding in my hands is hardcover; it was published by Spiegel and Grau in New York, in 2014 under the copyright of Mr. Matt Taibbi. We're looking at about 410 pages, not including the introduction and a page of acknowledgments at the very end of the text.
Okay, let's begin with a word about what the book says about itself. As I always preach, a good place to start is to read the blurb on the inside jacket cover. Let's do that now.
A SCATHING PORTRAIT OF AN URGENT NEW AMERICAN CRISIS
"OVER THE LAST TWO DECADES, America has been falling deeper and deeper into a statistical mystery:
Poverty goes up. Crime goes down. The prison population doubles.
Fraud by the rich wipes out 40 percent of the world's wealth. The rich get massively richer. No one goes to jail.
In search of a solution, journalist Matt Taibbi discovered the Divide, the scam in American life where our two most troubling trends---growing wealth inequality and mass incarceration---come together, driven by a dramatic shift in American citizenship: Our basic rights are now determined by our wealth or poverty. The Divide is what allows massively destructive fraud by the hyperwealthy to go unpunished, while turning poverty itself into a crime---but its impossible to see until you look at these two alarming trends side by side.
"In The Divide, Matt Taibbi takes the readers on a galvanizing journey through both sides of our new system of justice---the fun-house mirror worlds of the untouchably wealthy and the criminalized poor. He uncovers the startling looting that preceded the financial collapse; a wild conspiracy of billionaire hedge fund managers to destroy a company through dirty tricks; and the story of a whistleblower who gets in the way of the largest banks in America, only to find herself in the crosshairs. On the other side of the Divide, Taibbi takes us to the front lines of the immigrant dragnet; into the newly punitive welfare system, which treats its beneficiaries as thieves; and deep inside the stop-and-frisk world, where standing in front of your own home has become an arrestable offense. As he narrates these incredible stories, he draws out and analyzes their common source: a perverse standard of justice, based on a radical, disturbing new vision of civil rights.
"Through astonishing---and enraging---accounts of the high-stakes capers of the wealthy and nightmare stories of regular people caught in the Divide's punishing logic, Taibbi lays bare one of the greatest challenges we face in contemporary American life: surviving a system that devours the lives of the poor, turns a blind eye to the destructive crimes of the wealthy, and implicates us all."
I'd like to start by saying: I like this book a lot. I like the way it is written; and I like, in general, the writing of Rolling Stones journalist, Matt Taibbi. Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History is another book I enjoyed very much. Mr. Taibbi is a talented distiller of complex Wall Street, and intersecting financial, legal, and political issues.
He unravels or unties knotty complexities, for the layperson, without sacrificing nuance and without oversimplification.
In Griftopia, if I have read him right, Taibbi described the financial crisis of 2008, as the culmination of a series of criminal---and prosecutable and jail-worthy---enterprises unleashed up and down Wall Street and the American financial sector.
Why is was that none of the fancy people in fancy suits in fancy offices in fancy skyscrapers, were criminally prosecuted and put in jail---whereas the poor accused of cheating on welfare or unemployment benefits (violations, if true, only run into the hundreds of dollars, unlike the fraud committed by the super rich, which, typically runs into the billions) tend to be pursued with the full avenging fury of the state---is the subject of The Divide, the book presently under our review.
The Singular Unknown-Known
One of my intellectual preoccupations is pointing out some philosophers call "unknown-knowns." That is, things that we know, but don't know we know.
There is a great unknown-known that one can derive from Mr. Taibbi's book. This is a singular (but very basic when you think about it) principle that the author approached, came to its edge, but did not actually grab hold of.
Here is that principle in my own words: If you put people in a position that requires them to do something that is literally impossible---I mean defy the laws of physics impossible---then the only way they will be able to do 'x' will be by cheating. This will create a culture of cheating; which means that the people who will thrive the most will be the best cheaters.
Stop and Frisk Law Enforcement
The principle, again, is this: If you put people in a position that requires them to do the literally impossible---I mean defy the laws of physics impossible---then the only way they will be able to do 'x' will be by cheating. This will create a culture of cheating; which means that the people who will thrive the most will be the best cheaters.
Where talking about street crime in economically depressed neighborhoods. Mr. Taibbi makes reference to "a new kind of law enforcement technique. The basic principle... is volume arresting. Its fishing for crime with dynamite. In bad neighborhoods, in immigrant neighborhoods, in parks and alleys, you arrest first, ask questions later" (Taibbi, 75).
Why is that? The author tells us.
"[I]n the early 1990s, for reasons that are still a mystery to cops and academics alike, crime started dropping. Some say it was the advent of computer databases and advanced policing methods. Others say it was because of changes in the drug trade. Still others say it was cultural or had to do with the behavioral tendencies of a new influx of immigrants. Curiously, for instance, the drop in violent crime is most pronounced in cities with high immigrant populations (Taibbi, 94).
So, we have falling crime starting in the early 1990s. Here comes the impossible situation.
"But the steep drop in violent crime presented police with a problem," writes Matt Taibbi. "if making arrests is the only way to advance your career, but crime is dropping, what do you do? Furthermore, what to do if the only way to make a living wage is to rack up as much overtime as possible? In the Safir era, NYPD starting salaries were on the low end for professional police forces in America, beginning at about forty thousand dollars. How do you add hours in an era when crime is dropping?" (Taibbi, 95).
Let us be very clear about this. The impossible task---the defying the very laws of physics impossible---that police are confronted with here is to continue making increased criminal arrests when crime is dropping.
The only way to carry out that IMPOSSIBLE mandate is to cheat!
Matt Taibbi again: "The answer turned out to be, you simply create arrests. By multiplying marijuana arrests by a factor of ten in the space of a few years, Safir's police force drastically increased its workload" (ibid, 95).
That is the reason for the following statistic. A University of New York professor called Harry Levine studied New York City arrest statistics for drug offenses. He noticed what the impact had been since the city had decriminalized the possession of small amounts of marijuana in 1977 (Taibbi, 92).
From 1978 to 1988 there were about three thousand possession arrests per year. From 1988 to 1998 it was about the same. But from 1998 to 2008 the possession arrests jumped to thirty thousand a year (ibid).
And we should also mention "CompStat, which forces police precincts to take a quantitative approach to crime: each precinct has to submit weekly statistical reports to central command. Not only precincts but individual officers were now measured against one another not by the quality but by the quantity of arrests they made. (Taibbi, 94).
"Moreover,"---still quoting---"the computerized system allowed police to turn the simple act of writing a summons for peeing on a sidewalk or jumping a turnstile into part of a massive intelligence-gathering operation. Every contact between a police officer and some kid walking down the street went into the big machine and made it a faster, more muscular weapon for finding and tracking subject populations" (ibid).
Stay with me.
As a result of all of this: "By the mid-to-late 2000s, police stops had multiplied all across the board for a range of seemingly minor offenses. The numbers by 2012 would be 600,000 summonses a year, more than three times the levels from the late 1990s. Of those 'only' 50,000 were for simple marijuana possession. Another 140,000 would be open-container violations for carrying alcohol in public. An additional 80,000 summonses per year would be written for 'disorderly conduct.' And an incredible 20,000 summonses per year would be given out for riding bicycles on sidewalks" (Taibbi, 95).
And the thing that put even more pressure on that situation...
Matt Taibbi: "Meanwhile, during the mid-2000s, a state arbitrator forced the NYPD to slash starting yearly salaries for new officers to a preposterous $25,100. The reduced pay forced some 4,500 officers to quit in a period of a few years in the middle of the decade. The ones who stayed on the job had to really scramble to make a living wage. They did so by inventing an entirely new way of doing the job. It would be a revolution in what Levine calls 'sub-misdemeanor policing'" (Taibbi, 95-96).
Let me just say this before moving on
As we have seen, small amounts of marijuana were supposed to have been decriminalized, in New York City, in the late 1970s. This means that people carrying small amounts of marijuana were supposed to have been decriminalized, in New York, in the late 1970s. But that legislative intent was directly contradicted by the structural impediment of precincts full of police officers who had to "scramble to make a living wage."
Industry and Finance
I will repeat the principle, the great unknown-known. If you put people in a position that requires them to do something that is literally impossible---I mean defy the laws of physics impossible---then the only way they will be able to do 'x' will be by cheating. This will create a culture of cheating; which means that the people who will thrive most will be the best cheaters.
The laws of physics defying thing I'm talking about, here, is the garnering of infinitely increasing profits on a finite planet, full of finite people, with finite capacities. If you have a company that makes something, you find that you cannot always find new additional customers to sell your wares to; and you cannot always count on your old customers to buy more from you, helping you to increase your profits that way. After all, these people have their own problems and challenges.
And yet, to keep your stock price rising, or at least at a stable level, you feel compelled present your books exactly as though you have sold more of your stuff than you did last quarter, and last quarter this time last year, and the year before that, and so forth. Because when you have made more stuff than you did last quarter without selling it, that is a loss.
One thing you might do, when there are no actual new people to buy your junk is to---wait for it---invent them. During the Enron scandal, you may remember, that is essentially what Andy Fastow, Enron's chief financial officer, did. He fantasized entities that make-believe bought whatever stuff Enron produced, which they could not get actual people to buy. In this way, they disguised their losses.
There were a handful of companies that got caught up in scandal. They were the most egregious, blatant offenders, but by no means the only ones.
Anyway, as you know, companies that physically make actual stuff comprise what economists, themselves, refer to as the real economy.
If actual goods and services producing businesses comprise the "real" economy, finance is the motor of the real economy. Finance funds industry (banking, insurance) and also "bets" on it (Wall Street).
Wall Street--and finance as a whole since the legislative firewalls between commercial banking, insurance, and investment services have been torn down---wants to garner infinitely increasing profits in a finite world, full of finite people, with their finite capacities.
Since the businesses they bet on (stock market) hit a snag every now and again, and take measures to "protect" themselves---so too must the financial sector seek to protect itself in the face of hiccups in the "real" economy. Basically, I'm talking about derivative trade.
Derivatives are insurance policies on debt. It got to the point where these derivatives, themselves, were being traded around like stocks. These instruments opened the financial world into a universe of rich profit-making, and fraudulent, opportunities. But that's neither here nor there, for our purposes.
But back to our principle. Finance cannot make infinitely increasing profits on a finite world, full of finite people, with their finite capacities----because the real economy businesses they bet on cannot do this.
But both real economy industry is in a situation in which they feel compelled to, effectively, pretend that infinitely increasing profits, forever, is possible. Because industry makes that pretense, the finance sector is free to both support that illusion; and weave fantasies of their own, due to the derivative trade I just alluded to.
Does that make sense?
This brings me to the wisest observation about the American political economy---certainly as it has been since 1980---that I have ever come across. This observation is the ultimate thrust, I think, of---believe it or not---Taibbi and my hybrid argument. But the observation is all Matt Taibbi. I would have never thought to put it that my on my own.
Okay. Here comes the observation.
On page 326 of the text we read:
"And then there's the most disturbing truth of all. People assume that a system that favors rich people likes rich people. This isn't true. Our bureaucracies respond to the money rich people have, and they bend to the legal might the rich can hire, but they don't give a damn about rich people. You can be rich and still fall into any one of a dozen financial/legal meat grinders, from an erroneously collapsed credit score to a robo-signed foreclosure to a stolen identity to a retirement account vaporized by institutional theft and fraud.
"The system eats up rich people, too, because it's not concerned with protecting any individuals, even the rich ones. These bureaucracies accomplish just two things: they make small piles of money smaller and big piles of money bigger. Its a system that doesn't care whose hands end up holding the bag, or how long those hands get to hold the bag. It just relentlessly creates and punishes losers, who get to sit beneath an ever-narrowing group of winners, who may or may not stay on top for long."
Let me just interject something here.
"Its a system that doesn't care whose hands end up holding the bag, or how long those hands get to hold the bag."
There is a show on Showtime called Billions. There is a scene in which the U.S. Attorney for the Southern District of New York, Chuck Rhodes (Paul Giamatti) says to billionaire hedge fund manager, Bobby Axelrod (Damian Lewis): "Their cheering for you now. But they are just dying to boo!"
Let's continue quoting.
"What does get preserved, in all cases," writes Matt Taibbi, "is a small constellation of sprawling, interconnected financial companies, whose names and managements may change (Bear becomes Chase, Wachovia becomes Wells Fargo, etc.), but whose entrenched influence remains the same. In other words, this is a machine that loves and protects money but somehow hates all people" (Taibbi, 326).
Its a "machine that loves and protects money but somehow hates all people."
In another episode of Billions, Bobby Axelrod buys the naming rights to a building. The right to take down the name of the previous honoree, and replace it with his own. As he and his wife are standing outside, watching workmen do this, another man is saying how Axelrod's name will be forever affixed to the building.
Axelrod responds---only half jokingly at best---that that was only until "some guy richer than me comes along, and wants it down." This is Axelrod recognizing that the adulation is for his money, not him in particular
To return to our principle, the great unknown-known. If you put people in a position that requires them to do something that is literally impossible---I mean defy the laws of physics impossible---then the only way they will be able to do 'x' will be by cheating. This will create a culture of cheating; and those who thrive the most will turn out to be the best cheater.
When this principle is applied to commerce---in the form of the pursuit of infinitely increasing profits in a finite world---then the process cannot be any respecter of persons. In keeping with Matt Taibbi's wise observation that we are dealing with a "machine that loves and protects money but somehow hates all people," we turn to the example of a former Goldman Sachs executive named Greg Smith.
Smith publicly resigned in The New York Times, where he claimed that his company routinely defrauded its own clients (known within the firm as 'muppets'; but why not call them 'marks'?) by misleading them into buying into dubious, precarious, sure-fire losing deals (Taibbi, 327).
Smith was denounced by the financial community for being a 'Kumbaya,' a "singing weenie who felt sorry for people who didn't deserve anyone's pity---people too stupid to know when they're being screwed" (ibid).
John Mack, the former head of Morgan Stanley, according to Mr. Taibbi, "blasted" the Times for even printing the Smith letter. Smith is quoted as having said, 'Last time I checked, we were in business to be profitable' (ibid).
Taibbi then makes mention of an insider trading scandal Mack, himself, was previously involved in, concerning a hedge fun trader and an entity known as Heller Financial. But prosecution never went anywhere because of Mack's 'powerful political connections' (ibid).
But then Taibbi writes this: "Mack in other words was the perfect symbol of the idea, generally accepted on Wall Street, that lying and cheating to make money is acceptable. The code word for this concept is 'sophistication,' meaning that it's okay to screw certain kinds of investors because, after all, anyone doing business with Goldman Sachs should be 'sophisticated' enough to look out for that sort of thing (ibid).
On page 328 Matt Taibbi makes mention of yet another Goldman Sachs executive, a gentleman called Fabrice Tourre. Mr. Tourre testified before the U.S. Senate in the wake of some notorious financial scandal; during that testimony he used the word 'sophisticated' four times. Better by far, was the two letters Goldman sent to the SEC about the same case, in which the firm had helped a hedge fund manager called John Paulson "dump" more than one billion dollars of worthless mortgage-backed assets on two European banks. In those letters Goldman's lawyers used the word 'sophisticated' "a hilarious twenty-three times."
Now we come to the very crux of Mr. Taibbi's thesis, what the whole 412 pages of his book is all about.
We come to it where we read:
"But poor people don't get to use the sophistication defense, and the definition of fraud in their corner of the world is vastly different than the one on Wall Street. A person on public assistance essentially has to make lengthy regular reports about his situation in life and include in those reports a wealth of personal information. He then spends his entire life beings scanned by bankers, social workers, agents of the district attorney's office, even neighbors and traffic cops, for any evidence of inconsistency in his statements" (Taibbi, 328).
This intersecting class-race-based disparity of treatment of defendants before the law is what The Divide: American Injustice in the Age of the Wealth Gap is all about.
Why this disparity?
First, I would say that the "machine" Taibbi says "loves and protects but somehow hates all people," certainly "hates" human frailty and seeks to transcend it.
Taibbi's argument even makes this fine calibration in the introduction of his book.
On page xx Taibbi refers to something that "cuts deeper into the American psyche." He writes: "We have a profound hatred of the weak and the poor, and a corresponding groveling terror before the rich and successful" ----and I would add the emphasis that we have the groveling terror before the rich and successful even if that wealth and success comes from cheating---"and we're building a bureaucracy to match those feelings."
That bureaucracy that we are building to match our feelings of hatred for the weak and the poor, as well as our "groveling terror of the rich and successful"----has resulted in the "rule of law" being "slowly" "replaced by giant idiosyncratic bureaucracies that are designed to criminalize failure, poverty, and weakness on the one hand, and to immunize strength, wealth, and success on the other" (Taibbi, xxii).
Now, from watching sports talk shows and listening to sports talk radio programs, I have learned that there is something of an underground saying, in the NFL, with regards to things like vitamins, supplements, and possibly including performance and recovery enhancing substances---whose allow-ability may be dubious in the League, to say the least, and let's just leave it at that.
That "underground saying" goes like this: "If you ain't cheatin', you ain't tryin.'"
I think that there is a societal perception of the weak and the poor, that they are not really "trying," which is why they are weak and poor. Given what we have learned together, from Matt Taibbi's text, it would appear that "trying" is effectively defined as doing everything possible---within and outside the law---to garner infinitely increasing profits, albeit in a finite world, full of finite people, with finite capacities.
Its also a numbers game for prosecutors, as they decide whom to prosecute and whom to go easy on with deferred prosecution agreements and non-prosecution agreements, combined with fines, often without the defendants even having to acknowledge any guilt.
This involves what Mr. Taibbi calls "the simple math." On page xx we read: "Big companies have big lawyers, most street criminals do not, and prosecutors dread waging losing wars against the bottomless-pocketed megabanks when they can score win after easy win against common drug dealers, car thieves, and the like. After winning enough of these blowout victories, the justice bureaucracy starts drifting inexorably toward the no-sweat ten-second convictions and away from the expensive years-long battles of courtroom attrition."
I'll Close With This...
The hesitancy to prosecute financial crimes of financial firms must also come a certain ambivalence with which the powers-that-be regard these entities. That is to say, there is always a concern about not going too far. We are told how essential a strong financial system is to our economy. To be charitable, the authorities seem to see themselves as walking a tightrope between necessarily disciplining the financial system when absolutely necessary, and enabling and empowering it for the overall health of the economy, whenever possible.
The weak and the poor are not considered essential to anything. This ambivalence about prosecuting financial firms today, is matched by a similar ambivalence, which can be found over one hundred years ago, when it came to industrial corporations and illegal monopolies.
"'Monopolization' was difficult to prove," writes former Clinton Secretary of Labor, Robert B. Reich. "Judges were reluctant to bust up well-established businesses. More to the point, industrial giants could not be dismembered without sacrificing the efficiencies of large-scale production. Antitrust began as a political movement and ended as a technical legal specialty" (1).
Now-Professor Reich also makes the point that it is structurally impossible for the modern corporation to actually compete for business. He quoted the legendary American economist John Kenneth Galbraith, who said that:
The "[t]echnology [of mass production], with its companion commitment of time and capital, means that the needs of the consumer must be anticipated---by months or years." The large corporation, therefore, "must exercise control over what is sold. It must exercise control over what is supplied. It must replace the market with planning... Much of what the firm regards as planning consists of getting rid of market influences" (2).
Now, we saw this same thing with regard to the legal decriminalization of small amounts of marijuana, in New York in the late 1970s. The legislative intent was contradicted and negated by precincts full of police officers who had to "scramble to make a living wage." When push came to shove, then, what actually happened was the small amounts of marijuana and the people who carried them, were, effectively, ultra-criminalized.
Here, we have the formal legislative intent of antitrust (Sherman Act of 1890) was contradicted and effectively negated by the institutional reality of "well-established businesses" that judges were, from the start, reluctant to break up; and the fear of "sacrificing" the "efficiencies of large-scale production."
The market competitive intent of antitrust legislation is contradicted and negated by the fact that the corporation cannot even function, it seems, by observing market forces.
So, again, this means that if police are put in the impossible position of doing something that defies the laws of physics---making more and more criminal arrests as street crime was declining starting in the early 1990s---in the face of the remaining imperative for police officers to make more and more arrests, as the basis for their perceived fitness for promotion---in the context of brutal budget cuts that force police officers to "scramble to make a living wage"---then something's got to give.
The thing that's got to give is more arrests. The thing that got to give is the drastically increased criminalization of poor people of color. The police simply have to arrest somebody! They must "cheat," if you will, to resolve the cognitive dissonance that the impossible position they have been put into, causes them.
Does that make sense?
I heard a statistic that says that in the United States, corporations account for at least sixty percent of GDP, or something like that. We have just observed that the corporation cannot function by observing market forces.
If business---certainly American business---is inherently charged with garnering infinitely increasing profits, albeit in a finite world; and it operates under a synthetic ethos of competition, while unable to actually physically function by observing market forces...
... then these mammoth business entities must keep the horizon as clear for themselves as possible, as they engage in the defying the laws of physics task of trying to garner infinitely increasing profits in a finite world, full of finite people, with their finite capacities.
And that means that they must protect themselves from competition, by any means necessary. They must keep smaller competitors from entering the market and clouding their horizon of the pursuit of infinitely increasing profits.
This means that they absolutely must preach the virtues of the market and business competition; and simultaneously do everything in their power---both within and without the law---to prevent such things from touching them.
Market manipulation---both legal and illegal, or at least what they would call extralegal---becomes an absolute necessity for these corporations.
My point is that the district attorneys of the country and regulatory entities must all know this.
Let me put it this way. There is a saying I heard attributed to Thomas Jefferson concerning slavery. He reputedly said it was like a tiger we've got by the tail. You can't hold onto it, but you can't let it go either.
And then there's the financial system that both funds the industrially-producing real economy and bets on it (stock market). It is certainly been the case since 1980 that finance is also implicitly charged with the acquisition of infinitely increasing profits in a finite world, full of finite people, with finite capacities.
Therefore finance does two things in relation to the real economy: funds and bets on it, supports its endeavors; and it takes steps to insure itself against the inherent risks of industrial manufacturing: finance seeks to protect itself from the risks inherent in the productive sector by way of derivative trade. This seems to be largely where the opportunity---and some might even say obligation---for fraud comes in.
Well, I think I'll leave it there. Thank you so much for reading!
1. Reich, Robert B. Supercapitalism: The Transformation of Business, Democracy, and Everyday Life. Alfred A. Knopf, 2007. 23
2. ibid, 30