A Far-Right "States' Rights" Ideological Depiction of the European Union Critiqued

Roughly a month before the 2019 elections of the representatives in the E.U.’s Parliament, Matteo Salvini, the leader of an anti-immigrant party at the state level in the state of Italy, announced the formation of a far-right party—also anti-immigrant—at the federal level. Because far-right parties at the state level are dubbed “nationalist,” at least by The New York Times, that paper suggested at the time that such nationalist parties federalized can seem “incompatible with a transnational body.”[1] I submit that any such thought of even apparent incompatibility stems at least in part from a lack of understanding of the E.U. itself, as well as federalism and thus the place of states from the perspective of the federal system rather than a state. In short, the paper implicitly took the perspective of the states in writing about the upcoming election. The paradigm chosen by the paper reflects the far-right ideology in the E.U., and is thus not neutral. In fact, the slant is inherently helpful to the Euroskeptic and anti-immigration political agendas.

The paper’s uses of nationalist and transnational, for example, are misleading. Both terms imply that the E.U. is an international organization, or “bloc,” which was not the case even when the E.U. came into existence.  We can translate the term “nationalist” as used by the far-right parties in terms of two senses relevant to the federal level. The term could mean “Euroskeptic,” or, in American terms, “anti-federalist.”[2] Euroskeptic, unlike nationalist, is a term from the perspective of the E.U. because a Euroskeptic is a person who wants less power at the federal level and more at the state level. Nationalism, on the other hand, is a stand-alone term without implicitly or explicitly suggesting the existence of a federal system. In fact, nationalism implies a sovereign rather than a semi-sovereign state. In the cases both of the E.U. and U.S., complete governmental sovereignty encompasses that of both levels, hence both federal unions are nations even if not recognized as such.  In discussing a federal election, terms that make sense in terms of federalism should be used.

No contradiction exists in having an anti-federalist or Euroskeptic party active at the federal level. In the U.S., the anti-federalists became Thomas Jefferson’s Republican Party. Having a weaker central government paired with stronger state governments as the central pillar is consistent with federalism because ending the federal system itself is not being advocated. In contrast, a nationalist party at the federal level does not make sense unless the federation is a confederation of totally sovereign states, which does not apply to either the E.U. or U.S. because of the feature of dual sovereignty (i.e., both levels have some governmental sovereignty). Whether most of the sovereignty is at the state or federal level does not matter; in both cases, neither level has all of the sovereignty. If a nation has full national sovereignty, then the affairs of semi-sovereign states in a federal system cannot be labeled as nationalist. In such a system, and from its perspective, using nationalist to refer to the state level is incorrect. Neither does the national-transnational divide apply because transnational organizations do not themselves hold even some governmental sovereignty. Simply put, the E.U. is not an international or transnational organization, even if “nationalist” ideologies at the state level want to insist otherwise.

Besides meaning Euroskepticism in regard to federalism, nationalist can also refer to an anti-immigration platform. In 2019, the Republican Party at the federal level in the U.S. was strongly anti-immigration, especially in the White House. Both how many immigrants are allowed and the respective involvements of the state and federal governments are matters that involve federalism, rather than only the states. So to equate anti-immigration with nationalism at the state level is flawed. In fact, to use nationalist for either Euroskepticism or anti-immigration is faulty because “national” concerns do not reduce two platform items. In other words, the term is too broad for its use in characterizing the federal involvement of either a state-level or federal party at the federal level. I suspect the term was being used anyway as a way of furthering the far-right ideology. As noted above, even the media was implicitly (or intentionally) helping.

As for the E.U. being “transnational,” this term is a misnomer. To be sure, the European Council represents the state governments just as the U.S. Senate does. Both the Council and the Senate can be said to be transnational in that the member-states are semi-sovereign. Both bodies are based on principles of international law. For example, polities rather than individuals are the members, and thus represented, in the bodies. Qualified majority rule in the Council and the filibuster in the Senate reflect the fact that the respective members retain residual sovereignty. By the way, qualified majority voting is itself one way in which the federal level of the E.U. has some of the sovereignty in the federal system. Enumerated competencies (in the E.U.) and powers (in the U.S.) are another source of federal-level governmental sovereignty. In contrast, transnational bodies such as NAFTA and NATO do not have governmental sovereignty.

Another, glaring (i.e., because the Times was reporting on the Parliament’s upcoming election) reason why the E.U.’s federal level is not transnational centers ironically on the E.U.’s Parliament.  Unlike the Council, the Parliament consists of direct representatives of E.U. citizens rather than of the states. That each state has so many House seats in the U.S. and Parliament seats in the E.U. does not mean that the seats represent the states or that the state governments pick the representatives. Even though Americans vote for a specific candidate whereas Europeans vote for a party, the elected representatives in both cases represent the citizens rather than the states. This corresponds to the notion of direct effect, which means that federal-level governmental institutions can bypass the state governments in affecting the citizens directly. Transnational bodies and even international confederations, such as the ancient Spartan league and the early-modern U.S. Articles of Confederation, do not have legislative bodies that represent and have direct effect on citizens rather than the member polities.[3] 

In fact, whereas the U.S. Senate and the E.U. Council are predicated on modified international law, the U.S. House and the E.U.’s Parliament are national in principle, both in terms of citizens being directly represented and direct effect. The appellation of national to a federal-level institution may seem strange to many Europeans in 2019, but Americans had the same reaction during at least the first fifty years of the United States because, like the United Colonies before, the U.S. was commonly viewed on both sides of the Atlantic as an empire.[4] In fact, the members of the British Empire, whether Ireland or Virginia, had their own legislatures for domestic legislation.

Therefore, transnational is a misnomer in referring to the federal level of the E.U. Reflected in its federal institutions, the E.U., like the U.S., is actually a national/international hybrid at the federal level. Both citizens and polities are represented, and governmental sovereignty is split between the federal and state levels.

Regarding the body in the Times’ term, “transnational body,” to characterize the E.U., again the intent or implication is to diminish the legitimacy of the federal legislative, executive, and judicial (i.e., governmental) institutions in line with the far-right ideology. The E.U. is not itself a “body.” Rather, the federal level has several bodies, or institutions. The European Parliament, the Commission, the European Court of Justice, and the European Council (and the Council of Ministers) are all governmental bodies at the federal level. They all have institutional interests going beyond particular state interests and even the summation of state interests, for in a federal system, both levels have their own distinct interests. Applying logic to counter ideology, the E.U. itself cannot be a body because the federal level contains several governmental bodies. Furthermore, to claim that the E.U.’s federal level reduces to one of its bodies, or even an aggregation of them denies the distinct interest of a federal level, which can be at odds with state interests.

So the “confusion” regarding the E.U. that The New York Times reported as one of the reasons why voter turnout had dropped in federal elections (i.e., of representatives in the E.U.’s Parliament) is in part caused by intentional misnomers. These tend to reflect an anti-federalist ideology that views the federal level as something less than a government whereas all legitimate legislation is promulgated at the state level. Hence the states are nationalist whereas the E.U. is a transnational body rather than national in part. The term nationalist is used problematically instead of Euroskeptic or anti-immigration, and the term transnational body and even bloc are used rather than federal level or even federal government. “Blocs” do not have legislatures, executive branches (the Commission), and a Supreme Court (the E.C.J.) as well as competencies in a variety of domains in addition to trade and even economics. To refer to the E.U. as a “bloc,” like a trading bloc (and where did the k go?), essentially denies the political development that differentiates the EEC from the E.U. Specifically, the federal competencies of the E.U. extend beyond economics and trade and the federal system itself fits under modern federalism wherein sovereignty is split and the federal level has direct effect (and a legislative body based on national rather than international principles), rather than under confederalism wherein the member-countries are sovereign (e.g. the UN).  I submit that the terminological “mistakes” fit and thus implicitly advance an anti-federalist or Euroskeptic ideology that seeks to minimize the onslaught of federal legislation by going after the credibility of the E.U. itself.

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1. Megan Specia, “European Elections 2019: How the System Works and Why It Matters,” The New York Times, May 21, 2019.

2. See Ralph Ketcham, The Anti-Federalist Papers and the Constitutional Convention Debate (New York: Penguin, 2003).

3. Althusius’ text on historical federal thought, based in large part on the Holy Roman Empire, clearly demonstrates that each level in a confederation acts only on the next lowest. Only the guilds act directly on the individuals. See Althusius’ Politica (Indianapolis: Liberty Fund, 1604/2010).

4. Skip Worden, British Colonies Forge an American Empire (2017). For more on this topic, see the following books: Essays on Two Federal Empires: Comparing the E.U. & U.S., American and European Federalism: A Critique of Rick Perry’s “Fed Up!” and Essays on the E.U. Political Economy: Federalism and the Debt Crisis. 

NASA and It's Contractors: The Challenger Disaster

Roger Boisjoly was a booster rocket engineer at a NASA contractor, Morton Thiokol. Boisjoly blew the whistle both within the company and to NASA regarding the danger of the rubber in the o-rings, which seal the connections in the shuttle’s rockets, being insufficiently elastic in cold weather. Although The Challenger Disaster (2019) is not a documentary, the film’s narrative, which centers on Roger, or "Adam," is oriented to understanding why the Challenger space shuttle exploded after being launched on January 28, 1986. In other words, although some names are different and the conversations are not verbatim in the film, the factors that contributed to the actual explosion are presented. In fact, the film leans too much on technical details before the disaster and legal arguments afterwards without adequate entertaining elements to make the film enjoyable. However, the film's political function in informing a mass market of why part of the government-business system was broken is valuable. In fact, this mission demonstrates that the medium of motion pictures is capable of aiding in social, political, economic, and religious awareness and education, and thus development. 

The full essay is at "The Challenger Disaster."

Facebook: Holding User Accounts Hostage

A Facebook “challenge” asking users to post a current photo and one from a decade earlier went viral in early 2019. Even though it is unlikely that the company was behind the “challenge” going viral, that the company had been working on facial recognition technology had users being suspicious on the motive behind the “challenge.”[1] A writer for Wired wrote at the time, “Imagine that you wanted to train a facial recognition algorithm on age-related characteristics and, more specifically, on age progression (e.g., how people are likely to look as they get older). Ideally, you’d want a broad and rigorous dataset with lots of people’s pictures. It would help if you knew they were taken a fixed number of years apart—say, 10 years.”[2] Why would Facebook want to track how a person is likely to look years later? Some users may put up an old picture of themselves or simply not update the existing photo, but why would Facebook want to know what those users are likely to look currently? Perhaps Facebook wanted to be able to identify those users in current pictures uploaded by others. So why did the company deny using the “challenge” for such a legitimate purpose as connecting people socially? Nonetheless, the company insisted that it had no benefit from the “challenge” going viral. This statement seems suspicious, especially given the company’s earlier lapses on user privacy. I contend that an even more toxic subterfuge existed at the time at Facebook—a cloak that held user accounts hostage until a clear facial picture could be supplied.

Perhaps because of the company’s track record since Cambridge Analytica on user privacy, the company’s statement also sought to reassure users by reminding them that they “can choose to turn facial recognition on or off at any time.”[3] While technically true, the company could freeze any user’s account supposedly for security reasons—to protect the user—until a current picture that clearly shows the face is supplied.

In spite of the fact that no legitimate security concerns could be raised a month or so after I created a user account, I discovered one day that Facebook’s computer had blocked my account until such time as I could verify the phone number I had used in setting up the account (when verification on the number was successfully made). I followed through nonetheless the second time, only to find days later that a current picture clearly showing my face was needed “for security reasons.” Until then, I could not use my account to protect my security. That I had not used the account for anything remotely suspicious, not to mention trolling or spam, led me to view the “security” rationale as fake, or at least as excessive. In demanding a face picture from me, the company indicated that the picture will not go on my profile, but this differentiation makes no difference in the company being able to use facial recognition software on me for the company’s internal uses (and even those of external stakeholders like the FBI) from then on. Facebook’s work on facial recognition AI for the previous two years had included such uses as tagging users in other users’ photos even if the photographed user does not know the photographer. Under the subterfuge of a “security need” for a current picture that other users will not see, the picture can still be used in tagging the user without his or her awareness.

I contend, therefore, that Facebook’s demand for a clear face photo is unethical. Besides the company’s horrendous track record on safekeeping user privacy, having users’ accounts held ransom nonetheless can seem presumptuous, like a bad child nonetheless demanding that his parents take him to Disneyland. The unethical verdict is also due to the felt-vulnerability that is natural (even among innocent people!) in handing a face picture to unknown people, even if they have a good reputation in securing privacy. For a company to dismiss the vulnerability and go so far as to demand a clear face picture can be reckoned as a harm (even as passive aggression) that is unjustifiable ethically.  Furthermore, the lying, such as in Facebook’s claim that it had no benefit from the treasure-trove of before-and-after pictures, and the subterfuge that a user can always turn facial-recognition off (even as the company uses it under the lie of a security need to connect a face to an account) are themselves unethical. Anticipating the future revelations on the privacy breaches, I wrote a booklet, Taking the Face off Facebook, on the unethical management at the company. It may therefore be that I’m on a “make problems for” list at Facebook, but other users have complained of having their accounts held hostage too, so I suspect the problem was still with the company’s managers, including its CEO. 

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1. Nicole Martin, “Was the Facebook ’10 Year Challenge’ a Way to Mine Data for Facial Recognition AI?,” Forbes, January 17, 2019.

2. Ibid.

3. Ibid.

The FAA Deferred to Boeing on the 737 MAX Jet

After a misfiring-prone automatic stall-prevention device on the 737 MAX jet had caused two accidents in which 346 people died, an internal review at the U.S. Federal Aviation Administration, a regulatory agency, found that the regulators had relied too much on Boeing employees to conduct the safety inspections of the planes. Incredibly, Congress expanded the industry-reliance practice of the agency in 2018. Both the FAA and Congress were admittedly motivated by the added efficiency that such “sub-contracting” could bring. However, to focus on the economic benefit while ignoring the inherent (and obvious) conflict of interest in “sub-contracting” to the very companies that are regulated by the FAA is itself a red flag. A subservient or over-reliant regulatory agency cannot be a check on a company’s claims of not having sacrificed safety or even safety checks in order to focus more on profitability.  Of course, the political influence of a large company such as Boeing may have played a role in the FAA’s “back-seat” approach, but in this case the government’s own interest in stretching the coverage of its human resources may have been dominant. That such an interest could involve minimizing or ignoring outright such a blatant conflict of interest may point to a wider culture in which institutional conflicts of interest are presumed to be innocuous or even benign rather than too toxic to permit even if they have not been actively exploited.  

During the FAA certification process for the 737 MAX, Boeing didn’t flag the automated stall-prevention feature as a system whose malfunction or failure could cause a catastrophic event.”[1] The FAA’s report does not point to any fabrication on the part of the company. The problem is that “FAA engineers and midlevel managers deferred to Boeing’s early safety classification.”[2] No check on the company’s determination could be in such deference. It is astounding that managers at a regulatory agency could have neglected or ignored this basic point, which gets at the raison d’etre of any regulatory agency. C’est vraiment incroyable.

In fact, the company’s initial safety classification allowed “company experts to conduct subsequent analyses of potential hazards with limited agency oversight.”[3] The operative assumption in this practice seems to be that experts cannot be initially wrong, or that they could eventually catch their own errors, and that such experts are not subject to pressure from managers to get the planes in the air and generating revenue that can at least cover payments on the planes themselves.

Even worse, the FAA classified certain Boeing employees as “designated agency representatives.”[4] Employees of a regulated company cannot represent the regulatory agency, for such a designation is itself an institutional conflict of interest. It is, in effect, to designate one wolf as a police-wolf around a hen house! How can this not be obvious? I submit that only in a permissive culture can such blind-spots thrive. The FAA’s practice of designating some employees of regulated companies as being able “to act for the agency” was set up by the FAA and “endorsed and expanded” by Congress with “the aim of freeing up government resources to focus on what are deemed the most important and complex safety matters.”[5] Was not something that had killed hundreds of people an important safety matter? FAA managers might retort, “But we didn’t know this except in hindsight.” Exactly. This is precisely what minimizing or ignoring a huge conflict of interest can do.

See Institutional Conflicts of Interest, available at Amazon.

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[1] Andy Paztor, Andrew Tangel, and Alison Sider, “FAA Left 737 MAX Review to Boeing,” The Wall Street Journal, May 15, 2019.

[2] Ibid.

[3] Ibid., italics added.

[4] Ibid.

[5] Ibid.

President Obama and Goldman Sachs: A Quid Pro Quo?

Wall Street and the White House may be closer than the typical American thinks. One way this is accomplished is for a bank to contribute heavily to both presidential campaigns so as to be able to hedge political risk by getting ex-managers into strategic posts in the executive arm of the U.S. Government. This can be the case even when one of the candidates has campaigned on holding Wall Street accountable, such as after the financial crisis of 2008. There is the campaign slogan, and there is the political-economic reality underneath. 

U.S. President Obama nominated Timothy Geithner to be Secretary of the Treasury. While president of the New York Federal Reserve Bank, he had played a key role in forcing AIG to pay Goldman Sachs’ claims dollar for dollar. Geithner, as well as Henry Paulson, Goldman’s ex-CEO who was serving at the time as Secretary of the Treasury under President Bush, stopped AIG from the leverage in its bankrupt condition to pay claimants much less than full value, which would have been expected given AIG's plight. Once Geithner became Secretary of the Treasury under Obama, Geithner’s chief of staff was Mark Patterson, a former lobbyist for Goldman Sachs.

To head the Commodity Futures Trading Commission—the regulatory agency that Born had headed during the previous administration—Obama picked Gary Gensler, a former Goldman Sachs executive who had helped ban the regulation of derivatives in 1999. Born had pushed for the securities to be regulated, only to be bullied by Alan Greenspan (Chairman of the Federal Revere) and Larry Summers, whom Obama would have as his chief economic adviser. To head the SEC, Obama nominated Mary Shapiro, the former CEO of FINRA, the financial industry’s self-regulatory body.

In short, Obama stacked his financial appointees during his first term with people who had played a role in or at least benefited financially from financial bubble that came crashing down in September 2008. Put another way, Obama selected people who had taken down the barriers to spreading systemic risk to fix the problem. Why would he have done so? Could it have been part of the quid pro quo the president had agreed to when he accepted the $1 million campaign contribution from Goldman Sachs (the largest contribution to Obama in 2007)? Might Goldman’s executives have wanted to hedge their bets should the Democrat win? Unfortunately, getting Goldman alums in high positions of government would essentially make the U.S. Government a Wall Street Government—one that would be hampered in holding Wall Streeters accountable, even in terms of criminal prosecutions related to the financial crisis. It is no accident, we can conclude, that the spiraling economic inequality increased during the Democrat’s first term of office.

Source: Inside Job (2010), directed by Charles Ferguson

The U.S. Department of Justice: Big Banks May Legitimately Be above the Law

The Financial Times reported in 2013 that lawmakers in the U.S. Congress were claiming that the Department of Justice had been “too soft on big banks and their executives by failing to bring criminal cases related to the financial crisis.”[1] In the five years following the financial crisis of 2008, no Wall Street executive was criminally charged with fraud. The U.S. Justice Department chose not to go after the bankers for their lack of due diligence regarding their purchases of sub-prime mortgages from mortgage originators. This in spite of the fact that at Citibank, for example, a manager in the bank’s due diligence department estimated that 50% to 80% of the approved mortgages did not meet the bank’s credit policy, and yet Robert Rubin, the CEO at the time, did not act on the manager’s email. This suggests that a criminal complaint could have been lodged against the bank itself, but then what would be the implications for the financial system should Citibank had gone under after being found criminally guilty? Does it even hold that a guilty verdict would mean bankruptcy? Simply stated, a company can be so large that its failure due to a guilty verdict could harm innocent third parties, including stockholders, employees, suppliers, and even the general public if the bankruptcy triggers a systemic collapse of the financial system. Such concerns are called collateral consequences. 

After the collapse of Lehman Brothers in September 2008, systemic risk became a particularly salient concern for criminal prosecutors at the U.S. Department of Justice. Swayed by a desire to minimize the potential disproportionate harm to innocent parties from a verdict-triggered major bankruptcy, the prosecutors believed they were obligated to consider collateral consequences even if that meant that the really big banks would be immune from criminal prosecution. To such banks, this could be used as a competitive advantage because keeping within the constraints of law in making money would not apply. I contend, therefore, that the U.S. Government should not have taken collateral consequences into consideration. 

 Mythili Raman testifying before Congress. mainjustice.com

Mythili Raman, Acting Assistant Attorney General in the Criminal Division, argued that collateral factors as a group should be considered. Testifying before Congress on May 22, 2013, she cited “the disproportionate impact on innocent third parties, including the public at large,” as being entirely appropriate for prosecutors to consider.[2] Her reference to the general public means that systemic risk was among the legitimate factors in her view, and yet she also said, “the size of a corporation will never be a factor in and of itself and that no institution is too big to prosecute.”[3] Crucially, her position was that one particular consequence should never be the only factor. “A single collateral consequence cannot be the reason.” However, she added that “collateral consequences are issues that we must and do consider.”[4] Because banks too big to fail tend to have more than one significant collateral consequence (e.g., many stockholders and employees, as well as systemic risk), such banks may be too big to jail.

In testimony before Congress in March 2013, U.S. Attorney General Eric Holder had admitted that the lawyers in his department were wary of the “negative impact” on the economy from prosecuting a large financial institution. “(I)t is a function of the fact that some of these institutions have become too large.” Differing from Raman, he thought the size of large banks “has an inhibiting influence – impact on our ability to bring resolutions that I think would be more appropriate. . . . (a)nd I think that is something that we – you all – need to consider.”[5] I want to unpack this rather robust admission, for it is significant.

Firstly, the Attorney General was hinting at what Sen. Kaufman had observed while in office. Namely, it should not have been the F.B.I.’s concern whether the Wall Street banks continued as viable concerns. In other words, systemic risk or even collateral consequences more generally had no business being considered by prosecutors whose job it was to enforce the law. Including systemic risk among the collateral consequences thus further compromised the rule of law. As Sen. Charles Grassley put it, “It was stunning to hear the nation’s top prosecutor acknowledge that, from the justice department’s perspective, the big banks are too big to jail. This is worrisome for the fair application of justice in our country.”[6]

Secondly, the Attorney General was suggesting that Congress should reduce the size of the biggest banks—those with over $1 trillion in assets. This would have removed the specter of banks being too big to jail. Also, by implication, Holder had concluded that the Dodd-Frank Act would not be sufficient to solve the "too big to fail" problem. That law was premised in part on the theoretically beautiful but practically insufficient assumption that imposing disproportionate capital reserve requirements on the biggest banks would not only be enough to keep them sound even in a financial crisis, but would also prompt the banks' boards to reduce the size of their banks. Besides of cost-advantages in being so large, and getting even larger as the five biggest banks have since done, the psychology of empire-building, which had gripped Lehman's Dick Fuld so, can easily dismiss the disproportionate costs of retaining or enlarging size. 

Regarding the implications for the U.S. Department of Justice should the biggest banks have taken the bait and voluntarily reduced their respective sizes, it is clear that if no systemic risk (i.e., of being too big to fail without taking the whole financial system down) were to exist, then third-party collateral damage would not be disproportionate so the banks (and bankers) could be prosecuted. Accordingly, the Huffington Post observed at the time that lawmakers “may be encouraged to apply even more public pressure on efforts to crack down on big banks.” [7] Lawmakers having received campaign contributions from those banks, however, would hardly do so. In fact, those members of Congress would even defend the large sizes of the biggest banks. 

Exceptions admittedly existed. Rep. Sherman, the chair of the full committee, noted while Raman was testifying that the fact that the Department of Justice considered collateral consequences rather than simply enforced the law was enough justification to break up the big banks. Putting aside the issue of size for the conduct of banking (e.g., whether a gigantic sized bank is necessary to make huge loans or would a syndicate of banks do as good of a job and spread the risk), having powerful people and organizations de facto above the law is something that just cannot be permitted in a republic. So on this basis alone, the rationale goes, society had an overwhelming interest in braking up the largest U.S. banks. 

Unfortunately, being too big to fail has carried (and still carries) with it tremendous political power—muscle that could have been used all too easily to resist legislative proposals (or even public debate) oriented to seriously downsizing the mammoth banks. This has the real problem since economic power became so concentrated in large corporations and banks: can a republic resist the power of its most powerful for the good even of the economy, and the public societal good more generally? Were the big banks pulling the strings that led to Raman’s assertion that collateral consequences “must and should” be considered in deciding whether to prosecute? Whether Raman realized it or not at the time, the implication that the rule of law applied impartially should be compromised by the magnitude of the predicted collateral consequences from a corporate conviction is, euphemistically speaking, troubling.

See “The Untouchables,” Frontline, January 22, 2013 and Essays on the Financial Crisis: Systemic Greed and Arrogant Stupidity, available at Amazon.

1. Shahien Nasiripour and Kara Schannell, “Holder Says Some Banks Are ‘Too Large’,” The Financial Times, March 7, 2013.
2 Congressional Hearing, “Who Is Too Big to Fail: Are Large Financial Institutions Immune from Federal Prosecution?” Financial Services Committee, Oversight and Investigations Sub-Committee, U.S. House of Representatives, May 22, 2013. See also the letter to sub-committee members; Shahien Nasiripour, “Too-Big-To-Jail Dogs Obama’s Justice Department As Government Documents Raise Questions,” The Huffington Post, May 22, 2013.
3. Ibid.
4. Ibid.
5. Nasiripour and Schannell,  “Holder Says Some Banks Are ‘Too Large’,”
6. Ibid.
7. Ibid.

Big Bankers and the U.S. Government: A Coalition Circumventing Accountability on Wall Street

It is interesting that the U.S. Department of Justice did not pursue the fraudulent bankers on Wall Street not only during the Bush presidency, but also the following presidency, that of Barak Obama.  Not coincidentally, Goldman Sachs was the single biggest campaign contributor to Obama’s 2008 candidacy for president. It would seem that Wall Street had both political parties in a net by the time of the financial crisis in September, 2008. A sector of the economy being able to control both major parties is bad for not only industrial policy (i.e., favoritism), but also democracy. In short, a government should have enough strength to constrain a business sector, rather than being subject to it. The latter condition implies continued vulnerability should greed again get ahead of itself on Wall Street. By nature, greed, if allowed to go on running on its own steam, accumulates more and more momentum. 

The New York Times reported in 2011, “legal experts point to numerous questionable activities where criminal probes might have borne fruit and possibly still could. Investigators, they argue, could look more deeply at the failure of executives to fully disclose the scope of the risks on their books during the mortgage mania, or the amounts of questionable loans they bundled into securities sold to investors that soured. Prosecutors also could pursue evidence that executives knowingly awarded bonuses to themselves and colleagues based on overly optimistic valuations of mortgage assets — in effect, creating illusory profits that were wiped out by subsequent losses on the same assets. And they might also investigate whether executives cashed in shares based on inside information, or misled regulators and their own boards about looming problems. Merrill Lynch, for example, understated its risky mortgage holdings by hundreds of billions of dollars. And public comments made by Angelo R. Mozilo, the chief executive of Countrywide Financial, praising his mortgage company’s practices were at odds with derisive statements  he made privately in e-mails as he sold shares; the stock subsequently fell sharply as the company’s losses became known. Executives at Lehman Brothers assured investors in the summer of 2008 that the company’s financial position was sound, even though they appeared to have counted as assets certain holdings pledged by Lehman to other companies, according to a person briefed on that case. At Bear Sterns, the first major Wall Street player to collapse, a private litigant says evidence shows that the firm’s executives may have pocketed revenues that should have gone to investors to offset losses when complex mortgage securities soured.”[1]  David Skeel, a law instructor at the University of Pennsylvania, remarked, “It’s consistent with what many people were worried about during the crisis, that different rules would be applied to different players. It goes to the whole perception that Wall Street was taken care of, and Main Street was not.”[2]

Elliot Spitzer, the Attorney General of New York, was preparing to go after some big bankers until he stopped when a lawyer at the U.S. Department of Justice (DOJ) told him to back off because the department would be moving against the bankers. However, it did no such thing; the DOJ would not in fact "move" against the bankers. So it is suspicious; the lie may have been fabricated in Washington, D.C. to protect the bankers. If so, elected representatives including the president who had received sizable campaign contributions from the bankers themselves or their banks would be prime suspects. To suggest that an elected official would not protect a major contributor is like asking water to go up hill.  The subterfuge used by the DOJ at the time was that if the department went after the bankers, the banks themselves, which were too big to fail without taking the financial sector and even the economy with them, would become too unstable.
Incredibly, not only did the bankers not get punished; the banks got bailouts, which the bankers could use to pay themselves bonuses! This included bonuses at Goldman Sachs for selling "crap" (i.e., the subprime-mortgage-based bonds) to even good clients and of course lying about how solid the bonds actually were. 

Bank regulators, who can be "captured" by regulatees not only due to reliance on information from them, but also political pressure from the regulatees' political protectors in Congress and the White House, may have played a role too. According to The New York Times, bank regulators referred 1,837 cases to the Justice Department in 1995. In 2007-2010, an average of only 72 a year was referred for criminal prosecution.  “The Office of Thrift Supervision was in a particularly good position to help guide possible prosecutions.” From the summer of 2007 to the end of 2008, O.T.S.-overseen banks with $355 billion in assets failed. The thrift supervisor, however, did not refer a single case to the Justice Department between 2000 and 2010. The Office of the Comptroller of the Currency, a unit of the Treasury Department, referred only three in that decade.[3]

The relationship between the head of Thrift Supervision and the CEO of Countrywide is particularly revealing.  In March 2007, Countrywide was regulated exclusively by the regulatory agency. That agency was overseen at the time by John M. Reich, a former banker and Senate staff member appointed in 2005 by President George W. Bush. Reich was on all for deregulation. Robert Gnaizda, a former general counsel at the Greenlining Institute, a nonprofit consumer organization in Oakland, Calif., said he had spoken often with Reich about Countrywide’s reckless lending. Gnaizda says that when he suggested to Reich how he could build a case against Mozilo, the CEO of Countrywide, Reich “was uninterested. He told me he was a good friend of Mozilo’s.”[4] Reich subsequently refuted that the two were friends. “I met with Mr. Mozilo only a few times," Reich insisted, "always in a business environment, and any insinuation of a personal friendship is simply false.”[5] Even a few business meetings can be sufficient and the same ideology can be sufficient, however, to bend the ear of a regulator. Besides, Reich had reason after the financial crisis to deny any friendship with a man largely discredited due to the mortgage-producing antics at Countrywide. Mozilo’s flush fingers may have stretched as far as the chairman of the Financial Crisis Inquiry Commission, Phil Angelides. The New York Times reported in 2011 that he had told two deputies that Mozilo and Countrywide were off limits, though Angelides subsequently denied having made the statement. Instead, he pointed instead to the Republican opposition to hearings on Countrywide in Congress.

I suspect that whether of the deregulation crowd or Democratic, both parties, being of part and parcel of the establishment, had by the financial crisis of 2008 become too close to the vested interests on Wall Street to effectively regulate its banks and bankers, and thus to be in a position to investigate cases of regulatory failure. In other words, when the necessary relationship between financiers and regulators breaks down, accountability does as well. Without the regulators and DOJ being able to constrain excessive greed by holding the people in the financial sector accountable, continued vulnerability to the financial system collapsing as it almost did in September, 2008 can be expected even if it is ignored.  

See Essays on the Financial Crisis: Systemic Greed and Arrogant Stupidity, available at Amazon.

1. Gretchen Morgenson and Louise Story, “In Financial Crisis, No Prosecutions of Top Figures,” The New York Times, April 14, 2011.

2. Ibid.

3. Ibid.

4. Ibid.

5. Ibid.

The Case for a Presiding President in Russia

On December 31, 2010, a Russian judge sentenced Mikhail Khodorkovsky, the Russian tycoon who had been imprisoned in 2003 after defying Vladimir Putin, to an additional six years in prison. According to The New York Times, "It was a politically tinged decision that undermined President Dmitri Medvodev."[1] Leonid Goman of the Right Cause Party in Russia agreed. "It was obviously a political, not a judicial, decision." He went on to say that in general terms, "corruption is endemic, government power is often abused and senior politicians are rarely, if ever, held accountable for misdeeds."[2]  Clearly, Prime Minister Putin was still very much in control in Russia.  His message was that wealthy businessmen should not interfere in Russian politics. What a contrast to American politics, especially after the U.S. Supreme Court's Citizens United case!  Khodorkovsky was at one time the richest person in Russia, having been one of the oligarchs who bought government assets at bargain prices after the fall of the USSR, but he financed opposition parties in a political system that was anything but democratic.

Analysis:

This case points to the importance of separating a judiciary from executive and legislative branches of government, as in the E.U. and U.S. The fragile nature of a judiciary's credibility can be of dangerous ground even when the branches are separated. But in Russia technically under President Medvodev in 2010, a court doing the bidding of a powerful prime minister (in name only) contributes to the demotion of the credibility of the country's judiciary. Ultimately, the president of a country is charged with presiding over its system of government with an eye towards protecting it as a going concern.  

For example, U.S. President Andrew Jackson in the early 1830's looked out for the viability of the country's federal system by pushing Congress back on its tariff that hurt South Carolina and pushing the latter to repeal its Acts by which federal law could be nullified. He also vetoed a bill that, if enacted, would have allowed Congress to appropriate money for what was really a state road in Missouri. The President's focus was on maintaining the balance between the federal level and that of the member-states that is so important to maintaining a viable federal system in the long term. 

In the case of Russia, the problem concerning the political use of the court was that neither the president nor prime minister were interested in safeguarding the judiciary's long-term viability, for they prostituted it for political expediency. I submit, moreover, that most governments have lacked a presiding president, by which I mean a president who is primarily fixated on maintaining the continued viability of the system of government, including its credibility. It is too easy for voters to elect partisans who are more focused on their respective ideological agendas than putting the system itself first. Similarly, it is too easy for dictators to use all branches of government to consolidate more power for themselves or their party rather than to protect the viability of the branches, including how they are related, rather than to be primarily oriented to presiding over the system as a whole. 

See related essay: "On the Eclipse of Russian Federalism: Implications for the E.U."

1. Clifford Levy, "Russia Extends Prison Sentence of Tycoon 6 Years,” The New York Times, December 31, 2010, p. A1.
2. Ibid. 

Glimpsing behind the Curtain: Vice President Lyndon Johnson and the Kennedy Assassination

Robert Ross interviewed Lyndon Johnson’s mistress, Madeleine Duncan Brown what Ross titled, “The Clint Murchison Meeting in Dallas November 21, 1963.” The interview took place sometime before her death on June 22, 2002. The content is revealing, and she comes across as very credible as it is obvious she still had feelings even then for the late president. She also had a credible motive for opening up to the American people. So in watching the interview, I did not view it as just another conspiracy theory; I paid attention. Sometimes the truth finally emerges in plain sight, rather than through complicated theories as in Oliver Stone’s film, JFK (1991). The most revealing facts to emerge from the interview are that Jack Ruby, who killed Oswald just two days after the assassination, had been at the meeting at Murchison’s mansion on the night before the assassination, and that LBJ told Madeleine while leaving Murchison’s house after the meeting, “After tomorrow, those SOB’s will never embarrass me again.” That the official narrative from the Warren Commission would still carry weight as the default account at least in the first two decades of the next century astounded me. At the very least, all of Madeleine’s knowledge of the players should have caused at least a tremor when the interview was made public. The status quo has that much inertia. Even so, the American public can gleam from Brown’s account just how different the reality of the power-brokers in (and outside of) the U.S. Government can be from what the public knows. Unfortunately, the patina or gloss even of acting can have incredible staying-power even in the face of the facts revealed. Members of the political elite and their companions may want to protect their legacies in old age, or want the freedom of conscience that comes from the impunity that can only come with death. The resulting piecemeal facts must justify themselves, however, whereas the long-standing official version often has the benefits of not only protective power and entrenchment that comes with having been the default for so long, but also a coherent (i.e., contrived) narrative.  

Madeleine had met LBJ in 1948. By her reckoning, she and Lyndon had a “wonderful relationship.” Johnson fathered Madeleine’s son, Steve Brown, who had died of cancer by the time of the interview. In spite of having cancer, Steve had sued to get part of Johnson’s estate. Madeleine was hurt by the way the power structure in Texas had handled Steve by preventing him from appearing in court. “I probably would never have opened my mouth, but the way they handled my son. They can’t take anything from me now. The public needs to know.” Essentially, she says in the interview that the assassination of Kennedy was the result of a domestic plot that been planned since the 1960 Dem Convention.

Joe Kennedy and H. L Hunt met three days before the convention and they cut a deal: Johnson would be the VP. At the time, Hunt told Madeleine, “We may have lost a battle but we’re going to win the war.” On the day of the assassination, he would tell her, “We won the war.” Madeleine concluded the assassination was “a political crime for political power.” H.L. Hunt, the richest man in the world at the time, and others “mapped a plot to get rid of John Kennedy” from just after the convention. The 8-f group included oil men such as Clint Murchison and Hunt, Texas politicians such as John Connally, and even occasionally J. Edgar Hoover.

Meeting the night before the assassination at Clint Murchison’s house on Nov 21, 1963 were Lyndon Johnson, Edgar Hoover, John McCloy, H.L. Hunt (who had had flyers “Wanted for Treason: John F. Kennedy” passed out in downtown Dallas), John Currington, George Brown, Richard Nixon, Amen J. Carter, Jr, Texas Gov. John Connally, Earle Cabell (mayor of Dallas, whose brother Kennedy had fired after the botched Bay of Pigs invasion), W. O. Bankston, Clint Peoples, Bill Dicker (sheriff of Dallas county), Cliff Carter, Malcom Wallace, and, representing the mafia, Carlos Marchellas, Joe Civilla, and Jack Ruby (an old buddy, Madeleine remarks). I submit that the mafia had a motive to kill the president whose brother Robert had turned the U.S. Department of Justice on the mob, including very mobster in Chicago, Sam Giancana, who is said to have put Illinois over the top in voting for Kennedy. It is particularly relevant, therefore, that Ruby, who would later he killed Oswald out of anger for assassinating the president, was at a meeting with such notable insiders on the night before the assassination. Also, the inclusion of the FBI and the sheriff of Dallas County fit with the obvious need to cover-up the crime. That Richard Nixon, who had lost the 1960 election to Kennedy—unfairly according to the man known as “tricky Dick”—would be in a meeting with Johnson supporters should also raise some eyeballs; it would make sense, however, if the Democrats wanted assurances that the other party would not try to uncover the plot. It is therefore significant that Nixon was already in town; he and Johnson had met two days earlier.

At any rate, the social party at the mansion, for which Madeleine had been invited, broke up at 11 p.m. when the Vice President arrived. He and others went into a conference room. Jack Ruby brought a call-girl, Shirley, to the meeting. When Johnson came out of the meeting at its conclusion, he told Madeleine: “After tomorrow, those SOB’s [i.e. sons of bitches] will never embarrass me again.” Johnson was angry. “The Irish mafia, I think,” Madeleine says in the interview when Ross asks her whom Johnson was referring to. However, in her book written five years earlier, Madeleine wrote that Johnson had told her, “After tomorrow, those goddamned Kennedy’s will never embarrass me again.”[1] Because she looks like her mind is going astray at that point in the interview—she would, after all, die soon—I suspect she confused Lyndon’s antipathy at the Irish mob with his loathing of the two Kennedy brothers. 

Even if Johnson didn’t get along with a mobster, his frustrating relationship with the Kennedy brothers in the White House is well documented. Regardless of whomever he was angry at, that Lyndon Johnson knew that something would be very different for him on the next day—the day of the assassination—suggests that he knew of it beforehand. In fact, that he made such a statement with such strident certainty just after the meeting suggests to me that its purpose had been to decide on whether to go ahead with the plan. If indeed Lyndon Johnson had at the very least been aware of the assassination beforehand, the way in which he publicly reacted after it can be seen in a different light—as being acted out rather than authentic. By implication, the American people had no clue as to what was actually going on behind the scenes. The sheer difference ought to be of concern from the standpoint of democracy, because the sheer degree of acting can be used on an ongoing basis to hoodwink the electorate.

People on the periphery of the plotting group were in an interesting predicament, being let into at least some of the inside information and yet not truly part of the group. Hence they could be expected to share at least one of their points of reference with the public and thus feel guilty enough to speak, or finally turn on the insiders by divulging the tidbits of information even in the face of a seemingly overwhelming public narrative. Clint Murchison’s secretary, for instance, committed suicide days after the assassination. Even though Madeleine still had feelings for Johnson (i.e., they had not ended on a bad note), she was convinced that he had been in on the assassination and yet she said nothing of this publicly until she was old, after her sons had died so she had nothing to lose. For one thing, she says in the interview that if Kennedy had not been assassinated when he was, Johnson would have faced “serious political problems when he returned to Washington.” He had been involved in the Billy Sol Estas and the Billy Baker scandals, and Kennedy was already looking for another VP candidate for 1964, according to Kennedy’s secretary, Evelyn Lincoln.[2] At the time of the assassination, a U.S. House committee was planning to indict Johnson. A man, who would later be shot, was going to testify that Johnson had taken kick-backs from agricultural programs. When Lyndon was president, he kept the Vietnam War going on for so long because he was getting kickbacks on military contracts to his business friends.

Johnson’s real mentality, however, went deeper than corruption. According to Madeleine, Malcolm “Mac” Wallace was Johnson’s hit-man. In a letter to the Department of Justice in 1984, Douglas Caddy, the lawyer for Billie Sol Estes, claimed to have evidence that Johnson order hits on eight men, including Kennedy.[3] Johnson “had no qualm about having someone killed,” the still-smitten Madeleine says in the interview. “Whatever it takes to get a job done,” she says of Lyndon’s mentality. She agrees with Ross in his conclusion that Johnson must have thought the end justified the means. Madeleine points out that Johnson even had an innocent woman who had seen Madeleine and Johnson together in a hallway killed. Even just to conceive that a U.S. president had a hit man is difficult; to a public kept largely in the dark, such a thing—and that the American electorate voted for a mafia-like man in 1964—must seem inconceivable, or else fiction, like the series, House of Cards. Hence the vulnerability lodged in American democracy wherein the electorate is left with mere superficial or artificial perceptions of the candidates and office-holders remains largely hidden from view.

All of the above hitherto hidden from view does not even count the stealth role of corporations in influencing Congress, the President, and even the regulatory agencies that regulate the specific corporations or industries. The relationship can indeed be quite cozy in spite of the conflicts of interest that should be obvious. The allowance of “dark money” contributions to political campaigns affirmed by the U.S. Supreme Court in its Citizens United case is just one indication of how the real relationship between business and government in the U.S. can be deliberately hidden from plain view, and especially this disinfectant effect of sunlight. If sunlight is essential for the popular sovereign (i.e., the People) to hold its government officials accountable, then representative democracy in the U.S. is seriously flawed. To get caught up in debating who shot Kennedy may be just what the political elite wants because not only such myopic investigations tend to be premised on the Warren Commission’s report as the default narrative to be disproven, but also the obsession of one historical event comes at the expense of uncovering the true nature of the current office-holders in government and the real relationship between business and government.

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[1] Madeleine Duncan Brown, Texas in the Morning: The Love Story of Madeleine Brown and President Lyndon Baines Johnson (Conservatory Press, 1997).

[2] James Hepburn, Farewell America: The Plot to Kill JFK (Penmarin Books: 2002).

[3] Ibid.