A Colossal Wreck (57 page)

In fact, it’s almost entirely Medicare, not Social Security, that accounts for the projected rising costs in our shriveled welfare state. The culprit here is not the swelling ranks of older people but the insurance and drug companies’ grip on our health system. Conversion to single payer would mean huge savings.

The US pays around 15 percent of its gross domestic product for health care, about 70 percent more than the outlay of other advanced industrial countries. Shift to single payer and quit shoving money—4.8 percent of GDP—down the imperial sinkhole and there’s no fiscal crisis of any sort, short or long term, for Moody’s or anyone else to fret about. And in the even shorter term, if Moody’s sees a fiscal crisis looming, why don’t its overpaid executives for once put the national interest first and call for a tax hike on the rich? Pollin tells me that just going back to Clinton, as opposed to Bush 2, on taxes for those making over $200,000 a year would generate $60 billion a year. Do this and end the war in Iraq and you wipe out almost the whole deficit at a stroke.

Let a real war on terror commence.

March 1

Was there a medium-size right-wing conspiracy to nail Gov. Eliot Spitzer, above and beyond Governor Spitzer’s own diligent efforts in the same cause? It certainly looks like it. It’s clear that the Feds started with Spitzer whose wire transfers led them to the Emperors Club, a prostitution business efficiently administered by a twenty-three-year-old Blair Academy grad, Cecil Suwal, on behalf of her sixty-two-year-old boyfriend, Mark Brener, from the high rise in Cliffside Park, NJ, with fine views of Manhattan.

The official story is that it was Spitzer’s efforts to break down a $10,000 transfer to an account fronting for Emperors Club that alerted clerks at his Manhattan branch of Capital One’s North Fork bank. A similar transaction at another bank where Spitzer had an account also supposedly twitched a red flag. Banks have to report deposits of $10,000 and up to the Treasury Department. People not wanting to have their bank snitch to the Feds about their transactions routinely keep the sums below the red-light figure, and the Feds have told the banks to adjust their mandatory snooping to report $8,000-plus sums, or sums that add up to $10,000.

Like innumerable other affronts to privacy, this reporting requirement began as a tool in the “war on drugs,” and now is part of the furniture of our lives. All the same, it strains credulity to believe that North Fork’s “suspicious activity report” on a well-known and presumably valued client immediately aroused the interest of the IRS employee scrutinizing the hundreds of thousands of SARs churning through his computer in the IRS watchpost in Long Island. The official version has the IRS man noting Spitzer’s name, then passing the information up the food chain to the Justice Department, and the US Attorney’s office in Manhattan.

Instead of the banks being curious on their own, what if the Feds told the banks to report all of Spitzer’s wire transfers to them? It seems likely, and if so, we have here in outline a sting operation which raises another pressing question: who exactly was it that put Spitzer in touch with Emperors Club in the first place?

Once the wheels were set in motion we had the unedifying spectacle of the full resources of the state devoted to exposing Spitzer’s
various rendezvous with consenting adults, primarily the comely twenty-two-year-old “Kristen.” Spitzer’s role as the sole target in this recruitment of investigative and prosecutorial manpower since July 2007 is evidenced by the malicious insertion in the prosecutor’s indictment of a quote from the phone taps about his sexual preferences (reminiscent of Kenneth Starr’s detailed disclosures about the minutiae of physical transactions between Bill Clinton and Monica Lewinsky), which Heidi Fliess, the Hollywood madam, insisted was most certainly a demand for unprotected anal sex.

It’s hard to root for Spitzer with much enthusiasm, beyond mandatory support for anyone facing political ruin and possible criminal charges for having sex with a consenting adult. It was extraordinary to hear the Mann Act, ancient weapon of racist bigotry against blacks, being brandished as a possible sanction against Spitzer for having paid for a prostitute to travel from New York to Washington, DC.

Obviously a stewpot of psychic contradictions, Spitzer was brimful of prosecutorial zeal himself, against prostitutes as well as convicted sex offenders. It was Gov. Spitzer who pushed civil commitment into law in March 2007, legalizing possible lifetime incarceration for sex offenders, no matter what their original prison sentences may have been. But Spitzer also frightened Wall Street. There were plenty of very powerful financial institutions that craved his downfall and whose employees cheered wildly when that downfall appeared imminent.

Powerful people on Wall Street didn’t like Gov. Eliot Spitzer, and Wall Street plays dirty. Relevant here are remarks on the evening of Spitzer’s resignation by Ken Langone. The billionaire venture capitalist was a New York Stock Exchange board member whom Spitzer had gone after when he was Attorney General. Langone was an ally of Richard Grasso, chairman and CEO of the New York Stock Exchange. Attorney General Spitzer sued Grasso in 2004, seeking repayment of most of a $140 million pay package. According to the suit, Grasso, along with former NYSE Director Kenneth Langone, misled the NYSE board about the details of his pay package, beyond that of comparable chief executives. Langone later proclaimed he was launching “a holy war” against Spitzer, when the latter ran for governor.

CNBC: Would you say that you were surprised by this news?

LANGONE: Not at all. I had no doubt about his lack of character and integrity. It would only be a matter of time, I didn’t think he would do it this soon or the way he did it. But I know for sure he went himself to a post office and bought $2,800 worth of mail orders to send to the hooker.

CNBC: How do you know that?

LANGONE: I know it. I know somebody who was standing in back of him in line … We all have our own private hells. I hope his private hell is hotter than anybody else’s.

In other words, the vindictive billionaire Langone heard about the $2,800 in money orders from a private investigator he or his associates had retained to follow Spitzer. As one Wall Street veteran remarked, “I know this to be standard operating procedure against Wall Street enemies.”

How is this not selective prosecution when the members of law enforcement are trying the case in the media? Furthermore, how is this a matter for the Department of Justice’s Public Integrity office? Spitzer has income of over a million a year. That would put his assets in the tens of millions. It’s not as though he couldn’t afford to pay for the prostitutes out of his own pocket. And it’s also not like he was guarding the location of nuclear subs.

Now consider the larger context of Wall Street’s apprehensions about Governor Spitzer. Pam Martens outlined them eloquently as she described the motivations big Wall Street players had for pumping money into Barack Obama’s campaign:

In March of 2000, the Nasdaq stock market, hyped with spurious claims for startup tech and dot.com companies, reached a peak of over 5,000. Eight years later, it’s trading in the 2,300 range and most of those companies no longer exist. From peak to trough, Nasdaq transferred over $4 trillion from the pockets of small mania-gripped investors to the wealthy and elite market manipulators …

Mr. Greenspan was the wind beneath the wings of a carefully orchestrated wealth transfer system known as “pump and dump” on Wall Street. As hundreds of court cases, internal emails, and insider testimony now confirm, this bubble was no naturally occurring phenomenon any more than the Obama bubble is …

The current housing bubble bust is just a freshly minted version of Wall Street’s real estate limited partnership frauds of the ’80s, but on a grander scale … Wall Street created an artificial demand for housing (a bubble) by soliciting high interest rate mortgages (subprime) because they could be bundled and quickly resold for big fees to yield-hungry hedge funds and institutions. A major underpinning of this scheme was that Wall Street secured an artificial rating of AAA from rating agencies that were paid by Wall Street to provide the rating. When demand from institutions was saturated, Wall Street kept the scheme going by hiding the debt off its balance sheets and stuffed this long-term product into mom-and-pop money markets, notwithstanding that money markets are required by law to hold only short-term investments. To further perpetuate the bubble as long as possible, Wall Street prevented pricing transparency by keeping the trading off regulated exchanges and used unregulated over-the-counter contracts instead. (All of this required lots of lobbyist hours in Washington.)

Wall Street has nothing to fear for its subprime frauds from the SEC. The Commission cannot initiate criminal prosecutions. But New York State has the Martin Act, the most powerful criminal enforcement weapon in the country. Now look at why Wall Street was extremely nervous of what New York Attorney General Andrew Cuomo, backed by Gov. Spitzer, might have been planning to do with the Martin Act. News reports in January said Cuomo was preparing such suits.

Later the NAACP and lead counsel Brian Kabateck filed papers seeking to fast track their federal class-action lawsuit against Washington Mutual, Citi, GMAC, and fifteen other mortgage firms who systematically steered African-American borrowers into predatory loans.

The defendants in this case are CitiMortgage, Suntrust Mortgage, GMAC Rescap, JP Morgan, National City, First Horizon, Ameriquest Mortgage Company, Fremont Investment & Loan, Option One Mortgage Corporation, WMC Mortgage Corporation, Long Beach Mortgage Company, BNC Mortgage, Accredited Home Lenders, Bear Stearns Residential Mortgage Corporation, Encore Credit, First Franklin Financial Corporation, HSBC Finance Corporation, and Washington Mutual, Inc. This suit is the first to have ever charged so many major mortgage lenders with racial discrimination.

The suit is supported by a wealth of government and other research: a 2008 study by United for a Fair Economy cites federal data showing people of color are more than three times more likely to have subprime loans. The study estimated losses of between $164 billion and $213 billion for subprime loans taken by people of color during the past eight years. This is thought to be “the greatest loss of wealth for people of color in modern US history.” A July 2007 report by Freddie Mac showed that minority borrowers pay higher annual percentage rates on mortgage loans than non-minorities with equal income and credit risk.

There are reasons not to be entirely confident of the defense team retained by Spitzer. The former governor has retained three lawyers from the law firm Paul, Weiss, Rifkind, Wharton and Garrison. This is, according to one seasoned observer, “one of the dirtiest law firms and a huge part of its income comes from Wall Street. It’s known as the place that both the US government and Wall Street hire to cover up big crimes.” The way things usually work is that Paul Weiss is on board to make sure Wall Street’s and the government’s dirty secrets remain secret.

The public is pretty much in the dark about the fact that our government is not just wiretapping and email snooping, but it’s also going through our mail. Judging from what Langone said about the postal money orders and what the complaint says about the phone calls with Spitzer about the package arriving, it seems Spitzer was mailing his checks and/or postal money orders. So, it seems likely the Feds were snooping in his mail. Opening this window to public scrutiny might disclose that millions of pieces of our mail have been opened without good cause.

March 1

The vast slum projects on Chicago’s South Side known as the Robert Taylor Homes, setting for Sudhir Venkatesh’s
Gang Leader for a Day
, no longer exist. The bulldozers started rolling in the early 1990s, only
thirty years after the mini-city of twenty-eight high rises went up. It was constructed on French modernist principles, a two-mile by two-block concrete desert in which the Chicago Housing Authority had very loose authority over 27,000 people: 99.9 percent black, 95 percent jobless and on welfare, over 40 percent of the heads of household being single mothers.

Venkatesh’s colorful and sympathetic memoir is a snapshot, like those you see stuck on posts alongside American highways where a car or truck took its human cargo into the hereafter. Born in Madras and raised in comfortable middle-class academic circumstances in southern California, Venkatesh embarked on his Ph.D. in sociology at the University of Chicago in 1989. The dominant figure in the department at that time was William Julius Wilson, famous for arguing in such books as
When Work Disappears
and
The Truly Disadvantaged
that, contrary to depictions of ghetto blacks in right-wing bestiaries, which spoke of psychological, intellectual, and even genetic deficits, the core problem was work. Without stable, well-paid jobs, any community will slide downhill, with blacks at the bottom of the heap.

Venkatesh soon got bored poring over data sets and yearned to scrutinize actual poor people. Fortunately, Wilson was embarking on a big new study of poverty and told Venkatesh to put together a questionnaire and start interviewing. To the homeboys lounging about in the stairwells of the Projects, selling crack and fending off the competition, Venkatesh must have been an odd sight: a tall, dark-skinned fellow with a pony-tail and a tie-dye shirt, memento of his Deadhead cultural affiliations, flourishing a researcher’s clipboard and asking, “How does it feel to be black and poor?”

They figure him as a member of a Mexican gang, or an Arab, and hold him till the gang leader, J.T., a college dropout with a talent for organizing, assays Venkatesh’s academic credentials and origins, and in short order says he can stay around—thus setting Venkatesh on a path that would eventually lead him to Harvard and then to Columbia University.

Venkatesh does little more than gesture in a sentence or two about how exactly he earned the trust of J.T. and other powerful people in the Projects, such as the tenant leader, Ms. Bailey. In keeping with
his laconic, understated mode—one has the sense now and then of a book written in something of a hurry—he does not broach the subject of his own ethnic origins, but it obviously helped that he is not white. At all events, the laid-back personality that led J.T. and others to trust young Sudhir emerges clearly from his descriptions—at once sympathetic and detached—of slum life and the endless battles of the very poor to make it to the end of the day in one piece. His dry Indian eye allows him to sketch in vivid detail the entrepreneurial hive at the Robert Taylor Homes.