Wednesday, August 28, 2013

The Next Wave of Criminal "Clients" for Private Prison Profit

Just as Eric Holder seems to be signaling an end to the chaos and unsustainable economics of the War on Drugs, it appears that the talons of the private prison industry have already sunk deeply into its next prey/victim of choice.  As has been signaled for some time now on the CrImmigration blog and other outlets, criminal prosecution of undocumented immigrants has become the "new wave of non-violent" prisoners that are "flooding" into prisons in the United States.

This nation seems intent on locking up as many non-violent human beings as it possibly can, so long as the prisoners are persons of color, and this hysteria is driven furiously by private prison corporate influence, as the private prison regime seeks revenue and profit at every turn.

From Chris Kirkham:  "Now, just as the federal government has pulled back the throttle on the drug war, it is embarking on an unprecedented campaign to criminally prosecute undocumented immigrants crossing the border. The result: A new wave of non-violent offenders are flooding the nation's prisons.

'This is the crime du jour,' said Judith Greene, director of the nonprofit Justice Strategies, which has focused on the private prison industry's growing reliance on incarcerating undocumented immigrants. 'It's the drug war all over again. It's what's driving the market in federal prisons.'  Immigration offenders represent one of the fastest-growing segments of the federal prison population, providing a lucrative market for private prison corporations that largely control these inmates in the system. Over the last decade, revenue from the federal prison system has more than tripled for the GEO Group and nearly doubled for Corrections Corp. of America - the two companies that dominate the private prison industry."

Friday, August 16, 2013

The Economics and Immorality of a Failed Drug War

Many commentators now agree that the War on Drugs has become an epic failure.  That the Obama administration and AG Holder have publicly acknowledged as much is a good first step in correcting the fail, but it is just a small first step.  Holder's announcement is simply a policy shift.  This shift does not carry the weight of the law behind it, nor has any new legislative enactment mandated this change of policy direction.  And, as is the case in all policy decisions, it can later be reversed by a politician of a different mind.  Essentially, Holder's pronouncement means that federal prosecutors, who wield enormous discretionary power in our crime and punishment system, will be directed to use that discretion now to no longer prosecute low level, non-violent drug offenders to the full extent that the law currently allows.  Federal prosecutors have been directed to power down the charging authority handed them by Congress and the courts, that enables massively disproportionate punishment outcomes and devastating consequences.

Our nation's prisons are overflowing with low level, non-violent marijuana users and sellers costing the United States billions per year.  More than 40% of our country's prison population has been incarcerated on draconian marijuana convictions.  Of those drug convictions, more than 70% have been African American and Latino offenders.  The outrage in this outcome, is that statistics reveal that drug use occurs at a fairly consistent rate/percentage across races, meaning basically that the War on Drugs has been enforced in a wildly discriminatory manner.  Drug use percentages is essentially the same for white citizens, Asian citizens, African American citizens, and Latino citizens, yet 70% of convicted drug felons are black and Latino.  Law enforcement has systematically targeted minority and urban communities to win their drug convictions, literally steering clear of suburban, beach city, and University drug users.

Not surprisingly, local law enforcement has come out in opposition to Holder's policy announcement.  For three decades, national law enforcement has prosecuted the War on Drugs in a very systematic and discriminatory manner.  Holder's policy will force peace officers to begin targeting high level drug kingpins and cartel bosses, not low level, non-violent offenders who literally fill our nation's prisons to overcrowding.  Statistics will now be kept differently as police officers that turn low level drug users over to prosecutors will be sorely disappointed when prosecutorial discretion is used to refuse to charge the low level offenders, despite the draconian laws that call for such charging.

The tide seems to be turning on the drug war.  Momentum is growing for real and radical change.  Although this Holder policy shift is a small step, Adam Gopnik at the New Yorker argues in "Mandatory Sentences and Moral Change" that small steps can sometimes signal enormous sea changes.  I am optimistic that we can begin to turn back the incredibly misguided era of mass incarceration in the United States.  That said, corporate power and influence will have to be dealt with and thwarted as profit maximization in the private prison industry has become a powerful force in the U.S. punishment regime.

Monday, August 12, 2013

Closer to Getting it Right on Drugs

Terrific news today for those interested in fairness and justice in connection with the failed War on Drugs in the United States.  Attorney General Eric Holder announced that the Department of Justice will end its ridiculous prosecution of low level, non violent drug offenders as mandated for so long by the skewed sentencing guidelines, that locked up low level offenders for time periods one typically would associate with drug kingpins and cartel bosses.

Holder reasoned:  "'Too many Americans go to too many prisons for far too long, and for no truly good law enforcement reason,' Holder told the American Bar Association's House of Delegates in San Francisco.  He questioned some assumptions about the criminal justice system's approach to the 'war on drugs,' saying that excessive incarceration has been an 'ineffective and unsustainable' part of it.  Although he said the United States should not abandon being tough on crime, Holder embraced steps to address 'shameful' racial disparities in sentencing, the budgetary strains of overpopulated prisons and policies for incarceration that punish and rehabilitate, 'not merely to warehouse and forget.'"

From the New York Times:  "In a major shift in criminal justice policy, the Obama administration moved . . . to ease the overcrowding in federal prisons by ordering prosecutors to omit listing quantities of illegal substances in indictments for low-level drug cases, sidestepping federal laws that impose strict mandatory minimum sentences for drug-related offenses."

The Corporate Justice Blog has long reported on the multiple failures associated with the War on Drugs, including the perverse involvement of the private prison industry on the continuing incarceration of American citizens for "no truly good law enforcement reason," but instead to increase profits for executives and shareholders.  The private prison corporation regime has for years lobbied for draconian mandatory minimum sentences in order to increase the length of time that low level prisoners would remain incarcerated.

Thursday, August 8, 2013

Human Development Across Nations

I recently posted on differences in human development across states as measured by the American Human Development Index. There is also a Human Development Index (HDI) used by the United Nations to measure human well-being around the world. It also focuses on three measures of well-being: longevity, education and standard of living. It teaches many of the same lessons that I highlighted in my post about human development in the US. The 2013 annual report on human development was released by the UN in March. US fares well overall in the HDI, behind only Norway and Australia. When adjusted for inequality, however, the US drops to an embarrassing 16th. Adjusting for inequality is sensible as the whole point of measuring human development is to determine how a society is faring, not just to measure the lives of a few very high income citizens. Some in the US live very well; on the other hand, about 80 percent of Americans will have a brush with poverty at some point in their lives. By any reasonable reckoning that suggests that many if not most Americans are exposed to a high degree of economic insecurity. And, as depicted in the chart to the right, recently poverty in the US equaled a 27 year high. Worse, childhood poverty in the US is higher than in all other developed nations except Romania--at about 23 percent. This is both morally reprehensible and economically backwards. Such a high level of poverty (particularly among children) is inconsistent with a healthy society. No nation can reach its economic potential if a high percentage of its people are in poverty because impoverished people struggle just to survive rather than thriving economically or investing in enhanced productive capability.

The fundamental difference between the US and the rest of the developed world in terms of the HDI and poverty is tax policy. Every nation that scores higher than the US in both the HDI as well as the inequality adjusted HDI taxes their economy more than the US in terms of total tax revenues as a ratio of GDP. In fact, among developed nations only Mexico and Chile tax less. Some nations such as Denmark and Sweden tax at nearly twice the rate as the US. The average developed nation taxes more than ten percent more of its GDP than the US. According to Citizens for Tax Justice, relying upon OECD data, the US historically taxed its economy at more internationally comparable rates. In 2000, the US was just four percentage points below average--and actually rang up a significant federal surplus. In 1965, the US taxed at the same rate as other OECD nations.

Sweden has a childhood poverty rate of about 7.5 percent, and Denmark's childhood poverty rate is even lower at about 7 percent. Both Sweden and Denmark enjoy a higher life expectancy than the US. Yet, despite higher levels of taxation and achieving superior social outcomes both nations also generate higher per capita GDP than the US according to the World Bank. In fact, of all the nations in the graphic to the right that tax more than the US no less than seven have higher GDP per capita than the US (sometimes substantially higher). Six of those seven nations also enjoy higher inequality adjusted HDI scores than the US: Sweden, Switzerland, Norway, Australia, Canada and Denmark. All six have higher life expectancy--as much as four years higher. So, national economic success is not compromised by taxes that are used to empower people by lifting them out of poverty or enhancing their health outcomes. In fact, people seem to live longer and better in higher taxation nations.

The problem with the US is that we have chronically deprived the government of the resources needed to empower our people. The problem is not limited to just taxes but also where we spend our government resources. For example, none of the nations discussed above bears the burden of sending more than $700 billion on defense. Indeed, the US spends nearly as much on defense as the rest of the developed world combined. Further, total federal tax revenues as a percentage of GDP now stand at a 50 year low.

Thus, the US government simply lacks the tax revenues to invest in its people. Take the GI Bill as an example: The original GI Bill put in place after World War II generated economic benefits of up to $12.50 for every dollar the government spent. College degrees conferred in the US soared from 217,000 in 1940 to 499,000 in 1950. This was human development on a grand scale. Today, the GI Bill grants benefits that are a shadow of the original bill. As two noted scholars report: "Despite the mammoth scope and potential cost of the Post 9/11 G.I. Bill, the new bill is not nearly as lavish as the original GI Bill of 1944."

Across educational outcomes the US is fast sinking to the bottom of the developed world. In tertiary education graduation the US fell from fourth to 14th among developed nations in just 17 years and is now below the OECD average. In the latest international assessment of primary education outcomes the US scored dead last among 17 nations. In the most recent PISA scores the US 15 year olds ranked 31st out of 32 nations in math scores  and 23rd out of 32 in science as shown in the chart at right. This should come as no surprise as impoverished children simply cannot reach full educational capacity.

Essentially, we have reached precisely the point of my earlier blog on human development across states: "conservative economic ideology of less government and more laissez faire policies delivers inferior outputs for people in terms of objective measures of well-being. Sound regulation, investment in human and other infrastructure, and economic empowerment work--and that requires a robust government." But, looking at the facts trans-nationally, one cannot help but to find my conclusion from Law Capitalism correct: "The U.S. under-invests in education and fails to use its resources effectively. Given the centrality of ideas to economic growth, the U.S. abdicated economic leadership over the past twelve to fifteen years."

Of course, it really does not matter to governing elites whether the US can compete globally or whether the US slides slowly into third world status. They rigged college admissions so their kids win no matter what. And, their kids will get the finest education money can buy at super-elite private schools: "Exeter devotes an average of $63,500 annually to house and educate each of its 1,000 students." If they can convince 51 percent of voters that laissez faire produces the best outcomes against all evidence then (literally) more power to them.

Wednesday, August 7, 2013

Deadly Conservative Ideology Strangling Red States

I stumbled across an interesting fact recently. The Reddest states (those states most reliable for the GOP) also have the lowest life expectancy. So, for example, the thirteen worst states for life expectancy (in order: Mississippi, West Virginia, Kentucky, Alabama, Tennessee, Oklahoma, Louisiana, Arkansas, Georgia, North Carolina, Texas, South Carolina and Missouri) all went for Mitt Romney in the last presidential election and have been virtually all Red for 17 years and counting. (See Meanwhile, the Bluest states have the longest life expectancy. Every one of the top eight states in life expectancy (Hawaii, Connecticut, Minnesota, Florida, Colorado, Vermont, New Hampshire and Washington) went for President Obama. The differences in life expectancy among the states is not trifling. Hawaii's life expectancy exceeds Mississippi's by 6.3 years. The only conclusion is that not only is conservative ideology a failure, but conservatives are killing themselves in pursuit of some twisted laissez faire fantasy.
Of course, quality of life matters, too. The Measure of America project is a non-partisan, non-profit initiative that addresses human development issues in the US. They created the American Human Development Index. The index (HDI) is expressed as a number from 0 to 10, and measures the three basic dimensions of well-being--longevity, access to knowledge, and standard of living. The HDI is calculated from official U.S. government mortality data to measure longevity, a combination of educational attainment and school enrollment to measure knowledge, and median personal earnings to measure standard of living. The top 18 states in HDI all voted for Obama, as did 21 of the top 25. All of the bottom 10 (and 15 of the bottom 16) voted for Romney.  In education, the six states with the lowest level of high school graduation all went for Romney; and, every state with more than 14 percent of its citizens holding graduate degrees went for Obama. That can only be termed a real landslide.

Additionally, as shown in this post from The Economist, the Blue States massively subsidize the Red States. Over a twenty year period, 1990 to 2009, the states with the heaviest surplus (meaning they paid into the federal coffers more than they took in federal benefits) were all stalwart Blue States. In order they are: Delaware, Minnesota, New Jersey, Illinois, Connecticut and New York. Five of the bottom six deficit states are Red State bastions. The map at left depicts the reality of massive fiscal transfers from the Bluest States to the Reddest States. Without this support from the Blue States, life in the Red States would likely be quite wretched. Certainly, without billions flowing annually from the most productive (Blue) states to the fiscal drag states (mostly but not all Red), life expectancy, educational attainment and income would drop.

More broadly, conservative economic ideology of less government and more laissez faire policies delivers inferior outputs for people in terms of objective measures of well-being. Sound regulation, investment in human and other infrastructure, and economic empowerment work--and that requires a robust government.

Of course, this in no way vindicates the current wrongheaded Democratic indulgence of the megabanks under federal law which I have written about again and again.

One view of the GOP and Democratic approaches is this: both parties coddle the most powerful, particularly at the apex of our system, but the Democrats at least pursue some degree of broader empowerment consistent with higher HDI scores in states they dominate the most. Meanwhile, the GOP, very much like the Democrats, neglect props to economic growth to the maximum extent they can, given the political context in the states they dominate the most. A perfect two party system in an era of soaring inequality as depicted below--it serves the interests of a small cadre of uber elites first and foremost. After all, only the very wealthy can bank roll campaigns, offer politicians windfall compensation for mega-millions, or dole out hot stock tips.

The only way out of our continued swoon is for a new cultural norm to emerge that would cause voters to aggressively vote against those that serve the most powerful and to aggressively support leaders that are proven to be the strongest champions of the dis-empowered. Then American prosperity can return to levels of decades past and the era of Lawless Capitalism can end.

Monday, August 5, 2013

Credit Rating Agencies Still for Sale?

In yet another scathing rebuke, Matt Taibbi of Rolling Stone underscores the role of the rating agencies in the financial market crisis in his latest piece called "The Last Mystery of the Financial Crisis."  As reported repeatedly on the Corporate Justice Blog, and Taibbi's investigative report buttresses the posts, significant blame for the mortgage crisis lays at the feet of the corrupted credit rating agencies, Moody's, Standard & Poor's and Fitch.  Based on recent court documents made public following the rating agencies $255 million settlement for their roles in knowingly mis-rating mortgage backed security investment vehicles in the run-up to the mortgage meltdown, a pitiful story is revealed of full blown rating agency head-bowed acquiescence to the demands of mega-banks (like Morgan Stanely) simply for the money - pay us enough and we will give you the rating that you want, science and integrity be damned.

From Rolling Stone and Taibbi:  "Thanks to a mountain of evidence gathered for a pair of major lawsuits by the San Diego-based law firm Robbins Geller Rudman & Dowd, documents that for the most part have never been seen by the general public, we now know that the nation's two top ratings companies, Moody's and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.  In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked. . . .

[The rating agency's] primary function is to help define what's safe to buy, and what isn't. A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater . . .  It's supposed to be sacrosanct, inviolable: According to Moody's own reports, AAA investments "should survive the equivalent of the U.S. Great Depression.  It's not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for."

The story is worth the read, as the incest amongst Wall Street Banks and the Credit Rating Agencies in the period prior to the market collapse is simply unbelievable.  More unbelievable still, the credit rating agencies remain in business and very little has changed.

Again, from Taibbi:  "2008 was to the American economy what 9/11 was to national security. Yet while 9/11 prompted the U.S. government to tear up half the Constitution in the name of public safety, after 2008, authorities went in the other direction [with the credit rating agency process]. If you can imagine a post-9/11 scenario where there were no metal detectors at airports and people could walk on carrying chain saws and meat cleavers, you get a rough idea of what was done to reform the ratings process.  Specifically, very little was done to change the way AAA ratings are created – the "issuer pays" model still exists, and the "Big Three" retain roughly the same market share. An effort by Minnesota Sen. Al Franken to change the compensation model through a new approach under which agencies would be assigned to rate new issues through a government agency passed overwhelmingly in the Senate, but in the House it was relegated to a study by the SEC – which released its findings last year, calling for . . . more study. "The conflict of interest still exists in the exact same way," says a frustrated Franken."

Corruption rewarded?  Wouldn't the most efficient response be to blow up Moody's, S&P's and Fitch and begin from scratch, where integrity is the most important outcome?

Friday, August 2, 2013

Dodd-Frank at Three: More Lawless Capitalism

President Barack Obama signed the Dodd-Frank Act on July 21, 2010. How has the Act fared after three Years?

Well, according to CNBC, only 39% of all the regulatory rule-making required under the Act has been completed (see video at right, at 0:44). The megabanks have lobbied the top regulators to the hilt, meeting with them over 1,000 times (1:58). Indeed, the Sunlight Foundation finds that: "As the Dodd-Frank law passes its third anniversary, lagging on deadlines, and increasingly defanged, the meetings log data offer a compelling reason why: the banks have overwhelmed the regulators." CFTC Commissioner Bart Chilton states: "Much of Dodd-Frank is dying on the vine. Lobbying, litigation and lawmakers who have tried to defund and defang Dodd-Frank have all brought rule-writing to a crawl." Chilton continues: "Regulators themselves have become overly concerned about finalizing rules. Over-analysis, paralysis, fears of litigation risks, and the lack of people-power have all contributed to the slowdown." According to former Rep. Barney Frank, the GOP controlled House has stripped out the resources needed at key regulatory agencies to effectuate the purpose of the Act (4:27). I predicted that a lobbying blitz would defang Dodd-Frank in August 2010. Thus, none of this effort or its success should surprise anyone who has followed the use of power to corrupt law and regulation in the past few decades, as demonstrated in Lawless Capitalism.


More surprising, Rep. Frank issued a challenge regarding Too-Big-to-Fail (TBTF) (8:13). He claims Dodd-Frank makes every bailout of 2008 "impossible." That is simply nonsense, as I posted on the day after the Dodd-Frank Act was signed. Specifically, the Dodd-Frank Act amends section 13(3) of the Federal Reserve Act in a way that paves the way for the Fed to bailout large banks so long as it does so pursuant to a program or facility that features "broad-based eligibility." Indeed, the Act directs the Fed and the Treasury to create emergency lending programs and facilities "as soon as practicable." The only limitations the Act imposes on this emergency lending power is that borrowers cannot already be in bankruptcy or receivership and the loan cannot be made with the "purpose of" assisting a "single and specific company."

New section 13(3) of the Federal Reserve Act empowers the Fed to provide for loan programs with "broad-based eligibility" for "the purpose of providing liquidity to the financial system." It is hard to see how the new section would stop bailouts like the AIG Bailout or the Bear Stearns Bailout--both of which explicitly occurred under section 13(3).

That is why both Treasury Secretary Lew and Fed Chair Bernanke now admit that TBTF has not been solved yet.


The megabank lobby also has scored impressive wins in derailing derivatives regulation. In May, the SEC under the leadership of Mary Jo White voted to exempt foreign subsidiaries and foreign megabanks from complying with Dodd-Frank. Meanwhile, the CFTC recently voted to delay the overseas impact of its derivatives regulations and a bill in Congress would mandate that the CFTC follow the lead of the SEC, and defer to nations with weaker oversight. Most of the great derivatives mischief in recent years occurred at foreign subsidiaries--the AIG fiasco, the Chase London Whale losses, Citigroup's off-balance sheet SIVs and Long Term Capital Management's implosion.

On May 16, the CFTC curtailed the obligation for derivatives clearing houses to facilitate competitive markets by cutting the number of required bids for a given trade from 5 to 2. The swing vote on this action was supplied by Commissioner Mark Wetjen who some think may soon head the CFTC.

This comes on the heels of another notable win for the megabanks. Specifically, the SEC and CFTC voted last year to reduce the threshold for derivative dealer regulation from $100 million in derivatives contracts per year to $8 billion. Further there are significant exemptions from that $8 billion limit. "Under the rule, companies can exclude the swaps they use to hedge their business against risk like, say, interest rate fluctuations. And the rule would apply only to a company’s swaps transactions, so firms would not need to count their other varieties of derivatives, like forwards and options." This means fewer (as few as 15%) trading firms will be designated as swap dealers and thus subject to the most stringent capital and collateral requirements.


 The Volcker Rule was intended to put the "kibosh on most proprietary trading, which is when an institution that has access to Federal Reserve funds and insured deposits (i.e. all big banks) invests with its own funds for profit. It also limits the ability of banks to use their own funds in risky activities like derivatives trading." Originally scheduled to take effect in July of 2012, the rule has been delayed until July of 2014. In the meantime, expect massive lobbying because banks "hate" this rule. As former Chief Economist at the IMF, Simon Johnson, puts it the rule will "no doubt continue to draw a lot of pushback and gaming by the industry.”

Dodd-Frank is not without its positive effects. I have blogged previously about its potential to mitigate CEO primacy and its impact on curtailing predatory lending.   

But, fundamentally, after three years, it does not prevent banks from gambling on speculative trades with the backing of the US government. That almost certainly means too much risk in the system and more crises down the road, as I predicted in Dodd-Frank as Maginot Line.