March 31, 2009
Listening To: Matt Nathanson
Matt Nathanson
All We Are
I tasted, tasted love so sweet
And all of it was lost on me
Buttons sold like property
Sugar on my tongue
I kept falling over
I kept looking backward
I went broke believing
That the simple should be hard
All we are we are
All we are we are
And every day is a start of something beautiful
I wasted, wasted love for you
Traded out for something new
Well, it's hard to change the way you lose
If you think you never won
'Cause all we are we are
All we are we are
And every day is a start of something beautiful
And in the end the words won't matter
'Cause in the end nothing stays the same
And in the end dreams just scatter and fall like rain
'Cause all we are we are
All we are we are
And every day is a start of something beautiful, something real
All we are we are
All we are we are
And every day is a start of something beautiful, beautiful
March 30, 2009
Listening to: Melody Gardot
Melody on CNN
"Baby I'm a fool" video
Sumptuous!
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From Wikipedia one learns:
Melody Gardot is an American jazz singer and musician in Philadelphia, Pennsylvania. Born in 1982, she was disabled at 19, after being struck by a car while riding her bicycle.[1] This event, though tragic, led to her recognition as a remarkable musician.
Her musical beginning was prompted by a tending physician who was concerned with her cognitive impairment as a result of head injury sustained in the accident. He believed music would help her brain injury drastically improve, as it has been known to show remarkable results in improving peoples' cognitive ability after such trauma. It helps by rebuilding the pathways within the brain which are necessary for recalling data (specifically in the areas of Memory, Calculating Data, Executive Functioning Skills, etc.).[citation needed]
Speaking from British Columbia, Katherine Wright of the Music Therapy Association explains, "Music enables a person to reminisce and reconnect with her sense of identity. Songwriting is an excellent tool to use when working on concentration and other cognitive issues."
Following her doctor's suggestion, Melody Gardot made recordings bedside, while still unable to walk, and eventually released the works as an EP titled Some Lessons - The Bedroom Sessions. Gardot's desire to be well, combined with a bit of luck, brought her to the attention of a local radio DJ at the AAA station WXPN, known for launching the careers of artists such as Amos Lee and Norah Jones. She quickly gained public esteem both for her stunning music as well as her remarkable courage despite her afflictions.
Philadelphia City Paper even gave her a nod in their 2005 annual people's choice awards saying "To Our Eyes, nobody is a more inspiring, more talented fighter than singer/songwriter phenom Melody Gardot. She turned the pain of a life-changing car accident into surprisingly mature and utterly enthralling music". The Paper was the first to publish an article on her.[2]
CD cover for Worrisome HeartHer first full-length album, a follow-up to the EP Some Lessons, is entitled Worrisome Heart. The album features 11 original songs [iTunes US version omits the track "Wicked Ride"] written by Melody Gardot and was co-produced by both Grammy-award-winning producer Glenn Barratt and Melody Gardot. Performers on the album include not only the trio that accompanies her live, but also an impressive cast of musicians such as guitarist Jef Lee Johnson (Billy Joel, George Duke, Aretha Franklin, David Sandborn), organist Joel Bryant (Aretha Franklin, Harry Connick Jr.), and trumpeter Matt Cappy (Jill Scott, Kirk Franklin).
There are many variables that make performing nearly impossible for the young songstress. Still in her early twenties, Melody Gardot carries a cane and must wear dark glasses. She often has a little black box tied to her waist; called a TENS unit, it is used to alleviate neuralgic pain/muscle pain. She sits on a specialized chair while performing, owing to pelvic fractures sustained in the accident. Her pelvis remains misaligned, and she also suffers from an autonomic nervous system dysfunction, causing hypersensitivity to noise and sound.
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Lyrics
How was I to know that this was always only just a little game to you?
All the time I felt you gave your heart I thought that I would do the same for you,
Tell the truth I think I should have seen it coming from a mile away,
When the words you say are,
“Baby I’m a fool who thinks it’s cool to fall in love”
If I gave a thought to fascination I would know it wasn’t right to care,
Logic doesn’t seem to mind that I am fascinated by the love affair,
Still my heart would benefit from a little tenderness from time to time, but never mind,
Cos Baby I’m a fool who thinks it’s cool to fall in love,
Baby I should hold on just a moment and be sure it’s not for vanity,
Look me in the eye and tell me love is never based upon insanity,
Even when my heart is beating hurry up the moment’s fleeting,
Kiss me now,
Don’t ask me how,
Cos Baby I’m a fool who thinks it’s cool to fall,
Baby I’m a fool who thinks it’s cool to fall,
And I would never tell if you became a fool and fell in Love.
March 28, 2009
March 26, 2009
New Yorker on Solitary Confinement
Hellhole
The United States holds tens of thousands of inmates in long-term solitary confinement. Is this torture?
by Atul Gawande
Human beings are social creatures. We are social not just in the trivial sense that we like company, and not just in the obvious sense that we each depend on others. We are social in a more elemental way: simply to exist as a normal human being requires interaction with other people.
Children provide the clearest demonstration of this fact, although it was slow to be accepted. Well into the nineteen-fifties, psychologists were encouraging parents to give children less attention and affection, in order to encourage independence. Then Harry Harlow, a professor of psychology at the University of Wisconsin at Madison, produced a series of influential studies involving baby rhesus monkeys.
At first, Harlow and his graduate students couldn’t figure out what the problem was. They considered factors such as diet, patterns of light exposure, even the antibiotics they used. Then, as Deborah Blum recounts in a fascinating biography of Harlow, “Love at Goon Park,” one of his researchers noticed how tightly the monkeys clung to their soft blankets. Harlow wondered whether what the monkeys were missing in their Isolettes was a mother. So, in an odd experiment, he gave them an artificial one.
In the studies, one artificial mother was a doll made of terry cloth; the other was made of wire. He placed a warming device inside the dolls to make them seem more comforting. The babies, Harlow discovered, largely ignored the wire mother. But they became deeply attached to the cloth mother. They caressed it. They slept curled up on it. They ran to it when frightened. They refused replacements: they wanted only “their” mother. If sharp spikes were made to randomly thrust out of the mother’s body when the rhesus babies held it, they waited patiently for the spikes to recede and returned to clutching it. No matter how tightly they clung to the surrogate mothers, however, the monkeys remained psychologically abnormal.
In a later study on the effect of total isolation from birth, the researchers found that the test monkeys, upon being released into a group of ordinary monkeys, “usually go into a state of emotional shock, characterized by . . . autistic self-clutching and rocking.” Harlow noted, “One of six monkeys isolated for three months refused to eat after release and died five days later.” After several weeks in the company of other monkeys, most of them adjusted—but not those who had been isolated for longer periods. “Twelve months of isolation almost obliterated the animals socially,” Harlow wrote. They became permanently withdrawn, and they lived as outcasts—regularly set upon, as if inviting abuse.
The research made Harlow famous (and infamous, too—revulsion at his work helped spur the animal-rights movement). Other psychologists produced evidence of similarly deep and sustained damage in neglected and orphaned children. Hospitals were made to open up their nurseries to parents. And it became widely accepted that children require nurturing human beings not just for food and protection but also for the normal functioning of their brains.
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We have been hesitant to apply these lessons to adults. Adults, after all, are fully formed, independent beings, with internal strengths and knowledge to draw upon. We wouldn’t have anything like a child’s dependence on other people, right? Yet it seems that we do. We don’t have a lot of monkey experiments to call upon here. But mankind has produced tens of thousands of human ones, including in our prison system. And the picture that has emerged is profoundly unsettling.
Among our most benign experiments are those with people who voluntarily isolate themselves for extended periods. Long-distance solo sailors, for instance, commit themselves to months at sea. They face all manner of physical terrors: thrashing storms, fifty-foot waves, leaks, illness. Yet, for many, the single most overwhelming difficulty they report is the “soul-destroying loneliness,” as one sailor called it. Astronauts have to be screened for their ability to tolerate long stretches in tightly confined isolation, and they come to depend on radio and video communications for social contact.
The problem of isolation goes beyond ordinary loneliness, however. Consider what we’ve learned from hostages who have been held in solitary confinement—from the journalist Terry Anderson, for example, whose extraordinary memoir, “Den of Lions,” recounts his seven years as a hostage of Hezbollah in Lebanon.
Anderson was the chief Middle East correspondent for the Associated Press when, on March 16, 1985, three bearded men forced him from his car in Beirut at gunpoint. He was pushed into a Mercedes sedan, covered head to toe with a heavy blanket, and made to crouch head down in the footwell behind the front seat. His captors drove him to a garage, pulled him out of the car, put a hood over his head, and bound his wrists and ankles with tape. For half an hour, they grilled him for the names of other Americans in Beirut, but he gave no names and they did not beat him or press him further. They threw him in the trunk of the car, drove him to another building, and put him in what would be the first of a succession of cells across Lebanon. He was soon placed in what seemed to be a dusty closet, large enough for only a mattress. Blindfolded, he could make out the distant sounds of other hostages. (One was William Buckley, the C.I.A. station chief who was kidnapped and tortured repeatedly until he weakened and died.) Peering around his blindfold, Anderson could see a bare light bulb dangling from the ceiling. He received three unpalatable meals a day—usually a sandwich of bread and cheese, or cold rice with canned vegetables, or soup. He had a bottle to urinate in and was allotted one five- to ten-minute trip each day to a rotting bathroom to empty his bowels and wash with water at a dirty sink. Otherwise, the only reprieve from isolation came when the guards made short visits to bark at him for breaking a rule or to threaten him, sometimes with a gun at his temple.
He missed people terribly, especially his fiancée and his family. He was despondent and depressed. Then, with time, he began to feel something more. He felt himself disintegrating. It was as if his brain were grinding down. A month into his confinement, he recalled in his memoir, “The mind is a blank. Jesus, I always thought I was smart. Where are all the things I learned, the books I read, the poems I memorized? There’s nothing there, just a formless, gray-black misery. My mind’s gone dead. God, help me.”
He was stiff from lying in bed day and night, yet tired all the time. He dozed off and on constantly, sleeping twelve hours a day. He craved activity of almost any kind. He would watch the daylight wax and wane on the ceiling, or roaches creep slowly up the wall. He had a Bible and tried to read, but he often found that he lacked the concentration to do so. He observed himself becoming neurotically possessive about his little space, at times putting his life in jeopardy by flying into a rage if a guard happened to step on his bed. He brooded incessantly, thinking back on all the mistakes he’d made in life, his regrets, his offenses against God and family.
His captors moved him every few months. For unpredictable stretches of time, he was granted the salvation of a companion—sometimes he shared a cell with as many as four other hostages—and he noticed that his thinking recovered rapidly when this occurred. He could read and concentrate longer, avoid hallucinations, and better control his emotions. “I would rather have had the worst companion than no companion at all,” he noted.
In September, 1986, after several months of sharing a cell with another hostage, Anderson was, for no apparent reason, returned to solitary confinement, this time in a six-by-six-foot cell, with no windows, and light from only a flickering fluorescent lamp in an outside corridor. The guards refused to say how long he would be there. After a few weeks, he felt his mind slipping away again.
“I find myself trembling sometimes for no reason,” he wrote. “I’m afraid I’m beginning to lose my mind, to lose control completely.”
One day, three years into his ordeal, he snapped. He walked over to a wall and began beating his forehead against it, dozens of times. His head was smashed and bleeding before the guards were able to stop him.
Some hostages fared worse. Anderson told the story of Frank Reed, a fifty-four-year-old American private-school director who was taken hostage and held in solitary confinement for four months before being put in with Anderson. By then, Reed had become severely withdrawn. He lay motionless for hours facing a wall, semi-catatonic. He could not follow the guards’ simplest instructions. This invited abuse from them, in much the same way that once isolated rhesus monkeys seemed to invite abuse from the colony. Released after three and a half years, Reed ultimately required admission to a psychiatric hospital.
“It’s an awful thing, solitary,” John McCain wrote of his five and a half years as a prisoner of war in Vietnam—more than two years of it spent in isolation in a fifteen-by-fifteen-foot cell, unable to communicate with other P.O.W.s except by tap code, secreted notes, or by speaking into an enamel cup pressed against the wall. “It crushes your spirit and weakens your resistance more effectively than any other form of mistreatment.” And this comes from a man who was beaten regularly; denied adequate medical treatment for two broken arms, a broken leg, and chronic dysentery; and tortured to the point of having an arm broken again. A U.S. military study of almost a hundred and fifty naval aviators returned from imprisonment in Vietnam, many of whom were treated even worse than McCain, reported that they found social isolation to be as torturous and agonizing as any physical abuse they suffered.
And what happened to them was physical. EEG studies going back to the nineteen-sixties have shown diffuse slowing of brain waves in prisoners after a week or more of solitary confinement. In 1992, fifty-seven prisoners of war, released after an average of six months in detention camps in the former Yugoslavia, were examined using EEG-like tests. The recordings revealed brain abnormalities months afterward; the most severe were found in prisoners who had endured either head trauma sufficient to render them unconscious or, yes, solitary confinement. Without sustained social interaction, the human brain may become as impaired as one that has incurred a traumatic injury.
On December 4, 1991, Terry Anderson was released from captivity. He had been the last and the longest-held American hostage in Lebanon. I spoke to Keron Fletcher, a former British military psychiatrist who had been on the receiving team for Anderson and many other hostages, and followed them for years afterward. Initially, Fletcher said, everyone experiences the pure elation of being able to see and talk to people again, especially family and friends. They can’t get enough of other people, and talk almost non-stop for hours. They are optimistic and hopeful. But, afterward, normal sleeping and eating patterns prove difficult to reëstablish. Some have lost their sense of time. For weeks, they have trouble managing the sensations and emotional complexities of their freedom.
For the first few months after his release, Anderson said when I reached him by phone recently, “it was just kind of a fog.” He had done many television interviews at the time. “And if you look at me in the pictures? Look at my eyes. You can tell. I look drugged.”
Most hostages survived their ordeal, Fletcher said, although relationships, marriages, and careers were often lost. Some found, as John McCain did, that the experience even strengthened them. Yet none saw solitary confinement as anything less than torture. This presents us with an awkward question: If prolonged isolation is—as research and experience have confirmed for decades—so objectively horrifying, so intrinsically cruel, how did we end up with a prison system that may subject more of our own citizens to it than any other country in history has?
Recently, I met a man who had spent more than five years in isolation at a prison in the Boston suburb of Walpole, Massachusetts, not far from my home. Bobby Dellelo was, to say the least, no Terry Anderson or John McCain. Brought up in the run-down neighborhoods of Boston’s West End, in the nineteen-forties, he was caught burglarizing a shoe store at the age of ten. At thirteen, he recalls, he was nabbed while robbing a Jordan Marsh department store. (He and his friends learned to hide out in stores at closing time, steal their merchandise, and then break out during the night.) The remainder of his childhood was spent mostly in the state reform school. That was where he learned how to fight, how to hot-wire a car with a piece of foil, how to pick locks, and how to make a zip gun using a snapped-off automobile radio antenna, which, in those days, was just thick enough to barrel a .22-calibre bullet. Released upon turning eighteen, Dellelo returned to stealing. Usually, he stole from office buildings at night. But some of the people he hung out with did stickups, and, together with one of them, he held up a liquor store in Dorchester.
“What a disaster that thing was,” he recalls, laughing. They put the store’s owner and the customers in a walk-in refrigerator at gunpoint, took their wallets, and went to rob the register. But more customers came in. So they robbed them and put them in the refrigerator, too. Then still more customers arrived, the refrigerator got full, and the whole thing turned into a circus. Dellelo and his partner finally escaped. But one of the customers identified him to the police. By the time he was caught, Dellelo had been fingered for robbing the Commander Hotel in Cambridge as well. He served a year for the first conviction and two and a half years for the second.
Three months after his release, in 1963, at the age of twenty, he and a friend tried to rob the Kopelman jewelry store, in downtown Boston. But an alarm went off before they got their hands on anything. They separated and ran. The friend shot and killed an off-duty policeman while trying to escape, then killed himself. Dellelo was convicted of first-degree murder and sentenced to life in prison. He ended up serving forty years. Five years and one month were spent in isolation.
The criteria for the isolation of prisoners vary by state but typically include not only violent infractions but also violation of prison rules or association with gang members. The imposition of long-term isolation—which can be for months or years—is ultimately at the discretion of prison administrators. One former prisoner I spoke to, for example, recalled being put in solitary confinement for petty annoyances like refusing to get out of the shower quickly enough. Bobby Dellelo was put there for escaping.
It was an elaborate scheme. He had a partner, who picked the lock to a supervisor’s office and got hold of the information manual for the microwave-detection system that patrolled a grassy no man’s land between the prison and the road. They studied the manual long enough to learn how to circumvent the system and returned it. On Halloween Sunday, 1993, they had friends stage a fight in the prison yard. With all the guards in the towers looking at the fight through binoculars, the two men tipped a picnic table up against a twelve-foot wall and climbed it like a ladder. Beyond it, they scaled a sixteen-foot fence. To get over the razor wire on top, they used a Z-shaped tool they’d improvised from locker handles. They dropped down into the no man’s land and followed an invisible path that they’d calculated the microwave system would not detect. No alarm sounded. They went over one more fence, walked around a parking lot, picked their way through some woods, and emerged onto a four-lane road. After a short walk to a convenience store, they called a taxi from a telephone booth and rolled away before anyone knew they were gone.
They lasted twenty-four days on the outside. Eventually, somebody ratted them out, and the police captured them on the day before Thanksgiving, at the house of a friend in Cambridge. The prison administration gave Dellelo five years in the Departmental Disciplinary Unit of the Walpole prison, its hundred-and-twenty-four-cell super-maximum segregation unit.
Wearing ankle bracelets, handcuffs, and a belly chain, Dellelo was marched into a thirteen-by-eight-foot off-white cell. A four-inch-thick concrete bed slab jutted out from the wall opposite the door. A smaller slab protruding from a side wall provided a desk. A cylindrical concrete block in the floor served as a seat. On the remaining wall was a toilet and a metal sink. He was given four sheets, four towels, a blanket, a bedroll, a toothbrush, toilet paper, a tall clear plastic cup, a bar of soap, seven white T-shirts, seven pairs of boxer shorts, seven pairs of socks, plastic slippers, a pad of paper, and a ballpoint pen. A speaker with a microphone was mounted on the door. Cells used for solitary confinement are often windowless, but this one had a ribbonlike window that was seven inches wide and five feet tall. The electrically controlled door was solid steel, with a seven-inch-by-twenty-eight-inch aperture and two wickets—little door slots, one at ankle height and one at waist height, for shackling him whenever he was let out and for passing him meal trays.
As in other supermaxes—facilities designed to isolate prisoners from social contact—Dellelo was confined to his cell for at least twenty-three hours a day and permitted out only for a shower or for recreation in an outdoor cage that he estimated to be fifty feet long and five feet wide, known as “the dog kennel.” He could talk to other prisoners through the steel door of his cell, and during recreation if a prisoner was in an adjacent cage. He made a kind of fishing line for passing notes to adjacent cells by unwinding the elastic from his boxer shorts, though it was contraband and would be confiscated. Prisoners could receive mail and as many as ten reading items. They were allowed one phone call the first month and could earn up to four calls and four visits per month if they followed the rules, but there could be no physical contact with anyone, except when guards forcibly restrained them. Some supermaxes even use food as punishment, serving the prisoners nutra-loaf, an unpalatable food brick that contains just enough nutrition for survival. Dellelo was spared this. The rules also permitted him to have a radio after thirty days, and, after sixty days, a thirteen-inch black-and-white television.
“This is going to be a piece of cake,” Dellelo recalls thinking when the door closed behind him. Whereas many American supermax prisoners—and most P.O.W.s and hostages—have no idea when they might get out, he knew exactly how long he was going to be there. He drew a calendar on his pad of paper to start counting down the days. He would get a radio and a TV. He could read. No one was going to bother him. And, as his elaborate escape plan showed, he could be patient. “This is their sophisticated security?” he said to himself. “They don’t know what they’re doing.”
After a few months without regular social contact, however, his experience proved no different from that of the P.O.W.s or hostages, or the majority of isolated prisoners whom researchers have studied: he started to lose his mind. He talked to himself. He paced back and forth compulsively, shuffling along the same six-foot path for hours on end. Soon, he was having panic attacks, screaming for help. He hallucinated that the colors on the walls were changing. He became enraged by routine noises—the sound of doors opening as the guards made their hourly checks, the sounds of inmates in nearby cells. After a year or so, he was hearing voices on the television talking directly to him. He put the television under his bed, and rarely took it out again.
One of the paradoxes of solitary confinement is that, as starved as people become for companionship, the experience typically leaves them unfit for social interaction. Once, Dellelo was allowed to have an in-person meeting with his lawyer, and he simply couldn’t handle it. After so many months in which his primary human contact had been an occasional phone call or brief conversations with an inmate down the tier, shouted through steel doors at the top of their lungs, he found himself unable to carry on a face-to-face conversation. He had trouble following both words and hand gestures and couldn’t generate them himself. When he realized this, he succumbed to a full-blown panic attack.
Craig Haney, a psychology professor at the University of California at Santa Cruz, received rare permission to study a hundred randomly selected inmates at California’s Pelican Bay supermax, and noted a number of phenomena. First, after months or years of complete isolation, many prisoners “begin to lose the ability to initiate behavior of any kind—to organize their own lives around activity and purpose,” he writes. “Chronic apathy, lethargy, depression, and despair often result. . . . In extreme cases, prisoners may literally stop behaving,” becoming essentially catatonic.
Second, almost ninety per cent of these prisoners had difficulties with “irrational anger,” compared with just three per cent of prisoners in the general population. Haney attributed this to the extreme restriction, the totality of control, and the extended absence of any opportunity for happiness or joy. Many prisoners in solitary become consumed with revenge fantasies.
“There were some guards in D.D.U. who were decent guys,” Dellelo told me. They didn’t trash his room when he was let out for a shower, or try to trip him when escorting him in chains, or write him up for contraband if he kept food or a salt packet from a meal in his cell. “But some of them were evil, evil pricks.” One correctional officer became a particular obsession. Dellelo spent hours imagining cutting his head off and rolling it down the tier. “I mean, I know this is insane thinking,” he says now. Even at the time, he added, “I had a fear in the background—like how much of this am I going to be able to let go? How much is this going to affect who I am?”
He was right to worry. Everyone’s identity is socially created: it’s through your relationships that you understand yourself as a mother or a father, a teacher or an accountant, a hero or a villain. But, after years of isolation, many prisoners change in another way that Haney observed. They begin to see themselves primarily as combatants in the world, people whose identity is rooted in thwarting prison control.
As a matter of self-preservation, this may not be a bad thing. According to the Navy P.O.W. researchers, the instinct to fight back against the enemy constituted the most important coping mechanism for the prisoners they studied. Resistance was often their sole means of maintaining a sense of purpose, and so their sanity. Yet resistance is precisely what we wish to destroy in our supermax prisoners. As Haney observed in a review of research findings, prisoners in solitary confinement must be able to withstand the experience in order to be allowed to return to the highly social world of mainline prison or free society. Perversely, then, the prisoners who can’t handle profound isolation are the ones who are forced to remain in it. “And those who have adapted,” Haney writes, “are prime candidates for release to a social world to which they may be incapable of ever fully readjusting.”
Dellelo eventually found a way to resist that would not prolong his ordeal. He fought his battle through the courts, filing motion after motion in an effort to get his conviction overturned. He became so good at submitting his claims that he obtained a paralegal certificate along the way. And, after forty years in prison, and more than five years in solitary, he got his first-degree-homicide conviction reduced to manslaughter. On November 19, 2003, he was freed.
Bobby Dellelo is sixty-seven years old now. He lives on Social Security in a Cambridge efficiency apartment that is about four times larger than his cell. He still seems to be adjusting to the world outside. He lives alone. To the extent that he is out in society, it is, in large measure, as a combatant. He works for prisoners’ rights at the American Friends Service Committee. He also does occasional work assisting prisoners with their legal cases. Sitting at his kitchen table, he showed me how to pick a padlock—you know, just in case I ever find myself in trouble.
But it was impossible to talk to him about his time in isolation without seeing that it was fundamentally no different from the isolation that Terry Anderson and John McCain had endured. Whether in Walpole or Beirut or Hanoi, all human beings experience isolation as torture.
The main argument for using long-term isolation in prisons is that it provides discipline and prevents violence. When inmates refuse to follow the rules—when they escape, deal drugs, or attack other inmates and corrections officers—wardens must be able to punish and contain the misconduct. Presumably, less stringent measures haven’t worked, or the behavior would not have occurred. And it’s legitimate to incapacitate violent aggressors for the safety of others. So, advocates say, isolation is a necessary evil, and those who don’t recognize this are dangerously naïve.
The argument makes intuitive sense. If the worst of the worst are removed from the general prison population and put in isolation, you’d expect there to be markedly fewer inmate shankings and attacks on corrections officers. But the evidence doesn’t bear this out. Perhaps the most careful inquiry into whether supermax prisons decrease violence and disorder was a 2003 analysis examining the experience in three states—Arizona, Illinois, and Minnesota—following the opening of their supermax prisons. The study found that levels of inmate-on-inmate violence were unchanged, and that levels of inmate-on-staff violence changed unpredictably, rising in Arizona, falling in Illinois, and holding steady in Minnesota.
Prison violence, it turns out, is not simply an issue of a few belligerents. In the past thirty years, the United States has quadrupled its incarceration rate but not its prison space. Work and education programs have been cancelled, out of a belief that the pursuit of rehabilitation is pointless. The result has been unprecedented overcrowding, along with unprecedented idleness—a nice formula for violence. Remove a few prisoners to solitary confinement, and the violence doesn’t change. So you remove some more, and still nothing happens. Before long, you find yourself in the position we are in today. The United States now has five per cent of the world’s population, twenty-five per cent of its prisoners, and probably the vast majority of prisoners who are in long-term solitary confinement.
It wasn’t always like this. The wide-scale use of isolation is, almost exclusively, a phenomenon of the past twenty years. In 1890, the United States Supreme Court came close to declaring the punishment to be unconstitutional. Writing for the majority in the case of a Colorado murderer who had been held in isolation for a month, Justice Samuel Miller noted that experience had revealed “serious objections” to solitary confinement:
A considerable number of the prisoners fell, after even a short confinement, into a semi-fatuous condition, from which it was next to impossible to arouse them, and others became violently insane; others, still, committed suicide; while those who stood the ordeal better were not generally reformed, and in most cases did not recover suffcient mental activity to be of any subsequent service to the community.
Prolonged isolation was used sparingly, if at all, by most American prisons for almost a century. Our first supermax—our first institution specifically designed for mass solitary confinement—was not established until 1983, in Marion, Illinois. In 1995, a federal court reviewing California’s first supermax admitted that the conditions “hover on the edge of what is humanly tolerable for those with normal resilience.” But it did not rule them to be unconstitutionally cruel or unusual, except in cases of mental illness. The prison’s supermax conditions, the court stated, did not pose “a sufficiently high risk to all inmates of incurring a serious mental illness.” In other words, there could be no legal objection to its routine use, given that the isolation didn’t make everyone crazy. The ruling seemed to fit the public mood. By the end of the nineteen-nineties, some sixty supermax institutions had opened across the country. And new solitary-confinement units were established within nearly all of our ordinary maximum-security prisons.
The number of prisoners in these facilities has since risen to extraordinary levels. America now holds at least twenty-five thousand inmates in isolation in supermax prisons. An additional fifty to eighty thousand are kept in restrictive segregation units, many of them in isolation, too, although the government does not release these figures. By 1999, the practice had grown to the point that Arizona, Colorado, Maine, Nebraska, Nevada, Rhode Island, and Virginia kept between five and eight per cent of their prison population in isolation, and, by 2003, New York had joined them as well. Mississippi alone held eighteen hundred prisoners in supermax—twelve per cent of its prisoners over all. At the same time, other states had just a tiny fraction of their inmates in solitary confinement. In 1999, for example, Indiana had eighty-five supermax beds; Georgia had only ten. Neither of these two states can be described as being soft on crime.
Advocates of solitary confinement are left with a single argument for subjecting thousands of people to years of isolation: What else are we supposed to do? How else are we to deal with the violent, the disruptive, the prisoners who are just too dangerous to be housed with others?
As it happens, only a subset of prisoners currently locked away for long periods of isolation would be considered truly dangerous. Many are escapees or suspected gang members; many others are in solitary for nonviolent breaches of prison rules. Still, there are some highly dangerous and violent prisoners who pose a serious challenge to prison discipline and safety. In August, I met a man named Robert Felton, who had spent fourteen and a half years in isolation in the Illinois state correctional system. He is now thirty-six years old. He grew up in the predominantly black housing projects of Danville, Illinois, and had been a force of mayhem from the time he was a child.
His crimes were mainly impulsive, rather than planned. The first time he was arrested was at the age of eleven, when he and a relative broke into a house to steal some Atari video games. A year later, he was sent to state reform school after he and a friend broke into an abandoned building and made off with paint cans, irons, and other property that they hardly knew what to do with. In reform school, he got into fights and screamed obscenities at the staff. When the staff tried to discipline him by taking away his recreation or his television privileges, his behavior worsened. He tore a pillar out of the ceiling, a sink and mirrors off the wall, doors off their hinges. He was put in a special cell, stripped of nearly everything. When he began attacking counsellors, the authorities transferred him to the maximum-security juvenile facility at Joliet, where he continued to misbehave.
Felton wasn’t a sociopath. He made friends easily. He was close to his family, and missed them deeply. He took no pleasure in hurting others. Psychiatric evaluations turned up little more than attention-deficit disorder. But he had a terrible temper, a tendency to escalate rather than to defuse confrontations, and, by the time he was released, just before turning eighteen, he had achieved only a ninth-grade education.
Within months of returning home, he was arrested again. He had walked into a Danville sports bar and ordered a beer. The barman took his ten-dollar bill.
“Then he says, ‘Naw, man, you can’t get no beer. You’re underage,’ ” Felton recounts. “I says, ‘Well, give me my ten dollars back.’ He says, ‘You ain’t getting shit. Get the hell out of here.’ ”
Felton stood his ground. The bartender had a pocket knife on the counter. “And, when he went for it, I went for it,” Felton told me. “When I grabbed the knife first, I turned around and spinned on him. I said, ‘You think you’re gonna cut me, man? You gotta be fucked up.’ ”
The barman had put the ten-dollar bill in a Royal Crown bag behind the counter. Felton grabbed the bag and ran out the back door. He forgot his car keys on the counter, though. So he went back to get the keys—“the stupid keys,” he now says ruefully—and in the fight that ensued he left the barman severely injured and bleeding. The police caught Felton fleeing in his car. He was convicted of armed robbery, aggravated unlawful restraint, and aggravated battery, and served fifteen years in prison.
He was eventually sent to the Stateville Correctional Center, a maximum-security facility in Joliet. Inside the overflowing prison, he got into vicious fights over insults and the like. About three months into his term, during a shakedown following the murder of an inmate, prison officials turned up a makeshift knife in his cell. (He denies that it was his.) They gave him a year in isolation. He was a danger, and he had to be taught a lesson. But it was a lesson that he seemed incapable of learning.
Felton’s Stateville isolation cell had gray walls, a solid steel door, no window, no clock, and a light that was kept on twenty-four hours a day. As soon as he was shut in, he became claustrophobic and had a panic attack. Like Dellelo, Anderson, and McCain, he was soon pacing back and forth, talking to himself, studying the insects crawling around his cell, reliving past events from childhood, sleeping for as much as sixteen hours a day. But, unlike them, he lacked the inner resources to cope with his situation.
Many prisoners find survival in physical exercise, prayer, or plans for escape. Many carry out elaborate mental exercises, building entire houses in their heads, board by board, nail by nail, from the ground up, or memorizing team rosters for a baseball season. McCain recreated in his mind movies he’d seen. Anderson reconstructed complete novels from memory. Yuri Nosenko, a K.G.B. defector whom the C.I.A. wrongly accused of being a double agent and held for three years in total isolation (no reading material, no news, no human contact except with interrogators) in a closet-size concrete cell near Williamsburg, Virginia, made chess sets from threads and a calendar from lint (only to have them discovered and swept away).
But Felton would just yell, “Guard! Guard! Guard! Guard! Guard!,” or bang his cup on the toilet, for hours. He could spend whole days hallucinating that he was in another world, that he was a child at home in Danville, playing in the streets, having conversations with imaginary people. Small cruelties that others somehow bore in quiet fury—getting no meal tray, for example—sent him into a rage. Despite being restrained with handcuffs, ankle shackles, and a belly chain whenever he was taken out, he managed to assault the staff at least three times. He threw his food through the door slot. He set his cell on fire by tearing his mattress apart, wrapping the stuffing in a sheet, popping his light bulb, and using the exposed wires to set the whole thing ablaze. He did this so many times that the walls of his cell were black with soot.
After each offense, prison officials extended his sentence in isolation. Still, he wouldn’t stop. He began flooding his cell, by stuffing the door crack with socks, plugging the toilet, and flushing until the water was a couple of feet deep. Then he’d pull out the socks and the whole wing would flood with wastewater.
“Flooding the cell was the last option for me,” Felton told me. “It was when I had nothing else I could do. You know, they took everything out of my cell, and all I had left was toilet water. I’d sit there and I’d say, ‘Well, let me see what I can do with this toilet water.’ ”
Felton was not allowed out again for fourteen and a half years. He spent almost his entire prison term, from 1990 to 2005, in isolation. In March, 1998, he was among the first inmates to be moved to Tamms, a new, high-tech supermax facility in southern Illinois.
“At Tamms, man, it was like a lab,” he says. Contact even with guards was tightly reduced. Cutoff valves meant that he couldn’t flood his cell. He had little ability to force a response—negative or positive—from a human being. And, with that gone, he began to deteriorate further. He ceased showering, changing his clothes, brushing his teeth. His teeth rotted and ten had to be pulled. He began throwing his feces around his cell. He became psychotic.
It is unclear how many prisoners in solitary confinement become psychotic. Stuart Grassian, a Boston psychiatrist, has interviewed more than two hundred prisoners in solitary confinement. In one in-depth study, prepared for a legal challenge of prisoner-isolation practices, he concluded that about a third developed acute psychosis with hallucinations. The markers of vulnerability that he observed in his interviews were signs of cognitive dysfunction—a history of seizures, serious mental illness, mental retardation, illiteracy, or, as in Felton’s case, a diagnosis such as attention-deficit hyperactivity disorder, signalling difficulty with impulse control. In the prisoners Grassian saw, about a third had these vulnerabilities, and these were the prisoners whom solitary confinement had made psychotic. They were simply not cognitively equipped to endure it without mental breakdowns.
A psychiatrist tried giving Felton anti-psychotic medication. Mostly, it made him sleep—sometimes twenty-four hours at a stretch, he said. Twice he attempted suicide. The first time, he hanged himself in a noose made from a sheet. The second time, he took a single staple from a legal newspaper and managed to slash the radial artery in his left wrist with it. In both instances, he was taken to a local emergency room for a few hours, patched up, and sent back to prison.
Is there an alternative? Consider what other countries do. Britain, for example, has had its share of serial killers, homicidal rapists, and prisoners who have taken hostages and repeatedly assaulted staff. The British also fought a seemingly unending war in Northern Ireland, which brought them hundreds of Irish Republican Army prisoners committed to violent resistance. The authorities resorted to a harshly punitive approach to control, including, in the mid-seventies, extensive use of solitary confinement. But the violence in prisons remained unchanged, the costs were phenomenal (in the United States, they reach more than fifty thousand dollars a year per inmate), and the public outcry became intolerable. British authorities therefore looked for another approach.
Beginning in the nineteen-eighties, they gradually adopted a strategy that focussed on preventing prison violence rather than on delivering an ever more brutal series of punishments for it. The approach starts with the simple observation that prisoners who are unmanageable in one setting often behave perfectly reasonably in another. This suggested that violence might, to a critical extent, be a function of the conditions of incarceration. The British noticed that problem prisoners were usually people for whom avoiding humiliation and saving face were fundamental and instinctive. When conditions maximized humiliation and confrontation, every interaction escalated into a trial of strength. Violence became a predictable consequence.
So the British decided to give their most dangerous prisoners more control, rather than less. They reduced isolation and offered them opportunities for work, education, and special programming to increase social ties and skills. The prisoners were housed in small, stable units of fewer than ten people in individual cells, to avoid conditions of social chaos and unpredictability. In these reformed “Close Supervision Centres,” prisoners could receive mental-health treatment and earn rights for more exercise, more phone calls, “contact visits,” and even access to cooking facilities. They were allowed to air grievances. And the government set up an independent body of inspectors to track the results and enable adjustments based on the data.
The results have been impressive. The use of long-term isolation in England is now negligible. In all of England, there are now fewer prisoners in “extreme custody” than there are in the state of Maine. And the other countries of Europe have, with a similar focus on small units and violence prevention, achieved a similar outcome.
In this country, in June of 2006, a bipartisan national task force, the Commission on Safety and Abuse in America’s Prisons, released its recommendations after a yearlong investigation. It called for ending long-term isolation of prisoners. Beyond about ten days, the report noted, practically no benefits can be found and the harm is clear—not just for inmates but for the public as well. Most prisoners in long-term isolation are returned to society, after all. And evidence from a number of studies has shown that supermax conditions—in which prisoners have virtually no social interactions and are given no programmatic support—make it highly likely that they will commit more crimes when they are released. Instead, the report said, we should follow the preventive approaches used in European countries.
The recommendations went nowhere, of course. Whatever the evidence in its favor, people simply did not believe in the treatment.
I spoke to a state-prison commissioner who wished to remain unidentified. He was a veteran of the system, having been either a prison warden or a commissioner in several states across the country for more than twenty years. He has publicly defended the use of long-term isolation everywhere that he has worked. Nonetheless, he said, he would remove most prisoners from long-term isolation units if he could and provide programming for the mental illnesses that many of them have.
“Prolonged isolation is not going to serve anyone’s best interest,” he told me. He still thought that prisons needed the option of isolation. “A bad violation should, I think, land you there for about ninety days, but it should not go beyond that.”
He is apparently not alone among prison officials. Over the years, he has come to know commissioners in nearly every state in the country. “I believe that today you’ll probably find that two-thirds or three-fourths of the heads of correctional agencies will largely share the position that I articulated with you,” he said.
Commissioners are not powerless. They could eliminate prolonged isolation with the stroke of a pen. So, I asked, why haven’t they? He told me what happened when he tried to move just one prisoner out of isolation. Legislators called for him to be fired and threatened to withhold basic funding. Corrections officers called members of the crime victim’s family and told them that he’d gone soft on crime. Hostile stories appeared in the tabloids. It is pointless for commissioners to act unilaterally, he said, without a change in public opinion.
This past year, both the Republican and the Democratic Presidential candidates came out firmly for banning torture and closing the facility in Guantánamo Bay, where hundreds of prisoners have been held in years-long isolation. Neither Barack Obama nor John McCain, however, addressed the question of whether prolonged solitary confinement is torture. For a Presidential candidate, no less than for the prison commissioner, this would have been political suicide. The simple truth is that public sentiment in America is the reason that solitary confinement has exploded in this country, even as other Western nations have taken steps to reduce it. This is the dark side of American exceptionalism. With little concern or demurral, we have consigned tens of thousands of our own citizens to conditions that horrified our highest court a century ago. Our willingness to discard these standards for American prisoners made it easy to discard the Geneva Conventions prohibiting similar treatment of foreign prisoners of war, to the detriment of America’s moral stature in the world. In much the same way that a previous generation of Americans countenanced legalized segregation, ours has countenanced legalized torture. And there is no clearer manifestation of this than our routine use of solitary confinement—on our own people, in our own communities, in a supermax prison, for example, that is a thirty-minute drive from my door.
Robert Felton drifted in and out of acute psychosis for much of his solitary confinement. Eventually, however, he found an unexpected resource. One day, while he was at Tamms, he was given a new defense lawyer, and, whatever expertise this lawyer provided, the more important thing was genuine human contact. He visited regularly, and sent Felton books. Although some were rejected by the authorities and Felton was restricted to a few at a time, he devoured those he was permitted. “I liked political books,” he says. “ ‘From Beirut to Jerusalem,’ Winston Churchill, Noam Chomsky.”
That small amount of contact was a lifeline. Felton corresponded with the lawyer about what he was reading. The lawyer helped him get his G.E.D. and a paralegal certificate through a correspondence course, and he taught Felton how to advocate for himself. Felton began writing letters to politicians and prison officials explaining the misery of his situation, opposing supermax isolation, and asking for a chance to return to the general prison population. (The Illinois Department of Corrections would not comment on Felton’s case, but a spokesman stated that “Tamms houses the most disruptive, violent, and problematic inmates.”) Felton was persuasive enough that Senator Paul Simon, of Illinois, wrote him back and, one day, even visited him. Simon asked the director of the State Department of Corrections, Donald Snyder, Jr., to give consideration to Felton’s objections. But Snyder didn’t budge. If there was anyone whom Felton fantasized about taking revenge upon, it was Snyder. Felton continued to file request after request. But the answer was always no.
On July 12, 2005, at the age of thirty-three, Felton was finally released. He hadn’t socialized with another person since entering Tamms, at the age of twenty-five. Before his release, he was given one month in the general prison population to get used to people. It wasn’t enough. Upon returning to society, he found that he had trouble in crowds. At a party of well-wishers, the volume of social stimulation overwhelmed him and he panicked, headed for a bathroom, and locked himself in. He stayed at his mother’s house and kept mostly to himself.
For the first year, he had to wear an ankle bracelet and was allowed to leave home only for work. His first job was at a Papa John’s restaurant, delivering pizzas. He next found work at the Model Star Laundry Service, doing pressing. This was a steady job, and he began to settle down. He fell in love with a waitress named Brittany. They moved into a three-room house that her grandmother lent them, and got engaged. Brittany became pregnant.
This is not a story with a happy ending. Felton lost his job with the laundry service. He went to work for a tree-cutting business; a few months later, it went under. Meanwhile, he and Brittany had had a second child. She had found work as a certified nursing assistant, but her income wasn’t nearly enough. So he took a job forty miles away, at Plastipak, the plastics manufacturer, where he made seven-fifty an hour inspecting Gatorade bottles and Crisco containers as they came out of the stamping machines. Then his twenty-year-old Firebird died. The bus he had to take ran erratically, and he was fired for repeated tardiness.
When I visited Felton in Danville last August, he and Brittany were upbeat about their prospects. She was working extra shifts at a nursing home, and he was taking care of their children, ages one and two. He had also applied to a six-month training program for heating and air-conditioning technicians.
“I could make twenty dollars an hour after graduation,” he said.
“He’s a good man,” Brittany told me, taking his arm and giving him a kiss.
But he was out of work. They were chronically short of money. It was hard to be optimistic about Felton’s prospects. And, indeed, six weeks after we met, he was arrested for breaking into a car dealership and stealing a Dodge Charger. He pleaded guilty and, in January, began serving a seven-year sentence.
Before I left town—when there was still a glimmer of hope for him—we went out for lunch at his favorite place, a Mexican restaurant called La Potosina. Over enchiladas and Cokes, we talked about his family, Danville, the economy, and, of course, his time in prison. The strangest story had turned up in the news, he said. Donald Snyder, Jr., the state prison director who had refused to let him out of solitary confinement, had been arrested, convicted, and sentenced to two years in prison for taking fifty thousand dollars in payoffs from lobbyists.
“Two years in prison,” Felton marvelled. “He could end up right where I used to be.”
I asked him, “If he wrote to you, asking if you would release him from solitary, what would you do?”
Felton didn’t hesitate for a second. “If he wrote to me to let him out, I’d let him out,” he said.
This surprised me. I expected anger, vindictiveness, a desire for retribution. “You’d let him out?” I said.
“I’d let him out,” he said, and he put his fork down to make the point. “I wouldn’t wish solitary confinement on anybody. Not even him.” ♦
March 24, 2009
Just Read: Will Self
Amazon.co.uk Review
Dr Mukti and Other Tales of Woe is Will Self's third collection of stories. (The "other" in the title being four tales of woe or woeful tales, as the ungenerous may be inclined to dub them.) Self's visceral, urban fictions have long been described as Swiftian. They are grotesque, scatological and, like Swift, rely on absurd premises being taken to their absurd yet logical conclusions. Dr Mukti, a novella that resurrects Dr Busner from The Quantity Theory of Insanity, certainly conforms to type.
It's a tale that depicts a battle between two rival psychiatrists: Dr Shiva Mukti of St Mungo's in Fitzrovia, an Indian "of modest achievement but vaulting ambitions" (ambitions he is convinced are being thwarted by a "crypto-psycho-Semitic" cabal) and the Jewish Dr Zack Busner, father of the Quantity Theory of Insanity and consultant at Heath Hospital. Their weapons, missiles really, are damaged patients that they fire back and forth across the Hampstead Road in a dual for supremacy. Busner sends "Creosote Man", a schizoid "with a mission to bring creosote ideas to the rest of mankind" to Mukti for a second opinion. Mukti counters with Rocky, a "Humanoid time bomb with a frontal-lobe lesion" and dreadlocks that gush "from his high forehead like jets of gingerish flocculent water". And so it goes on until Darlene Davis, an anorexic Goth with "a haemoglobin level of six", turns up at St Mungo's. From hereon in things go from bad, to very, very much worse for the Mukti.
London's topography, or a grisly hallucinatory version of it, is etched in lurid detail, the doctors' ambits echoing their contrasts in status. Mukti, his neurosis, his home life and the Hindu community in London's north-western suburbs are observed with acuity. But Self's self-conscious style--the profusion of extraneous similes, metaphors and his recondite vocabulary--is draining to say the least; mouths are "pink baskets", cabbage is "craven" and even a lowly potato is "pusillanimous". Self aficionados, and those who relish seeing words such as "flocculent" liberated from the mustier nooks of the dictionary, won't fail to be delighted. --Travis Elborough
Review
Self returns with another collection of short fiction and, by now, we should know what to expect. Those who have read The Quantity Theory of Insanity will also be eased into this collection by the knowledge that its unsettling psychiatrist Zack Busner also features in the principle story in Dr Mukti. Busner again plays the supreme anti-hero in a story with much competition for that role. We witness Dr Mukti's decline from diligent psychiatrist to potential patient as Self cruelly twists and stretches what could be a pedestrian tale of mid-life crisis. Mukti, spurred on by professional jealousy, and his friend Elmley, clumsily confronting his own demons, soon find their lives and their future mental health in the hands of Busner.
March 23, 2009
Le Monde: The Danes as the bad boys of Europe
In 2007 the inhabitants of 27 European nations produced each, on average, 522 kg of trash a year, according to Eurostat. From 2000 onward, the level of trash production has been pretty stable: 524 kg in 2000, and 523 in 2006. The record is currently held by the Danes - 801kg of trash each, while Czechs modestly produce only 294 kg.
March 22, 2009
Rolling Stone on How It's Over
The Big Takeover
The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution
by Matt Taibbi
It's over — we're officially, royally fucked. no empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.
So it's time to admit it: We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we're still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream. When Geithner announced the new $30 billion bailout, the party line was that poor AIG was just a victim of a lot of shitty luck — bad year for business, you know, what with the financial crisis and all. Edward Liddy, the company's CEO, actually compared it to catching a cold: "The marketplace is a pretty crummy place to be right now," he said. "When the world catches pneumonia, we get it too." In a pathetic attempt at name-dropping, he even whined that AIG was being "consumed by the same issues that are driving house prices down and 401K statements down and Warren Buffet's investment portfolio down."
Liddy made AIG sound like an orphan begging in a soup line, hungry and sick from being left out in someone else's financial weather. He conveniently forgot to mention that AIG had spent more than a decade systematically scheming to evade U.S. and international regulators, or that one of the causes of its "pneumonia" was making colossal, world-sinking $500 billion bets with money it didn't have, in a toxic and completely unregulated derivatives market.
Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town — and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.
read more
People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.
The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.
The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.
I. PATIENT ZERO
The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people's money would make his dick bigger.
That guy — the Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. Milken, who pioneered the creative use of junk bonds, relied on messianic genius and a whole array of insider schemes to evade detection while wreaking financial disaster. Cassano, by contrast, was just a greedy little turd with a knack for selective accounting who ran his scam right out in the open, thanks to Washington's deregulation of the Wall Street casino. "It's all about the regulatory environment," says a government source involved with the AIG bailout. "These guys look for holes in the system, for ways they can do trades without government interference. Whatever is unregulated, all the action is going to pile into that."
The mess Cassano created had its roots in an investment boom fueled in part by a relatively new type of financial instrument called a collateralized-debt obligation. A CDO is like a box full of diced-up assets. They can be anything: mortgages, corporate loans, aircraft loans, credit-card loans, even other CDOs. So as X mortgage holder pays his bill, and Y corporate debtor pays his bill, and Z credit-card debtor pays his bill, money flows into the box.
The key idea behind a CDO is that there will always be at least some money in the box, regardless of how dicey the individual assets inside it are. No matter how you look at a single unemployed ex-con trying to pay the note on a six-bedroom house, he looks like a bad investment. But dump his loan in a box with a smorgasbord of auto loans, credit-card debt, corporate bonds and other crap, and you can be reasonably sure that somebody is going to pay up. Say $100 is supposed to come into the box every month. Even in an apocalypse, when $90 in payments might default, you'll still get $10. What the inventors of the CDO did is divide up the box into groups of investors and put that $10 into its own level, or "tranche." They then convinced ratings agencies like Moody's and S&P to give that top tranche the highest AAA rating — meaning it has close to zero credit risk.
Suddenly, thanks to this financial seal of approval, banks had a way to turn their shittiest mortgages and other financial waste into investment-grade paper and sell them to institutional investors like pensions and insurance companies, which were forced by regulators to keep their portfolios as safe as possible. Because CDOs offered higher rates of return than truly safe products like Treasury bills, it was a win-win: Banks made a fortune selling CDOs, and big investors made much more holding them.
The problem was, none of this was based on reality. "The banks knew they were selling crap," says a London-based trader from one of the bailed-out companies. To get AAA ratings, the CDOs relied not on their actual underlying assets but on crazy mathematical formulas that the banks cooked up to make the investments look safer than they really were. "They had some back room somewhere where a bunch of Indian guys who'd been doing nothing but math for God knows how many years would come up with some kind of model saying that this or that combination of debtors would only default once every 10,000 years," says one young trader who sold CDOs for a major investment bank. "It was nuts."
Now that even the crappiest mortgages could be sold to conservative investors, the CDOs spurred a massive explosion of irresponsible and predatory lending. In fact, there was such a crush to underwrite CDOs that it became hard to find enough subprime mortgages — read: enough unemployed meth dealers willing to buy million-dollar homes for no money down — to fill them all. As banks and investors of all kinds took on more and more in CDOs and similar instruments, they needed some way to hedge their massive bets — some kind of insurance policy, in case the housing bubble burst and all that debt went south at the same time. This was particularly true for investment banks, many of which got stuck holding or "warehousing" CDOs when they wrote more than they could sell. And that's were Joe Cassano came in.
Known for his boldness and arrogance, Cassano took over as chief of AIGFP in 2001. He was the favorite of Maurice "Hank" Greenberg, the head of AIG, who admired the younger man's hard-driving ways, even if neither he nor his successors fully understood exactly what it was that Cassano did. According to a source familiar with AIG's internal operations, Cassano basically told senior management, "You know insurance, I know investments, so you do what you do, and I'll do what I do — leave me alone." Given a free hand within the company, Cassano set out from his offices in London to sell a lucrative form of "insurance" to all those investors holding lots of CDOs. His tool of choice was another new financial instrument known as a credit-default swap, or CDS.
The CDS was popularized by J.P. Morgan, in particular by a group of young, creative bankers who would later become known as the "Morgan Mafia," as many of them would go on to assume influential positions in the finance world. In 1994, in between booze and games of tennis at a resort in Boca Raton, Florida, the Morgan gang plotted a way to help boost the bank's returns. One of their goals was to find a way to lend more money, while working around regulations that required them to keep a set amount of cash in reserve to back those loans. What they came up with was an early version of the credit-default swap.
In its simplest form, a CDS is just a bet on an outcome. Say Bank A writes a million-dollar mortgage to the Pope for a town house in the West Village. Bank A wants to hedge its mortgage risk in case the Pope can't make his monthly payments, so it buys CDS protection from Bank B, wherein it agrees to pay Bank B a premium of $1,000 a month for five years. In return, Bank B agrees to pay Bank A the full million-dollar value of the Pope's mortgage if he defaults. In theory, Bank A is covered if the Pope goes on a meth binge and loses his job.
When Morgan presented their plans for credit swaps to regulators in the late Nineties, they argued that if they bought CDS protection for enough of the investments in their portfolio, they had effectively moved the risk off their books. Therefore, they argued, they should be allowed to lend more, without keeping more cash in reserve. A whole host of regulators — from the Federal Reserve to the Office of the Comptroller of the Currency — accepted the argument, and Morgan was allowed to put more money on the street.
What Cassano did was to transform the credit swaps that Morgan popularized into the world's largest bet on the housing boom. In theory, at least, there's nothing wrong with buying a CDS to insure your investments. Investors paid a premium to AIGFP, and in return the company promised to pick up the tab if the mortgage-backed CDOs went bust. But as Cassano went on a selling spree, the deals he made differed from traditional insurance in several significant ways. First, the party selling CDS protection didn't have to post any money upfront. When a $100 corporate bond is sold, for example, someone has to show 100 actual dollars. But when you sell a $100 CDS guarantee, you don't have to show a dime. So Cassano could sell investment banks billions in guarantees without having any single asset to back it up.
Secondly, Cassano was selling so-called "naked" CDS deals. In a "naked" CDS, neither party actually holds the underlying loan. In other words, Bank B not only sells CDS protection to Bank A for its mortgage on the Pope — it turns around and sells protection to Bank C for the very same mortgage. This could go on ad nauseam: You could have Banks D through Z also betting on Bank A's mortgage. Unlike traditional insurance, Cassano was offering investors an opportunity to bet that someone else's house would burn down, or take out a term life policy on the guy with AIDS down the street. It was no different from gambling, the Wall Street version of a bunch of frat brothers betting on Jay Feely to make a field goal. Cassano was taking book for every bank that bet short on the housing market, but he didn't have the cash to pay off if the kick went wide.
In a span of only seven years, Cassano sold some $500 billion worth of CDS protection, with at least $64 billion of that tied to the subprime mortgage market. AIG didn't have even a fraction of that amount of cash on hand to cover its bets, but neither did it expect it would ever need any reserves. So long as defaults on the underlying securities remained a highly unlikely proposition, AIG was essentially collecting huge and steadily climbing premiums by selling insurance for the disaster it thought would never come.
Initially, at least, the revenues were enormous: AIGFP's returns went from $737 million in 1999 to $3.2 billion in 2005. Over the past seven years, the subsidiary's 400 employees were paid a total of $3.5 billion; Cassano himself pocketed at least $280 million in compensation. Everyone made their money — and then it all went to shit.
II. THE REGULATORS
Cassano's outrageous gamble wouldn't have been possible had he not had the good fortune to take over AIGFP just as Sen. Phil Gramm — a grinning, laissez-faire ideologue from Texas — had finished engineering the most dramatic deregulation of the financial industry since Emperor Hien Tsung invented paper money in 806 A.D. For years, Washington had kept a watchful eye on the nation's banks. Ever since the Great Depression, commercial banks — those that kept money on deposit for individuals and businesses — had not been allowed to double as investment banks, which raise money by issuing and selling securities. The Glass-Steagall Act, passed during the Depression, also prevented banks of any kind from getting into the insurance business.
But in the late Nineties, a few years before Cassano took over AIGFP, all that changed. The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more "business-friendly." Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for. In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn't going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?
The very next year, Gramm compounded the problem by writing a sweeping new law called the Commodity Futures Modernization Act that made it impossible to regulate credit swaps as either gambling or securities. Commercial banks — which, thanks to Gramm, were now competing directly with investment banks for customers — were driven to buy credit swaps to loosen capital in search of higher yields. "By ruling that credit-default swaps were not gaming and not a security, the way was cleared for the growth of the market," said Eric Dinallo, head of the New York State Insurance Department.
The blanket exemption meant that Joe Cassano could now sell as many CDS contracts as he wanted, building up as huge a position as he wanted, without anyone in government saying a word. "You have to remember, investment banks aren't in the business of making huge directional bets," says the government source involved in the AIG bailout. When investment banks write CDS deals, they hedge them. But insurance companies don't have to hedge. And that's what AIG did. "They just bet massively long on the housing market," says the source. "Billions and billions."
In the biggest joke of all, Cassano's wheeling and dealing was regulated by the Office of Thrift Supervision, an agency that would prove to be defiantly uninterested in keeping watch over his operations. How a behemoth like AIG came to be regulated by the little-known and relatively small OTS is yet another triumph of the deregulatory instinct. Under another law passed in 1999, certain kinds of holding companies could choose the OTS as their regulator, provided they owned one or more thrifts (better known as savings-and-loans). Because the OTS was viewed as more compliant than the Fed or the Securities and Exchange Commission, companies rushed to reclassify themselves as thrifts. In 1999, AIG purchased a thrift in Delaware and managed to get approval for OTS regulation of its entire operation.
Making matters even more hilarious, AIGFP — a London-based subsidiary of an American insurance company — ought to have been regulated by one of Europe's more stringent regulators, like Britain's Financial Services Authority. But the OTS managed to convince the Europeans that it had the muscle to regulate these giant companies. By 2007, the EU had conferred legitimacy to OTS supervision of three mammoth firms — GE, AIG and Ameriprise.
That same year, as the subprime crisis was exploding, the Government Accountability Office criticized the OTS, noting a "disparity between the size of the agency and the diverse firms it oversees." Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world's largest insurer!
"There's this notion that the regulators couldn't do anything to stop AIG," says a government official who was present during the bailout. "That's bullshit. What you have to understand is that these regulators have ultimate power. They can send you a letter and say, 'You don't exist anymore,' and that's basically that. They don't even really need due process. The OTS could have said, 'We're going to pull your charter; we're going to pull your license; we're going to sue you.' And getting sued by your primary regulator is the kiss of death."
When AIG finally blew up, the OTS regulator ostensibly in charge of overseeing the insurance giant — a guy named C.K. Lee — basically admitted that he had blown it. His mistake, Lee said, was that he believed all those credit swaps in Cassano's portfolio were "fairly benign products." Why? Because the company told him so. "The judgment the company was making was that there was no big credit risk," he explained. (Lee now works as Midwest region director of the OTS; the agency declined to make him available for an interview.)
In early March, after the latest bailout of AIG, Treasury Secretary Timothy Geithner took what seemed to be a thinly veiled shot at the OTS, calling AIG a "huge, complex global insurance company attached to a very complicated investment bank/hedge fund that was allowed to build up without any adult supervision." But even without that "adult supervision," AIG might have been OK had it not been for a complete lack of internal controls. For six months before its meltdown, according to insiders, the company had been searching for a full-time chief financial officer and a chief risk-assessment officer, but never got around to hiring either. That meant that the 18th-largest company in the world had no one checking to make sure its balance sheet was safe and no one keeping track of how much cash and assets the firm had on hand. The situation was so bad that when outside consultants were called in a few weeks before the bailout, senior executives were unable to answer even the most basic questions about their company — like, for instance, how much exposure the firm had to the residential-mortgage market.
III. THE CRASH
Ironically, when reality finally caught up to Cassano, it wasn't because the housing market crapped but because of AIG itself. Before 2005, the company's debt was rated triple-A, meaning he didn't need to post much cash to sell CDS protection: The solid creditworthiness of AIG's name was guarantee enough. But the company's crummy accounting practices eventually caused its credit rating to be downgraded, triggering clauses in the CDS contracts that forced Cassano to post substantially more collateral to back his deals.
By the fall of 2007, it was evident that AIGFP's portfolio had turned poisonous, but like every good Wall Street huckster, Cassano schemed to keep his insane, Earth-swallowing gamble hidden from public view. That August, balls bulging, he announced to investors on a conference call that "it is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions." As he spoke, his CDS portfolio was racking up $352 million in losses. When the growing credit crunch prompted senior AIG executives to re-examine its liabilities, a company accountant named Joseph St. Denis became "gravely concerned" about the CDS deals and their potential for mass destruction. Cassano responded by personally forcing the poor sap out of the firm, telling him he was "deliberately excluded" from the financial review for fear that he might "pollute the process."
The following February, when AIG posted $11.5 billion in annual losses, it announced the resignation of Cassano as head of AIGFP, saying an auditor had found a "material weakness" in the CDS portfolio. But amazingly, the company not only allowed Cassano to keep $34 million in bonuses, it kept him on as a consultant for $1 million a month. In fact, Cassano remained on the payroll and kept collecting his monthly million through the end of September 2008, even after taxpayers had been forced to hand AIG $85 billion to patch up his fuck-ups. When asked in October why the company still retained Cassano at his $1 million-a-month rate despite his role in the probable downfall of Western civilization, CEO Martin Sullivan told Congress with a straight face that AIG wanted to "retain the 20-year knowledge that Mr. Cassano had." (Cassano, who is apparently hiding out in his lavish town house near Harrods in London, could not be reached for comment.)
What sank AIG in the end was another credit downgrade. Cassano had written so many CDS deals that when the company was facing another downgrade to its credit rating last September, from AA to A, it needed to post billions in collateral — not only more cash than it had on its balance sheet but more cash than it could raise even if it sold off every single one of its liquid assets. Even so, management dithered for days, not believing the company was in serious trouble. AIG was a dried-up prune, sapped of any real value, and its top executives didn't even know it.
On the weekend of September 13th, AIG's senior leaders were summoned to the offices of the New York Federal Reserve. Regulators from Dinallo's insurance office were there, as was Geithner, then chief of the New York Fed. Treasury Secretary Hank Paulson, who spent most of the weekend preoccupied with the collapse of Lehman Brothers, came in and out. Also present, for reasons that would emerge later, was Lloyd Blankfein, CEO of Goldman Sachs. The only relevant government office that wasn't represented was the regulator that should have been there all along: the OTS.
"We sat down with Paulson, Geithner and Dinallo," says a person present at the negotiations. "I didn't see the OTS even once."
On September 14th, according to another person present, Treasury officials presented Blankfein and other bankers in attendance with an absurd proposal: "They basically asked them to spend a day and check to see if they could raise the money privately." The laughably short time span to complete the mammoth task made the answer a foregone conclusion. At the end of the day, the bankers came back and told the government officials, gee, we checked, but we can't raise that much. And the bailout was on.
A short time later, it came out that AIG was planning to pay some $90 million in deferred compensation to former executives, and to accelerate the payout of $277 million in bonuses to others — a move the company insisted was necessary to "retain key employees." When Congress balked, AIG canceled the $90 million in payments.
Then, in January 2009, the company did it again. After all those years letting Cassano run wild, and after already getting caught paying out insane bonuses while on the public till, AIG decided to pay out another $450 million in bonuses. And to whom? To the 400 or so employees in Cassano's old unit, AIGFP, which is due to go out of business shortly! Yes, that's right, an average of $1.1 million in taxpayer-backed money apiece, to the very people who spent the past decade or so punching a hole in the fabric of the universe!
"We, uh, needed to keep these highly expert people in their seats," AIG spokeswoman Christina Pretto says to me in early February.
"But didn't these 'highly expert people' basically destroy your company?" I ask.
Pretto protests, says this isn't fair. The employees at AIGFP have already taken pay cuts, she says. Not retaining them would dilute the value of the company even further, make it harder to wrap up the unit's operations in an orderly fashion.
The bonuses are a nice comic touch highlighting one of the more outrageous tangents of the bailout age, namely the fact that, even with the planet in flames, some members of the Wall Street class can't even get used to the tragedy of having to fly coach. "These people need their trips to Baja, their spa treatments, their hand jobs," says an official involved in the AIG bailout, a serious look on his face, apparently not even half-kidding. "They don't function well without them."
IV. THE POWER GRAB
So that's the first step in wall street's power grab: making up things like credit-default swaps and collateralized-debt obligations, financial products so complex and inscrutable that ordinary American dumb people — to say nothing of federal regulators and even the CEOs of major corporations like AIG — are too intimidated to even try to understand them. That, combined with wise political investments, enabled the nation's top bankers to effectively scrap any meaningful oversight of the financial industry. In 1997 and 1998, the years leading up to the passage of Phil Gramm's fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone — then the chairman of the Senate Banking Committee — collected $2.6 million in only five years. The law passed 90-8 in the Senate, with the support of 38 Democrats, including some names that might surprise you: Joe Biden, John Kerry, Tom Daschle, Dick Durbin, even John Edwards.
The act helped create the too-big-to-fail financial behemoths like Citigroup, AIG and Bank of America — and in turn helped those companies slowly crush their smaller competitors, leaving the major Wall Street firms with even more money and power to lobby for further deregulatory measures. "We're moving to an oligopolistic situation," Kenneth Guenther, a top executive with the Independent Community Bankers of America, lamented after the Gramm measure was passed.
The situation worsened in 2004, in an extraordinary move toward deregulation that never even got to a vote. At the time, the European Union was threatening to more strictly regulate the foreign operations of America's big investment banks if the U.S. didn't strengthen its own oversight. So the top five investment banks got together on April 28th of that year and — with the helpful assistance of then-Goldman Sachs chief and future Treasury Secretary Hank Paulson — made a pitch to George Bush's SEC chief at the time, William Donaldson, himself a former investment banker. The banks generously volunteered to submit to new rules restricting them from engaging in excessively risky activity. In exchange, they asked to be released from any lending restrictions. The discussion about the new rules lasted just 55 minutes, and there was not a single representative of a major media outlet there to record the fateful decision.
Donaldson OK'd the proposal, and the new rules were enough to get the EU to drop its threat to regulate the five firms. The only catch was, neither Donaldson nor his successor, Christopher Cox, actually did any regulating of the banks. They named a commission of seven people to oversee the five companies, whose combined assets came to total more than $4 trillion. But in the last year and a half of Cox's tenure, the group had no director and did not complete a single inspection. Great deal for the banks, which originally complained about being regulated by both Europe and the SEC, and ended up being regulated by no one.
Once the capital requirements were gone, those top five banks went hog-wild, jumping ass-first into the then-raging housing bubble. One of those was Bear Stearns, which used its freedom to drown itself in bad mortgage loans. In the short period between the 2004 change and Bear's collapse, the firm's debt-to-equity ratio soared from 12-1 to an insane 33-1. Another culprit was Goldman Sachs, which also had the good fortune, around then, to see its CEO, a bald-headed Frankensteinian goon named Hank Paulson (who received an estimated $200 million tax deferral by joining the government), ascend to Treasury secretary.
Freed from all capital restraints, sitting pretty with its man running the Treasury, Goldman jumped into the housing craze just like everyone else on Wall Street. Although it famously scored an $11 billion coup in 2007 when one of its trading units smartly shorted the housing market, the move didn't tell the whole story. In truth, Goldman still had a huge exposure come that fateful summer of 2008 — to none other than Joe Cassano.
Goldman Sachs, it turns out, was Cassano's biggest customer, with $20 billion of exposure in Cassano's CDS book. Which might explain why Goldman chief Lloyd Blankfein was in the room with ex-Goldmanite Hank Paulson that weekend of September 13th, when the federal government was supposedly bailing out AIG.
When asked why Blankfein was there, one of the government officials who was in the meeting shrugs. "One might say that it's because Goldman had so much exposure to AIGFP's portfolio," he says. "You'll never prove that, but one might suppose."
Market analyst Eric Salzman is more blunt. "If AIG went down," he says, "there was a good chance Goldman would not be able to collect." The AIG bailout, in effect, was Goldman bailing out Goldman.
Eventually, Paulson went a step further, elevating another ex-Goldmanite named Edward Liddy to run AIG — a company whose bailout money would be coming, in part, from the newly created TARP program, administered by another Goldman banker named Neel Kashkari.
V. REPO MEN
There are plenty of people who have noticed, in recent years, that when they lost their homes to foreclosure or were forced into bankruptcy because of crippling credit-card debt, no one in the government was there to rescue them. But when Goldman Sachs — a company whose average employee still made more than $350,000 last year, even in the midst of a depression — was suddenly faced with the possibility of losing money on the unregulated insurance deals it bought for its insane housing bets, the government was there in an instant to patch the hole. That's the essence of the bailout: rich bankers bailing out rich bankers, using the taxpayers' credit card.
The people who have spent their lives cloistered in this Wall Street community aren't much for sharing information with the great unwashed. Because all of this shit is complicated, because most of us mortals don't know what the hell LIBOR is or how a REIT works or how to use the word "zero coupon bond" in a sentence without sounding stupid — well, then, the people who do speak this idiotic language cannot under any circumstances be bothered to explain it to us and instead spend a lot of time rolling their eyes and asking us to trust them.
That roll of the eyes is a key part of the psychology of Paulsonism. The state is now being asked not just to call off its regulators or give tax breaks or funnel a few contracts to connected companies; it is intervening directly in the economy, for the sole purpose of preserving the influence of the megafirms. In essence, Paulson used the bailout to transform the government into a giant bureaucracy of entitled assholedom, one that would socialize "toxic" risks but keep both the profits and the management of the bailed-out firms in private hands. Moreover, this whole process would be done in secret, away from the prying eyes of NASCAR dads, broke-ass liberals who read translations of French novels, subprime mortgage holders and other such financial losers.
Some aspects of the bailout were secretive to the point of absurdity. In fact, if you look closely at just a few lines in the Federal Reserve's weekly public disclosures, you can literally see the moment where a big chunk of your money disappeared for good. The H4 report (called "Factors Affecting Reserve Balances") summarizes the activities of the Fed each week. You can find it online, and it's pretty much the only thing the Fed ever tells the world about what it does. For the week ending February 18th, the number under the heading "Repurchase Agreements" on the table is zero. It's a significant number.
Why? In the pre-crisis days, the Fed used to manage the money supply by periodically buying and selling securities on the open market through so-called Repurchase Agreements, or Repos. The Fed would typically dump $25 billion or so in cash onto the market every week, buying up Treasury bills, U.S. securities and even mortgage-backed securities from institutions like Goldman Sachs and J.P. Morgan, who would then "repurchase" them in a short period of time, usually one to seven days. This was the Fed's primary mechanism for controlling interest rates: Buying up securities gives banks more money to lend, which makes interest rates go down. Selling the securities back to the banks reduces the money available for lending, which makes interest rates go up.
If you look at the weekly H4 reports going back to the summer of 2007, you start to notice something alarming. At the start of the credit crunch, around August of that year, you see the Fed buying a few more Repos than usual — $33 billion or so. By November, as private-bank reserves were dwindling to alarmingly low levels, the Fed started injecting even more cash than usual into the economy: $48 billion. By late December, the number was up to $58 billion; by the following March, around the time of the Bear Stearns rescue, the Repo number had jumped to $77 billion. In the week of May 1st, 2008, the number was $115 billion — "out of control now," according to one congressional aide. For the rest of 2008, the numbers remained similarly in the stratosphere, the Fed pumping as much as $125 billion of these short-term loans into the economy — until suddenly, at the start of this year, the number drops to nothing. Zero.
The reason the number has dropped to nothing is that the Fed had simply stopped using relatively transparent devices like repurchase agreements to pump its money into the hands of private companies. By early 2009, a whole series of new government operations had been invented to inject cash into the economy, most all of them completely secretive and with names you've never heard of. There is the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (boasting the chat-room horror-show acronym ABCPMMMFLF). For good measure, there's also something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III to aid bailout recipients like Bear Stearns and AIG.
While the rest of America, and most of Congress, have been bugging out about the $700 billion bailout program called TARP, all of these newly created organisms in the Federal Reserve zoo have quietly been pumping not billions but trillions of dollars into the hands of private companies (at least $3 trillion so far in loans, with as much as $5.7 trillion more in guarantees of private investments). Although this technically isn't taxpayer money, it still affects taxpayers directly, because the activities of the Fed impact the economy as a whole. And this new, secretive activity by the Fed completely eclipses the TARP program in terms of its influence on the economy.
No one knows who's getting that money or exactly how much of it is disappearing through these new holes in the hull of America's credit rating. Moreover, no one can really be sure if these new institutions are even temporary at all — or whether they are being set up as permanent, state-aided crutches to Wall Street, designed to systematically suck bad investments off the ledgers of irresponsible lenders.
"They're supposed to be temporary," says Paul-Martin Foss, an aide to Rep. Ron Paul. "But we keep getting notices every six months or so that they're being renewed. They just sort of quietly announce it."
None other than disgraced senator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn't like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go fuck itself — or so said the law. When Stevens asked the GAO about what authority Congress has to monitor the Fed, he got back a letter citing an obscure statute that nobody had ever heard of before: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." According to the law, in other words, the Fed simply cannot be audited by Congress. Or by anyone else, for that matter.
VI. WINNERS AND LOSERS
Stevens isn't the only person in Congress to be given the finger by the Fed. In January, when Rep. Alan Grayson of Florida asked Federal Reserve vice chairman Donald Kohn where all the money went — only $1.2 trillion had vanished by then — Kohn gave Grayson a classic eye roll, saying he would be "very hesitant" to name names because it might discourage banks from taking the money.
"Has that ever happened?" Grayson asked. "Have people ever said, 'We will not take your $100 billion because people will find out about it?'"
"Well, we said we would not publish the names of the borrowers, so we have no test of that," Kohn answered, visibly annoyed with Grayson's meddling.
Grayson pressed on, demanding to know on what terms the Fed was lending the money. Presumably it was buying assets and making loans, but no one knew how it was pricing those assets — in other words, no one knew what kind of deal it was striking on behalf of taxpayers. So when Grayson asked if the purchased assets were "marked to market" — a methodology that assigns a concrete value to assets, based on the market rate on the day they are traded — Kohn answered, mysteriously, "The ones that have market values are marked to market." The implication was that the Fed was purchasing derivatives like credit swaps or other instruments that were basically impossible to value objectively — paying real money for God knows what.
"Well, how much of them don't have market values?" asked Grayson. "How much of them are worthless?"
"None are worthless," Kohn snapped.
"Then why don't you mark them to market?" Grayson demanded.
"Well," Kohn sighed, "we are marking the ones to market that have market values."
In essence, the Fed was telling Congress to lay off and let the experts handle things. "It's like buying a car in a used-car lot without opening the hood, and saying, 'I think it's fine,'" says Dan Fuss, an analyst with the investment firm Loomis Sayles. "The salesman says, 'Don't worry about it. Trust me.' It'll probably get us out of the lot, but how much farther? None of us knows."
When one considers the comparatively extensive system of congressional checks and balances that goes into the spending of every dollar in the budget via the normal appropriations process, what's happening in the Fed amounts to something truly revolutionary — a kind of shadow government with a budget many times the size of the normal federal outlay, administered dictatorially by one man, Fed chairman Ben Bernanke. "We spend hours and hours and hours arguing over $10 million amendments on the floor of the Senate, but there has been no discussion about who has been receiving this $3 trillion," says Sen. Bernie Sanders. "It is beyond comprehension."
Count Sanders among those who don't buy the argument that Wall Street firms shouldn't have to face being outed as recipients of public funds, that making this information public might cause investors to panic and dump their holdings in these firms. "I guess if we made that public, they'd go on strike or something," he muses.
And the Fed isn't the only arm of the bailout that has closed ranks. The Treasury, too, has maintained incredible secrecy surrounding its implementation even of the TARP program, which was mandated by Congress. To this date, no one knows exactly what criteria the Treasury Department used to determine which banks received bailout funds and which didn't — particularly the first $350 billion given out under Bush appointee Hank Paulson.
The situation with the first TARP payments grew so absurd that when the Congressional Oversight Panel, charged with monitoring the bailout money, sent a query to Paulson asking how he decided whom to give money to, Treasury responded — and this isn't a joke — by directing the panel to a copy of the TARP application form on its website. Elizabeth Warren, the chair of the Congressional Oversight Panel, was struck nearly speechless by the response.
"Do you believe that?" she says incredulously. "That's not what we had in mind."
Another member of Congress, who asked not to be named, offers his own theory about the TARP process. "I think basically if you knew Hank Paulson, you got the money," he says.
This cozy arrangement created yet another opportunity for big banks to devour market share at the expense of smaller regional lenders. While all the bigwigs at Citi and Goldman and Bank of America who had Paulson on speed-dial got bailed out right away — remember that TARP was originally passed because money had to be lent right now, that day, that minute, to stave off emergency — many small banks are still waiting for help. Five months into the TARP program, some not only haven't received any funds, they haven't even gotten a call back about their applications.
"There's definitely a feeling among community bankers that no one up there cares much if they make it or not," says Tanya Wheeless, president of the Arizona Bankers Association.
Which, of course, is exactly the opposite of what should be happening, since small, regional banks are far less guilty of the kinds of predatory lending that sank the economy. "They're not giving out subprime loans or easy credit," says Wheeless. "At the community level, it's much more bread-and-butter banking."
Nonetheless, the lion's share of the bailout money has gone to the larger, so-called "systemically important" banks. "It's like Treasury is picking winners and losers," says one state banking official who asked not to be identified.
This itself is a hugely important political development. In essence, the bailout accelerated the decline of regional community lenders by boosting the political power of their giant national competitors.
Which, when you think about it, is insane: What had brought us to the brink of collapse in the first place was this relentless instinct for building ever-larger megacompanies, passing deregulatory measures to gradually feed all the little fish in the sea to an ever-shrinking pool of Bigger Fish. To fix this problem, the government should have slowly liquidated these monster, too-big-to-fail firms and broken them down to smaller, more manageable companies. Instead, federal regulators closed ranks and used an almost completely secret bailout process to double down on the same faulty, merger-happy thinking that got us here in the first place, creating a constellation of megafirms under government control that are even bigger, more unwieldy and more crammed to the gills with systemic risk.
In essence, Paulson and his cronies turned the federal government into one gigantic, half-opaque holding company, one whose balance sheet includes the world's most appallingly large and risky hedge fund, a controlling stake in a dying insurance giant, huge investments in a group of teetering megabanks, and shares here and there in various auto-finance companies, student loans, and other failing businesses. Like AIG, this new federal holding company is a firm that has no mechanism for auditing itself and is run by leaders who have very little grasp of the daily operations of its disparate subsidiary operations.
In other words, it's AIG's rip-roaringly shitty business model writ almost inconceivably massive — to echo Geithner, a huge, complex global company attached to a very complicated investment bank/hedge fund that's been allowed to build up without adult supervision. How much of what kinds of crap is actually on our balance sheet, and what did we pay for it? When exactly will the rent come due, when will the money run out? Does anyone know what the hell is going on? And on the linear spectrum of capitalism to socialism, where exactly are we now? Is there a dictionary word that even describes what we are now? It would be funny, if it weren't such a nightmare.
VII. YOU DON'T GET IT
The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex. It might not bode well that Geithner, Obama's Treasury secretary, is one of the architects of the Paulson bailouts; as chief of the New York Fed, he helped orchestrate the Goldman-friendly AIG bailout and the secretive Maiden Lane facilities used to funnel funds to the dying company. Neither did it look good when Geithner — himself a protégé of notorious Goldman alum John Thain, the Merrill Lynch chief who paid out billions in bonuses after the state spent billions bailing out his firm — picked a former Goldman lobbyist named Mark Patterson to be his top aide.
In fact, most of Geithner's early moves reek strongly of Paulsonism. He has continually talked about partnering with private investors to create a so-called "bad bank" that would systemically relieve private lenders of bad assets — the kind of massive, opaque, quasi-private bureaucratic nightmare that Paulson specialized in. Geithner even refloated a Paulson proposal to use TALF, one of the Fed's new facilities, to essentially lend cheap money to hedge funds to invest in troubled banks while practically guaranteeing them enormous profits.
God knows exactly what this does for the taxpayer, but hedge-fund managers sure love the idea. "This is exactly what the financial system needs," said Andrew Feldstein, CEO of Blue Mountain Capital and one of the Morgan Mafia. Strangely, there aren't many people who don't run hedge funds who have expressed anything like that kind of enthusiasm for Geithner's ideas.
As complex as all the finances are, the politics aren't hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.
The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.
"But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?"
But before you even finish saying that, they're rolling their eyes, because You Don't Get It. These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.
Good luck with that, America. And enjoy tax season.
[From Issue 1075 — April 2, 2009]
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