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Tuesday, May 8, 2012

Crony Justice: The Government's Doomsday Weapon To Make Sure You Lose

The war on free enterprise has taken a new and dangerous turn.  If you're worried about crony capitalism, meet its new bastard twin: crony justice.

Largely unnoticed in President Obama's State of the Union speech this past January was his call for a new enforcement agency to prosecute financial crime.  The implication was clear: financial crime is largely to blame for the economic crisis (or crises) of the last five years. What should really worry us is the logical extension of the implied message: more members of the proletariat class -- that is, business owners, leaders, managers and entrepreneurs, the "one percent" -- must go to jail. By any means necessary, in fact, as the end justifies the means. 

And Obama does not need Congress (which makes the laws) to cooperate; he can create a new executive agency of which the staffing and decisions on which cases to investigate and prosecute can effectively criminalize targeted industries, activities and businesses.  This power is in addition to the vast enforcement and investigative powers of the many executive agencies, and of course, the power to prosecute and imprison by the Department of Justice.

Under the cloak of populist appeals to equality and compassion for the "victims," expect our federal government to move us closer to the criminalization of private enterprise.  Even without outright criminalization of industries and previously-legal activities, a new era of legal uncertainty and unpredictability will dawn featuring  increasingly arbitrary and inconsistent enforcement, investigations and prosecutions that will chill the economic activity of all but the most defiant (or clueless). 

The quandary for most Americans is like that of players on the pitch, who are uncertain of the rules, receive conflicting, devious or no answers whatsoever to their questions and cannot tell where the powdered chalk lines have marked the boundaries of legally uncertain or illegal behavior.  Under such circumstances, one can expect hesitancy to play the game; one can hardly expect players to win the game if they are fighting an opponent (here, the government) with the power to change the rules "on the fly" without reason and without warning. 

In reality, financial crime is fairly constant in its frequency. Crooks are like viruses; they are opportunistic and strike when, well, there is a victim to be had.  What varies is the detection of crime and, yes, the willingness of the authorities to carefully investigate and uncover the various white-collar frauds and other business crimes which plague us. This is why the recent news reports that financial fraud prosecutions have fallen to just a fraction of the level during the Clinton Administration lead to unprecedented accusations that the Obama Administration's Justice Department has a two-track system of enforcement, investigation and prosecution.1  One track for leniency for those from the "too big to fail" institutions, and another track for show trials for everyone else.

In short, when Wall Street fails, Main Street goes to jail.

Are agencies like the Department of Justice, Securities and Exchange Commission and Commodities Futures Trading Commission failing their mission?  Or are these agencies merely following orders from the top of their organizational chain of command, the top of the executive branch -- the President?

Traditionally, the Department of Justice was staffed with -- and by many anecdotal accounts still retains -- many career prosecutors committed to upholding the agency's professionalism and commitment to justice over numbers (of convictions).  However, the presidential prerogative of political appointees, combined with the ability to create and staff entirely new agencies with blank slate agendas, untethered by precedent or the traditional "way things are done," create the opportunity for overzealous command-and-control acolytes to set the new paradigms for "how things are done." With this Administration's unique zeal for government to command and control all aspects of our lives, the danger that politics or purely personal vendettas will infect each and every decision-making process among the executive agencies entrusted with the administration of justice becomes high indeed.  

There is plenty of criminal wrongdoing out there. There are plenty of white-collar crimes that can be prosecuted by the Justice Department. We have "regular" securities fraud (e.g., lying about a company's new drug), accounting fraud (making the numbers look better), mortgage fraud (lying to get one), appraisal fraud, bank fraud, identity fraud and wire fraud (e.g., telemarketing).  And there are plenty of laws an aggressive or vindictive prosecutor can use to "get" a target, particularly a "name" defendant whose conviction can help "make" a prosecutor's career. (Some commentators argue that there is such a dangerous myriad of laws that even the innocent probably commit at least three federal felonies each day, on average.2 )

This is why we now question why huge, historic frauds and industry collapses have gone unpunished criminally. We see curious prosecutions, such as show trials of small businessmen and failed takeover artist David Stockman, who was prosecuted for alleged fraud when his company declared bankruptcy, only to have the Justice Department drop the charges before trial. We see the alarming cases of hapless employees such as former Goldman Sachs computer programmer Sergey Aleynikov, who was convicted and jailed for stealing purported proprietary trade secrets (in the form of publicly-available computer source code), only to be later acquitted by a three-judge federal appellate court and ordered immediately released from federal prison only hours after hearing the appeal!  As these examples demonstrate, managements of much smaller companies which fail often are investigated and some are prosecuted, sometimes despite circumstantial evidence and, frankly, evidence no stronger that questionable or perjurious cooperating witness testimony. The Justice Department has had little problem finding cases to bring, particularly against smaller enterprises (for they lack the resources of behemoth enterprises and thus are thought easier to attack and get convictions -- the "numbers"). 

Nothing has prevented a reallocation of resources towards the "big" cases involving the "too big to fail" crowd -- nothing but unannounced agendas that one must suspect to be at work.  Yet we get the curious decision by the  Justice Department to decline to prosecute Countrywide Financial's management, and just as curiously, to reach that decision less than two years after beginning an investigation.5   While careful and complex investigations may take years to bring, one may be excused for sensing a rush to sweep under the rug -- if not exonerate publicly -- the embarrassing activities at Countrywide including its infamous "Friends of Angelo [CEO Mozilo]" program whereby certain congressmen got favorable mortgage terms. 

The crony capitalism we see today uses special treatment bestowed by today's government decisionmakers (who soon will be in the private sector) upon their private sector friends. This crony capitalism uses the four corners of the law to cover the tracks of unfair and inequitable treatment. Equality of opportunity and a fair playing field are concepts to be honored, in the breach.   

But now the public is beginning to see and believe, what some of us like myself, like David Stockman and Raymond Donovan before him have spoken about, and that is the metastasizing of crony capitalism into crony justice, which employs the government's most terrifying power of being able to threaten to deprive you of your freedom in order to achieve someone's vendetta, dysfunctional objective or dystopian social engineering.

Crony justice is the latest weapon in the government arsenal through which its power to prosecute you - worse that overregulating or taxing you to induce you to move or close your business - can determine who wins and loses.  

The fearsome power of crony justice is the fear it can create. It can be the government's prime weapon in its War of Terror on Capitalism, instilling the fear that merely daring to step onto the playing field can mean reputational death and imprisonment.  It is almost as bad as the savage game memorialized in the 1973 classic movie, "Rollerball." (James Caan plays the hero; John Houseman plays the role of the "one percenters.") 

It is the latest "daisy cutter" weapon, but its use domestically can be powerful in inducing the people to "accept their fate," to be average, mediocre, to follow orders. In short, to obey.

NOTE: Much of this text was adapted from my earlier articles appearing on the Crime, Politics and Policy web blog, available at
(c) Eric Dixon, Esq. 2012 All Rights Reserved.

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