Where the past isn’t even past.
Glenn Greenwald, a reporter for The Guardian, speaks to reporters at his hotel in Hong Kong Monday, June 10, 2013. (AP Photo/Vincent Yu) “
Shorter @rickperlstein ‘server,’ does not mean ‘server.’ How much did Big Data pay u to play Judas? Regret buying 1 of ur books.”
The message, from tweeter @runtodaylight, came Friday, in quick reaction to my response to Glenn Greenwald’s piece “On PRISM, Partisanship, and Propaganda.” Yesterday I received what a friend described as a “condolence” note about the abuse I’ve been getting from Greenwald fans—but no condolences are necessary. Luckily, for whatever reason, stuff like this has next to no emotional effect on me. The way I look at it, the work I’m blessed to be able to do affords me a cascade of privileges—attention, respect and a middle-class income; all that for safe, dry, indoor work; the grace of spending my days honoring the wellsprings of creativity churning inside me; near-constant affectionate avowals from strangers who trust that the things I tap out on my laptop have afforded them some measure of meaning, pleasure or understanding; that the small quantum of stupid stuff that comes my way never much penetrates. Thanks to this thick skin, I read all my comments. A lot of writers don’t. They talk about how the anonymity of the Internet licenses shallowness and cruelty. Eh, whatever. I’m never entirely sure that whatever I write is correct or clear or useful or profound or not, so a lot of stuff others consider straight-up trolling I often welcome as contributions to what I’m trying to accomplish. Which, after all, is a collective, not personal, project—for if I’m not reaching people and persuading people, I’m not doing anything at all. It’s good to know when people are not being reached or persuaded. So I listen and strive to respect my friendly and unfriendly interlocutors both, as best I can, for they are my lifeblood. What else can I do?
Glenn Greenwald, I’ve been learning, is different. Here’s what he said out of the box about my argument that he may have made a mistake in his claim about how PRISM works: that it turns “the eagerness of Democratic partisans to defend the NSA as a means of defending President Obama.” I’m one of the propagandists referred to in his piece’s title. Not correct. Not clear. Not profound. But most of all and most importantly, not useful. Let me say a bit as to why.
For one thing, I couldn’t care less about defending Barack Obama. I think he sucks at most parts of his job as I understand it—tactically, strategically, ideologically, rhetorically, intellectually, ethically—but I’m not going to get caught in a pissing match establishing my bona fides on the subject. Should I link to this so that I’ll maybe “win” the argument? I’d rather not. Too late, because I just did—the temptation of intellectuals to make this “about us” is too great. We’re human. We have egos. (“If you’re reduced to implying that Rick Fking Perlstein is overly solicitous of this administration, it’s time to lose all the fanboys and come back to the pack a little”: Thanks, Charlie Pierce!) But I wish we didn’t, because ultimately, it’s not about us. Our power to unmake a president, or bear him aloft with the sheer power of our prose if that’s what we prefer, is nugatory anyway. All we can do it try to tell the truth as we understand it, without fear or favor.
I feel incredibly fortunate to be have been allowed to do so without trimming my sails or looking over my shoulder, which is a good thing, because I have no idea how I’d survive if I had to change how I wrote to please a patron. My writing brain, for good or ill, just isn’t built that way. Some readers will look at my work and say that isn’t possible, pointing to all the ways I fall short of some abstract standard of anti-institutional purity. It’s an unfortunate logical fallacy on the left: that you can weigh a writer’s “radicalism” on some sort of scale, and from that arrive at a surefire calculation as to whether his or her heart is for sale (“How much did Big Data pay u to play Judas?”). Some simply can’t believe that “liberals”—even centrists!—might arrive at their positions through independent thought.
Now, am I “Democratic partisan”? Maybe a little bit, sometimes. In the final analysis, yes, Rick Perlstein prefers a strong Democratic Party to a weak one. That said, I think I understand more clearly than most the corporate corrosions that make it such a pathetic vehicle for those who aspire to justice. Unfortunately, given the rules of the American political game, people who try to participate by self-righteously refusing to identify with one or the other of the two parties are like people who say they love to play baseball but refuse to join a team. The name of this game—a loooooong game—is ideological civil war for the soul of each party. And one you can’t win if you don’t play. I don’t write that because I’m a partisan, or because I prefer a two-party system. I write that because I think it’s true.
But that’s all a digression. And one that has nothing to do with whether Greenwald is wrong or right about PRISM (he’s wrong, by the way) and why that matters. Ultimately, in a debate like this, the best thing a politically engaged intellectual can do is write in a way that does not short-circuit thought. And my, oh, my, does Greenwald’s style of political discourse short-circuit thought—with a fierceness. You see it in the way both his supporters and his critics (even The Nation has turned against him! The national security state has been vindicated) respond to his work.
Read another tweet:
“NSA admits listening to U.S. phone calls without warrants cnet.co/1agOFCy via @CNET What say you, @RickPerlstein ?”
I think we can detect here an accusatory tone, especially given the way the tweeter, “therealpriceman,” fawns over Glenn Greenwald generally. (Though you can never be sure on the Internet, and besides, why do people pursue political arguments on Twitter anyway? I’ll never understand how, for instance, “When u talk gun violence lk in mirror PA here we cling to guns-apologz to PRES O”—another tweet directed my way, apparently somehow meant to respond to this—could possibly contribute anything useful to our common political life.) I detect in this message: even the NSA says you’re wrong about Glenn Greenwald, so when are you going to apologize? And if I’m reading right, that’s some really smelly stupidity. Because the whole point of my original post was that there was plenty Greenwald had “nailed dead to rights” in his reporting. What I had in mind when I wrote that (I should have specified this, I think) was the stuff on Verizon turning over metadata to the NSA. And yet what therealpriceman links to is an article suggesting something that Greenwald has not (yet?) claimed, and which still remains controversial and undetermined: that the NSA has acknowledged that it does not need court authorization to listen to domestic phone calls, a claim sourced to Representative Jerrold Nadler, which Nadler based on a classified briefing he and other congressmen received, but which it has since been established Nadler probably just misunderstood.
The bottom line is that there’s an attitude out there that anything bad anyone says about the NSA must be a priori true, and that anything bad anyone says about the NSA must have already been said by Glenn Greenwald, and that anyone who questions Greenwald about anything must be questioning Greenwald about everything, and thus thinks the NSA (and its boss Barack Obama) is swell.
And where might someone get that idea? By thinking like Greenwald, actually.
As I noted on Friday, Greenwald writes in “On PRISM, Partisanship, and Propaganda,” “Rick Perlstein falsely accuses me of not having addressed the questions about the PRISM story”; but I didn’t accuse him of not having addressed “the questions” but instead a single question—whether Internet companies give the National Security Agency “direct access” to all their data as opposed to carefully controlled access to a very limited amount of data—a question he still did not address, including in the interview he linked to in order to claim he had addressed it “at least half-a-dozen” times.
He also wrote this: “I know that many Democrats want to cling to the belief that, in Perlstein’s words, ‘the powers that be will find it very easy to seize on this one error to discredit [my] NSA revelation, even the ones he nailed dead to rights.’ Perlstein cleverly writes that ‘such distraction campaigns are how power does its dirtiest work’ as he promotes exactly that campaign. But that won’t happen. The documents and revelations are too powerful.”
He’s right, and he’s wrong. So far Greenwald has been lucky, and because he has been lucky, everyone who cares about fixing our puke-worthy system of “oversight” of the American state’s out-of-control spy regime has been lucky too. Yes, clowns like Peter King and irrelevant throwbacks like Dick Cheney cry treason and call for death squads or tumbrels or whatever. But the bottom line is that for whatever reason (reasons I think will only become clear in the light of later history), the American establishment seems ready to think about this story—ready to give a hard look at what our surveillance state has become. The evidence is there in thoughtful and detailed reporting and analysis on how PRISM might actually work, for instance in this Associated Press piece (which is far more usefully critical than the typical piece on the Bush administration’s lies about Iraq’s claimed weapons of mass destruction in 2003, which the American establishment was not ready to think about), and this analysis by technologist Ashkan Soltani—both of which sort through the available evidence far better than Glenn Greenwald does, but also would not exist without what Greenwald and Edward Snowden courageously did, however flawed Greenwald and Snowden might be as messengers. Life can be complicated that way.
But about the the flaws of those messengers: what I wrote, about how established power deals with revelations it’s not ready to confront, is not that clever at all. It’s just a banal observation. Greenwald seems to believe that preserving his credibility to keep on doing this work is not something he needs to actively worry about—the “documents and revelations are too powerful.” Bullshit. I wish I had the certainty of Glenn Greenwald—about lots of things. But I don’t—constitutionally so. What I do have, a bit, is some historical perspective. And given that perspective, I would love to know why Glenn Greenwald thinks the establishment cannot do to him, a relative flyspeck in the grand scheme of things, what they did to Dan Rather, a towering giant of Washington reporting going back to Watergate. Which is: consign him to the outer darkness, where the only people who care about what he has to say are the likes of my good friends @therealpriceman and @runtodaylight.
If that’s good enough for Glenn, well, then, fine. Me, I’d rather not see him discredit himself. And that’s what’s happening. It’s happening even among those who want to be his supporters. As one of them wrote on Facebook, “Here’s the thing: I suspect Perlstein, Charles Pierce, Dave Niewert and I—to mention the commenters here I’ve actually met—could have a spirited exchange about these issues, maybe even change each others’ minds somewhat. That can’t happen with Greenwald, whom I’ve never met, becuase the FIRST thing he does out of the box is accuse anyody who disagrees with him of bad faith. That not only makes him a poor advocate, it weakens one’s trust in his reporting.”
He’s losing friends. Soon, his friends, and his luck, may run out.
The NSA slide that tech experts say Glenn Greenwald misinterpreted. (The Guardian/NSA, US Federal Government.)
Glenn Greenwald has posted a response to his critics today, including myself, titled “;On PRISM, Partisanship, and Propaganda”: “In a Nation post yesterday,” he writes, “Rick Perlstein falsely accuses me of not having addressed the questions about the PRISM story.” Actually I didn’t accuse him of not having addressed “the questions,” but instead a single question, which he still does not address: whether, in his claim that corporations have allowed the National Security Agency direct access to their servers, he misunderstands the meaning of the word “server” in an NSA slide to imply “all their data,” when it probably means “places to store a highly delimited amount of secured data the companies have agreed to provide to the government after consultation with their lawyers in response to government requests made through legal channels.” (By the way, you can still hold that those “legal channels” are ghastly, invasive and immoral, as I suspect they may well be, and stimultaneously believe that Greenwald may have made a grave and self-defeating error both in terms of accuracy and in terms of advocacy.)
My interpretation comes from someone I deeply respect and trust, Karl Fogel, whose professional integrity dwarfs just about anyone else’s I know. Karl explains a bit more about his qualifications to speak below; you can learn more about those at this link. I asked him to respond to Greenwald’s response, which I publish below. Further discussion of the technical issues can be carried out at his personal site, Rants.org. Later, I’ll weigh in with further reflections of my own on questions raised by Greenwald in which I am more expert: on partisanship and propaganda; on the mores, methods and motivations of journalism and journalists; and on best practices, as I understand them from my study of American political history, for bending the arc of history toward justice when the powerful would prefer to just shut the justice-seekers down.
For now, though, here’s Karl:
Greenwald seems to be responding to a different point than the actually one at issue. As I said before, the important question is this:
Do any documents in the PRISM leak claim that the NSA has direct, unfettered access to the servers where major Internet companies store their users’ data? The kind of access where the NSA can roam at will, searching and copying anything it wants, without interference from the company’s lawyers?
In other words, are the humans still in the chain? Do the companies retain control of their users’ data until they decide to hand something over, or do they give up control pre-emptively?
So far, it looks like they retain control—the humans are in the chain. Nothing leaked so far indicates the removal of human safeguards.
Greenwald quotes Bart Gellman, another reporter (i.e., not a primary source), writing “From their workstations anywhere in the world, government employees cleared for PRISM access may ‘task’ the system and receive results from an Internet company without further interaction with the company’s staff.”
This misses the point. If I go online to my credit card company to dispute a charge, and a while later I get an automated response, and then I provide the supporting documents, and then I get another response saying the charge has been reversed, have I had “interaction with the company’s staff”? No, not directly. I never talked to another human. But was a human in the chain on the other side? Sure. The company retained control of the process.
So what are these “servers” the famous NSA slide refers to? The explanation that is most consistent with everything we’ve seen so far is that they are servers that exist for the purpose of requesting and transferring data. They probably have a user interface whereby the NSA submits a request, the company sees the request, the company handles it (and accesses their servers to do so, except in the presumably rare cases where they push back on the request), and the requested information goes back to the NSA. The NSA staffer never speaks directly to a human at the company, consistent with what Bart Gellman reported, but that has nothing to do with Greenwald’s misinterpretation of “direct collection,” which is what this is about.
Greenwald himself agrees that the question hinges on the interpretation of the phrase “collection directly from the servers”:
“…we did not claim that the NSA document alleging direct collection from the servers was true; we reported—accurately—that the NSA document claims that the program allows direct collection from the companies’ servers. Before publishing, we went to the internet companies named in the documents and asked about these claims. When they denied it, we purposely presented the story as one of a major discrepancy between what the NSA document claims and what the internet companies claim. … The NSA document says exactly what we reported. Just read it and judge for yourself (PRISM is ‘collection directly from the servers of these US service provers’).”
I am looking at that exact same slide, just as Greenwald asks, and as a technologist with twenty years of experience (and, full disclaimer, a former employee of Google, though I resigned in 2006 and have had no financial interest in the company since then) it is pretty clear to me that it does not mean what Greenwald says it means. Its most likely meaning is that the companies set up special, restricted servers to make the mechanical prcoess of requesting and providing data less onerous on themselves and perhaps on the NSA. That increase in efficiency itself could be a major step forward for the NSA, which is why the program would have its own name, but again, it does not have anything to do with direct (i.e., unmediated) collection from the company’s regular servers where user data is stored for normal business.
I’m not depending on my knowledge of Google’s infrastructure to come to that conclusion. It’s just the natural conclusion to come to if one knows computer networking terminology and interprets the available evidence using that knowledge.
When Glenn Greenwald does a Google search, he is doing “collection directly from the servers” of Google. Does that mean he also has full access to roam through other people’s private Gmail accounts and pull anything down he wants? Of course not. The slide simply does not claim what Greenwald thinks it claims; thus, so far, there is no contradiction between the NSA says and what the companies say. The contradiction is only between what Glenn Greenwald says the NSA says, and what the companies say.
This is more than just some technical detail. Tapping into the wires that connect (say) Google’s data centers to the outside world is not nearly as useful, for the purposes of searching and for programmatic data analysis, as having programs running directly on Google’s servers would be. They’re two different universes. In one, you can see real-time data as it flows by, and even then much of it is SSL-encrypted. In the other, you can see everything, including a historical archive into the past for every user. That’s just not the same thing—not the same level of intrusion, not the same level of surveillance. Again, just to be clear: I’m not saying there’s no issue with NSA surveillance. But, to apply an approximate metaphor, we’re talking about tapping someone’s phone line versus going into everyone’s houses and going through all their files and all their possessions, page by page and item by item. One is worse than the other.
The NSA slide that tech experts say Glenn Greenwald misinterpreted. (The Guardian/NSA, US Federal Government.)
Bloggers and experts in the tech world have been raising an important caveat to a key aspect of Glenn Greenwald’s world-shaking scoop about the NSA’s PRISM story—an aspect my friend Karl Fogel, an open-source software guru, blogger and the proprietor of QuestionCopyright.org, calls an “epic botch” by Greenwald. People outside of the tech world absolutely need to know about this debate too, which is why, though I’m no expert, I’m sharing it with this wider audience. I deeply admire what Greenwald and his team at The Guardian are doing. I write in the interest of helping them do it better.
The “crucial question,” as Fogel frames it in a blog post, is this: “Are online service companies giving the government fully automated access to their data,” as Greenwald says they are, “without any opportunity for review or intervention by company lawyers?” This is what the companies have been denying—in statements that critics have been interpreting as non-denial denials. (Apple: “We have never heard of PRISM. We do not provide any government agency with direct access to our servers, and any government agency requesting customer data must get a court order.” So what if Apple et al. knew the formal name of the program? And what about indirect access? Or government contractors? And how are they defining “customer data”? Etc.)
Fogel points out that a widely read post to this effect called “Cowards” from the blog Uncrunched—“What has these people, among the wealthiest on the planet, so scared that they find themselves engaging in these verbal gymnastics to avoid telling a simple truth?”—is “mostly wrong.” He says, “It looks like Greenwald and company simply misunderstood an NSA slide [see image at the top of this post for the slide] because they don’t have the technical background to know that ‘servers’ is a generic word and doesn’t necessarily mean the same thing as ‘the main servers on which a company’s customer-facing services run.’ The ‘servers’ mentioned in the slide are just lockboxes used for secure data transfer. They have nothing to do with the process of deciding which requests to comply with—they’re just means of securely and efficiently delivering information once a company has decided to do so.”
In other words, this slide describes how to move data from once place to another without it getting intercepted in transit: “What the hell are the companies supposed to do?” Fogel jokes. “Put the data on a CD-ROM and mail it to Fort Meade?”
The implications of this interpretation, if correct, completely shift the grounds for the discussion of how the NSA’s PRISM program works—“the difference,” as Mark Jaquith of WordPress writes, “between a bombshell and a yawn of a story.”
(I contacted Google to ask about the issue, and a spokesman pointed me to their open letter to Attorney Holder and FBI Director Mueller and another to users, and reiterated, “We refuse to participate in any program—for national security or other reasons—that requires us to provide governments with access to our systems or to install their equipment on our networks. When required to comply with these requests, we deliver that information to the US government—generally through secure FTP transfers and in person. The US government does not have the ability to pull that data directly from our servers or network.” I followed up by asking whether “refusing to participate in any program…that requires us to provide governments with access to our systems or to install their equipment on our networks” includes refusing to provide government contractors with access to our systems or to install their equipment on our networks,” and the spokesman replied, “Yes.”)
Greenwald has not yet made a public evaluation of whether or not he agrees that he made that mistake. [Update: on Twitter, Greenwald linked to this interview with Chris Hayes as evidence that he has; I'll leave it to readers to judge whether they agree that he's answered the criticism.] He owes it to us to do so, with as much speed as practicably possible. It’s not too much to say that the fate of his broader NSA project might hinge on doing so effectively—because the powers that be will find it very easy to seize on this one error to discredit his every NSA revelation, even the ones he nailed dead to rights. (“It’s not like there aren’t legitimate things to complain about here,” as Fogel notes.) Such distraction campaigns are how power does its dirtiest work. Think of the way the questions about the authenticity of the “Killian documents” were able to obscure the fact that George W. Bush actually did go AWOL from the Texas Air National Guard or how the unrelated or how the unrelated killing of a CIA station chief in Greece was used to discredit the congressional investigations of CIA wrongdoing in 1975—cases with which Greenwald should be well-familiar. So, Glenn Greenwald, what’s the word? The fate of our civil liberties may depend on it.
New York City mayoral candidate Bill de Blasio is bringing inequality to the forefront of his campaign. Read Katrina vanden Heuvel’s analysis here.
Wangs Laundry, a “Western”-themed storefront at Great America theme park. (Rick Perlstein)
Even in a country that suffers from an official cult of optimism, where the dominant response to revelations that the entire nation is being spied upon is “if you’ve done nothing wrong, you don’t have anything to hide,” where racism is supposed to be over because we’ve elected a black president even if the number of death threats against him reportedly dwarf those against previous presidents, it can useful to count victories, to record how far we have come—if only for the sake of our sanity.
A friend of mine recently showed me a page of a book she dug up, an ancient Rand-McNally Grammar School Geography from 1911. With voice-of-God confidence, it defines the various “races.” Indians? “Few of them have ever attained the stage of civilization. Agriculture and the arts are rudimentary, and letters and science are generally wanting.” (There is a regional slur, too: “South of the United States the majority of the population are still of Indian blood.”) Then the “Black or Ethiopan Race”—those words in bold. “The head is long and narrow, with projecting jaws” (projecting jaws?). “Among them are found the lowest savages; some have advanced [advanced!] to barbarism; but no people of the black race ever became civilized without help from some other race.”
Study questions: “Look among your acquaintances for persons who display, in the greatest perfection, one or more of the characteristics of the Caucasian race. What colors of hair and eyes are generally found in the same person? Which is more common, straight or wavy hair? What color of hair is most common. Did you ever see a Chinaman? Describe him…”
Did “you” ever see a Chinaman? If you are reading the book you are are, definitionally, not a Chinaman.
It’s an old book, granted. But not innocent because of that fact: it is, after all, a grammar school book, which means that it shaped the world-pictures of grownups for generations later—for instance, the respondents to a Newsweek poll around the time of the 1963 March on Washington. “I don’t like to touch them,” one said. “It just makes me squeamish.” “It’s the idea of rubbing up against them,” said another. “It won’t rub off, but I don’t feel right either.” Majorities thought black people “laugh a lot,” tend to have less ambition” and “smell different.” When I was a kid my parents had a book in their library called Training You to Train Your Dog (1965). It observed that everyone knew people with dark skin shared an “excitable nature.” QED.: “If this be true, there is no reason why color of coat and pigmentation should not affect dogs as well.”
People aren’t like that any more, or mostly. They’re also not like this. Imagine you’re a man applying for a traveling sales job in 1964. This September Ig Publishing will be coming out with a new edition of Vance Packard’s book on privacy, The Naked Society, which came out that year; I’ve written a new introduction. In the book, Packard witnessed the following stunning colloquy between a polygraph operator and said job applicant:
“Ever fired for cause?”
“Ever drink to excess?”
“I’ve been loaded a few times, but I guess that’s not ‘excess,’ so I’ll say no.”
“Have you ever done something that you are really truly ashamed of?” Bill shook his head. My guide whispered, “That question will sometimes smoke out the homosexual.”…
Bill was unharnessed…. The examination seemingly was over, and Bill was looking for his hat. Then Mr. Probe said pleasantly, “Bill, one more question before you leave. There is nothing personal or offensive about this, but because of the kind of business you are going in and the fact you have been in the summer theater work, I think I should ask it. Are you inclined to be a homosexual?”
Bill looked startled. He said, “No.” But the question so unsettled him that he felt compelled to explain his situation. “I have of course been surrounded by them in my work in the theater in the MIdwest, and I’ve been exposed to this a lot in some of the bohemian areas where I’ve liked, and I have been approached. But the answer is no.” Mr. Probe didn’t explain why sexual status had any significant relevance to the job for which Bill was applying.
And that, today, is unimaginable.
Are we out of the woods? Hell to the no. Yesterday I accompanied a group of 10-, 11- and 12-year-old boys to Great America, the theme park halfway between Milwaukee and Chicago. Among the things those kids could have learned that day, in addition to the fact that the Raging Bull roller coaster features a 208-foot first drop and top speed of seventy-three miles per hour but is really not all that scary after all, and that there are places in the world where a single cup of Coca-Cola costs five dollars, is that if they ever see a Chinaman, they can infer that he probably runs a laundry, and doesn’t quite grasp English grammar.
This photograph shows a copy of the US Foreign Intelligence Surveillance Court order requiring Verizon on an “ongoing, daily basis,” to give the National Security Administration (NSA) information on all landline and mobile telephone calls of Verizon Business in its systems. (AP Photo)
What goes around comes around.
The latest news in the National Security Agency spy scandal: that the NSA has been Hoovering up your emails, documents, and connection details directly from the servers of nine US Internet companies. And that, according to NBC News, the government has been collecting records on every phone call made in the United States ever since the passage of the Patriot Act. And they have been doing so with legal immunity. Barack Obama has been helping with that, since well before he was president; and now that he is, he does what presidents do, which is to aggrandize the power of their office by whatever means at their disposal.
We have been here before.
In the fall of 1975, when a Senate select committee chaired by Frank Church and a House committee chaired by Otis Pike were investigating abuses of power by the CIA and FBI, Congresswoman Bella Abzug, the loaded pistol from New York (she had introduced a resolution to impeach Richard Nixon on her first day in office in 1971) dared turned her own House Subcommittee on Government Information and Individual Rights to a new subject: the National Security Agency, and two twin government surveillance projects she had learned about codenamed “SHAMROCK” and “MINARET.” They had monitored both the phone calls and telegrams of American citizens for decades.
At the time, even political junkies did not know what the NSA was. “With a reputed budget of some $1.2 billion and a manpower roster far greater than the CIA,” the Associated Press explained, it had been “established in 1952 with a charter that is still classified as top secret.” (Is it still? I’d be interested to know.) President Ford had persuaded Frank Church not to hold hearings on the matter. (Ford had something in common with Obama: hypocrisy. “In all my public and private acts as your president, I expect to follow my instincts of openness and candor with full confidence that honesty is always the best policy in the end,” he’d said in his inaugural address, the one where he proclaimed, “Our long national nightmare is over.”) So Abzug proceeded on her own. At first, when she subpoenaed the executives responsible for going along with the programs the White House tried to prevent their testimony by claiming the private companies were “an agent of the United States.” When they did appear, they admitted their companies had voluntarily been turning over their full records of phone and telegram traffic to the government at the end of every single day, by courier, for over forty years, full stop. The NSA said the programs had been discontinued. Abzug claimed they still survived, just under different names. And at that, Church changed his mind: the contempt for the law here was so flagrant, he decided, he would initiate NSA hearings, too.
Conservative members of his committee issued defiant shrieks: “people’s right to know should be subordinated to the people’s right to be secure,” said Senator John Tower. It would “adversely affect our intelligence-gathering capability,” said Barry Goldwater. Church replied that this didn’t matter if the government was breaking the law. (“Tell me about the time when senators used to complain when the government broke the law, grandpa!”) He called the NSA’s director to testify before Congress for the first time in history. Appearing in uniform, Lieutenant General Lew Allen Jr. obediently disclosed that his agency’s spying on Americans was far vaster than what had even been revealed to President Ford’s blue-ribbon commission on intelligence chaired by Vice President Nelson Rockefeller. He admitted that it was, technically, illegal, and had been carried out without specific approval from any president. But he declined to explain how it worked. And added that thanks to such surveillance, “we are aware that a major terrorist attack in the US was prevented.” He refused to give further details on that, either—as if daring the senators to object. What goes around comes around: did I mention that before?
The president could comfort himself that few were paying attention. Back in August, Rockefeller Commission member Ronald Reagan had instructed his listeners, “My own reaction after months of testimony and discussion during the investigation of the CIA is ‘much ado about—if not nothing, at least very little’”: just “instances of some wrongdoing with regard to keyhole-peeking,” long since corrected by the agency itself. He claimed his commission’s most important finding—that more Soviet spies were living and working in America than ever—had been buried: instead, “the media seized upon whatever misdeeds we found and played them up possible to confirm the earlier charges and possibly because they thought they made for exciting drama.”
That fall he earned a surprising ally in the argument: Senator William J. Fulbright, whose devastating 1966 hearings against the Vietnam War were so subversive to the Establishment’s amour propre that CBS cut away to a rerun of The Andy Griffith Show rather than continue live coverage. Now Fulbright published an article in the Columbia Journalism Review. He allowed that recent revelations about the CIA might be true. “But I have come to feel of late that these are not the kind of truths we need most right now; these truths which must injure if not kill a nation.” What was needed was “restored stability and confidence.” What the press required was “voluntary restraint” to reaffirm the “social contract.” What the public most certainly did not not need was the media’s present “inquisition psychology.”
In truth, though, the media were proving not very inquisitive at all. The Nation’s own William Greider, then with The Washington Post, wrote at about the same time in Esquire about the scanty coverage of the intelligence hearings, especially after the blanket coverage of Watergate, “There is a strong wish all over town, a palpable feeling that it would be nice if somehow this genie could be put back in the bottle…a nostalgic longing for the easy consensual atmosphere which once existed among the contending elements in Washington.” He noted how “the press essentially tugs back and forth at itself, alternatively pushing the adrenal instincts unleashed by Watergate, the rabid distrust bred by a decade of out-front official lies, and then abruptly playing the cozy lapdog.”
Indeed Abzug’s revelations received hardly any coverage. General Allen’s testimony was buried in back pages (in the Louisville Courier Journal it was trumped by news of a religious community of 177 in Arkansas who pulled their children out of school to await the second coming of Christ). A stunning colloquy between Senator Walter Mondale, the liberal Democrat from Minnesota, with NSA deputy director, Benson Buffham—
Mondale: Were you concerned about its legality?
Mondale: Whether it was legal.
Buffham: In what sense? Whether that would have been a legal thing to do?
Buffham: That particular aspect didn’t enter into the discussion.
—was not quoted anywhere at all, even by The New York Times, whose article on the NSA hearing ran on page 81. As for the president, he followed the recommendation of Chief of Staff Donald Rumsfeld and his lieutenant Dick Cheney and closed down further NSA inquiry by extending executive privilege to the officials and telecommunications executives involved. That got no coverage either.
Why? The Washington Post had recently suggested that after the serial outrages of the Vietnam, the My Lai, the secret bombing of Cambodia, Watergate, the energy crisis and all the rest, the public was suffering “a kind of deadening of moral nerve-ends, a near inability to be surprised, let alone disturbed.”
And yet, for all that, Congress acted. In 1978 it passed the Foreign Intelligence Surveillance Act, a bipartisan law (one of its sponsors was Strom Thurmond) banning surveillance without a court order that involved acquiring “the contents of any communication to which a United States person is a party.” Though it was pretty soft soap, for all that: judicial authorization was only required within seventy-two hours after the surveillance began.
Subsequent amendments have rendered it all but gone now, of course. Congress still can speak in a bipartisan manner on the subject of surveillance. Only now, they thunder in unison, Quit your bitching! “It’s called protecting America,” Diane Feinstein said. Says her dear Republican colleague Saxby Chambliss, “This is nothing particularly new. Every member of the United States Senate has been advised of this, and to my knowledge we have not had any citizen who has registered a complaint relative to the gathering of this information.”
More Orwellian words have never been spoken. Brave new world, that has such senators in it.
So now we’re supposed to fall in love with Bob Dole: the enfeebled old solon went on Fox News this week and said his beloved Grand Old Party should be “closed for repairs” for having abandoned civility and comity, and for lacking “ideas.” All right then; let’s give Bob Dole half credit. It is true that Bob Dole was on the Republican side of the hyphen for plenty of pieces of bipartisan legislation (never mind that many of those laws were awful—like “Bayh-Dole,” the 1980 law that let universities patent, and thus privatize, their publicly financed inventions). But let’s also call it half bullshit. All in all, Bob Dole was much more an architect of the Republican Party’s culture of hyper-partisan nastiness than a tribune of civility.
Once, when LBJ was thundering toward his 1964 landslide, megalomaniacally rolling up road miles to defeat as many incumbent Republicans as possible, he told the reporters traveling with him, “You all know a bit about the Republicans in Congress, and there must be at least a few of them that you think deserve to be defeated. Give me some names and either Hubert and I will try to get into their districts in the next few days and talk against ’em.” After they got over their shock, one piped up proposing that Dole kid, the young congressman out of Kansas: he was a nasty man, a hatchet man—a traducer of the civility of Washington. Which was largely how Bob Dole rose in Republican counsels. How soon we forget.
It’s one of those ineluctable patterns in American political culture. As I wrote in 2004 upon Ronald Reagan’s death: “each generation of nonconservatives sees the right-wingers of its own generation as the scary ones, then chooses to remember the right-wingers of the last generation as sort of cuddly. In 1964, observers horrified by Barry Goldwater pined for the sensible Robert Taft, the conservative leader of the 1950s. When Reagan was president, liberals spoke fondly of sweet old Goldwater. Nowadays, as we grapple with the malevolence of President Bush, it’s Reagan we remember as the sensible one.” As, thus, does Robert Dole: in today’s Republican Party, “Reagan wouldn’t have made it.”
And now, like clockwork, Bob Dole volunteers Bob Dole as the cuddly one, thereby basking in the pundits’ lionization of Bob Dole. Bob Dole!
Rick Perlstein is not buying it. Bob Dole, who in 1971 when Richard Nixon expanded the Vietnam War into Laos, called Democrats who protested to Nixon publicly (but not Republicans who did the same thing privately) “the new Chamberlains in what they hope will be another era of appeasement,” saying George McGovern has went “as close as anyone has yet come to urging outright surrender.”
The next year, as Nixon’s Republican National Committee chair, Bob Dole eagerly stood up on his hind legs for the Watergate-plagued president, then peed on Woodward and Bernstein: “For the last week, the Republican Party has been the victim of of a barrage of unfounded and unsubstantiated allegations by George McGovern and his partner-in-mudslinging, the Washington Post...McGovern appears to have turned over the franchise for his media attack campaign to the editors…who have shown themselves every bit as surefooted along the low road.”
Others can add their greatest hits from their own personal Wayback Machines. Meanwhile, let’s count down for another Bob to bob forth with some blathering about Bob: Bob Woodward. It can’t really be long.
Many of the groups who helped Scott Walker win the Wisconsin recall were 501(c)(4) Tea Party groups that worked in close tandem with his campaign despite their non-political tax designation. (AP Photo/Morry Gash, File.)
My pixels have been absent from these precincts while I report a feature story for The Nation, and I’ll have more to say about the ersatz Scandalpalooza being ginned up by Republicans this week, but for now I wanted to drop a quick word about just how overblown the outrage is about the Internal Revenue Service flagging groups with “Tea Party” in their name for extra scrutiny when they apply for 501(c)(4) status. Jeffrey Toobin, in a New Yorker post called “The Real I.R.S. Scandal,” succinctly explains the legal background:
It’s important to review why the Tea Party groups were petitioning the I.R.S. anyway. They were seeking approval to operate under section 501(c)(4) of the Internal Revenue Code. This would require them to be “social welfare,” not political, operations. There are significant advantages to being a 501(c)(4). These groups don’t pay taxes; they don’t have to disclose their donors—unlike traditional political organizations, such as political-action committees. In return for the tax advantage and the secrecy, the 501(c)(4) organizations must refrain from traditional partisan political activity, like endorsing candidates….
Particularly leading up to the 2012 elections, many conservative organizations, nominally 501(c)(4)s, were all but explicitly political in their work. In every meaningful sense, groups like Americans for Prosperity were operating as units of the Republican Party. Democrats organized similar operations, but on a much smaller scale. (They undoubtedly would have done more, but they lacked the Republican base for funding such efforts.)
So the scandal—the real scandal—is that 501(c)(4) groups have been engaged in political activity in such a sustained and open way.
Just how sustained and open a way? Well, in June of last year I reported from the closing weekend of the recall campaign against Republican governor Scott Walker of Wisconsin:
I drive to a microscopic town next to Racine, where a giant open field was a stop on the bus tour in which Americans for Prosperity, the fake grassroots group that fronts for the Koch Brothers, was shipping supporters from, among other places, Illinois, to these here rallies around the state. Not, they claim, to support the Walker campaign—that would violate election law—which they had nothing to do with, but just in the interest of “educating folks in the importance of the reforms.”
The three hundred or so (though National Review counts differently than me) white people—and one black, who stood precisely in the center of the front row and wore an AFP staff T-shirt—heard an AFP staffer hosanna “economic freedom, limited government, and lower taxes.” And that “even Barack Obama’s Bureau of Labor Statistics” said “we’ve created jobs in Wisconsin.” Then he introduced as an “honorary Wisconsinite,” the head of Americans for Prosperity—Wisconsin, Tim Phillips—a Southerner who made a joke about frigid weather. Apparently reverse carpet-bagging is a signal feature of this “grassroots” movement.
Then a third speaker, but I had already wandered off, bored by the conspicuous lack of energy, past a sign reading “Republican’s Are Makers Democrats Are Takers” [sic, of course], and tables featuring free DVDs on both the glories of Scott Walker and the United Nation’s plan to enslave the United States, in the direction of a second, entirely separate, stage across the field put up by the Racine Tea Party. A few minutes later, the rest of the crowd followed me there. For, yes, an entirely separate rally, which had “nothing” to do with the nonpartisan one two hundred yards away that had just ended [wink wink, nudge nudge]. There they heard Walker’s running mate Rebecca Kleefisch rant about the “big union bosses from out of state,” and how the unions were just like Goliath, and her boss was exactly like David.
Me, I fingered my slick Americans for Prosperity—Wisconsin flier, which I later noticed contained the most revealing typo in the history of politics. “The forces of BIG GOVERNMENT would like nothing more than for you to DO NOTHING,” it warned, but promised, “We are gathering citizens together from across Michigan to make phone calls, knock on doors and educate their friends, family and neighbors.”
As Toobin points out, this is the real scandal: the nakedly transparent flouting of the tax laws by groups claiming to be nonpolitical and nonpartisan. Count on the media in Washington to entirely miss that obvious point.
President Obama introduces Penny Pritzker as his nominee for Secretary of Commerce. (AP Photo/Carolyn Kaster.)
Did you know that in the early 1970s, the Internal Revenue Service investigated the Pritzker family, whose scion Penny Pritzker has just been tapped by President Obama to become Secretary of Commerce, because their Hyatt Corporation was paying no taxes? And that in the course of the inquiry, an IRS statement quoted an informant with access to the records of the offshore bank where they hid their assets that the family, “through their Hyatt Corporation, received their initial backing from organized crime”?
Did you know that this particular financial institution, Castle Bank & Trust of the Bahamas, was founded by a veteran of the wartime spy agency the Office of Strategic Services who specialized in creating front organizations for the CIA, and helped launder funds for attempts to overthrow Fidel Castro? That Castle operated by arranging for a Miami bank controlled by associates of mobster Meyer Lansky to accept the original deposits, which it then passed on to Castle with only code numbers, but not names, attached?
Did you know that the IRS dropped a major investigation of Castle in 1977, according to The Wall Street Journal, at the behest of the Central Intelligence Agency?
And did you know one of the bank’s cofounders, the late Burton Kanter, was on the board of the Hyatt Hotels Corporation, and that—as The Kansas City Times discovered in a 1982 Pulitzer Prize–winning investigation following the collapse of a shoddily constructed skywalk that killed 114 at a Hyatt in 1981—the Pritzkers were Castle Bank’s largest depositors?
Did you know that Kanter was the Pritzker family’s tax lawyer, and was able to reduce the IRS bill when patriarch A.N. Pritzker died in 1986 from the $150 million the government said the family owed for his estate only $9.5 million? (Or that family itself claimed his estate only possessed $3,000 in taxable assets?) Did you know that, twenty-four years later, a tax judge ruled that Kanter was the “architect” of “a concerted effort” to profit from kickbacks involving the siphoning off of funds managed by insurance companies? (The hustle included the invention of sham companies—“pure tax avoidance vehicles,” the judge said—the destruction of documents, and “implausible” and “incredible” testimony by Kanter.) This 2007 article by David Cay Johnston on the “overwhelming objective evidence” that led another tax judge to uphold the conviction places the Pritzker family at the center of the scam. And it notes that Kanter’s tax returns, now public, “show he never paid any significant tax. Yet he amassed a fortune big enough at one time to make him a credible bidder for the Miami Dolphins football team.”
Did you know that A.N. publicly denied ever using the legal services of fixer Sidney Korshak, for decades the notorious transit point between the mob and legitimate business interests in Chicago, before Korshak admitted to the Securities and Exchange Commission that he was in fact the family’s labor lawyer? That a Los Angeles Police investigator’s report said A.N. was “[c]losely connected with members of the Capone syndicate, Tony Accardo, and other underworld characters? It is believed by the undersigned that Pritzker may be active locally, as a front for Eastern hoodlum money to be invested in the Los Angeles Area”? That A.N.’s law partner Stanford Clinton was general counsel for the notoriously mob-connected Teamsters pension fund?
I got much of this stuff from Gus Russo’s voluminous book Supermob: How Sidney Korshak and His Criminal Associates Became America’s Hidden Power Brokers. It’s an over-the-top book, hanging all sorts of claims on insinuation and guilt by association, so I’ve only included here the stuff I consider solid. And let’s respectfully dissent from Shakespeare, who wrote in the Merchant of Venice, “The sins of the father are to be laid upon the children”: Penny is not responsible for the dodgy practices of her grandfather. It’s not her fault her late Uncle Jay, who bought Hyatt in 1957, deployed it as a platform for innovative “asset management” financial engineering that kept the family at arms’ length regarding risk and responsibility (nowadays with the assets coming from Chicago taxpayers). She can’t be held responsible for the way Jay, back before that, benefited from very questionable deals arising from his tenure in the Justice Department’s Alien Property office, responsible for assets seized by the government. Nor can she be held responsible for the mob money allegedly behind the expansion of Hyatt in the first place. “Behind every fortune lies a great crime,” is the Balzac quote Russo uses to introduce the Pritzker family in his book; but that’s not Penny’s fault either, is it?
But certain patterns still obtain. It is one of the most crucial stories for understanding our age: how tax-avoidance strategies of a previous generation that might have landed you in court are now legal—which does not make them any more ethical. In fact, it may make them less ethical—precisely because third-gen scions like Penny, born in 1959, have entered into the political establishment, where their representatives, their latter-day Korshaks and Kanters, do their laundering in the halls of government instead of in Las Vegas hotel room meetings with associates of Tony Accardo. The scumminess is the same, or, really, worse; as Charlie Savage wrote this week in The New York Times, “Republican senators are likely to be interested in the Pritzker family’s reputation as innovators in the use of offshore trusts and foreign bank secrecy laws to shelter their wealth from income, capital gains and inheritance taxes. Even after tax loopholes were closed, the family’s trusts were grandfathered in and it kept benefiting from them.” As well the Republican senators should. And, hell, Democratic senators, too.
The crime is what is no longer a crime. Indeed, wrote David Cay Johnston, Burton Kanter regarded himself as the nation’s premier expert at “legally eliminating taxes.” He even proudly documented his techniques in legal journals.
Savage asked the White House what made Penny Pritzker suitable for a confirmation fight she was not qualified for in 2008. The spokesman responded that back then, she “had an ongoing obligation to oversee her family’s restructuring of assets to separate out the interest of various family members.” Now, that task has apparently been completed, or, as “a White House official involved in vetting her” put it, “they had since completed dividing up their finances.”
Got that? It took lawyers four years to figure out how to divest her from the sleaze. And that’s what makes her qualified for the job—a job not unrelated to the devising and interpretation of tax policy itself. And, not incidentally, a job concerned with subjects like this:
Tax evasion by individuals with unreported offshore financial accounts was estimated by one IRS commissioner to be several tens of billions of dollars, but no precise figure exists. IRS has operated four offshore programs since 2003 that offered incentives for taxpayers to disclose their offshore accounts and pay delinquent taxes, interest and penalties. GAO was asked to review IRS’s second offshore program, the 2009 OVDP. This report (1) describes the nature of the noncompliance of 2009 OVDP participants, (2) determines the extent IRS used the 2009 OVDP to prevent noncompliance, and (3) assesses IRS efforts to detect taxpayers trying to circumvent taxes, interests and penalties that would otherwise be owed. To address these objectives, GAO analyzed tax return data for all 2009 OVDP participants and exam files for a random sample of cases with penalties over $1 million; interviewed IRS Offshore officials; and developed and implemented a methodology to detect taxpayers circumventing monies owed.
That’s the abstract to a paper published two months ago and distributed by the Commerce Department’s National Technical and Information Service. I would give far more than a penny to hear Pritzker’s thoughts about that.
Read Part One of Rick Perlstein’s Pritzker commentary.
President Obama introduces Penny Pritzker as his nominee for Secretary of Commerce. (AP Photo/Carolyn Kaster.)
For those who’ve been waiting for Barack Obama, unfettered from the constraints of re-election, to emerge from his chrysalis and take wing as the true liberal they have always known he was, well, here we are: a proposal to cut Social Security benefits via a cost-of-living adjustments (candidate Obama in 2008 said John McCain suggests “the best answer for the growing pressures on Social Security might be cost-of-living adjustments or raise the retirement age. Let me be clear: I will not do either.”) And now this.
In December of 2008, Obama’s choice for Secretary of Commerce, Chicago-based business tycoon Penny Pritzker, withdrew her name from consideration in the face of a triple-barreled onslaught. First, there was her position on the board of Superior Bank, which her family bought with the help of $645 million in tax credits for the federal government. In 2001, Superior collapsed after pioneering the bottom-feeding trade in subprime mortgages. In In These Times, David Moberg called it a “mini-Enron scandal”; 1,406 uninsured depositors lost their savings. Here was what one of the victims had to say: “The Pritzkers are crooks. They don’t care anything about people who spent their whole lives trying to save.” And here is how Penny responded: “We had seven years of clean audits and then the auditors said, ‘Well, maybe we’ll change the way we calculate.’ ” Exquisite humanity, that. The family coughed up $435 million in settlement money in exchange for not having to admit any wrongdoing. But why, Penny was asked, would they pay half a billion dollars to clean up a mess she said was none of their fault? Because, she answered, “My family is not going to litigate with the federal government at a time like this”—a reference to the September 11 attacks; classy.
Here was the second concern which kept her from the Commerce Department in 2008: “Whether she could disentangle herself,” as The Washington Post put it, from her family’s “vast financial holdings”—many of which they would prefer not to see scrutinized in public. How vast? Well, way back in 1973, The New York Times reported of “The Very Private Pritzkers,” “The family law firm, Pritzker & Prizker, hasn’t accepted an outside client for thirty years because of the potential conflict of interest with the Pritzker enterprises, which are too numerous for any one member of the family to recall at any given moment.” In 1982, when the list became public for the very first time—more on why later—the holdings included at least 216 separate corporate entities, from mining to motels. One current holding is TransUnion—Penny is chairman of the board—which is one of three companies controlling the creepy trade in credit reports. “After widespread consumer complaints about shoddy service in the credit checking industry,” Bloomberg reported back in 2008, “the US Congress passed legislation in 2003 that allowed people to obtain free copies of credit reports so they could check for mistakes and block information obtained from identity theft. That same year, a jury awarded Judy Thomas of Klamath Falls, Oregon, $5.3 million after she claimed TransUnion took six years to correct a mistake in her credit report.” Penny’s reaction? Public-spirited as ever: “The company has always encouraged consumers to monitor their reports, Pritzker says.”
The third reason Obama chose not to risk political capital on a Penny Pritzker nomination fight is that unions despise her. Among the reasons: the Hyatt hotel chain, which the Pritzkers built practically from nothing, is infamous for just about the worst treatment of their staff in the business. (Here’s a moving first-hand account.)
Since that near-nomination, Chicago’s new mayor, Rahm Emanuel, chose Penny Pritzker to join the mayor-appointed school board—a body, as I’ve been documenting here, that has fanatically devoted to breaking the Chicago Teachers Union, and turning over the system to charter school operators. Their excuse has been the school system’s alleged $500 million deficit. Which is where Penny comes in. For while the city’s budget for schools is alleged to be bare, the city’s tax increment financing (TIF) fund, a slush pile for rich developers, carries a surplus of at least $500 million. What does this have to do with Penny Pritzker? Well, as it happens, on my very street, she is building a Hyatt financed with $5.2 million in TIF funds. As the Chicago Teachers Union points out, the TIF fund is controlled personally by the mayor; members of the school board (from which Pritzker recently resigned ahead of her Commerce appointment), overwhelmingly his rich campaign backers, are personally appointed by the mayor; and nothing’s keeping them from leaning on the mayor to tap the TIF surplus to plug the school deficit—except the fact that this very deficit is the rhetorical foundation for all the things they’re doing to weaken the union. All in all, Penny Pritzker’s relationship with labor has become exponentially worse since her near-nomination in 2008.
So how has second-term Obama responded? By renominating her.
It should make for some interesting confirmation hearings. This family is famously secretive. In 2003 two family scions, siblings Liesel and Matthew Pritzker, sued their father Robert Pritzker for $6 billion, claiming he had looted their trust fund. In 2004, a judge gave them access to sealed financial reports. Explained investigating reporter Gus Russo, “that unearthed a secret family deal cut after Liesel’s uncle Jay Pritzker’s death in 1999, a plan that would have broken up the fortune into eleven shares valued at $1.4 billion each. In early 2005, rather than expose the complicated Pritzker offshore shelters to the light of day, the Pritzker family put the final touches on a private settlement agreement” giving Liesel and Matthew Pritzker upwards of $500 million each to drop the case.
Which is how these cats tend to do business: cash in exchange for quiet. In 1982, for instance, when The Kansas City Times published an investigation of family finances after the collapse of a skywalk at a Kansas City Hyatt killed 114, they discovered that the family’s casino purchases beginning in 1959 were funded by $54 million in loans from the notorious mob-connected Teamsters Pension Fund, without telling stockholders as the law required. (The family agreed to a consent decree that allowed them to neither admit nor deny the allegations—shades of Superior Bank). The paper also quoted an IRS informant, a vice president of the offshore bank where the family stashed their cash: “The Pritzker family of Chicago through their Hyatt Corp. initially received their backing from organized crime.” According to the reporter who won a Pulitzer for the series, Knut Royce, Jay Pritzker’s initial response was to try to buy the newspaper. Failing that, he arranged a private takeover of Hyatt, the family’s one company that has ever been public, so it never would have to file information with the Securities ad Exchange Commission again.
If Republican senators have any strategic sense, they’ll be asking in open hearings about this sort of stuff: how the Pritzkers came by all those billions in the first place, how they’ve kept it from the view of the public and the taxman both, and what it is they’ve been so eager to hide. I’ll have more to say about that tomorrow. To put it lightly: It’s not the kind of thing Barack Obama needs America to hear about one of his cabinet appointees.
Read Rick Perlstein on pyramid schemes and the right.
Bernie Madoff, pictured here after being placed under house arrest in 2008, is not the only one in the business of building pyramids. (Reuters/Shannon Stapleton)
Last year I published an article in The Baffler called “The Long Con” that demonstrated how practices we associate with snake-oil salesmen saturate the American right—not just in its ideological appeals but in the way right-wing politics corrals a fleecable multitude all in one place, which conservative publications literally rent out as a source of handy marks for con men. A lot of folks found this to be a revelation, a bittersweet pleasure for me. On the one hand, it’s a blessing to me to be able to teach people new things about the world around us. But on the other hand, it’s frustrating; I wish people already knew about this stuff. It reinforces a fact: America truly does harbor two separate and nearly incommensurate tribes, “Red” and “Blue,” if you will; how many of us Blue folks know that getting roped into coughing up hard-earned money you’ll never see again to Republican-affiliated “multilevel marketing” (MLM) companies—in hustles formerly known as “pyramid schemes”—is as common in Evangelical and Mormon culture as going to yoga class in our own?
Robert Fitzpatrick, the author of False Profits: Seeking Financial and Spiritual Deliverence in Multi-Level Marketing and Pyramid Schemes and an expert witness or consultant in more MLM cases than any other private citizen, estimates that the industry Hoovers $10 to $20 billion out of the pockets of Main Street Americans every year. And hardly any of us know anything about it. As he explained to me in an e-mail, “Just as the Tea Party exists as a kind of phantom, funded quietly and invisibly from on high, with amorphous, uncounted members, the MLM industry has permeated Main Street without media recognition of its scale or force and largely in disguise as ‘direct selling.’ ” But “the Tea Party is at least beginning to be studied, its funding traced, its leaders examined.” MLM? Not so much. His book, published in 1997, was the first on the subject, though the industry has been rampant since the 1970s—and, save for a notable exception two years later from the heroic folks at tiny South End Press, there have hardly been any others since. That’s why I’m beginning a series on the subject today—in the hope that people will spread the word as widely as possible, and start learning more, and even organizing, on their own.
Let’s start with some basics—with some key regulatory questions. Fitzpatrick wrote a report called “The Main Street Bubble” that he hopes members of Congress will use to enhance FTC oversight, and to persuade the new Consumer Financial Protection Bureau to put MSM scams under its umbrella. It notes, “When they began to appear in the mid 1960s, pyramid selling schemes were widely understood to be classic frauds and were widely prosecuted.” The model statute came from California, which in 1968 banned “endless chains”—in which a franchisee only or mostly makes money from recruiting further franchisees, not from selling actual retail products. (In the most extreme variety of pyramid scheme, there is no actual product.) Another, softer practice, “referral-based discounting,” was widely outlawed: that means franchisees had to recruit new customers if they wanted to buy the material they were supposed to be selling at the advertised price. “By design,” Fitzpatrick explains, both practices “doomed most consumers to losses.”
The marquee outfit practicing such hustles, of course, was Amway—short for “American Way”—founded by the DeVos family of Michigan in 1964. In the 1970s, the FTC lost a court effort to close down Amway as an inherent fraud. A 1979 administrative law decision, however, did limit the conditions under which it could operate. Via clever lawyering, Amway adjusted—which it found easy to do under the relaxed regulatory regime of the Reagan years. Endless chains could be successfully reframed as a legitimate “business opportunity” called “direct selling,” in which, Fitzpatrick writes, “Each new distributor was induced to purchase goods each month as part of the ‘investment’”—only at staggeringly inflated prices, with the profit designed to flow up the chain to fewer and fewer parties, ultimately to the company itself. In short, “without sustainable and profitable retail sales opportunity for the distributors, the reward can come only from one place: the investments of later recruits.”
Such companies “churn through 50–80 percent of victims annually, replacing them with new ones,” which proliferate like kudzu. They have to, in order for their sponsors to survive: without new marks, the base of the pyramid disintegrates. Their failure is the company’s success. According to the declaration of expert witness Peter J. Vander Nat in the case of Federal Trade Commission v. Trek Alliance, who studied a database of 22,281 distributors for a company that “sold” (not many) water filters, cleaning products, nutritional supplements and beauty aids, “Under several optimal scenarios in which the distributors do exactly what is needed to obtain the rewards proposed by the Pay Plan, approximately 98.8 to 99.6 percent fail to achieve any earnings,” and “in all likelihood more than 96% of Trek distributors experienced business failure.”
Under the Clinton administration, regulatory efforts were stepped up. Vander Nat became the FTC’s senior economist, expert at teasing out the fraud behind “direct selling,” devising a test that determined what percentage of purchases by “distributors” would have to be resold to actual retail customers (instead of future “distributors” down the chain) for the “distributor” to actually make money without recruiting further marks. That number, he learned, was typically 70 percent, which virtually no one ever achieved. His schema made it easier to prosecute and protect the victims under Section 5 of the FTC Act, which regulates business fraud. Prosecutions began, gathered steam.
And what happened next? Tune in next time, when, likes the sands in an hourglass, a new presidential administration turns—a Republican administration. We’ll learn what conservative elites think about such sorts of business practices: that they judge them, well, as the American Way. Why not? They’re often the very same people.
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