When I woke up this morning, I found my dishwasher "occupied" by protest signs.
I'm worried it'll spread to the liquor cabinet (we are the 99 proof) or refrigerator next.
Are the houseplants making signs now?
Sunday, October 23, 2011
When the Occupy movement spread to household appliances...
When I woke up this morning, I found my dishwasher "occupied" by protest signs.
I'm worried it'll spread to the liquor cabinet (we are the 99 proof) or refrigerator next.
Are the houseplants making signs now?
Tuesday, September 20, 2011
Tuesday, August 2, 2011
Wednesday, July 27, 2011
Friday, July 22, 2011
Wednesday, July 13, 2011
Wednesday, June 15, 2011
The Dalai Lama walks into a pizza shop...
Quite possibly the funniest telling of this joke I've ever heard.
You really have to love how the reporter appreciates that this was a bad idea, and how the Dalai Lama takes it all in stride.
You really have to love how the reporter appreciates that this was a bad idea, and how the Dalai Lama takes it all in stride.
Thursday, May 19, 2011
Friday, May 13, 2011
Saturday, April 16, 2011
Wednesday, April 13, 2011
Thursday, March 17, 2011
Ex-Sandia engineer talks about some of the worst things that could happen in Japan
From The Knoxville News:
Dr. Michael Allen, vice provost for research and dean of graduate studies at Middle Tennessee State University, spent much of his early career at Sandia National Labs studying nuclear reactor accidents of the worst kind and performing simulations to better understand how bad things happen -- including core meltdowns.
Like many others with roots in the nuclear industry, Allen is watching the events unfold in Japan with keen interest and concern. He said there's no question there's been at least a partial melting of fuel cores at three of the reactors at the Fukushima Daiichi Nuclear Power Plant, likely a breach in one reactor pressure vessel, exposed spent fuel rods in strorage pool, and other damage incurred by last week's earthquake and tsunami and the sequence of nuclear events since then.
Allen wouldn't say if he thinks the crisis in Japan will become the worst nuclear accident in history or whether he believes a full-scale meltdown is inevitable, although he described how it could happen. The situation, he said, is far from over.
"I'm concerned about Japan because I think this is a really bad accident and concerned about their people, their infrastructure," Allen said today in a telephone interview. "I don't think this is an accident that is going to go away anytime soon."
Allen has been at MTSU since 2007, but earlier in his career he worked more than 14 years at Sandia National Laboratories in New Mexico, where -- among other assignments -- he headed the federal lab's work on "severe accident phenomenology." That work included using a research reactor to actually melt the core of another reactor to better assess how the core relocates in an accident, as well as the release of fission products. He also conducted hydrogen and steam explosions at desert test sites outside Albuquerque, using reactor fuel simulants to assess the results.
Much of his research directly addressed accident scenarios in which the nuclear fuel is no longer submerged in water, a situation that Japanese workers have been battling for days at the Daiichi reactor complex.
Allen agrees with reports that explosions caused by a hydrogen buildup likely blew the roof off the outer containment buildings at least two of the reactor sites, exposing pools that store highly radioactive spent nuclear fuel rods to the environment. But, based on reports he's heard or read, he thinks the explosion that occurred March 14 at the Daiichi Unit 2 reactor was a steam explosion inside the reactor pressure vessel that probably occurred when part of the exposed fuel core melted and allowed some of the liquefied fuel or super-hot fragments to drop into the water below.
"When that happens, you're going to have a massive steam explosion, which creates extremely high pressure in the reactor pressure vessel," Allen said. As has been noted in various news reports, the pressure dropped inside the reactor and radiation levels outside the unit rose significantly at about that time. That, he said, would seem to support conjecture that the vessel protecting the nuclear core may have been damaged or possibly ruptured and released some of the radioactive constituents.
"I've done many of these experiments," he said. "When you drop a molten core into water, there's a big explosion."
The worst of the worst could come if Japan can't come up with a way to sufficiently cool down the reactor fuel cores. That has reportedly become increasingly difficult with workers evacuating the sites -- at least temporarily -- because of high radiation fields.
"These things play out over a long period of time, longer than people would think," Allen said. "You have an earthquake that lasts maybe a minute, a tsunami that lasts maybe 15 minutes. But these things could go on for months. You could lose all six of the reactors."
If workers are unable to get additional cooling water into the reactor vessel, the molten fuel core will collapse into the water in bottom of the vessel. Eventually the heat from the decaying fuel would boil away the water that's left, leaving the core sitting on the vessel's lower head made of steel.
Should that happen, "It'll melt through it like butter," Allen said.
That, in turn, would cause a "high-pressure melt injection" into the water-filled concrete cavity below the reactor. Because the concrete would likely be unheated, the reaction created by the sudden injection of the reactor's ultra-hot content would be immense, he said.
"It'll be like somebody dropped a bomb, and there'll be a big cloud of very, very radioactive material above the ground," Allen said, noting that it would contain uranium and plutonium, as well as the fission products.
Should these events happen, the best outcome would be if the winds are blowing east and push the radioactive plume over the Pacific Ocean, he said. "It (the radioactivity) will fall out in the ocean and everything will be fine," he said.
The worst case, Allen said, would be if winds pushed a radioactive cloud south toward Tokyo and Japan's highly populated cities. If that were to happen, he said, the consequences would likely be greater than the 1986 accident at Chernobyl, where an entire area of Ukraine had to be evacuated because of the radioactive conditions that increased the risk of developing cancer.
Allens holds B.S. and M.S. degrees in nuclear engineering from Texas A&M, a Ph.D. in environmental engineering from the University of California at Davis. In addition to his positions at Sandia and MTSU, he has worked for the Defense Department, Pacific Northwest National Laboratory, Lockheed Martin, and Texas Tech University.
Dr. Michael Allen, vice provost for research and dean of graduate studies at Middle Tennessee State University, spent much of his early career at Sandia National Labs studying nuclear reactor accidents of the worst kind and performing simulations to better understand how bad things happen -- including core meltdowns.
Like many others with roots in the nuclear industry, Allen is watching the events unfold in Japan with keen interest and concern. He said there's no question there's been at least a partial melting of fuel cores at three of the reactors at the Fukushima Daiichi Nuclear Power Plant, likely a breach in one reactor pressure vessel, exposed spent fuel rods in strorage pool, and other damage incurred by last week's earthquake and tsunami and the sequence of nuclear events since then.
Allen wouldn't say if he thinks the crisis in Japan will become the worst nuclear accident in history or whether he believes a full-scale meltdown is inevitable, although he described how it could happen. The situation, he said, is far from over.
"I'm concerned about Japan because I think this is a really bad accident and concerned about their people, their infrastructure," Allen said today in a telephone interview. "I don't think this is an accident that is going to go away anytime soon."
Allen has been at MTSU since 2007, but earlier in his career he worked more than 14 years at Sandia National Laboratories in New Mexico, where -- among other assignments -- he headed the federal lab's work on "severe accident phenomenology." That work included using a research reactor to actually melt the core of another reactor to better assess how the core relocates in an accident, as well as the release of fission products. He also conducted hydrogen and steam explosions at desert test sites outside Albuquerque, using reactor fuel simulants to assess the results.
Much of his research directly addressed accident scenarios in which the nuclear fuel is no longer submerged in water, a situation that Japanese workers have been battling for days at the Daiichi reactor complex.
Allen agrees with reports that explosions caused by a hydrogen buildup likely blew the roof off the outer containment buildings at least two of the reactor sites, exposing pools that store highly radioactive spent nuclear fuel rods to the environment. But, based on reports he's heard or read, he thinks the explosion that occurred March 14 at the Daiichi Unit 2 reactor was a steam explosion inside the reactor pressure vessel that probably occurred when part of the exposed fuel core melted and allowed some of the liquefied fuel or super-hot fragments to drop into the water below.
"When that happens, you're going to have a massive steam explosion, which creates extremely high pressure in the reactor pressure vessel," Allen said. As has been noted in various news reports, the pressure dropped inside the reactor and radiation levels outside the unit rose significantly at about that time. That, he said, would seem to support conjecture that the vessel protecting the nuclear core may have been damaged or possibly ruptured and released some of the radioactive constituents.
"I've done many of these experiments," he said. "When you drop a molten core into water, there's a big explosion."
The worst of the worst could come if Japan can't come up with a way to sufficiently cool down the reactor fuel cores. That has reportedly become increasingly difficult with workers evacuating the sites -- at least temporarily -- because of high radiation fields.
"These things play out over a long period of time, longer than people would think," Allen said. "You have an earthquake that lasts maybe a minute, a tsunami that lasts maybe 15 minutes. But these things could go on for months. You could lose all six of the reactors."
If workers are unable to get additional cooling water into the reactor vessel, the molten fuel core will collapse into the water in bottom of the vessel. Eventually the heat from the decaying fuel would boil away the water that's left, leaving the core sitting on the vessel's lower head made of steel.
Should that happen, "It'll melt through it like butter," Allen said.
That, in turn, would cause a "high-pressure melt injection" into the water-filled concrete cavity below the reactor. Because the concrete would likely be unheated, the reaction created by the sudden injection of the reactor's ultra-hot content would be immense, he said.
"It'll be like somebody dropped a bomb, and there'll be a big cloud of very, very radioactive material above the ground," Allen said, noting that it would contain uranium and plutonium, as well as the fission products.
Should these events happen, the best outcome would be if the winds are blowing east and push the radioactive plume over the Pacific Ocean, he said. "It (the radioactivity) will fall out in the ocean and everything will be fine," he said.
The worst case, Allen said, would be if winds pushed a radioactive cloud south toward Tokyo and Japan's highly populated cities. If that were to happen, he said, the consequences would likely be greater than the 1986 accident at Chernobyl, where an entire area of Ukraine had to be evacuated because of the radioactive conditions that increased the risk of developing cancer.
Allens holds B.S. and M.S. degrees in nuclear engineering from Texas A&M, a Ph.D. in environmental engineering from the University of California at Davis. In addition to his positions at Sandia and MTSU, he has worked for the Defense Department, Pacific Northwest National Laboratory, Lockheed Martin, and Texas Tech University.
Friday, March 4, 2011
Asus motherboard box doubles as a PC case
From IT World:
In the quest to cut down on shipping waste Taiwan's Asus has a novel idea: What if the shipping container became the PC case?
That's the idea behind a box the company will begin using from June to ship one of its Mini ATX motherboards. It holds the motherboard snug for shipping and is constructed so additional components required to make a PC can be added, said Debby Lee, a spokeswoman for the Taipei-based company.
An example of the box is on show at this week's Cebit trade show in Hanover, Germany.
There are punch-out holes for ventilation and a real panel that houses the PC's connectors and interfaces.
Asus said the box is intended to allow PC enthusiasts to get their new computers up and running quickly while they search for the perfect case.
"Some people spend a long time looking for a case, so this box is all they need until they find something," said Lee.
Asus gives it a lifetime of at least a year.
In the quest to cut down on shipping waste Taiwan's Asus has a novel idea: What if the shipping container became the PC case?
That's the idea behind a box the company will begin using from June to ship one of its Mini ATX motherboards. It holds the motherboard snug for shipping and is constructed so additional components required to make a PC can be added, said Debby Lee, a spokeswoman for the Taipei-based company.
An example of the box is on show at this week's Cebit trade show in Hanover, Germany.
There are punch-out holes for ventilation and a real panel that houses the PC's connectors and interfaces.
Asus said the box is intended to allow PC enthusiasts to get their new computers up and running quickly while they search for the perfect case.
"Some people spend a long time looking for a case, so this box is all they need until they find something," said Lee.
Asus gives it a lifetime of at least a year.
Thursday, February 24, 2011
Another Runaway General: Army Deploys Psy-Ops on U.S. Senators
From Rolling Stone:
The U.S. Army illegally ordered a team of soldiers specializing in "psychological operations" to manipulate visiting American senators into providing more troops and funding for the war, Rolling Stone has learned – and when an officer tried to stop the operation, he was railroaded by military investigators.
The orders came from the command of Lt. Gen. William Caldwell, a three-star general in charge of training Afghan troops – the linchpin of U.S. strategy in the war. Over a four-month period last year, a military cell devoted to what is known as "information operations" at Camp Eggers in Kabul was repeatedly pressured to target visiting senators and other VIPs who met with Caldwell. When the unit resisted the order, arguing that it violated U.S. laws prohibiting the use of propaganda against American citizens, it was subjected to a campaign of retaliation.
"My job in psy-ops is to play with people’s heads, to get the enemy to behave the way we want them to behave," says Lt. Colonel Michael Holmes, the leader of the IO unit, who received an official reprimand after bucking orders. "I’m prohibited from doing that to our own people. When you ask me to try to use these skills on senators and congressman, you’re crossing a line."
The list of targeted visitors was long, according to interviews with members of the IO team and internal documents obtained by Rolling Stone. Those singled out in the campaign included senators John McCain, Joe Lieberman, Jack Reed, Al Franken and Carl Levin; Rep. Steve Israel of the House Appropriations Committee; Adm. Mike Mullen of the Joint Chiefs of Staff; the Czech ambassador to Afghanistan; the German interior minister, and a host of influential think-tank analysts.
The incident offers an indication of just how desperate the U.S. command in Afghanistan is to spin American civilian leaders into supporting an increasingly unpopular war. According to the Defense Department’s own definition, psy-ops – the use of propaganda and psychological tactics to influence emotions and behaviors – are supposed to be used exclusively on "hostile foreign groups." Federal law forbids the military from practicing psy-ops on Americans, and each defense authorization bill comes with a "propaganda rider" that also prohibits such manipulation. "Everyone in the psy-ops, intel, and IO community knows you’re not supposed to target Americans," says a veteran member of another psy-ops team who has run operations in Iraq and Afghanistan. "It’s what you learn on day one."
When Holmes and his four-man team arrived in Afghanistan in November 2009, their mission was to assess the effects of U.S. propaganda on the Taliban and the local Afghan population. But the following month, Holmes began receiving orders from Caldwell’s staff to direct his expertise on a new target: visiting Americans. At first, the orders were administered verbally. According to Holmes, who attended at least a dozen meetings with Caldwell to discuss the operation, the general wanted the IO unit to do the kind of seemingly innocuous work usually delegated to the two dozen members of his public affairs staff: compiling detailed profiles of the VIPs, including their voting records, their likes and dislikes, and their "hot-button issues." In one email to Holmes, Caldwell’s staff also wanted to know how to shape the general’s presentations to the visiting dignitaries, and how best to "refine our messaging."
Congressional delegations – known in military jargon as CODELs – are no strangers to spin. U.S. lawmakers routinely take trips to the frontlines in Iraq and Afghanistan, where they receive carefully orchestrated briefings and visit local markets before posing for souvenir photos in helmets and flak jackets. Informally, the trips are a way for generals to lobby congressmen and provide first-hand updates on the war. But what Caldwell was looking for was more than the usual background briefings on senators. According to Holmes, the general wanted the IO team to provide a "deeper analysis of pressure points we could use to leverage the delegation for more funds." The general’s chief of staff also asked Holmes how Caldwell could secretly manipulate the U.S. lawmakers without their knowledge. "How do we get these guys to give us more people?" he demanded. "What do I have to plant inside their heads?"
Read the entire story here.
The U.S. Army illegally ordered a team of soldiers specializing in "psychological operations" to manipulate visiting American senators into providing more troops and funding for the war, Rolling Stone has learned – and when an officer tried to stop the operation, he was railroaded by military investigators.
The orders came from the command of Lt. Gen. William Caldwell, a three-star general in charge of training Afghan troops – the linchpin of U.S. strategy in the war. Over a four-month period last year, a military cell devoted to what is known as "information operations" at Camp Eggers in Kabul was repeatedly pressured to target visiting senators and other VIPs who met with Caldwell. When the unit resisted the order, arguing that it violated U.S. laws prohibiting the use of propaganda against American citizens, it was subjected to a campaign of retaliation.
"My job in psy-ops is to play with people’s heads, to get the enemy to behave the way we want them to behave," says Lt. Colonel Michael Holmes, the leader of the IO unit, who received an official reprimand after bucking orders. "I’m prohibited from doing that to our own people. When you ask me to try to use these skills on senators and congressman, you’re crossing a line."
The list of targeted visitors was long, according to interviews with members of the IO team and internal documents obtained by Rolling Stone. Those singled out in the campaign included senators John McCain, Joe Lieberman, Jack Reed, Al Franken and Carl Levin; Rep. Steve Israel of the House Appropriations Committee; Adm. Mike Mullen of the Joint Chiefs of Staff; the Czech ambassador to Afghanistan; the German interior minister, and a host of influential think-tank analysts.
The incident offers an indication of just how desperate the U.S. command in Afghanistan is to spin American civilian leaders into supporting an increasingly unpopular war. According to the Defense Department’s own definition, psy-ops – the use of propaganda and psychological tactics to influence emotions and behaviors – are supposed to be used exclusively on "hostile foreign groups." Federal law forbids the military from practicing psy-ops on Americans, and each defense authorization bill comes with a "propaganda rider" that also prohibits such manipulation. "Everyone in the psy-ops, intel, and IO community knows you’re not supposed to target Americans," says a veteran member of another psy-ops team who has run operations in Iraq and Afghanistan. "It’s what you learn on day one."
When Holmes and his four-man team arrived in Afghanistan in November 2009, their mission was to assess the effects of U.S. propaganda on the Taliban and the local Afghan population. But the following month, Holmes began receiving orders from Caldwell’s staff to direct his expertise on a new target: visiting Americans. At first, the orders were administered verbally. According to Holmes, who attended at least a dozen meetings with Caldwell to discuss the operation, the general wanted the IO unit to do the kind of seemingly innocuous work usually delegated to the two dozen members of his public affairs staff: compiling detailed profiles of the VIPs, including their voting records, their likes and dislikes, and their "hot-button issues." In one email to Holmes, Caldwell’s staff also wanted to know how to shape the general’s presentations to the visiting dignitaries, and how best to "refine our messaging."
Congressional delegations – known in military jargon as CODELs – are no strangers to spin. U.S. lawmakers routinely take trips to the frontlines in Iraq and Afghanistan, where they receive carefully orchestrated briefings and visit local markets before posing for souvenir photos in helmets and flak jackets. Informally, the trips are a way for generals to lobby congressmen and provide first-hand updates on the war. But what Caldwell was looking for was more than the usual background briefings on senators. According to Holmes, the general wanted the IO team to provide a "deeper analysis of pressure points we could use to leverage the delegation for more funds." The general’s chief of staff also asked Holmes how Caldwell could secretly manipulate the U.S. lawmakers without their knowledge. "How do we get these guys to give us more people?" he demanded. "What do I have to plant inside their heads?"
Read the entire story here.
Monday, February 21, 2011
Autistic Fixation Shapes Photographer's Unique Images
From The Thinking Person's Guide to Autism:
The photographs of an emerging French photographer depict her fascination with reflections, a feature of her autism.
The photographer, who uses the online name "Luna" to protect her privacy, has been quietly posting her haunting, evocative images in the Flickr photo sharing website for the last two years. With oddly vibrant colors, they show entrancing and disorienting scenes of overlapping images which trap one's eye in layers of meaning.
Like most people with autism, Luna has several fixations -- topics which intensely fascinate her and dominate her thoughts. For Luna, these include cats, reflections, and vegan cooking. All three show up in her photographs, but her most moving images involve the reflections she finds everywhere. She explains that, for her,
Many of her images seem like photo-montages created by combining several other photographs using photo-editing software, but they are not. All of Luna's photographs are actual scenes she has found.
Luna began creating her intriguing, jewel-like images about two years ago with encouragement from an online French autism support group she joined in 2007. In 2009, the group hosted a small gallery showing of Luna's photographs in the city of Brest. She had a second show last year, as part of France's National Autism Awareness Week, and there will be a third show in April, 2011. The group has also self-published a book of Luna's work -- which sold out within two days. A second printing is underway.
Professional photographer Courtney Bent is astonished by the power of Luna's photos. Bent is nationally known for her work putting cameras in the hands of people with significant physical and cognitive disabilities, helping them share their unique visions of the world. Bent's documentary about this work, "Shooting Beauty", has won numerous awards and she has been featured on NBC News and NPR, and in the Boston Herald. She also teaches photography at the college level and does commercial photography. As one might expect, people often approach Bent and ask her to look at a new "amazing" photograph by someone with a disability. Frequently, the work is only mildly interesting. But Luna's work was different: "I wasn't expecting it to make me go "WOW!" It's rare when I see something that is (this) unique and different."
What impresses Bent most is Luna's use of colors.
"She really is a master over her color technique," says Bent, "There is a feeling in her images that there's always a storm brewing. But she manages to find the quiet moment within the storm."
Bent says Luna achieves this calm-before-the-storm effect by stripping out the color in places at the edges of her images while enhancing the interior colors. Her color choices intrigue Bent: "Luna manages to create a warm, neon tone in her images, which seems to be a contradiction of colors. She is able to weave warm tones of yellow and brown with vibrant neon greens and blues to create an inviting, unique color palette."
"She has this amazing ability to create this quiet moment in chaos. It is almost like the chaos is peaceful to her. I'd be curious to find out how she literally views world. It's possible that the outside world appears to be really, really chaotic, and the snap of her camera allows her to create one still moment within the chaos, where the world…. stops… and is finally not moving anymore."
Bent is also impressed that Luna's reflection images have multiple layers or planes of images. "Each little portion is an image within itself. So you are allowed to settle peacefully on each little section, and each little section seems to have its own little story."
The photographs of an emerging French photographer depict her fascination with reflections, a feature of her autism.
The photographer, who uses the online name "Luna" to protect her privacy, has been quietly posting her haunting, evocative images in the Flickr photo sharing website for the last two years. With oddly vibrant colors, they show entrancing and disorienting scenes of overlapping images which trap one's eye in layers of meaning.
Like most people with autism, Luna has several fixations -- topics which intensely fascinate her and dominate her thoughts. For Luna, these include cats, reflections, and vegan cooking. All three show up in her photographs, but her most moving images involve the reflections she finds everywhere. She explains that, for her,
"When I'm shooting, I often see the reflection before the thing which made the reflection. The object is not as important as the reflections. What I can see in a puddle is so moving for my soul, I'm melting with happiness!"
Many of her images seem like photo-montages created by combining several other photographs using photo-editing software, but they are not. All of Luna's photographs are actual scenes she has found.
Luna began creating her intriguing, jewel-like images about two years ago with encouragement from an online French autism support group she joined in 2007. In 2009, the group hosted a small gallery showing of Luna's photographs in the city of Brest. She had a second show last year, as part of France's National Autism Awareness Week, and there will be a third show in April, 2011. The group has also self-published a book of Luna's work -- which sold out within two days. A second printing is underway.
Professional photographer Courtney Bent is astonished by the power of Luna's photos. Bent is nationally known for her work putting cameras in the hands of people with significant physical and cognitive disabilities, helping them share their unique visions of the world. Bent's documentary about this work, "Shooting Beauty", has won numerous awards and she has been featured on NBC News and NPR, and in the Boston Herald. She also teaches photography at the college level and does commercial photography. As one might expect, people often approach Bent and ask her to look at a new "amazing" photograph by someone with a disability. Frequently, the work is only mildly interesting. But Luna's work was different: "I wasn't expecting it to make me go "WOW!" It's rare when I see something that is (this) unique and different."
What impresses Bent most is Luna's use of colors.
"She really is a master over her color technique," says Bent, "There is a feeling in her images that there's always a storm brewing. But she manages to find the quiet moment within the storm."
Bent says Luna achieves this calm-before-the-storm effect by stripping out the color in places at the edges of her images while enhancing the interior colors. Her color choices intrigue Bent: "Luna manages to create a warm, neon tone in her images, which seems to be a contradiction of colors. She is able to weave warm tones of yellow and brown with vibrant neon greens and blues to create an inviting, unique color palette."
"She has this amazing ability to create this quiet moment in chaos. It is almost like the chaos is peaceful to her. I'd be curious to find out how she literally views world. It's possible that the outside world appears to be really, really chaotic, and the snap of her camera allows her to create one still moment within the chaos, where the world…. stops… and is finally not moving anymore."
Bent is also impressed that Luna's reflection images have multiple layers or planes of images. "Each little portion is an image within itself. So you are allowed to settle peacefully on each little section, and each little section seems to have its own little story."
Saturday, February 19, 2011
After Jeopardy! - The next job for computer Watson
From The Boston Globe:
IN A man-vs.-machine match up, does the computer always play the villain? IBM’s branding experts grappled with the issue a couple of years ago when they were deciding what sort of face and voice they should provide for the computer, Watson, which is competing this week on “Jeopardy!’’ The objective was to kindle warm feelings for the bionic quiz-show player — and even entice the public to root for it. They agreed they should distance Watson from the murderous computer, HAL, on “2001: A Space Odyssey.’’ That could be a PR disaster. And it shouldn’t resemble a person. Viewers might find that creepy — a reminder that Watson-like contraptions could be angling for their jobs. No, IBM’s computer would speak with a friendly, upbeat voice, flavored with a hint of the bionic, and its face would remain an abstract globe — with no eyes, nose, or mouth.
And yet Watson still stirs fears and resentment. As the computer headed into its “Jeopardy!’’ showdown last night against human champs Ken Jennings and Brad Rutter, blogs and Twitter brimmed with fears about this next step in artificial intelligence. “I put the date at Monday, February 14, 2011. When Watson (SkyNet) goes live and crushes human intelligence on Jeopardy!’’ wrote one Twitter user. Meanwhile, a number of scientists in artificial intelligence, including several at MIT, the cradle of AI, view Watson as a cleverly-programmed dummy masquerading as a genius. Even as it masters a game of words and knowledge, they argue, it doesn’t “know’’ what it’s talking about.
IN A man-vs.-machine match up, does the computer always play the villain? IBM’s branding experts grappled with the issue a couple of years ago when they were deciding what sort of face and voice they should provide for the computer, Watson, which is competing this week on “Jeopardy!’’ The objective was to kindle warm feelings for the bionic quiz-show player — and even entice the public to root for it. They agreed they should distance Watson from the murderous computer, HAL, on “2001: A Space Odyssey.’’ That could be a PR disaster. And it shouldn’t resemble a person. Viewers might find that creepy — a reminder that Watson-like contraptions could be angling for their jobs. No, IBM’s computer would speak with a friendly, upbeat voice, flavored with a hint of the bionic, and its face would remain an abstract globe — with no eyes, nose, or mouth.
And yet Watson still stirs fears and resentment. As the computer headed into its “Jeopardy!’’ showdown last night against human champs Ken Jennings and Brad Rutter, blogs and Twitter brimmed with fears about this next step in artificial intelligence. “I put the date at Monday, February 14, 2011. When Watson (SkyNet) goes live and crushes human intelligence on Jeopardy!’’ wrote one Twitter user. Meanwhile, a number of scientists in artificial intelligence, including several at MIT, the cradle of AI, view Watson as a cleverly-programmed dummy masquerading as a genius. Even as it masters a game of words and knowledge, they argue, it doesn’t “know’’ what it’s talking about.
Watson would not likely be the target of such criticism if it weren’t built for TV stardom. The game positions it in the role of a human. As such, it poses a threat for some, an insult for others. But the entire TV match is a contrivance, one designed to shine a global spotlight on IBM’s technology and burnish its brand. To create the drama and spectacle, IBM’s machine has to take on humans and imitate our brain functions. This positions it as an enemy and a pretender.
But the true implications of Watson’s technology will come after it retires from the stage and pursues a workaday career in offices and labs. That’s when Watson will shed its avatar and revert to its true nature, that of a powerful machine working for us, not against us. Watson will be a tool.
You might see Watson making laughable mistakes on its national turn, and wonder what value such a tool would have. In practice games, for example, it answered that a butterfly’s diet was “kosher,’’ and in one 19th-century literature clue it mistook Dickens’ Oliver Twist for the ’90s techno band, the Pet Shop Boys.
Yet there’s plenty of opportunity in the workplace for a fallible machine that (usually) makes sense of complex human language. The networked world is flowing with what computer scientists call “unstructured data,’’ much of it in words. It’s far too much for humans to read. Last year, for example, some 50,000 academic studies were published on neuroscience. Unlike a search engine, which ferrets out words and phrases from such studies, a language-savvy machine like Watson can dig through mountains of documents and come up with lists of possible answers. This service could prove valuable in call centers, police work, pharmaceutical labs, and even hospitals.
The key to understanding Watson’s value is to regard its answers as suggestions, or hypotheses. Consider Watson as a research assistant on a medical diagnostic team. A patient comes in with a puzzling set of symptoms. Watson launches a search through hundreds of thousands of journal articles and case studies. It returns with six possible diagnoses and its level of confidence in each one — along with links to the evidence it studied. Let’s say two of those six are far-fetched, the medical equivalent of its kosher butterflies. Doctors know enough to rule out a few others. Still, if even one of those six possibilities leads the team toward plausible answers they hadn’t considered, the machine will have done its job.
There’s no guarantee that Watson’s technology will provide the question-answering technology for all the industries IBM has targeted. Maybe competing companies or IBM itself will come up with cheaper, smarter, or more flexible systems. But a new generation of language-savvy machinery will soon be hunting down answers for us. Some will be wrong, some stupid. We human beings, exercising our still-unparalleled brainpower, will be the judges of that. Once you regard this technology as a powerful supplement to human cognition — and not a replacement — Watson suddenly starts to look much friendlier.
Thursday, February 17, 2011
Why Isn't Wall Street in Jail?
From Rolling Stone:
Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.
"Everything's fucked up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that."
I put down my notebook. "Just that?"
"That's right," he said, signaling to the waitress for the check. "Everything's fucked up, and nobody goes to jail. You can end the piece right there."
Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.
This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18.
The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What's more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even "one dollar" just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick "The Gorilla" Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.
Invasion of the Home Snatchers
Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. "If the allegations in these settlements are true," says Jed Rakoff, a federal judge in the Southern District of New York, "it's management buying its way off cheap, from the pockets of their victims."
Taibblog: Commentary on politics and the economy by Matt Taibbi
To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once."
But that hasn't happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.
Just ask the people who tried to do the right thing.
Wall Street's Naked Swindle
Here's how regulation of Wall Street is supposed to work. To begin with, there's a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly "self-regulating organizations" like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.
The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called "disclosure violations" — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn't have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney's Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC's director of enforcement.
The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can't balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC's army of 1,100 number-crunching investigators to make their cases. In theory, it's a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.
That's the way it's supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who's in office or which party's in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
The systematic lack of regulation has left even the country's top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. "I think you've got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.
In the hierarchy of the SEC, the chief accountant plays a major role in working to pursue misleading and phony financial disclosures. Turner held the post a decade ago, when one of the most significant cases was swallowed up by the SEC bureaucracy. In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the "deal with it later" file. "The Philadelphia office literally did nothing with the case for a year," Turner recalls. "Very much like the New York office with Madoff." The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis. The same was true for another SEC case that presaged the Enron disaster. The agency knew that appliance-maker Sunbeam was using the same kind of accounting scams to systematically hide losses from its investors. But in the end, the SEC's punishment for Sunbeam's CEO, Al "Chainsaw" Dunlap — widely regarded as one of the biggest assholes in the history of American finance — was a fine of $500,000. Dunlap's net worth at the time was an estimated $100 million. The SEC also barred Dunlap from ever running a public company again — forcing him to retire with a mere $99.5 million. Dunlap passed the time collecting royalties from his self-congratulatory memoir. Its title: Mean Business.
The pattern of inaction toward shady deals on Wall Street grew worse and worse after Turner left, with one slam-dunk case after another either languishing for years or disappearing altogether. Perhaps the most notorious example involved Gary Aguirre, an SEC investigator who was literally fired after he questioned the agency's failure to pursue an insider-trading case against John Mack, now the chairman of Morgan Stanley and one of America's most powerful bankers.
Aguirre joined the SEC in September 2004. Two days into his career as a financial investigator, he was asked to look into an insider-trading complaint against a hedge-fund megastar named Art Samberg. One day, with no advance research or discussion, Samberg had suddenly started buying up huge quantities of shares in a firm called Heller Financial. "It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller," Aguirre recalls. "And he wasn't just buying shares — there were some days when he was trying to buy three times as many shares as were being traded that day." A few weeks later, Heller was bought by General Electric — and Samberg pocketed $18 million.
After some digging, Aguirre found himself focusing on one suspect as the likely source who had tipped Samberg off: John Mack, a close friend of Samberg's who had just stepped down as president of Morgan Stanley. At the time, Mack had been on Samberg's case to cut him into a deal involving a spinoff of the tech company Lucent — an investment that stood to make Mack a lot of money. "Mack is busting my chops" to give him a piece of the action, Samberg told an employee in an e-mail.
A week later, Mack flew to Switzerland to interview for a top job at Credit Suisse First Boston. Among the investment bank's clients, as it happened, was a firm called Heller Financial. We don't know for sure what Mack learned on his Swiss trip; years later, Mack would claim that he had thrown away his notes about the meetings. But we do know that as soon as Mack returned from the trip, on a Friday, he called up his buddy Samberg. The very next morning, Mack was cut into the Lucent deal — a favor that netted him more than $10 million. And as soon as the market reopened after the weekend, Samberg started buying every Heller share in sight, right before it was snapped up by GE — a suspiciously timed move that earned him the equivalent of Derek Jeter's annual salary for just a few minutes of work.
The deal looked like a classic case of insider trading. But in the summer of 2005, when Aguirre told his boss he planned to interview Mack, things started getting weird. His boss told him the case wasn't likely to fly, explaining that Mack had "powerful political connections." (The investment banker had been a fundraising "Ranger" for George Bush in 2004, and would go on to be a key backer of Hillary Clinton in 2008.)
Aguirre also started to feel pressure from Morgan Stanley, which was in the process of trying to rehire Mack as CEO. At first, Aguirre was contacted by the bank's regulatory liaison, Eric Dinallo, a former top aide to Eliot Spitzer. But it didn't take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm's lawyers, Mary Jo White, was on the phone with the SEC's director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as "smoke" rather than "fire." White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street.
Pause for a minute to take this in. Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive — not handcuff the guy or impound his yacht, mind you, just talk to him. In the course of doing so, he finds out that his target's firm is being represented not only by Eliot Spitzer's former top aide, but by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC's enforcement division — not Aguirre's boss, but his boss's boss's boss's boss. Mack himself, meanwhile, was being represented by Gary Lynch, a former SEC director of enforcement.
Aguirre didn't stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. "It all happened so fast, I needed a seat belt," recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.
Rather than going after Mack, the SEC started looking for someone else to blame for tipping off Samberg. (It was, Aguirre quips, "O.J.'s search for the real killers.") It wasn't until a year later that the agency finally got around to interviewing Mack, who denied any wrongdoing. The four-hour deposition took place on August 1st, 2006 — just days after the five-year statute of limitations on insider trading had expired in the case.
"At best, the picture shows extraordinarily lax enforcement by the SEC," Senate investigators would later conclude. "At worse, the picture is colored with overtones of a possible cover-up."
Episodes like this help explain why so many Wall Street executives felt emboldened to push the regulatory envelope during the mid-2000s. Over and over, even the most obvious cases of fraud and insider dealing got gummed up in the works, and high-ranking executives were almost never prosecuted for their crimes. In 2003, Freddie Mac coughed up $125 million after it was caught misreporting its earnings by $5 billion; nobody went to jail. In 2006, Fannie Mae was fined $400 million, but executives who had overseen phony accounting techniques to jack up their bonuses faced no criminal charges. That same year, AIG paid $1.6 billion after it was caught in a major accounting scandal that would indirectly lead to its collapse two years later, but no executives at the insurance giant were prosecuted.
All of this behavior set the stage for the crash of 2008, when Wall Street exploded in a raging Dresden of fraud and criminality. Yet the SEC and the Justice Department have shown almost no inclination to prosecute those most responsible for the catastrophe — even though they had insiders from the two firms whose implosions triggered the crisis, Lehman Brothers and AIG, who were more than willing to supply evidence against top executives.
In the case of Lehman Brothers, the SEC had a chance six months before the crash to move against Dick Fuld, a man recently named the worst CEO of all time by Portfolio magazine. A decade before the crash, a Lehman lawyer named Oliver Budde was going through the bank's proxy statements and noticed that it was using a loophole involving Restricted Stock Units to hide tens of millions of dollars of Fuld's compensation. Budde told his bosses that Lehman's use of RSUs was dicey at best, but they blew him off. "We're sorry about your concerns," they told him, "but we're doing it." Disturbed by such shady practices, the lawyer quit the firm in 2006.
Then, only a few months after Budde left Lehman, the SEC changed its rules to force companies to disclose exactly how much compensation in RSUs executives had coming to them. "The SEC was basically like, 'We're sick and tired of you people fucking around — we want a picture of what you're holding,'" Budde says. But instead of coming clean about eight separate RSUs that Fuld had hidden from investors, Lehman filed a proxy statement that was a masterpiece of cynical lawyering. On one page, a chart indicated that Fuld had been awarded $146 million in RSUs. But two pages later, a note in the fine print essentially stated that the chart did not contain the real number — which, it failed to mention, was actually $263 million more than the chart indicated. "They fucked around even more than they did before," Budde says. (The law firm that helped craft the fine print, Simpson Thacher & Bartlett, would later receive a lucrative federal contract to serve as legal adviser to the TARP bailout.)
Budde decided to come forward. In April 2008, he wrote a detailed memo to the SEC about Lehman's history of hidden stocks. Shortly thereafter, he got a letter back that began, "Dear Sir or Madam." It was an automated e-response.
"They blew me off," Budde says.
Over the course of that summer, Budde tried to contact the SEC several more times, and was ignored each time. Finally, in the fateful week of September 15th, 2008, when Lehman Brothers cracked under the weight of its reckless bets on the subprime market and went into its final death spiral, Budde became seriously concerned. If the government tried to arrange for Lehman to be pawned off on another Wall Street firm, as it had done with Bear Stearns, the U.S. taxpayer might wind up footing the bill for a company with hundreds of millions of dollars in concealed compensation. So Budde again called the SEC, right in the middle of the crisis. "Look," he told regulators. "I gave you huge stuff. You really want to take a look at this."
But the feds once again blew him off. A young staff attorney contacted Budde, who once more provided the SEC with copies of all his memos. He never heard from the agency again.
"This was like a mini-Madoff," Budde says. "They had six solid months of warnings. They could have done something."
Three weeks later, Budde was shocked to see Fuld testifying before the House Government Oversight Committee and whining about how poor he was. "I got no severance, no golden parachute," Fuld moaned. When Rep. Henry Waxman, the committee's chairman, mentioned that he thought Fuld had earned more than $480 million, Fuld corrected him and said he believed it was only $310 million.
The true number, Budde calculated, was $529 million. He contacted a Senate investigator to talk about how Fuld had misled Congress, but he never got any response. Meanwhile, in a demonstration of the government's priorities, the Justice Department is proceeding full force with a prosecution of retired baseball player Roger Clemens for lying to Congress about getting a shot of steroids in his ass. "At least Roger didn't screw over the world," Budde says, shaking his head.
Fuld has denied any wrongdoing, but his hidden compensation was only a ripple in Lehman's raging tsunami of misdeeds. The investment bank used an absurd accounting trick called "Repo 105" transactions to conceal $50 billion in loans on the firm's balance sheet. (That's $50 billion, not million.) But more than a year after the use of the Repo 105s came to light, there have still been no indictments in the affair. While it's possible that charges may yet be filed, there are now rumors that the SEC and the Justice Department may take no action against Lehman. If that's true, and there's no prosecution in a case where there's such overwhelming evidence — and where the company is already dead, meaning it can't dump further losses on investors or taxpayers — then it might be time to assume the game is up. Failing to prosecute Fuld and Lehman would be tantamount to the state marching into Wall Street and waving the green flag on a new stealing season.
The most amazing noncase in the entire crash — the one that truly defies the most basic notion of justice when it comes to Wall Street supervillains — is the one involving AIG and Joe Cassano, the nebbishy Patient Zero of the financial crisis. As chief of AIGFP, the firm's financial products subsidiary, Cassano repeatedly made public statements in 2007 claiming that his portfolio of mortgage derivatives would suffer "no dollar of loss" — an almost comically obvious misrepresentation. "God couldn't manage a $60 billion real estate portfolio without a single dollar of loss," says Turner, the agency's former chief accountant. "If the SEC can't make a disclosure case against AIG, then they might as well close up shop."
As in the Lehman case, federal prosecutors not only had plenty of evidence against AIG — they also had an eyewitness to Cassano's actions who was prepared to tell all. As an accountant at AIGFP, Joseph St. Denis had a number of run-ins with Cassano during the summer of 2007. At the time, Cassano had already made nearly $500 billion worth of derivative bets that would ultimately blow up, destroy the world's largest insurance company, and trigger the largest government bailout of a single company in U.S. history. He made many fatal mistakes, but chief among them was engaging in contracts that required AIG to post billions of dollars in collateral if there was any downgrade to its credit rating.
St. Denis didn't know about those clauses in Cassano's contracts, since they had been written before he joined the firm. What he did know was that Cassano freaked out when St. Denis spoke with an accountant at the parent company, which was only just finding out about the time bomb Cassano had set. After St. Denis finished a conference call with the executive, Cassano suddenly burst into the room and began screaming at him for talking to the New York office. He then announced that St. Denis had been "deliberately excluded" from any valuations of the most toxic elements of the derivatives portfolio — thus preventing the accountant from doing his job. What St. Denis represented was transparency — and the last thing Cassano needed was transparency.
Another clue that something was amiss with AIGFP's portfolio came when Goldman Sachs demanded that the firm pay billions in collateral, per the terms of Cassano's deadly contracts. Such "collateral calls" happen all the time on Wall Street, but seldom against a seemingly solvent and friendly business partner like AIG. And when they do happen, they are rarely paid without a fight. So St. Denis was shocked when AIGFP agreed to fork over gobs of money to Goldman Sachs, even while it was still contesting the payments — an indication that something was seriously wrong at AIG. "When I found out about the collateral call, I literally had to sit down," St. Denis recalls. "I had to go home for the day."
After Cassano barred him from valuating the derivative deals, St. Denis had no choice but to resign. He got another job, and thought he was done with AIG. But a few months later, he learned that Cassano had held a conference call with investors in December 2007. During the call, AIGFP failed to disclose that it had posted $2 billion to Goldman Sachs following the collateral calls.
"Investors therefore did not know," the Financial Crisis Inquiry Commission would later conclude, "that AIG's earnings were overstated by $3.6 billion."
"I remember thinking, 'Wow, they're just not telling people,'" St. Denis says. "I knew. I had been there. I knew they'd posted collateral."
A year later, after the crash, St. Denis wrote a letter about his experiences to the House Government Oversight Committee, which was looking into the AIG collapse. He also met with investigators for the government, which was preparing a criminal case against Cassano. But the case never went to court. Last May, the Justice Department confirmed that it would not file charges against executives at AIGFP. Cassano, who has denied any wrongdoing, was reportedly told he was no longer a target.
Shortly after that, Cassano strolled into Washington to testify before the Financial Crisis Inquiry Commission. It was his first public appearance since the crash. He has not had to pay back a single cent out of the hundreds of millions of dollars he earned selling his insane pseudo-insurance policies on subprime mortgage deals. Now, out from under prosecution, he appeared before the FCIC and had the enormous balls to compliment his own business acumen, saying his atom-bomb swaps portfolio was, in retrospect, not that badly constructed. "I think the portfolios are withstanding the test of time," he said.
"They offered him an excellent opportunity to redeem himself," St. Denis jokes.
In the end, of course, it wasn't just the executives of Lehman and AIGFP who got passes. Virtually every one of the major players on Wall Street was similarly embroiled in scandal, yet their executives skated off into the sunset, uncharged and unfined. Goldman Sachs paid $550 million last year when it was caught defrauding investors with crappy mortgages, but no executive has been fined or jailed — not even Fabrice "Fabulous Fab" Tourre, Goldman's outrageous Euro-douche who gleefully e-mailed a pal about the "surreal" transactions in the middle of a meeting with the firm's victims. In a similar case, a sales executive at the German powerhouse Deutsche Bank got off on charges of insider trading; its general counsel at the time of the questionable deals, Robert Khuzami, now serves as director of enforcement for the SEC.
Another major firm, Bank of America, was caught hiding $5.8 billion in bonuses from shareholders as part of its takeover of Merrill Lynch. The SEC tried to let the bank off with a settlement of only $33 million, but Judge Jed Rakoff rejected the action as a "facade of enforcement." So the SEC quintupled the settlement — but it didn't require either Merrill or Bank of America to admit to wrongdoing. Unlike criminal trials, in which the facts of the crime are put on record for all to see, these Wall Street settlements almost never require the banks to make any factual disclosures, effectively burying the stories forever. "All this is done at the expense not only of the shareholders, but also of the truth," says Rakoff. Goldman, Deutsche, Merrill, Lehman, Bank of America ... who did we leave out? Oh, there's Citigroup, nailed for hiding some $40 billion in liabilities from investors. Last July, the SEC settled with Citi for $75 million. In a rare move, it also fined two Citi executives, former CFO Gary Crittenden and investor-relations chief Arthur Tildesley Jr. Their penalties, combined, came to a whopping $180,000.
Throughout the entire crisis, in fact, the government has taken exactly one serious swing of the bat against executives from a major bank, charging two guys from Bear Stearns with criminal fraud over a pair of toxic subprime hedge funds that blew up in 2007, destroying the company and robbing investors of $1.6 billion. Jurors had an e-mail between the defendants admitting that "there is simply no way for us to make money — ever" just three days before assuring investors that "there's no basis for thinking this is one big disaster." Yet the case still somehow ended in acquittal — and the Justice Department hasn't taken any of the big banks to court since.
All of which raises an obvious question: Why the hell not?
Gary Aguirre, the SEC investigator who lost his job when he drew the ire of Morgan Stanley, thinks he knows the answer.
Last year, Aguirre noticed that a conference on financial law enforcement was scheduled to be held at the Hilton in New York on November 12th. The list of attendees included 1,500 or so of the country's leading lawyers who represent Wall Street, as well as some of the government's top cops from both the SEC and the Justice Department.
Criminal justice, as it pertains to the Goldmans and Morgan Stanleys of the world, is not adversarial combat, with cops and crooks duking it out in interrogation rooms and courthouses. Instead, it's a cocktail party between friends and colleagues who from month to month and year to year are constantly switching sides and trading hats. At the Hilton conference, regulators and banker-lawyers rubbed elbows during a series of speeches and panel discussions, away from the rabble. "They were chummier in that environment," says Aguirre, who plunked down $2,200 to attend the conference.
Aguirre saw a lot of familiar faces at the conference, for a simple reason: Many of the SEC regulators he had worked with during his failed attempt to investigate John Mack had made a million-dollar pass through the Revolving Door, going to work for the very same firms they used to police. Aguirre didn't see Paul Berger, an associate director of enforcement who had rebuffed his attempts to interview Mack — maybe because Berger was tied up at his lucrative new job at Debevoise & Plimpton, the same law firm that Morgan Stanley employed to intervene in the Mack case. But he did see Mary Jo White, the former U.S. attorney, who was still at Debevoise & Plimpton. He also saw Linda Thomsen, the former SEC director of enforcement who had been so helpful to White. Thomsen had gone on to represent Wall Street as a partner at the prestigious firm of Davis Polk & Wardwell.
Two of the government's top cops were there as well: Preet Bharara, the U.S. attorney for the Southern District of New York, and Robert Khuzami, the SEC's current director of enforcement. Bharara had been recommended for his post by Chuck Schumer, Wall Street's favorite senator. And both he and Khuzami had served with Mary Jo White at the U.S. attorney's office, before Mary Jo went on to become a partner at Debevoise. What's more, when Khuzami had served as general counsel for Deutsche Bank, he had been hired by none other than Dick Walker, who had been enforcement director at the SEC when it slow-rolled the pivotal fraud case against Rite Aid.
"It wasn't just one rotation of the revolving door," says Aguirre. "It just kept spinning. Every single person had rotated in and out of government and private service."
The Revolving Door isn't just a footnote in financial law enforcement; over the past decade, more than a dozen high-ranking SEC officials have gone on to lucrative jobs at Wall Street banks or white-shoe law firms, where partnerships are worth millions. That makes SEC officials like Paul Berger and Linda Thomsen the equivalent of college basketball stars waiting for their first NBA contract. Are you really going to give up a shot at the Knicks or the Lakers just to find out whether a Wall Street big shot like John Mack was guilty of insider trading? "You take one of these jobs," says Turner, the former chief accountant for the SEC, "and you're fit for life."
Fit — and happy. The banter between the speakers at the New York conference says everything you need to know about the level of chumminess and mutual admiration that exists between these supposed adversaries of the justice system. At one point in the conference, Mary Jo White introduced Bharara, her old pal from the U.S. attorney's office.
"I want to first say how pleased I am to be here," Bharara responded. Then, addressing White, he added, "You've spawned all of us. It's almost 11 years ago to the day that Mary Jo White called me and asked me if I would become an assistant U.S. attorney. So thank you, Dr. Frankenstein."
Next, addressing the crowd of high-priced lawyers from Wall Street, Bharara made an interesting joke. "I also want to take a moment to applaud the entire staff of the SEC for the really amazing things they have done over the past year," he said. "They've done a real service to the country, to the financial community, and not to mention a lot of your law practices."
Haw! The line drew snickers from the conference of millionaire lawyers. But the real fireworks came when Khuzami, the SEC's director of enforcement, talked about a new "cooperation initiative" the agency had recently unveiled, in which executives are being offered incentives to report fraud they have witnessed or committed. From now on, Khuzami said, when corporate lawyers like the ones he was addressing want to know if their Wall Street clients are going to be charged by the Justice Department before deciding whether to come forward, all they have to do is ask the SEC.
"We are going to try to get those individuals answers," Khuzami announced, as to "whether or not there is criminal interest in the case — so that defense counsel can have as much information as possible in deciding whether or not to choose to sign up their client."
Aguirre, listening in the crowd, couldn't believe Khuzami's brazenness. The SEC's enforcement director was saying, in essence, that firms like Goldman Sachs and AIG and Lehman Brothers will henceforth be able to get the SEC to act as a middleman between them and the Justice Department, negotiating fines as a way out of jail time. Khuzami was basically outlining a four-step system for banks and their executives to buy their way out of prison. "First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC," Aguirre says. "Then the Justice Department commits itself to pass, so that the player knows he's 'safe.' Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department."
When I ask a former federal prosecutor about the propriety of a sitting SEC director of enforcement talking out loud about helping corporate defendants "get answers" regarding the status of their criminal cases, he initially doesn't believe it. Then I send him a transcript of the comment. "I am very, very surprised by Khuzami's statement, which does seem to me to be contrary to past practice — and not a good thing," the former prosecutor says.
Earlier this month, when Sen. Chuck Grassley found out about Khuzami's comments, he sent the SEC a letter noting that the agency's own enforcement manual not only prohibits such "answer getting," it even bars the SEC from giving defendants the Justice Department's phone number. "Should counsel or the individual ask which criminal authorities they should contact," the manual reads, "staff should decline to answer, unless authorized by the relevant criminal authorities." Both the SEC and the Justice Department deny there is anything improper in their new policy of cooperation. "We collaborate with the SEC, but they do not consult with us when they resolve their cases," Assistant Attorney General Lanny Breuer assured Congress in January. "They do that independently."
Around the same time that Breuer was testifying, however, a story broke that prior to the pathetically small settlement of $75 million that the SEC had arranged with Citigroup, Khuzami had ordered his staff to pursue lighter charges against the megabank's executives. According to a letter that was sent to Sen. Grassley's office, Khuzami had a "secret conversation, without telling the staff, with a prominent defense lawyer who is a good friend" of his and "who was counsel for the company." The unsigned letter, which appears to have come from an SEC investigator on the case, prompted the inspector general to launch an investigation into the charge.
All of this paints a disturbing picture of a closed and corrupt system, a timeless circle of friends that virtually guarantees a collegial approach to the policing of high finance. Even before the corruption starts, the state is crippled by economic reality: Since law enforcement on Wall Street requires serious intellectual firepower, the banks seize a huge advantage from the start by hiring away the top talent. Budde, the former Lehman lawyer, says it's well known that all the best legal minds go to the big corporate law firms, while the "bottom 20 percent go to the SEC." Which makes it tough for the agency to track devious legal machinations, like the scheme to hide $263 million of Dick Fuld's compensation.
"It's such a mismatch, it's not even funny," Budde says.
But even beyond that, the system is skewed by the irrepressible pull of riches and power. If talent rises in the SEC or the Justice Department, it sooner or later jumps ship for those fat NBA contracts. Or, conversely, graduates of the big corporate firms take sabbaticals from their rich lifestyles to slum it in government service for a year or two. Many of those appointments are inevitably hand-picked by lifelong stooges for Wall Street like Chuck Schumer, who has accepted $14.6 million in campaign contributions from Goldman Sachs, Morgan Stanley and other major players in the finance industry, along with their corporate lawyers.
As for President Obama, what is there to be said? Goldman Sachs was his number-one private campaign contributor. He put a Citigroup executive in charge of his economic transition team, and he just named an executive of JP Morgan Chase, the proud owner of $7.7 million in Chase stock, his new chief of staff. "The betrayal that this represents by Obama to everybody is just — we're not ready to believe it," says Budde, a classmate of the president from their Columbia days. "He's really fucking us over like that? Really? That's really a JP Morgan guy, really?"
Which is not to say that the Obama era has meant an end to law enforcement. On the contrary: In the past few years, the administration has allocated massive amounts of federal resources to catching wrongdoers — of a certain type. Last year, the government deported 393,000 people, at a cost of $5 billion. Since 2007, felony immigration prosecutions along the Mexican border have surged 77 percent; nonfelony prosecutions by 259 percent. In Ohio last month, a single mother was caught lying about where she lived to put her kids into a better school district; the judge in the case tried to sentence her to 10 days in jail for fraud, declaring that letting her go free would "demean the seriousness" of the offenses.
So there you have it. Illegal immigrants: 393,000. Lying moms: one. Bankers: zero. The math makes sense only because the politics are so obvious. You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players. But for stealing a billion dollars? For fraud that puts a million people into foreclosure? Pass. It's not a crime. Prison is too harsh. Get them to say they're sorry, and move on. Oh, wait — let's not even make them say they're sorry. That's too mean; let's just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead. But don't make them pay it out of their own pockets, and don't ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year. What's next? Taxpayer-funded massages for every Wall Street executive guilty of fraud?
The mental stumbling block, for most Americans, is that financial crimes don't feel real; you don't see the culprits waving guns in liquor stores or dragging coeds into bushes. But these frauds are worse than common robberies. They're crimes of intellectual choice, made by people who are already rich and who have every conceivable social advantage, acting on a simple, cynical calculation: Let's steal whatever we can, then dare the victims to find the juice to reclaim their money through a captive bureaucracy. They're attacking the very definition of property — which, after all, depends in part on a legal system that defends everyone's claims of ownership equally. When that definition becomes tenuous or conditional — when the state simply gives up on the notion of justice — this whole American Dream thing recedes even further from reality.
"Everything's fucked up, and nobody goes to jail," he said. "That's your whole story right there. Hell, you don't even have to write the rest of it. Just write that."
I put down my notebook. "Just that?"
"That's right," he said, signaling to the waitress for the check. "Everything's fucked up, and nobody goes to jail. You can end the piece right there."
Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.
This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18.
The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What's more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even "one dollar" just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick "The Gorilla" Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.
Invasion of the Home Snatchers
Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. "If the allegations in these settlements are true," says Jed Rakoff, a federal judge in the Southern District of New York, "it's management buying its way off cheap, from the pockets of their victims."
Taibblog: Commentary on politics and the economy by Matt Taibbi
To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once."
But that hasn't happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.
Just ask the people who tried to do the right thing.
Wall Street's Naked Swindle
Here's how regulation of Wall Street is supposed to work. To begin with, there's a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly "self-regulating organizations" like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.
The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called "disclosure violations" — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn't have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney's Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC's director of enforcement.
The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can't balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC's army of 1,100 number-crunching investigators to make their cases. In theory, it's a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.
That's the way it's supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who's in office or which party's in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
The systematic lack of regulation has left even the country's top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. "I think you've got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.
In the hierarchy of the SEC, the chief accountant plays a major role in working to pursue misleading and phony financial disclosures. Turner held the post a decade ago, when one of the most significant cases was swallowed up by the SEC bureaucracy. In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the "deal with it later" file. "The Philadelphia office literally did nothing with the case for a year," Turner recalls. "Very much like the New York office with Madoff." The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis. The same was true for another SEC case that presaged the Enron disaster. The agency knew that appliance-maker Sunbeam was using the same kind of accounting scams to systematically hide losses from its investors. But in the end, the SEC's punishment for Sunbeam's CEO, Al "Chainsaw" Dunlap — widely regarded as one of the biggest assholes in the history of American finance — was a fine of $500,000. Dunlap's net worth at the time was an estimated $100 million. The SEC also barred Dunlap from ever running a public company again — forcing him to retire with a mere $99.5 million. Dunlap passed the time collecting royalties from his self-congratulatory memoir. Its title: Mean Business.
The pattern of inaction toward shady deals on Wall Street grew worse and worse after Turner left, with one slam-dunk case after another either languishing for years or disappearing altogether. Perhaps the most notorious example involved Gary Aguirre, an SEC investigator who was literally fired after he questioned the agency's failure to pursue an insider-trading case against John Mack, now the chairman of Morgan Stanley and one of America's most powerful bankers.
Aguirre joined the SEC in September 2004. Two days into his career as a financial investigator, he was asked to look into an insider-trading complaint against a hedge-fund megastar named Art Samberg. One day, with no advance research or discussion, Samberg had suddenly started buying up huge quantities of shares in a firm called Heller Financial. "It was as if Art Samberg woke up one morning and a voice from the heavens told him to start buying Heller," Aguirre recalls. "And he wasn't just buying shares — there were some days when he was trying to buy three times as many shares as were being traded that day." A few weeks later, Heller was bought by General Electric — and Samberg pocketed $18 million.
After some digging, Aguirre found himself focusing on one suspect as the likely source who had tipped Samberg off: John Mack, a close friend of Samberg's who had just stepped down as president of Morgan Stanley. At the time, Mack had been on Samberg's case to cut him into a deal involving a spinoff of the tech company Lucent — an investment that stood to make Mack a lot of money. "Mack is busting my chops" to give him a piece of the action, Samberg told an employee in an e-mail.
A week later, Mack flew to Switzerland to interview for a top job at Credit Suisse First Boston. Among the investment bank's clients, as it happened, was a firm called Heller Financial. We don't know for sure what Mack learned on his Swiss trip; years later, Mack would claim that he had thrown away his notes about the meetings. But we do know that as soon as Mack returned from the trip, on a Friday, he called up his buddy Samberg. The very next morning, Mack was cut into the Lucent deal — a favor that netted him more than $10 million. And as soon as the market reopened after the weekend, Samberg started buying every Heller share in sight, right before it was snapped up by GE — a suspiciously timed move that earned him the equivalent of Derek Jeter's annual salary for just a few minutes of work.
The deal looked like a classic case of insider trading. But in the summer of 2005, when Aguirre told his boss he planned to interview Mack, things started getting weird. His boss told him the case wasn't likely to fly, explaining that Mack had "powerful political connections." (The investment banker had been a fundraising "Ranger" for George Bush in 2004, and would go on to be a key backer of Hillary Clinton in 2008.)
Aguirre also started to feel pressure from Morgan Stanley, which was in the process of trying to rehire Mack as CEO. At first, Aguirre was contacted by the bank's regulatory liaison, Eric Dinallo, a former top aide to Eliot Spitzer. But it didn't take long for Morgan Stanley to work its way up the SEC chain of command. Within three days, another of the firm's lawyers, Mary Jo White, was on the phone with the SEC's director of enforcement. In a shocking move that was later singled out by Senate investigators, the director actually appeared to reassure White, dismissing the case against Mack as "smoke" rather than "fire." White, incidentally, was herself the former U.S. attorney of the Southern District of New York — one of the top cops on Wall Street.
Pause for a minute to take this in. Aguirre, an SEC foot soldier, is trying to interview a major Wall Street executive — not handcuff the guy or impound his yacht, mind you, just talk to him. In the course of doing so, he finds out that his target's firm is being represented not only by Eliot Spitzer's former top aide, but by the former U.S. attorney overseeing Wall Street, who is going four levels over his head to speak directly to the chief of the SEC's enforcement division — not Aguirre's boss, but his boss's boss's boss's boss. Mack himself, meanwhile, was being represented by Gary Lynch, a former SEC director of enforcement.
Aguirre didn't stand a chance. A month after he complained to his supervisors that he was being blocked from interviewing Mack, he was summarily fired, without notice. The case against Mack was immediately dropped: all depositions canceled, no further subpoenas issued. "It all happened so fast, I needed a seat belt," recalls Aguirre, who had just received a stellar performance review from his bosses. The SEC eventually paid Aguirre a settlement of $755,000 for wrongful dismissal.
Rather than going after Mack, the SEC started looking for someone else to blame for tipping off Samberg. (It was, Aguirre quips, "O.J.'s search for the real killers.") It wasn't until a year later that the agency finally got around to interviewing Mack, who denied any wrongdoing. The four-hour deposition took place on August 1st, 2006 — just days after the five-year statute of limitations on insider trading had expired in the case.
"At best, the picture shows extraordinarily lax enforcement by the SEC," Senate investigators would later conclude. "At worse, the picture is colored with overtones of a possible cover-up."
Episodes like this help explain why so many Wall Street executives felt emboldened to push the regulatory envelope during the mid-2000s. Over and over, even the most obvious cases of fraud and insider dealing got gummed up in the works, and high-ranking executives were almost never prosecuted for their crimes. In 2003, Freddie Mac coughed up $125 million after it was caught misreporting its earnings by $5 billion; nobody went to jail. In 2006, Fannie Mae was fined $400 million, but executives who had overseen phony accounting techniques to jack up their bonuses faced no criminal charges. That same year, AIG paid $1.6 billion after it was caught in a major accounting scandal that would indirectly lead to its collapse two years later, but no executives at the insurance giant were prosecuted.
All of this behavior set the stage for the crash of 2008, when Wall Street exploded in a raging Dresden of fraud and criminality. Yet the SEC and the Justice Department have shown almost no inclination to prosecute those most responsible for the catastrophe — even though they had insiders from the two firms whose implosions triggered the crisis, Lehman Brothers and AIG, who were more than willing to supply evidence against top executives.
In the case of Lehman Brothers, the SEC had a chance six months before the crash to move against Dick Fuld, a man recently named the worst CEO of all time by Portfolio magazine. A decade before the crash, a Lehman lawyer named Oliver Budde was going through the bank's proxy statements and noticed that it was using a loophole involving Restricted Stock Units to hide tens of millions of dollars of Fuld's compensation. Budde told his bosses that Lehman's use of RSUs was dicey at best, but they blew him off. "We're sorry about your concerns," they told him, "but we're doing it." Disturbed by such shady practices, the lawyer quit the firm in 2006.
Then, only a few months after Budde left Lehman, the SEC changed its rules to force companies to disclose exactly how much compensation in RSUs executives had coming to them. "The SEC was basically like, 'We're sick and tired of you people fucking around — we want a picture of what you're holding,'" Budde says. But instead of coming clean about eight separate RSUs that Fuld had hidden from investors, Lehman filed a proxy statement that was a masterpiece of cynical lawyering. On one page, a chart indicated that Fuld had been awarded $146 million in RSUs. But two pages later, a note in the fine print essentially stated that the chart did not contain the real number — which, it failed to mention, was actually $263 million more than the chart indicated. "They fucked around even more than they did before," Budde says. (The law firm that helped craft the fine print, Simpson Thacher & Bartlett, would later receive a lucrative federal contract to serve as legal adviser to the TARP bailout.)
Budde decided to come forward. In April 2008, he wrote a detailed memo to the SEC about Lehman's history of hidden stocks. Shortly thereafter, he got a letter back that began, "Dear Sir or Madam." It was an automated e-response.
"They blew me off," Budde says.
Over the course of that summer, Budde tried to contact the SEC several more times, and was ignored each time. Finally, in the fateful week of September 15th, 2008, when Lehman Brothers cracked under the weight of its reckless bets on the subprime market and went into its final death spiral, Budde became seriously concerned. If the government tried to arrange for Lehman to be pawned off on another Wall Street firm, as it had done with Bear Stearns, the U.S. taxpayer might wind up footing the bill for a company with hundreds of millions of dollars in concealed compensation. So Budde again called the SEC, right in the middle of the crisis. "Look," he told regulators. "I gave you huge stuff. You really want to take a look at this."
But the feds once again blew him off. A young staff attorney contacted Budde, who once more provided the SEC with copies of all his memos. He never heard from the agency again.
"This was like a mini-Madoff," Budde says. "They had six solid months of warnings. They could have done something."
Three weeks later, Budde was shocked to see Fuld testifying before the House Government Oversight Committee and whining about how poor he was. "I got no severance, no golden parachute," Fuld moaned. When Rep. Henry Waxman, the committee's chairman, mentioned that he thought Fuld had earned more than $480 million, Fuld corrected him and said he believed it was only $310 million.
The true number, Budde calculated, was $529 million. He contacted a Senate investigator to talk about how Fuld had misled Congress, but he never got any response. Meanwhile, in a demonstration of the government's priorities, the Justice Department is proceeding full force with a prosecution of retired baseball player Roger Clemens for lying to Congress about getting a shot of steroids in his ass. "At least Roger didn't screw over the world," Budde says, shaking his head.
Fuld has denied any wrongdoing, but his hidden compensation was only a ripple in Lehman's raging tsunami of misdeeds. The investment bank used an absurd accounting trick called "Repo 105" transactions to conceal $50 billion in loans on the firm's balance sheet. (That's $50 billion, not million.) But more than a year after the use of the Repo 105s came to light, there have still been no indictments in the affair. While it's possible that charges may yet be filed, there are now rumors that the SEC and the Justice Department may take no action against Lehman. If that's true, and there's no prosecution in a case where there's such overwhelming evidence — and where the company is already dead, meaning it can't dump further losses on investors or taxpayers — then it might be time to assume the game is up. Failing to prosecute Fuld and Lehman would be tantamount to the state marching into Wall Street and waving the green flag on a new stealing season.
The most amazing noncase in the entire crash — the one that truly defies the most basic notion of justice when it comes to Wall Street supervillains — is the one involving AIG and Joe Cassano, the nebbishy Patient Zero of the financial crisis. As chief of AIGFP, the firm's financial products subsidiary, Cassano repeatedly made public statements in 2007 claiming that his portfolio of mortgage derivatives would suffer "no dollar of loss" — an almost comically obvious misrepresentation. "God couldn't manage a $60 billion real estate portfolio without a single dollar of loss," says Turner, the agency's former chief accountant. "If the SEC can't make a disclosure case against AIG, then they might as well close up shop."
As in the Lehman case, federal prosecutors not only had plenty of evidence against AIG — they also had an eyewitness to Cassano's actions who was prepared to tell all. As an accountant at AIGFP, Joseph St. Denis had a number of run-ins with Cassano during the summer of 2007. At the time, Cassano had already made nearly $500 billion worth of derivative bets that would ultimately blow up, destroy the world's largest insurance company, and trigger the largest government bailout of a single company in U.S. history. He made many fatal mistakes, but chief among them was engaging in contracts that required AIG to post billions of dollars in collateral if there was any downgrade to its credit rating.
St. Denis didn't know about those clauses in Cassano's contracts, since they had been written before he joined the firm. What he did know was that Cassano freaked out when St. Denis spoke with an accountant at the parent company, which was only just finding out about the time bomb Cassano had set. After St. Denis finished a conference call with the executive, Cassano suddenly burst into the room and began screaming at him for talking to the New York office. He then announced that St. Denis had been "deliberately excluded" from any valuations of the most toxic elements of the derivatives portfolio — thus preventing the accountant from doing his job. What St. Denis represented was transparency — and the last thing Cassano needed was transparency.
Another clue that something was amiss with AIGFP's portfolio came when Goldman Sachs demanded that the firm pay billions in collateral, per the terms of Cassano's deadly contracts. Such "collateral calls" happen all the time on Wall Street, but seldom against a seemingly solvent and friendly business partner like AIG. And when they do happen, they are rarely paid without a fight. So St. Denis was shocked when AIGFP agreed to fork over gobs of money to Goldman Sachs, even while it was still contesting the payments — an indication that something was seriously wrong at AIG. "When I found out about the collateral call, I literally had to sit down," St. Denis recalls. "I had to go home for the day."
After Cassano barred him from valuating the derivative deals, St. Denis had no choice but to resign. He got another job, and thought he was done with AIG. But a few months later, he learned that Cassano had held a conference call with investors in December 2007. During the call, AIGFP failed to disclose that it had posted $2 billion to Goldman Sachs following the collateral calls.
"Investors therefore did not know," the Financial Crisis Inquiry Commission would later conclude, "that AIG's earnings were overstated by $3.6 billion."
"I remember thinking, 'Wow, they're just not telling people,'" St. Denis says. "I knew. I had been there. I knew they'd posted collateral."
A year later, after the crash, St. Denis wrote a letter about his experiences to the House Government Oversight Committee, which was looking into the AIG collapse. He also met with investigators for the government, which was preparing a criminal case against Cassano. But the case never went to court. Last May, the Justice Department confirmed that it would not file charges against executives at AIGFP. Cassano, who has denied any wrongdoing, was reportedly told he was no longer a target.
Shortly after that, Cassano strolled into Washington to testify before the Financial Crisis Inquiry Commission. It was his first public appearance since the crash. He has not had to pay back a single cent out of the hundreds of millions of dollars he earned selling his insane pseudo-insurance policies on subprime mortgage deals. Now, out from under prosecution, he appeared before the FCIC and had the enormous balls to compliment his own business acumen, saying his atom-bomb swaps portfolio was, in retrospect, not that badly constructed. "I think the portfolios are withstanding the test of time," he said.
"They offered him an excellent opportunity to redeem himself," St. Denis jokes.
In the end, of course, it wasn't just the executives of Lehman and AIGFP who got passes. Virtually every one of the major players on Wall Street was similarly embroiled in scandal, yet their executives skated off into the sunset, uncharged and unfined. Goldman Sachs paid $550 million last year when it was caught defrauding investors with crappy mortgages, but no executive has been fined or jailed — not even Fabrice "Fabulous Fab" Tourre, Goldman's outrageous Euro-douche who gleefully e-mailed a pal about the "surreal" transactions in the middle of a meeting with the firm's victims. In a similar case, a sales executive at the German powerhouse Deutsche Bank got off on charges of insider trading; its general counsel at the time of the questionable deals, Robert Khuzami, now serves as director of enforcement for the SEC.
Another major firm, Bank of America, was caught hiding $5.8 billion in bonuses from shareholders as part of its takeover of Merrill Lynch. The SEC tried to let the bank off with a settlement of only $33 million, but Judge Jed Rakoff rejected the action as a "facade of enforcement." So the SEC quintupled the settlement — but it didn't require either Merrill or Bank of America to admit to wrongdoing. Unlike criminal trials, in which the facts of the crime are put on record for all to see, these Wall Street settlements almost never require the banks to make any factual disclosures, effectively burying the stories forever. "All this is done at the expense not only of the shareholders, but also of the truth," says Rakoff. Goldman, Deutsche, Merrill, Lehman, Bank of America ... who did we leave out? Oh, there's Citigroup, nailed for hiding some $40 billion in liabilities from investors. Last July, the SEC settled with Citi for $75 million. In a rare move, it also fined two Citi executives, former CFO Gary Crittenden and investor-relations chief Arthur Tildesley Jr. Their penalties, combined, came to a whopping $180,000.
Throughout the entire crisis, in fact, the government has taken exactly one serious swing of the bat against executives from a major bank, charging two guys from Bear Stearns with criminal fraud over a pair of toxic subprime hedge funds that blew up in 2007, destroying the company and robbing investors of $1.6 billion. Jurors had an e-mail between the defendants admitting that "there is simply no way for us to make money — ever" just three days before assuring investors that "there's no basis for thinking this is one big disaster." Yet the case still somehow ended in acquittal — and the Justice Department hasn't taken any of the big banks to court since.
All of which raises an obvious question: Why the hell not?
Gary Aguirre, the SEC investigator who lost his job when he drew the ire of Morgan Stanley, thinks he knows the answer.
Last year, Aguirre noticed that a conference on financial law enforcement was scheduled to be held at the Hilton in New York on November 12th. The list of attendees included 1,500 or so of the country's leading lawyers who represent Wall Street, as well as some of the government's top cops from both the SEC and the Justice Department.
Criminal justice, as it pertains to the Goldmans and Morgan Stanleys of the world, is not adversarial combat, with cops and crooks duking it out in interrogation rooms and courthouses. Instead, it's a cocktail party between friends and colleagues who from month to month and year to year are constantly switching sides and trading hats. At the Hilton conference, regulators and banker-lawyers rubbed elbows during a series of speeches and panel discussions, away from the rabble. "They were chummier in that environment," says Aguirre, who plunked down $2,200 to attend the conference.
Aguirre saw a lot of familiar faces at the conference, for a simple reason: Many of the SEC regulators he had worked with during his failed attempt to investigate John Mack had made a million-dollar pass through the Revolving Door, going to work for the very same firms they used to police. Aguirre didn't see Paul Berger, an associate director of enforcement who had rebuffed his attempts to interview Mack — maybe because Berger was tied up at his lucrative new job at Debevoise & Plimpton, the same law firm that Morgan Stanley employed to intervene in the Mack case. But he did see Mary Jo White, the former U.S. attorney, who was still at Debevoise & Plimpton. He also saw Linda Thomsen, the former SEC director of enforcement who had been so helpful to White. Thomsen had gone on to represent Wall Street as a partner at the prestigious firm of Davis Polk & Wardwell.
Two of the government's top cops were there as well: Preet Bharara, the U.S. attorney for the Southern District of New York, and Robert Khuzami, the SEC's current director of enforcement. Bharara had been recommended for his post by Chuck Schumer, Wall Street's favorite senator. And both he and Khuzami had served with Mary Jo White at the U.S. attorney's office, before Mary Jo went on to become a partner at Debevoise. What's more, when Khuzami had served as general counsel for Deutsche Bank, he had been hired by none other than Dick Walker, who had been enforcement director at the SEC when it slow-rolled the pivotal fraud case against Rite Aid.
"It wasn't just one rotation of the revolving door," says Aguirre. "It just kept spinning. Every single person had rotated in and out of government and private service."
The Revolving Door isn't just a footnote in financial law enforcement; over the past decade, more than a dozen high-ranking SEC officials have gone on to lucrative jobs at Wall Street banks or white-shoe law firms, where partnerships are worth millions. That makes SEC officials like Paul Berger and Linda Thomsen the equivalent of college basketball stars waiting for their first NBA contract. Are you really going to give up a shot at the Knicks or the Lakers just to find out whether a Wall Street big shot like John Mack was guilty of insider trading? "You take one of these jobs," says Turner, the former chief accountant for the SEC, "and you're fit for life."
Fit — and happy. The banter between the speakers at the New York conference says everything you need to know about the level of chumminess and mutual admiration that exists between these supposed adversaries of the justice system. At one point in the conference, Mary Jo White introduced Bharara, her old pal from the U.S. attorney's office.
"I want to first say how pleased I am to be here," Bharara responded. Then, addressing White, he added, "You've spawned all of us. It's almost 11 years ago to the day that Mary Jo White called me and asked me if I would become an assistant U.S. attorney. So thank you, Dr. Frankenstein."
Next, addressing the crowd of high-priced lawyers from Wall Street, Bharara made an interesting joke. "I also want to take a moment to applaud the entire staff of the SEC for the really amazing things they have done over the past year," he said. "They've done a real service to the country, to the financial community, and not to mention a lot of your law practices."
Haw! The line drew snickers from the conference of millionaire lawyers. But the real fireworks came when Khuzami, the SEC's director of enforcement, talked about a new "cooperation initiative" the agency had recently unveiled, in which executives are being offered incentives to report fraud they have witnessed or committed. From now on, Khuzami said, when corporate lawyers like the ones he was addressing want to know if their Wall Street clients are going to be charged by the Justice Department before deciding whether to come forward, all they have to do is ask the SEC.
"We are going to try to get those individuals answers," Khuzami announced, as to "whether or not there is criminal interest in the case — so that defense counsel can have as much information as possible in deciding whether or not to choose to sign up their client."
Aguirre, listening in the crowd, couldn't believe Khuzami's brazenness. The SEC's enforcement director was saying, in essence, that firms like Goldman Sachs and AIG and Lehman Brothers will henceforth be able to get the SEC to act as a middleman between them and the Justice Department, negotiating fines as a way out of jail time. Khuzami was basically outlining a four-step system for banks and their executives to buy their way out of prison. "First, the SEC and Wall Street player make an agreement on a fine that the player will pay to the SEC," Aguirre says. "Then the Justice Department commits itself to pass, so that the player knows he's 'safe.' Third, the player pays the SEC — and fourth, the player gets a pass from the Justice Department."
When I ask a former federal prosecutor about the propriety of a sitting SEC director of enforcement talking out loud about helping corporate defendants "get answers" regarding the status of their criminal cases, he initially doesn't believe it. Then I send him a transcript of the comment. "I am very, very surprised by Khuzami's statement, which does seem to me to be contrary to past practice — and not a good thing," the former prosecutor says.
Earlier this month, when Sen. Chuck Grassley found out about Khuzami's comments, he sent the SEC a letter noting that the agency's own enforcement manual not only prohibits such "answer getting," it even bars the SEC from giving defendants the Justice Department's phone number. "Should counsel or the individual ask which criminal authorities they should contact," the manual reads, "staff should decline to answer, unless authorized by the relevant criminal authorities." Both the SEC and the Justice Department deny there is anything improper in their new policy of cooperation. "We collaborate with the SEC, but they do not consult with us when they resolve their cases," Assistant Attorney General Lanny Breuer assured Congress in January. "They do that independently."
Around the same time that Breuer was testifying, however, a story broke that prior to the pathetically small settlement of $75 million that the SEC had arranged with Citigroup, Khuzami had ordered his staff to pursue lighter charges against the megabank's executives. According to a letter that was sent to Sen. Grassley's office, Khuzami had a "secret conversation, without telling the staff, with a prominent defense lawyer who is a good friend" of his and "who was counsel for the company." The unsigned letter, which appears to have come from an SEC investigator on the case, prompted the inspector general to launch an investigation into the charge.
All of this paints a disturbing picture of a closed and corrupt system, a timeless circle of friends that virtually guarantees a collegial approach to the policing of high finance. Even before the corruption starts, the state is crippled by economic reality: Since law enforcement on Wall Street requires serious intellectual firepower, the banks seize a huge advantage from the start by hiring away the top talent. Budde, the former Lehman lawyer, says it's well known that all the best legal minds go to the big corporate law firms, while the "bottom 20 percent go to the SEC." Which makes it tough for the agency to track devious legal machinations, like the scheme to hide $263 million of Dick Fuld's compensation.
"It's such a mismatch, it's not even funny," Budde says.
But even beyond that, the system is skewed by the irrepressible pull of riches and power. If talent rises in the SEC or the Justice Department, it sooner or later jumps ship for those fat NBA contracts. Or, conversely, graduates of the big corporate firms take sabbaticals from their rich lifestyles to slum it in government service for a year or two. Many of those appointments are inevitably hand-picked by lifelong stooges for Wall Street like Chuck Schumer, who has accepted $14.6 million in campaign contributions from Goldman Sachs, Morgan Stanley and other major players in the finance industry, along with their corporate lawyers.
As for President Obama, what is there to be said? Goldman Sachs was his number-one private campaign contributor. He put a Citigroup executive in charge of his economic transition team, and he just named an executive of JP Morgan Chase, the proud owner of $7.7 million in Chase stock, his new chief of staff. "The betrayal that this represents by Obama to everybody is just — we're not ready to believe it," says Budde, a classmate of the president from their Columbia days. "He's really fucking us over like that? Really? That's really a JP Morgan guy, really?"
Which is not to say that the Obama era has meant an end to law enforcement. On the contrary: In the past few years, the administration has allocated massive amounts of federal resources to catching wrongdoers — of a certain type. Last year, the government deported 393,000 people, at a cost of $5 billion. Since 2007, felony immigration prosecutions along the Mexican border have surged 77 percent; nonfelony prosecutions by 259 percent. In Ohio last month, a single mother was caught lying about where she lived to put her kids into a better school district; the judge in the case tried to sentence her to 10 days in jail for fraud, declaring that letting her go free would "demean the seriousness" of the offenses.
So there you have it. Illegal immigrants: 393,000. Lying moms: one. Bankers: zero. The math makes sense only because the politics are so obvious. You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players. But for stealing a billion dollars? For fraud that puts a million people into foreclosure? Pass. It's not a crime. Prison is too harsh. Get them to say they're sorry, and move on. Oh, wait — let's not even make them say they're sorry. That's too mean; let's just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead. But don't make them pay it out of their own pockets, and don't ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year. What's next? Taxpayer-funded massages for every Wall Street executive guilty of fraud?
The mental stumbling block, for most Americans, is that financial crimes don't feel real; you don't see the culprits waving guns in liquor stores or dragging coeds into bushes. But these frauds are worse than common robberies. They're crimes of intellectual choice, made by people who are already rich and who have every conceivable social advantage, acting on a simple, cynical calculation: Let's steal whatever we can, then dare the victims to find the juice to reclaim their money through a captive bureaucracy. They're attacking the very definition of property — which, after all, depends in part on a legal system that defends everyone's claims of ownership equally. When that definition becomes tenuous or conditional — when the state simply gives up on the notion of justice — this whole American Dream thing recedes even further from reality.
Coal Costs US Public Up to $500 Billion Annually: Harvard Study
From TreeHugger:
It's well-known that the coal-fired power plants that provide the US with 50% of its electricity also inflict significant damage on the environment and citizens' health. Coal plants spew particulate emissions that cause asthma and other respiratory woes -- and they're responsible for tens of thousands of deaths every year. And then there's the environmental damage inflicted during the process of extracting, transporting, and processing the stuff. And then, there's coal's contribution to climate change. All told, it costs the nation up to $500 billion a year. That's the finding of a new Harvard study that, for the first time, examines the true cost of coal throughout its entire life cycle ...
Clearly, the fact that coal contributes more global warming pollution than any other source in the nation is far from its only problem. But vested industry interests and its political allies have long claimed that coal is the cheapest energy source around -- and if you look only at commodity prices on market exchanges, indeed, coal (sometimes) looks pretty cheap. Yet we know that's only a small fraction of the true cost of coal.
Harvard professor Dr. Paul Epstein, associate director of the Harvard Center for Health and the Global Environment, has just released a paper in the Annals of the New York Academy of Sciences entitled "Full cost accounting for the life cycle of coal." Epstein symbolically announced the release of the study today aboard the Greenpeace ship the Arctic Sunrise, which is in the midst of its Coal Free Future Tour. I was on board as well to report on the event.
The study is the first to look at the major costs of coal from extraction to combustion. It finds that coal costs $74 billion a year in public health burdens in Appalachian communities alone. Those costs come from increased health care costs, deaths and injuries that result from mining and transporting coal, and the emissions generated during the coal's combustion.
The emissions of pollutants elsewhere were deemed to cost up to $187.5 billion a year, again due to the health costs of cancer, lung disease, and respiratory sickness. Mercury impacts account for another $29.3 billion. Epstein and his team also looked at the cost of coal's spectacular carbon emissions, in the form of various climate impacts, and the way it's already effecting land use, energy consumption, and food prices across the nation. These costs are estimated at a conservative $205 billion.
Meanwhile, the costs of the spillage of toxic waste and its cleanup, the impact of coal on crops, property values, and tourism account for billions more -- up to $18 billion a year. Add it all up, and you find that coal costs the nation up to half a trillion dollars a year.
"And this is an underestimate," Epstein said.
In the conclusion of his speech, Epstein suggested some solutions. "What can we do? We need to phase out coal rapidly. We need to move rapidly with healthy solutions." Which means, he says, smart growth in cities, more green buildings, clean energy, rooftop gardens, public transport, and communities connected with light rail. "It means more jobs, cleaner air, and healthier cities," Epstein said.
It's well-known that the coal-fired power plants that provide the US with 50% of its electricity also inflict significant damage on the environment and citizens' health. Coal plants spew particulate emissions that cause asthma and other respiratory woes -- and they're responsible for tens of thousands of deaths every year. And then there's the environmental damage inflicted during the process of extracting, transporting, and processing the stuff. And then, there's coal's contribution to climate change. All told, it costs the nation up to $500 billion a year. That's the finding of a new Harvard study that, for the first time, examines the true cost of coal throughout its entire life cycle ...
Clearly, the fact that coal contributes more global warming pollution than any other source in the nation is far from its only problem. But vested industry interests and its political allies have long claimed that coal is the cheapest energy source around -- and if you look only at commodity prices on market exchanges, indeed, coal (sometimes) looks pretty cheap. Yet we know that's only a small fraction of the true cost of coal.
Harvard professor Dr. Paul Epstein, associate director of the Harvard Center for Health and the Global Environment, has just released a paper in the Annals of the New York Academy of Sciences entitled "Full cost accounting for the life cycle of coal." Epstein symbolically announced the release of the study today aboard the Greenpeace ship the Arctic Sunrise, which is in the midst of its Coal Free Future Tour. I was on board as well to report on the event.
The study is the first to look at the major costs of coal from extraction to combustion. It finds that coal costs $74 billion a year in public health burdens in Appalachian communities alone. Those costs come from increased health care costs, deaths and injuries that result from mining and transporting coal, and the emissions generated during the coal's combustion.
The emissions of pollutants elsewhere were deemed to cost up to $187.5 billion a year, again due to the health costs of cancer, lung disease, and respiratory sickness. Mercury impacts account for another $29.3 billion. Epstein and his team also looked at the cost of coal's spectacular carbon emissions, in the form of various climate impacts, and the way it's already effecting land use, energy consumption, and food prices across the nation. These costs are estimated at a conservative $205 billion.
Meanwhile, the costs of the spillage of toxic waste and its cleanup, the impact of coal on crops, property values, and tourism account for billions more -- up to $18 billion a year. Add it all up, and you find that coal costs the nation up to half a trillion dollars a year.
"And this is an underestimate," Epstein said.
In the conclusion of his speech, Epstein suggested some solutions. "What can we do? We need to phase out coal rapidly. We need to move rapidly with healthy solutions." Which means, he says, smart growth in cities, more green buildings, clean energy, rooftop gardens, public transport, and communities connected with light rail. "It means more jobs, cleaner air, and healthier cities," Epstein said.
Monday, February 14, 2011
The Secrets Behind Your Flowers
From Smithsonian:
In 1967 david cheever, a graduate student in horticulture at Colorado State University, wrote a term paper titled “Bogotá, Colombia as a Cut-Flower Exporter for World Markets.” The paper suggested that the savanna near Colombia’s capital was an ideal place to grow flowers to sell in the United States. The savanna is a high plain fanning out from the Andean foothills, about 8,700 feet above sea level and 320 miles north of the Equator, and close to both the Pacific Ocean and the Caribbean Sea. Those circumstances, Cheever wrote, create a pleasant climate with little temperature variation and consistent light, about 12 hours per day year-round—ideal for a crop that must always be available. A former lakebed, the savanna also has dense, clay-rich soil and networks of wetlands, tributaries and waterfalls left after the lake receded 100,000 years ago. And, Cheever noted, Bogotá was just a three-hour flight from Miami—closer to East Coast customers than California, the center of the U.S. flower industry.
After graduating, Cheever put his theories into practice. He and three partners invested $25,000 apiece to start a business in Colombia called Floramérica, which applied assembly-line practices and modern shipping techniques at greenhouses close to Bogotá’s El Dorado International Airport. The company started with carnations. “We did our first planting in October of 1969, for Mother’s Day 1970, and we hit it right on the money,” says Cheever, 72, who is retired and lives in Medellín, Colombia, and New Hampshire.
It’s not often that a global industry springs from a school assignment, but Cheever’s paper and business efforts started an economic revolution in Colombia. A few other growers had exported flowers to the United States, but Floramérica turned it into a big business. Within five years of Floramérica’s debut at least ten more flower-growing companies were operating on the savanna, exporting some $16 million in cut flowers to the United States. By 1991, the World Bank reported, the industry was “a textbook story of how a market economy works.” Today, the country is the world’s second-largest exporter of cut flowers, after the Netherlands, shipping more than $1 billion in blooms. Colombia now commands about 70 percent of the U.S. market; if you buy a bouquet in a supermarket, big-box store or airport kiosk, it probably came from the Bogotá savanna.
This growth took place in a country ravaged by political violence for most of the 20th century and by the cocaine trade since the 1980s, and it came with significant help from the United States. To limit coca farming and expand job opportunities in Colombia, the U.S. government in 1991 suspended import duties on Colombian flowers. The results were dramatic, though disastrous for U.S. growers. In 1971, the United States produced 1.2 billion blooms of the major flowers (roses, carnations and chrysanthemums) and imported only 100 million. By 2003, the trade balance had reversed; the United States imported two billion major blooms and grew only 200 million.
In the 40 years since Cheever had his brainstorm, Colombian flowers have become another global industrial product, like food or electronics. That became apparent to me a few years ago as I stood in front of the flower display at my local supermarket before Mother’s Day (the second-biggest fresh flower-buying occasion in the United States, after Valentine’s Day). My market, in suburban Maryland, had an impressive display of hundreds of preassembled bouquets, as well as fresh, unbunched roses, gerbera daisies and alstroemeria lilies in five-gallon buckets. One $14.99 bouquet caught my eye: about 25 yellow and white gerbera daisies and a sprig of baby’s breath arranged around a single purplish rose. A sticker on the wrapping indicated it had come from Colombia, some 2,400 miles away.
How could something so delicate and perishable (and once so exotic) have come so far and still be such a bargain? It’s no secret that the inexpensive imported products Americans buy often exact a toll on the people who make them and on the environments where they are made. What was I buying into with my Mother’s Day bouquet? My search for answers took me to a barrio about 25 miles northwest of Bogotá.
In cartagenita, the buses rumble over ruts and potholes, moving slowly up and down steep hillsides lined with cinder block houses. “Turismo” is painted in flowing aquamarine script on the buses, but they are no longer used for tours. They carry workers to the flower farms.
Cartagenita is a neighborhood in Facatativá, a city of about 120,000 people and one of Colombia’s largest flower hubs. Only a few of Cartagenita’s streets are paved, and the homes are connected like town houses but without any plan, so one sometimes stands taller or shorter than the next. The barrio ends abruptly after a few blocks at open pasture. Aidé Silva, a flower worker and union leader, moved there 20 years ago. “I’ve got a house here. My husband built it,” she told me. “He worked at Floramérica, and in the afternoons and when Sunday came everybody worked building that little house.” In the years since, she said, thousands more flower workers have bought cheap land and done the same. Cartagenita has the vitality of a working-class neighborhood. There’s a buzz in the evenings as workers come home, some heading for their houses and apartments, some to hang out in the bars and open-air convenience stores.
In 1967 david cheever, a graduate student in horticulture at Colorado State University, wrote a term paper titled “Bogotá, Colombia as a Cut-Flower Exporter for World Markets.” The paper suggested that the savanna near Colombia’s capital was an ideal place to grow flowers to sell in the United States. The savanna is a high plain fanning out from the Andean foothills, about 8,700 feet above sea level and 320 miles north of the Equator, and close to both the Pacific Ocean and the Caribbean Sea. Those circumstances, Cheever wrote, create a pleasant climate with little temperature variation and consistent light, about 12 hours per day year-round—ideal for a crop that must always be available. A former lakebed, the savanna also has dense, clay-rich soil and networks of wetlands, tributaries and waterfalls left after the lake receded 100,000 years ago. And, Cheever noted, Bogotá was just a three-hour flight from Miami—closer to East Coast customers than California, the center of the U.S. flower industry.
After graduating, Cheever put his theories into practice. He and three partners invested $25,000 apiece to start a business in Colombia called Floramérica, which applied assembly-line practices and modern shipping techniques at greenhouses close to Bogotá’s El Dorado International Airport. The company started with carnations. “We did our first planting in October of 1969, for Mother’s Day 1970, and we hit it right on the money,” says Cheever, 72, who is retired and lives in Medellín, Colombia, and New Hampshire.
It’s not often that a global industry springs from a school assignment, but Cheever’s paper and business efforts started an economic revolution in Colombia. A few other growers had exported flowers to the United States, but Floramérica turned it into a big business. Within five years of Floramérica’s debut at least ten more flower-growing companies were operating on the savanna, exporting some $16 million in cut flowers to the United States. By 1991, the World Bank reported, the industry was “a textbook story of how a market economy works.” Today, the country is the world’s second-largest exporter of cut flowers, after the Netherlands, shipping more than $1 billion in blooms. Colombia now commands about 70 percent of the U.S. market; if you buy a bouquet in a supermarket, big-box store or airport kiosk, it probably came from the Bogotá savanna.
This growth took place in a country ravaged by political violence for most of the 20th century and by the cocaine trade since the 1980s, and it came with significant help from the United States. To limit coca farming and expand job opportunities in Colombia, the U.S. government in 1991 suspended import duties on Colombian flowers. The results were dramatic, though disastrous for U.S. growers. In 1971, the United States produced 1.2 billion blooms of the major flowers (roses, carnations and chrysanthemums) and imported only 100 million. By 2003, the trade balance had reversed; the United States imported two billion major blooms and grew only 200 million.
In the 40 years since Cheever had his brainstorm, Colombian flowers have become another global industrial product, like food or electronics. That became apparent to me a few years ago as I stood in front of the flower display at my local supermarket before Mother’s Day (the second-biggest fresh flower-buying occasion in the United States, after Valentine’s Day). My market, in suburban Maryland, had an impressive display of hundreds of preassembled bouquets, as well as fresh, unbunched roses, gerbera daisies and alstroemeria lilies in five-gallon buckets. One $14.99 bouquet caught my eye: about 25 yellow and white gerbera daisies and a sprig of baby’s breath arranged around a single purplish rose. A sticker on the wrapping indicated it had come from Colombia, some 2,400 miles away.
How could something so delicate and perishable (and once so exotic) have come so far and still be such a bargain? It’s no secret that the inexpensive imported products Americans buy often exact a toll on the people who make them and on the environments where they are made. What was I buying into with my Mother’s Day bouquet? My search for answers took me to a barrio about 25 miles northwest of Bogotá.
In cartagenita, the buses rumble over ruts and potholes, moving slowly up and down steep hillsides lined with cinder block houses. “Turismo” is painted in flowing aquamarine script on the buses, but they are no longer used for tours. They carry workers to the flower farms.
Cartagenita is a neighborhood in Facatativá, a city of about 120,000 people and one of Colombia’s largest flower hubs. Only a few of Cartagenita’s streets are paved, and the homes are connected like town houses but without any plan, so one sometimes stands taller or shorter than the next. The barrio ends abruptly after a few blocks at open pasture. Aidé Silva, a flower worker and union leader, moved there 20 years ago. “I’ve got a house here. My husband built it,” she told me. “He worked at Floramérica, and in the afternoons and when Sunday came everybody worked building that little house.” In the years since, she said, thousands more flower workers have bought cheap land and done the same. Cartagenita has the vitality of a working-class neighborhood. There’s a buzz in the evenings as workers come home, some heading for their houses and apartments, some to hang out in the bars and open-air convenience stores.
Saturday, February 12, 2011
Stuxnet Hit 5 Gateway Targets on Its Way to Iranian Plant
From Wired:
Attackers behind the Stuxnet computer worm focused on targeting five organizations in Iran that they believed would get them to their final target in that country, according to a new report from security researchers.
The five organizations, believed to be the first that were infected with the worm, were targeted in five separate attacks over a number of months in 2009 and 2010, before Stuxnet was discovered in June 2010 and publicly exposed. Stuxnet spread from these organizations into other organizations on its way to its final target, which is believed to have been a nuclear enrichment facility or facilities in Iran.
“These five organizations were infected, and from those five computers Stuxnet spread out — not to just computers in those organizations, but to other computes as well,” says Liam O Murchu, manager of operations for Symantec Security Response. “It all started with those five original domains.”
The new information comes in an updated report from researchers at Symantec (.pdf), a computer security firm that has provided some of the leading analysis of the worm since it was discovered.
According to the report, Stuxnet’s first attack against the five organizations occurred in June 2009, followed by a second attack in July 2009. Eight months passed before subsequent attacks were launched in March, April and May 2010. The last attack was just one month before the code was discovered in June 2010 by VirusBlokAda, a security firm in Belarus, which said it had found the malware on computers of unspecified clients in Iran.
Symantec didn’t identify the names of the five organizations that were targeted; the company said only that all five “have a presence in Iran” and are involved in industrial processes. One of the organizations (what Symantec refers to as Domain B) was targeted with the worm in three of the five attacks. Of the remaining organizations, three of them were hit once, and the last organization was targeted twice.
Symantec has so far been able to count a constellation of 12,000 infections in the five organizations and outside organizations to which the malware spread. The most successful attack occurred in March 2010 when 69 percent of these infections occurred. The March attack targeted only Domain B, then spread.
Symantec found that the shortest time between when the malware was compiled in one case — that is turned from source code into a working piece of software — and the subsequent attack using the code occurred, was just 12 hours. This occurred in the June 2009 attack.
“This tells us that the attackers more than likely knew who they wanted to infect before they completed the code,” O Murchu says. “They knew in advance who they wanted to target and how they were going to get it there.”
Stuxnet was not designed to spread via the internet but via an infected USB stick or some other targeted method within a local network. So the short timeframe between compilation and the launch of the June 2009 attack also suggests that the attackers had immediate access to the computer they attacked — either working with an insider or using an unwitting insider to introduce the infection.
“It could be they sent it to someone who put it on a USB key, or it could have been delivered via spear-phishing,” O Murchu says. “What we do see is that the exploits in Stuxnet are all land-based, so it is not going to spread wildly on the internet. From that, we can assume the attackers wanted to deliver Stuxnet to an organization that was very close to whatever the final destination for Stuxnet was.”
Symantec, working with other security firms, has so far been able to collect and examine 3,280 unique samples of the code. Stuxnet has infected more than 100,000 computers in Iran, Europe and the United States, but it’s designed to only deliver its malicious payload when it finds itself on the final system or systems it’s targeting.
On systems that are not targeted, the worm just sits and finds ways to spread to other computers in search of its target. To date, three variants of Stuxnet have been found (dating to June 2009, March 2010 and April 2010). Symantec believes a fourth variant likely exists, but researchers have not found it yet.
One of the organizations, Domain B, was targeted each time the attackers released a new version of Stuxnet.
“So it looks like they felt that if they got in there, Stuxnet would spread to the [system] they actually wanted to attack,” O Murchu says.
After the worm was discovered in June 2010, Symantec researchers worked on reverse-engineering the code to determine what it was designed to do. Two months later, the company stunned the security community when it revealed that Stuxnet was designed to attack Programmable Logic Controllers (PLCs), something that until then was considered a theoretical attack but had never been proven done. PLCs are components that work with SCADA systems (supervisory control and data acquisition systems) that control critical infrastructure systems and manufacturing facilities.
Shortly after Symantec released this information last August, German researcher Ralph Langner disclosed that Stuxnet was not attacking just any PLC, it was targeted to sabotage a specific facility or facilities. Speculation focused on Iran’s nuclear enrichment plant at Natanz as the likely target. Iran has acknowledged that malicious software struck computers at Natanz and affected centrifuges at the plant, but has not provided any details beyond this.
Attackers behind the Stuxnet computer worm focused on targeting five organizations in Iran that they believed would get them to their final target in that country, according to a new report from security researchers.
The five organizations, believed to be the first that were infected with the worm, were targeted in five separate attacks over a number of months in 2009 and 2010, before Stuxnet was discovered in June 2010 and publicly exposed. Stuxnet spread from these organizations into other organizations on its way to its final target, which is believed to have been a nuclear enrichment facility or facilities in Iran.
“These five organizations were infected, and from those five computers Stuxnet spread out — not to just computers in those organizations, but to other computes as well,” says Liam O Murchu, manager of operations for Symantec Security Response. “It all started with those five original domains.”
The new information comes in an updated report from researchers at Symantec (.pdf), a computer security firm that has provided some of the leading analysis of the worm since it was discovered.
According to the report, Stuxnet’s first attack against the five organizations occurred in June 2009, followed by a second attack in July 2009. Eight months passed before subsequent attacks were launched in March, April and May 2010. The last attack was just one month before the code was discovered in June 2010 by VirusBlokAda, a security firm in Belarus, which said it had found the malware on computers of unspecified clients in Iran.
Symantec didn’t identify the names of the five organizations that were targeted; the company said only that all five “have a presence in Iran” and are involved in industrial processes. One of the organizations (what Symantec refers to as Domain B) was targeted with the worm in three of the five attacks. Of the remaining organizations, three of them were hit once, and the last organization was targeted twice.
Symantec has so far been able to count a constellation of 12,000 infections in the five organizations and outside organizations to which the malware spread. The most successful attack occurred in March 2010 when 69 percent of these infections occurred. The March attack targeted only Domain B, then spread.
Domain A was targeted twice (Jun 2009 and Apr 2010). The same computer appears to have been infected each time.O Murchu acknowledges that there could have been earlier attacks that occurred before June 2009, but no one has found evidence of this yet.
Domain B was targeted three times (Jun 2009, Mar 2010, and May 2010).
Domain C was targeted once (Jul 2009).
Domain D was targeted once (Jul 2009).
Domain E appears to have been targeted once (May 2010), but had three initial infections. (I.e., the same initially infected USB key was inserted into three different computers.)
Symantec found that the shortest time between when the malware was compiled in one case — that is turned from source code into a working piece of software — and the subsequent attack using the code occurred, was just 12 hours. This occurred in the June 2009 attack.
“This tells us that the attackers more than likely knew who they wanted to infect before they completed the code,” O Murchu says. “They knew in advance who they wanted to target and how they were going to get it there.”
Stuxnet was not designed to spread via the internet but via an infected USB stick or some other targeted method within a local network. So the short timeframe between compilation and the launch of the June 2009 attack also suggests that the attackers had immediate access to the computer they attacked — either working with an insider or using an unwitting insider to introduce the infection.
“It could be they sent it to someone who put it on a USB key, or it could have been delivered via spear-phishing,” O Murchu says. “What we do see is that the exploits in Stuxnet are all land-based, so it is not going to spread wildly on the internet. From that, we can assume the attackers wanted to deliver Stuxnet to an organization that was very close to whatever the final destination for Stuxnet was.”
Symantec, working with other security firms, has so far been able to collect and examine 3,280 unique samples of the code. Stuxnet has infected more than 100,000 computers in Iran, Europe and the United States, but it’s designed to only deliver its malicious payload when it finds itself on the final system or systems it’s targeting.
On systems that are not targeted, the worm just sits and finds ways to spread to other computers in search of its target. To date, three variants of Stuxnet have been found (dating to June 2009, March 2010 and April 2010). Symantec believes a fourth variant likely exists, but researchers have not found it yet.
One of the organizations, Domain B, was targeted each time the attackers released a new version of Stuxnet.
“So it looks like they felt that if they got in there, Stuxnet would spread to the [system] they actually wanted to attack,” O Murchu says.
After the worm was discovered in June 2010, Symantec researchers worked on reverse-engineering the code to determine what it was designed to do. Two months later, the company stunned the security community when it revealed that Stuxnet was designed to attack Programmable Logic Controllers (PLCs), something that until then was considered a theoretical attack but had never been proven done. PLCs are components that work with SCADA systems (supervisory control and data acquisition systems) that control critical infrastructure systems and manufacturing facilities.
Shortly after Symantec released this information last August, German researcher Ralph Langner disclosed that Stuxnet was not attacking just any PLC, it was targeted to sabotage a specific facility or facilities. Speculation focused on Iran’s nuclear enrichment plant at Natanz as the likely target. Iran has acknowledged that malicious software struck computers at Natanz and affected centrifuges at the plant, but has not provided any details beyond this.
The heart of the matter
With Valentine's day approaching, the media is flooded with stories about hearts. One theme repeated over the years is the dissimilarity between hearts depicted on candies and greeting cards and the blood-pumping organ in our bodies.
This morning it occurred to me that the two really have only a name in common. There's no reason for them to look alike, as the heart that one gives in love is figurative or metaphorical, and in no way meant to represent any of the body's organs. The symmetrical shape so common to bumper stickers, t-shirts, and the doodling of teenage girls is merely a visual symbol of the heart of which one speaks when waxing poetic about love and courage.
This morning it occurred to me that the two really have only a name in common. There's no reason for them to look alike, as the heart that one gives in love is figurative or metaphorical, and in no way meant to represent any of the body's organs. The symmetrical shape so common to bumper stickers, t-shirts, and the doodling of teenage girls is merely a visual symbol of the heart of which one speaks when waxing poetic about love and courage.
Friday, February 11, 2011
Wise Up about Wi-Fi: Tips for Using Public Wireless Networks
From OnGuard Online:
Using a Wi-Fi Hotspot?
Is this hotspot secure?Public wireless networks – those Wi-Fi hotspots in coffee shops, libraries, airports, hotels, universities, and other public places – allow people to access the internet through a shared network. While convenient, they’re often not secure. You’re sharing the network with strangers, and some of them may be interested in your personal information.
Technology experts at the Federal Trade Commission (FTC), the nation’s consumer protection agency, say encryption is the key to keeping your personal information secure online. Encryption scrambles the information you send over the internet into a code so that it’s not accessed by others. When using wireless networks, it’s best to send personal information only if it’s encrypted – either by an encrypted website or a secure network. An encrypted website protects only the information you send to and from that site. A secure wireless network encrypts all of the information you send while online.
If you send email, share digital photos and videos, use online tools to manage calendars and contact lists, use social networks, or bank online, you’re sending personal information over the internet. The information you share is stored on a server – a powerful computer that collects and delivers content. Many websites, such as banking sites, use encryption to protect your information as it travels from your computer to their server.
To determine if a website is encrypted, look for https at the beginning of the web address (the “s” is for secure), and a lock icon at the top or bottom of your browser window. The exact position of the lock depends on which browser you use. Some websites use encryption only on the sign-in page, but if any part of your session isn’t encrypted, the entire account could be vulnerable. Look for https and the lock icon the entire time you’re on the site, not just when you sign in. You can also click on the lock icon to display information about the site and help you verify that it’s not a fraudulent website.
Most Wi-Fi hotspots don’t encrypt the information you send over the internet and are not secure. If you use an unsecured network to log in to an unencrypted site – or a site that uses encryption only on the sign-in page – other users on the network can see what you see and what you send. They could hijack your session and log in as you. New hacking tools – available for free online – make this easy, even for users with limited technical know-how. Your personal information, private documents, contacts, family photos, and even your login credentials could be up for grabs.
An imposter could use your account to impersonate you and scam people you care about. In addition, an attacker could test your username and password to try to gain access to other websites – including sites that store your financial information.
So what can you do to protect your information? Here are a few tips:
Quick Facts
Using a Wi-Fi Hotspot?
- Only log in to websites that are fully encrypted.
Is this hotspot secure?
- If a hotspot doesn't require a password, it's not secure.
- If a hotspot asks for a password through your browser simply to grant access, or it asks for a WEP password, it's best to treat it as if it were unsecured.
- You can be confident a hotspot is secure only if you are asked to provide a WPA password. If you're not sure, the information you enter could be at risk. WPA2 is the most secure.
Technology experts at the Federal Trade Commission (FTC), the nation’s consumer protection agency, say encryption is the key to keeping your personal information secure online. Encryption scrambles the information you send over the internet into a code so that it’s not accessed by others. When using wireless networks, it’s best to send personal information only if it’s encrypted – either by an encrypted website or a secure network. An encrypted website protects only the information you send to and from that site. A secure wireless network encrypts all of the information you send while online.
How to Identify an Encrypted Website
If you send email, share digital photos and videos, use online tools to manage calendars and contact lists, use social networks, or bank online, you’re sending personal information over the internet. The information you share is stored on a server – a powerful computer that collects and delivers content. Many websites, such as banking sites, use encryption to protect your information as it travels from your computer to their server.
To determine if a website is encrypted, look for https at the beginning of the web address (the “s” is for secure), and a lock icon at the top or bottom of your browser window. The exact position of the lock depends on which browser you use. Some websites use encryption only on the sign-in page, but if any part of your session isn’t encrypted, the entire account could be vulnerable. Look for https and the lock icon the entire time you’re on the site, not just when you sign in. You can also click on the lock icon to display information about the site and help you verify that it’s not a fraudulent website.
Public Wireless Networks
Most Wi-Fi hotspots don’t encrypt the information you send over the internet and are not secure. If you use an unsecured network to log in to an unencrypted site – or a site that uses encryption only on the sign-in page – other users on the network can see what you see and what you send. They could hijack your session and log in as you. New hacking tools – available for free online – make this easy, even for users with limited technical know-how. Your personal information, private documents, contacts, family photos, and even your login credentials could be up for grabs.
An imposter could use your account to impersonate you and scam people you care about. In addition, an attacker could test your username and password to try to gain access to other websites – including sites that store your financial information.
Protect Your Information
So what can you do to protect your information? Here are a few tips:
- When using a Wi-Fi hotspot, only log in or send personal information to websites that you know are fully encrypted. And keep in mind that your entire visit to each site should be encrypted – from the time you log in to the site until you log out. If you think you’re logged in to an encrypted site but find yourself on an unencrypted page, log out right away.
- Don’t stay permanently signed in to accounts. When you’ve finished using an account, log out.
- Do not use the same password on different websites. It could give someone who gains access to one of your accounts access to many of your accounts.
- Many web browsers alert users who try to visit fraudulent websites or download malicious programs. Pay attention to these warnings, and take the extra minute or so to keep your browser and security software up-to-date.
- If you regularly access online accounts through Wi-Fi hotspots, use a virtual private network (VPN). VPNs encrypt traffic between your computer and the internet, even on unsecured networks. You can obtain a personal VPN account from a VPN service provider. In addition, some organizations create VPNs to provide secure, remote access for their employees.
- Some Wi-Fi networks use encryption: WEP and WPA are the most common. WPA encryption protects your information against common hacking programs. WEP may not. If you aren’t certain that you are on a WPA network, use the same precautions as on an unsecured network.
- Installing browser add-ons or plug-ins can help, too. For example, Force-TLS and HTTPS-Everywhere are free Firefox add-ons that force the browser to use encryption on popular websites that usually aren't encrypted. They don’t protect you on all websites – look for https in the URL and the lock icon to know a site is secure.
Thursday, February 10, 2011
FOX NEWS INSIDER: “Stuff Is Just Made Up”
From Media Matters
Asked what most viewers and observers of Fox News would be surprised to learn about the controversial cable channel, a former insider from the world of Rupert Murdoch was quick with a response: “I don’t think people would believe it’s as concocted as it is; that stuff is just made up.”
Indeed, a former Fox News employee who recently agreed to talk with Media Matters confirmed what critics have been saying for years about Murdoch’s cable channel. Namely, that Fox News is run as a purely partisan operation, virtually every news story is actively spun by the staff, its primary goal is to prop up Republicans and knock down Democrats, and that staffers at Fox News routinely operate without the slightest regard for fairness or fact checking.
“It is their M.O. to undermine the administration and to undermine Democrats,” says the source. “They’re a propaganda outfit but they call themselves news.”
And that’s the word from inside Fox News.
Note the story here isn’t that Fox News leans right. Everyone knows the channel pushes a conservative-friendly version of the news. Everyone who’s been paying attention has known that since the channel’s inception more than a decade ago. The real story, and the real danger posed by the cable outlet, is that over time Fox News stopped simply leaning to the right and instead became an open and active political player, sort of one-part character assassin and one-part propagandist, depending on which party was in power. And that the operation thrives on fabrications and falsehoods.
“They say one thing and do another. They insist on maintaining this charade, this façade, that they’re balanced or that they’re not right-wing extreme propagandist,” says the source. But it’s all a well-orchestrated lie, according this former insider. It’s a lie that permeates the entire Fox News culture and one that staffers and producers have to learn quickly in order to survive professionally.
“You have to work there for a while to understand the nods and the winks,” says the source. “And God help you if you don’t because sooner or later you’re going to get burned.”
The source explains:
“Like any news channel there’s lot of room for non-news content. The content that wasn’t ‘news,’ they didn’t care what we did with as long as it was amusing or quirky or entertaining; as along as it brought in eyeballs. But anything—anything--that was a news story you had to understand what the spin should be on it. If it was a big enough story it was explained to you in the morning [editorial] meeting. If it wasn’t explained, it was up to you to know the conservative take on it. There’s a conservative take on every story no matter what it is. So you either get told what it is or you better intuitively know what it is.”
What if Fox News staffers aren’t instinctively conservative or don’t have an intuitive feeling for what the spin on a story should be? “My internal compass was to think like an intolerant meathead,” the source explains. “You could never error on the side of not being intolerant enough.”
The source recalls how Fox News changed over time:
“When I first got there back in the day, and I don’t know how they indoctrinate people now, but back in the day when they were “training” you, as it were, they would say, ‘Here’s how we’re different.’ They’d say if there is an execution of a condemned man at midnight and there are all the live truck outside the prison and all the lives shots. CNN would go, ‘Yes, tonight John Jackson, 25 of Mississippi, is going to die by lethal injection for the murder of two girls.’ MSNBC would say the same thing.
“We would come out and say, ‘Tonight, John Jackson who kidnapped an innocent two year old, raped her, sawed her head off and threw it in the school yard, is going to get the punishment that a jury of his peers thought he should get.’ And they say that’s the way we do it here. And you’re going , alright, it’s a bit of an extreme example but it’s something to think about. It’s not unreasonable.
"When you first get in they tell you we’re a bit of a counterpart to the screaming left wing lib media. So automatically you have to buy into the idea that the other media is howling left-wing. Don’t even start arguing that or you won’t even last your first day.
“For the first few years it was let’s take the conservative take on things. And then after a few years it evolved into, well it’s not just the conservative take on things, we’re going to take the Republican take on things which is not necessarily in lock step with the conservative point of view.
“And then two, three, five years into that it was, we’re taking the Bush line on things, which was different than the GOP. We were a Stalin-esque mouthpiece. It was just what Bush says goes on our channel. And by that point it was just totally dangerous. Hopefully most people understand how dangerous it is for a media outfit to be a straight, unfiltered mouthpiece for an unchecked president.”
It’s worth noting that Fox News employees, either current or former, rarely speak to the press, even anonymously. And it’s even rarer for Fox News sources to bad mouth Murdoch’s channel. That’s partly because of strict non-disclosure agreements that most exiting employees sign and which forbid them from discussing their former employer. But it also stems from a pervasive us-vs.-them attitude that permeates Fox News. It’s a siege mentality that network boss Roger Ailes encourages, and one that colors the coverage his team produces.
“It was a kick ass mentality too,” says the former Fox News insider. “It was relentless and it never went away. If one controversy faded, goddamn it they would find another one. They were in search of these points of friction real or imagined. And most of them were imagined or fabricated. You always have to seem to be under siege. You always have to seem like your values are under attack. The brain trust just knew instinctively which stories to do, like the War on Christmas.”
According to the insider, Ailes is obsessed with presenting a unified Fox News front to the outside world; an obsession that may explain Ailes’ refusal to publically criticize or even critique his own team regardless of how outlandish their on-air behavior. “There may be internal squabbles. But what [Ailes] continually preaches is never piss outside the tent,” says the source. “When he gets really crazy is when stuff leaks out the door. He goes mental on that. He can’t stand that. He says in a dynamic enterprise like a network newsroom there’s going to be in fighting and ego, but he says keep it in the house.”
It’s clear that Fox News has become a misleading, partisan outlet. But here’s what the source stresses: Fox News is designed to mislead its viewers and designed to engage in a purely political enterprise.
In 2010, all sorts of evidence tumbled out to confirm that fact, like the recently leaked emails from inside Fox News, in which a top editor instructed his newsroom staffers (not just the opinion show hosts) to slant the news when reporting on key stories such as climate change and health care reform.
Meanwhile, Media Matters revealed that during the 2009-2010 election cycle, dozens of Fox News personalities endorsed, raised money, or campaigned for Republican candidates or organizations in more than 600 instances. And in terms of free TV airtime that Fox News handed over to GOP hopefuls, Media Matters calculated the channel essentially donated $55 million worth of airtime to Republican presidential hopefuls last year who also collect Fox News paychecks.
And of course, that’s when Murdoch wasn’t writing $1 million checks in the hopes of electing more Republican politicians.
So, Fox News as a legitimate news outlet? The source laughs at the suggestion, and thinks much of the public, along with the Beltway press corps, has been duped by Murdoch’s marketing campaign over the years. “People assume you need a license to call yourself a news channel. You don’t. So because they call themselves Fox News, people probably give them a pass on a lot of things,” says the source.
The source continues: “I don’t think people understand that it’s an organization that’s built and functions by intimidation and bullying, and its goal is to prop up and support Republicans and the GOP and to knock down Democrats. People tend think that stuff that’s on TV is real, especially under the guise of news. You’d think that people would wise up, but they don’t.”
As for the press, the former Fox News employee gives reporters and pundits low grades for refusing, over the years, to call out Fox News for being the propaganda outlet that it so clearly is. The source suggests there are a variety of reasons for the newsroom timidity.
“They don’t have enough staff or enough balls or don’t have enough money or don’t have enough interest to spend the time it takes to expose Fox News. Or it’s not worth the trouble. If you take on Fox, they’ll kick you in the ass,” says the source. “I’m sure most [journalists] know that. It’s not worth being Swift Boated for your effort,” a reference to how Fox News traditionally attacks journalists who write, or are perceived to have written, anything negative things about the channel.
The former insider admits to being perplexed in late 2009 when the Obama White House called out Murdoch’s operation as not being a legitimate new source, only to have major Beltway media players rush to the aid of Fox News and admonish the White House for daring to criticize the cable channel.
“That blew me away,” says the source, who stresses the White House’s critique of Fox News “happens to be true.”
Indeed, a former Fox News employee who recently agreed to talk with Media Matters confirmed what critics have been saying for years about Murdoch’s cable channel. Namely, that Fox News is run as a purely partisan operation, virtually every news story is actively spun by the staff, its primary goal is to prop up Republicans and knock down Democrats, and that staffers at Fox News routinely operate without the slightest regard for fairness or fact checking.
“It is their M.O. to undermine the administration and to undermine Democrats,” says the source. “They’re a propaganda outfit but they call themselves news.”
And that’s the word from inside Fox News.
Note the story here isn’t that Fox News leans right. Everyone knows the channel pushes a conservative-friendly version of the news. Everyone who’s been paying attention has known that since the channel’s inception more than a decade ago. The real story, and the real danger posed by the cable outlet, is that over time Fox News stopped simply leaning to the right and instead became an open and active political player, sort of one-part character assassin and one-part propagandist, depending on which party was in power. And that the operation thrives on fabrications and falsehoods.
“They say one thing and do another. They insist on maintaining this charade, this façade, that they’re balanced or that they’re not right-wing extreme propagandist,” says the source. But it’s all a well-orchestrated lie, according this former insider. It’s a lie that permeates the entire Fox News culture and one that staffers and producers have to learn quickly in order to survive professionally.
“You have to work there for a while to understand the nods and the winks,” says the source. “And God help you if you don’t because sooner or later you’re going to get burned.”
The source explains:
“Like any news channel there’s lot of room for non-news content. The content that wasn’t ‘news,’ they didn’t care what we did with as long as it was amusing or quirky or entertaining; as along as it brought in eyeballs. But anything—anything--that was a news story you had to understand what the spin should be on it. If it was a big enough story it was explained to you in the morning [editorial] meeting. If it wasn’t explained, it was up to you to know the conservative take on it. There’s a conservative take on every story no matter what it is. So you either get told what it is or you better intuitively know what it is.”
What if Fox News staffers aren’t instinctively conservative or don’t have an intuitive feeling for what the spin on a story should be? “My internal compass was to think like an intolerant meathead,” the source explains. “You could never error on the side of not being intolerant enough.”
The source recalls how Fox News changed over time:
“When I first got there back in the day, and I don’t know how they indoctrinate people now, but back in the day when they were “training” you, as it were, they would say, ‘Here’s how we’re different.’ They’d say if there is an execution of a condemned man at midnight and there are all the live truck outside the prison and all the lives shots. CNN would go, ‘Yes, tonight John Jackson, 25 of Mississippi, is going to die by lethal injection for the murder of two girls.’ MSNBC would say the same thing.
“We would come out and say, ‘Tonight, John Jackson who kidnapped an innocent two year old, raped her, sawed her head off and threw it in the school yard, is going to get the punishment that a jury of his peers thought he should get.’ And they say that’s the way we do it here. And you’re going , alright, it’s a bit of an extreme example but it’s something to think about. It’s not unreasonable.
"When you first get in they tell you we’re a bit of a counterpart to the screaming left wing lib media. So automatically you have to buy into the idea that the other media is howling left-wing. Don’t even start arguing that or you won’t even last your first day.
“For the first few years it was let’s take the conservative take on things. And then after a few years it evolved into, well it’s not just the conservative take on things, we’re going to take the Republican take on things which is not necessarily in lock step with the conservative point of view.
“And then two, three, five years into that it was, we’re taking the Bush line on things, which was different than the GOP. We were a Stalin-esque mouthpiece. It was just what Bush says goes on our channel. And by that point it was just totally dangerous. Hopefully most people understand how dangerous it is for a media outfit to be a straight, unfiltered mouthpiece for an unchecked president.”
It’s worth noting that Fox News employees, either current or former, rarely speak to the press, even anonymously. And it’s even rarer for Fox News sources to bad mouth Murdoch’s channel. That’s partly because of strict non-disclosure agreements that most exiting employees sign and which forbid them from discussing their former employer. But it also stems from a pervasive us-vs.-them attitude that permeates Fox News. It’s a siege mentality that network boss Roger Ailes encourages, and one that colors the coverage his team produces.
“It was a kick ass mentality too,” says the former Fox News insider. “It was relentless and it never went away. If one controversy faded, goddamn it they would find another one. They were in search of these points of friction real or imagined. And most of them were imagined or fabricated. You always have to seem to be under siege. You always have to seem like your values are under attack. The brain trust just knew instinctively which stories to do, like the War on Christmas.”
According to the insider, Ailes is obsessed with presenting a unified Fox News front to the outside world; an obsession that may explain Ailes’ refusal to publically criticize or even critique his own team regardless of how outlandish their on-air behavior. “There may be internal squabbles. But what [Ailes] continually preaches is never piss outside the tent,” says the source. “When he gets really crazy is when stuff leaks out the door. He goes mental on that. He can’t stand that. He says in a dynamic enterprise like a network newsroom there’s going to be in fighting and ego, but he says keep it in the house.”
It’s clear that Fox News has become a misleading, partisan outlet. But here’s what the source stresses: Fox News is designed to mislead its viewers and designed to engage in a purely political enterprise.
In 2010, all sorts of evidence tumbled out to confirm that fact, like the recently leaked emails from inside Fox News, in which a top editor instructed his newsroom staffers (not just the opinion show hosts) to slant the news when reporting on key stories such as climate change and health care reform.
Meanwhile, Media Matters revealed that during the 2009-2010 election cycle, dozens of Fox News personalities endorsed, raised money, or campaigned for Republican candidates or organizations in more than 600 instances. And in terms of free TV airtime that Fox News handed over to GOP hopefuls, Media Matters calculated the channel essentially donated $55 million worth of airtime to Republican presidential hopefuls last year who also collect Fox News paychecks.
And of course, that’s when Murdoch wasn’t writing $1 million checks in the hopes of electing more Republican politicians.
So, Fox News as a legitimate news outlet? The source laughs at the suggestion, and thinks much of the public, along with the Beltway press corps, has been duped by Murdoch’s marketing campaign over the years. “People assume you need a license to call yourself a news channel. You don’t. So because they call themselves Fox News, people probably give them a pass on a lot of things,” says the source.
The source continues: “I don’t think people understand that it’s an organization that’s built and functions by intimidation and bullying, and its goal is to prop up and support Republicans and the GOP and to knock down Democrats. People tend think that stuff that’s on TV is real, especially under the guise of news. You’d think that people would wise up, but they don’t.”
As for the press, the former Fox News employee gives reporters and pundits low grades for refusing, over the years, to call out Fox News for being the propaganda outlet that it so clearly is. The source suggests there are a variety of reasons for the newsroom timidity.
“They don’t have enough staff or enough balls or don’t have enough money or don’t have enough interest to spend the time it takes to expose Fox News. Or it’s not worth the trouble. If you take on Fox, they’ll kick you in the ass,” says the source. “I’m sure most [journalists] know that. It’s not worth being Swift Boated for your effort,” a reference to how Fox News traditionally attacks journalists who write, or are perceived to have written, anything negative things about the channel.
The former insider admits to being perplexed in late 2009 when the Obama White House called out Murdoch’s operation as not being a legitimate new source, only to have major Beltway media players rush to the aid of Fox News and admonish the White House for daring to criticize the cable channel.
“That blew me away,” says the source, who stresses the White House’s critique of Fox News “happens to be true.”
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