Aligned justice
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Aligned justice

Summary
Matt Taibbi describes the
This page reviews the inhibiting effect of the value delivery system on the expression of new phenotypic effects within an agent. 
phenotypic alignment
of the American justice system.  The result he explains relentlessly grinds the poor and undocumented into resources to be constrained, consumed and ejected.  Even as it supports and aligns the financial infrastructure into a potent weapon capable of targeting any company or nation to extract profits and leave the victim deflated. 

Taibbi uses five scenarios to provide a broad picture of the: activities, crimes, policing, prosecutions, court processes, prisons and deportation network.  The scenarios are: Undocumented people's neighborhoods, Poor neighborhoods, Welfare recipients, Credit card debtors and Financial institutions.

Following our summary of his arguments, RSS is Rob's Strategy Studio comments on them framed by complex adaptive system (CAS) theory.  The alignment of the justice system reflects a set of long term strategies and responses to a powerful global arms race that the US leadership aims to develop plans and strategies which ensure effective coordination to improve the common good of the in-group.  John Adair developed a leadership methodology based on the three-circles model. 
intends to win. 

The Divide
In Matt Taibbi's book 'The Divide' he explores how:
  • On the one hand -- America has seen a steady drop in violent crime since 1991, as the prison population exploded and poverty rates which had been falling until 2000 rose again.  He notes there are now more blacks in jail than there were slaves in the American 'south'.  And all levels of government are increasingly powerful compared to the majority of citizens. 
  • While -- no high-ranking executives from any leading financial institution have gone to jail for the many crimes linked to the great recession of 2008.  He notes that J. P. Morgan Chase paid fines of $13 billion but no one went to jail. 
He suggests that it has become progressively easier for prosecutors to succeed with the millions of cases against the poor.  Many of these cases are for very minor offenses and the punishment depends on who and where the defendant was.  Around the rule of law an idiosyncratic network has developed which criminalizes failure, poverty and weakness and immunizes strength, wealth is schematically useful information and its equivalent, schematically useful energy, to paraphrase Beinhocker.  It is useful because an agent has schematic strategies that can utilize the information or energy to extend or leverage control of the cognitive niche.  
and success.  It does this by handling differently: Who gets indicted verses fined, Who gets a criminal record, Who pays, Which neighborhoods are the focus of police attention.  In contrast the major banks can pay an army of exceptional lawyers to relentlessly defend them for years at a time.  For these lawyers ethical violations are not crimes.  But those violations include: supporting terrorist and drug lord financing. 

Taibbi concludes that much of the transformation is due to:

Unintended consequences
Cyrus Vance Jr., New York County District Attorney prosecutes the first bank after the 2008 world recession.  But Abacus Federal Savings Bank was a "patsy":
While Eric Holder was a deputy attorney general in President Clinton's administration he issued a memo titled "Bringing criminal charges against corporations is the title of Clinton Administration Deputy Attorney General Eric Holder's 1999 memo setting rules for deciding if to prosecute corporate cases.  It included:
  • A series of factors to be considered when deciding whether to charge a company:
    • Completeness of its disclosure including a waiver of attorney-client and work product protections
    • If the corporation seems to be protecting its culpable employees and agents. For example by advancing attorney fees.  This turned out to be very problematic implyimg to judges that DOJ was trying to limit the ability of defendents to get a good defense. 
  • A later section titled 'Charging the Corporation: Collateral Consequences' which introduced factors that might influence the decision to file charges.
" which by 2008 had grown hugely significant as financial institutions grew larger.  This was due to:
  • Globalization
  • Repeal of Glass-Steagall Act of 1933 prohibits commercial banks from engaging in the investment business.  
  • Supreme Court roll-back of bans on interstate banking.   
  • Collapse of Arthur Andersen -- The George W. Bush administration's prosecution of Adelphia and Enron resulted in Arthur Andersen being caught shredding tons of Enron related documents and refusing to cooperate with the DOJ - U.S. Department of Justice. 
    .  Andersen was charged and convicted by a jury resulting in the company's collapse with a large loss of jobs.  Later the Rehnquist Supreme Court overturned the conviction and the DOJ declined to re-prosecute.  A section of Holder's memo covering strategies to avoid collateral consequences of prosecutions became suddenly prescient. 
Taibbi notes the Janus like actions of the Bush administration.  While they prosecuted Enron and Arthur Andersen hard they worked with Congress to assist the:
And the administration reduced the major banks capital is the sum total nonhuman assets that can be owned and exchanged on some market according to Piketty.  Capital includes: real property, financial capital and professional capital.  It is not immutable instead depending on the state of the society within which it exists.  It can be owned by governments (public capital) and private individuals (private capital). 
reserve requirements at the S.E.C. is the Securities and Exchange Commission.  It was provided with power to regulate the securities industry by the Securities act and Securities Exchange act.  .  A change which amplified the liquidity problems exposed in 2008. 

During the Bush administration, Holder went back to private practice as a corporate defense specialist lawyer at Covington & Burling.  Their clients included: J.P. Morgan Chase, Bank of America, Citicorp and Wells Fargo

Bush deputy attorney general Larry Thompson leveraged the Holder memo is the title of Clinton Administration Deputy Attorney General Eric Holder's 1999 memo setting rules for deciding if to prosecute corporate cases.  It included:
  • A series of factors to be considered when deciding whether to charge a company:
    • Completeness of its disclosure including a waiver of attorney-client and work product protections
    • If the corporation seems to be protecting its culpable employees and agents. For example by advancing attorney fees.  This turned out to be very problematic implyimg to judges that DOJ was trying to limit the ability of defendents to get a good defense. 
  • A later section titled 'Charging the Corporation: Collateral Consequences' which introduced factors that might influence the decision to file charges.
in his approach to prosecuting large enterprises.  The prosecution of KPMG for hiding $2.5 billion from the IRS in tax shelters reflected Thompson's rules in two key aspects:
  1. Prosecutors opted for a deferred prosecution agreement to protect 18,000 jobs. 
  2. They prosecuted 19 former executives of KPMG and in line with the Holder/Thompson memo's logic pushed KPMG not to pay the defendants' legal fees.  But this aspect undermined the case with Judge Kaplan critical of its attack on the defendants' 6th amendment rights. 
Taibbi argues that there was a shift beginning in the methods used to prosecute financial crimes.  He reflects that previously prosecutors like Elliot Spitzer pushed hard for a criminal prosecution using:
  • Global settlement strategy where representatives of the whole investment banking industry and its supporting analysts were gathered together to hear publicly shared evidence and forced to agree to structural changes in their approach to IPOs
  • Rollup from the bottom strategy used on the Savings and Loans industry - starting with the branch managers and moving up until had the evidence to prosecute the CEOs. 
Taibbi writes that early on in the Obama administration Holder got involved in Alaska's prosecution of Senator Ted Stevens.  The courts threw out the case and Holder decided not to continue with the prosecution.  The DOJ morale collapsed. 

And after the Stephen's debacle the Obama administration with Attorney General Holder and his Covington & Burling colleague Lanny Breuer as head of the DOJ criminal division enforced the use of the Holder Memo for corporate prosecutions.  Prosecutions were dropped: AIG's Joe Cassano and
A key agent in the 1990 - 2008 housing expansion Countrywide is linked into the residential mortgage value delivery system (VDS) by Paul Muolo and Mathew Padilla.  But they show the VDS was full of amplifiers and control points.  With no one incented to apply the brakes the bubble grew and burst.  Following the summary of Muolo and Padilla's key points the complex adaptive system (CAS) aspects are highlighted. 
Countrywide
's Mozilo.  Or they became focused on a few directly involved individuals as in the case of the Madoff and Sanford Ponzi schemes -- not the banks that had enabled and profited from their operations. 

Taibbi argues that the Banks and their executives had committed many prosecutable offenses:
He concludes there was: Fraud, Larceny, Falsifying records, Accounting fraud, Embezzlement, Tax evasion; but even with access to the RICO is the Racketeer Influenced and Corrupt Organizations Act of 1970. 
Laws Holder passed on prosecuting the banks. 

Later testimony from Treasury is the department of the treasury.  it is a federal government executive department created by Act of Congress in 1789 to manage government revenue.  The Secretary of the Treasury is a Cabinet officer.  To support funding of high cost investments: Disaster recovery, Wars, Famines; the treasury can issue debt instruments and manage the national debt. 
Secretary Geithner suggests the administration was sensitive to the risk of inducing systemic collapse.  And Taibbi suggests Holder and Breuer were cautious after the DOJ - U.S. Department of Justice. 
lost the Bear Stearns hedge fund is an investment fund that accepts investments from a limited number of accredited individual or institutional investors.  Hedge funds are able to use investment methods that are not allowed for other types of fund. 
prosecutions.  
Frisk & stop
New York City police issue summons for even inconsequential violations ensuring:
  • Vagrants must decide whether to pay $200 fines or become a fugitive by skipping court. 
  • The police achieve quota.  But there are
  • Higher than necessary costs for the state. 
The seemingly odd behavior makes more sense in context of the city's stop and frisk is a 1982 crime theory of James Wilson and George Kelling, that was inspired by the results of vandalism experiments by Philip Zimbardo, which assumes urban disorder and vandalism undermine social constraints and encourage additional criminal and anti-social behavior.  By detecting and responding to petty vandalism rapidly it is assumed that more serious crime will be discouraged.  In New York Broken Windows was used to justify 'stop, question and frisk'.  However, Donohue & Levitt's analysis suggests an observed precipitous drop in crime rates depended on legal access to abortion. 
strategy:
  • Justified to look for guns even though they are only found in .02% of the stops. 
  • Executed 684,724 times in 2011.  88% were black or Hispanic. 
  • In turning out their pockets some revealed drugs to the officers which is a crime.  For repeat drug offenders the bail is set so high that the vagrants will go to jail. 

Taibbi compares this New York City Stop and Frisk focus on prosecuting everyone stopped, with the DOJ - U.S. Department of Justice. 
deal agreed with HSBC is a major financial services and banking corporation.  It was originally the Hong Kong Shanghai Bank Corp. 
.  The details highlighted by Lanny Breuer and Loretta Lynch included:
  • HSBC were shown to be:
    • Laundering billions for drug cartels from Mexico (Sinaloa) and Columbia.  They were found to have a globally managed strategy that added punctuation to account details to filter them from the screening and audit infrastructure. 
    • Washing money from terror organizations from the Middle East. 
    • Helping sanctioned states to move $10 billion. 
    • Washing money for Russian mobs. 
    • Tax sheltering. 
  • $1.9 billion record fine.  
  • No charges would be made against HSBC.  The press core was stunned by this aspect of the announcement.  Breuer noted the DOJ reserved the right to fully prosecute.  Taibbi wonders "Why the difference from Stop & Frisk?"
The next DOJ financial institution settlement was with UBS is Union Bank of Switzerland. 
for its participation in rigging LIBOR, the London Interbank Offered Rate has traditionally been set by the British Bankers Association with inputs from the major banks, as the average interest rate estimated to be charged if the major banks borrowed from each other. 
.  The details included:
Taibbi explains the policy driving the soft treatment was finally visible.  Indeed Holder and Breuer did a press tour in Jan 2013 to broaden the awareness.  Senator's Grassley and Sherrod Brown were not impressed and called for Holder to answer questions.  Holder explained to the Senate "the sheer size of the companies in the post 2008 era tied his hands."  Taibbi writes that Neil Barofsky, a prosecutor who monitored the TARP is the troubled asset relief program.  It was a $700 billion bailout fund setup by Congress in 2008 to be dispersed by the Treasury.  The first special inspector general with oversight of TARP was Neil Barofsky. 
for Congress, scoffed that if the size of the banks was really the issue a condition of the settlements should be that the companies become smaller. 

Breuer left his government post to return to Covington and Burling who were representing Citigroup in a LIBOR, the London Interbank Offered Rate has traditionally been set by the British Bankers Association with inputs from the major banks, as the average interest rate estimated to be charged if the major banks borrowed from each other. 
rigging class action lawsuit.  Their lawyers argued for the suit to be dismissed because:
  • Setting rates is not a competitive process
  • Municipalities and pension funds lost money when LIBOR was depressed and they may have been defrauded.  But
  • They were not victims of anti-trust violations.  The claimants were confusing harm to competition with being deceived. 
The judge agreed, dismissed the suit and the victims got nothing. 

Taibbi asks why jail people?  Because:
  • Its a general deterent
  • Its an individual deterent. 
  • It provides justice for victims. 
But Taibbi asserts collateral consequences fails to achieve these goals.  And he feels the prosecutors aren't ashamed of this situation.  Their reasons include:
  • There are no resources to fight the armies of high-priced lawyers. 
  • They are arguing to judges appointed by politicians elected with money from big business. 
  • Unlike judges and juries they deal in the grey area of settlements and non-prosecutions.  The state has surrendered to its effects. 

Suspicion counts in volume arrests
Street prosecutions are not constrained by collateral consequences.  But the police arrest teams are seemingly managed by a quota of one arrest per officer.  An undercover ghost identifies a likely criminal and then calls in an arrest squad and van.  The arrested individuals are shipped to the police station.  Similarly twice a week officers move through the M35 bus which is the main transit for homeless people to get to the homeless shelter and clinics along the bus route.  Without a ticket the homeless are easy arrests.  But outside of achieving the quota of arrests it makes little sense since it is far more costly to keep the people in jail than in the shelters. 

Arrested men are charged with suspicion of a crime (or more if evidence exists).  Prosecutors then advise the people to plead, pay the fine and do community service. 

This is a 'big net fishing' strategy where the prosecutors see what they can keep and then throw the rest back.  When there is no evidence with which to prosecute, the prosecutors depend on the cost and hassle of court attendance to force a plea.  For example while they are in the legal process the defendants are ineligible for certain jobs, benefits etc. 

Well briefed defendants might respond by raising a complaint with the CCRB is the civilian complaint review board, an independent review group setup in 1950 to investigate police misconduct with subpoena power. 


The man who couldn't stand up

Taibbi notes that the targets of arrest in New York have been growing.  He traces the trend's start to Rudy Guliani's second police commissioner Howard Safir 1997, who previously worked in narcotics and the Marshal's service.  Under Safir the police service increased arrests tenfold from the previous period of broken windows is a 1982 crime theory of James Wilson and George Kelling, that was inspired by the results of vandalism experiments by Philip Zimbardo, which assumes urban disorder and vandalism undermine social constraints and encourage additional criminal and anti-social behavior.  By detecting and responding to petty vandalism rapidly it is assumed that more serious crime will be discouraged.  In New York Broken Windows was used to justify 'stop, question and frisk'.  However, Donohue & Levitt's analysis suggests an observed precipitous drop in crime rates depended on legal access to abortion. 
under commissioner Bratton. 
Professor Harry Levine concluded Safir broadened the target arrest population because he realized:
Safir solved the puzzle by broadening who was eligible for a broken windows arrest to include sub-misdemeanors.  The rest of the incentives aligned to encourage the force to ensure a rapidly increasing volume of arrests and the bail trap would then ensure a high conviction rate:
  • Marijuana arrests increased 10 fold
  • Open container of alcohol (140,000) with 85% black or Hispanic. 
  • Disorderly conduct (80,000)
  • Bicycling on sidewalk (20,000)

And Taibbi notes there are some rogue police units that take advantage of the situation falsely arresting innocent people and then lying under oath because there are benefits to them and no apparent penalties.  Even when law suits result the police officers are not dismissed or punished.  If an officer is successfully sued the council pays.  And complaint records are not made public.  They can only be made available through a Gissendanner motion refers to a 1979 legal case People versus Gissendanner.  The court held that the defendant isn't entitled to subpena the records of arresting officers unless justified by a 'factual predicate' like excessive force or entrapment. 


Taibbi asserts even public defenders assume the worst -- "Low-class people do low-class things."  So they push for plea deals. 

The bail trap
But the core control over the whole conviction process, Taibbi explains, is bail.  While a b-misdemeanor should result in fifteen to 30 days maximum waiting in prison (New York has a speedy trial law) bail is typically set so that it is too low to interest a bail bondsmen and too high for the itinerate to be able to pay.  Once the failure to pay bail drives the defendant into prison prosecutors have a process to keep the defendant there:
  • At an initial court hearing the prosecution warns they will need more time.  The Judge will set a new court date and the time in prison will accrue against any actual punishment and the maximum period that can be spent in prison pre-trial.  Often the police do not show up to the court, again reseting the date. 
  • But the prosecutor goes back to the court soon after and says they are now ready to proceed even as the judges busy calendar forces the date to be later.  Now that the delay is not due to the prosecutor the time spent waiting in prison no longer accrues against the maximum time that can be spent in prison before trial.  The defendant soon realizes that the prosecutor has the power to keep them in prison for a lengthy period encouraging them to agree to a plea. 
Sentencing
People are treated differently depending on the neighborhoods in which they live:
  • Judges who don't know or relate to the poor neighborhoods, rapidly sentence by rote from tables
  • Judges relate to the rich defendants who live or work in similar neighborhoods to them.  They listen to and understand the appeals that are made for clemency.  So prosecutor's roll-up strategies are undermined in white-collar financial cases.  
  • Taibbi sees the parallel operation of these two processes as logically wrong -- different justice depending on who you are and where you live. 

The greatest bank robbery you never heard of
Barclays Bank's purchase of the collapsing Lehman Brothers provides Taibbi with an object lesson in the practice of collateral consequences

Having built up $700 billion in debt due to the collapse of sub-prime mortgage loans still on its books Lehman attempted to sell itself to other financial institutions.  Barclays CEO Bob Diamond proposed a distressed price on the 12th Sep 2008.  With Lehman's likely bankruptcy is a legal status for an entity that cannot repay its creditor's loans.  It holds creditor lawsuits in abeyance while the restructuring process proceeds to allow the entity to continue operations.  It also has legal tools for forcing holdout creditors to accept repayments that are lower than the bond sale initially promised.   looming Barclays and Lehman executives setup two groups to develop agreements for asset transfers.  These were:
  1. One of the groups was developing a deal that would be reviewed by the bankruptcy judge James Peck and valued Barclays with no gain (a wash) from the deal. Barclays would pay $250 million for the Lehman name and business.  Using real world valuations there were $70 billion in assets and $70 billion in liabilities.  There was also a 'REPO' loan from the Fed ($45 billion covered by $50 billion of Lehman's assets) used to keep Lehman Brothers in operation.  
    • Barclays subsequently told the Lehman creditors that the 'wash' assessment of real assets had gone $5 billion negative to the creditors due to subsequent market shifts.  Getting the creditors and Judge to agree there had been no criminal activity was important for Barclays.  Civil suits could be managed with high powered lawyers wearing down the creditors' case and determination.  
    • Once the deal was agreed with the creditors and Judge, Barclays:
      • Argued "What could you or anyone for that matter do even if it turned out that the assets turned out to be greater [than $70 billion]?  As you know, the sale has been consummated which effectively moots out any relief you might be seeking." 
      • Then announced a $4.2 billion profit on the Lehman deal. 
  2. The other group was more closely held involving handpicked Lehman executives and Bob Diamond's special representatives.  Barclays had secretly hired all the Lehman executives who would value the company's assets.  The group setup a typical
    Satyajit Das uses an Indonesian company's derivative trades to introduce us to the workings of the international derivatives system.  Das describes the components of the value delivery system and the key transactions.  He demonstrates how the system interacted with emerging economies expanding them, extracting profits and then moving on as the induced bubbles burst.  Following Das's key points the complex adaptive system (CAS) aspects are highlighted. 
    derivative contract
    which provided Barclays with a $4.2 billion profit:
    • The assets and liabilities that were valued as equal (a wash) by group 1, were searched and additional value was found in assets which would benefit Barclays. 
    • Fed REPO loan of $45 billion was secured with $50 billion in assets.  Lehman execs, who were to be hired by Barclays, agreed to default on the Fed REPO, which Barclays took over, with Barclays keeping the $50 billion in assets. 
    • And a clarification letter:
      • Existence reported to Judge Peck.  Described as already written (by implication), detailing the allocation of subsidiaries and nothing significant, although it actually altered the ownership of $5 billion in assets.  And it had not yet been written. 
      • Made the second contract the one covered by the bankruptcy agreement.  Judge accepts the deal is fair and signs off on it. 
      • Which:
        • Unterminated the Fed REPO so the $5 billion 'delta' was not part of the bankruptcy assets of Lehman's and then
        • Terminated the REPO as being between the Fed and Barclays, two days later. 
      • Filed as part of the notes to the bankruptcy with the court, and not presented to the judge. 
The Lehman creditors were not made aware of group 2 and its activities.  They were warned that the wash value of the assets and liabilites had altered as the markets operated and that their assets had lost 4 to 5 billion in value when the judgement became operational.  The deal developed by group 1 was described informally to the creditors and they signed off on the bankruptcy judgement since they felt it helped ensure their assets were stabilized. 

Then Barclays released the press release announcing the $4.2 billion profit. 

Once the Lehman creditors realized they may have been duped out of $4.2 billion in assets they asked Jones Day to develop a case for them to stop the bankruptcy judgement.  A rule 60 motion requests relief from an unfavorable judgement of a law court.  
appeared appropriate, even though it is required to be filed less than one calendar year from the transaction date forcing a rush.  During the two month search Jones Day turned up an e-mail from then Lehman chief financial controller Martin Kelly to the CFO clarifying the existence of a $5 billion discount to Barclays. 

Jones Day provided Judge Peck with a roadmap of the 'mistakes' they had identified: 
  • High value employment offers to Lehman executives were not revealed. 
  • New information that had not been disclosed previously to the court. 
  • Reasons why Judge Peck might want to reopen the sale and grant relief to the creditors.  Because mistakes should be corrected. 
Barclays responded by employing David Boies on the case.  Boies provided the judge with 9000 reasons why he should not reopen the case.  He suggested that the creditors knew about the clarification letter and that they had been waiting to see if the markets would help them or Barclays.  Judge Peck rebuked Boies noting that he had not seen the clarification letter. 

But Peck concluded that nothing would have been different had the details been known.  So he denied the creditor's motion.  State, county and city treasuries, pension funds and other creditors lost billions of dollars in investment assets to Barclays. 


Border trouble (part 1)
Taibbi writes that illegal Mexicans dare not drive.  Instead Mexicans who are legally in the US is the United States of America.   provide taxi services.  Brutal immigration laws have been enforced through the Obama Administrations Secure Communities was an immigration enforcement program administered by ICE that was in force from 2008 to 2014.  It was replaced by PEP.   policy (2008 - 2014) mandatory 287 (g) delegation of authority program, which requires local and state law enforcement to arrest undocumented aliens for ICE is U.S. Immigration and Customs Enforcement, a part of the department of homeland security.  .  The situation is similar in Democratic states like California and Republican ones like Georgia. 

Broken tail light stops and police checkpoints, deployed at commute times between immigrants' residential areas and where they work, have become capture points for:
  • Police and courts - who can issue fines prior to deportation, 
    • The fines are high -- $1000 for driving without a license,
  • State authorities,
  • Federal authorities,
  • Private prisons such as the Corrections Corporation of America (CCA), GEO group or MTC; CCA is a Wall Street darling with revenues expanding from $300 million in 2000 to $1.7 billion in 2011.  The market shows steady growth and is a defensive business.  Wells Fargo has invested in CCA and GEO Group.  Bank of America, GE, Fidelity and Vanguard all invest in at least one commercial prison operator. 
UPS style tracking manages the flow of people through the network.  The 'cargo' has degraded rights:
  • Because the deportations are not part of the criminal justice system.  These are civil matters.  Immigration judges are Homeland Security employees -- part of the Executive Branch, so there are no checks and balances.  There is
  • No right to an attorney but you can pay for one. 
  • No right to a phone call. 
  • No exclusionary rule of invalid search
  • Minor physical abuse acceptable because the 4th Amendment does not apply. 
Once ICE gain control their officials aim to get the illegal to sign a rights waiver is a stip document that once signed gives away your rights to see a lawyer or immigration judge.  Once signed ICE may deport an illegal alien. 
.  This speeds up the process of removal allowing 160,000 catalyzed, an infrastructure amplifier.   deportations between 2000 and 2010.  The volume of stip is a stipulated order of removal.  By signing a stip document the noncitizen waives their rights to trial and an appeal, and agrees they are prepaired to be removed immediately.
deportations increased from 5000 a year around 2004 to 40,000 by 2008. 

Taibbi despairs that with 287(g) and rights wavers, traffic violations, involving house cleaners and mothers buying groceries, result in deportations, even though 287(g) was justified as necessary for public safety. 

While a million people have been deported under President Obama not one employee of any foreign bank has been deported or jailed following the 2008 crisis.   Taibbi worries that money alters the conditions of non-citizenship.  He notes the infrastructure disparity:
  • There is a tiny infrastructure for processing rich non-citizens.  They can live in America, trade where regulatory constraints help and pay taxes in havens. 
  • There is a huge extralegal infrastructure for processing the poor:
    • Taibbi uses Georgia's 2008 laws outlining punishments for driving without a license (Codes 40-5-20 & 40-5-120).  These provide for two different sets of punishments for the same crime!  Natural born Georgia citizens driving without a license are innocent as long as they get a license before the trial begins.  Undocumented residents pay a significant penalty -- they must serve a minimum of two days in jail, pay a $500 fine and get a misdemeanor conviction.  If they have four offenses in five years the crime becomes a felony. 
    • The Georgia politicians gained votes by attacking illegal immigrants. 
    • The CCA responded by:
    • Poor non-citizen communities have responded by leaving the state. But this is bad for business.  Without these unprotected workers the cost of health care and workman's compensation jumped.  Taibbi writes Georgia and ICE responded by limiting the use of deportations so that the punished non-citizens would still be available to work in the local businesses.  
    • The Federal government spends $1.6 billion each year supporting state and local police with SCAAP is the state criminal alien assistance program. 
      .  The funding is conditional on police having detained immigrants that are:
      • Undocumented
      • Stayed more than three days
      • Convicted of more than one misdemeanor. 
    • Once the noncitizens have been transferred to Mexico they become prey for gangs such as the Zetas, who blackmail the deportees US based relatives. 

Border trouble (part 2)
Taibbi explains the asymmetry between the geographic organization of legal and enforcement systems and the global, or even virtual, nature of financial transactions.  Taibbi highlights the blitzkrieg strategies associated with the weapon based
Satyajit Das uses an Indonesian company's derivative trades to introduce us to the workings of the international derivatives system.  Das describes the components of the value delivery system and the key transactions.  He demonstrates how the system interacted with emerging economies expanding them, extracting profits and then moving on as the induced bubbles burst.  Following Das's key points the complex adaptive system (CAS) aspects are highlighted. 
features
of hedge funds is an investment fund that accepts investments from a limited number of accredited individual or institutional investors.  Hedge funds are able to use investment methods that are not allowed for other types of fund. 
.  He details how the leaders aims to develop plans and strategies which ensure effective coordination to improve the common good of the in-group.  John Adair developed a leadership methodology based on the three-circles model. 
of Kynikos, SAC, Third Point and Exis executed a strategy to blow up Fairfax Financial Holdings.  Jim Chanos didn't like is an emotion which initiates and maintains an altruistic partnership.  It is a willingness to offer someone a favor.  It is directed to those who appear likely to return the favor.   Fairfax's financials any more than he liked Enron's.  The 'big short' they used is high risk since the leverage will result in either big wins or big losses.  So the hedge funds must play to win which involved:
Fairfax Financial Holdings struck back with a lawsuit against the hedge funds.  The cadre of high power lawyers retained by the hedge funds worked iteratively to remove each of the defendants from the suit one by one.  The court's geographic jurisdiction enabled the hedge fund lawyers to show that various aspects of the transactions were not technically applicable within the courts domain allowing dismissal of the defendant's charges.  For example Chanos and Loeb worked from New York City while the suit was based on New Jersey laws. 

Little Frauds
Taibbi describes the impact of TANF is the Temporary Assistance for Needy Families program of the PRWORA.  It provided temporary assistance while encouraging people to seek employment by requiring them to get a job within 24 months of receiving aid.  Some states allow children to receive aid for longer periods. 
(CalWORKs in California) on poverty stricken single mothers -- many of whom are victims of domestic abuse -- in San Diego County California.  An application for welfare or food stamps there initiates checking by social workers and law enforcement investigators who are to preemptively perform P100 is Project 100%, an initiative in San Diego County to interview all TANF (CalWORKs) applicants to verify eligibility information supplied by applicants prior to benefits being granted. 
fraud searches.  So in San Diego County in 2011 there were 26,000 CalWORKs home searches. 

Taibbi says the effects are corrosive.  Applicants for TANF have to wait in their homes to ensure they can let the investigator in.  The investigator is looking for any signs that there is fraud in the application.  The CalWORKs system data often becomes inconsistent and it is assumed the application is fraudulent.  Investigators conclusions are not validated.  CalWORKs encourages whistle blowers to call and report fraud.  The onus is on the applicant to prove their application is true but they are forced to work with an infrastructure that ensures different workers will deal with each interaction.  It is slow, cruel, time consuming and inefficient.  Federal funding of investigations ensures social workers are reassigned to perform them. 

Court decisions have removed the 4th amendment rights against searches and seizure if the recipient is on welfare or is in debt.  This is a situation that is affecting more of the collapsing middle class. 
In 1971 the Supreme Court found that the 4th does not apply to welfare recipients.  Taibbi suggests this was acceptable to the majority because the victims were black!

Similarly Judge Tashima found that search of welfare recipients was acceptable because the public has a strong interest in ensuring aid provided from tax dollars reaches its proper and intended recipients.  

In contrast:
Taibbi laments that:
  • Cash was sucked upwards to the rich, via a complex bureaucracy which is difficult to deal with (time consuming)
  • To win need an army of lawyers and strategic determination. 
  • The system responds to signals from the lawyers. 

Taibbi argues the signing of PRWORA is the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.  Bill Clinton followed through on a campaign promise to reshape welfare with the signing of a key aspect of Newt Gingrich's "Contract with America" the PRWORA.  It ended the AFDC federal guarantee of direct cash payments to the needy substituting TANF which limited assistance to five years and allowed the states broad freedom in designing their own welfare programs.  Clinton said it was unfair to bar legal immigrants from food stamps, medical assistance and other benefits but would sign.  Congressional Democratic leaders Gephardt and Daschle voted against the act but the Democratic Governors were pleased with the provision of additional state power and regular Americans broadly supported the plan.  It is argued that the act set federal goals for the states to implement.  The goals included:
  • Put people to work,
  • Discourage child birth,
  • Promote marriage. 
drove the catalytic, an infrastructure amplifier.   transformation of the welfare state.  This made sense to President Bill Clinton because:
Clinton retook 4 of the 11 states. 

And Clinton also captured Republican funding with his partnership with Robert Rubin, Larry Summers and Alan Greenspan.  By 1996 Clinton's biggest private contributions were from Goldman Sachs.  Together Clinton, Rubin, Summers and Greenspan:

Big Frauds
Taibbi describes the legal and system integration of various aspects of J. P. Morgan Chase's business:

He uses Washington Mutual (WAMU) to illustrate the hubris, greed and incompetence of the banks that securitized is an asset-backed security defined as backed by nonconforming loans rather than Fannie Mae or Freddie Mac quality loans used in original MBS or CMO. 
and warehoused, is a loan extended from a large bank or Wall Street firm to a nonbank to originate mortgages. 
mortgage originator's subprime mortgages.  WAMU:

J. P. Morgan Chase was central to the US is the United States of America.   government's response to the 2008 financial crisis.  The government provided a $16 trillion financing program to backstop the banks.  They provided $390 billion of it to J. P. Morgan Chase who:
  • Purchased failing Bear Stearns with $29 billion of government loan guarantees supplied by the Fed. 
    • J. P. Morgan CEO Dimon was Fed vice chair at the time. 

Chase runs a high volume consumer credit card business.  Banks make more money on law suits on credit card accounts than on interest from them.  But to do this the banks had to solve a serious problem Taibbi explains -- the disconnect between the US legal system, high risk credit card loans, and low profit high volume transactional business models such as Chase operated.  The main elements of the problem are:
  • US legal system is based on state rules which require high touch - which just won't scale:
    • Each state has its own unique requirements. 
    • The law requires that:
      • The banks have all the pertinent facts to be allowed to sue the account holder.  
      • Authoritative bank executive must sign that the facts of the suit are true. 
  • Banks' credit card business:
    • Is low margin, high volume, very low touch:
    • Requires acceptance of a high percentage of account applications and then retribution for delinquency.  
The banks adjusted the states legislation and the interfaces between the banks transactional networks and the legal structures:
  • Banks automated the key aspects of the customer relationship:
    • Contract
      • Very easy to get a credit account.  Litigation process was used to handle the consequent high likelihood of delinquent accounts. 
    • Payment
    • Litigation 
      • Banks handled delinquent accounts specially.  Persistent ones were turned over to specialist subcontractors who could create high volumes of law suits through outsourced networks of legal agents.  
      • The volume of cases is far too large to validate.  The banks setup an online summons system.  If a summons must be served a human process server will do it.  They earn about $4 per account with no expenses!  To make it pay a lot of them dump the requests in the gutter.  In 2013 California Attorney General Kamila Harris sued Chase for this. 
      • Banks removed any subjectivity so that a human was not needed.  This was possible because most cases were uncontested. 
    • Commerce benefited from the low cost of credit and the high volume of transactions. 
  • Banks worked with state legislators to agree that the addresses they had on record were acceptable as the litigation contact points with their delinquent subscribers. 
    • It was beneficial to the banks if the subscribers were actually resident at a different address since then the subscribers would not be aware of the issue and would not contest any legal suit.  2/3 of cases result in a default judgement in favor of the bank. 
  • Banks used mid- and low-level employees to manage the delinquent accounts and suits.  The employees robo signed vast numbers of documents asserting the truth of the facts, the suits completeness, and indicated they were legally company officers via inflated job titles.  
    • The senior executives had distanced themselves from the questionable tactics. 
  • Delinquent accounts are sold and transferred to specialist debt collectors.  
    • The most valuable accounts to transfer are those where a judge has made a judgement in favor of the bank.  But due to the volume effect along with the lack of validation the banks can claim the accounts they sell have judgements associated anyway.  If the buyer finds they actually need to go to court they will have to pay the bank for any additional details they require -- it pays the banks to keep the account details transferred in the sale minimal. 
    • Transfer documents and suits are administered by overworked state and county courts.  If banks make an assertion it has to be accepted in most cases to allow the courts to function without being overwhelmed. 
  • In the few instances when judges push back the responsible, mid-level bank staffs are punished and those few specific suits are abandoned. 

Collateral consequences
Taibbi asserts that CompStat is computer statistics a process, toolset and philosophy for organizing police departments.  It was developed to support and leverage broken windows (called stop and frisk in New York City) and has four aspects:
  1. Timely and accurate information about crimes and criminals
  2. Rapid deployment of resources
  3. Effective tactics
  4. Relentless follow-up. 
based policing and stop & frisk have supported the emergence of a massive police drag net.  But due to errors it includes innocent people in the haul.  And the perverse incentives make it beneficial for some officers to frame the innocents with planted drugs to ensure they are booked.  Once booked many find their guilt is then assumed.  The impact can induce reclusiveness and even PTSD is post-traumatic stress disorder, an induced level of stress that is so troubling to the brain that it avoids processing it, change that is necessary if the stress is to be dissipated by the normal brain processes.  The hippocampus loses volume.  The amygdala increases in volume and is hyperactive.  As a result it remains in a heightened state, resulting in fear of recall and further stress.  It is now being realized that PTSD can be introduced into patients by traumatic treatment regimens such as ICU procedures.  Traumatic head injuries, seen in athletes and soldiers can be reflected in PTSD and can subsequently become associated with prion based dementia.  

Similarly the financial regulators are also expanding their range of targets.  The S.E.C. is the Securities and Exchange Commission.  It was provided with power to regulate the securities industry by the Securities act and Securities Exchange act.   has a quota of cases set by Congress.  But big business and its lawyers are viewed as being aggressive.  Their clever strategies are admired by the regulators.  Taibbi asks if the S.E.C. avoids Goldman Sachs and Chase who can they target.  He suggests they are aggressively targeting small businesses. 

For Taibbi both the law enforcement and financial regulation strategies signal corruption.  The punishments depend on who you are.  He asserts the S.E.C. had ample evidence of insider trading against John Mack and Art Samberg of Pequot Capital but refused to investigate them.  Instead the S.E.C. targeted low level individuals. 

Taibbi accepts that prosecutors may feel it is more productive to collect massive fines and deploy deferred prosecution agreements than to struggle trying to gather evidence against the few key individuals.  And then there are problems with jurisdictions and who had guilty knowledge as opposed to following orders.  But Taibbi asserts there must have been more evidence among all the 2008 cases.  Instead he worries that a miniscule budget and few government resources were allocated to collecting the evidence.   And the Clinton era Congress led by Phil Gramm developed the CFMA is the commodity futures modernization act which constrained derivative market regulation, catalyzing the derivative fueled housing boom and 2008 recession.  It was supported by Senator Phil Gramm and the Republican led Congress, Federal reserve Chairman Alan Greenspan and the Clinton Administration's Treasury Department led by Larry Summers.  Former Treasury Secretary Robert Rubin also lobbied to over-rule Brooksley Born, the dissenting chair of the CFTC.  President Clinton signed the act into law in 2000.   which specifically included a clause exempting from prosecution sophisticated investors who do market cornering.  Only once that allowed BP traders to escape prosecution did the political uproar ensure Dodd-Frank is the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.  Its titles include:
  1. Financial Stability creates the FSOC and OFR. 
  2. Orderly Liquidation Authority
    • Section 619 is the Volcker Rule: prohibitions on proprietary trading and certain relationships. 
  3. Transfer of Powers to the Comptroller, the FDIC, and the Fed
  4. Regulation of Advisers to Hedge Funds and Others - which updated the powers of the Investment Company Act. 
  5. Insurance
  6. Improvements to Regulation
  7. Wall Street Transparency and Accountability
  8. Payment, Clearing and Settlement Supervision
  9. Investor Protections and Improvements to the Regulation of Securities
  10. Bureau of Consumer Financial Protection
  11. Federal Reserve System Provisions
  12. Improving Access to Mainstream Financial Institutions
  13. Pay It Back Act
  14. Mortgage Reform and Anti-Predatory Lending Act
  15. Miscellaneous Provisions
  16. Section 1256 Contracts
removed the exemption. 

As Taibbi completed the book he notes that increasing public outrage at the effects of collateral consequences is causing some push back:
  • Holder may be reversing course.  Breuer may be replaced by Leslie Caldwell who is a tough prosecutor. 
  • Steve Cohen has been put out of business
  • Chase may be prosecuted for the 'London Whale.' 
  • Federal judge Scheindlin ruled against New York City's stop & frisk in 2013.  And Bill de Blasio agreed with the ruling and was elected major. 


This page introduces the complex adaptive system (CAS) theory frame.  The theory is positioned relative to the natural sciences.  It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents. 
John Holland's framework for representing complexity is outlined.  Links to other key aspects of CAS theory discussed at the site are presented. 
CAS theory
views the justice system as an
Plans are interpreted and implemented by agents.  This page discusses the properties of agents in a complex adaptive system (CAS). 
It then presents examples of agents in different CAS.  The examples include a computer program where modeling and actions are performed by software agents.  These software agents are aggregates. 
The participation of agents in flows is introduced and some implications of this are outlined. 
agent
operated
This page discusses the effect of the network on the agents participating in a complex adaptive system (CAS).  Small world and scale free networks are considered. 
network
, where each agent executes or validates strategies based in interpretation of the drafted
Plans emerge in complex adaptive systems (CAS) to provide the instructions that agents use to perform actions.  The component architecture and structure of the plans is reviewed. 
memes
(Federal and state congressionally drafted laws and administratively generated regulations).  The strategies include:

Taibbi describes the
This page reviews the inhibiting effect of the value delivery system on the expression of new phenotypic effects within an agent. 
phenotypic alignment
due to legislation concerned with the US legal system.  Even stripped of the book's powerful examples his framework highlights a significant area of the US is the United States of America.  
This page introduces the complex adaptive system (CAS) theory frame.  The theory is positioned relative to the natural sciences.  It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents. 
John Holland's framework for representing complexity is outlined.  Links to other key aspects of CAS theory discussed at the site are presented. 
complex adaptive system



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Nature and nurture drive the business eco-system
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Emerging structure and dynamic forces of adaptation


integrating quality appropriate for each market
 
This page looks at schematic structures and their uses.  It discusses a number of examples:
  • Schematic ideas are recombined in creativity. 
  • Similarly designers take ideas and rules about materials and components and combine them. 
  • Schematic Recipes help to standardize operations. 
  • Modular components are combined into strategies for use in business plans and business models. 

As a working example it presents part of the contents and schematic details from the Adaptive Web Framework (AWF)'s operational plan. 

Finally it includes a section presenting our formal representation of schematic goals. 
Each goal has a series of associated complex adaptive system (CAS) strategy strings. 
These goals plus strings are detailed for various chess and business examples. 
Strategy
| Design |
This page uses an example to illustrate how:
  • A business can gain focus from targeting key customers,
  • Business planning activities performed by the whole organization can build awareness, empowerment and coherence. 
  • A program approach can ensure strategic alignment. 
Program Management
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