Corrupt Feedback Loops: Justice Dept. Extortion

Attorneys General Holder and Lynch

Attorneys General Holder and Lynch

[Welcome Instapundit readers! Sign up on the sidebar or add the RSS feed if you want updates…]

We’re all familiar with the evil of bribery, in which someone pays a civil servant for favorable handling of a government decision. The briber gains profits that are some multiple of the bribe at the expense of the public; the bribed official’s malfeasance betrays the people who pay his salary.

Since the Code of Hammurabi, government officials have been punished for taking bribes or dealing in property related to their official decisions. In The Republic, Plato suggested government officials live communally without the temptations of private property to insulate their decisions from the temptations of personal gain. In Systems of Survival, Jane Jacobs wrote about systemic corruption when what she called the Guardian Syndrome (appropriate memes for governing and military classes) was corrupted by Commercial Syndrome considerations — and vice-versa. It is corruption if commercial actors use bribes to gain special favors at the expense of competitors and the public, and it is also corruption if government officials use their decisionmaking and spending power to influence private business or voters to give them an advantage over political opponents. Both forms of corruption break down accountability and result in a net loss in fairness and efficiency, leading to less dynamic public and private spheres. And the endpoint of such corruption in a country is stagnation, weakness, and defeat by an external enemy.

Outright bribery is common in developing countries, as the US was before the turn of the century. A less direct form of bribe which is harder to detect is campaign contributions for access and favorable handling, still quite common and legal in the US. The influence is not so much a direct payment for a favorable decision as a tendency to favor the interests of the campaign contributor, putting a thumb on the scales weighing the public interest. The modern version has an officeholder accepting a large number of contributions from both sides of various issues, especially when the officeholder is not a predictable supporter of either side. This bundling of interest-group contributions leaves out citizens who have no trade group or industry representing their interests. This is not ideal, but the commonly-suggested remedy of public campaign financing has the obvious problem of favoring the status quo and whoever decides which candidates deserve public funding. Individual wealthy contributors have provided the seed money for many outsider campaigns for public office, and if private contributions are limited, status quo politicians, with their free access to news media, are much harder to displace.

Another more subtle form of corruption is advertising and PR monies spent by the state at the direction of current officeholders for supposedly public purposes, but which greatly favor their own party or policies. A great recent example of this is the advertising for Obamacare and its insurance exchanges, and the “Navigators” hired to assist applicants in using the unusable web site. From the Kaiser survey, “More than 4,400 Assister Programs, employing more than 28,000 full-time-equivalent staff and volunteers, helped an estimated 10.6 million people during the first Open Enrollment period.” Doing the math, this means each navigator served about two people a day, and (especially at first) most of the time spent went to staring at nonfunctional screens and talking about the problems with the system. Navigators were hired with little concern for knowledge or trustworthiness, and information about becoming a navigator was spread via the network of “community activist” organizations that happened to reach out to the same sort of people who serve as political foot soldiers for Democratic campaigns. ACA implementation spent billions of dollars on politically-connected contractors for failed systems and hiring of connected patronage employees. The result was enormous waste and failure of the new systems, but with the politically-desirable side-effect of direct government-funded contact between poor citizens and activists for Democratic causes. This may have backfired since the program failed so obviously, but was motivated by the desire to give poor people a benefit while reminding them personally of the party that got it for them.

Because spending for Federal PR offices and advertising is buried as multiple items in each agency’s budget, it is hard to track. The GAO is launching an investigation to try to trace it, with obvious external advertising contracts adding up to $4.7 billion in 2009-2013 fiscal years:

The 2014 CRS report found it difficult to determine details on federal agencies’ advertising spending. There is no governmentwide reporting standard, CRS said, nor is there a common definition of what constitutes advertising. Additionally, agencies have “great discretion” to budget their in-house PR. Agencies are prohibited from spending money on “publicity or propaganda” not specifically authorized by Congress, but CRS found the lack of a firm definition of advertising has led to “few governmentwide restrictions” on the practice.

Government-funded PR offices send out press releases which end up as stories in the media, which typically don’t question the content — a “government source” is seen as credible. This allows slanted views of science, economics, and political issues to be presented as neutral fact with apparent consensus support — a typical press release from a government agency can result in dozens or hundreds of stories repeating the same information, and most media outlets won’t seek out any opposing viewpoints.

This means the party holding the executive branch can try to mold the views of the citizenry using propaganda funded by the citizens’ own tax money. When the executive branch is held by progressives who reinforce the generally government-favoring slant of the federal civil service employees, the depth of the disinformation provided increases. This is systemic corruption, and creates a powerful positive feedback loop toward larger government and shrinking private freedoms. Progressive politicians believe this is all to the good — because they know what is best for everyone and most citizens choose wrongly unless guided by the state and its social-working employees, it is totally legitimate for the state to enlighten its voters by programming their malleable minds with the correct ideas so that they will vote for the correct politicians, who happen to be them.

Overlawyered reports on a WSJ story (behind a paywall, unfortunately) discussing the fate of the $110 billion in fines paid by mortgage banks to settle with the Justice Dept.:

Following the 2008 crash, government enforcement action extracted $110 billion from lenders and other players over a variety of alleged sins relating to the rise and collapse of the mortgage bubble. Where did it go? Governments held on to a lot of it, a lot went to the government-sponsored Fannie and Freddie mortgage enterprises, favored “housing-related community groups” got some, some went to homeowners with mortgage struggles or to new low-interest loans. In New York, money is going to rebuild the Tappan Zee bridge and “the annual state fair is using bank-settlement money to build a new horse barn and stables.” But no one has kept track of where a lot of the money went, there being no overall effort to account for it.

Kimberly Strassel in the WSJ of 12/3/2015 commented on the phenomenon of fines extracted by Justice Dept. threats going to groups supporting the Democratic party:

Republicans talk often about using the “power of the purse” to rein in a lawless Obama administration. If they mean it, they ought to use their year-end spending bill to stop a textbook case of outrageous executive overreach.

This scandal comes courtesy of the Justice Department, which for 16 months has engaged in a scheme to undermine Congress’s spending authority by independently transferring dollars to President Obama’s political allies. The department is in the process of funneling more than half-a-billion dollars to liberal activist groups, at least some of which will actively support Democrats in the coming election.

It works likes this: The Justice Department prosecutes cases against supposed corporate bad actors. Those companies agree to settlements that include financial penalties. Then Justice mandates that at least some of that penalty money be paid in the form of “donations” to nonprofits that supposedly aid consumers and bolster neighborhoods.

The Justice Department maintains a list of government-approved nonprofit beneficiaries. And surprise, surprise: Many of them are liberal activist groups. The National Council of La Raza. The National Urban League. The National Community Reinvestment Coalition. NeighborWorks America (which awards grants to left-leaning community organization groups, and has been compared with Acorn).

This strategy kicked off with the $13 billion J.P. Morgan settlement in late 2013, though in that case the bank was simply offered credit for donations to nonprofits. That changed with the Citigroup and Bank of America settlements, which outright required $150 million in donations. The BofA agreement contains a provision that potentially tees up nonprofit groups for another $490 million. Several smaller settlements follow the same mold.

To further induce companies to go the donation route, Justice considers these handouts to be worth “double credit” against penalty obligations. So while direct forms of victim relief are still counted dollar-for-dollar, a $500,000 donation by BofA to La Raza takes at least $1 million off the company’s bill.

The purpose of financial penalties is to punish, and to provide restitution to real victims. The Justice Department would make the case that this money is flowing to groups that aid the targets of supposed banking abuse, such as homeowners. But that assumes the work these groups do is targeted at actual victims—which it isn’t. It assumes that the work these groups do in housing is nonpartisan—which it isn’t. And it ignores that money is fungible. Every dollar banks donate to the housing arms of the Urban League or La Raza is a dollar those groups can free up to wage an assault on voter ID laws, or to help out Democrats.

This kind of enforced donation to “public service” organizations that just happen to support the ruling party’s goals is correctly discouraged by Justice Dept. guidelines as possibly creating the perception of a conflict of interest. Not only does this improperly divert money which should have been returned to the customers of the banks, it appears to encourage the Justice Dept. to spend effort on industry-wide feints at prosecution of private companies regardless of actual guilt who are thereby extorted into paying huge fines. The businesses find it cheaper to pay the extortion money, and actual justice in the form of discovery and public knowledge of any provable violations of the law that may have occurred is never achieved. The public interest was not served and there is no accountability for any of the bad actors: those inside the banks, in the ratings agencies, or in the government regulatory agencies themselves. Unresolved, there is no clarity on what reforms might help avoid recurrence. And the President builds a bigger propaganda machine to mislead the voters and retain power for his party.

Tl;dr version: The banks were rescued (whether they needed it or not) and then propped up to earn big profits by Fed actions loaning them money at close to zero rates. The DoJ takes a cut from the banks and distributes the booty to favored groups and everyone goes back to business as usual. No banker suffers. My view is that the failures were systemic and no criminal activity could ever be found… the proper punishment should have been some bankruptcies. But that route had “insufficient opportunities for graft.”

More reading on other topics:

Jane Jacobs’ Monstrous Hybrids: Guardians vs Commerce
The Great Progressive Stagnation vs. Dynamism
Death by HR: How Affirmative Action is Crippling America
Death by HR: The End of Merit in Civil Service
Corrupt Feedback Loops: Public Employee Unions
Death by HR: History and Practice of Affirmative Action and the EEOC
Civil Service: Woodrow Wilson’s Progressive Dream
Bootleggers and Baptists
Corrupt Feedback Loops: Justice Dept. Extortion
Corrupt Feedback Loops, Goldman Sachs: More Justice Dept. Extortion
Death by HR: The Birth and Evolution of the HR Department
Death by HR: The Simple Model of Project Labor
Levellers and Redistributionists: The Feudal Underpinnings of Socialism
Sons of Liberty vs. National Front
Trump World: Looking Backward
Minimum Wage: The Parable of the Ladder
Selective Outrage
Culture Wars: Co-Existence Through Limited Government
Social Justice Warriors, Jihadists, and Neo-Nazis: Constructed Identities
Tuitions Inflated, Product Degraded, Student Debts Unsustainable
The Morality of Glamour

On Affirmative Action and Social Policy:

Affirmative Action: Chinese, Indian-Origin Citizens in Malaysia Oppressed
Affirmative Action: Caste Reservation in India
Diversity Hires: Pressure on High Tech<a
Title IX Totalitarianism is Gender-Neutral
Public Schools in Poor Districts: For Control Not Education
Real-Life “Hunger Games”: Soft Oppression Destroys the Poor
The Social Decay of Black Neighborhoods (And Yours!)
Child Welfare Ideas: Every Child Gets a Government Guardian!
“Income Inequality” Propaganda is Just Disguised Materialism

The greatest hits from (Science Fiction topics):

Fear is the Mindkiller
Mirror Neurons and Irene Gallo
YA Dystopias vs Heinlein et al: Social Justice Warriors Strike Again
Selective Outrage
Sons of Liberty vs. National Front
“Tomorrowland”: Tragic Misfire
The Death of “Wired”: Hugo Awards Edition
Hugos, Sad Puppies 3, and Direct Knowledge
Selective Outrage and Angry Tribes
Men of Honor vs Victim Culture
SFF, Hugos, Curating the Best
“Why Aren’t There More Women Futurists?”
Science Fiction Fandom and SJW warfare

More reading on the military:

US Military: From No Standing Armies to Permanent Global Power
US Military: The Desegration Experience
The VA Scandals: Death by Bureaucracy


  1. In a similar vein, the EPA encourages liberal groups to sue them so they can settle and agree to regulations they could never get approved without it being a court settlement.

Leave a Reply