'The Divide': A Startling Portrait of U.S. Inequality

Monday, April 07, 2014

Women walk by a panhandler on Madison Avenue, one of Manhattan's premier streets, on Nov. 1, 2011. Income inequality is greatest in New York State than any where else in the U.S. (Spencer Platt/Getty)

The idea of “two Americas” is hardly new. Even before John Edwards made “two Americas” the catchphrase of his 2004 presidential campaign, the idea that deep fissures were dividing America's wealthiest and poorest was a popular political theme.

In his new book “The Divide: American Injustice in the Age of the Wealth Gap,” journalist Matt Taibbi provides a startling portrait of a country fractured by inequality.  

Tiabbi contends that America is headed towards a brink where justice looks more like injustice, and the state chooses defendants according to who is the least powerful—not who has committed the worst crimes.

But what do those "two Americas" really look like?

"The term is sort of emotionally insufficient to describe what's going," says Taibbi. "What that emotionally conjures up is a statistic about income inequality—they think some people are making enormous sums of money and other people aren't making as much money. And I think the reaction among a large segment of the population is: 'So what—that's the way America is supposed to be.'"

Taibbi says that while many view at least some inequality as an inevitable part of American culture, he feels that economic and social divisions are far more pervasive and serious than the public realizes. 

"I think there are, baked into the infrastructure of our society, unfairnesses that make it impossible for some people to rise up," he says.

In general, beyond a problem of "two Americas," Taibbi says that our culture has come to resemble a dystopia where the rich are virtually untouchable by societal norms—particularly when it comes to the criminal justice system.

"We have a situation now, especially after the crash, and especially after cases like HSBC and UBS where essentially, if you commit a certain kind of crime, a certain kind of fraud, and you work at a big enough and systemically important enough company, you are effectively immune from prosecution," he says. "The state has more or less announced that it will not seek criminal remedies against you as an individual."

The nature of globally connected financial markets has produced this result, says Taibbi, who adds that the government needs to work harder to separate individuals from institutions.  

"Do you really want Arthur Andersen, this venerable company that existed forever and employs 27,000 people, do you want it to be removed from the face of the Earth because they made a considerable error in their dealings with Enron?" he asks. "Maybe not, but the problem is you can't extend that policy to include individuals. If you're going to decide not to indict companies, you have to, at the very least, find a way to make individuals who do wrong things suffer in some way." 

Taibbi looks at the government's current policy around fraud and corruption as one reserved for the rich. When looking at low-income people or people with less power, he says the same rules simply do not apply. The government may not want to cause great damage to the market by prosecuting those affiliated with large conglomerates, but Taibbi says that despite the long-lasting and grave consequences of indicting a woman for welfare fraud, the government often doesn't hesitate to bring charges.

"We've decided that those consequences are acceptable, we can live with those because those people are small enough in the scale of things," he says. "Whereas we can't tolerate it when it's a really, really big company."

Taibbi says many of these policies around rich versus poor fraud are already in place. He points to a San Diego, CA program called the Project 100 or P100 Program. This "anti-fraud" program is designed for all families applying for welfare—in order to receive assistance, they must submit to unannounced home searches by district attorney investigators or representatives to verify they are truly in need as a pre-condition to receiving aid.

According to Taibbi, investigators uses these searches as a way to fight fraud. If the candidate applying for welfare is a single mother who says she has no other source of income, for example, Taibbi says that investigators will come in to check if a man is living in the home.

"In some cases I talked to some women who talked about how the searcher would go through her underwear draw with a pencil end and pick out sexy panties and say, 'Who do you need these for?'" he says. "This is incredibly humiliating, and the reality is almost everybody in someway or another is dependent upon the state. What about everybody who takes a tax deduction? What about farmers who take subsidies? Are they going to be subject to these kind of searches? They haven't decided that, but they have definitely decided that a certain kind of person on welfare has fewer rights than the rest of us."

Taibbi says it's not just low-income people on welfare that have different rights in this new paradigm of inequality. Chinatown's Abacus Federal Savings Bank was one of the first to be indicted in about 20 years. It's no "too big to fail" bank, which is why Taibbi says it received different treatment when comparing financial powerhouses.

"This bank was charged with essentially defrauding Fannie and Freddie in the mortgage dealings," he says of Abacus. "The government didn't actually even claim any losses, they just claimed that fraud was going on. What was important about it was that this bank demonstrated the whole policy of collateral consequences indirectly because it showed this is how small you have to be for [the government] to go after you."

Taibbi says that while the government had a whole range of other financial institutions it could have pursued, officials have determined that larger banks are "problematic." 

"These weren't high-ranking CEOs who are pulling $20 million, they don't have beach houses in the Hamptons or Nantucket," says Taibbi of Abacus. "It was striking looking at the row of defendants in this courtroom and thinking, these are the people that they put on trial as representatives of what went wrong in the financial crisis?"

Taibbi says that these lower-level bankers were also put in chains to show that the government was being tough on financial crime.

"This runs completely counter to how we treated people from the really big companies," he adds.

These deep divisions between rich and poor, powerful and seemingly powerless are reminiscent of the old Soviet Union during the late 80s and early 90s, Taibbi says.

"There were two sets of laws there—there were the official laws and the unwritten laws, and the unwritten laws were the ones that were important," he says. "Everybody was changing dollars and everybody was buying products on the black market, but the only ones who were getting in trouble were street kids who were trying to trade blue jeans on the street. The director of the university could wear a Western suit to work everyday and nothing would happen to him."

Over a period of decades, Taibbi says that Soviets had come to internalize a system of calculations about who was prosecutable—and who wasn't.

"I think that we're headed towards the same kind of thing," he says. "What worries me is not so much that we're not going after these banks anymore and settling for fines instead of criminal punishments, what's more disturbing is the public now seems to accept that—there are certain people who go to jail, and there other people who don't go to jail."

 

 

Guests:

Matt Taibbi

Produced by:

Mythili Rao

Editors:

T.J. Raphael

Comments [6]

Chemist150

To add to my previous comment, my wife grew up in Little italy right next to Chinatown in NY. Her parents are 100% Chinese and they are the ones that told me of these banks.

Also, I've had people admit to having children, staying unmarried. The mother would get welfare while the dad would work and claim the children as dependents to get deductions.

I've also met people that collected disability and stayed on the road so they can't be found out as having no disability.

This guy would argue that we should not discourage this behavior?

Apr. 07 2014 03:30 PM
Chemist150

I'm not defending banks in any way but this guy is uninformed to the extent he should be.

The bank in Chinatown NY has more holdings per person than the other huge banks and another one had more gold in deposit boxes. It's not racist but they are better savers. Later it was bought out by other large banks such as CHASE. Thus, it could have been a target for CHASE takeover via government assist.

Second,What the banks were doing was technically legal because of the way Fannie Mae was set up. There is nothing to charge them with. It's now illegal to do what they were doing. Loopholes have been closed. There should have been more oversight in the first place. It is 100% governmnet policy that allowed and encouraged it to happen. Back then, a small bank would have to do what the large banks were doing jus to survive even though it was morally wrong.

Apr. 07 2014 03:25 PM
Marohka

As a Libertarian, I cannot believe the hypocrisy in this man's argument. He's essentially saying that we need to hold individuals accountable if they are rich - the Banksters that committed fraud and caused the 2008 financial collapse but that we should not hold the welfare mom accountable for her actions of having children she cannot afford and not doing anything to improve her situation and instead expecting someone else to be responsible for her and her offspring. UNBELIEVABLE.

So, basically, if you've learned how to milk the system and steal money from the middle class you should be given a free pass but if you're a rich guy that has learned how to defraud investors you should be thrown in jail. How is this fair? Only in Liberal non-logic land can you hold only some individuals accountable some of the time and other individuals not accountable all of the time. Mind blowingly, terrible idea. No wonder he's spewing this stuff, he is, quite frankly, a Communist as his experience in the USSR has rubbed off on him a bit too much.

Apr. 07 2014 02:25 PM
RAOUL from BEND, OREGON

Mr. Matt Taibbi is on the mark, however, I (we) disagree with him that inequality in the justice system is acceptable by Americans at all levels of society. The problem is money and what money can buy. Most of the people committing major frauds in America come from the the upper levels of society and are in bed with the justice system. To state it in the vernacular of the street, they are connected at the hip. Americans do not accept this inequality of justice, economic and now at the voting levels because our sense of power through a weakening of system of democracy and justice has been stolen by wealthy elites whom believe once a person is in the million or billionaire class there are two sets of legal rules that apply: One set of legal rules for them and another set of rules for those whom earn less than $90,000.00 a year. We try to elect officials whom are supposed to represent those that earn less than $90,000 or less a year but instead represent use our votes to represent Wall Street and banking interest of being perpetually reelected by Wall Street and casino interest, including the Koch brothers whom are perpetually unhappy because they can't rule the planet their way. America has become a rigged system. This has to change.

Apr. 07 2014 01:12 PM
schmuck from usa

Matt Taibbi is excellent.

Apr. 07 2014 12:18 PM
Larry Fisher from Brooklyn, N.Y.

There are many types of "Two Americas":
There are those that want to manipulate the system for their benefit, and there are those that just want to feed their family and live their lives in peace.

There is an America that wants to change the world through entrepreneurship and an America that wants to exploit entrepreneurs.

There is old money that doesn't understand struggle of working hard and not having much, and there is new money who feel they have to hold onto what they have, but there are also many wealthy people who know how to share their wealth; they came up from the bottom.

Maybe it comes down to: There are those who are afraid of becoming "prey" and there are those who just want to live in a community and are not fearful of sharing their wealth of money, knowledge and love.

Hoarding versus Sharing?

Apr. 07 2014 11:35 AM

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