Thursday, August 20, 2009
How to Avoid Going to Jail under 18 U.S.C. Section 1001 for Lying to Government Agents
By Solomon L. Wisenberg of Barnes & Thornburg LLP
What do Martha Stewart and enemy combatant Ali Saleh Kahlah Al-Marri have in common? They were both indicted, under Title 18, United States Code, Section 1001, for lying to federal government agents. Ms. Stewart now stands convicted of intentionally misleading SEC and FBI officials who questioned her about insider trading. Mr. Al-Marri was one of several hundred immigrants who voluntarily submitted to FBI interviews in the wake of the September 11, 2001 attacks. He was later charged with lying, during his interview, about the timing of a previous trip to the United States. Here are two criminal defendants from widely divergent backgrounds. Yet both were ensnared by Section 1001, a perennial favorite of federal prosecutors.
Did you know that it is a crime to tell a lie to the federal government? Even if your lie is oral and not under oath? Even if you have received no warnings of any kind? Even if you are not trying to cheat the government out of money? Even if the government is not actually misled by your falsehood? Well it is.
Title 18, United States Code, Section 1001 makes it a crime to: 1) knowingly and willfully; 2) make any materially false, fictitious or fraudulent statement or representation; 3) in any matter within the jurisdiction of the executive, legislative or judicial branch of the United States. Your lie does not even have to be made directly to an employee of the national government as long as it is "within the jurisdiction" of the ever expanding federal bureaucracy. Though the falsehood must be "material" this requirement is met if the statement has the "natural tendency to influence or [is] capable of influencing, the decision of the decisionmaking body to which it is addressed." United States v. Gaudin, 515 U.S. 506, 510 (1995). (In other words, it is not necessary to show that your particular lie ever really influenced anyone.) Although you must know that your statement is false at the time you make it in order to be guilty of this crime, you do not have to know that lying to the government is a crime or even that the matter you are lying about is "within the jurisdiction" of a government agency. United States v. Yermian, 468 U.S. 63, 69 (1984). For example, if you lie to your employer on your time and attendance records and, unbeknownst to you, he submits your records, along with those of other employees, to the federal government pursuant to some regulatory duty, you could be criminally liable.
Even in our age of ever expanding federal power, the breadth of this statute (and the discretion it lodges in prosecutors) is awesome. Congress has regulated so many areas of our lives and federalized so many functions that the reach of Section 1001 is virtually boundless. This is what caused many federal courts to create an "exculpatory no" doctrine, holding that falsely answering "no" to an inquiry from a federal agent was, standing alone, not a crime under Section 1001. In 1998, however, the United States Supreme Court rejected this doctrine (as being inconsistent with legislative intent) in Brogan v. United States, 522 U.S. 398, 805 (1998). Thus, the only avenue for reform with respect to Section 1001 is in Congress, where politicians seldom get brownie points for narrowing the reach of federal criminal statutes.
But why, you may ask, should law-abiding citizens be alarmed about this statute? Don't the feds only pick on big-league liars? Don't we trust the federal government and its law enforcement officers and assume that they are responsibly trying to ferret out crime? Besides, if we meet an FBI agent that we do not trust, can't we always decline to speak to him?
It may be true that most federal agents and prosecutors are decent people who would not intentionally abuse Section 1001. Moreover, it is very important from a law enforcement perspective for federal agents to be able to informally question witnesses during the initial stages of an investigation. And certainly citizens are under no obligation to speak to a law enforcement agent in the first place, although, as shown below, it is essential to learn how to decline to speak to government officers. But power corrupts, and the potential for abuse of this statute is great, especially during periods of public outcry over corporate and other white-collar crimes. When we reflect upon how many petty rules and regulations get broken and how many white lies are told during the course of an average American business day, it is apparent that Section 1001 can easily be applied and misapplied to normally upstanding folk.
Consider, for example, the following hypothetical. Assume you are the former employee of a corrupt home health care agency. You hated the place, left as soon as you could and did your best while there not to join in the fraud you saw being committed all around you. Nevertheless, you looked the other way and on occasion minimally aided the owner's criminal behavior. Maybe you transported false vouchers to the mailbox or handed miscoded bills to a visiting auditor. (It is very easy under federal criminal law to passively aid another in his or her crime and thereby subject yourself to criminal exposure. All you need is to know of another's crime and perform any act, even a minor act, that intentionally and knowingly facilitates the crime.) Assume further that you are a registered nurse and that your licensing state will revoke your license if they find that you were involved in fraud. One afternoon, two years after you quit, your neighborhood FBI agent comes calling. He needs damaging information about your former employer and you certainly know enough to help out. But revealing what you know could also expose you to revocation of your license. What do you do in that situation and what are the potential pitfalls?
Your first instinct may very well be to feign lack of knowledge concerning the details of the former employer's behavior, particularly if, as is often the case, the agent's visit is unexpected. People often panic in these encounters and blurt out falsehoods to cover up past misdeeds, even very small misdeeds. Once you make that fateful choice the FBI agent and the Assistant United States Attorney ("AUSA") who he works with may have you over a barrel. If they possess enough evidence to prove that you are lying they can bring or threaten to bring charges against you under Section 1001. In fact some AUSAs specifically send agents out to conduct interviews knowing that a witness will either tell the truth and help build a case against someone else or lie and subject himself to a Section 1001 charge. In such situations, the federal agent is typically well-informed about the facts of the case, but plays dumb in order to instill a false sense of confidence in the interview subject. And, unlike you, the agent has had time to examine all relevant documents. (It also bears noting that the FBI will usually not tape record the interview and that the only official interview report will be an FBI 302, which is the agent's own dictated version of the conversation. Agents usually work in pairs as well, so in any later dispute over what was said in the interview, guess whose version is likely to prevail? Yours, or the two FBI agents who dictated the 302?) Even if the prosecutor does not really want to indict a little fish like you, by lying in the interview you may force him to do so. If he ultimately convinces you to tell the truth and indicts your former employer, he must still reveal your falsehood to the employer's attorney, under Brady v. Maryland, 373 U.S. 83 (1963) and Giglio v. United States, 405 U.S. 150 (1972). This information will be used by the attorney to publicly and vigorously cross-examine you at trial. Since you are now going to be a tainted witness, because of your original falsehood, the prosecutor may feel obliged to indict you in order to show a jury (or other potential witnesses) that you have paid a price for lying to the FBI.
Hence we see that even a decent person who tries to stay out of trouble can face criminal exposure under Section 1001 through a fleeting conversation with government agents. What else can be done (in our hypothetical interview) to avoid being placed in such a dilemma? Of course, you can simply tell the whole truth the first time, like your mommy taught you to do. Wouldn't that be the easy thing to do, even if your nursing license ends up being revoked? Perhaps. But by telling the truth, and avoiding prosecution under Section 1001, you expose yourself to a potential indictment for aiding and abetting your former employer's health care fraud. You don't think it could happen? Trust me. It happens all the time, almost every week, all across this country.
What if you are absolutely convinced that you didn't do anything to help your former employer and that you are entirely innocent of wrongdoing? Since you have nothing to hide, is it safe to talk? There can still be real danger in speaking to a government agent in these circumstances. To begin with, you are not qualified to know whether you are innocent of wrongdoing under federal criminal law. I have already noted the minimal nature of the act needed to connect you to another's crime if you have knowledge of that crime. But the danger goes beyond this. Not all federal crimes (particularly regulatory crimes) even require criminal intent. Moreover, you and your employer may have engaged in some widespread industry practice, acceptable at the time, which is now under stricter scrutiny. One offhand remark to the federal agent could turn into a damaging admission.
Even assuming your absolute innocence of the wrongdoing being investigated, however, the agent has had the luxury of minutely studying all of the relevant paperwork surrounding that investigation. You, on the other hand, may not have thought about the subject matter, much less the underlying details, of his inquiry for years. You will probably not be shown any of the pertinent documents before the interview begins. You could easily make factual mistakes during your interview. What happens then? Maybe nothing, if you are dealing with an experienced agent who surmises that you are trying to tell the truth. But if the agent is inexperienced and unsure of your culpability or if you are not confirming his version of events, your mistakes can easily be interpreted as intentional falsehoods under Section 1001.
Is there an intelligent alternative to lying or telling the truth that we have not yet examined? Yes. In our hypothetical interview, you can politely decline to be interviewed by the FBI agent. Tell the agent that you have an attorney and that "my attorney will be in contact with you." If the agent persists, say that you will not discuss anything without first consulting counsel. Ask for the agent's card, to give to your attorney. If you have not yet hired a lawyer, tell the agent that "I want to consult a lawyer first" or that "an attorney will be in touch with you." The absolutely essential thing to keep in mind is to say nothing of substance about the matter under investigation. It is preferable to do this by politely declining to be interviewed in the absence of counsel. If the agent asks "why do you need an attorney?" or "what do you have to hide?" do not take his bait and directly respond to such questions. (Do not even say that you have nothing to hide.) Simply state that you will not discuss the matter at all without first consulting counsel and that counsel will be in touch with him. If the agent asks for a commitment from you to speak with him after you have consulted or retained counsel, do not oblige him. Just respond that you will consult with your attorney (or "an" attorney) and that the attorney will be in touch. And by all means do not get bullied or panicked into making up a phony reason for refusing to talk. You are not obliged to explain your decision to anyone.
What if the FBI agent threatens to have you subpoenaed to the grand jury if you don't talk? Simply repeat your mantra that you will not discuss the matter with him in the absence of counsel. (If you are already represented tell the agent that you authorize your attorney to accept service of the subpoena. That way you will not have to be embarrassed at work by the FBI's service of a grand jury subpoena in broad daylight.) What if the agent already has a subpoena and serves you with it? Thank him and tell him that your attorney will be in touch.
It is crucial to note that affirmatively declining to discuss the investigation in the absence of counsel is not the same thing as remaining completely silent. If you are not in custody, your total silence, especially in the face of an accusation, can very possibly be used against you as an adoptive admission under the Federal Rules of Evidence.
Your invocation of counsel, however, cannot be used against you at trial. United States v. McDonald, 620 F.2d 559, 561-64 (5th Cir. 1980). Your refusal to talk substance in the absence of counsel will force the prosecutor to decide whether your information is important enough to justify a grand jury subpoena for your testimony.
If the prosecutor responds to your declination by serving you with a grand jury subpoena, this will present you with an interesting range of options such as: 1) testifying; 2) refusing to testify, by invoking the Fifth Amendment privilege against self-incrimination, which broadly applies to anyone, innocent or guilty, facing criminal exposure; 3) testifying (or talking to the government) only after receiving a grant of immunity; or 4) proffering to the government–that is, giving them a sneak preview of what you will tell them if they agree to grant you immunity. The important thing to remember is that declining to speak to the agent in the first place buys you time in which to weigh these alternative strategies with your white-collar criminal defense attorney.
I am not suggesting that you should obstruct the FBI or invariably decline to answer an agent's questions. If you are certain that you have committed no crime, and if the agent promises you that nothing will happen to you if you tell the truth, and if it is crystal clear that you are nothing but a peripheral witness, it may be appropriate to voluntarily interview with federal law enforcement officials. But don't speak to them unless: you have discussed the matter thoroughly with your attorney; your attorney has called the prosecutor to determine your status as a witness, subject or target; and, your attorney is present during the interview.
Neither am I suggesting that it is generally acceptable to be interviewed by federal agents as long as your attorney is present. In fact, it is usually unacceptable and is often quite risky. (Just ask Martha Stewart, who had counsel by her side when interviewed by the FBI and SEC.) Indeed, barring special circumstances, I never let a client with the slightest degree of criminal exposure submit to an interview by government agents.
There are some instances in which you may effectively be forced to interview with law enforcement agents. If you are an employee of the government and you are assured that an inquiry is administrative only and that your interview will not result in any criminal action against you, you will usually be required, in order to keep your job, to submit to the interview. Furthermore, a private employer can require you to cooperate with a law enforcement or regulatory investigation as a condition of continued employment. If you are an officer or director of a company that operates in a regulated industry or does business with the federal government, your failure to submit to questioning by regulatory officials may result in significant economic sanctions against you or your company by the United States. But even in the above situations, you should avoid substantive conversations when law enforcement agents make surprise visits. If you have to submit to an interview, it is far better to do so after careful consultation with your attorney.
If all of this sounds complicated, it is. Whether you speak, what you say and how and when you say it can have a profound effect on your future when you find yourself involved in a white-collar criminal investigation. The time to realize this, hire an experienced white-collar criminal defense attorney and develop a strategic plan is before the feds come knocking at your door.
What do Martha Stewart and enemy combatant Ali Saleh Kahlah Al-Marri have in common? They were both indicted, under Title 18, United States Code, Section 1001, for lying to federal government agents. Ms. Stewart now stands convicted of intentionally misleading SEC and FBI officials who questioned her about insider trading. Mr. Al-Marri was one of several hundred immigrants who voluntarily submitted to FBI interviews in the wake of the September 11, 2001 attacks. He was later charged with lying, during his interview, about the timing of a previous trip to the United States. Here are two criminal defendants from widely divergent backgrounds. Yet both were ensnared by Section 1001, a perennial favorite of federal prosecutors.
Did you know that it is a crime to tell a lie to the federal government? Even if your lie is oral and not under oath? Even if you have received no warnings of any kind? Even if you are not trying to cheat the government out of money? Even if the government is not actually misled by your falsehood? Well it is.
Title 18, United States Code, Section 1001 makes it a crime to: 1) knowingly and willfully; 2) make any materially false, fictitious or fraudulent statement or representation; 3) in any matter within the jurisdiction of the executive, legislative or judicial branch of the United States. Your lie does not even have to be made directly to an employee of the national government as long as it is "within the jurisdiction" of the ever expanding federal bureaucracy. Though the falsehood must be "material" this requirement is met if the statement has the "natural tendency to influence or [is] capable of influencing, the decision of the decisionmaking body to which it is addressed." United States v. Gaudin, 515 U.S. 506, 510 (1995). (In other words, it is not necessary to show that your particular lie ever really influenced anyone.) Although you must know that your statement is false at the time you make it in order to be guilty of this crime, you do not have to know that lying to the government is a crime or even that the matter you are lying about is "within the jurisdiction" of a government agency. United States v. Yermian, 468 U.S. 63, 69 (1984). For example, if you lie to your employer on your time and attendance records and, unbeknownst to you, he submits your records, along with those of other employees, to the federal government pursuant to some regulatory duty, you could be criminally liable.
Even in our age of ever expanding federal power, the breadth of this statute (and the discretion it lodges in prosecutors) is awesome. Congress has regulated so many areas of our lives and federalized so many functions that the reach of Section 1001 is virtually boundless. This is what caused many federal courts to create an "exculpatory no" doctrine, holding that falsely answering "no" to an inquiry from a federal agent was, standing alone, not a crime under Section 1001. In 1998, however, the United States Supreme Court rejected this doctrine (as being inconsistent with legislative intent) in Brogan v. United States, 522 U.S. 398, 805 (1998). Thus, the only avenue for reform with respect to Section 1001 is in Congress, where politicians seldom get brownie points for narrowing the reach of federal criminal statutes.
But why, you may ask, should law-abiding citizens be alarmed about this statute? Don't the feds only pick on big-league liars? Don't we trust the federal government and its law enforcement officers and assume that they are responsibly trying to ferret out crime? Besides, if we meet an FBI agent that we do not trust, can't we always decline to speak to him?
It may be true that most federal agents and prosecutors are decent people who would not intentionally abuse Section 1001. Moreover, it is very important from a law enforcement perspective for federal agents to be able to informally question witnesses during the initial stages of an investigation. And certainly citizens are under no obligation to speak to a law enforcement agent in the first place, although, as shown below, it is essential to learn how to decline to speak to government officers. But power corrupts, and the potential for abuse of this statute is great, especially during periods of public outcry over corporate and other white-collar crimes. When we reflect upon how many petty rules and regulations get broken and how many white lies are told during the course of an average American business day, it is apparent that Section 1001 can easily be applied and misapplied to normally upstanding folk.
Consider, for example, the following hypothetical. Assume you are the former employee of a corrupt home health care agency. You hated the place, left as soon as you could and did your best while there not to join in the fraud you saw being committed all around you. Nevertheless, you looked the other way and on occasion minimally aided the owner's criminal behavior. Maybe you transported false vouchers to the mailbox or handed miscoded bills to a visiting auditor. (It is very easy under federal criminal law to passively aid another in his or her crime and thereby subject yourself to criminal exposure. All you need is to know of another's crime and perform any act, even a minor act, that intentionally and knowingly facilitates the crime.) Assume further that you are a registered nurse and that your licensing state will revoke your license if they find that you were involved in fraud. One afternoon, two years after you quit, your neighborhood FBI agent comes calling. He needs damaging information about your former employer and you certainly know enough to help out. But revealing what you know could also expose you to revocation of your license. What do you do in that situation and what are the potential pitfalls?
Your first instinct may very well be to feign lack of knowledge concerning the details of the former employer's behavior, particularly if, as is often the case, the agent's visit is unexpected. People often panic in these encounters and blurt out falsehoods to cover up past misdeeds, even very small misdeeds. Once you make that fateful choice the FBI agent and the Assistant United States Attorney ("AUSA") who he works with may have you over a barrel. If they possess enough evidence to prove that you are lying they can bring or threaten to bring charges against you under Section 1001. In fact some AUSAs specifically send agents out to conduct interviews knowing that a witness will either tell the truth and help build a case against someone else or lie and subject himself to a Section 1001 charge. In such situations, the federal agent is typically well-informed about the facts of the case, but plays dumb in order to instill a false sense of confidence in the interview subject. And, unlike you, the agent has had time to examine all relevant documents. (It also bears noting that the FBI will usually not tape record the interview and that the only official interview report will be an FBI 302, which is the agent's own dictated version of the conversation. Agents usually work in pairs as well, so in any later dispute over what was said in the interview, guess whose version is likely to prevail? Yours, or the two FBI agents who dictated the 302?) Even if the prosecutor does not really want to indict a little fish like you, by lying in the interview you may force him to do so. If he ultimately convinces you to tell the truth and indicts your former employer, he must still reveal your falsehood to the employer's attorney, under Brady v. Maryland, 373 U.S. 83 (1963) and Giglio v. United States, 405 U.S. 150 (1972). This information will be used by the attorney to publicly and vigorously cross-examine you at trial. Since you are now going to be a tainted witness, because of your original falsehood, the prosecutor may feel obliged to indict you in order to show a jury (or other potential witnesses) that you have paid a price for lying to the FBI.
Hence we see that even a decent person who tries to stay out of trouble can face criminal exposure under Section 1001 through a fleeting conversation with government agents. What else can be done (in our hypothetical interview) to avoid being placed in such a dilemma? Of course, you can simply tell the whole truth the first time, like your mommy taught you to do. Wouldn't that be the easy thing to do, even if your nursing license ends up being revoked? Perhaps. But by telling the truth, and avoiding prosecution under Section 1001, you expose yourself to a potential indictment for aiding and abetting your former employer's health care fraud. You don't think it could happen? Trust me. It happens all the time, almost every week, all across this country.
What if you are absolutely convinced that you didn't do anything to help your former employer and that you are entirely innocent of wrongdoing? Since you have nothing to hide, is it safe to talk? There can still be real danger in speaking to a government agent in these circumstances. To begin with, you are not qualified to know whether you are innocent of wrongdoing under federal criminal law. I have already noted the minimal nature of the act needed to connect you to another's crime if you have knowledge of that crime. But the danger goes beyond this. Not all federal crimes (particularly regulatory crimes) even require criminal intent. Moreover, you and your employer may have engaged in some widespread industry practice, acceptable at the time, which is now under stricter scrutiny. One offhand remark to the federal agent could turn into a damaging admission.
Even assuming your absolute innocence of the wrongdoing being investigated, however, the agent has had the luxury of minutely studying all of the relevant paperwork surrounding that investigation. You, on the other hand, may not have thought about the subject matter, much less the underlying details, of his inquiry for years. You will probably not be shown any of the pertinent documents before the interview begins. You could easily make factual mistakes during your interview. What happens then? Maybe nothing, if you are dealing with an experienced agent who surmises that you are trying to tell the truth. But if the agent is inexperienced and unsure of your culpability or if you are not confirming his version of events, your mistakes can easily be interpreted as intentional falsehoods under Section 1001.
Is there an intelligent alternative to lying or telling the truth that we have not yet examined? Yes. In our hypothetical interview, you can politely decline to be interviewed by the FBI agent. Tell the agent that you have an attorney and that "my attorney will be in contact with you." If the agent persists, say that you will not discuss anything without first consulting counsel. Ask for the agent's card, to give to your attorney. If you have not yet hired a lawyer, tell the agent that "I want to consult a lawyer first" or that "an attorney will be in touch with you." The absolutely essential thing to keep in mind is to say nothing of substance about the matter under investigation. It is preferable to do this by politely declining to be interviewed in the absence of counsel. If the agent asks "why do you need an attorney?" or "what do you have to hide?" do not take his bait and directly respond to such questions. (Do not even say that you have nothing to hide.) Simply state that you will not discuss the matter at all without first consulting counsel and that counsel will be in touch with him. If the agent asks for a commitment from you to speak with him after you have consulted or retained counsel, do not oblige him. Just respond that you will consult with your attorney (or "an" attorney) and that the attorney will be in touch. And by all means do not get bullied or panicked into making up a phony reason for refusing to talk. You are not obliged to explain your decision to anyone.
What if the FBI agent threatens to have you subpoenaed to the grand jury if you don't talk? Simply repeat your mantra that you will not discuss the matter with him in the absence of counsel. (If you are already represented tell the agent that you authorize your attorney to accept service of the subpoena. That way you will not have to be embarrassed at work by the FBI's service of a grand jury subpoena in broad daylight.) What if the agent already has a subpoena and serves you with it? Thank him and tell him that your attorney will be in touch.
It is crucial to note that affirmatively declining to discuss the investigation in the absence of counsel is not the same thing as remaining completely silent. If you are not in custody, your total silence, especially in the face of an accusation, can very possibly be used against you as an adoptive admission under the Federal Rules of Evidence.
Your invocation of counsel, however, cannot be used against you at trial. United States v. McDonald, 620 F.2d 559, 561-64 (5th Cir. 1980). Your refusal to talk substance in the absence of counsel will force the prosecutor to decide whether your information is important enough to justify a grand jury subpoena for your testimony.
If the prosecutor responds to your declination by serving you with a grand jury subpoena, this will present you with an interesting range of options such as: 1) testifying; 2) refusing to testify, by invoking the Fifth Amendment privilege against self-incrimination, which broadly applies to anyone, innocent or guilty, facing criminal exposure; 3) testifying (or talking to the government) only after receiving a grant of immunity; or 4) proffering to the government–that is, giving them a sneak preview of what you will tell them if they agree to grant you immunity. The important thing to remember is that declining to speak to the agent in the first place buys you time in which to weigh these alternative strategies with your white-collar criminal defense attorney.
I am not suggesting that you should obstruct the FBI or invariably decline to answer an agent's questions. If you are certain that you have committed no crime, and if the agent promises you that nothing will happen to you if you tell the truth, and if it is crystal clear that you are nothing but a peripheral witness, it may be appropriate to voluntarily interview with federal law enforcement officials. But don't speak to them unless: you have discussed the matter thoroughly with your attorney; your attorney has called the prosecutor to determine your status as a witness, subject or target; and, your attorney is present during the interview.
Neither am I suggesting that it is generally acceptable to be interviewed by federal agents as long as your attorney is present. In fact, it is usually unacceptable and is often quite risky. (Just ask Martha Stewart, who had counsel by her side when interviewed by the FBI and SEC.) Indeed, barring special circumstances, I never let a client with the slightest degree of criminal exposure submit to an interview by government agents.
There are some instances in which you may effectively be forced to interview with law enforcement agents. If you are an employee of the government and you are assured that an inquiry is administrative only and that your interview will not result in any criminal action against you, you will usually be required, in order to keep your job, to submit to the interview. Furthermore, a private employer can require you to cooperate with a law enforcement or regulatory investigation as a condition of continued employment. If you are an officer or director of a company that operates in a regulated industry or does business with the federal government, your failure to submit to questioning by regulatory officials may result in significant economic sanctions against you or your company by the United States. But even in the above situations, you should avoid substantive conversations when law enforcement agents make surprise visits. If you have to submit to an interview, it is far better to do so after careful consultation with your attorney.
If all of this sounds complicated, it is. Whether you speak, what you say and how and when you say it can have a profound effect on your future when you find yourself involved in a white-collar criminal investigation. The time to realize this, hire an experienced white-collar criminal defense attorney and develop a strategic plan is before the feds come knocking at your door.
The Brokers and Banks both want to "BUY" the Judge.
By DAVID STREITFELD
Published: August 18, 2009
Mike Kennedy, a real estate appraiser in Monroe, N.Y., was examining a suburban house a few years ago when he discovered five feet of water in the basement. The mortgage broker arranging the owner’s refinancing asked him to pretend it was not there.
Brokers, real estate agents and banks asked appraisers to do a lot of pretending during the housing boom, pumping up values while ignoring defects. While Mr. Kennedy says he never complied, many appraisers did, some of them thinking they had no choice if they wanted work. A profession that should have been a brake on the spiral in home prices instead became a big contributor.
On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them.
Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.
The Home Valuation Code of Conduct is setting off a bitter battle. Mortgage brokers, lenders, real estate agents, regulators and appraisers are all arguing over whether an effort to fix one problem has created many new ones.
The agents, maintaining that the changes are effectively blocking home sales by encouraging the use of inexperienced appraisers, are asking Washington to suspend the code until 2011. For their part, appraisers acknowledge that the change may have been well intentioned but contend that it has no teeth and is undermining the economics of their profession.
“We’ve been begging for years for enforcement of existing state and federal laws regulating appraising,” said Mr. Kennedy, a leader in the appraisal community. “We thought we were finally going to get that. But the code is doing nothing except putting ethical appraisers out of business.”
Financial change is one of the most contentious issues in Washington, and efforts to fix even widely acknowledged problems seem stalled. The attempt to change the appraisal system is an example of how difficult it can be to adopt changes that are good in theory and also work in practice — while simultaneously winning support from warring interest groups.
“The real estate industry is incredibly complex,” said Josh Denney, a lobbyist with the Mortgage Bankers Association. “If you take one piece and tinker with it, it causes friction throughout the process.”
The Home Valuation Code of Conduct had an unusual origin. It was developed by the New York attorney general, Andrew M. Cuomo, who persuaded the big federal mortgage agencies, Fannie Mae and Freddie Mac, to adopt it. That has effectively made it national policy.
Putting appraisals completely in the hands of lenders may sound like a good idea in principle, because it is supposed to be lenders who are putting their money at risk in a home loan.
But the reality is that many companies that write home loans these days do not have much incentive to worry about the accuracy of appraisals. That is because the companies do not keep the loans on their own books, instead selling them to Fannie Mae or Freddie Mac.
“The code is a formula for continued problems with fraud,” said David Callahan, a senior fellow with the public policy group Demos who has studied appraisals. “Appraisers have been asking for a long time for a reliable firewall between themselves and lenders, and are further from it than ever.”
Appraisers Pressured
Before real estate prices went out of control, appraisal work was straightforward. The appraiser examined a property inside and out, judging it against the prices that similar properties in the neighborhood were fetching. If the appraisal value matched the sales price, the lender financed the loan.
As lending standards collapsed during the housing boom, appraisers were pressured from all sides. When the appraiser did not deliver a satisfactory price, the deal did not get done, and the broker, agent and lender did not get their fees. Homeowners also loved inflated appraisals, using them to take out as much as possible when they refinanced.
“I got daily calls from lenders and brokers saying, ‘Here’s the address. Can you get me $400,000?’ ” said Mr. Kennedy, who has been in the business since 1993. When he responded that it was illegal for him to supply an unsupported value — or when he noted in his report defects that the client hoped he would ignore, like a flooded basement — the broker or lender dropped him for a more compliant appraiser.
The honest appraisers saw that the situation was helping to drive housing prices beyond reason. A petition they started a decade ago, just as the long boom was getting under way, warned of “the potential for great financial loss” to the economy if the penalties for pressuring appraisers were not enforced. The petition also complained that honest appraisers were being blacklisted. It drew 11,000 signatures.
Regulators and lawmakers did nothing. A rising market covered all sins. Then the market turned, and the lawsuits began.
In late 2007, Mr. Cuomo filed suit in New York Supreme Court against the data company First American and its subsidiary eAppraiseIT for fraud.
EAppraiseIT is an appraisal management company, which means lenders hire it to hire appraisers. This method, First American stressed in its annual report, produced “unbiased valuations” that benefited “not only the homeowner and lender, but our nation’s economy.”
Washington Mutual, based in Seattle, was the biggest client of eAppraiseIT. (Mr. Cuomo could not sue Washington Mutual for jurisdictional reasons.) The suit, still in court, charges that eAppraiseIT let itself be pressured by Washington Mutual to revise appraisals upward to match the value of deals.
Washington Mutual collapsed last fall, the largest bank failure in the nation’s history.
Mr. Cuomo, convinced that the troubles with appraisals went far beyond a single case, began an inquiry into Fannie and Freddie’s role in the buying of fraudulent mortgages. Before that investigation could be concluded, the two finance companies agreed they would buy mortgages only from lenders that abided by a new code of conduct.
In its original draft, the code froze out brokers and agents and placed severe restrictions on lenders. They were forbidden from using their staff appraisers or an appraisal management company in which they had more than a 20 percent interest.
The American Bankers Association and the Mortgage Bankers Association fought the restrictions, saying they would increase costs to consumers. The lenders also argued that Mr. Cuomo had no jurisdiction over their federally chartered operations. Banking regulators, who saw their authority being usurped, agreed.
The final version of the code gives much greater leeway to lenders. For instance, lenders can hire their own appraisers if they “recognize” that complaints will be forwarded to regulators.
The appraisal world was stunned. Dave Biggers, the chief executive of A La Mode, a maker of software for appraisers, said, “It’s like telling me I can steal as long as I ‘recognize’ that complaints will be directed to the police.”
Benjamin Lawsky, a special assistant to Mr. Cuomo, defended the revised version. “Our goal was always for the code to eliminate the causes of appraisal inflation while minimizing any disruptive impact on the industry,” he said. “We believe we accomplished this.”
Since national lenders cannot maintain lists of appraisers in every community, they long ago began outsourcing the process to the management companies, who had claimed about 30 percent of the market before the code took effect. Now that the lenders are the ones ordering all the appraisals, the management companies are expanding their share.
Real estate groups say the management companies, with the competition from brokers and agents eliminated, are now trying to fatten their profit margins by hiring appraisers as cheaply as possible.
These inexperienced appraisers, often traveling many miles to a market they do not know well, are scuttling legitimate deals, the agents claim. This argument has resonated in Congress, where 55 legislators have sponsored a bill calling for an 18-month moratorium on the code.
Appraisal management companies and lenders say the agents’ charges are not true.
“We’re an easy scapegoat,” said Donald Blanchard, chief compliance officer of Lender Processing Services Inc., which works with 20,000 appraisers. “We’ve yet to see any quantifiable proof as to the problems that management companies are supposedly causing.”
The real source of trouble for independent appraisers, he suggested, is not the code but a changing economy.
“Appraisers want to go back to the way it used to be,” Mr. Blanchard said. “But it’s good business for us to demand more for less.”
Fees Decline
Terry and Andrea Hartlieb, longtime appraisers in Fort Collins, Colo., miss the old days.Instead of developing relationships with brokers and agents, the Hartliebs must wait for a lender or appraisal management company to call. A year ago, they would make $350 for an appraisal that would take about five hours. Now the management companies offer as little as half that. The couple has laid off four appraisers who used to work for them.
One recent call was about a complex property that would take additional time. Mr. Hartlieb asked for a bigger fee. The response: “We can get it done faster and for less elsewhere.”
Mrs. Hartlieb said, “Buying a house is the largest expense of your life. Don’t you want the best professional advice about its value, not the cheapest?”
Appraisers might be earning less, but consumers are being asked to pay more. The cost of an appraisal is now about $500, up from $400, appraisers say, because of the management companies’ share.
Moreover, if the goal of the code is to lessen pressure on appraisers, it is not clear that is happening.
A memo from U.S. Bancorp, which is based in Minneapolis, was posted recently on Appraisers’ Forum, an online discussion group. The memo bluntly urged the lender’s appraisers to “try and get the value we need the first time.” (A U.S. Bancorp spokeswoman said the memo was “not an official document.”)
In an online poll of 2,250 appraisers by Working RE magazine, half the respondents said they sometimes felt that management companies were ordering them to come up with a value that would make the deal work.
Banks and appraisal management companies say appraisers can be hypersensitive. “To some appraisers, the fact that we call you and ask a question is pressure,” said Mr. Blanchard of Lender Processing Services.
Under the code, the role of deciding what is pressure is assigned to a new entity called the Independent Valuation Protection Institute. If appraiser complaints are deemed valid, the institute is supposed to forward them to regulators.
Seventeen months after it was announced, the institute has no staff and no appraiser complaint hotline. All that exists is a single Web page.
Mr. Callahan, who wrote about the trouble with appraisals during the boom, is dismayed that the problem cannot be fixed even during the bust.
“Appraisers play a key role in keeping real estate transactions honest,” he said. “But we as a society have done very little to support them and ensure their independence.”
Published: August 18, 2009
Mike Kennedy, a real estate appraiser in Monroe, N.Y., was examining a suburban house a few years ago when he discovered five feet of water in the basement. The mortgage broker arranging the owner’s refinancing asked him to pretend it was not there.
Brokers, real estate agents and banks asked appraisers to do a lot of pretending during the housing boom, pumping up values while ignoring defects. While Mr. Kennedy says he never complied, many appraisers did, some of them thinking they had no choice if they wanted work. A profession that should have been a brake on the spiral in home prices instead became a big contributor.
On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them.
Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.
The Home Valuation Code of Conduct is setting off a bitter battle. Mortgage brokers, lenders, real estate agents, regulators and appraisers are all arguing over whether an effort to fix one problem has created many new ones.
The agents, maintaining that the changes are effectively blocking home sales by encouraging the use of inexperienced appraisers, are asking Washington to suspend the code until 2011. For their part, appraisers acknowledge that the change may have been well intentioned but contend that it has no teeth and is undermining the economics of their profession.
“We’ve been begging for years for enforcement of existing state and federal laws regulating appraising,” said Mr. Kennedy, a leader in the appraisal community. “We thought we were finally going to get that. But the code is doing nothing except putting ethical appraisers out of business.”
Financial change is one of the most contentious issues in Washington, and efforts to fix even widely acknowledged problems seem stalled. The attempt to change the appraisal system is an example of how difficult it can be to adopt changes that are good in theory and also work in practice — while simultaneously winning support from warring interest groups.
“The real estate industry is incredibly complex,” said Josh Denney, a lobbyist with the Mortgage Bankers Association. “If you take one piece and tinker with it, it causes friction throughout the process.”
The Home Valuation Code of Conduct had an unusual origin. It was developed by the New York attorney general, Andrew M. Cuomo, who persuaded the big federal mortgage agencies, Fannie Mae and Freddie Mac, to adopt it. That has effectively made it national policy.
Putting appraisals completely in the hands of lenders may sound like a good idea in principle, because it is supposed to be lenders who are putting their money at risk in a home loan.
But the reality is that many companies that write home loans these days do not have much incentive to worry about the accuracy of appraisals. That is because the companies do not keep the loans on their own books, instead selling them to Fannie Mae or Freddie Mac.
“The code is a formula for continued problems with fraud,” said David Callahan, a senior fellow with the public policy group Demos who has studied appraisals. “Appraisers have been asking for a long time for a reliable firewall between themselves and lenders, and are further from it than ever.”
Appraisers Pressured
Before real estate prices went out of control, appraisal work was straightforward. The appraiser examined a property inside and out, judging it against the prices that similar properties in the neighborhood were fetching. If the appraisal value matched the sales price, the lender financed the loan.
As lending standards collapsed during the housing boom, appraisers were pressured from all sides. When the appraiser did not deliver a satisfactory price, the deal did not get done, and the broker, agent and lender did not get their fees. Homeowners also loved inflated appraisals, using them to take out as much as possible when they refinanced.
“I got daily calls from lenders and brokers saying, ‘Here’s the address. Can you get me $400,000?’ ” said Mr. Kennedy, who has been in the business since 1993. When he responded that it was illegal for him to supply an unsupported value — or when he noted in his report defects that the client hoped he would ignore, like a flooded basement — the broker or lender dropped him for a more compliant appraiser.
The honest appraisers saw that the situation was helping to drive housing prices beyond reason. A petition they started a decade ago, just as the long boom was getting under way, warned of “the potential for great financial loss” to the economy if the penalties for pressuring appraisers were not enforced. The petition also complained that honest appraisers were being blacklisted. It drew 11,000 signatures.
Regulators and lawmakers did nothing. A rising market covered all sins. Then the market turned, and the lawsuits began.
In late 2007, Mr. Cuomo filed suit in New York Supreme Court against the data company First American and its subsidiary eAppraiseIT for fraud.
EAppraiseIT is an appraisal management company, which means lenders hire it to hire appraisers. This method, First American stressed in its annual report, produced “unbiased valuations” that benefited “not only the homeowner and lender, but our nation’s economy.”
Washington Mutual, based in Seattle, was the biggest client of eAppraiseIT. (Mr. Cuomo could not sue Washington Mutual for jurisdictional reasons.) The suit, still in court, charges that eAppraiseIT let itself be pressured by Washington Mutual to revise appraisals upward to match the value of deals.
Washington Mutual collapsed last fall, the largest bank failure in the nation’s history.
Mr. Cuomo, convinced that the troubles with appraisals went far beyond a single case, began an inquiry into Fannie and Freddie’s role in the buying of fraudulent mortgages. Before that investigation could be concluded, the two finance companies agreed they would buy mortgages only from lenders that abided by a new code of conduct.
In its original draft, the code froze out brokers and agents and placed severe restrictions on lenders. They were forbidden from using their staff appraisers or an appraisal management company in which they had more than a 20 percent interest.
The American Bankers Association and the Mortgage Bankers Association fought the restrictions, saying they would increase costs to consumers. The lenders also argued that Mr. Cuomo had no jurisdiction over their federally chartered operations. Banking regulators, who saw their authority being usurped, agreed.
The final version of the code gives much greater leeway to lenders. For instance, lenders can hire their own appraisers if they “recognize” that complaints will be forwarded to regulators.
The appraisal world was stunned. Dave Biggers, the chief executive of A La Mode, a maker of software for appraisers, said, “It’s like telling me I can steal as long as I ‘recognize’ that complaints will be directed to the police.”
Benjamin Lawsky, a special assistant to Mr. Cuomo, defended the revised version. “Our goal was always for the code to eliminate the causes of appraisal inflation while minimizing any disruptive impact on the industry,” he said. “We believe we accomplished this.”
Since national lenders cannot maintain lists of appraisers in every community, they long ago began outsourcing the process to the management companies, who had claimed about 30 percent of the market before the code took effect. Now that the lenders are the ones ordering all the appraisals, the management companies are expanding their share.
Real estate groups say the management companies, with the competition from brokers and agents eliminated, are now trying to fatten their profit margins by hiring appraisers as cheaply as possible.
These inexperienced appraisers, often traveling many miles to a market they do not know well, are scuttling legitimate deals, the agents claim. This argument has resonated in Congress, where 55 legislators have sponsored a bill calling for an 18-month moratorium on the code.
Appraisal management companies and lenders say the agents’ charges are not true.
“We’re an easy scapegoat,” said Donald Blanchard, chief compliance officer of Lender Processing Services Inc., which works with 20,000 appraisers. “We’ve yet to see any quantifiable proof as to the problems that management companies are supposedly causing.”
The real source of trouble for independent appraisers, he suggested, is not the code but a changing economy.
“Appraisers want to go back to the way it used to be,” Mr. Blanchard said. “But it’s good business for us to demand more for less.”
Fees Decline
Terry and Andrea Hartlieb, longtime appraisers in Fort Collins, Colo., miss the old days.Instead of developing relationships with brokers and agents, the Hartliebs must wait for a lender or appraisal management company to call. A year ago, they would make $350 for an appraisal that would take about five hours. Now the management companies offer as little as half that. The couple has laid off four appraisers who used to work for them.
One recent call was about a complex property that would take additional time. Mr. Hartlieb asked for a bigger fee. The response: “We can get it done faster and for less elsewhere.”
Mrs. Hartlieb said, “Buying a house is the largest expense of your life. Don’t you want the best professional advice about its value, not the cheapest?”
Appraisers might be earning less, but consumers are being asked to pay more. The cost of an appraisal is now about $500, up from $400, appraisers say, because of the management companies’ share.
Moreover, if the goal of the code is to lessen pressure on appraisers, it is not clear that is happening.
A memo from U.S. Bancorp, which is based in Minneapolis, was posted recently on Appraisers’ Forum, an online discussion group. The memo bluntly urged the lender’s appraisers to “try and get the value we need the first time.” (A U.S. Bancorp spokeswoman said the memo was “not an official document.”)
In an online poll of 2,250 appraisers by Working RE magazine, half the respondents said they sometimes felt that management companies were ordering them to come up with a value that would make the deal work.
Banks and appraisal management companies say appraisers can be hypersensitive. “To some appraisers, the fact that we call you and ask a question is pressure,” said Mr. Blanchard of Lender Processing Services.
Under the code, the role of deciding what is pressure is assigned to a new entity called the Independent Valuation Protection Institute. If appraiser complaints are deemed valid, the institute is supposed to forward them to regulators.
Seventeen months after it was announced, the institute has no staff and no appraiser complaint hotline. All that exists is a single Web page.
Mr. Callahan, who wrote about the trouble with appraisals during the boom, is dismayed that the problem cannot be fixed even during the bust.
“Appraisers play a key role in keeping real estate transactions honest,” he said. “But we as a society have done very little to support them and ensure their independence.”
OK, Jesus saves, but is the bank still solvent!!
Believers Invest in the Gospel of Getting Rich
By Laurie Goodstein
August 18, 2009 "New York Times" -- -FORT WORTH — Onstage before thousands of believers weighed down by debt and economic insecurity, Kenneth and Gloria Copeland and their all-star lineup of “prosperity gospel” preachers delighted the crowd with anecdotes about the luxurious lives they had attained by following the Word of God.
Private airplanes and boats. A motorcycle sent by an anonymous supporter. Vacations in Hawaii and cruises in Alaska. Designer handbags. A ring of emeralds and diamonds.
“God knows where the money is, and he knows how to get the money to you,” preached Mrs. Copeland, dressed in a crisp pants ensemble like those worn by C.E.O.’s.
Even in an economic downturn, preachers in the “prosperity gospel” movement are drawing sizable, adoring audiences. Their message — that if you have sufficient faith in God and the Bible and donate generously, God will multiply your offerings a hundredfold — is reassuring to many in hard times.
The preachers barely acknowledged the recession, though they did say it was no excuse to curtail giving. “Fear will make you stingy,” Mr. Copeland said.
But the offering buckets came up emptier than in some previous years, said those who have attended before.
Many in this flock do not trust banks, the news media or Washington, where the Senate Finance Committee is investigating whether the Copelands and other prosperity evangelists used donations to enrich themselves and abused their tax-exempt status. But they trust the Copelands, the movement’s current patriarch and matriarch, who seem to embody prosperity with their robust health and abundance of children and grandchildren who have followed them into the ministry.
“If God did it for them, he will do it for us,” said Edwige Ndoudi, who traveled with her husband and three children from Canada for the Southwest Believers’ Convention this month, where the Copelands and three of their friends took turns preaching for five days, 10 hours a day at the Fort Worth Convention Center.
The crowd of more than 9,000 was multiracial, from 48 states and 27 countries. There was no fee to attend. There were bikers in leather vests, pastors, blue-collar workers, professionals and plenty of families with children.
A large contingent came in wheelchairs, hoping for miraculous healings. The audience sat with Bibles open, flipping to passages cited by the preachers, taking notes on pads and laptop computers.
“The folks who are coming aren’t poor,” said Jonathan L. Walton, a professor of religion at the University of California, Riverside, who has written about the movement and was there doing research. “They reside in that nebulous category between the working and the middle class.”
Sitting in Section 316, eight rows up, making peanut butter and jelly sandwiches on a Bible at lunch time, was a family who could explain the enduring loyalty the prosperity preachers inspire.
Stephen Biellier, a long-distance trucker from Mount Vernon, Mo., said he and his wife, Millie, came to the convention praying that this would be “the overcoming year.” They are $102,000 in debt, and the bank has cut off their credit line, Mrs. Biellier said.
They say the Copelands rescued them from financial failure 23 years ago, when they bought their first truck at 22 percent interest and had to rebuild the engine twice in a year.
Around that time, Mrs. Biellier first saw Mr. Copeland on television and began sending him 50 cents a week.
Others who bought trucks from the same dealer in Joplin that year went under, the Bielliers said, but they did not.
“We would have failed if Copeland hadn’t been praying for us every day,” Mrs. Biellier said.
The Bielliers are now among 386,000 people worldwide whom the Copelands call their “partners,” most of whom send regular contributions and merit special prayers from the Copelands.
A call center at the ministry’s 481-employee headquarters in Newark, Tex., takes in 60,000 prayer requests a month, a publicist said.
The Copelands’ broadcast reaches 134 countries, and the ministry’s income is about $100 million annually.
The Bielliers were at the convention a few years ago when a supporter made a pitch for people to join an “Elite CX Team” to raise money to buy the ministry a Citation X airplane. (Mr. Copeland is an airplane aficionado who got his start in ministry as a pilot for Oral Roberts.) At that moment, Mrs. Biellier said she heard the voice of the Holy Spirit telling her, “You were born to support this man.”
She gave $2,000 for the plane, and recently sent $1,800 for the team’s latest project: buying high-definition television equipment to upgrade the ministry’s international broadcasts.
Mrs. Biellier said some friends and relatives would say the preacher just wanted their money. She explained that the Copelands did not need the money for themselves; it is for their ministry. And besides, even “trashy people like Hugh Hefner” have private airplanes.
“I remember Copeland had to once fly halfway around the world to talk to one person,” she said. “Because we’re partners with Kenneth Copeland, for every soul that gets saved, we get credit for that in heaven.”
But while a band primed the crowd, Professor Walton called the prosperity preachers “spiritual pickpockets.”
“To dismiss and ignore the harsh realities of this economic crisis,” he said. “is beyond irresponsible, to the point of reprehensible.”
The Copelands refused an interview request, but one of their daughters, Kellie Copeland Swisher, and her husband, Steve Swisher, who both work in the ministry, spoke for them.
Mrs. Swisher said the ministry gave away “a minimum of 10 percent of what comes in” to other charities. Her father’s current favorite, she said, is a Roman Catholic orphanage in Mexico.
The ministry has resisted providing the Senate investigation with all the documents requested, she said, because the Copelands did not want to publicly reveal the names of the “partners.” The investigation, which could result in new laws, is continuing, a committee spokeswoman said. Among those being investigated is Creflo Dollar, one of the ministers at the Copelands’ convention.
Mr. Swisher said that even in the economic downturn, the ministry’s income going into the convention was up 3 percent over last year. Asked if they had adjusted the message for the economy, Mrs. Swisher patted the worn Bible in her lap and said: “The message they preach is the Word of God. The Word doesn’t change.”
At the convention, the preachers — who also included Jesse Duplantis and Jerry Savelle — sprinkled their sermons with put-downs of the government, an overhaul of health care, public schools, the news media and other churches, many of which condemn prosperity preaching.
But mostly the preachers were working mightily to remind the crowd that they are God’s elect. “While everybody else is having a famine,” said Mr. Savelle, a Texas televangelist, “his covenant people will be having the best of times.”
“Any time a worried thought about money pops up in your mind,” Mr. Savelle continued, “the next thing you do is sow”: drop money, like seeds, in “good ground” like the preachers’ ministries. “Stop worrying, start sowing,” he added, his voice rising. “That’s God’s stimulus package for you.”
At that, hundreds streamed down the aisles to the stage, laying envelopes, cash and coins on the carpeted steps.
© 2009 The New York Times
By Laurie Goodstein
August 18, 2009 "New York Times" -- -FORT WORTH — Onstage before thousands of believers weighed down by debt and economic insecurity, Kenneth and Gloria Copeland and their all-star lineup of “prosperity gospel” preachers delighted the crowd with anecdotes about the luxurious lives they had attained by following the Word of God.
Private airplanes and boats. A motorcycle sent by an anonymous supporter. Vacations in Hawaii and cruises in Alaska. Designer handbags. A ring of emeralds and diamonds.
“God knows where the money is, and he knows how to get the money to you,” preached Mrs. Copeland, dressed in a crisp pants ensemble like those worn by C.E.O.’s.
Even in an economic downturn, preachers in the “prosperity gospel” movement are drawing sizable, adoring audiences. Their message — that if you have sufficient faith in God and the Bible and donate generously, God will multiply your offerings a hundredfold — is reassuring to many in hard times.
The preachers barely acknowledged the recession, though they did say it was no excuse to curtail giving. “Fear will make you stingy,” Mr. Copeland said.
But the offering buckets came up emptier than in some previous years, said those who have attended before.
Many in this flock do not trust banks, the news media or Washington, where the Senate Finance Committee is investigating whether the Copelands and other prosperity evangelists used donations to enrich themselves and abused their tax-exempt status. But they trust the Copelands, the movement’s current patriarch and matriarch, who seem to embody prosperity with their robust health and abundance of children and grandchildren who have followed them into the ministry.
“If God did it for them, he will do it for us,” said Edwige Ndoudi, who traveled with her husband and three children from Canada for the Southwest Believers’ Convention this month, where the Copelands and three of their friends took turns preaching for five days, 10 hours a day at the Fort Worth Convention Center.
The crowd of more than 9,000 was multiracial, from 48 states and 27 countries. There was no fee to attend. There were bikers in leather vests, pastors, blue-collar workers, professionals and plenty of families with children.
A large contingent came in wheelchairs, hoping for miraculous healings. The audience sat with Bibles open, flipping to passages cited by the preachers, taking notes on pads and laptop computers.
“The folks who are coming aren’t poor,” said Jonathan L. Walton, a professor of religion at the University of California, Riverside, who has written about the movement and was there doing research. “They reside in that nebulous category between the working and the middle class.”
Sitting in Section 316, eight rows up, making peanut butter and jelly sandwiches on a Bible at lunch time, was a family who could explain the enduring loyalty the prosperity preachers inspire.
Stephen Biellier, a long-distance trucker from Mount Vernon, Mo., said he and his wife, Millie, came to the convention praying that this would be “the overcoming year.” They are $102,000 in debt, and the bank has cut off their credit line, Mrs. Biellier said.
They say the Copelands rescued them from financial failure 23 years ago, when they bought their first truck at 22 percent interest and had to rebuild the engine twice in a year.
Around that time, Mrs. Biellier first saw Mr. Copeland on television and began sending him 50 cents a week.
Others who bought trucks from the same dealer in Joplin that year went under, the Bielliers said, but they did not.
“We would have failed if Copeland hadn’t been praying for us every day,” Mrs. Biellier said.
The Bielliers are now among 386,000 people worldwide whom the Copelands call their “partners,” most of whom send regular contributions and merit special prayers from the Copelands.
A call center at the ministry’s 481-employee headquarters in Newark, Tex., takes in 60,000 prayer requests a month, a publicist said.
The Copelands’ broadcast reaches 134 countries, and the ministry’s income is about $100 million annually.
The Bielliers were at the convention a few years ago when a supporter made a pitch for people to join an “Elite CX Team” to raise money to buy the ministry a Citation X airplane. (Mr. Copeland is an airplane aficionado who got his start in ministry as a pilot for Oral Roberts.) At that moment, Mrs. Biellier said she heard the voice of the Holy Spirit telling her, “You were born to support this man.”
She gave $2,000 for the plane, and recently sent $1,800 for the team’s latest project: buying high-definition television equipment to upgrade the ministry’s international broadcasts.
Mrs. Biellier said some friends and relatives would say the preacher just wanted their money. She explained that the Copelands did not need the money for themselves; it is for their ministry. And besides, even “trashy people like Hugh Hefner” have private airplanes.
“I remember Copeland had to once fly halfway around the world to talk to one person,” she said. “Because we’re partners with Kenneth Copeland, for every soul that gets saved, we get credit for that in heaven.”
But while a band primed the crowd, Professor Walton called the prosperity preachers “spiritual pickpockets.”
“To dismiss and ignore the harsh realities of this economic crisis,” he said. “is beyond irresponsible, to the point of reprehensible.”
The Copelands refused an interview request, but one of their daughters, Kellie Copeland Swisher, and her husband, Steve Swisher, who both work in the ministry, spoke for them.
Mrs. Swisher said the ministry gave away “a minimum of 10 percent of what comes in” to other charities. Her father’s current favorite, she said, is a Roman Catholic orphanage in Mexico.
The ministry has resisted providing the Senate investigation with all the documents requested, she said, because the Copelands did not want to publicly reveal the names of the “partners.” The investigation, which could result in new laws, is continuing, a committee spokeswoman said. Among those being investigated is Creflo Dollar, one of the ministers at the Copelands’ convention.
Mr. Swisher said that even in the economic downturn, the ministry’s income going into the convention was up 3 percent over last year. Asked if they had adjusted the message for the economy, Mrs. Swisher patted the worn Bible in her lap and said: “The message they preach is the Word of God. The Word doesn’t change.”
At the convention, the preachers — who also included Jesse Duplantis and Jerry Savelle — sprinkled their sermons with put-downs of the government, an overhaul of health care, public schools, the news media and other churches, many of which condemn prosperity preaching.
But mostly the preachers were working mightily to remind the crowd that they are God’s elect. “While everybody else is having a famine,” said Mr. Savelle, a Texas televangelist, “his covenant people will be having the best of times.”
“Any time a worried thought about money pops up in your mind,” Mr. Savelle continued, “the next thing you do is sow”: drop money, like seeds, in “good ground” like the preachers’ ministries. “Stop worrying, start sowing,” he added, his voice rising. “That’s God’s stimulus package for you.”
At that, hundreds streamed down the aisles to the stage, laying envelopes, cash and coins on the carpeted steps.
© 2009 The New York Times
Sensible Health Care Reform, in Plain English: Another viewpoint
Why Single-Payer is the ONLY Sensible Health Care Reform
(Explained in Plain English)
By Carmen Yarrusso
August 18, 2009 "Information Clearing House" --- Health care services are in a special category of “services”. Unlike almost all other services in our “free market” economy, most health care services (just like police and fire services) are necessary for all residents—often a matter of life and death.
Incredibly, we treat most health care services as if they were optional for some residents. The extreme costs, the multiple inefficiencies, and the shameful injustice of our current health care system are the guaranteed results of treating heath care services as optional for some residents.
As a civilized nation, we would never tolerate a system where police or fire services were treated as optional for some residents. To understand how utterly absurd our private health care system is, imagine life in America if we treated police and fire services the way we now treat most health care services.
If police and fire services were optional for some
Instead of groups pooling their resources and providing everyone with police and fire services, where each dollar spent provides a dollar’s worth of services (minus the cost to administer payments), imagine introducing a middleman—police and fire insurance companies.
Like our current health care system, about 30% of every dollar we spend wouldn’t provide any police or fire services whatsoever, but instead would go to other insurance company expenses.
Aside from administrative costs to pay for services, insurance companies would pay billions to shareholders as profits, plus spend billions more for advertising, lobbying Congress, huge executive salaries, and paying a large staff whose main job would be to find ways to shift costs to purchasers and providers and to maximize profits by minimizing services.
Like our current health care system, maximizing profits would mean charging the highest possible premiums (money in) while spending as little as possible on actual police and fire services (money out). This is simply smart business.
Insurance companies would compete to enroll residents likely to require the least police or fire services, while trying to avoid residents likely to require the most police or fire services. Like our current health care system, this would guarantee that residents who need these services the most would be the least likely to get them (this is simply smart business).
Those residents unfortunate enough to need services “too often” would be denied, dropped, or charged unaffordable premiums. Those who live in “dangerous” (low profit) areas would simply be denied police or fire services due to “pre-existing conditions” (this is simply smart business).
Insurance companies would have great profit incentives to find myriad ways to deny services or to shift costs because any money spent providing actual services comes right out of their profits. Like our current health care system, this would guarantee millions of residents would have no police or fire services at all (this is simply smart business).
In a civilized society, most health care services are no more optional than police and fire services. It’s patently absurd to put a middleman (whose profit incentives are plainly against the interests of the American people) between us and our health care providers.
A middleman makes no sense for health services
It’s clearly counterproductive to put a middleman between providers of necessary services and those who need these services. This guarantees disastrous results.
Providing real estate services using a middleman (agent) makes sense. A real estate middleman has profit incentives to provide purchasers with reasonably priced products because if prices are too high, purchasers won’t buy and the middleman gets nothing. There’s no profit incentives to deny purchasers what’s being provided. Thus middleman profit incentives benefit both purchasers and providers.
But providing health care services using a middleman is an unambiguous con game. A health care middleman clearly has profit incentives to charge excessive prices precisely because these services are necessary (pay or die). But even worse, a health care middleman has great profit incentives to deny us necessary services because every health care service denied is pure profit (this is simply smart business).
In addition to diverting billions of our health care dollars to profits and other non-health-care expenses, encouraging excessive premiums, and making it very profitable to deny us necessary services, using a middleman also adds hundreds of billions to our health care costs by forcing hospitals and doctors to maintain vast armies of administrators who must battle hundreds of insurance companies (with thousands of different medical plans) all with great profit incentives to deny us as many health care services as they can get away with (this is simply smart business).
It’s beyond foolish to expect insurance companies to act against their profit incentives. A single-payer system is the only reform that can end this devastating rip-off of the American people.
A “public option” would only make things worse
A public option (or a co-op) would simply add another player to our inefficient, fragmented, dysfunctional, multi-payer system. The hundreds of billions we now waste on multi-payer administrative costs would continue unabated.
But worse, a public option would soon be overwhelmed with the sickest (most costly) residents. Why? Because insurance companies compete by discarding the sickest residents (while marketing to the healthiest), a public option would quickly shift even more of the costs of our sickest residents to taxpayers, while freeing insurance companies to compete for healthier (more profitable) residents.
We eventually pay for everyone's health care anyway
The government already funds more than 60% of all health care spending. We taxpayers already pay a lot for “other people’s” health care. Tax subsidies for private insurance alone cost taxpayers nearly $200 billion a year. We taxpayers give insurance companies about $100 billion a year to provide health care for public employees (such as teachers and police officers).
We all pay when uninsured residents must use expensive emergency rooms. In most cases, had they been given regular preventative care, they would have required much less total health care and thus cost us much less.
An Institute of Medicine study says 18,000 of us pay with our lives each year because we lack health insurance—a shining example of how private health care “saves taxpayers money” (this is simply smart business).
An American Journal of Medicine study says 62% of all bankruptcies (about two million a year) are linked to medical bills (80% had health insurance). When we count the excessive burden our absurd private health care system adds to all businesses, and other such hidden costs, single-payer would be much less expensive and provide much better care (exactly what other countries with single-payer systems have experienced).
Multiple studies show there’s more than enough money in our health care system to serve everyone if it were spent wisely (e.g. 1991 GAO report, 1993 CBO report).
Preserving profits with lies, damn lies, and propaganda
Insurance companies know very well they’re running an extremely profitable con game. They won’t give up their massive profits without a ruthless political fight.
They tell us “government insurance” would mean rationing, bureaucrats getting between us and our doctors, and excessive costs to taxpayers. In fact, these things are much worse now in our private system. Insurance companies don’t really want us to carefully compare their products with single-payer Medicare, which is rated very highly by its 45 million users.
In a national Commonwealth Fund survey, Medicare users were significantly more satisfied with their health care than people using employer-sponsored plans (even though the elderly require by far the most intensive health care services among us). For example, 70% of those with single-payer Medicare said they “always” get access to needed care (specialists, tests, treatment) compared to only 51% of those with private insurance.
Doctors consistently report having few problems with single-payer Medicare, and frequent problems with private insurance companies. A “government bureaucrat” has no incentive to deny us necessary services because he’s spending “other people’s money”. If he denies us a service, the money “saved” just goes toward another’s care. But an insurance company bureaucrat has great incentive to deny us necessary services because the money “saved” goes right into his pocket.
Unlike honest “service” providers, who seek people needing their services, health insurance companies seek those who don’t need their services (while doing all they can to avoid those who do). Insurance companies pretend they’re in the business of providing health care, when their true business is denying health care.
Each year two million of us are bankrupted by medical expenses. Each day, 14,000 of us lose our health insurance. Most of us are just a pink slip away from this horror. Compare this to the peace of mind we’d have with a single-payer system that would always be there for us (all of us).
Why does this blatant con game continue?
Because our government is for sale to the highest bidder. Our government “representatives” thrive on special interest money. They would be severely punished politically (and lose millions) if they were to put the interests of the American people ahead of influential insurance and drug companies.
The health care industry is spending $1.4 million dollars per day to lobby against reform ($126 million in just the first quarter). This is precisely why our “representatives” (Democrats and Republicans) aren’t seriously considering the only sensible way to provide high-quality health care in America—a tried and tested single-payer system.
Our “representatives” are diligently keeping single-payer “off the table” for one reason only: single-payer would easily win in any honest, open debate. Once again our "representatives" are selling us out to special interests.
A long habit of not thinking a thing wrong, gives it a superficial appearance of being right—Thomas Paine
Private insurance for necessary health care is just plain wrong and it’s been just plain wrong for a very long time.
We the people must unite and take back our government—it surely won’t be given back voluntarily.
(Explained in Plain English)
By Carmen Yarrusso
August 18, 2009 "Information Clearing House" --- Health care services are in a special category of “services”. Unlike almost all other services in our “free market” economy, most health care services (just like police and fire services) are necessary for all residents—often a matter of life and death.
Incredibly, we treat most health care services as if they were optional for some residents. The extreme costs, the multiple inefficiencies, and the shameful injustice of our current health care system are the guaranteed results of treating heath care services as optional for some residents.
As a civilized nation, we would never tolerate a system where police or fire services were treated as optional for some residents. To understand how utterly absurd our private health care system is, imagine life in America if we treated police and fire services the way we now treat most health care services.
If police and fire services were optional for some
Instead of groups pooling their resources and providing everyone with police and fire services, where each dollar spent provides a dollar’s worth of services (minus the cost to administer payments), imagine introducing a middleman—police and fire insurance companies.
Like our current health care system, about 30% of every dollar we spend wouldn’t provide any police or fire services whatsoever, but instead would go to other insurance company expenses.
Aside from administrative costs to pay for services, insurance companies would pay billions to shareholders as profits, plus spend billions more for advertising, lobbying Congress, huge executive salaries, and paying a large staff whose main job would be to find ways to shift costs to purchasers and providers and to maximize profits by minimizing services.
Like our current health care system, maximizing profits would mean charging the highest possible premiums (money in) while spending as little as possible on actual police and fire services (money out). This is simply smart business.
Insurance companies would compete to enroll residents likely to require the least police or fire services, while trying to avoid residents likely to require the most police or fire services. Like our current health care system, this would guarantee that residents who need these services the most would be the least likely to get them (this is simply smart business).
Those residents unfortunate enough to need services “too often” would be denied, dropped, or charged unaffordable premiums. Those who live in “dangerous” (low profit) areas would simply be denied police or fire services due to “pre-existing conditions” (this is simply smart business).
Insurance companies would have great profit incentives to find myriad ways to deny services or to shift costs because any money spent providing actual services comes right out of their profits. Like our current health care system, this would guarantee millions of residents would have no police or fire services at all (this is simply smart business).
In a civilized society, most health care services are no more optional than police and fire services. It’s patently absurd to put a middleman (whose profit incentives are plainly against the interests of the American people) between us and our health care providers.
A middleman makes no sense for health services
It’s clearly counterproductive to put a middleman between providers of necessary services and those who need these services. This guarantees disastrous results.
Providing real estate services using a middleman (agent) makes sense. A real estate middleman has profit incentives to provide purchasers with reasonably priced products because if prices are too high, purchasers won’t buy and the middleman gets nothing. There’s no profit incentives to deny purchasers what’s being provided. Thus middleman profit incentives benefit both purchasers and providers.
But providing health care services using a middleman is an unambiguous con game. A health care middleman clearly has profit incentives to charge excessive prices precisely because these services are necessary (pay or die). But even worse, a health care middleman has great profit incentives to deny us necessary services because every health care service denied is pure profit (this is simply smart business).
In addition to diverting billions of our health care dollars to profits and other non-health-care expenses, encouraging excessive premiums, and making it very profitable to deny us necessary services, using a middleman also adds hundreds of billions to our health care costs by forcing hospitals and doctors to maintain vast armies of administrators who must battle hundreds of insurance companies (with thousands of different medical plans) all with great profit incentives to deny us as many health care services as they can get away with (this is simply smart business).
It’s beyond foolish to expect insurance companies to act against their profit incentives. A single-payer system is the only reform that can end this devastating rip-off of the American people.
A “public option” would only make things worse
A public option (or a co-op) would simply add another player to our inefficient, fragmented, dysfunctional, multi-payer system. The hundreds of billions we now waste on multi-payer administrative costs would continue unabated.
But worse, a public option would soon be overwhelmed with the sickest (most costly) residents. Why? Because insurance companies compete by discarding the sickest residents (while marketing to the healthiest), a public option would quickly shift even more of the costs of our sickest residents to taxpayers, while freeing insurance companies to compete for healthier (more profitable) residents.
We eventually pay for everyone's health care anyway
The government already funds more than 60% of all health care spending. We taxpayers already pay a lot for “other people’s” health care. Tax subsidies for private insurance alone cost taxpayers nearly $200 billion a year. We taxpayers give insurance companies about $100 billion a year to provide health care for public employees (such as teachers and police officers).
We all pay when uninsured residents must use expensive emergency rooms. In most cases, had they been given regular preventative care, they would have required much less total health care and thus cost us much less.
An Institute of Medicine study says 18,000 of us pay with our lives each year because we lack health insurance—a shining example of how private health care “saves taxpayers money” (this is simply smart business).
An American Journal of Medicine study says 62% of all bankruptcies (about two million a year) are linked to medical bills (80% had health insurance). When we count the excessive burden our absurd private health care system adds to all businesses, and other such hidden costs, single-payer would be much less expensive and provide much better care (exactly what other countries with single-payer systems have experienced).
Multiple studies show there’s more than enough money in our health care system to serve everyone if it were spent wisely (e.g. 1991 GAO report, 1993 CBO report).
Preserving profits with lies, damn lies, and propaganda
Insurance companies know very well they’re running an extremely profitable con game. They won’t give up their massive profits without a ruthless political fight.
They tell us “government insurance” would mean rationing, bureaucrats getting between us and our doctors, and excessive costs to taxpayers. In fact, these things are much worse now in our private system. Insurance companies don’t really want us to carefully compare their products with single-payer Medicare, which is rated very highly by its 45 million users.
In a national Commonwealth Fund survey, Medicare users were significantly more satisfied with their health care than people using employer-sponsored plans (even though the elderly require by far the most intensive health care services among us). For example, 70% of those with single-payer Medicare said they “always” get access to needed care (specialists, tests, treatment) compared to only 51% of those with private insurance.
Doctors consistently report having few problems with single-payer Medicare, and frequent problems with private insurance companies. A “government bureaucrat” has no incentive to deny us necessary services because he’s spending “other people’s money”. If he denies us a service, the money “saved” just goes toward another’s care. But an insurance company bureaucrat has great incentive to deny us necessary services because the money “saved” goes right into his pocket.
Unlike honest “service” providers, who seek people needing their services, health insurance companies seek those who don’t need their services (while doing all they can to avoid those who do). Insurance companies pretend they’re in the business of providing health care, when their true business is denying health care.
Each year two million of us are bankrupted by medical expenses. Each day, 14,000 of us lose our health insurance. Most of us are just a pink slip away from this horror. Compare this to the peace of mind we’d have with a single-payer system that would always be there for us (all of us).
Why does this blatant con game continue?
Because our government is for sale to the highest bidder. Our government “representatives” thrive on special interest money. They would be severely punished politically (and lose millions) if they were to put the interests of the American people ahead of influential insurance and drug companies.
The health care industry is spending $1.4 million dollars per day to lobby against reform ($126 million in just the first quarter). This is precisely why our “representatives” (Democrats and Republicans) aren’t seriously considering the only sensible way to provide high-quality health care in America—a tried and tested single-payer system.
Our “representatives” are diligently keeping single-payer “off the table” for one reason only: single-payer would easily win in any honest, open debate. Once again our "representatives" are selling us out to special interests.
A long habit of not thinking a thing wrong, gives it a superficial appearance of being right—Thomas Paine
Private insurance for necessary health care is just plain wrong and it’s been just plain wrong for a very long time.
We the people must unite and take back our government—it surely won’t be given back voluntarily.
Rightwing Reactionaries, Religion and the Triumph of Irrational Thought Processes
How do they train themselves to be so impervious to reality?
By Johann Hari
August 19, 2009 "The Independent" -- Something strange has happened in America in the nine months since Barack Obama was elected. It has best been summarised by the comedian Bill Maher: "The Democrats have moved to the right, and the Republicans have moved to a mental hospital."
The election of Obama - a black man with an anti-conservative message - as a successor to George W. Bush has scrambled the core American right's view of their country. In their gut, they saw the US as a white-skinned, right-wing nation forever shaped like Sarah Palin.
When this image was repudiated by a majority of Americans in a massive landslide, it simply didn't compute. How could this have happened? How could the cry of "Drill, baby, drill" have been beaten by a supposedly big government black guy? So a streak that has always been there in the American right's world-view - to deny reality, and argue against a demonic phantasm of their own creation - has swollen. Now it is all they can see.
Since Obama's rise, the US right has been skipping frantically from one fantasy to another, like a person in the throes of a mental breakdown. It started when they claimed he was a secret Muslim, and - at the same time - that he was a member of a black nationalist church that hated white people. Then, once these arguments were rejected and Obama won, they began to argue that he was born in Kenya and secretly smuggled into the United States as a baby, and the Hawaiian authorities conspired to fake his US birth certificate. So he is ineligible to rule and the office of President should pass to... the Republican runner-up, John McCain.
These aren't fringe phenomena: a Research 200 poll found that a majority of Republicans and Southerners say Obama wasn't born in the US, or aren't sure. A steady steam of Republican congressmen have been jabbering that Obama has "questions to answer". No amount of hard evidence - here's his birth certificate, here's a picture of his mother heavily pregnant in Hawaii, here's the announcement of his birth in the local Hawaiian paper - can pierce this conviction.
This trend has reached its apotheosis this summer with the Republican Party now claiming en masse that Obama wants to set up "death panels" to euthanise the old and disabled. Yes: Sarah Palin really has claimed - with a straight face - that Barack Obama wants to kill her baby.
You have to admire the audacity of the right. Here's what's actually happening. The US is the only major industrialised country that does not provide regular healthcare to all its citizens. Instead, they are required to provide for themselves - and 50 million people can't afford the insurance. As a result, 18,000 US citizens die every year needlessly, because they can't access the care they require. That's equivalent to six 9/11s, every year, year on year. Yet the Republicans have accused the Democrats who are trying to stop all this death by extending healthcare of being "killers" - and they have successfully managed to put them on the defensive.
The Republicans want to defend the existing system, not least because they are given massive sums of money by the private medical firms who benefit from the deadly status quo. But they can't do so honestly: some 70 per cent of Americans say it is "immoral" to retain a medical system that doesn't cover all citizens. So they have to invent lies to make any life-saving extension of healthcare sound depraved.
A few months ago, a recent board member for several private health corporations called Betsy McCaughey reportedly noticed a clause in the proposed healthcare legislation that would pay for old people to see a doctor and write a living will. They could stipulate when (if at all) they would like care to be withdrawn. It's totally voluntary. Many people want it: I know I wouldn't want to be kept alive for a few extra months if I was only going to be in agony and unable to speak. But McCaughey started the rumour that this was a form of euthanasia, where old people would be forced to agree to death. This was then stretched to include the disabled, like Palin's youngest child, who she claimed would have to "justify" his existence. It was flatly untrue - but the right had their talking-point, Palin declared the non-existent proposals "downright evil", and they were off.
It's been amazingly successful. Now, every conversation about healthcare has to begin with a Democrat explaining at great length that, no, they are not in favour of killing the elderly - while Republicans get away with defending a status quo that kills 18,000 people a year. The hypocrisy was startling: when Sarah Palin was Governor of Alaska, she encouraged citizens there to take out living wills. Almost all the Republicans leading the charge against "death panels" have voted for living wills in the past. But the lie has done its work: a confetti of distractions has been thrown up, and support is leaking away from the plan that would save lives.
These increasingly frenzied claims have become so detached from reality that they often seem like black comedy. The right-wing magazine US Investors' Daily claimed that if Stephen Hawking had been British, he would have been allowed to die at birth by its "socialist" healthcare system. Hawking responded with a polite cough that he is British, and "I wouldn't be here without the NHS".
This tendency to simply deny inconvenient facts and invent a fantasy world isn't new; it's only becoming more heightened. It ran through the Bush years like a dash of bourbon in water. When it became clear that Saddam Hussein had no weapons of mass destruction, the US right simply claimed they had been shipped to Syria. When the scientific evidence for man-made global warming became unanswerable, they claimed - as one Republican congressman put it - that it was "the greatest hoax in human history", and that all the world's climatologists were "liars". The American media then presents itself as an umpire between "the rival sides", as if they both had evidence behind them.
It's a shame, because there are some areas in which a conservative philosophy - reminding us of the limits of grand human schemes, and advising caution - could be a useful corrective. But that's not what these so-called "conservatives" are providing: instead, they are pumping up a hysterical fantasy that serves as a thin skin covering some raw economic interests and base prejudices.
For many of the people at the top of the party, this is merely cynical manipulation. One of Bush's former advisers, David Kuo, has said the President and Karl Rove would mock evangelicals as "nuts" as soon as they left the Oval Office. But the ordinary Republican base believe this stuff. They are being tricked into opposing their own interests through false fears and invented demons. Last week, one of the Republicans sent to disrupt a healthcare town hall started a fight and was injured - and then complained he had no health insurance. I didn't laugh; I wanted to weep.
How do they train themselves to be so impervious to reality? It begins, I suspect, with religion. They are taught from a young age that it is good to have "faith" - which is, by definition, a belief without any evidence to back it up. You don't have "faith" that Australia exists, or that fire burns: you have evidence. You only need "faith" to believe the untrue or unprovable. Indeed, they are taught that faith is the highest aspiration and most noble cause. Is it any surprise this then percolates into their political views? Faith-based thinking spreads and contaminates the rational.
Up to now, Obama has not responded well to this onslaught of unreason. He has had a two-pronged strategy: conciliate the elite economic interests, and joke about the fanatical fringe they are stirring up. He has (shamefully) assured the pharmaceutical companies that an expanded healthcare system will not use the power of government as a purchaser to bargain down drug prices, while wryly saying in public that he "doesn't want to kill Grandma". Rather than challenging these hard interests and bizarre fantasies aggressively, he has tried to flatter and soothe them.
This kind of mania can't be co-opted: it can only be overruled. Sometimes in politics you will have enemies, and they must be democratically defeated. The political system cannot be gummed up by a need to reach out to the maddest people or the greediest constituencies. There is no way to expand healthcare without angering Big Pharma and the Republicaloons. So be it. As Arianna Huffington put it, "It is as though, at the height of the civil rights movement, you thought you had to bring together Martin Luther King and George Wallace and make them agree. It's not how change happens."
However strange it seems, the Republican Party really is spinning off into a bizarre cult who believe Barack Obama is a baby-killer plotting to build death panels for the grannies of America. Their new slogan could be - shrill, baby, shrill.
Copyright 2009 Independent News and Media Limited
By Johann Hari
August 19, 2009 "The Independent" -- Something strange has happened in America in the nine months since Barack Obama was elected. It has best been summarised by the comedian Bill Maher: "The Democrats have moved to the right, and the Republicans have moved to a mental hospital."
The election of Obama - a black man with an anti-conservative message - as a successor to George W. Bush has scrambled the core American right's view of their country. In their gut, they saw the US as a white-skinned, right-wing nation forever shaped like Sarah Palin.
When this image was repudiated by a majority of Americans in a massive landslide, it simply didn't compute. How could this have happened? How could the cry of "Drill, baby, drill" have been beaten by a supposedly big government black guy? So a streak that has always been there in the American right's world-view - to deny reality, and argue against a demonic phantasm of their own creation - has swollen. Now it is all they can see.
Since Obama's rise, the US right has been skipping frantically from one fantasy to another, like a person in the throes of a mental breakdown. It started when they claimed he was a secret Muslim, and - at the same time - that he was a member of a black nationalist church that hated white people. Then, once these arguments were rejected and Obama won, they began to argue that he was born in Kenya and secretly smuggled into the United States as a baby, and the Hawaiian authorities conspired to fake his US birth certificate. So he is ineligible to rule and the office of President should pass to... the Republican runner-up, John McCain.
These aren't fringe phenomena: a Research 200 poll found that a majority of Republicans and Southerners say Obama wasn't born in the US, or aren't sure. A steady steam of Republican congressmen have been jabbering that Obama has "questions to answer". No amount of hard evidence - here's his birth certificate, here's a picture of his mother heavily pregnant in Hawaii, here's the announcement of his birth in the local Hawaiian paper - can pierce this conviction.
This trend has reached its apotheosis this summer with the Republican Party now claiming en masse that Obama wants to set up "death panels" to euthanise the old and disabled. Yes: Sarah Palin really has claimed - with a straight face - that Barack Obama wants to kill her baby.
You have to admire the audacity of the right. Here's what's actually happening. The US is the only major industrialised country that does not provide regular healthcare to all its citizens. Instead, they are required to provide for themselves - and 50 million people can't afford the insurance. As a result, 18,000 US citizens die every year needlessly, because they can't access the care they require. That's equivalent to six 9/11s, every year, year on year. Yet the Republicans have accused the Democrats who are trying to stop all this death by extending healthcare of being "killers" - and they have successfully managed to put them on the defensive.
The Republicans want to defend the existing system, not least because they are given massive sums of money by the private medical firms who benefit from the deadly status quo. But they can't do so honestly: some 70 per cent of Americans say it is "immoral" to retain a medical system that doesn't cover all citizens. So they have to invent lies to make any life-saving extension of healthcare sound depraved.
A few months ago, a recent board member for several private health corporations called Betsy McCaughey reportedly noticed a clause in the proposed healthcare legislation that would pay for old people to see a doctor and write a living will. They could stipulate when (if at all) they would like care to be withdrawn. It's totally voluntary. Many people want it: I know I wouldn't want to be kept alive for a few extra months if I was only going to be in agony and unable to speak. But McCaughey started the rumour that this was a form of euthanasia, where old people would be forced to agree to death. This was then stretched to include the disabled, like Palin's youngest child, who she claimed would have to "justify" his existence. It was flatly untrue - but the right had their talking-point, Palin declared the non-existent proposals "downright evil", and they were off.
It's been amazingly successful. Now, every conversation about healthcare has to begin with a Democrat explaining at great length that, no, they are not in favour of killing the elderly - while Republicans get away with defending a status quo that kills 18,000 people a year. The hypocrisy was startling: when Sarah Palin was Governor of Alaska, she encouraged citizens there to take out living wills. Almost all the Republicans leading the charge against "death panels" have voted for living wills in the past. But the lie has done its work: a confetti of distractions has been thrown up, and support is leaking away from the plan that would save lives.
These increasingly frenzied claims have become so detached from reality that they often seem like black comedy. The right-wing magazine US Investors' Daily claimed that if Stephen Hawking had been British, he would have been allowed to die at birth by its "socialist" healthcare system. Hawking responded with a polite cough that he is British, and "I wouldn't be here without the NHS".
This tendency to simply deny inconvenient facts and invent a fantasy world isn't new; it's only becoming more heightened. It ran through the Bush years like a dash of bourbon in water. When it became clear that Saddam Hussein had no weapons of mass destruction, the US right simply claimed they had been shipped to Syria. When the scientific evidence for man-made global warming became unanswerable, they claimed - as one Republican congressman put it - that it was "the greatest hoax in human history", and that all the world's climatologists were "liars". The American media then presents itself as an umpire between "the rival sides", as if they both had evidence behind them.
It's a shame, because there are some areas in which a conservative philosophy - reminding us of the limits of grand human schemes, and advising caution - could be a useful corrective. But that's not what these so-called "conservatives" are providing: instead, they are pumping up a hysterical fantasy that serves as a thin skin covering some raw economic interests and base prejudices.
For many of the people at the top of the party, this is merely cynical manipulation. One of Bush's former advisers, David Kuo, has said the President and Karl Rove would mock evangelicals as "nuts" as soon as they left the Oval Office. But the ordinary Republican base believe this stuff. They are being tricked into opposing their own interests through false fears and invented demons. Last week, one of the Republicans sent to disrupt a healthcare town hall started a fight and was injured - and then complained he had no health insurance. I didn't laugh; I wanted to weep.
How do they train themselves to be so impervious to reality? It begins, I suspect, with religion. They are taught from a young age that it is good to have "faith" - which is, by definition, a belief without any evidence to back it up. You don't have "faith" that Australia exists, or that fire burns: you have evidence. You only need "faith" to believe the untrue or unprovable. Indeed, they are taught that faith is the highest aspiration and most noble cause. Is it any surprise this then percolates into their political views? Faith-based thinking spreads and contaminates the rational.
Up to now, Obama has not responded well to this onslaught of unreason. He has had a two-pronged strategy: conciliate the elite economic interests, and joke about the fanatical fringe they are stirring up. He has (shamefully) assured the pharmaceutical companies that an expanded healthcare system will not use the power of government as a purchaser to bargain down drug prices, while wryly saying in public that he "doesn't want to kill Grandma". Rather than challenging these hard interests and bizarre fantasies aggressively, he has tried to flatter and soothe them.
This kind of mania can't be co-opted: it can only be overruled. Sometimes in politics you will have enemies, and they must be democratically defeated. The political system cannot be gummed up by a need to reach out to the maddest people or the greediest constituencies. There is no way to expand healthcare without angering Big Pharma and the Republicaloons. So be it. As Arianna Huffington put it, "It is as though, at the height of the civil rights movement, you thought you had to bring together Martin Luther King and George Wallace and make them agree. It's not how change happens."
However strange it seems, the Republican Party really is spinning off into a bizarre cult who believe Barack Obama is a baby-killer plotting to build death panels for the grannies of America. Their new slogan could be - shrill, baby, shrill.
Copyright 2009 Independent News and Media Limited
Mark-to-Market Accounting Essential, According to Nobel Prize Economists
2 Nobel Prize-Winning Economists Say Mark-to-Market Accounting Essential
Yesterday, Nobel laureate Robert Merton and 2 other economists wrote in the Financial Times:
Banks and other financial institutions are lobbying against fair-value accounting for their asset holdings. They claim many of their assets are not impaired, that they intend to hold them to maturity anyway and that recent transaction prices reflect distressed sales into an illiquid market, not what the assets are actually worth. Legislatures and regulators support these arguments, preferring to conceal depressed asset prices rather than deal with the consequences of insolvent banks.
This is not the way forward. While regulators and legislators are keen to find simple solutions to complex problems, allowing financial institutions to ignore market transactions is a bad idea.
Nobel economist Myron Scholes agrees:
Financial institutions should use mark-to-market accounting or list the hard-to-value securities on public exchanges whenever possible, Scholes said in a Bloomberg Radio interview yesterday. Scholes ... said investors need better data on prices to accurately value the debt and equity securities of banks.
“I’d like to see us encourage many more securities held on the books of the banks be migrated to exchanges if possible,” he said. Doing so would “allow for market discovery and market pricing as much as possible,” Scholes added...
(Scholes is the economist who said in March that regulators need to “blow up or burn” the private over-the-counter derivative markets to help solve the financial crisis.)
Mark-to-market accounting is an accounting rule which forces banks to value their assets at today's fair market prices. Because the biggest banks hold many hundreds of billions of dollars worth of derivatives and securitized assets which have plummeted in value as the markets for these exotic investments has crashed, mark-to-market accounting would force the banks to declare large losses for these assets.
The banks holding the largest portfolios of securitized assets and derivatives, and the heads of Obama's economics team (National Economic Council director Larry Summers, Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke) believe that when the economy recovers, the prices for such exotic investments will recover. In other words, they believe that the banks and the banks' portfolios will recover when the economy turns around. They believe that a suspension of mark-to-market is essential to "ride out the storm". They also believe that mark-to-market, which was reinstated in 2007 after being suspended in 1938 by FDR, helped precipitate the crash. See this.
However, in March, another Nobel prize-winning economist, Paul Krugman, wrote:
Top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away.
Thus, in a recent interview Tim Geithner, the Treasury secretary, tried to make a distinction between the “basic inherent economic value” of troubled assets and the “artificially depressed value” that those assets command right now. In recent transactions, even AAA-rated mortgage-backed securities have sold for less than 40 cents on the dollar, but Mr. Geithner seems to think they’re worth much, much more.
And the government’s job, he declared, is to “provide the financing to help get those markets working,” pushing the price of toxic waste up to where it ought to be.
What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions ...
The truth is that the Bernanke-Geithner plan — the plan the administration keeps floating, in slightly different versions — isn’t going to fly ...
And as I have previously noted, many top economists - including 2 other Nobel prize-winning economists - believe that the economy will not recover unless and until the real state of the banks and their assets are acknowledged and insolvent banks broken up in an orderly fashion.
The Financial Accounting Standards Board (FASB) is, in fact, considering a reversal from its April change in policy which suspended mark-to-market accounting. Specifically, FASB is considering vastly tightening mark-to-market requirements to include virtually all securities on a bank's balance sheet.
Most financial analysts had considered FASB's reinstatement of mark-to-market unlikely. But Merton and Scholes' very public advocacy for mark-to-market may have just changed the odds.
Yesterday, Nobel laureate Robert Merton and 2 other economists wrote in the Financial Times:
Banks and other financial institutions are lobbying against fair-value accounting for their asset holdings. They claim many of their assets are not impaired, that they intend to hold them to maturity anyway and that recent transaction prices reflect distressed sales into an illiquid market, not what the assets are actually worth. Legislatures and regulators support these arguments, preferring to conceal depressed asset prices rather than deal with the consequences of insolvent banks.
This is not the way forward. While regulators and legislators are keen to find simple solutions to complex problems, allowing financial institutions to ignore market transactions is a bad idea.
Nobel economist Myron Scholes agrees:
Financial institutions should use mark-to-market accounting or list the hard-to-value securities on public exchanges whenever possible, Scholes said in a Bloomberg Radio interview yesterday. Scholes ... said investors need better data on prices to accurately value the debt and equity securities of banks.
“I’d like to see us encourage many more securities held on the books of the banks be migrated to exchanges if possible,” he said. Doing so would “allow for market discovery and market pricing as much as possible,” Scholes added...
(Scholes is the economist who said in March that regulators need to “blow up or burn” the private over-the-counter derivative markets to help solve the financial crisis.)
Mark-to-market accounting is an accounting rule which forces banks to value their assets at today's fair market prices. Because the biggest banks hold many hundreds of billions of dollars worth of derivatives and securitized assets which have plummeted in value as the markets for these exotic investments has crashed, mark-to-market accounting would force the banks to declare large losses for these assets.
The banks holding the largest portfolios of securitized assets and derivatives, and the heads of Obama's economics team (National Economic Council director Larry Summers, Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke) believe that when the economy recovers, the prices for such exotic investments will recover. In other words, they believe that the banks and the banks' portfolios will recover when the economy turns around. They believe that a suspension of mark-to-market is essential to "ride out the storm". They also believe that mark-to-market, which was reinstated in 2007 after being suspended in 1938 by FDR, helped precipitate the crash. See this.
However, in March, another Nobel prize-winning economist, Paul Krugman, wrote:
Top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away.
Thus, in a recent interview Tim Geithner, the Treasury secretary, tried to make a distinction between the “basic inherent economic value” of troubled assets and the “artificially depressed value” that those assets command right now. In recent transactions, even AAA-rated mortgage-backed securities have sold for less than 40 cents on the dollar, but Mr. Geithner seems to think they’re worth much, much more.
And the government’s job, he declared, is to “provide the financing to help get those markets working,” pushing the price of toxic waste up to where it ought to be.
What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions ...
The truth is that the Bernanke-Geithner plan — the plan the administration keeps floating, in slightly different versions — isn’t going to fly ...
And as I have previously noted, many top economists - including 2 other Nobel prize-winning economists - believe that the economy will not recover unless and until the real state of the banks and their assets are acknowledged and insolvent banks broken up in an orderly fashion.
The Financial Accounting Standards Board (FASB) is, in fact, considering a reversal from its April change in policy which suspended mark-to-market accounting. Specifically, FASB is considering vastly tightening mark-to-market requirements to include virtually all securities on a bank's balance sheet.
Most financial analysts had considered FASB's reinstatement of mark-to-market unlikely. But Merton and Scholes' very public advocacy for mark-to-market may have just changed the odds.
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