The Weekend In Phony Prosecutions -- Part II

This one isn't actually that new, but just came to my attention this weekend due to an article in the New York Law Journal that appeared on August 4.  The precipitating event:  the conviction of baseball player Barry Bonds was reversed by the Ninth Circuit Court of Appeals, en banc.  The per curiam opinion of the full court actually came down in April.

You undoubtedly know who Barry Bonds is -- a famous baseball player, holder of the Major League record for most career home runs -- and you probably have the impression that he was convicted for illegal drug use.  But that would be wrong.  Actually, he was convicted for "obstruction of justice."  Whatever you may think about whether Bonds used drugs and whether or not that was OK, the circumstances of this conviction are rather outrageous.  The reversal came some twelve years  after Bonds first got caught up in the maw of the criminal justice system.

First, a little background.   Prosecutors in the Northern District of California began investigating allegedly illegal drug use in Major League Baseball as long ago as 2003, focusing on certain players whose records seemed too good to be true.  In 2003 they sought Bonds' testimony before a grand jury, and to secure it, they granted him immunity.  So from the get-go there was not going to be a prosecution of Bonds for the underlying wrong, if indeed it was a wrong.  They gave up on that in order to chase the alleged purveyors of the drugs.

But Bonds thought he could trust the prosecutors who had granted him immunity.  Big mistake!  Multiple years after Bonds' grand jury testimony, in late 2007, he was indicted for a collection of charges (with four thousand federal crimes to choose from, they never indict on just one charge), all of which arose out of his grand jury testimony and not out of alleged illegal drug use.  There were four charges of perjury for allegedly false statements to the grand jury, and one charge of obstruction of justice, supposedly based on some seven answers given by Bonds in his grand jury testimony.  Then the case didn't go to trial for over three years, due to pre-trial skirmishing that included an appeal by the prosecutors.  At trial in 2011, the jury hung on all the perjury charges, and convicted on the one obstruction charge, although finding only one of the seven challenged answers to be "obstructive."  The trial judge denied post-trial motions, and a panel of the Ninth Circuit affirmed the conviction.  And then finally we come to the en banc reversal in 2015. 

So what was Bonds convicted of?  Here is the statute, 15 U.S.C. Section 1503:

Whoever . . . corruptly or by threats or force, or by any threatening letter or communication, influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice, shall be punished as provided in subsection (b).

And here is the one question and answer given by Bonds before the grand jury that the trial jury found to be "obstructive."  The bold portion is what was alleged to constitute the "obstruction":

Q: Did Greg[, your trainer,] ever give you anything that required a syringe to inject yourself with?

A: I’ve only had one doctor touch me. And that’s my only personal doctor. Greg, like I said, we don’t get into each others’ personal lives. We’re friends, but I don’t—we don’t sit around and talk baseball, because he knows I don’t want— don’t come to my house talking baseball. If you want to come to my house and talk about fishing, some other stuff, we’ll be good friends. You come around talking about baseball, you go on. I don’t talk about his business. You know what I mean?

Q: Right.

 A: That's what keeps our friendship.  You know, I am sorry, but that—you know, that—I was a celebrity child, not just in baseball by my own instincts. I became a celebrity child with a famous father.  I just don’t get into other people’s business because of my father’s situation, you see.

And that, my friends, is what constitutes a federal crime, at least in the eyes of these prosecutors -- not to mention the trial judge and the initial panel of the Ninth Circuit.  Could it be that maybe Bonds didn't quite hear the question clearly?  Personally, I read that and the only conclusion I can come to is that the prosecutors intended all along to charge Bonds with something -- anything -- and their grant of "immunity" was a scam from the outset and wasn't worth the paper it was printed on.  (The court's opinion doesn't reveal what the other six allegedly obstructive answers were, but given that the jury exonerated Bonds on all of them, one would have to conclude that they were even flimsier as a basis for a charge than the one that led to the conviction.)

The court's decision is a very brief per curiam statement, followed by multiple concurring opinions by several judges setting forth somewhat different bases for the ruling.  From the concurring opinion of Judge Kozinski:

Stretched to its limits, section 1503 poses a significant hazard for everyone involved in our system of justice, because so much of what the adversary process calls for could be construed as obstruction. Did a tort plaintiff file a complaint seeking damages far in excess of what the jury ultimately awards? That could be viewed as corruptly endeavoring to “influence . . . the due administration of justice” by seeking to recover more than the claim deserves.  So could any of the following behaviors that make up the bread and butter of litigation: filing an answer that denies liability for conduct that is ultimately adjudged wrongful or malicious; unsuccessfully filing (or opposing) a motion to dismiss or for summary judgment; seeking a continuance in order to inflict delay on the opposing party; frivolously taking an appeal or petitioning for certiorari—the list is endless.

And he goes on for quite a while from there.  To put it another way, if the prosecutors are going to be using the "obstruction" statute the way they used it here, you can't ever say anything safely to a prosecutor.  Grant of immunity?  Worthless.   One arguably non-responsive answer and we will tie up your life in the criminal justice system for the next twelve years.

Grants of immunity are typically used by prosecutors to overcome a witness's assertions of Fifth Amendment rights and compel testimony.  The theory is that with a grant of immunity you no longer have a legitimate fear of prosecution and can be forced to testify.  But with cases like this out there, is that theory really valid any more?

The Weekend In Phony Prosecutions -- Part I

There's lots of news this weekend in the world of phony federal prosecutions, so I'm going to break it into three separate posts.

For Part I, the government last week finally filed its cert petition in the case of U.S. v. Newman and Chiasson.  Here is a pdf of the cert petition.  U.S. v. Newman and Chiasson is the case where non-insiders were convicted of "insider trading" in one of U.S. Attorney Preet Bharara's one-time unbroken string of 80+ "insider trading" convictions.  Problem was, lots of the defendants, including Newman and Chiasson, were not insiders at all.  Most of those non-insider defendants had pled guilty and thus couldn't appeal, but Messrs. Newman and Chiasson took their cases to trial and then appealed to the Second Circuit Court of Appeals.  Last December the Court of Appeals reversed those convictions, and further directed that Newman's and Chiasson's cases were not to be retried because what they were accused of was not a crime.

You are probably asking, how does it come about that the government only files its cert petition at the end of July when the reversal was way back in December?  Easy -- if you're the government, you can play out the string for a long time.  First they asked the Second Circuit for a rehearing en banc (denied in April), and then they used up all their allowed time to file for cert, and then they even got a further extension from Justice Ginsburg.  Meanwhile a few dozen wrongly convicted people (nobody knows the exact number) languish in limbo.  Do they recognize any obligation to do the right thing by these people -- a question I asked back in December when the Second Circuit first reversed the Newman/Chiasson convictions?  Absolutely not.  Hey, this is the government.  

Indeed, it seems that the whole idea is to keep up for as long as possible the pretense that they have 80 good convictions out there and no bad ones.  I previously predicted that the Supremes are not going to give this one the time of day, and if cert gets denied, it will probably be sometime this fall.  On the other hand, just a few weeks ago, on July 6, in a case called Salman, a panel of the Ninth Circuit declined to follow the Second Circuit's Newman/Chiasson opinion, giving the government the opening to argue that the Supremes should take the case due to a circuit split.  Oh, the Ninth Circuit's Salman opinion was written by none other than Southern District of New York Judge Rakoff, sitting by designation.  And here's a little something that I find rather extremely fishy.  The Salman case was only argued on June 9.  The decision came out on July 6 -- rather an extraordinarily short time for a Court of Appeals to turn a decision on an important issue like this.  But it still would not have been time for the government to claim a circuit split in its cert petition -- except for that extra extension granted by Justice Ginsburg.  Could the government possibly have been tipped off on what was going on in the Ninth Circuit?  Just one more indication that you are not on a level playing field when you are up against the government.  See also, IRS.  

Anyway, read the government's cert petition, and you will see that it is all about the hubris that they can create a world of perfect fairness if only they can make up the criminal law as they go along, and nothing about whether people should be able to discern from the actual laws passed by Congress what is a crime and what is not. 

If allowed to stand, the court of appeals’ novel personal-benefit standard will restrict enforcement of Section 10(b)’s ban on insider trading, create uncertainty in the financial community about the boundaries of legitimate conduct, and produce disparate results in different circuits in the application of the federal securities laws. . . .  [T]he decision below unjustifiably impedes the government’s ability to restrain and punish tippers and tippees engaging in culpable behavior. 

I like that part about restricting enforcement of "Section 10(b)'s ban on insider trading."  Try reading Section 10(b) for yourself and see if you can find that.  All I can find is a ban on "any manipulative or deceptive device or contrivance."  Needless to say, the government doesn't quote the actual language of Section 10(b) anywhere.  I'll bet not one in one hundred people given the text of the Exchange Act could correctly identify those quoted words as the language that supposedly prohibits insider trading, let alone so-called "insider trading" by non-insiders.  

And the other good part is that supposedly it is the Second Circuit's decision that will "create an uncertainty in the financial community about the boundaries of legitimate conduct."  As far as I know -- and I am in this business -- prior to the Second Circuit's Newman opinion, nobody had a clue what the "boundaries of legitimate conduct" may be, and the Second Circuit's opinion has only made things a little better.  Even with the Second Circuit's opinion (assuming it survives this review) you are still in a position where the language of the statute gives you no clue what is legal and what is not, and you need to read multiple court decisions and lots of tea leaves to try to guess how you can hope to conduct your life without getting thrown in the clink.

Tough Times To Be A Petrostate

My interest was piqued this morning when I spotted a story saying that Saudi Arabia had announced a plan to go to the bond markets to borrow $27 billion from now to the end of the year.  Wait a minute, don't those guys have infinite amounts of petrodollars gushing in all the time?  And don't they have so much money that they haven't issued any sovereign debt at all since 2007?  Sure oil prices have declined, but are things really going south that fast?

Actually, they are.  The gift of huge amounts of oil to be extracted has certainly seemed like a blessing for the Saudis, and for many others, for a long time, but actually it's a curse.  Somehow they all can't help following the same incompetent program that will lead inevitably to disaster: Get into state ownership of the asset and act like the money will keep flowing forever.  Gradually build up difficult-to-reduce commitments to pass out money to the citizenry in the game to keep the government in power.  When the price drops, you can hit the wall very quickly.

On Saudi Arabia, here's the story from the Financial Times this morning.   The $27 billion of planned borrowing is real.

Fahad al-Mubarak, the governor of the Saudi Arabian Monetary Agency, said in July that Riyadh had already issued its first $4bn in local bonds, the first sovereign issuance since 2007.  But the latest plans represent a major expansion of that programme, which bankers believe could even extend into 2016, given the outlook for the oil price.  Saudi Arabia’s resort to further domestic borrowing highlights the challenges facing the region’s largest economy amid one of the steepest falls in the oil price in recent decades. Brent, the international benchmark, has dropped from $115 a barrel in June last year to about $50 this week.

OK, they're not exactly down to their last nickel.  The FT article reports that they have $672 billion of reserves.  That's not a bad size bank account to have.  But weigh that number against this:

The kingdom has drained $65bn of its fiscal reserves to maintain government spending since the oil price plunge began.

That would mean that they've blown through about 10% of their reserves in less than a year.

Ambrose Evans-Pritchard has much more in an article today in The Telegraph.  He reports that Saudi Arabia's latest burn rate through its reserves is some $12 billion a month.  At that rate, even $700 billion doesn't sound like so much (less than 5 years).  And this:

Far from retrenching, King Salman is spraying money around, giving away $32bn in a coronation bonus for all workers and pensioners.  He has launched a costly war against the Houthis in Yemen and is engaged in a massive military build-up - entirely reliant on imported weapons - that will propel Saudi Arabia to fifth place in the world defence ranking.  The Saudi royal family is leading the Sunni cause against a resurgent Iran, battling for dominance in a bitter struggle between Sunni and Shia across the Middle East. "Right now, the Saudis have only one thing on their mind and that is the Iranians. They have a very serious problem. Iranian proxies are running Yemen, Syria, Iraq, and Lebanon," said Jim Woolsey, the former head of the US Central Intelligence Agency.

Their government deficit has suddenly gone from nothing to about 20% of GDP.  We worry about ours, which is less than 3% of GDP (at least on cash accounting basis).  And what are the prospects that this will turn around any time soon for the Saudis?

The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45pc this year - and not only by switching tactically to high-yielding wells. . . .  OPEC now faces a permanent headwind. Each rise in price will be capped by a surge in US output. The only constraint is the scale of US reserves that can be extracted at mid-cost. . . .

Evans-Pritchard has a chart of the level of oil prices that would be needed to bring the budgets of various petrostates into balance.

With some exceptions, that's quite the collection of rogues.  You can't help but notice that the very worst ones -- Russia, Iran, and Venezuela -- are in as bad or worse shape as the Saudis.  And Iran hasn't even yet started to crank up its oil pumps for the coming relaxation of sanctions.

To see what the end game looks like, try some news from the guys in the worst shape of all, Venezuela.  Oil is 95% of their exports, and they need a price of $160 per barrel to pay the bills; current price is about $50.  How does it look down there?  The latest report I find is July 16 from Bloomberg News.  It reports annual cost-of-living change running 772% per year (otherwise known as incipient hyperinflation), a "collapsing" economy, and the markets predicting default by the end of the year.

“It’s a collapsing economy with a massive shortage of dollars, and these guys are printing as much money as they can to survive,” Regis Chatellier, a strategist at Societe Generale, said by telephone from London. “At these levels, the shortage of dollars is such that it will be difficult for them to pay debt coming due at the end of this year."

How lucky are we that all the worst actors on the world stage are so completely incompetent at running economic policy to generate the wealth to support their evil ambitions?  Of course, our own President is even more incompetent -- he would shut down our fossil fuel business entirely if he could figure out how to get away with it.  But at least so far, he has only nibbled around the edges.

On The Secretary Of State Using A Private Email Server

One of my favorite things about observing the antics of politicians is that they will regularly make completely preposterous statements to justify their actions and exercise of power.  Many accuse them of "lying," and maybe that's the best word we have in our language, but plenty of the statements are just so detached from reality that merely calling them "lies" doesn't remotely do justice to the situation.  I'm thinking of examples like the line from Barack Obama's acceptance speech at his first nominating convention in 2008 where he said that this would be "the moment when the rise of the oceans began to slow and our planet began to heal."  Or the same guy's speech from just Monday of this week, where he blamed asthma among minority children on CO2 in the atmosphere from the burning of coal.

And then there is the question of our then-Secretary of State using a private email server, not up to government security standards, to do her government business.  And when questioned about the subject at a news conference in March, the New York Times quoted her as saying, “I did not email any classified material to anyone on my email."

Now I've never worked in the government in any capacity involving classified information, but I have had the experience of having to deal with classified information as part of working on private litigation.  Granted, it was a long time ago, and technology has changed a lot.  Still, I came away from the experience realizing that it's not possible to deal with classified information without taking seriously the rules and protocols surrounding it.

My tale goes back to a case in the late 1970s, involving an aerospace system with capabilities that the government would not want its adversaries to know.  Everyone involved first needed to get a security clearance to the level of "Secret" -- a process that took a couple of months and was quite intrusive.  But more important, the protocols surrounding the use of the classified information were very onerous and serious.  All classified documents needed to be in a locked file cabinet when not actually in use.  The locked file cabinet then had to be in a secure facility.  The nearest secure facility that we had access to was a factory in the South Bronx, and in one of the grimmest parts of that grim neighborhood, then in the midst of the worst days of its "Fort Apache" period.  Every few days I would have to take a long subway ride up there to sit in a windowless room to study the documents, making sure immediately to lock them back up as soon as I was done.  Witnesses who were to be questioned about the documents also needed to make the trek to the South Bronx facility for their testimony.  It was obvious through all of this that the people who had imposed the classification had always used a rule of "when in doubt, classify" -- a rule that added very substantial costs to the process.   If there was anything in a document that could possibly help an adversary to understand anything about the system that might be useful, the document was classified.

As far as I know, virtually everything the Secretary of State does or says to colleagues and aides would be classified by the very fact that the Secretary of State did or said it.  Anything about negotiations or discussions with other countries would be classified, even when the other country is among our very best friends, like say England or Israel.  All national security information would be classified.  Could Hillary really be asking us to believe that she was able to function as Secretary of State, and send and receive tens of thousands of emails, without any information in these categories being included?  Wow.

It really says something about the level of preposterousness here that even the New York Times is expressing skepticism.  Well, not in their own voice; but they interview and quote people in a position to know.  Example:

A former senior State Department official who served before the Obama administration said that although it was hard to be certain, it seemed unlikely that classified information could be kept out of the more than 30,000 emails that Mrs. Clinton’s staff identified as involving government business.  “I would assume that more than 50 percent of what the secretary of state dealt with was classified,” said the former official, who would speak only on the condition of anonymity because he did not want to seem ungracious to Mrs. Clinton. “Was every single email of the secretary of state completely unclassified? Maybe, but it’s hard to imagine.”

Seems to me that the strategy here has to have been that once a judge appointed by her husband had been drawn, and with a credulous and supportive press at her side, it would be possible to play out the string well past the next election, by which time everyone would have forgotten about the issue.  Unfortunately for her, it looks like the judge is not going along with that strategy.  Still, these things move very slowly.  It's more likely to be a slow drip than any big explosion.

Why Does U.S. Economic Performance Continue To Decline?

The government's latest GDP numbers, through Q2 2015, are now out, and they include some revisions to Q1, as well as other revisions for the period 2012 - 2014.  Lenore Hawkins analyzes the numbers at Elle's Economy, in an article titled "GDP Numbers Keep Getting Worse."   One consequence of the revisions is that Q1 2015 went from a slight decline to a slight increase.  But the other revisions to earlier years, particularly 2012 - 2014, had the effect of lowering previously-reported GDP substantially:

In the 138 years from 1870 to 2008, the US economy expanded by about an average of 3% a year.  After the revisions to GDP data from 2012-2014, we see that the U.S. economy since the financial crisis has been growing an average of 2.0% a year versus the earlier 2.3%. . . .   Most importantly, 2010-2014 was weaker in every quarter except the second and 2015 so far has been the worst yet! 

So why doesn't the U.S. economy just get going like it always did in the past -- even as recently as the decade of the 1990s and from 2001 - 2008?  Could there be something different about the Obama regime?

Well, there is the fact that the Obama administration continues to conduct what I have called its War Against the Economy.  As described in that article and elsewhere on this blog, that war has many fronts, including: massive wasteful spending and debt accumulation; artificially suppressing cheap and reliable energy in favor of subsidizing expensive and unreliable energy; overregulation and endless phony prosecutions directed against anyone who dares to make too much money in a financial business; forcing people to overpay for wasteful health insurance (Obamacare); big tax increases; and more.  You would think they might let up on the war as the economy continues to languish, but in fact they just keep doubling down.  I truly believe that Obama and his minions have no idea that there is any relationship between intentional suppression of economic activity by the government on the one hand and sluggish economic performance by the economy on the other.

So there was Obama yesterday announcing the final version of EPA's so-called Clean Power Plan.  This version has several changes from the prior proposal, including a goal to get rid of even more coal-based electricity generation, and new restrictions on shale gas.  Since it takes years to change over electricity generation from one source to another, the coal industry has already been gradually going out of business for the past several years.  So far it's a hundred or so power plants closed, and tens of thousands of miners out of work.  And now they're going to force this to happen even faster!  In his speech yesterday, Obama tried to claim the moral high ground by making the case for closing power plants on the basis of asthma.  From Breitbart News:

President Obama defended his new draconian rules on coal fired power plants today, using a moral argument for battling back the dangers of climate change.  As part of his argument for his new policies, President Obama insisted that more minorities were being hurt by air pollution.  He argued that African-American children was more than twice as likely to be hospitalized from asthma and a Latino child was 40 percent more likely to die from asthma.  “If you care about low income minority Americans, start protecting the air they breath. . . ."

So our President is so "smart" that he believes that CO2 in the air is a cause of asthma?  Yikes!  But then we also know that he believes that it's a good idea for a government to borrow as much money as it can and waste it as fast as possible.  Hey, Paul Krugman told him that.  All the "smart" people know it!  Anyway, in order to prevent young minority children from getting asthma from all that extra CO2 in the air, we are now going to intentionally jack up the price of electricity so that the underprivileged families can't afford lighting and air conditioning any more.  Because it's the moral thing to do!

Richard Wellings of the Institute of Economic Affairs comments on Obama's energy plans yesterday in The Telegraph, in an article aptly titled "Barack Obama's green plans could cripple America's economy."   

In much of the US, the power industry continues to rely on coal. Consumers in Kentucky, where over 90% of electricity is generated from coal, enjoy electricity prices roughly 50% lower than in the UK, an indication of the huge potential cost of Obama's plans.  Indeed much higher bills are almost inevitable now that the US is adopting EU-style policies. Carbon emissions from the power sector will be cut by an ambitious 32% by 2030 (compared to 2005 levels). Worse still, the Clean Power Plan will favour expensive renewable energy over the relatively low-cost option of cutting emissions by switching from coal to natural gas.

Actually Richard, the crippling of the American economy by the Clean Power Plan has been going on for quite a while already, because of the time it takes to change over power production, and because the utilities can't take the chance of being caught out on the day the new regulations take effect.  But then, that's only a fraction of the intentional crippling that these people are inflicting.  It's what we call Obama's "legacy."

Do Progressive Policies Cause Income Inequality?

Over at the City Journal, they published one of my articles on Saturday, titled "What Causes Income Inequality?  Progressive Policies Do."  The article was then linked by Real Clear Politics, and proceeded to attract a lot of readers and comments.

Reading the comments, I thought that many of the commenters had at least partially missed the point of the article.  In part that may be due to the title (which I didn't write).  What some commenters seemed to have concluded was that I was arguing that without "progressive policies" (like affordable housing, high minimum wage, and in-kind distributions such as Medicaid and food stamps) there would be no income inequality.  No, I would not say that.  But I would say that those policies, supposedly designed to address and ameliorate income inequality, actually make it worse, at least as measured by standard measures such as the Gini coefficient.

The point is important because progressive politicians, like our Mayor Bill de Blasio, use the government income inequality measures to prove the existence of inequality and to advocate for additional government action to address it -- more affordable housing, higher minimum wages, expanded Medicaid and food stamp eligibility.  Yet somehow the measures of inequality, particularly the Gini coefficient, do not move toward greater equality in the jurisdictions that adopt more of the progressive policies.

Actually, it's the opposite.  The jurisdictions in the U.S. with the most progressive state and local governments -- and the most public housing, the highest Medicaid and food stamp usage, and the premium minimum wages -- are the jurisdictions with the highest Gini coefficients, indicating the greatest income inequality.  As the article points out, Bloomberg Rankings did a study last year that ranked all Congressional Districts by Gini coefficient, and the results were eye-opening. Of the top (most unequal) 25 Congressional districts, 23 were represented by Democrats, and they included literally all the most progressive districts in the country:  all five Manhattan districts,  plus districts covering downtown Chicago, Cambridge, Berkeley, Santa Monica, and of course Nancy Pelosi's San Francisco district.  The very highest Gini coefficient of all is found in the New York 10 Congressional district, covering the Upper West Side of Manhattan, Greenwich Village, and the Financial District.  Bill de Blasio's office (City Hall) is in this district.

And it's not hard to understand why more government redistribution leads to higher and still higher income inequality.  It's because little to none of the redistributed goodies counts as income.  Nobody counts the value of a Medicaid benefit as income, and the government doesn't count it either.  In New York, the Medicaid benefit costs the taxpayers about $10,000 per beneficiary per year, $40,000 for a family of four.  Nobody counts the subsidy value of an "affordable" apartment either.  In New York the rent discount on many "affordable" apartments exceeds $50,000 per year; for some it exceeds $100,000 per year.  (We have low income projects lining miles of prime oceanfront, and more miles along the East River!)

So thousands of families get income redistributions exceeding $100,000 per year in cost to the taxpayers, only to find that they are still "poor."  And they really are poor.  They may live in an apartment that someone else would gladly pay $50,000 per year to rent; they may get first class medical care (Medicaid); and they may have plenty to eat (food stamps).  But they have little to no discretionary money to spend and they are at risk of having their benefits yanked at any time if they dare to go out and try to make some money of their own and become independent of their government masters.

So next up is the push for a $15 minimum wage.  In Puerto Rico they have a minimum wage at about 70% of median wage, and they have lost 20 points of labor force participation (42% versus 62% on the mainland).  How could following their lead do anything other than drive the Gini coefficIent through the roof?