Do Arrest Quotas Encourage Police Officers to Break the Law?

By Justin Peters, Slate Magazine

15 March 13

n Monday, Baltimore police officer Kendell Richburg pleaded guilty to drug conspiracy charges that could earn him a maximum sentence of life in prison. Looking at the actions that Justin Fenton detailed in his Baltimore Sun article about the case - distributing drugs to be sold on the street, facilitating robberies, planning to frame innocent people - it seems clear that Richburg was a bad cop.

And yet, oddly, it seems like this was actually a case of a bad cop who was trying to be a good cop - at least at the outset. Richburg did these things not for personal gain, but to benefit a confidential informant who fed him information that helped him make arrests. In order to keep his confidential informant on the street, Richburg gave him drugs that he could sell. Richburg tipped off the informant to police activity, helping him avoid arrest. But eventually, their arrangement took a more sinister turn. "As Richburg conspired with the informant, the two discussed plans to set up innocent people," writes Fenton. "In another instance, Richburg helped the informant plot a robbery."

Richburg was part of a plainclothes police unit known as the Violent Crimes Impact Section. The VCIS was charged with getting guns and drug dealers off the streets of Baltimore. (The unit was renamed and effectively disbanded last December by new police commissioner Anthony Batts, in the wake of citizen and City Council criticism that its tactics were too aggressive.) Lots of urban police departments have employed specialty units like these, tasked with moving into high-crime areas and rapidly lowering crime rates. These units persist because they work. They make a lot of arrests, seize a lot of guns and drugs, and generally produce the kind of statistics that police officials can proudly tout to politicians and the press. They are blunt objects, and sometimes you need a blunt object if you want to make a dent.

But look closely at incidents of police brutality or corruption and you'll often see them connected to these "jump-out boys," so named because the officers tend to jump out of cars and aggressively pursue their targets. In 2011, the city of Chicago disbanded its extremely effective Mobile Strike Force unit, in part because citizens complained that its members played too rough. (In a 2012 Chicago magazine story about the city's new police chief, Noah Isackson mentioned the 2006 revelations that "some officers robbed and kidnapped residents, and the accusations a year later that one officer plotted to murder another.") In 2002, New York City disbanded its Street Crimes Unit, three years after four plainclothes officers fired 41 shots at an unarmed man named Amadou Diallo, killing him on the steps of his apartment. (The proximate cause of the unit's downfall was the lawsuit Daniels , et al. v. the City of New York, brought by the Center for Constitutional Rights in the wake of the Diallo shooting, alleging racial profiling in the Street Crimes Unit and the NYPD at large.)

One of the main problems with these units is that they are often disconnected from the communities they serve. Since they're not walking beats or attending community meetings like ordinary cops, they don't always have to directly reckon with the wrath of the law-abiding people they offend. Officers in plainclothes units have been accused of acting indiscriminately and assuming criminal behavior from everyone they encounter. They make arrests, and then move on to the next hot spot.

These units are instruments of the "at any cost" school of policing, where success is measured by the number of arrests made or amount of contraband seized - by meeting often-unrealistic statistical targets imposed from on high. According to Richburg's attorney, Warren Brown, tactics like those his client employed were common in the VCIS among officers worried about making their arrest quotas. " ‘[I]f the curtain was pulled back, you would see that his M.O. was standard operating procedure,' " Brown told the Sun - which isn't really a defense for conspiring to commit robbery, but is maybe an explanation for why a certain type of police officer might think that helping an informant commit a robbery is defensible if it encourages that informant to keep feeding him actionable information.

Baltimore's police department obviously isn't the only one that allegedly instructs its officers to meet various quotas. In a 1999 New York Times article, for instance, an anonymous member of the NYPD's Street Crimes Unit told David Kocieniewski that the officers were oppressed by stat-driven police tactics, and that they worked under a quota system that said they had to seize at least one illegal firearm per month:

"There are guys who are willing to toss anyone who's walking with his hands in his pockets," said an officer, who spoke on the condition of anonymity. "We frisk 20, maybe 30 people a day. Are they all by the book? Of course not; it's safer and easier to just toss people. And if it's the 25th of the month and you haven't got your gun yet? Things can get a little desperate."

If cops are under pressure to make numbers, then it follows that they'll try hard to make those numbers, even if it means bending some rules in the process. So if a confidential informant is giving an officer good, actionable information, it's to that officer's benefit to keep that informant on the streets, even if it means giving that informant drugs to sell. And it makes sense that commanding officers, under pressure from superiors to reduce crime, might look the other way and give their subordinates room to operate however they see fit.

There's no point in being too idealistic about the mechanics of urban police work. It's a game of compromises, of weighing relative evils. But so many of these compromises seem to sacrifice long-term progress in favor of short-term rewards. Units like the Street Crimes Unit and the VCIS are an answer, yes, but they're an answer to an incomplete question: "How do we fix the crime problem right now?" The second half of that question - "What do we do after that?" - is hard to answer with rule-bending shortcuts. I don't want to imply that it's not important to make arrests and get criminals off the streets. But it matters how you do it, and doing so in a way that destroys community trust, engenders resentment, inhibits cooperation, and incentivizes bad cop behavior will only make the good cops' jobs harder - and the streets more dangerous - in the long run.

JP Morgan Chase Will Be Torn a New One

By Matt Taibbi, Rolling Stone

15 March 13

eginning at 9:30 a.m. tomorrow, I'm going to be live-blogging a hearing held by Senator Carl Levin's Permanent Subcommittee on Investigations - the best crew of high-end detectives this side of The Wire, in my opinion - who will be grilling J.P. Morgan Chase executives and high-ranking federal regulators in a get-together entitled, "J.P. Morgan Chase "Whale" Trades: A Case History Of Derivatives Risks And Abuses." This follows this afternoon's release of a brutal 301-page report commissioned by Levin and Republican John McCain by the same name.

The Subcommittee investigators, largely the same crew who unraveled financial scandals surrounding infamous Goldman Sachs trades like Abacus and Timberwolf, and also took on HSBC's trans-global money-laundering activities in an extraordinarily detailed report issued last summer, have now taken aim at the heart of the Too-Big-To-Fail issue through its examination of the much-publicized catastrophic derivative trades made by its amusingly-nicknamed "London Whale" trader, Bruno Iksil, last year.

Most ordinary people dimly remember the London Whale episode now, and even at the time struggled to understand even the vaguest contours of the story while mainstream reporters (including people like myself) were trying with all their might to make sense of it from afar. What most people got out of that story was that J.P. Morgan Chase somehow lost buttloads of money through some sort of impossibly complex derivative trade - billions, though nobody could ever settle on an exact number - and that this was somehow a very bad thing that required the attention of the federal government, although even that part of it was a bit of a mystery to most ordinary people.

Gangster Bankers: Too Big to Jail

Why should we care if a private bank, or more to the point a private banker like Chase CEO Jamie Dimon, loses a few billion here and there? What business is it of ours? And why did we have to have congressional hearings about it last year? The whole thing certainly seemed a big mystery to Dimon himself, who dragged himself to Washington and spent the entire time rolling his eyes and snorting at Senators' questions, clearly put out that he even had to be there.

This new report by the Permanent Subcommittee answers the question of why the public needed to be involved in that episode. What the report describes is an epic breakdown in the supervision of so-called "Too Big to Fail" banks. The report confirms everyone's worst fears about what goes on behind closed doors at such companies, in the various financial sausage-factories that comprise their profit-making operations.

If the information in the report is correct, Chase followed the behavioral model of every corrupt/failing hedge fund this side of Bernie Madoff and Sam Israel, only it did it on a much more enormous scale and did it with federally-insured deposits. The fund used (in part) federally-insured money to create, in essence, a kind of super high-risk hedge fund that gambled on credit derivatives, and just like Sam Israel did with his Bayou fund, when it got in trouble, it resorted to fudging its numbers in order to disguise the fact that it was losing money hand over fist.

Chase for years hid the very existence of this operation from banking regulators and lied about the purpose of the fund (saying it was purely a hedging operation when it stopped being a hedge and instead became a wild directional gamble), and it also changed the way it calculated the fund's value once it started to lose hundreds of millions of dollars. Even worse, the bank's own internal auditors signed off on the phoney-baloney accounting of this Synthetic Credit Portfolio (SCP), at one point allowing it to claim $719 million in losses when the real number was closer to $1.2 billion.

How did they do this? In the years leading up to January of 2012, Chase used a standard, plain-vanilla method to price the derivative instruments in its portfolio. The method was known as "mid-market pricing": if on any given day you had a range of offers for a certain instrument - the "bid-ask" range - "mid-market pricing" just meant splitting the difference and calling the value the numerical middle in that range.

But in the beginning of 2012, Chase started to lose lots of money on the derivatives in its SCP, and just decided to change its valuations, that they weren't in the business of doing "mids" anymore. One executive thought the "market was irrational." As the Subcommittee concluded:

By the end of January, the CIO had stopped valuing two sets of credit index instruments on the SCP's books, the CDX IG9 7-year and the CDX IG9 10-year, near the midpoint price and had substituted instead noticeably more favorable prices.

If you can fight through the jargon, what this basically means is that Chase decided to go into the fiction business and invent a new way to value its crazy-ass derivative bets, using, among other things, a computerized model the company designed itself called "P&L predict" which subjectively calculated the value of the entire fund toward the end of every business day.

If this all sounds familiar, it's because it's the same story we've heard over and over again in the financial-scandal era, from Enron to WorldCom to Lehman Brothers - when the going gets tough, and huge companies start to lose money, they change their own accounting methodologies to hide their screw-ups, passing the buck over and over again until the mess explodes into the public's lap. The difference is that Chase is a much bigger and more dangerous company to be engaging in this kind of behavior.

An even scarier section of the report regards the reaction of the Office of the Comptroller of the Currency, or OCC, the primary government regulator of Chase. The report exposes two huge problems here. One, Chase consistently hid crucial information from the OCC, including the sort of massive increases in risk the OCC was created precisely to monitor. Two, even when the bank didn't hide stuff, the OCC was either too slow or too disinterested to take notice of potential problems. From the report:

During 2011, for example, the notional size of the SCP grew tenfold from about $4 billion to $51 billion, but the bank never informed the OCC of the increase. At the same time, the bank did file risk reports

with the OCC disclosing that the CIO repeatedly breached the its stress limits in the first half of 2011, triggering them eight times, on occasion for weeks at a stretch, but the OCC failed to follow up with the bank.

In other words, Chase added nearly $50 billion in risk and failed to mention the fact to the OCC - but the OCC also failed to bat an eyelid when Chase breached its stress limits eight times in a space of six months, often for weeks at a time. Do you feel safer now?

This episode proves what everyone already implicitly understands about these gigantic banking institutions: that their accounting is often little more than a monstrous black box within which any sort of mischief can and probably is being hidden from shareholders, counterparties, and the public, which has a direct interest in the health of these banks because (a) their enormous size makes them systemically important, i.e. we'd all be screwed if any of them collapsed, and (b) they are the supposedly cautious and conservative guardians of billions in federally-insured deposits.

The Senate investigators highlighted a frightening metaphor to explain what they found out about Chase's response to its burgeoning accounting disaster last winter and spring:

The head of the CIO's London office, Achilles Macris, once compared managing the Synthetic Credit Portfolio, with its massive, complex, moving parts, to flying an airplane. The OCC Examiner-in-Charge at JPMorgan Chase told the Subcommittee that if the Synthetic Credit Portfolio were an airplane, then the risk metrics were the flight instruments. In the first quarter of 2012, those flight instruments began flashing red and sounding alarms, but rather than change course, JPMorgan Chase personnel disregarded, discounted, or questioned the accuracy of the instruments instead.

Investigators took note of this and then, sensibly, wondered if Chase was the only bank ignoring all those flashy lights:

The bank's actions not only exposed the many risk management deficiencies at JPMorgan Chase, but also raise systemic concerns about how many other financial institutions may be disregarding risk indicators and manipulating models to artificially lower risk results and capital requirements.

Anyway, officials from Chase and the OCC are being dragged in tomorrow to answer some heavy questions about all of this. Expect a lot of double-talk, sweaty foreheads, pompous "You just don't understand because you don't make enough money" excuses, and other sordid behaviors. Tune in here for updates.

In the meantime, kudos to Senator Levin and to his Republican partner in this investigation, John McCain, for taking on this topic. Increasingly, key voices in the upper chamber like these two, plus Ohio's Sherrod Brown, Iowa's Chuck Grassley, Oregon's Jeff Merkley, Vermont's Bernie Sanders and others are starting to act genuinely worried about the Too Big to Fail issue. Their determination to keep it in the public eye is, to me, a signal that a consensus is forming behind the scenes on the Hill.

Matt's Live Blog: http://www.rollingstone.com/politics/blogs/taibblog