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The End of Michael Flynn's Prosecution Was Another Triumph for America's Autocrat-in-Chief Print
Written by <a href="index.php?option=com_comprofiler&task=userProfile&user=47190"><span class="small">James Risen, The Intercept</span></a>   
Wednesday, 13 May 2020 08:20

Risen writes: "One of the biggest challenges for journalists writing about Donald Trump is that there have been too many scandals."

Michael Flynn, President Donald Trump's former national security adviser, leaves the federal court in Washington, D.C., on Sept. 10, 2019. (photo: Manuel Balce Ceneta/AP)
Michael Flynn, President Donald Trump's former national security adviser, leaves the federal court in Washington, D.C., on Sept. 10, 2019. (photo: Manuel Balce Ceneta/AP)


The End of Michael Flynn's Prosecution Was Another Triumph for America's Autocrat-in-Chief

By James Risen, The Intercept

13 May 20

 

ne of the biggest challenges for journalists writing about Donald Trump is that there have been too many scandals.

That sounds counterintuitive, because reporters love covering scandals and controversies, and Trump constantly manufactures both. But the one thing the press loves more than a scandal is a simple, straightforward narrative. Reporters are always on the hunt for a through-line when they write about a prominent figure, a common thread that ties a series of stories together and thus, helps explain the controversy engulfing a politician or a celebrity.

Hillary Clinton had an email problem. It was a simple, single narrative that reporters and pundits covering her presidential campaign in 2016 could revisit over and over to explore what they perceived as her character flaws: arrogance, condescension, and her apparent belief that the rules didn’t apply to her.

By contrast, Trump has a new scandal almost every day. Chaos, corruption and criminality reign in Trump’s White House. There are so many scandals that it is difficult for journalists to make sense of them all.

What is the narrative that ties all of Trump’s scandals together? It is that Trump is a would-be autocrat.

But the White House press corps is reluctant to use such plain language to describe Trump. That hesitance has led to the greatest journalistic failure of the last four years: The American media has never found the Trump narrative.

Instead, the press generally covers each Trump scandal incrementally, with little context. Trump coverage thus seems jumbled and frenzied; without a narrative to follow, the initial shock over each scandal quickly dissipates. Individual scandals soon turn into background noise as reporters move on and obsess over the president’s latest tweets.

Yet another Trump scandal erupted last week, when the Justice Department, in the grip of Trump’s malevolent private counselor Attorney General William Barr, dropped its charges against former national security adviser Michael Flynn.

The action sent shockwaves through the national security and legal communities, where the move was seen for what it was: an unprecedented and raw abuse of power by Barr designed to appease Trump and protect a Trump acolyte who had lied to the FBI about his calls with the Russian ambassador. Barr dropped the case against Flynn despite the fact that Flynn had twice pleaded guilty.

Barr’s action in the Flynn case followed a similar move in February to protect Trump’s infamous friend Roger Stone, who was convicted in 2019 of lying to Congress and threatening a witness in another case related to the Trump-Russia scandal. Barr forced the prosecutors in the case to reduce their sentencing recommendation to make sure that Stone wouldn’t spend much time in prison.

Both moves are part of Barr’s Soviet-style effort to erase history and reverse the outcome of the Trump-Russia investigation led by special counsel Robert Mueller. Line prosecutors withdrew from the Flynn and Stone cases as a result of Barr’s actions, a highly unusual act that signals how outrageous the attorney general’s interference was.

Justice Department officials involved in both the Flynn and Stone cases quickly and publicly condemned Barr’s latest move. Mary McCord, who was acting assistant attorney general for national security from 2016 to 2017, charged that Barr and his Justice Department misconstrued her words in order to help falsely discredit the Flynn investigation and drop the case. “The account of my interview in 2017 doesn’t help the department support this conclusion, and it is disingenuous of the department to twist my words to suggest that it does,” McCord wrote in a New York Times op-ed on Sunday.

Jonathan Kravis, a former prosecutor in the Stone case, wrote in the Washington Post on Monday about his decision to resign from the Justice Department three months ago in protest. “At the time, I thought that the handling of the Stone case, with senior officials intervening to recommend a lower sentence for a longtime ally of President Trump, was a disastrous mistake that the department would not make again. I was wrong. Last week, the department again put political patronage ahead of its commitment to the rule of law, filing a motion to dismiss the case against former national security advisor Michael Flynn – notwithstanding Flynn’s sworn guilty plea and a ruling by the court that the plea was sound.”

More than 1,900 former Justice Department employees have repeated their earlier calls for Barr’s resignation, saying that he had “once again assaulted the rule of law” in the Flynn case.

Barr first started trying to reverse the outcome of the Trump-Russia investigation as soon as he became attorney general in 2019. Before Mueller’s report was made public, Barr gave a wildly misleading summary of its findings that spun it to try to make Trump look good.

Barr’s obfuscation was so bad that earlier this year, a federal judge handling a Freedom of Information Act lawsuit seeking the public release of the complete Mueller report said that Barr lacked credibility on Mueller’s findings; since he didn’t trust Barr, the judge ruled that the Justice Department would have to show him the redacted portions of the report so he could decide what should remain out of the public domain. Judge Reggie Walton wrote that Barr had “made a calculated attempt to influence public discourse about the Mueller Report in favor of President Trump despite certain findings in the redacted version of the Mueller Report to the contrary.”

After he moved to drop the Flynn case, Barr’s blatant abuse of power was swiftly and widely condemned by leading legal scholars, law enforcement professionals, and Democratic leaders. “This move embeds into official U.S. policy an extremist view of law enforcement as the enemy of the American people,” wrote two Georgetown University law professors, Neal K. Katyal and Joshua A. Geltzer, in a Times op-ed.

“Flynn pled guilty to lying to the FBI about his illicit Russian contacts,” tweeted Rep. Adam Schiff, a California Democrat and chair of the House Intelligence Committee. “His lies do not now become truths. This dismissal does not exonerate him. But it does incriminate Bill Barr. In the worst politicization of the Justice Department in its history.” Sen. Elizabeth Warren, a Massachusetts Democrat and former presidential candidate, called on Barr to resign, tweeting: “We need an Attorney General whose loyalty is to the Constitution, not the president.”

Barr’s action was so radical that it prompted harsh criticism from former President Barack Obama, who has generally limited his attacks on Trump and his administration.

“There is no precedent that anybody can find for someone who has been charged with perjury just getting off scot-free,” Obama said Friday night during a call with the Obama Alumni Association. “That’s the kind of stuff where you begin to get worried that basic — not just institutional norms — but our basic understanding of rule of law is at risk. And when you start moving in those directions, it can accelerate pretty quickly as we’ve seen in other places.”

Trump named Christopher Wray as FBI director after firing his predecessor, James Comey, but in recent days Trump has threatened to fire Wray because Wray has so far failed to get fully on board with the ongoing purge of the Justice Department and the FBI. The FBI’s official statement about the Flynn case, however, suggests that Wray has gone to a Trump reeducation camp for officials who have failed to show sufficient fealty.

The bureau “remains firmly committed to addressing the failures under prior FBI leadership while maintaining the foundational principles of rigor, objectivity, accountability, and ownership in fulfilling the Bureau’s mission to protect the American people and defend the Constitution,” the statement said.

Trump is almost certainly going to fire Wray anyway.

In another ongoing part of his effort to discredit the Trump-Russia investigation, Barr has launched an investigation into the Mueller investigation, run by a prosecutor of his own choosing, John Durham. Durham is best known for being tasked by the Obama Justice Department to investigate the Bush administration’s post-9/11 torture program. It was obvious at the time that the Obama administration opened that investigation only reluctantly and under intense public pressure. Obama had said that he wanted to “look forward, not back,” and the White House had made it quite clear that it did not want to prosecute Bush-era officials. Durham obviously understood what the White House wanted; he didn’t bring charges against any former government officials.

Certainly, Durham once again knows what the White House wants from him: heads on the chopping block. With his track record of docile obedience, Durham could well deliver.

Durham’s findings, which were supposed to come out in May or June, may now be delayed by the pandemic, and so quite conveniently could emerge just before the November election, their release orchestrated by Barr for maximum political effect.

This ongoing erasure of the Mueller investigation, accompanied by a purge of the Justice Department, the FBI, and probably the CIA, is almost certainly just the start of what will be the complete perversion of the rule of law in the United States if Trump is reelected. If that happens, Trump and his friends will feel free to openly commit crimes without fear of consequences. With Barr at the Justice Department, the United States will be reduced to an autocracy, rife with self-dealing, corruption, and legal immunity for Trump lackeys. Meanwhile, Trump and Barr will crack down on political dissent with the full force of a deeply compromised Justice Department and FBI.

There was some good press coverage of Barr’s action in the Flynn case, particularly in the Times. But overall, the media gave the Flynn story the typical one-day treatment, characterizing it as yet another individual scandal in the wild ride that is the Trump administration.

The press is desperate to cover Trump the way they have always covered presidents. But if they were willing to view the Flynn case as part of a larger narrative, their stories would say that Trump and Barr pose existential threats to the rule of the law.

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Pence, Who Urged Impeachment of Bill Clinton for Lying, Would Join Trump in Welcoming Confessed Liar Michael Flynn Back to White House Print
Written by <a href="index.php?option=com_comprofiler&task=userProfile&user=51519"><span class="small">Juan Cole, Informed Comment</span></a>   
Tuesday, 12 May 2020 12:13

Cole writes: "Vice President Mike Pence says he would be happy to have disgraced former National Security Adviser Michael Flynn back in the White House."

Vice President Mike Pence and second lady of the United States Karen Pence. (photo: Getty)
Vice President Mike Pence and second lady of the United States Karen Pence. (photo: Getty)


Pence, Who Urged Impeachment of Bill Clinton for Lying, Would Join Trump in Welcoming Confessed Liar Michael Flynn Back to White House

By Juan Cole, Informed Comment

12 May 20

 

ice President Mike Pence says he would be happy to have disgraced former National Security Adviser Michael Flynn back in the White House.

The statement came after Bill Barr’s Department of Justice said it did not want to prosecute Flynn for lying to the FBI. Note, Barr does not deny that Flynn committed this crime. Hell, Flynn twice admitted it in open court. In reality, the decision isn’t Barr’s but that of Judge Emmet Sullivan. Some 2000 former prosecutors have urged the judge to ignore Barr, on the grounds that the Department of Justice shouldn’t be doing favors for friends of the president.

Now is the time to remind everyone that in the 1990s, Mike Pence argued that President Bill Clinton should be impeached and removed from office for telling a lie. In his smarmy way, Pence then said it was a moral issue.

Clinton committed perjury over sex. 

As comedian Jerry Seinfeld said at the time, “Lying about sex? Everyone lies about sex. Without lying, there would be no sex.”

Flynn undermined US national security by frequent unauthorized contacts with the Russian ambassador, in which he made pledges that the US law of the land would be overturned. 

And then he lied about it to the FBI

I’ll let you decide which of these lies amounted to an impeachable offense. Apparently Pence would only be outraged if Kislyak had been a Russian bombshell and Flynn had slept with her, and then lied about that.

Flynn confessed on two separate occasions to two different judges that he had lied, twice, to FBI agents who investigated him in January of 2017. He had earlier lied to Pence himself, denying that he had been in telephone communication with then Russian ambassador Sergey Kislyak in late fall of 2016 when Barack Obama was still president. Obama had placed sanctions on Russia, and Flynn called up Kislyak and told him not to worry about them, that Trump would undue them. Since Flynn at that time was a private individual, his attempt to undo official US government policy was the height of impropriety, and probably a crime in itself.

But the lying to the FBI was what landed him in hot water. Jennifer Emily at the Dallas Morning News explains that Federal law says,

“Statements or entries generally (a) . . . [W]hoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, [ 1 ] knowingly and willfully — (1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; (2) makes any materially false, fictitious, or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry; shall be fined under this title or imprisoned not more than 5 years.”

I had written earlier:

“Flynn had visited Moscow in 2015 and was seated with Vladimir Putin at a gala in celebration of the founding in 2000 of Russia Today, the Russian government-owned cable news channel. Flynn was allegedly paid tens of thousands of dollars for this appearance. Since he is a retired general, he should not have taken money from a foreign government and/or should have reported it, since officers can always be called back up.

Then there are allegations that Flynn began meeting with Russian ambassador to the US Sergey Kislyak. After the Trump victory, which many believe was orchestrated by Russian cyber-cons, Flynn was in regular contact with Kislyak. He called him 5 times on Christmas Day. In a later telephone conversation, Flynn is alleged to have reassured Kislyak that new Obama sanctions would be reversed by the Trump administration.

The Moscow Times writes:

“Russian analyst Dmitry Suslov says Flynn’s five phone conversations with the ambassador on the day of sanctions were nothing out of the ordinary. ‘It was necessary for him to guarantee a smooth transition and devise a foreign policy for the administration,’ says Suslov.”

Soon after Flynn’s resignation, on Feb. 20, Tatyana Stanovaya, director of the Analysis Department at the Center for Political Technologies, wrote at Politcom.ru, according to BBC Monitoring, “ Michael Flynn’s resignation has come as a great disappointment to Russia, since his name was linked to some degree to hopes of a future warming of relations and a review of the sanctions regime.”

Chad Day at AP explains that on January 24, 2017, two FBI agents who had obtained information about Flynn’s calls to Kislyak came to the White House to interview him. Day writes, “Flynn agreed to talk with them, and when asked, denied that he told Kislyak to back off from escalating situation in response to the sanctions.” He also lied about another time he reached out to Russia, in an unsuccessful bid to protect Israel from UN censure.

Many observers have cautioned that the DOJ decision to urge that Flynn be released from prosecution (apparently on the grounds that he is Trump’s buddy) is the beginning of the end of the rule of law in the United States and a further step toward American fascism. 

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FOCUS: Secrets, Surveillance and Snowden Print
Written by <a href="index.php?option=com_comprofiler&task=userProfile&user=54324"><span class="small">Barton Gellman, The Washington Post</span></a>   
Tuesday, 12 May 2020 11:15

Gellman writes: "The inbox logged a message as I slept. Many hours passed before I checked. Probably should have kept away, but habit tugged."

Edward Snowden in 2019. (photo: KK Ottesen)
Edward Snowden in 2019. (photo: KK Ottesen)


Secrets, Surveillance and Snowden

By Barton Gellman, The Washington Post

12 May 20


After receiving top-secret documents from the NSA whistleblower, reporter Barton Gellman broke the news that the National Security Agency was spying on Americans. Here’s how it happened.

he inbox logged a message as I slept. Many hours passed before I checked. Probably should have kept away, but habit tugged. We had taken the channel dark last night. Not because we knew it was blown, but because we could not know. These email accounts were anonymous, encrypted, isolated from our everyday Internet lives. Best I could tell, there was no way to lock them down tighter. That thought had reassured me once.

It was the second half of May 2013. Nearly four months had passed since Laura Poitras, an independent filmmaker, had reached out to me for advice about a confidential source. Verax, as I came to know him later, had brought her an enigmatic tip about U.S. government surveillance. Poitras and I teamed up to see what would come of it. The previous night, months of suspense had come to an end. Verax delivered. The evidence was here. His story was real, the risks no longer conjecture. The FBI and the National Security Agency’s “Q Group,” which oversees internal security, were bound to devote sizable resources to this leak. For the first time in my career, I did not think it was out of the question that U.S. authorities would try to seize my notes and files. Without doubt we were about to become interesting to foreign intelligence services.

Poitras and I resolved to meet again in two days. Anything that came up sooner would have to wait. That plan did not last the night. I logged on the next morning, expecting nothing. According to the time stamp, Poitras had fired off a note less than four hours after we parted. She could not have slept much. I hadn’t either, but the fog cleared when I saw her subject line. It was our private signal for “urgent.” The message, once decrypted, was succinct.

I really need to show you something.

You are going to want to see it.

Odd. Very. Something to look at? After what we saw last night? Verax had sent a top-secret, compartmented presentation from the NSA, updated the previous month. Poitras and I stood over a small laptop screen past midnight, struggling with the jargon. The main points came through readily enough. Under the cover name PRISM, the NSA was siphoning data from tens of thousands of Yahoo, Google, Microsoft and Facebook accounts, among others. Forty-one slides and 8,000 words of speaker’s notes laid out the legal rationale and operating details. If authentic — and it sure looked that way — this briefing offered something very rare: an authoritative account, in near real time, of intelligence operations on U.S. soil that spilled far beyond the bounds acknowledged in public.

When we quit for the night, Poitras said she understood maybe 10 percent of it. I could not claim more than half. No shame in that. Journalists were not supposed to know all the answers. We were supposed to know how to find them, to test the evidence and look for more. Building a story might take time, but we had the cornerstone.

So I thought. But something had startled Poitras, startled her enough to break email discipline. There was no use guessing. I found nothing to read between the lines. The news, I supposed, could be good or bad, but any surprise was unsettling at this stage. Surprise meant I did not know where we stood. For weeks, I had been mapping contingencies, thinking through likely paths and roadblocks in the next stage of reporting. I had to find additional sources, make contact without endangering them, authenticate the document and look for context. There were all kinds of ways I could screw this up: exposing Verax, falling for a fake, misreading the text, disclosing something that caused inadvertent harm. If I had misdrawn my mental map, I might not see trouble coming.

There was no more time to plan. Verax had rung the starting bell. We had the document in hand and no fixed story date. The interlude could be precarious. Verax declined to say where he was, but we knew he had stopped showing up for work. When his employer began to look for him, the risks to his freedom and safety would become acute. Authorities would discover what he took, and they might try to preempt the story. For sure our window for unhindered work would close.

We were trying to slip the gaze of a surveillance giant while peering through its gates. We could not hope to succeed for long, but we bought time every way we could. The urgent email from Poitras that morning had six miles to travel as the crow flies, from Tribeca to Upper Manhattan. She dispatched it through anonymous relays around the world, adding thousands of miles of detours to mask her whereabouts. When I logged on, I did the same. We had bought cheap laptops with cash and used privacy tools to spoof their hardware and network addresses. Poitras, Verax and I encrypted every word. We used no telephones at all. Every contact left a trail — there was no helping that — but we filled it with false footprints.

Before I could make my way downtown, a second email appeared. Same mundane-looking subject line, signaling “urgent.” As the body of her encrypted message crossed the Internet, the ciphertext looked like this:

– – – – – BEGIN PGP MESSAGE – – – – –

h Q I O A 7 R n V I V e b w v e E A g A 7 O B O 1 q t n Q 1 m d D T Z w U 4 e I 1 Z b f F 5 7 d L N I b 0 U x e u n q K 8 q 9 Z

o o 9 a 0 i H G j V r e q o 0 Y K i p / l p X 7 r o h H m A / T 0 3 8 j j g n s F 9 E 6 h N a h g 1 Z W c B R a b f O x G U x u

8 G z x k 5 H 9 m + k 0 d H C q g 6 E V w A o I W u n k g h c 6 j G 2 p / s e N F N C R 3 6 v j g C y 2 B u F 4 7 J c 0 o K g c

[ … ]

– – – – – END PGP MESSAGE – – – – –

I plugged in a thumb drive. On it was my private key, a small digital file required to decrypt her message. Unscrambled, the new note from Poitras had only eight words.

You need to prepare yourself for this. Jesus.

What in the hell was going on? I canceled a flight to Washington and hustled to the subway, trotting down the staircase double time. As I boarded a downtown 1 train, I pulled the battery from my phone. A smartphone is an excellent tracking device. It works well as a remote-controlled microphone, too, for someone who knows how to switch it on.

The first time I met Laura Poitras, three days before Christmas 2010, she turned up unannounced at my office, just off Washington Square. Karen Greenberg, a mutual friend who ran a lively policy salon at the New York University School of Law, kept telling us we should meet.

I did not think to ask Poitras how she had made her way to me without a call from security or the fussy receptionist upstairs. That night she let me know I had missed some kind of a scene. “I feel a little bad I had to freak out Karen’s staff to get to you,” she wrote.

Unsurprising, if her press clippings were to be believed. At age 46, she was an Oscar-nominated, Peabody-winning force of nature, prone to shouldering a camera through war zones without a crew. Politics on the radical side. “Intense” and “relentless,” the profile writers said. Grew up near Boston, trained as a chef, then turned to film. Her breakthrough film, “My Country, My Country,” traced the failed attempt to install democracy under U.S. occupation in Iraq. PBS had just broadcast her latest, “The Oath,” an alternating narrative of Osama bin Laden’s former bodyguard, now a cabdriver in Yemen, and his brother-in-law, a prisoner at the U.S. military detention center at Guantánamo Bay.

Blowback from the Iraq film brought her to me. For four years, since the documentary’s debut in 2006, she had been pulled aside for interrogation and search every time she crossed a U.S. border. Typically, Customs and Border Protection officers held her for hours, stating no reason. They paged through her notebooks, copied video footage from her memory cards and sometimes “detained” (that was the legal euphemism) her electronic devices. At New York’s John F. Kennedy Airport that summer, she later recounted, they had “confiscated my laptop, video camera, footage and cellphone” and held them for 41 days.

I found all that appalling, beginning with the U.S. government’s pretense that computers and smartphones were “containers” no different from a purse or a duffel bag. Seizing, copying and keeping hundreds of thousands of personal and professional files, by this baroque logic, was no greater intrusion than searching a suitcase for undeclared bottles of scotch. Long precedent held that the Fourth Amendment’s requirement of probable cause did not apply to searches at the border. The government made a broader claim, far more hostile to common sense and the foundational right of a citizen to be left alone. There was no such thing, the government argued, as an “unreasonable” border search because customs agents could be as arbitrary as they liked about search and seizure. They did not need any reason at all.

Poitras had heard that my old newsroom colleagues saw me as an eccentric on privacy, the guy who encrypted his notes and set up spooky online accounts. To me the need for precautions was apparent. Journalists, same as everyone else, had accepted the gifts of the Internet without considering their price. Mobile phones, Web browsing, email and messaging left long trails of data about whom we talked to, when we spoke, where we met and what we talked about. Changing laws and technology gave the government more access to that data trove with less oversight. Large private employers deployed comparable tools at company scale, enabling them to look over the shoulders of employees at will. Journalists pledged not to reveal our confidential sources, but we were allowing adversaries to pluck them from our digital exhaust. It had been years since I kept my notes where anyone else, even bosses I trusted, could read them. “The cloud,” as the security analyst Graham Cluley put it, was just another word for “somebody else’s computer.” When you left information there, you gave up control.

Poitras wanted to know how to defend herself. Ordinarily, I would start a conversation like that by asking what she wanted to protect and who she thought was after it. Poitras already knew she had a world-class adversary. That was not good news, but even the U.S. government had to budget time, money and scarce technical resources. Until now, Poitras had been a cheap target, traveling with naked data. She could make herself much more expensive with file encryption. Meanwhile, about that laptop they copied? Had she changed the passwords on her email and online accounts? She had.

That night I sent her what purported to be “a quick note for further reading.” In fact, all self-restraint failed. My thousand-word email was thick with links and recipes for an alphabet soup of software tools: GPG, TrueCrypt, OTR, SOCKS proxies, Tor. It is not hard to see, in retrospect, why my colleagues seldom asked for this kind of advice.

With tools like these, anyone could read and write and meet on the Internet without censorship or fear, cloaked in the elegant mathematics of cryptography. Anyone could, and hardly anyone did. I took a certain nerdy pleasure in the effort, and I had strong incentives as a journalist covering secret diplomacy, intelligence and war. I started using GPG, the gold standard of email and file encryption, in 2006 — not long after Time magazine overrode a reporter’s objections and handed his notes to prosecutors in the criminal case against Vice President Dick Cheney’s chief of staff.

Our collaboration on the NSA story began two years later, on Jan. 31, 2013, when Poitras wrote to say she was passing through New York.

“Do you have time to grab a coffee in the next few days?” she asked. “I could use some advice.” The invitation was not as casual as it looked. An encrypted note followed, asking me to leave my mobile phone behind. Two days later, at Joe, the pocket-size espresso bar I picked out, she made a face at the tightly spaced tables and said we had better try elsewhere. We switched venues twice more before she found one private enough. She had my attention.

Poitras made small talk until our server brought food and drink. By habit, I pulled out a Moleskine notebook. She shook her head, and I put it away. A nameless informant had come to her, she said, describing himself as a member of the U.S. intelligence community. The NSA, by the anonymous correspondent’s account, had built a surveillance machine of such breadth and power that it placed American democracy at risk. He could supply proof, but not yet.

Not a promising start. I kept a poker face, I think, but few subjects in my experience matched the allure of an intelligence plot to delusional tipsters. After writing about warrantless domestic surveillance in my last book, I had been swarmed with letters in spidery script and voice mails that kept going until they filled my queue.

I thought about cautioning Poitras, then caught myself. It was a bad habit. Journalists, like police officers and trial lawyers, liked to think we had special instincts for truth. Bulls--- detectors. I was not immune to the fantasy, but science offered scant support. In controlled experiments, professional investigators did no better than a coin toss at picking out truth and lies.

I shut up and took another bite of burger, leaving the floor to Poitras. As our conversation went on, I liked what I heard. The source had not shown Poitras all his cards, and Poitras kept some from me, but he spoke fluently in the languages of signals intelligence and communications networks. I thought I heard a weakness for high rhetoric, but Poitras said the source wrote with precision about matters of fact. His willingness to say “I don’t know” encouraged us both. Another small measure of credence came when he lapsed from plain English into shoptalk without appearing to notice. That was the way of many closed tribes and not easy to fake.

Poitras hoped I might recognize some of the jargon. Had I heard of BOUNDLESSINFORMANT? I had not, but I loved its pitch-perfect tone of earnest overreach, ambitious with a touch of sinister. How about SSO? I was pretty sure that stood for Special Source Operations, something to do with NSA access to equipment under friendly corporate control. What did her source mean by DNR? CNO? No idea. All I came up with were “do not resuscitate” and “chief of naval operations,” which were comically inapt. (Correct answers, gleaned later: “dialed number recognition” and “computer network operations.”) NSANet? Yes, I knew that one. It was the agency’s secure global intranet, connecting 30,000 employees to shared intelligence community resources such as a top-secret reference site modeled on Wikipedia.

Was her source the whistleblower he claimed to be? A fabricator who used public records to feign inside knowledge? A real intelligence analyst peddling fake intrigue? A half-informed official who misread something benign? I told Poitras I thought I could narrow the possibilities. In research for “Angler,” my book on Cheney, I had left out small details I learned about the NSA. They were too technical for my purposes, or I did not understand them in context, or they had no connection to events I wrote about. If the source knew what I knew, that might mean something. If he filled in the gaps, or made persuasive corrections, so much the better.

Poitras asked what I thought of combining forces if the story panned out. Print and film had complementary strengths, she said. Neither of us committed in that first meeting, but I was intrigued. As time went on, Poitras passed questions and replies among us. Every exchange chipped away at our doubts. By spring, the two of us were partners. Everything would depend on the written evidence, I wrote to her in early May, but I had reached a turning point.

If this guy was not for real, I wrote, “I will be very surprised.”

When I reached Poitras’s downtown hotel, several hours after receiving her urgent message, the room was a shambles. Equipment, clothing and papers covered the bed and most of the floor. She had not slept or changed, and I could not read her face. Shock, no doubt, but something else too. Elation? Alarm? Disbelief? If she said anything at the door, I do not remember it. What I do recall is a shake of her head and a sweep of her hand. Come in. See for yourself. I can’t explain.

Verax had sent us another package, larger than the first. Much, much larger. Three digital vaults, each with a separate pass phrase, nested one inside another like matryoshka dolls. The outer vault was labeled “Pandora.” Inside it was another, labeled “Verax.” And inside that, one more: “Journodrop.” I typed the final pass phrase and a status window popped open, text flying up and off the screen too fast to read as the encrypted archive unpacked. The operation took a long time. When it stopped, there were 8 gigabytes of new files. I had done the math for a story once: One gigabyte could hold tens of thousands of pages, more if fancy graphics were kept to a minimum.

I clicked experimentally on a folder called “fisa,” short for the Foreign Intelligence Surveillance Act. Inside it were two more folders. I clicked the top one and found 11 more folders inside. I began to drill down, opening the first folder listed at each new level. There were six of them at the next, 14 after that, and then 21 — folders inside folders inside folders. A quick scan of file names showed Word memos, plain-text files, PowerPoint decks, Adobe portable document files, Excel spreadsheets, and photographs.

I had no words. Nothing in my playbook prepared me to cope with this volume. How would I vet it, protect it from theft, write stories across so wide a span? I knew how to chase down facts with old-school investigative methods. I drew on open literature and background interviews for context. I circled hard targets from the outside in, interviewing sources on the periphery before approaching the big shots at the center. Afterward, I started around the circle again. Those methods worked, but they did not scale. I could not authenticate classified documents in batches, dozens or hundreds at a time. And there was no way I would put the archive online to crowdsource the analysis, an effective tool in some cases but not when there were unknown risks to public safety.

The size of the archive itself, on the other hand, helped validate it. Over the years, I had seen forgeries, some of them fairly convincing, from hoaxers or people with something to gain. But who could possibly fabricate so many? What benefit could justify the prodigious labor involved? In theory, a few doctored papers could be hidden among real ones. I would have to watch for that. Even so, I was increasingly confident in Verax.

This was the Hollywood version of a “leak”: an unknown source emerging from nowhere, bearing a stupendous scoop. In the real life of a newsroom, this happened so seldom that it was tantamount to myth. Typically, I got my best stories in small pieces from people I had cultivated for years or discovered through a common web of trust, each contributing part of a whole that none would tell me directly.

Some people, when unboxing a complicated gift, have the sense to look for a user guide. My first pass through Pandora skipped right past it. That was no fault of Verax, who left a pair of text files in the top directory, with names in emphatic capital letters: “README_FIRST” and “README_SECOND.” Eventually, I took notice.

The second file gave a high-level tour of the subjects covered and the organization of folders. The first, a 1,041-word introduction and manifesto, began like a conversation in progress: “It will be retroactively changed to damage my credibility, I had a good record and was well liked.” It was a tense and jumbled opening, with little of the polish I had come to expect from Verax. Years later he told me he composed both cover notes in haste as he reached the brink of departure from his home in Hawaii. He had not yet boarded the flight that would leave his whole world behind, but it was too late to change his mind. He had committed himself with one final breach of NSA defenses, the one he saved for last. Auditing systems were sure to flag it, and soon. Behind the grandiloquence of his note was a young man, alone, under extraordinary stress.

I led a comfortable and privileged life, a life engineered by the power structure to be difficult to give up. As I advanced and learned the dangerous truth behind the U.S. policies that seek to develop secret, irresistable [sic] powers and concentrate them in the hands of an unaccountable few, human weakness haunted me. As I worked in secret to resist them, selfish fear questioned if the stone thrown by a single man could justify the loss of everything he loves. I have come to my answer.

My sole motive is to inform the public as to that which is done in their name and that which is done against them. The U.S. government, in conspiracy with client states, chiefest among them the Five Eyes — the United Kingdom, Canada, Australia, and New Zealand — have inflicted upon the world a system of secret, pervasive surveillance from which there is no refuge. They protect their domestic systems from the oversight of citizenry through classification and lies, and shield themselves from outrage in the event of leaks by overemphasizing limited protections they choose to grant the governed. I tell you from experience that these protections can be stripped away in an instant.

He closed with a breathtaking act of trust, placing himself entirely in our hands. The timing was his own, as always, but he gave me what I needed when I needed it. “Verax” left the room. His alter ego stepped out from behind the curtain.

Edward Joseph Snowden, SSN:

CIA Alias “Dave M. Churchyard”

Agency Identification Number: 2339176

Former Senior Advisor | United States National Security Agency, under corporate cover

Former Field Officer | United States Central Intelligence Agency, under diplomatic cover

Former Lecturer | United States Defense Intelligence Agency, under corporate cover

He had a name now. There were so many questions left. What kind of man could assume such risks? Who would take decisions of this consequence upon himself? How could he, how could anyone, walk off undetected with the patrimony of a global surveillance establishment?

The PRISM slides arrived the day after I called The Washington Post to ask for an urgent meeting about a story that I did not want to discuss on the telephone. Pandora came the day after that. The following morning, May 22, I caught a plane to Washington to meet with Kevin Baine, the newspaper’s outside counsel, and managing editor Kevin Merida. On May 23, I returned to see executive editor Marty Baron. I had heard a lot about him, but we had not met.

It was time to show the goods. I booted one of my throwaway laptops with a thumb drive. From a second encrypted thumb drive, I opened the PRISM slide deck to its cover page.

The style fit a briefing subculture I had come to know at the Pentagon. All the archetypes were here: cheesy graphics and emblems crammed against starbursts, charts, tables, arrows and acronyms. The company logos grabbed Baron’s attention first, as familiar as any leading American brands. I pointed to a round official seal just below them on the left. That belonged to Special Source Operations, PRISM’s parent organization in the NSA. See that eagle with talons closed on what look like strands of twine around the globe? Those are fiber optic cables. The Internet. The eagle has the Internet in its claws. International telephone networks, too.

Not very subtle, someone said. No kidding. At the State Department or the Pentagon, most people who wrote memos had probably heard of the “front-page rule”: Before you write it down, imagine the news headline. They might not take the maxim to heart, but they knew in some abstract way that secret documents sometimes leaked. An American eagle as predator, the whole world its prey, was the sigil of an agency that could not even conceive of a public readership.

I gave Baron the overview I wished I had had when I first read these slides. Take a look farther down the cover page, I said, where “S35333” appears in smaller type. S stands for the Signals Intelligence Directorate, S3 for Data Acquisition, and each digit after that identifies a subordinate function. S353, the eagle people at Special Source Operations, pulled in monumental flows of information from the main trunk lines and switches that carry voice and data around the world. The owners of that infrastructure, mostly big corporations, were the “special sources.” Conveniently for U.S. intelligence, an outsized share of global communications traversed the United States. A call or email from Barcelona to Bogotá might well pass through Miami.

PRISM, or S35333, was another kind of access for the eagle folk. Here the special sources were the American-based Internet giants: Google, Facebook, Yahoo, Microsoft, AOL, Skype, YouTube and Apple. Also a service called Paltalk, which I had not heard of but which presumably hosted accounts of attractive targets. The great thing about those companies, from an intelligence collector’s point of view, was that they did much more than push data through pipes. Unlike AT&T and other common carriers, they stored the content their users sent and received. The NSA did not have to chase down all those emails, videos, photographs and documents as they raced across fiber optic cables at the speed of light. Collection could wait until the data arrived somewhere and held still. (Or, as often happened when faced with alternatives, the NSA could choose to do both.) Exabytes of user information — each equal to 1 billion gigabytes — were assembled on big U.S. company data servers. Years of records might be stored in a single account. Eric Schmidt, then chief executive officer of Google, famously said in 2010 that the world created as much information every two days as it had from “the dawn of civilization through 2003.” Some people questioned his numbers, but the general point was hard to dispute. The volume of data produced by humankind was expanding at a pace that beggared analogy. Google held a big chunk of that. The company and its peers in the PRISM collection system dominated the global marketplace for search, messaging, video, email and cloud storage.

The NSA, in concert with the FBI, dipped into this treasure trove under a secret interpretation of the legal authority that Congress granted in 2007 and 2008. Until then, the government could not search a Skype or AOL account without a warrant from the Foreign Intelligence Surveillance Court. Each warrant required probable cause to believe that a specific account belonged to an agent of a foreign power. The court nearly always granted those warrants, but it did perform an individual review. After Congress passed the Protect America Act and the FISA Amendments Act, Justice Department lawyers secretly persuaded the court that it could authorize surveillance of an unlimited number of accounts with a single order.

In the new arrangement, a judge no longer needed to hear a valid foreign intelligence purpose for surveillance of each proposed target. Neither the court nor the intelligence committees in Congress even knew who the targets were. Once a year, in a classified proceeding, the court approved two documents. The first one laid out rules meant to govern the NSA’s choice of accounts to monitor. The second one specified procedures for “minimizing,” or limiting access to, some of the information the NSA collected about U.S. citizens, green-card holders and companies. The attorney general and the director of national intelligence certified that the NSA would follow these rules. The court would not know when the agency broke a rule unless the Justice Department, as required by still another rule, disclosed the violation to a judge.

Collection was not deliberately aimed at Americans. The targets had to qualify as foreign. More precisely, and not as strictly, the NSA needed grounds to believe that a target was more likely foreign than not. Acquisition of foreign intelligence also had to be “a significant purpose” of the spying but not the sole or primary purpose. For various reasons, some avoidable and some not, a lot of Americans were swept in under those terms.

I clicked to slides 15 and 40, the latter updated only six weeks before. I showed Baron and his team that PRISM had more than 45,000 “selectors,” or individual collection targets, at the end of 2012. By April 5, 2013, there were 117,675 accounts under active surveillance. The numbers were growing exponentially, more than doubling at Facebook and more than tripling at Skype from year to year.

Could there be that many terrorists, spies and foreign government targets with Hotmail or Yahoo accounts? What definition of “terrorist,” the top target category, would result in numbers like that? The subtitle of this slide deck called PRISM the source “used most in NSA reporting.” Reporting, in this context, meant alerts and briefings sent to intelligence customers around the U.S. government. Put another way, this briefing told us that Fort Meade in Maryland shared more information obtained from American Internet companies than from any other source.

Two days after Marty Baron agreed to publish the PRISM story, a message from Snowden nearly drove us off the rails. I had sent him an upbeat status report. The Post was pressing ahead at full speed. Snowden wrote back. The document he had sent to Poitras and me spoke for itself, as far as he was concerned. What else could we possibly need?

“You may have time constraints I do not understand,” I wrote. “I want to make sure that you understand mine. I have seldom heard of a story of this magnitude that went from soup to nuts in three days, or four or five. ... If you can shed any light on how timing affects you, it’s possible I can help address it in another way.”

Late on Saturday night, May 25, he replied with new urgency. “Alright, let’s talk about time pressure first,” he said. “Until you publish, I am at the highest level of personal risk, because rightly or wrongly, adversaries may feel this can be stopped early.” He had left a cover story about medical treatment, but “at this point I’m certain we’re out of time. That means unless I’m better than I think I am, on Monday, NSA will become aware precisely where I am, and they’re not going to be thinking ‘what a brave and principled whistlerblower [sic],’ it’s going to be ‘how do we splat the spy?’ ”

Those were not the words that knocked the wind out of me. The gut punch came when Snowden explained his motive for including a cryptographic signature for The Post to publish alongside the story and the PRISM slides.

“Why does your source care about the signature?” one of the Post editors had asked.

I had let that question slip in the crush of other work. Snowden had first mentioned the signature nine days earlier, on May 16. Its purpose, he said, was to certify that the PRISM document “has not been edited or changed.” That sounded promising. Did he mean, I wrote back, that someone at the NSA had signed the presentation with a U.S. government credential? That would be outstanding news. Little doubt about authenticity would remain. Snowden offered half a reply, then pirouetted away. “It creates a ‘chain of custody.’ This matters for the historical record,” he wrote. “I can’t yet explain the rest.”

After meeting with the Post editors, I remembered that I could do an elementary check of the signature on my own. The result was disappointing. I was slow to grasp what it implied.

gpg --verify PRISM.pptx.sig PRISM.pptx

gpg: Signature made Mon May 20 14:31:57 2013 EDT

using RSA key ID

gpg: Good signature from “Verax”

Now I knew that Snowden, using his Verax alter ego, had signed the PowerPoint file himself. If I published the signature, all it would prove to a tech-savvy few was that a pseudonymous source had vouched for his own leak. What good would that do anyone?

In the Saturday night email, Snowden spelled it out. He had chosen to risk his freedom, he wrote, but he was not resigned to life in prison or worse. He wanted to show other whistleblowers that there could be a happy ending.

To effect this, I intend to apply for asylum (preferably somewhere with strong Internet and press freedoms, e.g. Iceland, though the strength of the reaction will determine how choosy I can be). Given how tightly the U.S. surveils diplomatic outposts …, I cannot risk this until you have already gone to press, as it would immediately tip our hand. It would also be futile without proof of my claims — they’d have me committed — and I have no desire to provide raw source material to a foreign government. Post publication, the source document and cryptographic signature will allow me to immediately substantiate both the truth of my claim and the danger I am in without having to give anything up. …

Alarm gave way to vertigo. I forced myself to reread the passage slowly. Snowden planned to seek the protection of a foreign government. He would canvass diplomatic posts on an island under Chinese sovereign control. He might not have very good choices. The signature’s purpose, its only purpose, was to help him through the gates. With it he could prove that he was my source.

I had agreed to protect Snowden’s identity in order to report a story to the public. He wanted me to help him disclose it, in private, as a credential to present to foreign governments. That was something altogether different. If we published the signature file, The Post would be a knowing instrument of his flight from American law. I might wish him luck. I did. But it was not my role to help.

We hated the replies we sent to Snowden on May 26. We had lawyered up and it showed. “You were clear with me and I want to be equally clear with you,” I wrote. “There are a number of unwarranted assumptions in your email. My intentions and objectives are purely journalistic, and I will not tie them or time them to any other goal.”

Snowden responded with bafflement and alarm. “The response in the last few days from you and BRASSBANNER has me extremely concerned about what appears to be a sudden change of heart,” he told Poitras. “You’ve both gone from supportive to inexplicably terrifying. … I can’t even know if my true name and the source document have already been turned over [to U.S. authorities] at this point. Jesus. I don’t know what they said to you, but I did not go to these lengths to hurt my country or my people.”

To me, the same day, he wrote that he was “working hard to do what is right in an extremely difficult situation.” He was not trying to call the editorial shots. “I confide in you as the lead journalist working on a story of public interest, not to tie you to my raft.” He closed with a plea: “Please confirm your intention to include the cryptographic signature with the source document. You now know [failure to do so] will directly jeopardize my safety.”

It was excruciating. Snowden had taken a leap, counting on us for a parachute we had not agreed to supply. “What a nightmare,” Poitras wrote to me. We would certainly not turn him in, as he seemed to fear. Nor would we share our copy of the PRISM file with U.S. authorities. (I never do that. Governments and big companies often place invisible markers on sensitive documents in order to trace their provenance if they leak.) That was all the reassurance I could offer.

For a young man in free fall, Snowden responded with remarkable grace. He noted dryly that “your communications appear to be rather more reviewed than they were previously.” He could no longer treat The Post story as exclusive. “I regret that we weren’t able to keep this project unilateral for longer than we had, but so it is. Best of luck to you in your reporting — may you know the truth.”

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FOCUS: The Deathly Tragedy of American Exceptionalism Print
Written by <a href="index.php?option=com_comprofiler&task=userProfile&user=51635"><span class="small">Robert Reich, Robert Reich's Blog</span></a>   
Tuesday, 12 May 2020 11:08

Reich writes: "No other nation has endured as much death from Covid-19 nor nearly as a high a death rate as has the United States."

Former Clinton labor secretary Robert Reich. (photo: Steve Russell/Toronto Star)
Former Clinton labor secretary Robert Reich. (photo: Steve Russell/Toronto Star)


The Deathly Tragedy of American Exceptionalism

By Robert Reich, Robert Reich's Blog

12 May 20

 

o other nation has endured as much death from Covid-19 nor nearly as a high a death rate as has the United States.

With 4.25 percent of the world population, America has the tragic distinction of accounting for about 30 percent of pandemic deaths so far.

And it is the only advanced nation where the death rate is still climbing. Three thousand deaths per day are anticipated by June 1st.

No other nation has loosened lockdowns and other social-distancing measures while deaths are increasing, as the U.S. is now doing.

No other advanced nation was as unprepared for the pandemic as was the U.S.

We now know Donald Trump and his administration were told by public health experts in mid-January that immediate action was required to stop the spread of Covid-19. But according to Dr Anthony Fauci, “there was a lot of pushback”. Trump didn’t act until March 16.

Epidemiologists estimate 90 percent of the deaths in the U.S. from the first wave of Covid-19 might have been prevented had social distancing policies been put into effect two weeks earlier, on March 2.

No nation other than the U.S. has left it to subordinate units of government – states and cities – to buy ventilators and personal protective equipment. In no other nation have such sub-governments been forced to bid against each another.

In no other nation have experts in public health and emergency preparedness been pushed aside and replaced by political cronies like Trump’s son-in-law, Jared Kushner, who in turn has been advised by Trump donors and Fox News celebrities.

In no other advanced nation has Covid-19 forced so many average citizens into poverty so quickly. The Urban Institute reports that more than 30 percent of American adults have had to reduce their spending on food.

Elsewhere around the world, governments are providing generous income support. Not in the U.S.

At best, Americans have received one-time checks for $1,200, about a week’s worth of rent, groceries and utilities. Few are collecting unemployment benefits because unemployment offices are overwhelmed with claims.

Congress’s “payroll protection plan” has been a mess. Because funds have been distributed through financial institutions, banks have raked off money for themselves and rewarded their favored customers. Of the $350 billion originally intended for small businesses, $243.4 million has gone to large publicly held companies.

Meanwhile, the Treasury and the Fed are bailing out big corporations from the debts they accumulated in recent years to buy back their shares of stock.

Why is America so different from other advanced nations facing the same coronavirus threat? Why has everything gone so tragically wrong?

Some of it is due to Trump and his hapless and corrupt collection of grifters, buffoons, sycophants, lobbyists and relatives.

But there are also deeper roots.

The coronavirus has been especially potent in the U.S. because America is the only industrialized nation lacking universal healthcare. Many families have been reluctant to see doctors or check into emergency rooms for fear of racking up large bills.

America is also the only one of 22 advanced nations failing to give all workers some form of paid sick leave. As a result, many American workers have remained on the job when they should have been home.

Adding to this is the skimpiness of unemployment benefits in America – providing less support in the first year of unemployment than those in any other advanced country.

American workplaces are also more dangerous. Even before Covid-19 ripped through meatpackers and warehouses, fatality rates were higher among American workers than European.

Even before the pandemic robbed Americans of their jobs and incomes, average wage growth in the U.S. had lagged behind average wage growth in most other advanced countries. Since 1980, American workers’ share of total national income has declined more than in any other rich nation.

In other nations, unions have long pushed for safer working conditions and higher wages. But American workers are far less unionized than workers in other advanced economies. Only 6.4% of private-sector workers in America belong to a union, compared to more than 26% in Canada, 37% in Italy, 67% in Sweden, and 25% in Britain.

So who and what’s to blame for the worst avoidable loss of life in American history?

Partly, Donald Trump’s malfeasance.

But the calamity is also due to America’s longer-term failure to provide its people the basic support they need.

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The Bailout Miscalculation That Could Crash the Economy Print
Written by <a href="index.php?option=com_comprofiler&task=userProfile&user=53933"><span class="small">Matt Taibbi, Matt Taibbi's Substack</span></a>   
Tuesday, 12 May 2020 08:16

Taibbi writes: "When Donald Trump signed the trillion CARES Act rescue on March 27, there was immediate praise across the political spectrum for section 4022, concerning homeowners in distress. Under the rule, anyone with a federally-backed mortgage could now receive instant relief."

A demonstrator in Chicago on April 30 calls on the governor of Illinois to suspend rent and mortgage payments for those who have lost income during the covid-19 pandemic. (photo: Scott Olson/Getty Images)
A demonstrator in Chicago on April 30 calls on the governor of Illinois to suspend rent and mortgage payments for those who have lost income during the covid-19 pandemic. (photo: Scott Olson/Getty Images)


The Bailout Miscalculation That Could Crash the Economy

By Matt Taibbi, Matt Taibbi's Substack

12 May 20


A plan to help homeowners avoid foreclosure was good, in principle. In practice, it’s pushed the mortgage business toward yet another potential nightmare

hen Donald Trump signed the $2 trillion CARES Act rescue on March 27, there was immediate praise across the political spectrum for section 4022, concerning homeowners in distress. Under the rule, anyone with a federally-backed mortgage could now receive instant relief.

Forbearance, the law said:

…shall be granted for up to 180 days, and shall be extended for an additional period of up to 180 days at the request of the borrower.

Essentially, anyone with a federally-backed mortgage was now eligible for a six-month break from home payments. Really it was a year, given that a 180-day extension could be granted “at the request of the borrower.”

It made sense. The burden of having to continue to make home payments during the coronavirus crisis would be crushing for the millions of people put out of work.

If anything, the measure didn’t go far enough, only covering homeowners with federally-backed (a.k.a. “agency”) mortgages. Still, six months or a year of relief from mortgage payments was arguably the most valuable up-front benefit of the entire bailout for ordinary people.

Unfortunately, this portion of the CARES Act was conceived so badly that it birthed a potentially disastrous new issue that could have severe systemic ramifications. “Whoever wrote this bill didn’t have the faintest fucking clue how mortgages work,” is how one financial analyst put it to me.

When homeowners take out mortgages, loans are bundled into pools and turned into securities, which are then sold off to investors, often big institutional players like pension funds.

Once loans are pooled and sold off as securities, the job of collecting home payments from actual people and delivering them to investors in mortgage bonds goes to companies called mortgage servicers. Many of these firms are not banks, and have familiar names like Quicken Loans or Freedom Mortgage.

The mortgage servicing business is relatively uncomplicated – companies are collecting money from one group of people and handing it to another, for a fee – but these quasi-infamous firms still regularly manage to screw it up.

“An industry that is just… not very good,” is the generous description of Richard Cordray, former head of the Consumer Financial Protection Bureau.

Because margins in the mortgage service business are relatively small, these firms try to automate as much as possible. Many use outdated computers and have threadbare staffing policies.

Essentially, they make their money collecting in good economic times from the less complicated homeowner accounts, taking electronic payments and paying little personal attention to loan-holders with issues.

They rely on lines of short-term financing from banks and tend to be cash-poor and almost incompetent by design. If you’ve ever tried to call your servicer (if you even know who it is) and failed to get someone on the phone, that’s no accident — unless you’re paying, these firms don’t much want to hear from you, and they certainly don’t want to pay extra to do it. Their cheapness helped provide some savings for customers, but there’s a downside to this approach.

Last year, the Financial Stability Oversight Council (FSOC), which includes the heads of the Treasury, the Commodity Futures Trading Commission, the Fed, the aforementioned CFPB and others issued a report claiming mortgage service firms were a systemic threat, because they “rely heavily on short-term funding sources and generally have relatively limited resources to absorb financial shocks.”

For Cordray, who has a book out called Watchdog that chronicles his time heading the CFPB, the worry about mortgage servicers was serious.

“Nonbanks are very thinly capitalized,” he says. “They haven’t been very responsible in building up capital buffers.”

Enter the coronavirus. Even if homeowners themselves weren’t required to make payments under the CARES Act, servicers like Quicken and Freedom still had to keep paying the bondholders every month.

It might be reasonable to expect a big bank like Wells Fargo or JP Morgan Chase to front six months’ worth of principal and interest payments for millions of borrowers. But these fly-by-night servicer firms – overgrown collection agencies – don’t have that kind of cash.

How did the worst of these firms react to being told they suddenly had to cover up to a year of home payments? About as you’d expect, by panicking and trying to pass the buck to homeowners.

Soon after the passage of the CARES Act, reporters like Lisa Epstein at Capitol Forum and David Dayen at the American Prospect started hearing stories that servicers were trying to trick customers into skipping the forbearance program. As David wrote a few weeks ago:

I started hearing from borrowers that they were being told that they could apply for three months forbearance (a deferment of their loan payment), but would have to pay all three months back at the end of the period…

It soon came out that many servicers were telling homeowners that even if they thought they were getting a bailout break, they would still have to make it all up in one balloon payment at the end of the deferral period. This was a straight-out lie, but the motivation was obvious. “They’re trying to get people to pay any way they can,” is how Cordray puts it.

Dayen cited Amerihome Mortgage and Wells Fargo, but other names also started to be associated with the practice. Social media began to fill up with stories from people claiming firms like Mr. Cooper, Bank of America and others were telling them they had to be prepared to make big balloon payments.

Same with the CFPB’s complaint database, which began to be filled with comments like the following, about a firm called NewRez LLC:

If you have 4 months of mortgage payments laying around at the end of the COVID-19 pandemic you will be fine if not good buy [sic] to your house. I understand its a business and they will make a lot of money with I'm sure a government bailout and lots of foreclosures from not helping any american home buyers…

Suddenly regulators and politicians alike were faced with a double-edged dilemma. On the one hand, the poorly-designed CARES Act placed servicers in genuine peril, an issue that left unfixed might break the mortgage markets – not a fun experience for America, as we learned in 2008.

The obvious solution was to use some of the apparently limitless funding ammunition in the Federal Reserve to help servicers maintain their responsibilities. The problem was the firms that needed such help the most were openly swindling homeowners. If there’s such a thing as regulatory blackmail, this was it.

Should the Fed open its war chest and create a “liquidity facility” to help mortgage servicers? It seemed like the obvious move — this really was a problem caused by a bailout that encouraged even people who didn’t need forbearance to accept it — but how could this be done in a way that didn’t put homeowners at more risk?

“This is the script of a heist flick, where homeowners get screwed in the end while servicers get the money,” says Carter Dougherty of Americans for Financial Reform. “If you combine money for servicers with strong consumer protections and a vigorous regulator, then the film could have a happy ending. But I'm not holding my breath.”

In early April, a group of Senators led by Virginia’s Mark Warner sent a letter that pleaded with Treasury Secretary Steven Mnuchin to use some of the $455 billion economic stabilization fund to solve the problem. The letter included a passage that essentially says, “We know these companies suck, but there’s no choice but to bail them out”:

While we understand that some nonbank lenders may have adopted practices that made them particularly susceptible to constraints on their liquidity during a severe downturn, imposing a broad liquidity shock to the entire servicing sector is not the way to go about reform…

The Senators put the problem in perspective, noting that as much as $100 billion in payments might be forborne under the CARES Act. This was a major hit to an industry that last year “had total net profits of less than $10 billion.”

The CARES Act was written in March with such speed that it became law before anyone even had a chance to catch, say, a $90 billion-sized hole in the bailout’s reasoning. Still, when the forbearances began and it started to look like the servicers might fail, there was talk among regulators and members of congress alike of letting failures happen, to teach the idiots a lesson.

But the Senators on the letter (including also Tim Kaine, Bob Menendez and Jerry Moran) decided this would ultimately be counterproductive, i.e. letting the economy collapse might be an unacceptably high price for the sending of a message to a handful of companies.

“The focus now should not be on longer-term reform, but on ensuring that the crisis now unfolding does as little damage to the economy as possible,” is how the letter put it.

Although the letter urged the creation of a new bailout facility to contain the mortgage-servicer ick, that didn’t happen, even after mortgage servicers stepped up lobbying campaigns. In mid-April, a string of news stories appeared in which servicers warned reporters of snowballing market terror – as the New York Times put it, the “strain is expected to intensify” – that would only be solved with a bailout.

No dice. In a repeat of the often-halting, often illogical responses to mushrooming crises of 2008, the first pass at a solution came in the form of a move by the Federal Housing Finance Agency (FHFA), the overseer of Fannie and Freddie.

On April 21, FHFA announced they were coming to the rescue: servicers would no longer need to come up with six months of payments. From now on, it would only be four:

Today’s instruction establishes a four-month advance obligation limit for Fannie Mae scheduled servicing for loans and servicers which is consistent with the current policy at Freddie Mac.

Which was fine, except for one thing: from the standpoint of most of these undercapitalized servicing firms, having to cover four months of payments is not a whole lot easier than covering six. “It still might as well be ten years for these guys,” is how one analyst put it.

Absent an intervention from the Fed, a bunch of these servicing firms will go bust. There will be chaos if even a few disappear. As we found out in 2008, homeowners facing servicer disruptions can immediately be confronted with all sorts of problems, from taxes going unpaid to payments vanishing to incorrect foreclosure proceedings taking place. Such problems can take years to resolve. Service issues helped seriously prolong the last crisis, as I wrote about in 2010.

Also, if your servicer disappears, someone still has to do the grunt work of managing your loan. To make sure your home payments are collected and moved to the right place, some entity will have to acquire what are known as the Mortgage Servicing Rights (MSRs) to your loan.

But MSRs have almost no value in a battered economy, which means it’s likely no big company like a bank will be interested in acquiring them in the event of mass failures, absent some kind of inducement. “They’re not going to want that grief,” is how one hill staffer puts it.

A third problem is that if some of these nonbank servicers go kablooey, a likely scenario would involve their businesses being swallowed up by big banks, perhaps with the aid of incentives tossed in from yet another bailout package.

This would again mirror 2008, in that a regulatory response would worsen the hyper-concentration problem and make big, systemically dangerous banks bigger and more dangerous, again.

As Dougherty says, the simplest solution would be opening a Fed facility to contain the servicer disaster, coupling aid with new measures designed to a) force servicers to keep more money on hand for a rainy day and b) stop screwing homeowners.

But the more likely scenario is just a bailout for now, with a vague promise to reform later. This would lead either to an over-generous rescue of some of our worst companies, or an industry wipeout followed by another power grab by Too Big To Fail banks.

The whole episode is a classic example of how governmental ignorance married to corporate irresponsibility can lead to systemic FUBAR, though we still don’t know how this particular version will play out. As Cordray puts it, it’s not easy to predict where failures in the mortgage servicer industry might lead.

“What’s easy to predict, though,” he says, “is that it will be a mess.”

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