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NEW YORK TIMES BESTSELLER • NAMED ONE OF THE BEST BOOKS OF THE YEAR BY THE WASHINGTON POST, NPR, AND KIRKUS REVIEWS
A scathing portrait of an urgent new American crisis
Over the last two decades, America has been falling deeper and deeper into a statistical mystery:
Poverty goes up. Crime goes down. The prison population doubles.
Fraud by the rich wipes out 40 percent of the world’s wealth. The rich get massively richer. No one goes to jail.
In search of a solution, journalist Matt Taibbi discovered the Divide, the seam in American life where our two most troubling trends—growing wealth inequality and mass incarceration—come together, driven by a dramatic shift in American citizenship: Our basic rights are now determined by our wealth or poverty. The Divide is what allows massively destructive fraud by the hyperwealthy to go unpunished, while turning poverty itself into a crime—but it’s impossible to see until you look at these two alarming trends side by side.
In The Divide, Matt Taibbi takes readers on a galvanizing journey through both sides of our new system of justice—the fun-house-mirror worlds of the untouchably wealthy and the criminalized poor. He uncovers the startling looting that preceded the financial collapse; a wild conspiracy of billionaire hedge fund managers to destroy a company through dirty tricks; and the story of a whistleblower who gets in the way of the largest banks in America, only to find herself in the crosshairs. On the other side of the Divide, Taibbi takes us to the front lines of the immigrant dragnet; into the newly punitive welfare system which treats its beneficiaries as thieves; and deep inside the stop-and-frisk world, where standing in front of your own home has become an arrestable offense. As he narrates these incredible stories, he draws out and analyzes their common source: a perverse new standard of justice, based on a radical, disturbing new vision of civil rights.
Through astonishing—and enraging—accounts of the high-stakes capers of the wealthy and nightmare stories of regular people caught in the Divide’s punishing logic, Taibbi lays bare one of the greatest challenges we face in contemporary American life: surviving a system that devours the lives of the poor, turns a blind eye to the destructive crimes of the wealthy, and implicates us all.
Praise for The Divide
“Ambitious . . . deeply reported, highly compelling . . . impossible to put down.”—The New York Times Book Review
“These are the stories that will keep you up at night. . . . The Divide is not just a report from the new America; it is advocacy journalism at its finest.”—Los Angeles Times
“Taibbi is a relentless investigative reporter. He takes readers inside not only investment banks, hedge funds and the blood sport of short-sellers, but into the lives of the needy, minorities, street drifters and illegal immigrants. . . . The Divide is an important book. Its documentation is powerful and shocking.”—The Washington Post
“Captivating . . . The Divide enshrines its author’s position as one of the most important voices in contemporary American journalism.”—The Independent (UK)
“Taibbi [is] perhaps the greatest reporter on Wall Street’s crimes in the modern era.”—Salon
From the Hardcover edition.
- Sales Rank: #20433 in Books
- Published on: 2014-10-21
- Released on: 2014-10-21
- Original language: English
- Number of items: 1
- Dimensions: 7.93" h x .91" w x 5.18" l, .0 pounds
- Binding: Paperback
- 448 pages
Review
“Ambitious . . . deeply reported, highly compelling . . . impossible to put down.”—The New York Times Book Review
“These are the stories that will keep you up at night. . . . The Divide is not just a report from the new America; it is advocacy journalism at its finest.”—Los Angeles Times
“[Matt] Taibbi is a relentless investigative reporter. He takes readers inside not only investment banks, hedge funds and the blood sport of short-sellers, but into the lives of the needy, minorities, street drifters and illegal immigrants, to juxtapose justice for the poor and the powerful. . . . The Divide is an important book. Its documentation is powerful and shocking.”—The Washington Post
“Captivating . . . The Divide enshrines its author’s position as one of the most important voices in contemporary American journalism.”—The Independent (UK)
“Taibbi [is] perhaps the greatest reporter on Wall Street’s crimes in the modern era.”—Salon
“[Taibbi’s] warning is all about moral hazard. . . . When swindlers know that their risks will be subsidized . . . they will surely commit more crimes. And when most of the population either does not know or does not care that the lowest socioeconomic classes live in something akin to a police state, we should be greatly concerned for the moral health of our society.”—The Wall Street Journal
“Trenchant . . . a scathing, accessible, and often riveting look at the U.S. finance industry and justice system.”—Publishers Weekly
“Readers with high blood pressure should make sure they’ve taken their medication before reading this devastating account of inequality in our justice, immigration, and social service systems. Taibbi’s chapters are high-definition photographs contrasting the ways we pursue small-time corruption and essentially reward high-level versions of the same thing.”—Kirkus Reviews (starred review)
From the Hardcover edition.
About the Author
Matt Taibbi has been a contributing editor for Rolling Stone and the author of five previous books, including the New York Times bestsellers The Great Derangement and Griftopia. He lives in New Jersey.
From the Hardcover edition.
Excerpt. © Reprinted by permission. All rights reserved.
Chapter 1
Unintended Consequences
Tuesday, July 9, 2013, a blisteringly hot day in New York City. I’m in a cramped, twelfth-story closet of a courtroom, squeezed onto a wooden bench full of heavily perspiring lawyers and onlookers, watching something truly rare in the annals of modern American criminal justice—the prosecution of a bank.
The set for this curiosity is the city’s 100 Centre Street courthouse, a beat-up old building located far downtown, just a stone’s throw from the thicket of gleaming skyscrapers housing the great financial powers of Wall Street.
It’s a pretrial hearing. The defendants—nineteen individuals plus the corporation itself—are here today to argue a motion to dismiss. There’s no press here that I can see, despite the historic moment. And it is historic. This case, filed by New York County District Attorney Cyrus Vance Jr., represents the only prosecution of a bank to take place anywhere in America since the collapse of the world economy in 2008. (In fact, it’s the first since the early 1990s.)
So who’s the defendant? Is it Citigroup? Goldman Sachs? Wells Fargo? JPMorgan Chase? Bank of America? After all, these companies had all been involved in countless scandals since the financial crisis of ’08, a disaster caused by an epidemic of criminal fraud that wiped out some 40 percent of the world’s wealth in less than a year, affecting nearly everyone in the industrialized world. If ever there was a wave of white-collar crime that cried out for a criminal trial, it was this period of fraud from the mid-2000s. And it would make sense that the defendants should come from one of these companies. In the years since the crash, all of them, and a half-dozen more too-big-to-fail megafirms just like them, had already paid hundreds of millions of dollars in civil settlements for virtually every kind of fraud and manipulation known to man.
Moreover, District Attorney Vance had once seemingly had all these Wall Street firms in his sights. He’d sent subpoenas out to Goldman and other companies the previous year. So surely one of these banks in those big skyscrapers a few blocks south of here must be the one on trial.
Nope. In the end, the one bank to get thrown on the dock was not a Wall Street firm but one housed in the opposite direction, a little to the north—a tiny family-owned community bank in Chinatown called Abacus Federal Savings Bank.
As a symbol of the government’s ambitions in the area of cleaning up the financial sector, Abacus presents a striking picture. Instead of a fifty-story glass-and-steel monolith, Abacus is housed in a dull gray six-story building wedged between two noodle shops at the southern end of New York’s legendary Bowery, once the capital of American poverty.
This is the bank in court today, dragged to the cross to take the blame for the many sins of the financial sector. It is a grimly comic scene. The judge, the Honorable Renee White, is a legendary city curmudgeon, a wraithlike woman with a long turtlish neck and orange hair who seems unhappy not only to be listening to a motion to dismiss but to be on planet Earth at all.
Before the hearing began, in fact, she’d barked at a young Chinese woman who’d had the audacity to dip her head near the floor to sneak a drink from a water bottle in her bag, trying to fight off the stultifying heat. “No refreshments!” the judge yelled. “You should have had your lunch before you came to this courtroom!”
The young woman meekly put her bottle back into a bag. Judge White craned her long neck and glared. A burly bailiff, acting as many bailiffs do—as the physical manifestation of his judge’s whimsy—hovered angrily past to make sure the offending bottle was no longer visible.
“Is she always like this?” I whispered, to no one in particular.
“What are you talking about?” a lawyer in front of me answered. “She’s in a good mood today.”
Judge White frowned and then went about the dreary task of reseating the courtroom. She sent Cantonese-speaking defendants to her left, Mandarin-speaking defendants to the right, and had a single translator plopped into the middle of each bewildered group.
Some of the accused were low-level loan officers, immigrants mostly, who had been as young as twenty-one or as old as seventy at the time of arrest. None of them were what one would describe as wealthy persons. None were millionaire CEOs of the Jamie Dimon/Lloyd Blankfein ilk. Instead, they were mostly Chinese immigrants in cheap blouses and worn suits, people who spoke little English or none at all, and who looked white with shame and confusion as they huddled around their respective translators.
Many of these criminal masterminds had been earning as little as $35,000 a year at the time they were hauled in for what the state described as a far-reaching scheme to falsify loan applications for home mortgages that their bank, Abacus, ultimately went on to sell to the government-sponsored mortgage dealer, Fannie Mae.
What were these nineteen people charged with? The case had been sold to the court and to the public—by Vance, mostly—as having something to do with the financial crisis, setting up the bank as a scapegoat for the 2008 blowup. Vance bragged that it was the first indictment in New York of a bank since the BCCI crisis in 1991, and he subtly compared Abacus to the aforementioned bailout all-stars like Citigroup and Bank of America, ostensibly the true villains of the financial crisis, by warning that Abacus’s crimes might ultimately lead to the taxpayer footing the bill. “If we’ve learned anything from the recent mortgage crisis,” he said, “it’s that at some point, these schemes will unravel and taxpayers could be left holding the bag.”
Vance made sure to play rough with the defendants, just to let them know how angry The People were about the financial crisis. In an extraordinary scene over a year before, on May 31, 2012, Vance had hauled all nineteen of the Abacus defendants into court to face indictment. For the benefit of the press, he had them chained not only at the hands and feet but to one another.
This otherworldly chain gang of bewildered immigrants had been led into the courtroom like a giant, slow-moving snake. It was like a scene out of Bagram or Guantánamo Bay—all that was missing were the hoods.
Incredibly, three of the nineteen people who were put in chains had already been arraigned by Vance and released on bail. Prosecutors had asked them to voluntarily report to court that day, and they came, having no idea what for. When they appeared, Vance had had them cuffed and chained all over again, then paraded into court to be rearraigned, purely for the benefit of the cameras.
“I’m no softie on crime,” says Kevin Puvalowski, the attorney for Abacus and a former federal drug prosecutor. “But I’ve seen death penalty defendants treated with more dignity.”
Again, on the same day as this bizarre photo op, Vance had stood up in a press conference and described the indictment of Abacus as a direct blow against the behavior that had caused the financial crisis. “The lessons of the financial crisis are still being learned,” he said sternly.
And in its limited coverage of the case, the press mostly upheld the notion that the Abacus indictment was aimed at the heart of the financial crisis. “The indictment against the bank and its employees describes the sort of scheme that led to the financial crisis of 2008,” wrote The New York Times in a typical account, “when the risk of mortgages to borrowers was disguised and passed on to investors.”
As for Vance, he got what he wanted out of the presser: a trophy. In subsequent coverage in newspapers like The Wall Street Journal, he would henceforth be referred to as the DA who “indicted a bank for mortgage fraud.”
But this case had nothing to do with the financial crisis. In fact, it was clear just from reading the indictment that the improprieties uncovered at Abacus were highly idiosyncratic and specific to Chinatown’s immigrant population. Though tax evasion wasn’t part of the case, it lurked in the background. Clearly, many mortgage applicants, who worked in cash businesses in the immigrant Chinese community, had not wanted to declare all their income.
After the Abacus indictment, in fact, I heard whispers from a police source with long experience in Chinatown that some of the bank’s customers may have been involved in schemes like trademark counterfeiting—not exactly a surprise, since it’s hard to visit Chinatown and not run into someone selling phony Prada bags or Rolex watches out of the back of a van somewhere.
Thus the underlying crime in this case seemed to be that Abacus’s customers could afford to pay for a mortgage but didn’t want to say how, exactly. They had been, in other words, not overreporting but underreporting their incomes.
There was also a bizarre racial component to the case. Buried in the charges was the thinly veiled assumption that Abacus senior management encouraged their borrowers to commit fraud in their applications because they knew they could rely upon the generally accepted cultural proposition that Chinese people, like the evil Lannisters in Game of Thrones, always pay their debts. Vance’s indictment more or less says this out loud, claiming that Abacus management “falsely told employees that the exceptionally low default rate of Abacus-originated loans made the underlying accuracy of loan documents insignificant.”
The description had been true—the Abacus mortgage holders had paid their debts. In fact, from the date of the first offense as defined by the prosecutors, the quasi-governmental Fannie Mae had made a profit of $220 million on Abacus-issued home loans. In all, Abacus had one of the lowest default rates in the entire country. It was about 0.5 percent, roughly ten times better than the average.
Thus this was a very different kind of case from the more common fraud of the financial crisis era, which mostly involved gigantic banks and mortgage lenders selling the toxic and ultimately worthless subprime mortgage loans of broke and underemployed middle Americans as AAA-rated investments to state pension funds, foreign trade unions, and other suckers. Abacus was almost certainly a case about hiding income; the financial crisis was caused by a snake-oil scheme to sell worthless loans as gold.
Everyone got what they wanted from the Abacus prosecution. The city got to say it was being tough on financial crime. The press got to run a thrilling picture of harsh justice. Vance got a line to add to his résumé. The only losers were the public, who had no idea that the real culprits for the financial crisis were being set free, while the bank on trial had nothing to do with the losses that had been suffered by almost every ordinary American in the crash. As one city investigator put it, Abacus was “the Lee Harvey Oswald of banks— a patsy.”
In any case, this same collection of freaked-out immigrant patsies were back in court now, this time without their chains. Most of the defendants had their own lawyers, as did the bank itself, so the courtroom was fairly packed with defense counsel. Most of these defense lawyers had filed “Clayton motions,” a New York state legal procedure in which a defendant can ask a judge to dismiss charges on the general grounds that doing so would be in furtherance of justice.
Among other things, a Clayton motion asks the judge to consider “the purpose and effect” of punishment and the “impact on the public interest” of a dismissal. They are motions, in other words, that ask a judge to consider the consequences of prosecution, balanced against the public interest.
One by one, defense counsel stood up to argue to the ostentatiously bored Judge White why their clients should be let go. Some argued their clients were too old or too young, or had been at the bank for only a few months, or had never in their whole lives been in trouble with the law. (They virtually all argued that.) Some said their clients had been new on the job and had simply filled out a few papers incorrectly according to the instructions of superiors. The list of reasons for leniency went on and on.
But finally one of the defense lawyers, a former city prosecutor named Sanford “Sam” Talkin, a man with a deep tan and a neatly shaven head, got to a larger and more dangerous point. Gently waving a hand in the direction of the Abacus defendants, Talkin confronted Judge White. “Your Honor,” he said, “I want you to compare them to Citigroup. Just last week Citigroup settled for $968 million for either underperforming or defaulted home loans. . . .
“But this pales in comparison to Bank of America, which paid $6.8 billion dollars, with a b, for underperforming or defaulted home loans. Civil settlement, no criminal charges . . . Wells Fargo Bank, $3.3 billion, no criminal prosecution . . . Ally GMAC, $3.3 billion, civil settlement, no criminal charges. JPMorgan Chase . . . another $3.3 billion for the same purpose, civil settlement, no criminal charges.”
Most helpful customer reviews
182 of 185 people found the following review helpful.
Whatever your viewpoint, this book likely will change it.
By Steven G Duff
You could bookend this with Christa Freeland's "Plutocrats." But where that recounts a lot of dry history and statistics interspersed with its revealing interviews, Taibbi isn't afraid to roll up his sleeves and go to the story. This is a book written with a wry sense of the absurd situations it details. Corruption at both the top and the bottom of our society. But to very, very different ends.
Remember: this is the guy that went to the Florida "rocket docket" court, recording how thousands of people were stripped of their homes under the flimsiest pretexts, often with outright fabricated evidence. In "Divide" he goes again where the stories are: to Bed-Sty, the outer NYC boroughs, and the courts. And documents how miserably the system treats the disadvantaged. What you think you know from "Law And Order", believe it: you don't. Kafka himself couldn't improve on some of this. At one point Taibbi refers to all this as a "descent into madness." And after reading it, it's hard to argue with that.
The "Divide" of course is cash. But this is no screed against "the rich." If that's what you think you've not read the book, or completely missed the point. To wit: if you commit a massive, white-collar crime, but you've got enough (i.e. near-infinite) cash, you're now too much trouble and risk to even indict, let alone prosecute. And if -- like me - you've wondered why none of the people who committed these global frauds on a massive scale have ever been prosecuted for any of it, this book gives you a detailed, compelling, and depressing answer.
Taibbi points out most of us will never see any of this. Out of sight, out of mind. The poor are segregated away. And the corrupt wealthy never have to interact with any of the people who are so profoundly impacted by their frauds. These are the guys who ripped off us off, burned down our 401Ks, rigged Libor rates to line their own pockets with our mortgages. And then moved on to other cushy positions, presumably doing much the same.
One review here (by someone who claims to have read all of 3 pages) complains about Taibbi's assertion of "a miserable few hundred bucks" collected by welfare cheats in San Diego. But let's be clear: Taibbi never suggests these people should be let off. But he does spend considerable ink contemplating for example, about the corrupt execs at institutions like HSBC. Execs who brazenly laundered money for the Iranians and the Sinaloa cartel. (They actually opened a special teller window to fit the boxes of cash that were brought in!) About how these guys got off scot-free with a fine paid by HSBC. And never even saw the inside of a courtroom. While people who buy those street dime bags that HSBC so thoughtfully enabled can spend years, or a lifetime, in prison. Lose their kids. Their right to vote. And then even if they do get out can't get a job. "A billion dollars or a billion days." Does that seem like "equal justice for all?" Not to me. Not to Taibbi. And it won't to you after you read this.
Taibbi suggests a larger, deeper, and more sinister subtext. About what we claim to profess as a nation: due process, equal justice, simple fairness. Money and power have always had their sway of course. But the inescapable takeaway from this is that we've simply given up on these ideals; they're now just too much trouble. As a nation we no longer give a damn. That's the real divide. And the real outrage.
139 of 143 people found the following review helpful.
Depressing, but necessary read
By Keith Sowa
In this book, Taibbi further explores themes he touched on in Griftopia, where he discussed in exceptionally fine detail the various cons, swindles, and other criminal activity (to call it what it is, really, since it seems like so many avoid doing that) perpetrated by the American finance sector during the 2008 financial crisis. Although it's not really necessary, I'd read that book before I read this one, because it provides a lot of background, and just because the contents of that book explain that debacle better than anyone else could, or even bothered to.
As opposed to recounting what happened like he did in Griftopia, The Divide explains how the crooks at places like Lehman Brothers got away with what they did, or rather, how they did so in full view of regulators and then dodged prosecution by the Department of Justice. He juxtaposes this with the "other" justice system the opposite end of the wealth spectrum is subject to. Perhaps this isn't a new concept that Taibbi or anyone else just figured out - fans of Chappelle's Show might remember the Law & Order parody where Dave switched the white collar criminal and the drug dealer? - but in any case Taibbi draws this contrast to stark effect. The wealthy are more or less immune to prosecution no matter how egregious their crimes are, especially in the context of their work, due to any combination of the details being too arcane or the government being unable/unwilling to effectively investigate or prosecute. As for the poor, well, poverty is effectively a crime in itself, some people have more rights than others, something that's invisible to many people stuck somewhere between not caring and feeling they deserve it - after all, there must be a good reason all those people are going to prison even though violent crime is actually going down, right? It's easier just to not think about.
Taibbi's greatest talent as a writer is his ability to convey extremely complicated topics into ordinary language just about anyone can understand, this is one of the main reasons I was a big fan of his over at Rolling Stone. I believe him to be the best reporter out there to cover the seas of mud in the finance sector, and make no mistake, Taibbi is definitely an old-school reporter at heart, digging up mundane data, going through dry, dusty documents nobody seems to care about for our benefit. This book doesn't have Taibbi's usual tone, which at times borders on irreverent/bombastic (I mean that affectionately), but understanding these problems are important if we're ever going to get anything done about it.
118 of 125 people found the following review helpful.
A Must Read
By Joel Schwalb
Once again, Matt Taibbi get it right. If you are at all concerned about the future of real justice replacing our present system of justice in Ameica, you must read this book. Taibbi makes it crystal clear that the "Divide" is real and that if you are an executive of a large corporation, you can get away with huge crimes with no personal penalty but if you are poor or middle class, you can pay a huge price for a minor infraction or some times no infraction other than being in the wrong place at the wrong time. This is truly a major scandal that needs to be rectified. Read this book and let your voice be heard !
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