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With Latif Decision, Section 1031 Authorizes Indefinitely Detaining Americans Based on Gossip

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As I noted yesterday, both Dianne Feinstein and Carl Levin understand Section 1031 of the Defense Authorization to authorize the indefinite detention of American citizens. Levin says we don’t have to worry about that, though, because Americans would still have access to habeas corpus review.

Section 1031 makes no reference to habeas corpus, and places no limitation on habeas corpus review.  Nor could it.  Under the Constitution, habeas corpus review is available to any American citizen who is held in military custody, and to any non-citizen who is held in military custody inside the United States.

Even ignoring the case of Jose Padilla, which demonstrates how easily the government can make habeas unavailable to American citizens, there’s another problem with Levin’s assurances.

Habeas was gutted on October 14, when Janice Rogers Brown wrote a Circuit Court opinion holding that in habeas suits, judges must grant official government records the
presumption of regularity.

The habeas case of Adnan Farhan Abdul Latif largely focused on one report purporting to show that Latif fought with the Taliban. I suspect the report is an early 2002 CIA report, written during the period when the US was trying to sort through hundreds of detainees turned over (sometimes in exchange for a bounty) by the Pakistanis. The report I suspect is at issue summarizes the stories of at least 9 detainees, four of whom have already been transferred out of US custody. David Tatel’s dissent makes it clear that there were clear inaccuracies in the report, and he describes Judge Henry Kennedy’s judgment that this conditions under which this report was made–in the fog of war, the majority opinion agrees–increased the likelihood that the report was inaccurate. Of note, Latif’s Factual Return reveals the government believed him to be Bangladeshi until March 6, 2002 (see paragraph 4); they blame this misunderstanding on him lying, but seeing as how the language of an interrogation–whether Arabic or Bangladeshi–would either seem to make his Arab identity clear or beset the entire interrogation with language difficulties, it seems likely the misunderstanding came from the problem surrounding his early interrogations.

Beyond that report, the government relied on two things to claim that Latif had been appropriately detained: The claim that his travel facilitator, Ibrahim Alawi, is the same guy as an al Qaeda recruiter, Ibrahim Balawi (usually referred to as Abu Khulud), in spite of the fact that none of the 7 detainees recruited by Balawi have identified Latif. And the observation that Latif’s travel to Afghanistan from Yemen and then out of Afghanistan to Pakistan traveled the same path as that of al Qaeda fighters (here, too, none of the fighters who traveled that same path identified Latif as part of their group).

In other words, the government used one intelligence report of dubious reliability and uncorroborated pattern analysis to argue that Latif had fought with the Taliban and therefore is legally being held at Gitmo.

And in spite of the problem with the report (and therefore the government’s case), Judge Janice Rogers Brown held that unless Judge Kennedy finds Latif so credible as to rebut the government’s argument, he is properly held. More troubling, Rogers Brown held that judges must presume that government evidence gathering–intelligence reports–are accurate as a default.

When the detainee’s challenge is to the evidence-gathering process itself, should a presumption of regularity apply to the official government document that results ? We think the answer is yes.

Rogers Brown is arguing for a presumption of regularity, of course, for the same intelligence community that got us into Iraq on claims of WMD; the report in question almost certainly dates to around the same period that CIA went 6 months without noticing an obvious forgery.

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The Detainee Debate Heats Up: The Rule of Martial Law Vs. the Unitary Spookery

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As I noted yesterday, Obama issued a veto threat for the detainee provisions included in the Defense Authorization. Since then, both Dianne Feinstein and Carl Levin have given speeches on the floor, arguing against (DiFi) and for (Levin) the provisions.

And while I’d be happy to see the provisions in question fail (because the provisions represent a further militarization of our country), effectively the argument being made is between those (the Republicans, enabled by Levin) who support further militarization of law and those (DiFi and, especially, the Administration) who want the Executive Branch to continue fighting terrorism (and whatever else) with an intelligence-driven approach bound by few legal checks.

DOJ’s Special Forms of Extended Interrogation and Coercion

In a sense, DiFi’s speech on Thursday looked like an appeal to rule of law. For example, she warns of the danger of “further militariz[ing] our counterterrorism efforts.” But what she really focused on in her speech–implicitly–are the tools the government has wrung out of the civilian legal system to make it easier to get intelligence (whoever picked a Senate Judiciary Committee member to be head of the Senate Intelligence Committee made this blurring of law and intelligence easier).

DiFi alludes to tools DOJ has that DOD does not. She mentions both Najibullah Zazi and Umar Farouk Abdulmutallab as people whose prosecution within the civilian justice system aided prosecution.

Suppose a terrorist such as Zazi were forced into mandatory military custody. Then the government could also have been forced to split up codefendants, even in cases where they otherwise could be prosecuted as part of the same conspiracy in the same legal system.

[snip]

It was FBI agents who traveled to Abdulmutallab’s home in Nigeria and persuaded family members to come to Detroit to assist them in getting him to talk. The situation would have been very different under Section 1032. Under the pending legislation, it would have been military personnel who were attempting to enlist prominent Nigerians to assist in their interrogation, and Abdulmutallab would have been classified as an enemy combatant and held in a military facility and, therefore, his family would not be inclined to cooperate. This is we have been told on the Intelligence Committee.

She appears to be invoking the way we’re getting people to talk: by threatening and persuading their families. In the case of Zazi, we got him to cooperate by charging his father. In the case of Abdulmutallab, we presumably made some guarantees about treatment if his family would persuade him to cooperate (maybe that’s why he stayed in a minimum security prison through the pre-trial period; I also wonder whether we threatened his prominent banker father).

Most charitably, this is akin to the problem Ali Soufan experienced with Salim Hamdan; Soufan was about to persuade Hamdan to cooperate in exchange for a shorter sentence when DOD dumped Hamdan in Gitmo where there was no option to trade cooperation for better treatment. As the case of Omar Khadr (who was not permitted to spend time with other detainees after he plead guilty) makes clear, in military custody, we lose control of the conditions of someone’s confinement as soon as they plead guilty, and so can’t use that as a tool to get people to cooperate.

But there’s something else DiFi is not saying, though is out there. With our creative interpretation of Miranda of late, we have interrogated Faisal Shahzad for two weeks without a lawyer; Manssor Arbabsiar for 12 days; and Ahmed Warsame for a month. We got Arbabsiar (and, I would bet, Warsame) to cooperate to ensnare others during the period of pre-arraignment arrest. Thus, for better or worse, civilian detention has actually been offering the government more ways to deploy detainees in intelligence operations than military detention.

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Congress and the Administration Agree: the Government Can Indefinitely Detain US Citizens

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I’ve got a long post mostly written on the debate between two awful positions on the detainee provisions in the Defense Authorization.

But let me make something clear. Both sides have already bought off on one principle: that the Administration can indefinitely detain US citizens.

Dianne Feinstein made this clear in her comments yesterday in the Senate (in which she was reading from a letter SJC and SSCI Democrats wrote).

Section 1031 needs to be reviewed to consider whether it is consistent with the September 18, 2001, authorization for use of military force, especially because it would authorize the indefinite detention of American citizens without charge or trial …..

And yet while in the rest of her speech, DiFi laid out problems she had with sections 1032 (mandating military detention in most cases), 1033 (requiring certification before DOD transfers detainees to a third country), and 1035 (giving DOD precedence in detainee decisions), she made not a peep objecting to (as opposed to raising cautions about) this ability to indefinitely detain American citizens.

In response to DiFi’s speech and the Administration’s veto threat, Carl Levin revealed that the Administration’s complaints about the language authorizing military detention don’t stem from any squeamishness about indefinitely detaining Americans. Indeed, as Levin made clear, the Administration asked that limitations on applying the section to Americans be taken out of the bill.

The committee accepted all of the Administration’s proposed changes to section 1031.  As the Administration has acknowledged, the provision does nothing more than codify existing law.  Indeed, as revised pursuant to Administration recommendations, the provision expressly “affirms” an authority that already exists.  The Supreme Court held in the Hamdi case that existing law authorizes the detention of American citizens under the law of war in the limited circumstances spelled out here, so this is nothing new.

The initial bill reported by the committee included language expressly precluding “the detention of citizens or lawful resident aliens of the United States on the basis of conduct taking place within the United States, except to the extent permitted by the Constitution of the United States.”  The Administration asked that this language be removed from the bill. [my emphasis]

And given that SASC already voted to support this section by significant margins, it appears clear it has plenty of support.

So make no mistake. As I’ll show in my longer post, there are clear differences between the two sides (though I find both sides problematic). But whether or not the government can indefinitely detain Americans is not one of them.

Update: I took out “militarily,” as 1032 exempts automatic military detention for US citizens.

Senate Armed Service Committee Celebrates Agreement to Spend 32 Times More on Detainees

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As Josh Gerstein and Adam Serwer lay out, the Senate Armed Services Committee just passed a new version of the Defense Authorization mandating military detention for terrorists. The language on detention includes the following two paragraphs:

Except as provided in paragraph (4) [which is a national security exception], the Armed Forces of the United States shall hold a person described in paragraph (2) [an Al Qaeda related terrorist] who is captured in the course of hostilities authorized by the Authorization of the Use of Military Force (Public Law 107-40) in military custody pending disposition of the war.

[snip]

No amounts authorized to be appropriated or otherwise made available to the Department of Defense for fiscal year 2012 may be used to construct or modify any facility in the United States, its territories, or possessions to house any individual detained at Guantanamo for the purposes of detention or imprisonment in the custody or under the control of the Department of Defense unless authorized by Congress.

In other words, unless the government has a really good reason, they have to put accused terrorists caught during the AUMF-authorized war in military custody. And DOD can’t build a prison in the US specifically to house those detainees.

That makes it much more likely we’re going to put terrorist detainees at Gitmo, where as Carol Rosenberg recently reported, we spend 32 times as much holding prisoners as we spend in civilian prisons in the United States.

The Pentagon detention center that started out in January 2002 as a collection of crude open-air cells guarded by Marines in a muddy tent city is today arguably the most expensive prison on earth, costing taxpayers $800,000 annually for each of the 171 captives by Obama administration reckoning.

That’s more than 30 times the cost of keeping a captive on U.S. soil.

It’s still funded as an open-ended battlefield necessity, although the last prisoner arrived in March 2008. But it functions more like a gated community in an American suburb than a forward-operating base in one of Afghanistan’s violent provinces.

[snip]

It’s a slow-motion Berlin Airlift — that’s been going on for 10 years,” says retired Army Brig. Gen. Greg Zanetti, a West Point graduate who in 2008 was deputy commander at the detention center.

Alternately, we could put them in Bagram, the population of which has been ballooning under Obama’s Administration.

Today, there are more than 3,000 detainees at Bagram, or five times the number (around 600) when President Barack Obama took office in January 2009. There are currently 18 times as many detainees at Bagram than at the U.S. military prison at the Guantanamo Bay, Cuba, naval base, whose prisoner population has dwindled from a peak of 780 to 170.

[snip]

DOD is now reviewing bids from contractors to expand the facility to house up to 5,500 detainees. The project is expected to cost another $25 to $100 million when it is completed by the end of 2012.

It’s unclear what Bagram costs, per detainee.

But we do know it costs almost $1.2 million a year to keep a single troop in Afghanistan, for some of the same reasons it costs so much to keep Gitmo running, supply costs. The average federal prison guard in the US is paid about $55,000 (so figure $71,500 with benefits). Just the cost of the prison guard alone makes Bagram 16 times more expensive than a federal prison in the US, and that’s before you count the $60 million we’ve already spent on expanding the prison at Bagram and the $25 to $100 million we’re already planning on spending. And all those costs are based on a logistics chain through Pakistan, which is getting more and more questionable these day.

Meanwhile, the scary Underwear Bomber, Umar Farouk Abdulmutallab spent 21 months of pre-trial detention in a low security prison in MI. Not only did no one get hurt with him in low security custody in the US, but no one nationally even noticed!

This is ridiculous. The Republican insistence that we use military law when civilian law is better and cheaper is going to bankrupt this country. And it’s not going to keep us any safer.

No Wonder the Administration Didn’t Want Buck McKeon’s New AUMF; Marty Lederman Already Gave Them One

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Glenn Greenwald has a typically provocative post on the news that Marty Lederman and David Barron wrote the authorization to kill Anwar al-Awlaki. He uses Dawn Johnsen’s comments on the way secret OLC memos create secret law that undermine democracy.

Obama’s original choice to head the OLC, Dawn Johnsen, repeatedly railed against this Bush practice of concealing OLC memos as “secret law,” writing that “the Bush Administration’s excessive reliance on ‘secret law’ threatens the effective functioning of American democracy” and “the withholding from Congress and the public of legal interpretations by the Justice Department Office of Legal Counsel (OLC) upsets the system of checks and balances between the executive and legislative branches of government.”  In her April, 2008 testimony before the Senate Judiciary Committee, she was nothing short of scathing on the practice of concealing OLC memos. [Glenn’s emphasis]

From there, he notes that Lederman and Barron used the same justification–the AUMF–that John Yoo used to justify the detention without due process of Jose Padilla.

So the AUMF allowed the President to designate Awlaki an “enemy combatant” without a shred of due process, and then to act against him using the powers of war, because we are at war with an entity for which Awlaki had become a combatant.

There are many problems with that reasoning, but one in particular that deserves attention now is this: that was exactly the theory repeatedly offered by the Bush DOJ for far less draconian acts than assassinating a U.S. citizen, and it was one that the very same Marty Lederman categorically rejected.  As I’ve noted many times, one of the most controversial Bush/Cheney acts was its claimed power to detain U.S. citizen Jose Padilla without charges or due process — not to kill him, but merely detain him — on the theory that the AUMF authorized the President to designate him as an “enemy combatant” and treat him accordingly. [Glenn’s emphasis]

I’m not sure I buy this comparison. There are times when the US might legally wage war against one of its citizens, but because of its own secrecy, the Administration has simply not made the case that that is true in this case.

One of the big problems with Lederman and Barron’s interpretation of the AUMF, though–one Glenn doesn’t treat closely but which perfectly exemplifies Johnsen’s point–is the extension of the AUMF to apply to AQAP, an entity that simply didn’t exist when the AUMF authorized war against groups that had launched 9/11.

Other assertions about Mr. Awlaki included that he was a leader of [AQAP], which had become a “cobelligerent” with Al Qaeda, and he was pushing it to focus on trying to attack the United States again. The lawyers were also told that capturing him alive among hostile armed allies might not be feasible if and when he were located.

Based on those premises, the Justice Department concluded that Mr. Awlaki was covered by the authorization to use military force against Al Qaeda that Congress enacted shortly after the terrorist attacks of Sept. 11, 2001 — meaning that he was a lawful target in the armed conflict unless some other legal prohibition trumped that authority.

One area where Lederman’s reported memo is particularly dangerous, IMO, is in the extension of the AUMF to groups clearly not included in the congressional authorization.

All the more so given events that have transpired since the memo was written in June 2010. One of the first things the new Chair of the House Armed Services Committee, Buck McKeon, did after last year’s election was to call for a new AUMF. Notably, he wanted to include Yemen (and AQAP) in the new AUMF. The Administration was disinterested in that new AUMF, stating they believed already had the authority to do what they need to.

They claim to have that authority, of course, because Marty Lederman said they have it.

No wonder they discouraged a new AUMF! An open debate over the new terms of the AUMF might interpret AQAP more restrictively than Lederman did in secret, which might have challenged the OLC memo authorizing the Awlaki killing (yeah, I know, the chances of that are almost nonexistent).

Furthermore, I wonder whether the Administration told Congress they had already effectively legally expanded the AUMF? McKeon counterpart Carl Levin’s call for the Administration to release the memo makes me wonder whether he has seen it, and if not whether he knows the Administration legally expanded the AUMF by secret fiat.

Which is why Glenn’s point that the Administration avoided not just Article III oversight, during the ACLU/CCR suit, on this killing, but also Congressional oversight is so important. I don’t support McKeon’s effort to write a new AUMF. But it is undeniable that Congress proposed changing the law in such a way that would have given the Awlaki killing more–though probably not adequate–sanction. Rather than embracing the opportunity by working with Congress to formally extend the war to Yemen and AQAP, the Administration instead operated with the secret self-sanction Lederman had already given it.

The Administration chose not to avail itself of the opportunity to explain in the context of an Article III court why it had the authority to kill Awlaki. So, too, it chose not to avail itself of the opportunity to negotiate with Congress to give the Awlaki killing more (though not adequate) legal sanction. Instead, it used its own secret law-making power to do what the other two branches of government could have done with transparency and legitimacy.

Update: Meanwhile, McKeon is holding the Defense Authorization hostage to his bigotry.

China Is Hiding Its Counterfeit Electronics Parts

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The Senate Armed Services Committee is trying to investigate how allegedly counterfeit parts get into the military supply chain. But China won’t give visas–or promise freedom of movement without minders–to its investigators.

Two key US senators on Tuesday accused China of hampering a congressional probe into how counterfeit electronics end up in the US military supply chain by denying entry visas to investigators.

[snip]

And the senators said China had required that government minders attend any interviews conducted in China as part of the investigation, which was announced in March, but agreed that request was a “non-starter.”

Levin and McCain said that they had worked for weeks to get entry visas for staff to visit the city of Shenzhen in Guangdong province, which they described as the epicenter of the fake parts trade based on US government reports.

The development is interesting for several reasons. First, while the article cites F-15 and USMDA parts as the problem, most cybersecurity initiatives these days suggest we’ve got parts that are helping people hack our network. Thus, while Levin suggests China isn’t really our adversary, these “counterfeit” parts may well be designed for more than failure. It seems someone has gotten a backdoor into some of our networks because of hardware vulnerabilities.

Then there’s the more obvious issue raised by this. If military contractors can’t source parts to China without being “infiltrated” with counterfeit parts, and if China won’t let us investigate how these counterfeit parts keep getting into our supply chain, then why are we still allowing contractors to use Chinese parts? It seems to me this shows precisely why our outsourcing–and the consequent loss of manufacturing capacity–is really a defense issue.

Why Can’t DOJ Investigate as Well as the Hapless Senate?

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There’s a lot to loathe about the current incarnation of the Senate, that elite club of millionaires where legislation goes to either get rewritten to serve corporate interests or killed.

What does that say about DOJ, then, that the Senate is doing such a better job at investigating crimes? In just one month’s time the Senate has produced two investigations that have left DOJ–and the SEC and FEC–looking toothless by comparison.

First there was Carl Levin’s investigation of the banksters, released last month. Matt Taibbi does us the favor of outlining the case Levin’s investigators made.

Here is where the supporters of Goldman and other big banks will stand up and start wanding the air full of confusing terms like “scienter” and “loss causation” — legalese mumbo jumbo that attempts to convince the ignorantly enraged onlooker that, according to American law, these grotesque tales of grand theft and fraud you’ve just heard are actually more innocent than you think. Yes, they will say, it may very well be a prosecutable crime for a corner-store Arab to take $2 from a customer selling tap water as Perrier. But that does not mean it’s a crime for Goldman Sachs to take $100 million from a foreign hedge fund doing the same thing! No, sir, not at all! Then you’ll be told that the Supreme Court has been limiting corporate liability for fraud for decades, that in order to gain a conviction one must prove a conscious intent to deceive, that the 1976 ruling in Ernst and Ernst clearly states….Leave all that aside for a moment. Though many legal experts agree there is a powerful argument that the Levin report supports a criminal charge of fraud, this stuff can keep the lawyers tied up for years. So let’s move on to something much simpler. In the spring of 2010, about a year into his investigation, Sen. Levin hauled all of the principals from these rotten Goldman deals to Washington, made them put their hands on the Bible and take oaths just like normal people, and demanded that they explain themselves. The legal definition of financial fraud may be murky and complex, but everybody knows you can’t lie to Congress.

“Article 18 of the United States Code, Section 1001,” says Loyola University law professor Michael Kaufman. “There are statutes that prohibit perjury and obstruction of justice, but this is the federal statute that explicitly prohibits lying to Congress.”

The law is simple: You’re guilty if you “knowingly and willfully” make a “materially false, fictitious or fraudulent statement or representation.” The punishment is up to five years in federal prison.

When Roger Clemens went to Washington and denied taking a shot of steroids in his ass, the feds indicted him — relying not on a year’s worth of graphically self-incriminating e-mails, but chiefly on the testimony of a single individual who had been given a deal by the government. Yet the Justice Department has shown no such prosecutorial zeal since April 27th of last year, when the Goldman executives who oversaw the Timberwolf, Hudson and Abacus deals arrived on the Hill and one by one — each seemingly wearing the same mask of faint boredom and irritated condescension — sat before Levin’s committee and dodged volleys of questions.

[snip]

Lloyd Blankfein went to Washington and testified under oath that Goldman Sachs didn’t make a massive short bet and didn’t bet against its clients. The Levin report proves that Goldman spent the whole summer of 2007 riding a “big short” and took a multibillion-dollar bet against its clients, a bet that incidentally made them enormous profits. Are we all missing something? Is there some different and higher standard of triple- and quadruple-lying that applies to bank CEOs but not to baseball players?

Then there’s the investigation of John Ensign. Scott Horton lambastes DOJ’s decision to indict Ensign’s cuckold but not Ensign himself.

Alarmingly, the Justice Department not only failed to act against Ensign, it actually indicted Doug Hampton, Ensign’s former senior staffer, who was clearly a victim of Ensign’s predatory conduct and who had blown the whistle on him. The new report does suggest that Hampton may have engaged in improper lobbying activities, with Ensign’s connivance. But it also makes clear that Hampton’s statements about what happened were truthful and complete, whereas Ensign’s were often cleverly misleading, and sometimes rank falsehoods. In this context, the Justice Department’s decision—to prosecute the victim who spoke with candor and against his own interests, and let the malefactor who lied about his conduct go free—is perverse. It is also completely in line with recent Justice Department pubic integrity prosecutions, which have displayed an unseemly appetite for political intrigue and an irrepressible desire to accommodate the powerful.

And the NYT writes a more sheepish article featuring both an FEC official who apparently wouldn’t go on the record with his shock–shock! that there was gambling going on in the casino someone lied to the FEC.

An election commission official, who asked not to be identified while the case was pending, acknowledged that the commission took the senator at his word, whereas the Senate dug deeper. This official expressed anger to learn the true circumstances behind the $96,000 payment.

“I hate it when people lie to us,” the official said, adding: “If somebody submits a sworn affidavit, we usually do not go back and question it, unless we have something else to go on. Maybe we should not be so trusting.”

The NYT also cites several legal experts attributing DOJ’s impotence to embarrassment over the Ted Stevens trial (without, at the same time, wondering why William Welch is still at DOJ acting just as recklessly, only this time against whistleblowers and other leakers).

Several of these reviews of DOJ’s failure to act wonder why the understaffed Senate Ethics Committee or Levin’s Permanent Committee on Investigations–again, this is the hapless Senate!–managed to find so much dirt that the better staffed DOJ and regulatory bodies did not.

But Taibbi really gets at the underlying issue.

If the Justice Department fails to give the American people a chance to judge this case — if Goldman skates without so much as a trial — it will confirm once and for all the embarrassing truth: that the law in America is subjective, and crime is defined not by what you did, but by who you are.

These two Senate committees did an excellent job mapping out the crimes of the powerful. But unless we see action from DOJ, the committees will also have, by comparison, mapped out the stark truth that DOJ refuses to apply the same laws we peons abide by to those powerful people.

NYT Speculates on Departure of Goldman Sachs’ Blankfein, Doesn’t Mention Levin’s Referral

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The NYT has what I assume to be a bizarre form of beat sweetener on Goldman Sachs today. It spends most of 1,300 words speculating on who might replace CEO Lloyd Blankfein if he were to step down, exploring three possible candidates in depth.

But here’s the explanation for why they think such speculation appropriate:

Two friends of Mr. Blankfein, 56, say he has told them since last summer that he is exhausted from leading the company through the financial crisis and that he would consider stepping down when he could do so gracefully, without the move appearing to be anything but voluntary.

[snip]

To be sure, Mr. Blankfein may decide to stay a while, despite the chatter to the contrary. And as far as Goldman is concerned, Mr. Blankfein is not going anywhere. A spokesman for the firm, Lucas van Praag, declined to comment other than to note that Mr. Blankfein “says he has never felt so energetic and has no plans to retire.”

The NYT repeats that comment from the spokesperson without noting that its reliance on three sources “briefed on the situation” of discussions of Blankfein’s departure sort of contradicts that spin.

The most amazing part of the article, though, is the way in which it frames Blankfein’s possible departure in terms of an SEC probe settled a year ago. While it raises the Levin report on the causes of the financial crash, it somehow neglects to mention Levin’s announcement he was making a criminal referral to DOJ.

Roger Freeman, a financial analyst at Barclays Capital, said Mr. Blankfein might wait to see his firm through the final negotiations with Washington over new regulatory rules for the banking industry in the second half of 2011, before handing Goldman to a younger team in 2012. “This has been an exhausting period,” Mr. Freeman said. “It would not be a surprising time to see a change.”

As the economy stumbled, Goldman’s success brought harsh public criticism, as lawmakers and even some clients complained that Goldman was no longer putting clients first.

That argument gained strength after the Securities and Exchange Commission accused Goldman of fraud last April in connection with a mortgage security it had created and sold. Goldman settled the case last July, paying a penalty of $550 million.

While the firm is clearly doing well, the public ire persists, especially in Washington. On Wednesday, after issuing a report examining the roots of the financial crisis, Senator Carl Levin of Michigan was sharply critical of Goldman’s bet against housing. “Why would Goldman deny what was so obvious, that they were engaged in a huge short in the year 2007?” Senator Levin said. “Because they gained at the expense of their clients and they used abusive practices to do it.”

Hey, NYT? Here’s what Levin also said:

But Levin made clear he has bigger hopes for this examination: he sees the report as perhaps one last chance for U.S. prosecutors to finally reel in the big fish that has eluded them since the markets started melting down in 2007.Levin said he believes execs at Goldman (GS) crossed the line in trying to soft-pedal the extent of the firm’s bets against the staggering U.S. housing market as the credit bubble collapsed in 2006 and 2007.

The firm privately referred to these multibillion-dollar positions as “the big short,” the report indicates – showing, in Levin’s view, that Goldman did indeed have the systematic wager against U.S. housing that it has long denied. He said he was referring the case to the Justice Department and the Securities and Exchange Commission.

“In my judgment, Goldman clearly misled their clients and they misled Congress,” Levin told reporters on a conference call Wednesday morning before the report was released. [my emphasis]

Now, I assume a story like this is all about helping Goldman push Blankfein out as part of a deal it eventually will make with DOJ to persuade it to settle any investigation arising from the Levin referral. That is, this is all about supporting Goldman’s effort to make it look like Blankfein is leaving–if he does–on his own terms. And, in turn, supporting DOJ’s apparent fierce determination not to try any of the criminals who crashed our economy.

It’s just not clear why the NYT really thinks the story–lacking the crucial detail to explain why this might be news–is “news.”

When Militaries Conspire to Ignore the Will of the People

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The story of the day is from Michael Hastings, fresh off winning a Polk Award for his reporting on the insubordination of key members of Stanley McChrystal’s staff. In today’s story, he describes how Lieutenant General William Caldwell ordered a PsyOp unit to manipulate Senators–including John McCain, Carl Levin, Jack Reed, and Al Franken–to support increased troops and funding for training Afghan soldiers. When the commander of that unit objected, he was investigated and disciplined. (See Jim White’s post on it here.)

It’s a troubling picture of the extent to which individual members of our military will push the war in Afghanistan, knowing how unpopular it is in the States.

But there’s an equally troubling story reporting on the disdain with which our military treats public opinion. Josh Rogin reports on a regularly scheduled meeting between the Pakistani and American military in Oman that took place on Tuesday; because of the Raymond Davis affair, the meeting had heightened importance. The US was represented by, among others, Admiral Mullen and Generals Petraeus, Olson (SOCOM) and Mattis (CENTCOM).

As Rogin describes it, the Americans, whose views were represented in a written summary from General Jehangir Karamat with confirmation from another Pakistani participant, believed the two militaries had to restore the Pakistani-American relationship before it got completely destroyed by the press and the public.

“The US had to point out that once beyond a tipping point the situation would be taken over by political forces that could not be controlled,” Karamat wrote about the meeting, referring to the reported split between the CIA and the Pakistani Inter-services Intelligence (ISI) that erupted following the Davis shooting.

[snip]

“[T]he US did not want the US-Pakistan relationship to go into a free fall under media and domestic pressures,” Karamat wrote. “These considerations drove it to ask the [Pakistani] Generals to step in and do what the governments were failing to do-especially because the US military was at a critical stage in Afghanistan and Pakistan was the key to control and resolution.”

“The militaries will now brief and guide their civilian masters and hopefully bring about a qualitative change in the US-Pakistan Relationship by arresting the downhill descent and moving it in the right direction.” [my emphasis]

In short, the US military wants to make sure that military intervenes to counteract the fury of the people and the press over the Davis affair.

Now, don’t get me wrong. I’d rather have the military ensure close relations with this nuclear-armed unstable state. I’m cognizant of how, in different situations (notably the Egyptian uprising), close ties between our military and others’ have helped to foster greater democracy. As Dana Priest’s The Mission makes clear our military has increasingly become the best functioning “diplomatic” service we’ve got. And though I think a great deal of stupidity and arrogance got Davis into the pickle he’s in, I certainly back our government’s efforts to get him returned to our country (Rogin also provides details of the plan to do that).

But particularly coming as it does in the same theater and on the same day as news of PsyOps being waged against my Senator, I’m troubled that our military isn’t more concerned with reining in the behavior that has rightly ticked off so many Pakistanis, rather than coordinating with the Pakistani military to make sure the people of Pakistan’s concerns are ignored.

Rattner, Wagoner, and How to Run a Car Company

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I’m going to have a few follow-up posts about Steven Rattner’s Overhaul generally and Saturday’s book salon on it. But for the moment, I wanted to add something to two excellent reviews of it by Malcom Gladwell and Felix Salmon. Together, they both distinguish between the product GM makes and the debt it had. Here’s Salmon:

That Rattner’s team managed not one but two insanely complex bankruptcies in a hitherto unimaginably short timeframe is a real and noteworthy achievement of the Obama administration. Rattner is right about that. But Gladwell’s got a good point too. This kind of biz-school restructuring is easy to show off about. What’s hard is making millions of cars which are so good that the picky US consumer will buy them rather than the incredibly well-made competition — and making a profit by doing so. Eliminating GM’s monstrous debt burden by sending it through bankruptcy was a necessary step in getting there. But it’s not at heart what managing a company like GM is or should be about.

And here’s Gladwell making a point bmaz and I argued, that Rick Wagoner, whatever his faults, had done significant work to fix GM before the overhaul.

Wagoner was not a perfect manager, by any means. Unlike Alan Mulally, the C.E.O. at Ford, he failed to build up cash reserves in anticipation of the economic downturn, which might have kept his company out of bankruptcy. He can be faulted for riding the S.U.V. wave too long, and for being too slow to develop a credible small-car alternative. But, especially given the mess that Wagoner inherited when he took over, in 2000—and the inherent difficulty of running a company that had to pay pension and medical benefits to half a million retirees—he accomplished a tremendous amount during his eight-year tenure. He cut the workforce from three hundred and ninety thousand to two hundred and seventeen thousand. He built a hugely profitable business in China almost from scratch: a G.M. joint venture is the leading automaker in what is now the world’s largest automobile market. In 1995, it took forty-six man-hours to build the typical G.M. car, versus twenty-nine hours for the typical Toyota. Under Wagoner’s watch, the productivity gap closed almost entirely.

Most important, Wagoner—along with his counterparts at Ford and Chrysler—was responsible for a historic agreement with the United Auto Workers. Under that contract, which was concluded in 2007, new hires at G.M. receive between fourteen and seventeen dollars an hour—instead of the twenty-eight to thirty-three dollars an hour that preëxisting employees get—and give up all rights to the traditional retiree benefit package. The 2007 deal also transferred all responsibility for paying for the health care of G.M.’s retirees to a special fund, administered by the U.A.W. It is hard to overstate the importance of that second provision. G.M. has five hundred and seventeen thousand retirees. Between 1993 and 2007, the company paid out a hundred and three billion dollars to those former workers—a burden unimaginable to its foreign competitors. In the 2007 deal, G.M. agreed to make a series of lump-sum payments to the U.A.W. over ten years, worth some thirty-two billion dollars—at which point the company would be free of its outsized retiree health-care burden. It is estimated that, within a few years, G.M.’s labor costs—which were once almost fifty per cent higher than the domestic operations of Toyota, Nissan, and Honda—will be lower than its competitors’.

In the same period, G.M.’s product line was transformed. In 1989, to give one example, Chevrolet’s main midsize sedan had something like twice as many reported defects as its competitors at Honda and Toyota, according to the J. D. Power “initial quality” metrics. Those differences no longer exist. The first major new car built on Wagoner’s watch—the midsize Chevy Malibu—scores equal to or better than the Honda Accord and Toyota Camry. G.M. earned more than a billion dollars in profits in the last quarter because American consumers have started to buy the cars that Wagoner brought to market—the Buick Regal and LaCrosse, the Envoy, the Cadillac CTS, the Chevy Malibu and Cruze, and others. They represent the most competitive lineup that G.M. has fielded since the nineteen-sixties. (Both the CTS and the Malibu have been named to Car and Driver’s annual “10 Best Cars” list.)

What Wagoner meant in his testimony before the Senate, in other words, was something like this: “At G.M., we are finally producing world-class cars. We have brought our costs, quality, and productivity into line with those of our competitors. We have finally disposed of the crippling burden of our legacy retiree costs. We have expanded into the world’s fastest-growing markets more effectively than any other company in the United States. But the effort required to bring about that transformation has left our balance sheet thin—and, at the very moment that we need a couple of years of normal economic activity to refill our coffers, auto sales have fallen off a cliff. Do you mind giving us a hand until things get back to normal?” [my emphasis)

Now, FWIW, I’m agnostic about keeping Wagoner on as CEO. Gladwell makes the same points bmaz and I were making. But I am utterly sympathetic to the notion that any CEO getting a bailout should be fired as part of the deal. The best solution, IMO, would have been to keep Fritz Henderson on as CEO. That’s partly based on my impression–developed during my visit to GM’s Tech Center just a few weeks after Fritz took over as CEO–that he had begun to implement the same kind of cultural change that I saw very quickly at Ford after Alan Mulally took over.

But neither Salmon’s nor Gladwell’s review mention two key details that I think are important to this debate. The first is Rattner’s description of learning about the dire straits of the auto finance companies on April 1, 2009.

I entered the byzantine world of the fincos the very next day, April Fool’s Day, as it happened. We faced off in a Treasury Department conference room against an imposing lineup of businesspeople: the top management from Chrysler Financial, GMAC, and Chrysler, plus Steve Feinberg and the guys from Cerberus. They all knew more about automotive finance than we did. We were trying to fly solo without having taken flying lessons, and I hoped we wouldn’t crash and burn.

Pretty quickly I discovered that the fincos posed a bigger problem than I’d imagined. Auto finance companise are a lot like banks, but there is one crucial distinction: Banks rely on deposits form consumers and businesses for most of the money they use for loans. Finance companies have no such depositors unless they happen to own a bank: instead they must depend on larger borrowings from banks and investors for the cash that they lend to car buyers (known as the retail trade) and auto daelers (known as the wholesale or floor-plan borrowers).

I began to understand how the collapse of the financial markets had created havoc for automakers. As a result of the credit crunch, both GMAC and Chrysler Financial had seen their ability to borrow form banks severely curtailed. Read more →