Bust the Privatizers

Attorney General Eric Holder is on the right track with his order for federal prosecutors to stop seeking draconian sentences on run-of-the-mill drug cases, but efforts in Congress to permanently relax the sentencing rules may run up against the special interests of businessmen who see profits in prisons.

The federal mandatory sentencing laws were passed in 1986 following a media and political frenzy around crack cocaine, which is a derivative of powder cocaine, but the new laws made the penalties for possession and distribution of crack much harsher than powder, and 80% of the people charged with crack cocaine offenses were African Americans, while powder cocaine users were more likely to be white or Latino.

Judges complained that they were forced by the sentencing guidelines to send non-violent offenders to prison for five or 10 years or even life without parole if they are repeat offenders. The number of federal inmates has grown tenfold since 1980 and now surpasses 218,000. (That’s about 10% of the 2.2 million prisoners in the US, most of whom are held in state prisons or county jails)

A 2010 law mitigated the racial disparity between crack and cocaine sentences but many remain imprisoned under the old law. A new bill would make the change retroactive and allow early release of low-level offenders least likely to re-offend.

The private prison industry now has over 200,000 inmates behind their bars as a result of contracts with the federal government and many states. That’s up from 11,000 private corrections beds in 1990. The growth in private prisons provides economic incentives to expand imprisonment, particularly in job-starved rural areas. Looking to increase their share of the estimated $70 billion corrections “market,” Nashville-based Corrections Corporation of America (CCA) has floated a proposal to prison officials in 48 states, offering to buy and manage public prisons at a substantial cost savings to the states. In exchange, the states would agree to maintain a 90% occupancy rate in the privately run prisons for at least 20 years.

For a state concerned with budget issues, “renting” prison cells rather than having to allocate massive sums to build new prisons may be an attractive feature. But there is little evidence that the private prisons really offer savings. Private prisons can cut costs by employing non-union guards at lower pay, with less training and fewer benefits than their public counterparts, but private prisons also generally take minimum- or medium-security prisoners, leaving more high-risk prisoners to the state-run facilities.

Roger Werholtz, former Kansas secretary of corrections, told USA Today some states may be tempted by the “quick infusion of cash,” but he would recommend against such a deal. “My concern would be that our state would be obligated to maintain these (occupancy) rates and subtle pressure would be applied to make sentencing laws more severe with a clear intent to drive up the population,” Werholtz said.

As prison growth has slowed in recent years, the private prison industry is increasingly looking to immigration detention as a source of enhanced profits. In Arizona, for example, the notorious anti-immigration legislation passed in 2010 was drafted in large part though the efforts of private prison companies working in concert with the American Legislative Exchange Council (ALEC).

Jim Hightower notes on page 3 that now we need to worry about the Border-Industrial Complex lobby that will be promoting the $46 billion stuffed into the immigration reform bill to militarize the 2,000-mile border with Mexico. Once the privateers get a hook into the border war profits, we’ll never see the end of it.

When George W. Bush and Dick Cheney invaded Iraq, the US government ended up sending more private contractors than actual troops. In 2007, the US had 160,000 troops in Iraq, supported by more than 180,000 civilians, including Americans, foreigners and Iraqis.

The Department of Defense spent at least $138 billion on private contractors for services rendered during the Iraq war, and the biggest windfall went to Houston-based KBR Inc., Dick Cheney’s old firm, which got $39.5 billion in Iraq-related contracts over the past decade.

As Jonathan Turley said, “For $40 billion, a single company may be willing to do a lot to keep a war alive. In the very least, it may not be eager to see it end.”

Corruption also ballooned with the expansion of private contractors. According to the Commission on Wartime Contracting in Iraq and Afghanistan, corruption by defense contractors as of 2011 was at least $31 billion and maybe as high as $60 billion.

If you include the money spent on defense contractors outside war zones, the Department of Defense spent $174 billion on contractors in fiscal 2012, the General Accounting Office reported in May. And KBR, which got $2.27 billion in defense contracts in 2011 but only $978.9 million in 2012, is a piker compared with Lockheed Martin, which got $37 billion in US government contracts in 2012, and Boeing, which got $29.4 billion.

In 2008, candidate Barack Obama railed against no-bid contracting, accusing private contractors of wasting taxpayer dollars. He promised to rein in such spending. The following year, President Obama ordered a broad overhaul of government contracting, including limits to sole-source and non-competitive contracting. But data reviewed by the Center for Public Integrity in 2010 showed that defense dollars flowing into non-competitive contracts had almost tripled since the terrorist attacks of 9/11. According to an analysis the Center’s iWatch News, the value of Pentagon contracts awarded without competition topped $140 billion in 2010, up from $50 billion in 2001.

The National Security Agency also has compromised its operations with overuse of private contractors. Of 4.9 million people with clearance to “confidential and secret” government information, 1.1 million, or 21% work for outside contractors. Until a few weeks ago that included Edward Snowden, an information analyst for Booz Allen Hamilton, one of the largest and most trusted NSA contractors with 25,000 employees. It is believed that 70% of the NSA’s estimated budget of $8 billion — or $6 billion — goes to hundreds of companies. That is a big incentive for businessmen to think of new ways to snoop on US citizens and/or their foreign correspondents.

Keep Fannie and Freddie

Democrats should be wary of joining Republican efforts to reform the mortgage business by doing away with Fannie Mae and Freddie Mac. Fannie Mae — the Federal National Mortgage Association — was created in 1938 as a New Deal agency to providing local banks with federal money to finance home mortgages and revive the housing industry. In 1968, Fannie Mae was converted to a privately held corporation and in 1970, Freddie Mac — the Federal Home Loan Mortgage Corp. — was created to expand the secondary market for mortgages. It succeeded until Freddie jumped into the subprime market in 2006.

When the housing bubble collapsed in 2008, Fannie Mae and Freddie Mac owned or guaranteed half of all home mortgages in the US. But they didn’t originate the bad loans. Since then, they have sustained the housing market and they have bought more than 90% of the mortgages issued since the onset of the crisis.

“Given that both are now covering their costs and making profits, which are arguably even too large, it’s difficult to see what the problem is. But President Obama wants to wind down them down and replace them with a new and ostensibly improved public-private system,” Dean Baker recently noted.

It appears that in the new system, private banks such as Goldman Sachs, Citigroup and Bank of America will again issue mortgage-backed securities. But this time the securities will be carefully regulated (really!) and will carry an explicit government guarantee for at least part of the value of the securities.

Fannie and Freddie should continue to operate as government-sponsored agencies to promote home ownership. We can’t trust the sharks on Wall Street to do that job. — JMC

From The Progressive Populist, September 1, 2013



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