Article 1: Are They Responsible?
http://www.huffingtonpost.com/jack-blum/shadow-elite-are-they-res_b...

Shadow Elite: Are They Responsible For The Subprime Mortgage Crisis?
When I came to Washington 45 years ago to work as an investigator for the Senate Antitrust Subcommittee, a senior investigator with years of experience told me that the beginning of any good investigation was a clear understanding of the players. "Everyone you will look at has a history," he explained. "They will have mentors and sponsors. They will have networks of political and business connections. They will play many roles. If you understand those, everything else will fall into place."

The advice was sound and has served me well in years of investigations of corporate wrongdoing, organized crime, money laundering, and securities fraud. My career highlights include serving as Special Counsel to the Senate Foreign Relations Committee and before that as Assistant Counsel to the Senate Antitrust Subcommittee followed by work as a private lawyer representing victims of financial crime and financial institutions on compliance matters.

Despite the desperate need for such an investigative approach, throughout my career I have been constantly perplexed by the reception to it. A frequent response by newspaper columnists and pundits was to dub me a "conspiracy nut." Another common response was to call my evidence "anecdotal," a word uttered with a dismissive sneer.

Janine Wedel's breakthrough "Shadow Elite" shows why "anecdotal" evidence is essential to grasping what is really going on. As an anthropologist who has taken the time to examine how things really work, Wedel provides a bold new frame of reference for those of us who look at things as they are and relationships as they have evolved, as well as the tools to understand the complex interplay of people and institutions that make up modern government. Her framework demonstrates not only why the careful analysis of players' activities, roles, sponsors, and networks is so necessary but how, in the aggregate, these profiles form clear patterns. "Shadow Elite" identifies players who perform overlapping, mutually influencing, and not fully revealed, roles across government, business, think tanks, and national borders in pursuit of their own policy agendas ("flexians," she calls them, and flex-nets"--such players who work together in a network) as an important key to understanding how influence is wielded and why policy decisions are made.

Wedel tracks how elite multipurpose networks function in clear-eyed--not conspiratorial--fashion. Far from mere anecdotes, today's top power brokers operate according to a modus operandi with specific features that she charts.

The current economic crisis is littered with such players. A careful analysis of the mortgage banking crisis using Wedel's tools will produce several "consultants" and industry "experts" who were the key flexians cheering on the mortgage boom from their vantage points in think tanks quietly funded by companies profiting from the boom. These "experts" were then in a position to cheer on the further "financial innovation" which has ruined us all.

To truly understand this phenomenon, you must throw away your political science and economics text books, turn off the talking heads and the cable news political analysts, and consult Wedel's framework. Over the last year I participated in two events involving economists talking about the financial crisis during which many of the presenters demonstrated little, if any, knowledge of the players in the housing industry. Further, they did not know the history of the repeating cycles of fraud and ruin associated with poorly regulated and unregulated mortgage lending.

Over forty years ago, working for the Senate Antitrust Subcommittee, I investigated mortgage fraud in several large American cities including New York and Boston. The fraud involved falsified appraisals, unqualified buyers, "flipping" of properties, and in some cases purchases by non-existent buyers. One of the institutions involved in the New York situation was Citibank--a bank that provided warehouse loans to the mortgage companies involved in the fraud. Needless to say, the same bank and some of the same people have been involved in each of the succeeding cycles of fraud. And, each time the bank has had a squad of lobbyists and "independent experts" selling the idea that continued unregulated mortgage lending was a good idea.

The approach of looking to the roles, activities, sponsors, and networks of players--be they organized crime figures, politicians, experts, influencers, or some combination thereof--is today, more than ever, imperative. Profound changes in government and society have vastly increased the opportunities for agenda-bearing players wearing multiple hats (and often working in close-knit networks) to significantly influence public policy. Such activity is much less transparent to the public eye than when I first began my career. An amazing variety of corporate entities with strange and complex interrelationships today do much of the work of federal government, virtually substituting for it in some arenas. These entities and their sponsors are harder to identify, more insidious, and much more plentiful than the corporate fronts of yesteryear.

If the economists had used Professor Wedel's analytical tools to take a hard look at the flexians and flex nets that have controlled the discussion of mortgage lending regulation instead of their sophisticated equations, they might have had something useful to contribute to the conversation.

Article 2: Out Sourcing Government, Losing Democracy.
http://www.huffingtonpost.com/charles-lewis/shadow-elite-outsourcin...

James Madison famously wrote in the Federalist Papers (#51), "If men were angels, no government would be necessary."

We've learned the hard way, most starkly in the Great Depression and now in the Great Recession, that men and women are anything but angels, and that government first and foremost must protect the American people from the unmitigated avarice of the private sector.

The problem is, what has happened to that lofty, Founding Fathers notion of government as our protector? To me, the most important contribution, and the most disturbing part of Janine Wedel's brilliant new book, "Shadow Elite: How the World's New Power Brokers Undermine Democracy, Government and the Free Market", is that she has laid bare the lie that we have functional separation today between the public and private sector. Over time, capitalism and democracy have become gradually melded into corporatism in the corridors of power in Washington (and in many other national capitals around the world). Public and private are now substantially blurred, as the "transnational" political elites and the financial elites have become literally the same people. It is a condition which leaves the people feeling unrepresented, unprotected and utterly disregarded, a prop in their own play, a hollow feeling the great Peruvian journalist Gustavo Gorriti once eloquently described as "cosmetic democracy."

According to Janine, whose unflinching social anthropological work I have respected for years, three out of four people doing the work of the federal government today are actually private contractors. Think about that a minute...That means private company employees -- with less stringent conflict of interest requirements and also not generally obligated to adhere to the Freedom of Information Act -- increasingly have become the government and now substantially rule the roost.

When I directed the Center for Public Integrity earlier in this decade, we discovered a mercenary culture far more extensive than I had ever imagined. For example, in 2002, in a report entitled "Making a Killing: The Business of War", we identified 90 private military companies operating in the world, hired by governments or corporations. In early 2003, we reported that nine out of 30 members of the Defense Policy Board, then chaired by Richard Perle, had ties to defense companies with $76 billion in Pentagon contracts in just the preceding two years. In late 2003, the Center issued "Windfalls of War", first revealing that Kellogg, Brown & Root, then a subsidiary of Vice President Dick Cheney's former company, Halliburton, was the top recipient of U.S. war contracts in Afghanistan and Iraq. That report, which won the first George Polk award for online reporting and was produced by 20 researchers, writers and editors, also revealed that the most of the major contractors had close employee or Board ties to the executive branch for Republican and Democrat administrations and cumulatively they had contributed many millions of dollars to the political process.

Fascinated and alarmed by the Tammany Hall feeling of political favoritism or cronyism I was getting, we launched into another epic investigation and published "Outsourcing the Pentagon: Who's Winning the Big Contracts" in the fall of 2004. We examined 2.2 million contract actions over six fiscal years, totaling $900 billion in authorized expenditures, and discovered that no-bid contracts had accounted for more than 40 percent of Pentagon contracting, $362 billion in taxpayer money to companies without competitive bidding. In other words, the multi-billion dollar no-bid contracts Halliburton had received actually weren't such an aberration, unfortunately. Indeed, we found contractors had written the Department of Defense budget, were guarding our soldiers in the Green Zone in Iraq, had participated in the Abu Ghraib interrogations and when the Secretary of Army wanted to find out just how many contractors were being employed, he naturally hired a company to find it out.

Were there howls of protest in Washington, aggressive investigative Congressional hearings, angry protestations from the companies, substantial news media attention about these findings? No. The silence was deafening.

That was then, and this is now, 2010, in the historic "change we can believe in" administration of Barack Obama. The issue of outsourcing our democracy is not remotely of interest to the latest occupants of 1600 Pennsylvania Avenue. And that should not exactly be surprising, in the entwined mercenary culture of Washington. For example, according to the Center for Responsive Politics, political contributions to the 2008 presidential candidates doubled compared to 2004, $1.748 billion up from $880.5 billion, and candidate Obama raised more than twice what incumbent President George W. Bush collected in 2004. Gosh, did inflation go up that much?

The problem isn't just the increasing price of power in this democracy and what that means for a government theoretically, according to Lincoln, "of the people, by the people, for the people." Another protector of the public, the vaunted Fourth Estate, could be all over this subject, a "uniquely qualified," "trusted source" of news for the American people, holding those in power accountable. Where are the traditional journalistic watchdogs in all this? Early retired, tightly leashed or asleep.

Arianna Huffington is absolutely right to flag the smarmy preening of former Treasury Secretary Robert Rubin, writing a 2,500-word essay about the economy in Newsweek, his accompanying bio conveniently failing to mention his own key leadership role at Citibank, which had to be saved by the America people. Of course that was shameless and self-serving of Rubin, and is emblematic of the new class of influencers Wedel has dubbed as "flexians," but a theoretically independent news media outlet, Newsweek, also shouldn't have allowed that kind of misrepresentation.

Nor should America's TV networks have allowed dozens of former generals to pose on the air as "independent" analysts about the Iraq war while simultaneously becoming rich as defense industry consultants, quietly traveling on then Vice President Dick Cheney's private jet to tour Guantanamo or getting daily talking points from the Pentagon. Did you notice how many national television networks apologized to the public after David Barstow's terrific Pulitzer Prize-winning New York Times series exposing this farce? None, of course, but they could have at least acknowledged it as a news story, which they also didn't do. So much for news media accountability -- but when exactly have we had that?

Bravo to Janine Wedel for this significant book, and to Arianna Huffington for calling it to the public's attention.

Article 3: The Shadow Elite, Banking on their Failure.
http://www.huffingtonpost.com/janine-r-wedel/for-the-shadow-elite-f...

Far from the old pull-yourself-up-by-the-bootstraps model of acknowledging failure and starting anew, the shadow elite do not admit failure at all. More important, past failure may guarantee their future success. When most of us fail, consequences are not widespread. When the shadow elite fail, it affects all of us because their power is pervasive and they are largely beyond accountability. For confirmation one need only look as far as two of the country's top economic helmsmen, Robert Rubin and Larry Summers.

Rubin and Summers, "flexians" and their "flex nets" , continue to be rewarded--and rewarded big--for their failures. Those rewards extend to giving them the reins of power to shape what our financial system will look like well into the future. The tendency to reward the failure of the top-most flexians has brought us to a dangerous point in U.S. history, in which state and market power are increasingly intertwined.

We have seen the disastrous effects of this for both democracy and the free market before. Take Russia, for instance. A small coterie of Russian and American players, entrusted after the collapse of the Soviet Union with creating a market economy with a legal and regulatory backbone, failed utterly. Instead, they facilitated the opposite: a corrupt bureaucracy that virtually precluded the development of free markets and the expansion of an unaccountable state with a democratic facade. This all took place under Rubin and Summers' watch and with their encouragement and sponsorship, when they were both at the Treasury Department.

A key member of the transnational flex net that orchestrated Russian economic reform was Treasury official Summers's protégé, Harvard economist Andrei Shleifer. He headed the Harvard team, which managed virtually the entire nearly $400 million U.S. flagship economic aid portfolio. Summers helped Shleifer and Harvard gain noncompetitive government awards through arrangements that were highly unusual in foreign aid contracting at the time, according to U.S. officials. And, while itself a chief recipient of aid, the Harvard Institute--the umbrella through which the players received U.S. funding--also was charged with overseeing the portfolio they ran. That is, the Harvard players were to watch over themselves and their competitors.

Shleifer himself played indistinct and overlapping roles as he lobbied in favor of his projects, advised both United States and Russia, while presenting himself as independent expert. His investments in Russia, which he does not deny, included securities, equities, oil and aluminum companies, real estate, and mutual funds--many of the same areas in which he was being paid to provide impartial advice. And he helped a wider circle meddle in the spoils of an unraveling resource-rich empire. The endowments of both Harvard and Yale gained access to valuable investments through networks inhabited by Shleifer or his wife, the currency trader and hedge fund manager Nancy Zimmerman. (She had worked at Goldman Sachs in the 1980s for Rubin, who was also a sometime board member of the Harvard Management Company that oversees Harvard University's investment and remained close to him when he was secretary of the Treasury.)

Meanwhile, in Russia, backed by Summers and hundreds of millions of dollars in Western aid and loans from the international financial institutions, the Harvard-Russia partners made end-runs around the democratically elected parliament, operated through top-down decree, and fused their own agendas with that of the state.

This way of operating--locking up official information in private networks, crafting overlapping roles to serve one's agenda, and rewriting both bureaucracy's rules of accountability and businesses' codes of competition--guaranteed the Harvard players their power and influence in the 1990s. It also enfeebled the multiple investigations of their activities, including the one by the U.S. Justice Department that resulted in a negotiated settlement that required the university to pay $26.5 million in fines and Shleifer to pay $2 million for defrauding the US government. When he became Harvard's president, Summers protected Shleifer and virtually succeeded in pushing the affair under the rug. Despite the activities of the Harvard players and their Russian partners having led to the largest law suit against Harvard in its history, as well as the failure of the policies over which they presided, to this day they have largely succeeded in crafting a story of their good works for public consumption. "Truthiness" wins.

Today's flexians and flex nets differ from the powerbrokers of the past such as the "Wise Men" (think W. Averell Harriman, Dean Acheson, George F. Kennan) or the "Best and Brightest" (think McGeorge Bundy, Robert McNamara, Dean Rusk). These company men had clearer allegiances. We know where they stood and they were mainly instruments of the presidents whose policies they pursued. By contrast, the Rubin-Summers-et al. circle sometimes appears to be more in the driver's seat than the administration. Administrations, of course, come and go, but flexians and flex nets persevere, pushing their agendas forward. And, unlike their nerdy influencer forebears boring us with charts and graphs, flexians skillfully use the media to brand their message and embed it in the cultural mind.

Far from paying any price for their joy ride, Summers and Rubin were handed a fleet of limousines. Summers, appointed president of Harvard, in turn appointed Rubin to the Harvard Corporation, the university's all-power executive board. Only after Harvard settled the government lawsuit did Summers resign (in 2006) amid public relations troubles within and outside the university. In true flexian fashion, he landed well, as a university professor at Harvard, a part-time managing director of the investment and technology development firm D. E. Shaw & Co., and columnist for the Financial Times. He has since landed even more smoothly. While fallout from his unpopular performance as Harvard president may have kept him from being renamed treasury secretary and confirmed by Congress, he is now back in the saddle as a crucial economic adviser to President Obama. Neither his Harvard and Russia track records nor his past advice and promotion of deregulation--which has come back to haunt the financial system of the United States, indeed the world--deterred Obama. Though Summers and his followers led both Harvard and Russia into debacles from which they have yet to recover, he is nonetheless praised as "brilliant."

Rubin, for his part, as Treasury secretary between 1995 and 1999, fought (along with Summers and others) to repeal the Depression-era Glass-Steagall act (paving the way for the merger that became CitiGroup) as well as to remove legal obstacles that were keeping Citigroup from investing in the risky derivatives market. That was a significant factor in the economic collapse of 2008-2009. Rubin spent most of the last decade in the top ranks at CitiGroup, leading it to such "success" that it had to be bailed out by the U.S. government. And, as Matt Taibbi pointed out in December, the Obama administration's economic team members have so many connections to Rubin (through his tenure at Goldman Sachs, the Clinton administration, Citigroup, and a think tank he founded to promote his financial philosophy) that "the White House now looks like a backstage party for an episode of Bob Rubin, This Is Your Life!" These of course, include the well-known Summers (head of Obama's National Economic Council) and Treasury Secretary Timothy Geithner, as well as players lesser known, but nonetheless intimately connected to Rubin in other configurations.

I've seen this kind of intertwining of roles and relationships before. They are exactly what you'd find in communist and post-communist societies. The blueprint the players used in Russia is now being followed by the interlocking handful of Wall Street/government policy deciders to wield increasing power and influence for their own benefit. In both cases, operators at the top challenge governments' rules of accountability and businesses' codes of competition, ultimately answering only to each other. In both cases, it's hard to get more "efficient," because inside information and power is confined to very few actors who trust each other. And, because only the players themselves have the information, they can brand it for everyone else's consumption and stay largely out of the reach of government and public scrutiny, meaning you and me.

Today's power brokers are still at the top of their game because they are said to "have the credentials." No matter that they are the credentials of a shadowy elite--and of failure.