by Matt Taibbi
This, roughly, is the situation Anna and Diego found themselves in. They were told to pony up the cash or else the money would be withheld from their paychecks. More notices piled up that month. One, curiously, informed them that according to their calculations, Diego had earned more than seven hundred dollars in January.
Diego and Anna were flabbergasted. Diego had gotten just one paycheck from Little Caesars in January, and it was for only two days’ work. “I made thirty-six dollars,” he laughs now.
In late January they went into the FRC to plead their case, one of ten different trips they would make to the office between December 2011 and March 2012. In the course of that meeting a bizarre incident took place. Diego saw that the caseworker had his photo ID on file; he asked for a copy of that document. The caseworker exploded.
“He got up and threw a pair of scissors down on the desk,” says Anna. “We had no idea what was going on.”
“He’s like, ‘How do I know that’s even you?’ ” says Diego. “Then he stormed out.”
Not surprisingly, nothing at that meeting got resolved. Oh, well; they at least still had Anna’s benefits. The couple dug in and tried to enjoy the last month before their first child was born. Meanwhile the notices kept coming in the mail, most still harping about that food stamp money. By March there would be more than twenty of them.
Then, two weeks before their first son, Jonah, was born, they got a bombshell in the mail. “I got a new notice,” says Anna. “It said I had received an overpayment. They said I had received five hundred sixteen dollars in cash aid. But I’d actually only received two hundred forty-six dollars. I had the stubs to prove it and everything.”
As a result of this “overpayment,” Anna was now permanently denied benefits. Both young people were pushed off the rolls because of errors made by the state. The total amount of “overpayment” was now perilously close to the four-hundred-dollar number that is generally considered the minimum threshold for the state to press a fraud case. As it was, the Alvarezes were going to be out at least that much money in taxes, which would be taken out of any future paychecks earned by Diego or (if and when she goes back to Carl’s Jr. or some other, closer workplace) Anna.
But according to the state, they’d also committed fraud at least three times: when Diego received benefits without qualifying for them, when Diego “lied” about his January income, and when Anna overcollected in cash aid without paying the money back.
The young couple are now in a permanent state of dread, never knowing when they might be dragged into another mess or charged with a crime. “I think about it a lot,” says Anna. “It’s on my mind all the time.” In addition to having an uphill climb just to keep food on the table every month, she and her husband are in a zone where one wrong number, one slip of the tongue, one computer error, can put you in legal jeopardy forever. “It’s literally dangerous to be poor,” says Halpern.
The couple’s only shot to fix things is to get a volunteer lawyer to help them sort it all out before it turns into a criminal case. And you have to sort it out now, because once prosecutors file in cases like this, it’s over.
“Welfare recipients are so unsympathetic that public defenders don’t even bother trying to fight the cases,” says Hilda Chan, a young lawyer who works with the poor in San Diego.
I found this out myself when I contacted the public defender’s office in one California county (not San Diego) and asked to speak to an attorney who handles welfare fraud cases. I was initially told there was no such person. When I countered that there had to be someone, given that I’d just been told by that county’s district attorney’s office that they processed thirty felony fraud cases a month, I was put on hold. When the receptionist came back, I was told that “we do of course handle welfare fraud cases, but that attorney is not in at the moment.”
While the country’s best and highest-paying legal jobs are the province of superstar corporate defense firms like Davis Polk and WilmerHale that routinely handle financial fraud cases—if you want to find a lawyer who’s defended a bank against an SEC fraud charge, you won’t have to go very far—it’s very difficult to find a lawyer, any lawyer, who has actually put up a defense in a welfare fraud case. They beg off them, find excuses to avoid them, and if they do get stuck with them, they plead them out. “Public defenders don’t want to take these cases,” says Kaaryn Gustafson, a professor at the University of Connecticut.
Meanwhile, one of the curious, and curiously stupid, features of the way welfare is administered in many states is that no single caseworker stays with any applicant’s case; each time the recipient interacts with the state, he deals with a new person. And each new person who looks at the file may interpret the facts differently. Thus Diego may qualify in the first caseworker’s eyes, but not in the second. A person can be in the CalWORKs program for years and never get to know any caseworker.
That virtually guarantees a few things. One is that no sympathetic relationship ever develops between client and caseworker, which politically is probably considered a good thing.
Two is that there’s an explosion of errors that are infinitely more difficult and more expensive to sort out than they would be if someone with personal knowledge of the case was involved from the jump. Now there’s an endless parade of Annas and Diegos and Markishas filing formal appeals with the state, explaining their whole life stories from the start in each meeting, instead of just calling a caseworker on the phone, reminding them of a fact or two, and having them change a number on a screen.
The system therefore clearly doesn’t really work for the state, either. It’s like opening a hospital where no doctor could ever see the same patient twice—the bureaucratic version of Memento, where the characters have to go back in time to re-create a whole universe of facts from the beginning in each new scene.
Lastly, minus the possibility for human interaction (or the satisfaction of seeing a client get back on his feet), the welfare caseworker’s job inevitably becomes a blistering hell of constant, irrational paperwork and seemingly inane requests from needy people. It’s no wonder that so many of them throw scissors and explode at their clients. You would, too, if that was your life every day.
In fact, the only creative component to the caseworker’s job in the current system is the investigative angle, which is not an accident. Since the great welfare reforms of the mid-1990s, when Bill Clinton broke up the traditional welfare state and introduced reforms like workfare and the end to permanent cash aid, the entire welfare apparatus has gone through a transformation, wherein thousands of people who were caseworkers previously became fraud investigators under the new system. “Sometimes, they even kept the same offices,” says Gustafson. “They would take a welfare caseworker, retrain him or her to be a fraud investigator, and put him or her back in the same desk.”
In many places (and San Diego is one such place), the welfare caseworkers and fraud investigators working for the DA’s office actually work out of the same building, wing, or office. “San Diego has satellite DA’s offices in the welfare offices,” says Gustafson. “People come in to talk to a caseworker, they have no idea they’re talking to a fraud investigator.”
To give an example of how many welfare workers have migrated to law enforcement in the post-Clinton era: in 2002, in just one California county (Santa Clara), the Board of Supervisors reassigned thirty-seven welfare caseworkers to new jobs as investigators. There are so many welfare fraud investigators now, they’re actually unionizing and bargaining collectively. They even have their own lobbyist organizations; in California, for instance, we now have the California Welfare Fraud Investigators Association, and similar organizations now exist in Nevada, New York, Ohio, Colorado, and numerous other states.
These associations have effectively lobbied for increased welfare fraud prosecution and investigation and have helped create a new cottage industry within government. Some states have actually increased funding for fraud investigation because the programs are pa
id for by federal funds they would lose if they weren’t spent—in other words, rather than lose funding because of reduced welfare rolls, states simply increase the amount of staff for welfare fraud investigation.
This results in mountains of fraud cases. At the end of 2007, for instance, there were more than 52,000 welfare fraud investigations pending in the state of California alone. That number is actually lower than it was in the late Clinton years, when the state of California paid counties a cash incentive to make welfare fraud cases—they were given 25 percent of any cash recovered. Between 2001 and 2007, the number of cases that actually went to court dropped by about half.
But the caseload is still huge. California counties like San Diego, Alameda, Riverside, Bayview, and others all file upward of forty or fifty cases a month, and in some cases as many as a hundred cases a month. These cases are often felony fraud cases, and DAs are hot for them because (a) they never, ever lose them and (b) it boosts their records. Fans of The Wire will connect to this dynamic: nothing quite jukes the stats like forty unopposed felony convictions a month. “DAs love these cases,” says Gustafson. “It raises their profiles before elections.”
So how does a numerical glitch like any of the ones in Diego and Anna’s case turn into a criminal charge? It happens in dozens of ways. A caseworker at an FRC sees an applicant leaving in a nice car, a P100 investigator sees those Victoria’s Secret panties, or, very often, a neighbor calls in with a tip, sometimes for a cash reward. Beyond that, the state has computers scanning countless different databases—phone and utility bills, school registration, birth certificates, leases, voter registration, the DMV, tax data, unemployment compensation, and on and on—that can uncover discrepancies. The recipient is then sent a notice and asked to come in to speak to a fraud investigator.
In some parts of California, welfare recipients when they first walk into that initial meeting are asked to sign what is called a disqualification consent agreement. The form reads as follows:
(1) [T]he accused understands the consequences of the signed consent agreement; (2) consenting to the disqualification will result in a reduction in benefits for the disqualification period; (3) the actual disqualification penalty to be imposed; and (4) any remaining members of the [family] may be held liable for any overpayments that the accused has not already repaid.
Many people who sign this form do so thinking that they will simply be asked to pay money back, and they have no idea that it could be used as the basis of a criminal prosecution. They walk into these offices and not only sign away their benefits, they talk themselves right into jail.
And that’s the last thing that people need to understand about these cases: people really go to real jail behind this madness. It happens casually and effortlessly. And quickly. If you follow white-collar fraud cases like the federal government’s halfhearted investigation of Goldman Sachs executive Fabrice Tourre, accused of helping a hedge fund billionaire named John Paulson defraud a pair of European banks out of over a billion dollars, you see that these cases move at the speed of a molasses spill. Motions and counter-motions drag cases out for years and years.
While writing this book, I covered a trial, USA v. Carollo, Goldberg and Grimm, that involved the rigging of municipal bond auctions by a trio of GE Capital executives. The government had the crimes of all the defendants on tape (the companies taped themselves), and none of the defendants had anything like a credible defense for crimes that collectively cost states many millions of dollars. Yet not one of the accused saw the inside of a jail cell for nearly fifteen years (the offenses dated back as far as 1999), and even after all three were convicted and handed down multiyear sentences, they were eventually freed by a judge who essentially punished prosecutors for missing the statute of limitations for filing charges.
High-finance fraud cases are drawn out for dozens of reasons, including the obfuscatory efforts of superior defense lawyers and the overwhelming complexity of the crimes.
But welfare fraud? These cases can be generated in the blink of an eye, often because a family member or a neighbor simply decided to pick up the telephone. “No one can snitch you off like your ex or your ex’s girlfriend or your neighbor or your landlord,” says one former California district attorney whose county in the late 1990s processed more than a hundred fraud cases a month.
Gustafson, the professor, recalls interviewing a single father named Jerome for a study she was doing on how well welfare recipients understand the rules. Jerome was raising his toddler son by himself. Why? Because back when he was living with the child’s mother and her sister, the sister didn’t like him and called the welfare office to snitch him out, hoping that authorities would kick him out of the house. But the consequence of that decision was that the authorities busted not Jerome, but the mother, for not registering Jerome as a resident in the home. The mother ended up doing a year in jail. Jerome and his son now rent out a room in a converted garage.
The ad in the Riverside, California, Press-Enterprise is of the big banner variety, nicely placed in the Sunday edition—at four columns square, it’s a nice size, too, costing a thousand bucks to publish. The message is simple: the government of Riverside County, California—a politically conservative, mostly affluent region east of Los Angeles that extends to the Arizona border and includes the resort town of Palm Springs—is looking for whistle-blowers to aid the state in making fraud cases.
What kinds of fraud cases? Big cases? Well, not exactly. The ad reads:
$100 REWARD OFFERED BY
RIVERSIDE COUNTY DEPT. OF PUBLIC SOCIAL SERVICES Dockets of the Riverside County Court System show the following persons were convicted of welfare fraud on the dates specified:
And then the ad goes on to list the names and conviction dates of six persons convicted of improperly receiving benefits. The government of Riverside County, California, essentially puts the heads of six welfare cheats on pikes and plants them in the public square once a month, to send a message to the community. “Yeah, shaming is definitely part of the motivation,” sighs Philip Robb, a former prosecutor from neighboring San Bernardino County, now engaged in a (to date unsuccessful) campaign against the ads.
Month after month, Riverside County runs the same ad and picks six new names each month to advertise. Like welfare recipients in general, the guilty are overwhelmingly female, and usually nonwhite. “They don’t do this to rapists or murderers,” says Robb. “Not even to pedophiles. It’s incredible.”
No, the only offenders the local burghers will spend money to embarrass publicly are young, single, nonwhite mothers guilty of the crime of improperly receiving benefits. And as we’ve seen, it’s a stretch to assume that they’re all really guilty. The one thing we do know is that the people on this list every month are all flat broke and incapable of hiring a decent lawyer—and who knows, the fancy folk in Palm Springs might have an interest in shaming these people for that crime, as well.
All of this goes back to Bill Clinton. It’s not a coincidence that radical welfare reform took place on the same watch that also saw a radical deregulation of the financial services industry. Clinton was a man born with a keen nose for two things: women with low self-esteem and political opportunity. When he was in the middle of a tough primary fight in 1992 and came out with a speech promising to “end welfare as we know it,” he could immediately smell the political possibilities, and it wasn’t long before this was a major plank in his convention speech (and soon in his first State of the Union address).
Clinton understood that putting the Democrats back in the business of banging on black dependency would allow his party to reseize the political middle that Democrats had lost when Lyndon Johnson threw the weight of the White House behind the civil rights effort and the War on Poverty.
If you dig deeply enough in America, the big political swings always have something to do with race. And Clinton’s vacillating but cleverly packaged campaign to “end welfare as we know it” was a brilliant ploy by the man Toni Morrison c
alled the “first black president” to take back the southern white voters the Democrats had seemingly lost forever when they sent the FBI into Alabama and Mississippi in the 1960s. That, and a little rolled-up-newspaper training session with rapper Sister Souljah, allowed Clinton to take four of the eleven Confederate states, seizing ground no Democrat had won for more than two decades.
But Clinton didn’t just go after Republican votes. He went after the Republicans’ money, too. He brought in a team of economic advisers who offered what was, for the Democrats, a bold new approach on the economy, an approach based upon balancing the budget on the one hand and deregulating Wall Street on the other.
In the wake of the 2008 crisis, Clinton is most frequently criticized for overseeing two radical changes to our regulatory structure: the repeal of the Glass-Steagall Act to allow the mergers of investment banks, commercial banks, and insurance companies, and the Commodity Futures Modernization Act of 2000, which deregulated the burgeoning derivatives market. Less commonly understood is that Clinton, Greenspan, Rubin, and Summers also oversaw the collapse of what are known as “selective credit controls,” the tools used to rein in irresponsible lending.
Rules like the Federal Reserve’s Regulations X and W, which mandated minimum down payments for things like home and automobile loans, were watered down if not eliminated completely during the Clinton years, and regulators under Clinton likewise refused to insist that banks and financial companies at least jack up their reserve capital to match all the crazy lending they were doing. At a critical juncture in 1993, for instance, Clinton’s SEC considered a proposal to raise capital requirements in the (then little known) derivatives market, but ultimately decided against it.
The cumulative effect of all this was an explosion of easy credit for the financial services sector, wedded to an across-the-board relaxation of economic regulations. Staffs were cut at all the major regulatory agencies, and banking watchdogs like the Office of the Comptroller of the Currency and the Office of Thrift Supervision simply stopped pursuing criminal investigations; groups that had referred thousands of cases a year to the Justice Department for prosecution during the S&L crisis completely stopped that activity by the turn of the millennium. In 2009 the OCC referred zero cases for prosecution.
