Social Question

ETpro's avatar

Global Commission calls "War on Drugs" a failure. Do you agree?

Asked by ETpro (34605points) June 3rd, 2011

The report from the Global Commission on Drug Policy released yesterday. They suggest legalization and other less regressive strategies would work better. What’s your opinion?? How much do you think the for-profit prison industry factors into our insistence in long jail sentences for using recreational drugs? How right are US Civil Rights leaders who say that the difference in penalties for powder cocaine use (a mostly affluent white crime) and crack use (a mostly poor, black crime) are racially and not rationally motivated? How much does the “War on Drugs” cost your country each year? What would be the likely economic impact of ending the war and legalizing or decriminalizing drugs?

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31 Answers

iamthemob's avatar

Yes. 100%.

The War on Drugs is, in my opinion, not only a failure, but one of the worst human rights crimes committed against the world ever.

jrpowell's avatar

Nobody should be in jail for using drugs. They, however should be in jail if they steal our stuff to get the drugs.

But like the military, prisons are one thing that we can’t cut. And prisons make for cheap workers. Just ask my mom, when she was is prison she made supermarket scanners for Spectra Physics for around 60 cents a hour.

YoBob's avatar

Yes, I absolutely and wholeheartedly agree.

The war on drugs is a dismal failure that has cost countless billions, fostered an atmosphere where “drug lords” feel they must raise armies to protect their business interests, and have clogged the prison system with countless non-violent criminals who are guilty of nothing more than possessing natural plant material that is a hell of a lot less harmful and toxic than many products freely available at your local supermarket that can be abused in ways that make you feel goofy.

It is way past time we should look at history for wisdom in dealing with recreational drugs. During the 1930s we had prohibition and the illegal trade in booze was the driving force that fueled the entire gangster era. Almost immediately after repealing prohibition those gangsters became legitimate business men thus adding to the tax base, the turf wars came to an abrupt halt, otherwise honest law abiding citizens no longer had to sneak into the underworld to have a recreational round with friends, and not only did alcoholism rates fail to skyrocket, those with drinking problems were no longer afraid to seek help because they would have to admit to illegal activity.

So… U.S. lawmakers, pull you head out of the dark ages and end this ridiculous war on drugs, starting with the decriminalization of cannabis.

Michael_Huntington's avatar

It is definitely a colossal failure. It is just pointless and stupid to continue this war (It was stupid to being with. You will never eliminate drugs in our society). Anyone who is delusional enough to believe this war is beneficial to society should really brush up on his/her American history. Everyone should have the right to do whatever they want with their bodies as long as they don’t hurt anyone else.

Adirondackwannabe's avatar

No, it’s been a huge f***ing success. I give you South America and Mexico as prime evidence of it’s bounty.

YoBob's avatar

@Adirondackwannabe – Please tell me you are being sarcastic. Both South America as well as Mexico are pretty much in what effectively amounts to civil war with the well armed and well funded drug lords on one side, corrupt government on the other, and the average citizen caught in the middle.

marinelife's avatar

Yes, clearly.

Russell_D_SpacePoet's avatar

The war on drugs is a total failure. It has spawned an explosion in the prison population by putting users in jail. Idiotic system.

woodcutter's avatar

It is impossible to deny what is in high demand. People will find a way to get it anyway. It’s like trying to conduct a war on guns. Won’t work.

flutherother's avatar

All wars are failures.

FluffyChicken's avatar

It is an absolute failure. If it wasn’t, I wouldn’t know anyone who does illegal drugs. Almost everyone I know does illegal drugs of one kind or another.

Also, I wholeheartedly agree with @flutherother.

wundayatta's avatar

I agree, too, but I fail to see how this report could have any impact on American politics.

incendiary_dan's avatar

It fails at its stated aims, not the actual ones. The main pushers for the War on Drugs have rather obvious connections to the prison industry. Indeed, it can be called the prison-industrial complex. Angela Davis and Michelle Alexander have both written some fantastic stuff about the links.

YoBob's avatar

Well, @wundayatta, regarding the impact on American politics, I have a sneaking suspicion that the timing of this report was no accident. We are at the very beginning of the tactical positioning part of the next election cycle. (you will notice that many of the prospective contenders have started floating trial balloons to test the waters for a potential run for the office) At present, the incumbent is not exactly a shoe in for re-election (in fact, quite the opposite in the opinions of more than a few political analysts).

So… what the powers that be need is a hot button, polarizing issue to differentiate their candidate. Given that the GOP will probably lean a bit more to the right than usual this cycle because they think they have things in the bag, they are pretty unlikely to jump on the legalization band wagon.

As stated, I totally agree with the report, but the conspiracy theorist in me can’t discount the possibility that it is a bit of well timed social architecture aimed at our next presidential election cycle. It will be interesting to see if this does, in fact, develop into a differentiating social issue during the campaign.

Espiritus_Corvus's avatar

If I owned stock in those corporations that have the county, state and federal contracts to build and run America’s privatized gulags (which, on the national average are 16% more expensive to maintain than they were under the auspices of our various government agencies), I would consider it a magnificent success. And all my wonderful new possessions would be safe from those dangerous minorities and marajuana-smoking fiends that are now safely kept behind corporate bars from wonderful white people like me. What a fantastic gold mine it has been!

Long live graft, Wall Street misrepresentation, government complicity in the same, the Mainstream News indoctrination of America, and the stupidity, gulability and apathy of the average American schmuck! Oh yes, and to wonderful white media people like Nancy Grace and her ilk to keep those same schmucks so scared 24/7×365 as to agree to anything to expand this system, no matter what the cost.

Espiritus_Corvus's avatar

And thank you, thank you, thank you, to the producers of those immensely popular television programs like Cops, Gangland, America’s Most Wanted, The First 48 Hours, Snapped, etc., etc., etc., ad nauseum for magnifying that fear and anger all out of proportion.

ETpro's avatar

@iamthemob Thanks. We seem to have learned nothing from the failures of prohibition.

@johnpowell Wow. I thought I knew all the dangers of a corporatocracy, but I didn’t realize they had stooped so low as to use prisons as convenient sources of slave labor. Thanks so much for pointing this out.

I hope all Americans come to see that if the biggest corporations run our government—using their massive wealth to get corporate water carriers elected—and for profit prisons push for laws tro lock up ever more slaves for their labor pool; we could soon ba a nmore oppressive society than Communist China.

@YoBob According to the Drug War Clock the failed War on Drugs has now cost US taxpayers $22.9 billion from January 1, 2011 to January 3, 2011. It runs $1,716.77 per second, which comes to $54.2 billion per year. Richard Nixon declared this “war” back on June 17, 1971 So in two more weeks, we’ll celebrate its 40th birthday. So we’re closing in on $2.7 trillion in constant 2011 dollars. And that does not look at the cost in lost productivity, impace to families, and number of recreational drug users turned into hardened criminals by incarceration. I

And to think that instead of spending just south of $3 trillion on this failed tragicomedy, we could have been taxing the sales if it were legal. That alone would take a nice slice off our total US national dent.

@Michael_Huntington I totally agree.

@Adirondackwannabe I’m certainly hoping, as @YoBen suggested, that you are using sarcasm to ridicule the War on Drugs. Our laws are what gave the drug cartels their massive money and firepower; and created such a murderous climate down there, destroying the fabric of whole societies.

@marinelife, @Russell_D_SpacePoet & @woodcutter Thanks. Agreed.

@flutherother I suppose all wars are failures of human relations, but some at least end up doing what they set out to do within a defined period of time, then come to an end. So long as we continue our current legal position on recreational drugs, I can’t conceive of the War on Drugs ever being won. I say we sue for peace. Drugs won.

@FluffyChicken & @wundayatta Thanks. GA.

@incendiary_dan I think you are absolutely right, and that is why I asked this question. I think it will have a great deal of impact on American politics when the people learn what is really going down, how much destruction this policy is wreaking to make a few people fat and happy, and what an enormous amount of money we’;re spending for thise real goals.

@YoBob I think you guessed it correctly. But even if its a lucky accident, it is an incredibly well timed one. Amd there is room for liberals worried about the impact on minority communities and libertarian conservatives who feel the government has no business telling us how we can and can’t get high to form a powerful alliance to change things for the better.

@Espiritus_Corvus Bingo! That’s who wins. Just imagine we privatize the police force next. There should be such synergy between a for-profit prison system and a for-profit police to create and deliver more “customers” to them. .

Espiritus_Corvus's avatar

Every once in a while someone from the stratasphere of Wall Street bitterly defects into their own firm and for one reason or another reveal the inner workings among the boards of directors and the interrelationships between the Street and Washington DC. Catherine Austin Fitts, a former partner at the investment bank of Dillon Read & Co., has written extensively on this, especially on the sinister privatization of the prison system since the 1990s. I’ve posted her site containing her article before, but it is so long, nobody seems to have the time or interest in reading it, so at the certain risk of permanent villification by other fluthers, I’ve decided to post a portion of the article. The following is just three pages specifically describing the evolution of the privatization process, the complicity of HUD, the DOJ and her firm’s intentional cross-polination into these departments in order to accomplish the privatization of the prisons in many states. It has nothing to do with justice, or the more efficient and less costly incarceration of prisoners, and everything to do with profiteering at the increased expense of the taxpayer.


On February 21, 1991, after I had left the Bush Administration and remained in Washington D.C. to invest in my own start up, Hamilton Securities, Dillon Read’s Venture group invested in Cornell Corrections — essentially bankrolling the creation of quite a different startup in the newly emerging private prison industry. Cornell was founded with David M. Cornell who was Operations Manager – Special Projects of Bechtel and Chief Financial Officer of its subsidiary Becon Construction from 1983–1990. Cornell Corrections was created to take advantage of plans to privatize the government’s prison operations. The War on Drugs and its related mandatory sentencing were fueling an explosion in the U.S. prison population. The construction and management of new prison facilities was potentially big business for the construction industry — firms like Brown & Root who Cornell used to build their first detention center — and those who financed them — like Dillon Read.

According to a later Harvard case study on Cornell’s facility, David Cornell was pursuing the prison business while at Becon in partnership with Dillon Read — presumably the part of the firm that helps to create and sell the types of local government bonds that finance many prisons. When Becon decided not to pursue the prison business, Cornell decided to leave and start his own private prison company. With Bechtel out of the business, Cornell and Dillon then decided to use Brown & Root to construct the first prison. Brown & Root was a subsidiary of Halliburton, both based in Houston like Cornell Corrections.

According to Cornell’s filings with the SEC and other corporate reports, Dillon used funds from three of its venture funds, Concord, Concord II and Concord Japan to make these initial investments. Dillon Read’s April 1997 SEC filing described Concord and Concord II as limited partnerships organized under the laws of New York and Delaware.

To understand Dillon’s investments in Cornell it is essential to understand who governed Dillon Read, who at Dillon invested personally as well as who at Dillon along with outside directors helped to govern the Dillon venture funds that invested in Cornell. These are the people who are responsible for the investment decisions and who would have benefited in various forms.

As provided in Dillon’s Cornell SEC filings, Dillon, Read Holding Inc., Dillon, Read Inc. and Dillon, Read & Co. Inc. listed their officers and directors as including John P. Birkelund, David W. Niemiec, Franklin W. Hobbs, IV, Francois de Saint Phalle as well as senior leadership from Barings, the British bank that was now an investor in Dillon and ING, the Dutch financial conglomerate that acquired Barings when it failed in 1995.

The presence of Barings in Dillon’s governance structure is noteworthy. Barings, the oldest merchant bank in England and said to be a financial leader in the 1800s China opium trade, collapsed in February 1995 as a result of a trading scandal in Asia and was taken over by ING. Barings became the lead outside investor in Dillon Read in late 1991, when they effectively financed Dillon’s management buying out Travelers. This was the same year that Dillon bankrolled Cornell Corrections. Barings’ difficulties in 1995 may have increased the pressure on Dillon to generate revenues, particularly before it was sold to Swiss Bank Corporation (now part of UBS) in the summer of 1997, changing its name to SBC Warburg Dillon Read.

In the April 1997 Dillon Cornell SEC filing, the Concord Japan venture fund invested in Cornell is described as a corporation organized under the laws of the Bahamas, whose principal office and business address was c/o Roy West Trust Corporation, (Bahamas) Limited, West Bay Street, Nassau, Bahamas. Hence, Concord and Concord II were “onshore” funds and Concord Japan was an “offshore” fund. The officers and directors of Concord Japan include representatives of some of the largest most prestigious Japanese corporations as well as Amerex SA which listed its address as the Coutts Bank office in the Bahamas. Coutts is considered one of the most prestigious private banks in the world.

In May 1991, Dillon invested additional funds from one of the Lexington Funds. The Lexington Funds were created to invest money for Dillon officers and directors. Dillon then made additional investments with these various funds in September and November 1991. By the time of Cornell’s initial public offering of stock in October 1996, Dillon Read and the funds it managed and its officers and directors had accumulated approximately 44% of the outstanding common stock. This meant that they were the controlling shareholders.

Along the way, Dillon officers and directors had personally purchased significant shares of Cornell stock. Investors included Chairman John Birkelund, Vice Chairman Dave Niemiec who signed many of the documents on behalf of Dillon and Lexington, President and CEO Franklin “Fritz” W. Hobbs, IV as well as numerous other senior partners, including Ken Schmidt. Dillon officer Peter A. Liedel, who signed on behalf of Concord, had joined the board of Cornell. Cornell named one of its facilities after him — the Liedel Community Correctional Center, a pre-release facility in Houston.

Seven Largest Dillon Holders of Personal Positions in Cornell

JOHN P. BIRKELUND 39,579 3,736 $96,990.16
JOHN H. F. HASKELL, JR. 36,730 3,505 $85,382.75
DAVID W. NIEMIEC 35,018 3,270 $76,989.51
FRANKLIN W. HOBBS, IV 30,455 2,803 $56,986.04
PETER FLANIGAN 28,178 2,687 $48,781.40
GEORGE A. WIEGERS 28,176 2,571 $44,988.85
KENNETH M. SCHMIDT 24,778 2,454 $35,622.38

Source: Cornell Corrections, Inc. April 1997 13-D Filing by Dillon Read.

Total Estimated Dillon Investment in Cornell Corrections Stock [41.5]

Concord (Est.) $630,000
Concord II $2,120,459.83
Concord Japan $338,734.26
Lexington III $70,000.65
Lexington IV $9,541.14
Dillon Read Officers and Directors $652,999.99
TOTAL (Est.) $3,821,736

Source: Cornell Corrections, Inc. October 1996 Prospectus and April 1997 13-D Filing by Dillon Read.

Dillon’s investments in Cornell represent an extraordinary firm-wide commitment to starting up one company. This was not a common occurrence, but as we will see, this was not the first time that Dillon Read had backed a Houston business involved in privatization in an extraordinary way. The decision for an officer and director to buy shares would have been an individual decision — whether they used their own funds or if the firm helped arrange credit or other funds for them to finance their purchases. Hence, this meant that a significant number of Dillon’s leadership decided that investing was something they actively wanted to do and for which they chose to be financially and ethically liable. One can only wonder what the Dillon leadership had been led to believe about the future of the private prison business, let alone what it implied about the future of the country.

Based on company SEC filings, Houston-based Cornell Corrections started off with correctional facilities in Massachusetts and Rhode Island in 1991 and then in 1994 acquired Eclectic Communications, the operator of 11 pre-release facilities in California with an aggregate design capacity of 979 beds. An important relationship for Cornell from the start was the U.S. Marshals Service, an agency of DOJ, who was Cornell’s primary client for its Donald W. Wyatt Federal Detention Facility in Central Falls, Rhode Island, a facility with a capacity of 302 beds.

The U.S. Marshals Service is the oldest U.S. enforcement agency. Among other duties, the U.S. Marshals Service houses and transports prisoners prior to sentencing and provides protection for the federal court system. According to the Marshals Service’s website, they are also:

“Responsible for managing and disposing seized and forfeited properties acquired by criminals through illegal activities. Under the auspices of the Department of Justice Asset Forfeiture Program, the Marshals Service currently manages more than $964 million worth of property, and it promptly disposes of assets seized by all DOJ agencies. The goal of the program is to maximize the net return from seized property and then to use the property and proceeds for law enforcement purposes.”

An article by Jeff Gerth and Stephen Labaton in the New York Times in November 1995, ‘Prisons for Profit: A Special Report; Jail Business Shows Its Weaknesses” describes the problems that Cornell ran into with its Rhode Island facility. This facility had been financed with municipal bonds issued through the Rhode Island Port Authority in the summer of 1992 and underwritten by Dillon Read. The article states:

“Two years ago, the owners of the red cinder-block prison in this poor mill town threw a lavish party to celebrate the prison’s opening and show off its computer monitoring system, its modern cells holding 300 beds and a newly hired cadre of guards.

“But one important element was in short supply: Federal prisoners.

“It was more than an embarrassing detail. The new prison, the Donald W. Wyatt Detention Facility, is run by a private company and financed by investors. The Federal Government had agreed to pay the prison $83 a day for each prisoner it housed. Without a full complement of inmates, it could not hope to survive.

“So the prison’s financial backers began a sweeping lobbying effort to divert inmates from other institutions. Rhode Island’s political leaders pressed Vice President Al Gore while he was visiting the state as well as top officials at the Justice Department to send more prisoners. Facing angry bondholders and insolvency, the company, Cornell Corrections, also turned to a lawyer who was then brokering prisoners for privately run institutions in search of inmates.

“The lawyer, Richard Crane, has done legal work for private corrections companies and Government penal agencies. He put the Wyatt managers in touch with North Carolina officials. Soon afterward, 232 prisoners were moved to Rhode Island from North Carolina, and Mr. Crane was paid an undisclosed sum by Cornell Corrections.”

Cornell’s Donald C. Wyatt facility later became a case study at the Harvard Design School’s Center for Design Informatics. This was an indication of the wave of business and investment opportunities that prisons and enforcement presented to everyone from architects to construction companies to real estate and tax-exempt bond investors. Harvard’s case study mentions that Cornell arranged for the facility to be constructed by Brown & Root of Houston, Texas, then a subsidiary of Halliburton. (Brown & Root, now known as KBR, separated from Halliburton in April 2007 after 44 years as a subsidiary.) Brown & Root/KBR’s construction of prison facilities was to become more visible many years later after its construction of detention facilities at Guantanamo Bay, prisoner of war camps in Iraq and its winning of contracts to build detention centers for the Department of Homeland Security. A request to Cornell for information regarding companies used for prison construction subsequent to the Wyatt facility has been made, but no response has yet been received.

Dillon Read had long standing relationships with Brown & Root and the Houston banking and business leadership as a result of the firm’s historical role in underwriting oil and gas companies, including pipelines. In 1947, Herman and George Brown, the founders and owners of Brown & Root, were part of a group of Texas businessmen banked by Dillon Read as investor and underwriter (in a manner very similar to Dillon’s backing of Houston-based Cornell many years later) to form the Texas Eastern Transmission Co. to buy the “Big Inch” and “Little Big Inch” pipelines in a privatization by the U.S. government.

The Texas Eastern pipelines were critical to bringing natural gas from Texas and the Southwest to Eastern markets. For most Americans, Houston and New York seem far apart. However, the intimacy of their connection is better understood when you study the investment syndicates that controlled the railroad, canals, pipelines and other transportation systems that have connected these markets and helped to determine control of the local retail businesses for both goods and capital along the way. For example, Texas Eastern’s Big Inch pipeline went from east Texas to Linden, New Jersey, some 30 miles away from the Dillon and Brady estates in New Jersey and approximately 20 miles from the Dillon Read offices on Wall Street.

According to investigative journalist Dan Briody in The Halliburton Agenda: The Politics of Oil and Money, the Brown brothers netted $2.7 million in profits on their shares in their initial public offering right after the company was formed and won the bid to buy the pipelines from the government in the late 1940’s. That, however, was not the real payoff. According to Briody, Brown & Root subsequently worked on 88 different jobs for Texas Eastern, and generated revenues of $1.3 billion from Texas Eastern between 1947 and 1984.

According to Robert Sobel in The Life and Times of Dillon Read, under August Belmont’s personal leadership of the transaction, Dillon Read also made a profit on the Texas Eastern shares. “Nothing is known of Dillon Read’s profits on the underwriting, but it was a sizeable owner of TETCO [Texas Eastern] common, acquired at 14 cents a share, which rose to $9.50.” While figures for Dillon Read revenues from underwriting and other investment banking services over the years comparable to Brown & Root’s construction contracts are not available, my recollection was that Dillon continued to maintain a profitable relationship with Texas Eastern when I worked at the firm in the 1980s many decades later. Interestingly enough, Briody also describes in detail the McCarthyist efforts that were made to destroy Federal Power Commission chairman Leland Olds, an honest government official, because his ethical regulatory decisions threatened the richness of the Texas Eastern profits. The clear implication is that the pattern of generating financial windfalls from government privatizations combined with dirty tricks against honest government officials is nothing new.

The closeness of the Brown & Root relationship with Dillon Read is also underscored by Briody’s description of the head of Brown & Root’s frustration with Lyndon Johnson’s decision to serve as John Kennedy’s running mate. He quotes August Belmont, by then a leader of Dillon Read, who was with Brown in Houston in his private hotel suite listening to the radio coverage of Johnson’s announcement. According to Belmont, “Herman Brown….jumped up from his seat and said, ‘Who told him he could do that?’ and ran out of the room.”

What Briody does not mention is allegations regarding Brown & Root’s involvement in narcotics trafficking. Former LAPD narcotics investigator Mike Ruppert once described his break up with fiance Teddy — an agent dealing narcotics and weapons for the CIA while working with Brown & Root, as follows:

“Arriving in New Orleans in early July, 1977 I found her living in an apartment across the river in Gretna. Equipped with scrambler phones, night vision devices and working from sealed communiqués delivered by naval and air force personnel from nearby Belle Chasse Naval Air Station, Teddy was involved in something truly ugly. She was arranging for large quantities of weapons to be loaded onto ships leaving for Iran. At the same time she was working with Mafia associates of New Orleans Mafia boss Carlos Marcello to coordinate the movement of service boats that were bringing large quantities of heroin into the city. The boats arrived at Marcello controlled docks, unmolested by even the New Orleans police she introduced me to, along with divers, military men, former Green Berets and CIA personnel.

“The service boats were retrieving the heroin from oil rigs in the Gulf of Mexico, oil rigs in international waters, oil rigs built and serviced by Brown and Root. The guns that Teddy monitored, apparently Vietnam era surplus AK 47s and M16s, were being loaded onto ships also owned or leased by Brown and Root. And more than once during the eight days I spent in New Orleans I met and ate at restaurants with Brown and Root employees who were boarding those ships and leaving for Iran within days. Once, while leaving a bar and apparently having asked the wrong question, I was shot at in an attempt to scare me off.”

Source: “Halliburton’s Brown and Root is One of the Major Components of the Bush-Cheney Drug Empire” by Michael Ruppert, From the Wilderness

Another important relationship for the Houston-based Cornell Corrections was the California Department of Corrections. Whether this reflected that California was home base for David Cornell’s former employer, Bechtel, is not clear. When Cornell Corrections got started, California had the largest prison population of any U.S. governmental entity. In part due to extraordinary growth in incarcerations of non-violent drug users as a result of the War on Drugs, the federal prison population managed by the Federal Bureau of Prisons at the Department of Justice has become the largest with 186,560 based on their September 8, 2005 weekly update.[44] California is close behind with 168,000 youths and adults incarcerated in California prisons and 116,000 subject to parole.

Cornell’s early years of business were not financially profitable. The private prison industry faced significant resistance and legal and operational challenges to privatizing federal, state and local prison capacity. Within the private prison industry, Cornell faced competition for new contracts and acquisitions from two larger, more experienced companies, CCA and Wackenhut. By 1995, compared to industry leaders, Florida-based Wackenhut and Tennessee based Corrections Corporation of America (CCA), Cornell Corrections appeared to be lagging in government contract growth. As of mid 1996, Cornell was carrying $8 million of cumulative losses on its balance sheet.

Cornell’s Chief Financial Officer, Treasurer and Secretary was Steven W. Logan, who had served as an experienced manager in Arthur Anderson’s Houston office. This was the same office of Arthur Anderson that had served as Enron’s auditor until the Enron bankruptcy brought about the indictment and conviction of Arthur Andersen. Arthur Andersen was Cornell’s auditor, having first served as a consultant to create market studies which helped support the approvals for and financing of the building of the Rhode Island facility for the U.S. Marshals Service. Logan was later forced out of Cornell after an off-balance sheet deal[46]engineered with the help of a former Dillon Read banker Joseph H. Torrence, like those done for Enron was called into question and significant stock value declines triggered litigation from shareholders.

Cornell’s Reported Revenues and Net Income for 1992–1996

1992 1993 1994 1995 1996
Revenues $2.5MM $3.2MM $15.7MM $20.6MM $32.3MM
Net Income (Loss) .9 (.9) (.6) (1.0) (2.4)
Beds in Operation – 282 1,155 1,135 2,899

(MM = In millions)
Source: Cornell Corrections, Inc., Selected Consolidated Financial Data, Form 10-K For Fiscal Year Ended 1996

Most venture capital investors prefer to exit their investment within 5 years. That means that Dillon Read would have likely wanted to establish or start their exit from Cornell by 1996. The stock market was hungry for Initial Pubic Offerings (IPOs) where a new company sells its stock to the public for the first time. Venture capitalists typically make their profit from financing a company and then selling their equity when a public market has been established for the company’s stock. However, by the end of 1995, Cornell’s story was not an exciting one. It was not a market leader, its growth was slow and it had no profits. If the calf was going to be taken to market, it would need fattening.

A Note on “Prison Pop”
The “pop” is a word I learned on Wall Street to describe the multiple of income at which a stock is valued by the stock market. So if a stock like Cornell Corrections trades at 15 times its income, that means for every $1 million of net income it makes, it’s stock goes up $15 million. The company may make $1 million, but its “pop” is $15 million. Folks make money in the stock market from the stock going up. On Wall Street, it’s all about “pop.”

Prison stocks also are valued on a “per bed” basis — which is based on the number of beds provided and the profit per bed. “Per bed” is really a euphemism for people who are sentenced to be housed in their prison.

For example, in 1996, when Cornell went public, based on the financial information provided in the offering document provided to investors, its stock was valued at $24,241 per bed. This means that for every contract Cornell got to house one prisoner, at that time, their stock went up in value by an average of $24,261. According to prevailing business school philosophy, this is the stock market’s current present value of the future flow of profit flows generated through the management of each prisoner. This, for example, is why longer mandatory sentences are worth so much to private prison stocks. A prisoner in jail for twenty years has a twenty-year cash flow associated with his incarceration, as opposed to one with a shorter sentence or one eligible for an early parole. This means that we have created a significant number of private interests — investment firms, banks, attorneys, auditors, architects, construction firms, real estate developers, bankers, academics, investors among them— who have a vested interest in increasing the prison population and keeping people behind bars as long as possible.

When you invest in stock, you make money if and when you sell the stock at a higher price than you paid for it. This would be true for the people who invested in Cornell stock, including Dillon Read and its venture funds. Cornell was run by a board of directors that represented the shareholders, particularly the controlling shareholders — in this case Dillon Read. The board is the group of people who decides what goes. Senior management officials, such as the founder and Chairman David Cornell, who run the company day to day, are also on the board. Most of the money they make comes from stock options that they get to encourage them to get the stock to go up for the investors. That means that what everyone who runs the company wants is for the stock to go up.

There are two ways to make the stock go up. First, you can increase net income by increasing capacity — the number of “beds” — or profitability — “profits per bed.” Second, you can increase the multiple at which the stock trades by increasing the markets’ expectations of how many beds or what your profit per bed will be and by being very accessible to the widest group of investors. So, for example, passing laws regarding mandatory sentencing or other rules that will increase the needs for prison capacity can increase the value of private prison company stock without those companies getting additional contracts or business. The passage of — or anticipation of — a law that will increase the demand for private prisons is a “stock play” in and of itself.

The winner in the global corporate game is the guy who has the most income running through the highest multiple stocks. He is the winning “pop player.” Like the guy who wins at monopoly because he buys up all the properties on the board, he can buy up the other companies. So the private prison company that wins is the one that gets the most contracts that guarantee it the most prisons and prisoners that generate the most income for the longest period with the smallest amount of risk.

The way that Cornell could become a winner quickly was to get lots of government contracts to house lots of prisoners and acquire other companies with government contracts to house lots of prisoners and do it quickly. And that was exactly what happened.

Much has been written about the use of the War on Drugs to intentionally disenfranchise poor people and engineer the centralization of political and economic power in the U.S. and globally, including an explosive rise in the U.S. prison population. The purpose of this story is not to repeat this fundamentally sound thesis. For those who are interested in more on this topic, I would refer you to my article and audio seminar “Narco Dollars for Beginners” as well as Michael Woodiwiss’ book Organized Crime and American Power (University of Toronto Press, 2001) and their associated bibliographies.

What most people miss is the extent to which the day-to-day implementation of this intentional centralism is deeply pervasive and therefore deeply bipartisan. It receives the promotion and support from all political and social spectrums that make money by running government through the contractors, banks, law firms, think tanks and universities that really run the government. My intention for this story is to make clear how the system really works. A system in which a small group of ambitious insiders — who more often than not were educated at Harvard, Yale, Princeton and the other Ivy League schools — enjoy centralizing power and advantaging themselves. Paradigms of Republican vs. Democrat or Conservative vs. Progressive have been designed for obfuscation and entertainment. An endless number of philosophies and strains of religious and “holier than thou” moralism are really put on and taken off like fresh make-up in the effort to hide from view a deeper, uglier face. One person who may have described it more frankly during the Clinton years was the former Director of the CIA, William Colby, who writing for an investment newsletter in 1995 said:

“The Latin American drug cartels have stretched their tentacles much deeper into our lives than most people believe. It’s possible they are calling the shots at all levels of government.”

The Clinton Administration took the groundwork laid by Nixon, Reagan and Bush and embraced and blossomed the expansion and promotion of federal support for police, enforcement and the War on Drugs with a passion that was hard to understand unless and until you realized that the American financial system was deeply dependent on attracting an estimated $500 billion-$1 trillion of annual money laundering. Globalizing corporations and deepening deficits and housing bubbles required attracting vast amounts of capital.

Attracting capital also required making the world safe for the reinvestment of the profits of organized crime and the war machine. Without growing organized crime and military activities through government budgets and contracts, the economy would stop centralizing. The Clinton Administration was to govern a doubling of the federal prison population.

Whether through subsidy, credit and asset forfeiture kickbacks to state and local government or increased laws, regulations and federal sentencing and imprisonment, the supremacy of the federal enforcement infrastructure and the industry it feeds was to be a Clinton legacy.

One of the first major initiatives by President Bill Clinton was the Omnibus Crime Bill, signed into law in September 1994. This legislation implemented mandatory sentencing, authorized $10.5 billion to fund prison construction that mandatory sentencing would help require, loosened the rules on allowing federal asset forfeiture teams to keep and spend the money their operations made from seizing assets, and provided federal monies for local police. The legislation also provided a variety of pork for a Clinton Administration vogue constituency — Community Development Corporations (CDCs) and Community Development Financial Institutions (CDFIs). The CDCs and CDFIs became instrumental during this period in putting a socially acceptable face on increasing central control of local finance and shutting off equity capital to small business.

The potential impact on the private prison industry was significant. With the bill only through the house, former Attorney General Benjamin Civiletti joined the board of Wackenhut Corrections, which went public in July 1994 with an initial public offering of 2.2 million shares. By the end of 1998, Wackenhut’s stock market value had increased almost ten times. When I visited their website at that time it offered a feature that flashed the number of beds they owned and managed. The number increased as I was watching it — the prison business was growing that fast.

However, the Clinton Administration did not wait for the Omnibus Crime Bill to build the federal enforcement infrastructure. Government-wide, agencies were encouraged to cash in on support in both Executive Branch and Congress for authorizations and programs — many justified under the umbrella of the War on Drugs — that allowed agency personnel to carry weapons, make arrests and generate revenues from money makers such as civil money penalties and asset forfeitures and seizures. Indeed, federal enforcement was moving towards a model that some would call “for profit” faster than one could say “Sheriff of Nottingham.”

On February 4, 1994, U.S. Vice President Al Gore announced Operation Safe Home, a new enforcement program at HUD. Gore was a former Senator from Tennessee. His hometown of Nashville was home of the largest private prison company, Corrections Corporation of America (CCA). He was joined at the press conference by Secretary of the Treasury Lloyd Bentsen, Attorney General Janet Reno, Director of Drug Policy Lee Brown and Secretary of HUD Henry Cisneros who said that the Operation Safe Home initiative would claim $800 million of HUD’s resources. Operation Safe Home was to receive significant support from the Senate and House appropriations committees. It turned the HUD Inspector General’s office from an auditor of program areas to a developer of programs competing for funding with the offices they were supposed to be auditing — a serious conflict of interest and built-in failure of government internal controls.

According to the announcement, Operation Safe Home was expected to “combat violent crime in public and assisted housing.” As part of this program, the HUD Office of Inspector General (OIG) coordinated with various federal, state and local enforcement task forces. Federal agencies that partnered with HUD included the FBI, the Drug Enforcement Agency (DEA), the Bureau of Alcohol, Tobacco and Firearms (ATF), the Internal Revenue Service (IRS), the Secret Service, the U.S. Marshal’s Service, the Postal Inspection Service, the U.S. Customs Service, the Immigration and Naturalization Service (INS) and the Department of Justice (DOJ). The primary performance measures reported in the HUD OIG Semi-Annual Performance Report to Congress for this program are the total number of asset forfeitures/seizures, equity skimming collections and arrests. Subsequent intra-agency efforts such as the “ACE” program sponsored by DOJ and initiated by U.S. Attorney’s Offices, working with the DOJ Asset Forfeiture Fund, HUD OIG and HUD Office of General Counsel promoted revenue generating activities as well.

Behind the scenes what all this meant was big budget increases for DOJ and the portions of the agencies that were focused on profitable enforcement and the War on Drugs. Big budget increases meant big contract budget increases as government outsourced more and more work. In “Prisons for Profit: A special report; Jail Business Shows Its Weaknesses,” Jeff Gerth and Stephen Labaton in the New York Times in November 1995 describe the political appointees in the Clinton Administration who were successful at overcoming the natural intelligence of the career civil service at DOJ:

“In the middle of last year, the White House sent its proposal to privatize prisons to the Justice Department, where it was greeted with a frosty response, according to officials involved in the discussions.

“To help overcome the resistance of senior officials at the Justice Department and the Bureau of Prisons, the plan’s architect at the White House, Christopher Edley Jr., asked Mr. Gore’s office to turn up the heat.

“Mr. Edley, an associate director of the Office of Management and Budget, enlisted the aid of Ms. Kamarck, Mr. Gore’s senior policy adviser overseeing his government review. She then called her friend, Ms. Gorelick, the Deputy Attorney General, who oversees the day-to-day operations of the Justice Department.

“I convinced Jamie to do more of it,” Ms. Kamarck recalled.”

Cornell Corrections was one of the beneficiaries of Chris Edley, Elaine Kamarck and Jamie Gorelick’s efforts. According to Cornell’s 1996 Prospectus (the offering document provided to investors) filed with the SEC, after building a capacity of approximately 1100 beds over a five year period, Cornell in a nine month period was suddenly blessed with a feeding frenzy of new contracts, contract renewals and contract acquisition approvals that nearly tripled their capacity — all from the Federal Bureau of Prisons at the Department of Justice.

Contract Awards, Renewals and Acquisition Approvals to Cornell Corrections by DOJ, September 1995 to April 1996

9/95 Oakland 61 Pre-Release
11/95 San Diego 50 Pre-Release
12/95 Salt Lake 58 Pre-Release
1/96 Houston 94 Pre-Release *
2/96 San Francisco 81 Pre-Release
2/96 Big Spring, Texas 1305 Secure
3/96 Santa Barbara 25 Pre-Release
4/96 El Monte, California 52 Pre-Release
TOTAL 1726
Note: * This location is named the Peter A. Liedel Community Center after Cornell board member and Dillon Read officer Peter A. Liedel.

The acquisition of the Big Spring, Texas facilities from MidTex, signed in February of 1996 and closed in July 1996 brought on board Charles J. Haugh to be Cornell’s Director of Secure Institutions as of May 1997. Haugh had most recently been the Executive Director of MidTex. From 1963 to 1988, Haugh had served in numerous capacities for the Federal Bureau of Prisons at DOJ, including Special Assistant to Director Administrator of Correctional Services Branch, Associate Warden, Chief Correctional Supervisor and Correctional Officer.

Gerth and Labaton in “Prisons for Profit” describe who in the Clinton Administration got it done:

“Federal officials say they are comfortable with letting private companies run Federal prisons because the industry has become mature, gaining experience running state and local jails. But Federal officials have also grown comfortable with the prison industry because its ranks now include many former colleagues as senior and other law-enforcement officials have taken positions at private corrections companies, Washington’s latest revolving door profession.

“The industry leader is the Corrections Corporation of America, a 12-year-old company based in Nashville. Some of the company’s officials are former Federal prison employees, and the company’s director of strategic planning, Michael Quinlan, headed the Bureau of Prisons in the Bush Administration.

“Another industry leader is the Wackenhut Corrections Corporation of Coral Gables, Florida. Its directors include Norman A. Carlson, Mr. Quinlan’s predecessor as the director of the prisons bureau, and Benjamin R. Civiletti, a former Attorney General.

“The Acting Attorney General in the first months of the Clinton Administration, Stuart Gerson, is on the board of Esmor Correctional Services of Sarasota, Fla. Four months ago, the Immigration and Naturalization Service, a unit of the Justice Department, canceled its contract with Esmor after an uprising at its detention center in Elizabeth, N.J. An investigation by immigration officials concluded that Esmor, trying to cut costs, had failed to train guards, some of whom beat detainees.

“The revolving door is beginning to work both ways. Not only has the private sector turned to former Federal officials, the Government has also started to look to industry leaders for aid in developing plans to hand new prisons over to private management.

“Mr. Crane, a general counsel at the Corrections Corporation in the 1980s, was retained briefly as a consultant by the Bureau of Prisons to help write a model contract that is going to be used to hire the company to run the Federal prison in Taft.”

The Mr. Crane who they have hired to develop the contract is the same Mr. Crane who arranged for the prisoners to be shipped from North Carolina to Rhode Island to save Cornell Corrections and Dillon Read’s municipal bond buyers.

The outpouring of contracts from the Department of Justice to Cornell was very significant. When Cornell did its IPO in October of 1996, I estimate it had an implied “per bed” or “per prisoner” valuation of $24,241. Valuing the company at the IPO price, the total company value was $81 million. Without the contracts from the Federal Bureau of Prisons, the company value would have been approximately $39 million, assuming the company could have held a $24,241 per prisoner multiple or come to market at all — both unlikely in my opinion. The increase in total valuation of stock held by Dillon and its funds based on these assumptions would have been a minimum of $18.5 million. In short, the Dillon Read officers and directors invested in Cornell experienced a more than double in the increase in their value of their personal holdings of Cornell stock as a result of six months of contract decisions by DOJ and its agencies.

Deputy Attorney General Jamie Gorelick, who according to the New York Times article had overseen the new policy of prison privatization, left DOJ in 1997. She then became a Vice Chair of Fannie Mae, a “government sponsored enterprise.” This means it is a private company that enjoys significant governmental support. Fannie Mae buys mortgages and combines them in pools. They then sell securities in these pools as a way of increasing the flow of capital to the mortgage markets.

The reader can appreciate why Wall Street would welcome someone as accommodating as Gorelick at Fannie Mae. This was a period when the profits rolled in from engineering the most spectacular growth in mortgage debt in U.S. history.[51] As one real estate broker said, “They have turned our homes into ATM machines.” Fannie Mae has been a leading player in centralizing control of the mortgage markets into Washington D.C. and Wall Street. And that means as people were rounded up and shipped to prison as part of Operation Safe Home, Fannie was right behind to finance the gentrification of neighborhoods. And that is before we ask questions about the extent to which the estimated annual financial flows of $500 billion–$1 trillion money laundering through the U.S. financial system or money missing from the US government are reinvested into Fannie Mae securities.

It is important before closing this description of Cornell’s extraordinary good fortune with the Federal Bureau of Prisons and DOJ in the fall of 1995 and the spring and summer of 1996 to provide some additional context. During this period, America was in the middle of a Presidential election. Bill Clinton and Al Gore were running for their second term. Dillon Read was a traditionally Republican firm, with the largest Dillon investors in Cornell giving generously to the Republican Party as well as to the Dole-Kemp campaign, whose campaign manager, Scott Reed, had been Kemp’s chief of staff at HUD and then Executive Director of the Republican Party. The corporate ancestry and relations of Cornell — Bechtel, Houston, their auditor, Arthur Anderson’s Houston office, their attorney, Baker Botts, and their construction company, Halliburton/KBR — are ties all deeply associated with the Bush family and Republican camp.

Federal Campaign Donations of Seven Largest Dillon Investors in Cornell Corrections Found in Center for Responsive Politics Database – 1995 & 1996

Contributor Date Amount Recipient
David Niemiec 10/29/1996 ($250) Weld, William F
Franklin Hobbs 10/24/1996 $1,000 Weld, William F
Franklin Hobbs 10/23/1996 ($2,000) Weld, William F
Peter Flanigan 10/22/1996 $450 National Republican Senatorial Committee
Peter Flanigan 10/16/1996 $500 Hutchinson, Tim
John Haskell 10/14/1996 $500 National Republican Senatorial Committee
Peter Flanigan 10/3/1996 $500 Cubin, Barbara
David Niemiec 10/3/1996 $5,000 National Republican Congressional Committee
John Haskell 9/13/1996 $1,000 RNC/Repub National State Elections Committee
David Niemiec 8/30/1996 $1,000 Molinari, Susan
John Haskell 8/29/1996 $15,000 RNC/Repub National State Elections Committee
Peter Flanigan 8/12/1996 $1,000 RNC/Repub National State Elections Committee
David Niemiec 8/7/1996 $1,000 Paxon, Bill
Peter Flanigan 8/5/1996 $500 Weld, William F
Peter Flanigan 7/31/1996 $40,000 RNC/Repub National State Elections Committee
Peter Flanigan 5/28/1996 $1,000 Sessions, Jeff
John Haskell 5/17/1996 $500 Livingston, Jeffrey
David Niemiec 5/1/1996 $5,000 National Republican Congressional Committee
Peter Flanigan 4/30/1996 $5,000 Republican National Committee
David Niemiec 4/30/1996 $15,000 Republican National Committee
John Birkelund 4/19/1996 $1,000 Dole, Bob
David Niemiec 3/21/1996 $5,000 National Republican Congressional Committee
John Haskell 3/8/1996 $365 New York Republican Campaign Committee
Peter Flanigan 2/29/1996 $250 Cubin, Barbara
George Wiegers 2/26/1996 $1,000 Alexander, Lamar
Franklin Hobbs 2/23/1996 $1,000 Weld, William F
Kenneth Schmidt 2/21/1996 $500 Alexander, Lamar
David Niemiec 2/12/1996 $250 Weld, William F
Peter Flanigan 2/2/1996 $500 New York Republican County Committee
Peter Flanigan ½9/1996 $250 Miller, James C III
John Haskell ½6/1996 $1,000 Smith, Gordon
Peter Flanigan ½3/1996 $1,000 Smith, Gordon
Peter Flanigan 1/10/1996 $1,000 Weld, William F
Peter Flanigan ½/1996 $1,000 National Republican Senatorial Committee
Peter Flanigan 12/13/1995 $15,000 RNC/Repub National State Elections Committee
Franklin Hobbs 12/9/1995 $1,000 Malcolm Forbes
Peter Flanigan 12/6/1995 $4,500 Republican National Committee
David Niemiec 11/22/1995 $5,000 Republican National Committee
John Haskell 11/10/1995 $1,000 Boschwitz, Rudy
John Haskell 11/7/1995 $1,000 Alexander, Lamar
John Haskell 10/3/1995 $200 Millard, Charles
John Haskell 8/31/1995 $15,000 Republican National Committee
Peter Flanigan 7/31/1995 $500 Thompson, Fred
Franklin Hobbs 7/13/1995 $1,000 Alexander, Lamar
David Niemiec 5/5/1995 $5,000 National Republican Congressional Committee
Peter Flanigan 3/22/1995 $500 New York Republican County Committee
John Birkelund 3/9/1995 $1,000 Alexander, Lamar
John Birkelund 3/7/1995 $1,000 Time Future Inc
Peter Flanigan 2/25/1995 ($1,000) Gramm, Phil
Peter Flanigan 2/22/1995 $15,000 Republican National Committee
Peter Flanigan 2/14/1995 $1,000 Dole, Bob
Peter Flanigan ½7/1995 $250 Alexander, Lamar
Peter Flanigan ½5/1995 $2,000 Gramm, Phil
* Preliminary, Subject to Change
For data, see Donor Lookup

If you want to see a bi-partisan system at work, follow the money. In the middle of a Presidential election, a Democratic administration engineered significant equity value into a Republican firm’s back pocket. If you step back and take the longer view, however, what you realize is that many of the players involved appear to have connections to Iran Contra and money laundering networks. A surprising number of them went to Harvard and other universities whose endowments are significant players in the investment world. And as it turned out, while the U.S. prison population was soaring from 1 million to 2 million people and US government and consumer debt was skyrocketing, Harvard Endowment was also growing — from $4 billion to $19 billion during the Clinton Administration. Harvard and Harvard graduates seemed to be in the thick of many things profitable.

Billions in tax dollars are being wasted in this scheme alone. It’s our money being used against us and in the deterioration of our citizen rights in general.

Here is Ms. Fitts’ complete article which includes many other ways just one investment firm is subverting our government with our own money.

ETpro's avatar

@Espiritus_Corvus Thanks so much for posting that. I for one pledge to take the time to read the full articel. It’s vitally important stuff. It’s about whether this experiment in liberty and government of the of the people, by the people and for the people shall not perish from the face of the Earth.

incendiary_dan's avatar

@Espiritus_Corvus I’m about a tenth of the way through your post, but you get a GA just for posting that much.

mattbrowne's avatar

Yes. We should focus on fighting self-control failure of young people.

Russell_D_SpacePoet's avatar

I thought I would add this for good measure. Plays in to the prison aspect.

woodcutter's avatar

@Russell_D_SpacePoet A prime example of irony if there ever was one.

Ron_C's avatar

Before the “war on drugs” approximately 15% of the population in the U.S. used drugs, Today, approximately 15% use drugs. The war is an appalling waste of money and resources and one of the first things I’d cut if I was really trying to balance the country’s budget.

Ron_C's avatar

@Espiritus_Corvus I have always maintained that private prisons are constitutionally and morally wrong. You did a great job putting numbers to this disgusting practice.

ETpro's avatar

@Russell_D_SpacePoet Great link. What a wrong-headed set of priorities.

@Ron_C Amen. You’ve got my vote on that platform.

Ron_C's avatar

Absolutely agree that the war on drugs was just another government power grab and it created more problems and criminals than it fixed. Any sane government would of steered clear of this ridiculous legislation after the disaster caused by the prohibition of alcohol.

Espiritus_Corvus's avatar

Not just any sane government. A sane government that is focused on profit at the expense of their citizen’s best interests would take full advantage of the peripheral industries that are created by the War on Drugs. It is the return on corporate investment in the corporate representatives whom we elect. Just like any other modern war. The citizen pays with their lives and livelyhoods, and the corporatocracy wins. Everytime.

Yes, they are very sane. They just seem insane because they operate so far removed from our value system.

Ron_C's avatar

@Espiritus_Corvus ‘They just seem insane because they operate so far removed from our value system.”’ve convinced me.

woodcutter's avatar

everyone who wants to get high is doing it…right this minute. I think that counts as a fail or is Haley Barbour letting killers run free a “better” fail?

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