A Couple of Obvious, and One Not-so-Obvious, Responses to Judge Emmett Sullivan's Question About Deferred Prosecution Agreements

Thursday night, I was at a reception for alumni of my old firm and ran into a former colleague who now spends his time as in-house counsel to a large foreign firm that is the subject of widely publicized federal and state criminal and other investigations.  I asked him how the job was going and he said, in substance, "We have over 10,000 people working for us, but these investigations are the result of the actions of 5 or 6 of them,  Still the whole organization is being punished for what they did".

I immediately thought of that conversation when I read reports yesterday that U.S. District Judge Emmett Sullivan in Washington D.C. had issued an 84-page opinion (which can be downloaded at the preceding link) musing on what he perceives to be an unwise disparity in the application of criminal law to corporations and individuals.  Specifically, Judge Sullivan complains that prosecutors are willing to use "deferred prosecution agreements" ("DPAs") in dealing with corporations but should offer the same opportunity to individuals, which he believes was the original intent for inserting the DPA mechanism as an exception within the "Speedy Trial Act".  His concerns are pure dicta as his opinion grants the motion of the Department of Justice for approval of DPAs for two privately held corporations alleged to have committed bribery in the pursuit of federal contracts.  Still, they are catnip to the likes of the New York Times which has persistently displayed an embarrassing lack of understanding of the basic aspects of corporations and so I thought I would write a more informed summary of Judge Sullivan's decision, which is far from the raving left-wing screed the Times article implies it to be.

In one of the cases, four individuals -- two employees of the Army Corps of Engineers and two employees of the company seeking the contract -- were prosecuted and made guilty pleas.  In the second, which involved bribes sought and paid in South Korea in relation to contracts pertaining to the U.S. Armed Forces' presence there, no individuals have been prosecuted yet, but that DPA requires the executives of the defendant company to cooperate with the government in its ongoing investigation.

Judge Sullivan first reviews the legislative history that gave rise to the DPA exception under the Speedy Trial Act deadlines.  He concludes from it that federal district courts are intended to give limited review to DPAs.  The section of the Speedy Trial Act that authorizes DPAs (28 U.S.C. 3161(h)) explicitly requires court approval, but that requirement is lodged in a sentence that says the DPA must be entered into "for the purpose of allowing the defendant to demonstrate his good conduct".  Thus, Judge Sullivan  determines judicial scrutiny is limited to ensuring that the DPA is really about "diversion" of the defendant into a supervised program, and not an attempt to endrun other aspects of the Speedy Trial Act, citing S. Rep. No. 93-1021 at 37 (1974).  He also allows that the district court would have the inherent power to withhold approval over "especially problematic" DPAs, giving examples, drawn from United States v. HSBC Bank USA, No. 12-cr-763, 2013 WL 3306161 (E.D.N.Y. July 1, 2013), such as provisions conferring personal benefits on the prosecutor or on persons or institutions of interest to the prosecutor.

His conclusion appears to be closer to the position the government argued before him and in the HSBC case than to the broader view of the judge's role taken by Judge Richard Leon, in United States v.Fokker Servs., B.V.,79 F.Supp.3d 160 (D.D.C. 2015), appeals docketed, Nos. 15-3016, 15-3017 (D.C. Cir. filed Feb. 23, 2015).  In Fokker, Judge Leon became apparently the only federal judge in history to reject a DPA because it wasn't harsh enough relative to the alleged conduct (violating export control laws relative to Iran for over 5 years (recall Fokker is a non-US-based company)).  Without explicitly disagreeing with Judge Leon, Judge Sullivan expresses significant separation-of-powers reservations about the judiciary usurping the executive branch's role in determining whether to prosecute someone, individual or corporate.  (Sorry New York Times!)

The judge then subjects the two agreements before him to said limited review and approves them,  Although it's not my focus here, it's at least relevant to spend a minute on the backstory to gain some context for why prosecutors might use DPAs for these two cases.  In the case of the Army Corps of Engineers bribery, recall that it was the government employee who requested the bribe.  It's not exactly entrapment, since the employee wasn't a law enforcement officer, but it makes criminal sanctions a little less compelling since there isn't as much deterrence value in punishing the second to act in a criminal transaction. Also, assuming that a conviction would disqualify the private company from further Army Corps of Engineers work, it seems a little disingenuous to punish the company for conduct solicited by someone at the Army Corps of Engineers.

Somewhat similarly in the case of the South Korean contract bribery case, the defendant who entered into the DPA was a subcontractor who, again, was solicited by the person working for the Army in administering the contract so some of the same factors about punishing the second to act again come into play.

Judge Sullivan then appends the dicta that caught the attention of the Times.  He states that the legislative authority for DPAs was created because the Senate, circa 1974, was impressed by two experimental "diversion" programs implemented in the late 1960s (!) in New York City and Washington D.C., which, he observes, only processed individuals who were not accused on homicide, rape, kidnapping or arson (other criteria as well).  (Apparently persons who committed armed robbery or breaking and entering or sold heroin were eligible for diversion....).  The programs provided "counseling" and "employment" and were supposedly successful as of 1974 (having lived in NYC during the 1970s, I have to say I find that conclusion utterly ridiculous).  Also, it is hard to buy into someone endorsing a New York City "diversion" program in the wake of the murder of Randolph Holder, a New York City police officer, by Tyrone Howard, a career criminal who had been placed in a "diversion" program just this past December after an arrest for selling crack. Nevertheless, I'll try to give an accurate summary of Judge Sullivan's call for expanding the use of DPAs for individuals.

First, he contrasts (a) the use of DPAs for individuals, which amount to a very small portion of all DOJ decisions not to prosecute with (b) the rough equivalence of corporate DPAs to corporate prosecutions.  He notes that the statute does not suggest the use of DPAs for corporations is unwarranted, but rather that they should be offered more often to individuals.  He accompanies this contrast with a complaint about the use of a DPA in regard to GM's ignition switch conduct.  He writes "people are no less prone to rehabilitation than corporations. Drug conspiracy defendants are no less deserving of a second-chance than bribery conspiracy defendants. And society is harmed at least as much by the devastating effect that felony convictions have on the lives of
its citizens as it is by the effect of criminal convictions on corporations."  He cites no authority for these beliefs.

Although I agree with the judge that the failure to prosecute culpable individuals at GM is troubling, his overall position shows, I am afraid, that the judge does not very much about corporations. You can't equate a person and a corporation in this fashion.  As illustrated by my former partner's remarks above, when a large corporation does something wrong, it is usually a very small fraction of its employees that are involved in that wrongdoing. A corporation is typically packed with innocent, law-abiding employees.  In contrast, when an individual does something wrong, 100% of that individual committed the crime. There is no option to separate the part of the individual that committed the crime from some part that didn't.  So it strikes me as fallacious and naive to say that people are as likely to rehabilitate as corporations. When you remove the people who act criminally from a corporation, you are going to be much more likely not to see the corporation repeat that kind of conduct again. In the case of GM, virtually everyone involved at GM today, from workers to shareholders had no involvement in the ignition-switch liability and can rehabilitate the corporation quite easily just by continuing to act as they did, once the culpable individuals are excised.  You can't excise a small part of an individual and rehabilitate the rest.

Let me offer a further example relevant to the proposition of prosecuting corporations for acts of their non-control-group employees.  Recall that in the bribery case at the Army Corps of Engineers, the bribe was solicited by an employee at the Corps.  Yet no one even dreams of saying the Army Corps of Engineers should be convicted of a crime.  Why not? It's the same "respondeat superior" argument. And frankly, this is definitely not the only time an Army Corps of Engineers employee solicited a bribe.  I plugged "Army Corps of Engineers bribery scandal" into Google and the first page had FBI and newspaper reports of bribery arrests and investigations involving Army Corps of Engineers contracts from every year this decade.  So why shouldn't the Army Corps of Engineers be treated as a recidivist bribe-seeking organization and convicted, the way progressives call for corporations to be convicted?  Recall that many of the claims bought against banks by the Obama Administration were based on an interpretation of FIRREA that made it a crime for a bank to harm itself.  So if that is a valid basis for criminal charges against private sector institutions, why not for public sector institutions?

Of course, the answer is, the bribe seekers were not carrying out the Army Corps of Engineers' mission, they were off on a "frolic and detour", etc.  "Respondeat superior" does not come into play, you can't attribute the individuals' conduct to the public-spirited Army Corps of Engineers.  Second, what good would it do for the citizens to convict a federal organization? Would it have to go out of business and how would that be in the public interest?  All of those may be legitimate observations or concerns, but they are identical in the case of a privately held corporation who receives a bribe request from an Army Corps employee. Private sector and public sector organizations should be treated alike, it seems to me, in terms of criminal exposure for acts of their employees.

Judge Sullivan goes on to recite a number of proposals / efforts to reduce incarceration in federal prisons particularly for drug offenses.  He lauds these and talks about the potential for responses to drug dealing other than incarceration to result in a net increase in welfare to society. He cites no data. But quotes President Obama that we are "a nation of second chances". Personally, although I think judges should have greater discretion over sentencing, I am skeptical about the claim of efficacy of diversion programs, and not just because of the Randolph Holder killing.

Skeptical because, although prison is really bad for people, it's naive to think that they will rehabilitate-in-place, in the same environment they were committing crimes in. It's the classic fallacy of policy debate to say X is bad, so we should do Y instead, without showing Y is better. It's easily possible that X and Y are both bad, so which one is worse and for whom - that's the real policy question.  That a person committing a crime is privileged to receive governmental assistance over a victim is a difficult proposition to sustain.  If you don't want to put people in jail for some action, let it be legal and get rid of the collateral damage that way. But if it's a crime, returning people to the environment of the crime strikes me as likely to have as high a rate of failure as incarceration, unless magically you get all the criminals in the area into a rehabilitation program on the same day.

More significantly, I think a lot of drug arrests in urban areas are of people who the cops believe are committing other, more violent crimes, about which  no one is willing to testify for fear of violent reprisals.  These arrests are a modern version of the arrest of Al Capone for federal income tax evasion -- a crime that the government can prosecute without a "snitch" because you only need a police officer to testify to possession. The arrest record of the man who killed Randolph Holder is a perfect example of this. He had been arrested 23 times but had no conviction for violent offenses. In few  cases, I suspect, we are talking about true "second" chances. Tyrone Howard may be an extreme example, but 23?

But Judge Sullivan doesn't even touch on the real motivation for corporate DPAs vs individual DPAs.  With corporate DPAs, prosecutors make money.

First, DPAs often involve a fine being paid.  And often the prosecuting body keeps a good chunk of that fine for its own operating expenses. Per The Economist from August of last year:  “Contrary to the conventional wisdom,” write Margaret Lemos and Max Minzner in an article in January’s Harvard Law Review, “public enforcers often seek large monetary awards for self-interested reasons divorced from the public interest in deterrence. The incentives are strongest when enforcement agencies are permitted to retain all or some of the proceeds of enforcement—an institutional arrangement that is common at the state level and beginning to crop up in federal law.” (The full-text of the HLR article is here.)

Second, corporate DPAs have intensive monitoring, typically done by a private lawyer who used to be -- shocking, I know -- an ex-prosecutor, whose fees are paid by the company party to the DPA.  So prosecutors have a strong interest in the continuance of DPAs because they can envision, when they are ex-prosecutors, getting paid to be monitors!  Men and women who made maybe $60,000 in a year can collect more than that in just a month of billing at $700 per hour and up.  That's the real reason why corporate DPAs have spiked in recent years.  Whereas individual DPAs just cost the fisc money to carry out and supervise, corporate DPAs get private sector money to flow into the prosecutors' budgets and provide good income for ex-prosecutors once they leave office. It seems to me the power to scrutinize DPAs for provisions that are "especially problematic" ought to be focused on these monitoring arrangements. It seems to me pretty sleazy that criminal liability is avoided by a mechanism that results in six, seven and eight figure payments to private sector actors.  How is that not "especially problematic"?  If a company is going to pay that kind of money and avoid criminal liability, it would seem much cleaner to have the "monitoring" done by the FBI, the GAO, or some other government watchdog, and have the payments fixed and approved by the court at the time the DPA is approved, and paid to the fisc.

At the end of the day, though, in my opinion, corporations shouldn't be prosecuted unless the criminal behavior runs all they way up to the C-suite and board level.  That doesn't rule out restitutions, regulatory fines, civil liability, etc. It's just that criminal sanctions are misplaced when it comes to a legal person that has no will of its own, just a large number of employees the vast majority of whom are not culpable in any manner.  In this light, corporate DPAs would by and large go away and the utility of DPAs for individuals would be assessed, as it should, without the use of spurious analogies.

An Appellate Court Shows How To Analyze Escrow Accounts in Bankruptcy

One of the recurring frustrations of my practicing years was having to confront a widespread ineptitude among lenders, borrowers and their counsel concerning how to set up an escrow account to protect its contents from being siphoned into the future bankruptcy of the counterparty to the escrow.  Up to and even well after the decision of the Second Circuit in In re Vienna Park Properties, 976 F.2d 106 (2d Cir. 1992), which avoided a lien on a poorly structured escrow account, I frequently encountered lenders and their counsel, whether in-house or outside, who would frequently just throw money into an account at some "escrow agent" and walk away from the closing thinking they had "perfected liens" on the money in the "escrow account" which meant they could just take it upon a default or bankruptcy.   This was a particular problem when said ill-advised lender would come to me in another deal with a term sheet calling for such an arrangement and then be perplexed and suspicious when I would explain to them that their request for a "perfection opinion" from my firm on their "lien" on the money in the escrow account was going to be more harmful to their interests than helpful and the best thing I could do to protect their interests was to restructure the terms of the arrangement.  It was a practical lesson in the lawyering version of "Gresham's Law" (that bad money drives out good) -- in transactional lawyering, it is often the case that, if bad lawyering gets somewhere first, a client sometimes might just as soon prefer not to learn about the risk it's holding in other deals.

So I was gratified to see in Tuesday's Daily Bankruptcy News a New Case squib about a Tenth Circuit case decided Monday that seems to have gotten the analysis of an escrow account in bankruptcy right for a change.  When I clicked on the link to the opinion itself, I saw the opinion is not intended for publication and not to be cited as precedent, and I decided it would be beneficial to write a short post about why it is right so that its analysis, being correct, is better preserved and propagated, which in turn will lead to greater accuracy in future litigation over, and structuring of, these arrangements.

The Tenth Circuit decision is captioned In re Expert South Tulsa LLC, Case No. 15-3000 (10th Cir. Oct 19, 2015); it affirms a reported BAP opinion (522 B.R. 634, which I haven't read).  As succinctly stated in the opinion, one party to the escrow, LTF, bought a piece of land from the other party, debtor Expert South Tulsa.  In the purchase agreement, Expert South Tulsa agreed to make improvements to the land.  In an arrangement that is very common in small business and middle market commercial matters (which is why it's important that courts gets these analyses right), LTF required Expert South Tulsa to put the funds for completion of the improvements into escrow (a more costly mechanism to accomplish the same result would have been a surety bond, although the bonding company might well have required the same arrangement and certainly would have charged a fee for its involvement).  Critically, the opinion reports, Expert South Tulsa "could recover portions of the escrowed funds each time it completed a segment" of the improvements.  Of course, Expert South Tulsa filed chapter 11 before completing much of the work.  LTF initiated an adversary proceeding declaring that the funds in escrow were not part of the bankruptcy estate.  Expert South Tulsa disagreed, seemingly finding the proposition so ludicrously obvious that, the opinion notes, it didn't offer the bankruptcy judge much more than a conclusory snort that, before the money went into escrow, it was in the debtor's pocket, so self-evidently the funds were in the  debtor's estate.

The panel correctly noted that the legal characterization of a debtor's interest in property is strictly one of state law (Butner; Whiting Pools).  And under Oklahoma law, as under the laws I dealt with in my own practice, title to the funds in an escrow account belongs to the escrow agent.  What the principals under an escrow agreement have is a contractual (sometimes called "contingent equitable") right to delivery of the funds upon satisfaction of the conditions specified in the agreement.  That interest, not an interest in the funds themselves, passes to the bankruptcy estate of a party to the agreement that goes into bankruptcy.  That interest, by the way, is a "general intangible" for UCC purposes and a creditor may be wise to file a UCC against that interest to be perfected in the value it represents.  But the lender, or other counterparty to the escrow agreement should not characterize its position as having a "lien" on the escrow account itself, nor on the money in it, or a court may view that as evidence that the arrangement is not a "true escrow" but merely a "disguised cash collateral arrangement" in which case the funds will be deemed property of the bankruptcy estate and the lender will have, at best, a claim for adequate perfection and at worst, an unperfected and avoidable lien on the money in the account, as was the result in Vienna Park.

So, how does one know one has a "true escrow" and not a "disguised cash collateral" setup.  This is where the terms of the escrow agreement are fundamental.  In Expert South Tulsa, they had a true escrow because (a) the conditions for disbursement from the escrow were objective and beyond the discretion of the debtor -- it could receive funds only when it completed a segment of the improvements, an objectively verifiable situation beyond its discretion -- and (b) disbursement from the escrow did not reduce the debtor's obligation to the counterparty to the escrow; rather, it merely repaid the debtor for work previously performed.  So it looked like a "true escrow".

This contrasts with the "escrow account" in Vienna Park where (a) the debtor, through a manager of its choosing, had discretion over spending the funds in the escrow account and (b) the lender took a lien on the funds in the funds in the escrow account and the debtor's "residual" interest in those funds and the "escrow" terminated upon "satisfaction" of the debtor's obligations to the lender.  As the lender had failed to file a UCC financing statement covering those security interests (thinking they were perfected through possession even though the funds were on deposit in a third-party bank and weren't tangible in the first place), their lien was avoided and the funds were free for the estate to use in the chapter 11 case (today, that arrangement could be perfected through a "control agreement" with that third-party bank).  So the two keys to setting up an escrow to be outside a bankruptcy estate are: (1) have disbursement be based on objective criteria and not under the control of the debtor and (2) have disbursement not reduce the debtor's debt.

In the Tenth Circuit case, LTF, the counterparty to the escrow, set it up and documented it just right to keep it out of the bankruptcy estate altogether.  Disbursement was objective and not in the debtor's control and disbursement did not benefit LTF by reducing the debtor's debt to LTF; rather, it benefited the estate.  And those are the two fundamental principles that all good-against-bankruptcy escrow arrangements depend on.  Of course, as the issue is one of state law, in any given specific situation, the relevant state law may prescribe additional bells and whistles to structure the escrow in the optimum manner and practitioners and litigators should inform themselves fully about the escrow law of the relevant state before sallying forth to advise clients or advocate to bankruptcy judges.

The Law of Second Chances Takes Effect in Spain

One of the drags on the ability of Spain's economy to recover from the financial crisis of 2007-2009 was the lack of a mechanism for consumers to obtain relief from the debts they ran up in the years leading up to the crisis, debts that were mainly incurred in the form of residential mortgages incurred in the housing boom that paralleled the trajectory of the US's housing boom in those years.
As Spain had no meaningful procedure for individuals to obtain debt relief, it had no method to free up post-crisis wages and salaries from the legacy debt of pre-crisis mortgage debt.  This not only dampened overall demand but had the secondary effect of weighing down the Spanish financial system, in a manner very similar to the Japanese banking system a generation earlier, with "zombie" loans, that were neither collectible in accordance with their terms, nor dischargeable, and not susceptible to robust valuation as they lingered on financial institution's balance sheets, given the uncertainty surrounding the prospects for ultimate recovery.

Slowly, Spain's government, led by the center-right Partido Popular that replaced the Socialist coalition that governed into the crisis era, has instituted measures to facilitate consumer debt relief for the first time.   There have also been business insolvency reforms, which I am not going to touch on here (for those interested, here are links to some rather spirited memos by Latham and Dentons on those reforms; with regard to the Dentons memo, please be forewarned that there is an egregious mis-translation -- the word "quitas" in Spanish means "discharge," not "pay-off" (you see why I used the word "egregious?)).  It's unlikely that there will be very many English-language explanations of Spain's consumer bankruptcy law, which took effect at the end of July, so this seems like an area I can add some value with a post.

Spain's new consumer bankruptcy law -- which is generally referred to as "la ley de segunda oportunidad", or "the law of a second chance" and also applies to small businesses (less than  five million euros of debt) -- bears a number of rough resemblances to the US consumer bankruptcy regime, for better or worse.  For example, among the eligibility requirements, there is a stringent "good faith" requirement as well as a requirement not to have availed oneself of the procedure within a prescribed period of years.

In general, as one firm of lawyers explains here, the consumer insolvency procedure is basically erected on top of the pre-existing procedural structure for insolvent businesses in Spain to consumers.  As with larger business reorganizations, the individual or small business debtor is encouraged to commence a "concurso" outside of court, which, that firm indicates, can last a long time and requires the debtor to "wait patiently".   An administrator is appointed and s/he prepares a report.  There are negotiations.  If there are disputes over how the debtor is conducting his, her or its affairs, there can be resort to a judge. And, as the firm says there are "large etceteras" in that process.  If, when all is said and done, there is debt remaining after reaching the requisite threshold of agreement with the creditors, the debtor can ask the court to discharge it.

Or, the individual / small business debtor can take a slightly different path, submitting his or her affairs to a notary (individual debtor) or insolvency mediator (small business) who then is expected to facilitate a similar accord among the creditors.

But, if these corporate insolvency analogues fail, there are two other paths to a discharge for the individual or small business.  First, a debtor who, through a judicial proceeding a) liquidates his or her assets, (b) pays in full all of what we would call administrative and statutory priority claims and secured creditors, and c) delivers immediately at least a 25% dividend to unsecured creditors, is entitled to a discharge at that point and need not make further payments out of future income.  Second, a debtor who cannot obtain an agreement with creditors and also cannot meet the necessary payment thresholds for immediate discharge, can get a discharge at the end of, and subject to either full compliance or a "strong effort" to comply with, an approved 5-year payment plan (note also that, should the debtor experience a material, favorable change in circumstances during the term of the payment plan, the creditors may ask for more payments).  It was not clear to me whether the debtor in the latter case must liquidate assets.  The preface to the statute makes a very big deal about the fundamental importance of requiring the debtor to liquidate assets.  But, in the case of a small business debtor, liquidating assets seems quite at odds with the goal of servicing a debt repayment plan over 5 years.  But, in any case, these two options are roughly similar to our chapters 7 and 13, although stricter in, among other respects, the sense that Spain effectively reverses the US "means test" choosing to route debtors of lesser means into their version of chapter 13.  This blogger asserts that the law is still too creditor-friendly, pointing particularly to the ability of creditors to extract more from the debtor during the payment period if circumstances improve materially.

Mortgages are handled in one of three ways.  First, the mortgagor can, of course, keep servicing the mortgage.  Second, the mortgagor can cede the property to the lender and then any deficiency runs through the process above (except, as I read the commentary on the law, the deficiency cannot be discharged nonconsensually through the 5-year payment plan method).  Third, depending on a large number of eligibility criteria, the value of the house, the amount of the annual mortgage payments and the proportion of the mortgagor's annual income that those payments represent, and several "special vulnerability" criteria, the mortgagor is eligible for a procedure that is formally outside of the insolvency laws, known as the "Code of Good Practice" a mortgage restructuring protocol that Spanish banks have adopted "voluntarily" (in the sense of, it's always better to settle with the regulators than to find out what they will do if you don't). There is a hierarchy of debt relief steps that the lenders are supposed to afford the mortgagor under the Code, beginning with lowering the interest rate and stretching out the amortization, and for more difficult debt burdens, write-offs of various magnitudes.  Overall, this strikes me as reasonably similar on the big-picture level, to the US approach, with the Code of Good Practices being analogous to HAMP and similar out-of-court protocols in the US.  One thing I could not tell was whether the 10% haircut that Spain now imposes on secured claims in corporate insolvencies exists in this consumer context as well.

I couldn't find anything in over half a dozen sources I read regarding exemptions. Most references to liquidation of the debtor's assets described it in plenary terms suggesting to me that exemptions are insubstantial.  Certainly there does not appear to be any "homestead exemption".

Although not quite as debtor-friendly as the US consumer bankruptcy regime, and probably too encrusted, even at birth, with substantive complexities and procedural inefficiencies, the "Law of Second Chances" is a big step forward conceptually for Spain and likely to have some positive effect on its economy, which, for unrelated reasons, has finally begun to grow at a normal pace.

Overstating "White Privilege"

The phrase "white privilege" has become a standard buzzword among social justice warriors in the United States and creeps from time to time into more mainstream fora, such as the (poorly argued) debate between Bill O'Reilly and Jon Stewart on The Daily Show last October. 

In the New York Times a couple weeks ago, I read a Michiko Kakutani review of a new book by Ta-Nehisi Coates, a writer at The Atlantic whose column I used to read occasionally.   The review summarizes Coates' book as "a searing meditation [sic (I have no idea how a meditation can  "sear" anything)] on what it means to be black in America today. It takes the form of a letter from Mr. Coates to his 14-year-old son, Samori, and speaks of the perils of living in a country where unarmed black men and boys ...  are dying at the hands of police officers, an America where just last month nine black worshipers were shot and killed in a Charleston, S.C., church by a young white man with apparent links to white supremacist groups online."

Other MSM participants and, of course, the left wing echo chamber have dwelt on Coates' book at length too.  Like Kakutani's review, David Brooks of the Times calls it a "searing contribution to ... education for white people" before excerpting several hateful passages (example: "‘White America’ is a syndicate arrayed to protect its exclusive power to dominate and control our bodies." Or the passage in which he calls the first responders who died in the 9/11 attacks "menaces of nature")(Parenthetically, I can actually understand someone black feeling that way in the flash of a given moment, but I can't understand anyone retaining that feeling and publishing it after any sort of minimal reflection on the facts of 9/11). 

Kakutani's review excerpts a brief passage in which Coates makes  typical assertions about the benefit of being white in America, which even the review - in the Times! - characterizes as "cliched".  Notwithstanding that judgment, I want to go beyond epithets into a deeper analysis of the illogic and inaccuracies in assertions like Coates' about "white privilege", as I did earlier this year in reaction to a fallacious editorial by Nicholas Kristof about modern bias experiments.  Here is the excerpt from Kakutani's review:

"Mr. Coates contrasts [the] world of the streets with the 'other world' of suburbia, 'organized around pot roasts, blueberry pies, fireworks, ice cream sundaes, immaculate bathrooms, and small toy trucks that were loosed in wooded backyards with streams and glens.' He associates this clichéd suburban idyll with ... an exclusionary white dream rooted in a history of subjugation and privilege.  [White people] he contends, 'have forgotten the scale of theft that enriched them in slavery; the terror that allowed them, for a century, to pilfer the vote; the segregationist policy that gave them their suburbs.'"

It's obvious to any reader that white people in suburbs have no monopoly on pot roasts, blueberry pies, fireworks, ice cream sundaes, clean bathrooms or small toy trucks.  So, obviously overstated, but that is not my paramount concern, since any reader can make that judgment for herself or himself.  More significant are the examples of "subjugation and privilege": slavery; vote deprivation; and segregation.  What I want to unpack here is the confusion between "subjugation" and "privilege", which the author, and evidently the reviewer, seem to think of as two sides of the same coin.

I think that is fallacious; that is, probably because discussion of racial bias tends to proceed in terms of  dualities:  white/black; slave/free, etc., which, unquantified, sound equal, reciprocal, zero-sum, the frame obscures a simple quantitative fact, that the percentage of blacks in America at relevant times to the discussion has been consistently 10 - 11%, so small that blacks could indeed be "subjugated" by what Coates identifies, without that subjugation playing a substantial role in causing the status of very many white people today.  Put another way, as I shall illustrate below, there have been so many more white people in America than black at all relevant times, that the current economic status of white people is largely independent of the causes of the current economic status of black people.  Therefore, the concept of "white privilege" is grossly overstated; it would be more accurate to speak about "disparate impact" of policies on black people than to falsely inflate the benefit of "white privilege".  

An easy demonstration of this is the "segregationist policies that gave [white people] the suburbs" according to Coates.  In the period of most rapid suburban expansion, 1950 - 1970, there were three censuses and, in each of them, whites never made up less than 88% of the population:

Year	White	Black	Ratio
1970	177.7	22.6	7.9:1
1960	158.4	18.9	8.4:1
1950	134.9	15	9:1
Net Population Growth	31.8%	50.7%	1.6:1

source:  Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970 (Bicentennial Edition, Part I), Series A73-81; all numbers in millions and rounded to first decimal

Before I delve more deeply into the demographic profile of suburban presence in this period, I will offer a simple example of what these overall demographics mean for "white privilege".

Imagine that every neighborhood in the nation at these points in time had been a microcosm of the national demographics, perfectly mirroring the nation's demographics, with no racial disparity whatsoever.  If, for example, there was a suburban development built in 1950 with 50 homes, the ownership of those homes would have been allocated 45 to whites and 5 to blacks.  By 1970, ownership would have shifted 44:6 (7.9/8.9 * 50). 

If we contrast that with the worst-case segregation scenario, with all the suburbs being populated in the year of highest black population and yet complete exclusion of the black minority, we see that 6 blacks would have been excluded, and 6 whites would have benefited disproportionately.  But, 88% of whites would have been there anyway! 

This is the simple point that needs to be understood about "white privilege".  The vast majority of whites would have been in suburbia under any scenario from the worst case to the most utopian, enjoying all the benefits of the "cliched suburban idyll" Coates depicts.  They would have seen the same home appreciation; paid the same mortgage and property taxes; the vast majority of their kids would have gone to the same public school funded by those taxes, gotten the same grades, and gone to the same colleges; they would have shopped in the same places, joined the same country club, had much the same social interactions, etc. Whatever specific example of the "white privilege" argument one wants to offer, the odds are very high that, as to any given white person, the identified benefit has not been received at the expense of a black person.  Some white people will have benefited disproportionately but, by definition, even in the worst case I've just posited, they cannot amount to more that the black minority's on-average 11% share of the total population -- and  when one  delves into the demographics of residence during the period of suburban expansion more closely, it's really even smaller than that, more like 3% of white people in the relevant period, 

When you get into the demographics of suburban expansion, you may be surprised to find that  the black population in every category classifiable as suburban grew slightly faster than the similarly classifiable white population in this time;

Year	White Urban Fringe	Black Urban Fringe	White Rural Nonfarm	Black Rural Nonfarm	White Other Urban	Black Other Urban
1970	51.4	2.54	41.3	3.8	27.8	2.7
1950	19.9	0.95	28.5	2.5	24.8	2.3
Growth	158%	167%	44%	52%	12%	17%

source:   same document, Series A73-90; all numbers in millions

However, given that the total black population grew 60% faster than the total white population in those decades, as the first table showed, these slight differences cover less than half of the black population growth (3.3 million out of 7.6 million) in those decades.  The real change in black population location was that black rural families moved disproportionately into the central cities, as documented in, among other things, "The Warmth of Other Suns", a 2010 history of that migration by Isabel Wilkerson that won the Pulitzer Prize (such a rural - > urban migration is, by the way, not an uncommon demographic movement in nations worldwide, regardless of race; it happened in the Industrial Revolution in England; it has been the source of urbanization in China and India, for example; it goes on today in Brazil and it is a substantial part of the Hispanic migration into the US as well).

Year	White Rural Farm	Black Rural Farm	White Central Cities	Black Central Cities
1970	7.8	0.45	49.5	13.1
1950	19.7	3.16	42	6.1
Growth	- 60%	- 86%	18%	115%

source: same as above

If I recompute the suburban population of 1970 to mirror the total national population of that year, the racial distribution would look like this (all numbers in millions):

White non-farm, non-central-city (unadjusted)	White non-farm, non-central-city (adjusted)	Change	Black non-farm, non-central-city (unadjusted)	Black non-farm, non-central-city (adjusted)	Change
120.1	114.6	-5.5	9.0	14.5	5.5

So, roughly 5.5 million whites would have been replaced in the suburbs (loosely defined  --I know that this national level of analysis is an over-generalization but it is the level Coates argues at, so I think it is where the response should be couched) by blacks, out of a total white suburban population of 120.1 million, or roughly 5%.   That same small shift in the white population would, however, have increased the black suburban population by roughly 60%.  Measured against the total population of each race in 1970, if you want to measure the total impact on each race, the numbers are 3.1% and 24%.  So that was -- roughly speaking, given the 50,000 foot level of national census data -- the racial disparity in housing:  96.9% of whites and 76% of blacks would have landed in the same categories in a racially unaltered allocation of housing. The point, I hope, is well taken: there is virtually no "white privilege" in housing (or much of anything else) because whites are such a large portion of the population, and thus they are inherently a large portion of all of the outcomes of the population.  It's in fact a ludicrously inaccurate form of stereotyping, as much a stereotype as claiming that all black men are criminals.  Yet, even if white privilege is in fact negligible, the black population can experience a disparate negative impact from exclusion.  For this reason, it would be more intelligent to speak in terms of "disparate impact" on blacks than in terms of the insubstantial "white privilege".

The same proposition holds true when one looks at income and affluence, instead of housing dispersion.  It is of course the case that, on all statistical fronts, black income is lower than white income.  For example, the Census Bureau calculates the following median incomes for the several main demographic categories in the US in 2012 as follows (h/t Business Insider):

"Among the race groups, Asian households had the highest median income in 2012 ($68,636). The median income for non-Hispanic White households was $57,009, and it was $33,321 for Black households. For Hispanic households the median income was $39,005,"

It seems clear that the same principle holds true, that, owing to the much larger proportion of white earners in the earning population, substantially all white people would be in approximately the same position, if black earners were distributed in perfect proportions throughout the overall income distribution instead of being over-represented in the lower half of that distribution and under-represented in the upper half of it.  For example, I selected this quote from the Wikipedia page "Affluence in the United States" (which, at least as of this date, has a very progressive perspective):

"in 2005, 81.8% of all 114 million households were White (including White Hispanics), 12.2% were African American, 10.9% were Hispanic and 3.7% were Asian American. While White households are always near the national median due to Whites being the by far most prevalent racial demographic, the percentages of minority households with incomes exceeding $100,000 strayed considerably from their percentage of the overall population. Asian Americans, who represent the smallest surveyed racial demographic in the overall population, were found to be the prevalent minority among six figure income households. Among the nearly twenty million households with six figure incomes, 86.9% were White, 5.9% were Asian American, 5.6% were Hispanic^; and 5.5% were African American.  Among the general individual population with earnings, 82.1% were White, 12.7% were Hispanic, 11.0% were African American and 4.6% were Asian American.^"

Note that the percentages add up to > 100% because of double counting of "white hispanics".  Still the order of magnitude of the white/black ratio is such that the double counting doesn't meaningfully alter the main point.  Even if all "white hispanics" are subtracted from the "white" population, the excess percentage of white earners "among the nearly twenty million households with six figure incomes" is 17% ((.869 - .056) / (.821 - .127)), meaning that 5 of every 6 whites in that top earning bracket would be there if its constituents were a perfect mirror of the demographics of all earners.  That would be the most one could say about "white privilege" in the modern income distribution (although one might, I think, fairly question, in an analysis of an asserted birth-based privilege within the polity of the United States, whether new immigrants, who (a) were born outside the US and (b) came here voluntarily, should be weighted; that they dwell in a white majority polity and compete against a white majority workforce and have to sell to majority white consumers are not accidents of birth, but the results of their conscious choices. (In fact, one might fairly call it a "privilege" for a person to be able to live and work in a wealthier polity than the one he or she was born into). Having been born outside the polity, they are not on an apples-to-apples basis with the vast majority of the population set being scrutinized; were they to be subtracted, the white proportion of the population set would skew higher and the percentage of "excess" white membership in the top earning bracket  would shrink materially). 

A subsidiary point I want to draw out circles back to my comment at the outset that the Jon Stewart / Bill O'Reilly "debate" over "white privilege" was poorly argued.   As I think I've shown, in a nation that is mostly white, most of the successful people will likely be white, even in a perfectly racially distributed set of outcomes.  So any white person, if challenged to defend his success against contentions of white privilege, can quite rationally and legitimately respond by saying, "no, I am confident I would have been in this position even in a world of perfectly racially distributed outcomes."  Obviously some small number of white people would be wrong in making that statement, but they would be a small minority.  So that is one relevant point O'Reilly should logically have said in response. 

But there is actually a stronger point that the most successful people like O'Reilly and Stewart can make. When a white person,  like each of those men, succeeds in generating a very high income, he has outcompeted, not just the people of color in his demographic cohort, but the whites in it as well.  If he's in the top 99%, or 99.9%, he's outperformed at least 98% of the other holders of "white privilege".  So mere "whiteness" can't explain very much of his income, or median white income would be up at his level.  A "white privilege" attack on the most successful seems to me to be remarkably sophomoric and truly superficial, even though they are the most visible targets of such attacks.  .

Rather, where the effects of "white privilege" would be highest would be the lower one goes in the income distribution. Think of this in terms of displacement.  In the very top percentile, let's say, for argument's sake, 1/6 of the whites are there by virtue of "white privilege".  If you extract them from the top percentile, they have still outcompeted all the whites below them.  They don't drop to the bottom, they just drop to the next level of measurement, the 98th percentile; meanwhile, the people of color from the 98th percentile and lower would hypothetically move up to the 99th to replace them.  But this process repeats at each percentile, and when it does, the proportion of whites that have to be moved down grows.  When you examine the 98th percentile, because you've just moved whites in from the 99th percentile, while moving people of color out, it has become even more lopsidedly white, and therefore, the "1/6 of all whites" in that cohort is an even larger raw number than in the 99th percentile, so to make it perfectly racially representative, even more whites within it have to move down to the 97th percentile, from which even more people of color get moved up again, and the process snowballs all the way down the income rankings. 

What this confirms is that, at the very top of the income distribution, the whiteness of anyone in that cohort is least meaningful in terms of its contribution to his or her income, compared to other positions in the income distribution.  Which is really why I thought the O'Reilly / Stewart "debate" missed the point and was poorly argued. 

But, conversely, the lower one goes in the income rankings, the more likely it becomes that at least some of the disparity between a white person's income and that of blacks below them in the rankings can be attributed to the status of being white, because that white person has outperformed less white people than those above him in the rankings.  

 

Maybe this explains in part why "limousine liberals" and other white elites have been historically more progressive on race, while opposition has tended to be strongest at the working class level, that intuitively, the former perceive - I would argue largely correctly - race to have been essentially irrelevant to their success and therefore they are not really sacrificing any of their status to support minority progress, while the latter may intuitively sense their status is more at risk.  Certainly the numbers bear this out.

Coates's passage itemizes other wrongs as well - slavery and voting discrimination in particular. I am not going to write a tome on racial issues and civil rights, but I would analyze them with the same theme, that the black population may suffer a disparate impact from any given policy, but the outcomes of the white population may not be meaningfully affected by that policy, and "white privilege" is a terribly inaccurate frame for the debate.  This is pretty obvious regarding voting, where a 10-11% share of the electorate is not going to, in and of itself, win any elections, especially were it to be dispersed proportionally among all neighborhoods (in fact, I wonder whether the Obama Administration's recently announced plan to push for more racially distributed housing patterns might ironically wind up diluting black representation in legislatures over a few decades).  Claims of black vote suppression in the 21st century strike me as a strategic overstatement made for political purposes; the Democratic party has a huge incentive to maximize black voter presence and decades of electoral results indicate they have been by and large successful, so I doubt there remain significant impediments to black votes mattering.  In the 2 most recent Presidential elections, black turnout percentage has surpassed white turnout percentage, which doesn't plausibly reconcile with a claim of black voter suppression; maybe the candidate matters at the margin (Gore, Kerry, ...  Obama).

Slavery has been covered extensively and I have little to add: all the slaves and slave owners and children thereof and 99%+ of the grandchildren are dead; the vast majority of the white population did not own slaves and were so poor they derived negligible benefit from slavery; there were white slaves and indentured servants throughout the 17th century and substantial albeit non-slave-level discrimination against certain white ethnic groups in the 18th and 19th centuries (in my mother's hometown, when her Irish ancestors arrived, the town experienced "German flight"); slavery was endemic in Caribbean nations, yet black immigrants from those nations often outperform African-Americans in the modern US economy; the Union Army that freed the slaves at staggering human cost to themselves and their families was almost entirely white; the vast majority of the current population had no ancestors who profited, even indirectly, from American slavery, and even among those people who do have such a connection, it represents a small fraction of their ancestry and personal heritage, so it's myopic and distorting to focus on that to the exclusion of the rest of their identity.  

Most of the wealth created in the era of slavery, directly or indirectly, has been destroyed and dissipated, not just by the Civil War but by the several financial crises and panics since then, as well as the creative destruction of capitalism at work, not just here but abroad.  Most of the wealth existing today in the US comes from services provided, goods manufactured and inventions invented in the post-Jim-Crow era, sure, maybe you can find in some institution, like a bank or university, that has been around for two hundred plus years, some record of making money from the slave trade hundreds of years ago, but that has to be measured against all the money it made from other sources in its history to gauge the impact of slavery on the status of that institution today. And a truly full accounting of value transfers between whites and blacks would need to add in the billions of dollars of transfers, through progressive taxation and welfare state mechanisms like Medicaid and food stamps, from the predominantly white upper class to the lowest classes, in which blacks are disproportionately represented, and the value of the urban infrastructure that "white flight" left behind when the suburban exodus occurred -- the water pipes and reservoirs, electric power plants and wires, sewers, paved roads, and so on -- that the new black arrivals did not have to create from scratch.

I can imagine a number of rejoinders to this argument.  Most of them would, I think, from having read hundreds of arguments along these lines, be totally ad hominem and therefore of no intellectual merit; the rejoinders to Brooks's column that popped up when I googled to find the column, for example, all fall into this camp.  A number would consist of rage and epithets and personal insults and claims to possess a higher truth by dint of birth that are again of no intellectual merit. 

Some would sophomorically make the "if Bill Gates were black, he wouldn't have become the  richest person in America" argument, which is (a) fallacious (ecological fallacy), because a statistical analysis, by definition, does not purport to be true of each and every member of the population studied (if it were, you wouldn't need a statistical analysis; and in fact you couldn't do one, as there would be only one statistic); (b) intellectually dishonest, because it materially changes the data set being studied, and (c) even if the sentence in quotes were true, the odds are very high that the person who replaces him as "the richest person in America" would be as white as he is, given the proportion of whites in the population. 

Some would nitpick (e.g.,, blacks are systematically undercounted in censuses - even so, but not to the extent that the white / black proportions would change materially, and I know from ancestral research that whites have been  repeatedly undercounted as well -- among my 8 great-grandparents, for instance, I can come up with 4 omissions off the top of my head from the censuses of 1910, 1920 and 1930, which is a 16.6% undercounting). 

Some would point out, intelligently, that the census data is insufficiently granular to capture the full extent of housing segregation -- there are suburbs and then there are suburbs, and even within suburbs. there was educational segregation (which in my opinion was the largest factor), and everywhere there were job opportunity barriers, often erected by labor unions and politicians responding to their demands (Google "Davis Bacon Act racist" and learn about its racist origins, for instance; why aren't there reparations lawsuits against unions for damages?)  True, I agree with all those points.  In fact, I would say the root of black economic underperformance lies in the fact that they arrived in urban economies, not only with just rural skills (technical and social), but also, unfortunately, at just the time when the economy was changing over to one that required much more sophisticated skills than even the white working class possessed so their gap was larger and has never closed.   But I must also point out that Coates has couched his argument in a simplistic black-urban / white-suburban duality and I am merely responding apples-to-apples.  Were he to write a more nuanced essay, it would be of greater intellectual merit, but likely not garner him the same publicity, so he sort of picked his poison and I decline to be judged by a higher standard than he set for himself.  I also note that Coates sharply criticizes education as an answer to black economic status, and is himself a dropout, so again, I am just responding to the man's particular argument, and I think in respect of education he is seriously wrong.  As well, education funding has been mainly locally raised and therefore, if a white community has higher education spending, they're not taking the excess out of black people's wallets, in some kind of "theft", to use Coates's word; they're funding it themselves by taxing their own white selves.  The progressive argument in this sector is really the opposite of what Coates is arguing, not that whites are taking from blacks, but that white income should be taken and spent in majority-minority school districts by replacing the local property tax method of funding with statewide tax and transfer mechanisms.   

Some would miss the point of this post and assert that this post whitewashes the harm done to black people from various laws, which in fact this post recognizes at multiple points; the point of the post is that contemporary white outcomes are almost entirely independent of contemporary black status and of policies and actions that harmed black people in the past.  Yes, there was segregation, discrimination and racism, and all of that was harmful and wrong, but the demographics are such that the vast majority of white outcomes would have been the same or very close to the same, even if there had been none.  That is just a quantitative fact when one population constitutes 88-90% of the total.

The "white privilege" rubric is just a tactical attempt to advance "social justice"  by de-legitimizing the success any given white person may have had, and thereby legitimizing the transfer from that person of some of his or her economic gains to minority populations, because, even though the most successful white people are the ones whose success is least attributable to race, they, as Willie Sutton once explained about robbing banks, are where the money is.  But it is an intellectually false dogma and deserves to be rebutted by anyone in the "reality-based community" where I've always prided myself on dwelling.