The Strange Death of Liberal America

Not long ago I found a disconcerting message on my answering machine. It said simply, “Don’t send me any more emails. We went bankrupt.” It is a message that has been reverberating through towns in America mostly below the radar screen of the mainstream media.

The businesses filing for bankruptcy range from manufacturers to auto dealers. Some of them are national, many of them are regional, and quite a few are local, the anchors of many small towns. A lot of them are niche businesses. By that I mean they operate in specialized markets often as suppliers to larger firms.

How Bad Is It?

The increase in bankruptcies has skyrocketed in the past year. Despite all the optimistic reports about this economic crisis having turned the corner, that is not the case when it comes to bankruptcy. Last year recorded the highest number ever since the law was changed in 2005 and this year will probably exceed that.  Currently we are experiencing a daily filing rate of over 5,000!

As usual a graph tells the story:

Note the precipitous climb of the graph from a little over a thousand a day in 2006 to over five times that many per day in less than two years!

But it is not just the number of bankruptcies that is disconcerting but the size of them.  A chart of the largest bankruptcies from 1980 until the present reveals that most of them have occurred in the last few years–the latest and most notorious being General Motors.

To put this in a soundbite, notice that of the top ten, five have occurred in the last year.

While it is difficult to compare total bankruptcies in  the current crisis with those during the Great Depression because of changes in the bankruptcy laws along with monumental social changes (in the 1930s significantly more people lived in rural America making a living as farmers), the size issue does point towards an important and unsettling difference between our own times and the 1930s.

This crisis is notable in that not even during the Great Depression were such large and important corporations forced into bankruptcy proceedings. A glance at this list shows today’s crisis has hit multiple sections of our econ0my including auto manufacturing (two of the so-called Big Three), finance, telecommunications, energy, and transportation. Only two of these failures–Enron and World Com–are directly attributable to criminal corporate malfeasance.

In a paper on bankruptcy during the Great Depression authors Bradley and Nary Hansen point out:

As a proxy for unemployment among wage earners, we use the bankruptcy rate among manufacturers. We expect a positive correlation between manufacturing bankruptcies and wage earner bankruptcies.

The Hansens found that positive correlation in their examination of data from the Great Depression which suggests that the other shoe has yet to drop in terms of the impact of thus depression.

The Statistics

The definitive bankruptcy statistics come from the place where bankruptcies end up–the U.S. Courts. Their June 28 report contained a chart that tells the story:

Note the dramatic increase in business bankruptcies over the last year–61%.Think about this statistic for a minute. It tells us that in the last year almost 50,000 businesses went under, which means an average of 1,000 per state.  If you use the Census Bureau statistic of an average of 16 employees per business that would mean 16,000 people per state and 800,000 nationally no longer have a place to work.

The problem with these data is that according to an influential paper by Robert Lawless and Elizabeth Warren, they dramatically undercount the percentage and number of business bankruptcies. The two point out:

Based on new research from the Consumer Bankruptcy Project, if historical measures were used, we estimate as many as 17.4% of all current bankruptcy filings involve the failure of a business. Extrapolating to all filings, we estimate that rather than the 37,000 business filings reported by the Administrative Office of the U.S. Courts (AO) for 2003, there were between 260,000 and 315,000 bankruptcies that historically would have been counted as business filings but that in 2003 were not

If we extrapolate these findings to this past year that means the number of business bankruptcies would have been in the hundreds of thousands, rather than a “mere” 50,000. Lawless and Warren point out the implications of this for public policy which:

Has set the stage for legislators and policymakers to recast bankrupt debtors from unfortunates caught up in the caprices of unforgiving market changes to overspenders responsible for their own misfortunes.

If you are a systems thinker you realize that this unemployment and bankruptcy will reverberate through the economy. The companies that went under will no longer pay taxes in their communities, lowering the tax base. The companies that they purchased supplies and materials from will have to find other customers.  The communities in which these businesses once were important institutions now must somehow find other businesses to replace those they lost.  In this economic climate that is a daunting task, which will inevitably lead communities to bend over backwards to attract these replacements, further increasing the property tax burden on those very same homeowners caught in the subprime crisis.

Meanwhile those who are unemployed will have to find other work or collect unemployment. It is doubtful many of them will find work at the same salary that they enjoyed before, so their purchasing power will decline and some of them will default on mortgage, car or credit card payments.

For corporations bankruptcy is essentially a credit crunch.  Corporations file for Chapter 11 or Chapter 7 because their debt has increased to the point where their creditors call in their loans.  It is the corporate equivalent of the mortgage crisis and like the mortgage crisis sorting out who is at fault becomes a critical policy issue.  Is there an equivalent to the subprime scandal in the rash of corporate bankruptcies?  Is there a legislative action parallel to the repeal of the Glass-Steagall Banking Act that played a role in the crisis?

There seems little question, if any, from a business point of view, that in response to the current crisis creditors have tightened their lending practices.  As financial institutions have faced their own potential demise, they have called in their loans to stay afloat.  Bankruptcies, like mortgage foreclosures, are a manifestation of an economic collapse.

Bankruptcy Law

Bankruptcy law is a formidable thicket of definitions and procedures that requires a special personality who not only knows all the nuances of the law but who also is part psychologist.  Chapter 11 aims to restructure a company so it can continue to function. If all goes according to the plan filed with the bankruptcy judge, when the bankrupt company’s obligations are discharged it can emerge from the process as a survivor who has lived through some tough times.

Chapter 11 requires attorneys to apply some tough love to clients who sometimes land in court because of profligate spending, questionable decision-making and incompetent management.  Like someone working with an addict or alcoholic you have to get a client to see the error of their ways while convincing them to undergo and stick to a treatment program that is emotionally, physically and psychologically daunting.

On the other hand for Chapter 7, which is essentially the complete liquidation of a company, the task is more for akin to that of a funeral director who must oversee the burial of companies that suffered the equivalent of a fatal accident or terminal illness. Unlike Chapter 11, Chapter 7 is The End with all the suffering and grief that entails.

Sharp legal minds will recognize that for businesses bankruptcy is exactly the opposite as it is for consumers. For individuals Chapter 7 once was a good way to escape from under burdensome debt. People could declare bankruptcy and walk away from whatever debts they had. College students, for example, could use bankruptcy as a way of liquidating all their student loans.  Credit card addicts use it as a way of wiping clean sometimes profligate spending. On the other hand, for businesses Chapter 11 was preferable to Chapter 7 because it at least allowed them to restructure and continue operating.

All that changed with the 2005 revision to the bankruptcy code, which received a great deal of attention for making it more difficult for individuals to file for Chapter 7. It is important to note the changes enacted in 2005 were driven by creditors, which is why the debate over its passage was sometimes bitter and controversial.

Less well known are the changes the 2005 law made in business bankruptcies.  In a paper on the 2005 law in the Southern Illinois University Law Journal, Robert Lawless stated its impact on small business in no uncertain terms, arguing that changes in small business bankruptcy in the 2005 law:

Are unprecedented developments in American law. Never before has Congress singled out small businesses for harsher treatment than large corporations.

Lawless’ paper is an excellent discussion of the major changes in the law, changes that slipped under the radar screen of most Americans. First, the law defined a small business as any firm with more than $2,000,000 in noncontingent liquidated secured and unsecured debt. As Lawless points out:

Empirical studies of business bankruptcies suggest this definition will cover most business filers.

What the law did to small businesses is one of the best-kept secrets of this entire economic crisis, with virtually no one in the press even calling attention to it. Because it is written for lawyers and scholars, Lawless’ article can be daunting, but it certainly should be required reading for anyone researching the current crisis. Among its key findings:

• A small business debtor loses the protection of the automatic stay (1) if it is a debtor in a pending small business case, (2) if it was a debtor in a small business case that was dismissed in the previous two years, or (3) if it was a debtor in a small business case that was confirmed in the previous two years.

• By denying the automatic stay only to small businesses filing a second chapter 11, Congress expressed hostility to small businesses reorganization alone.
• The expanded reporting requirements are onerous and many are unnecessary.

• What makes the expanded disclosure requirements perhaps most worrisome is that each becomes grounds to seek possible dismissal of a chapter 11 case.

• Together, the new disclosure provisions and the tighter dismissal rules make chapter 11 much more hostile to reorganizing small businesses than the pre-2005 law.

• We can expect entrepreneurial activity in the United States to decline.

In essence Lawless tells us that in the midst of the worst financial crisis since the Great Depression, a majority of American businesses are frantically trying to keep from drowning with the weighty anchor of the 2005 bankruptcy law changes tied to their waists. It has also pushed more businesses into Chapter 7.

Curiously this was predicted back in 2002 when Baird and Rasmussen wrote about the impending demise of Chapter 11:

To the extent we understand the law of corporate reorganizations as providing a collective forum in which creditors and their common debtor fashion a future for a firm that would otherwise be torn apart by financial distress, we may safely conclude that its era has come to an end.

The Real Estate Shell Game and the Demise of Circuit City

After allowing financial institutions to engage in all sorts of shenanigans that helped to bring about the mortgage crisis and today’s economic woes by repealing the Glass-Steagall Act in 1999, Congress and the Bush Administration proceeded to bestow another gift on financial institutions with a little-known addition to the 2005 bankruptcy law rewrite.  Among those pushing for the changes was Citi, the same firm that played a huge role in the repeal of Glass-Steagall.

In the new economic world created by the repeal of Glass-Steagall, Citi, the company that began as a loan-sharking business, was now heavily involved in the credit card business, so it had two reasons to push for the 2005 changes. Most of us know about the changes in credit card debt, but few know that the law essentially limits the ability of businesses to restructure real estate debt.  Of course, this hits retailers especially hard because most of them rent space or are paying off the costs of building new stores.

If you wonder why so many stores in suburban malls now lie empty and why big box retailer such as Circuit City have gone under you need only read the following paragraph from testimony delivered last October to the House Subcommittee on Commercial and Administrative Law by Professor Jay Westbrook of the University of Texas Law School, Professor Barry Adler of the New York University School of Law and Lawrence Gottlieb, the Chair of the Bankruptcy & Restructuring Group at Cooley Godward Kronish LLP.

[The 2005 Law] has left retailers without adequate time and money to effectuate operational initiatives and cost cutting measures needed to resuscitate their businesses. Retailers now enter the Chapter 11 arena with little choice but to narrowly tailor their strategy to ensure that their lenders are not deprived of the substantial benefits and protections conferred by section 363(b) of the Bankruptcy Code, which authorizes the use, sale or lease of estate property outside the ordinary course of business upon court approval.

BAPCPA’s constrictive liquidity provisions and the enormous leverage handed to secured lenders as a result thereof have eliminated the ability of retailers to control the Chapter 11 process as a “debtor-in-possession.” Rather, the process is now controlled almost exclusively by prepetition lenders, who have essentially assumed the role of  “creditor-in-possession.”

What this means is that real estate debt now is one of the “first in line” when a company gets in financial trouble. This helps to explain why the demise of companies like Circuit City came on the heels of the mortgage crisis, for their financial difficulties constituted a kind of retail business mortgage crisis.

Bankruptcy attorney Lawrence Gottlieb testified:

Today, retailers almost invariably begin the Chapter 11 process with little hope of emergence. Numerous economic factors – the credit crunch, the subprime lending crisis, the slowdown of the housing market and eroding value of retail commercial leases – have clearly contributed to this downward spiral.

Data confirm his fears:

Since the enactment of BAPCPA in late 2005, no more than two retailers have successfully emerged from Chapter 11 as reorganized entities.

With this in mind it puts the May retail statistics in some perspective. The press widely reported that May was the first time in three months that retail sales rose–this time by a paltry .5%.  Reports attributed this to auto dealers steeply discounting prices for new cars to try to deal with the bankruptcy of General Motors, the lower price of gasoline and the impact of federal stimulus funds.

Yet behind these seemingly optimistic reports lay some grim realities:

The International Council of Shopping Centers last week said May same-store sales dropped 4.6 percent from the same month last year, more than double its forecast of a 2 percent decline. Macy’s Inc., Dillard’s Inc. and Saks Inc. were among merchants that reported steeper declines than analysts estimated as Americans focused on buying essentials rather than discretionary items.

Note that the names of some of these retailers routinely pop up in discussions of who will be the next big retail firm to go under.

The Opposition

While he was still alive, the last politician who proudly wore the label liberal–Minnesota Senator Paul Wellstone– almost single-handedly fought off these changes, according to the PIRG Bankruptcy Campaign.  In much the same way John Quincy Adams used the rules of the House to argue against slavery, Wellstone used the rules of the Senate to throw roadblocks in front of attempts to rewrite American’s bankruptcy laws. Wellstone’s objections have a certain prophetic quality about them, for he seemed to sense the economic storm that was brewing on the horizon.

In his book, The Conscience of a Liberal, (which is probably the last book in which a politician openly claimed that title), Wellstone wrote about why he opposed attempts to change the bankruptcy laws.

The vast majority of bankruptcies were caused by major medical bills, loss of job, or divorce. Current bankruptcy law was a major safety net for the middle class in America.

In a letter to then Majority Leader Trent Lott detailing his opposition he stated:

I continue to be puzzled by the false urgency for this bill. As bankruptcy rates fell steadily in the past two years, the rhetoric about the “crisis” in filings became even more shrill. But even more perversely, projected increases in bankruptcy filings for the coming year – as a result of layoffs and falling income due to a cooling economy – is now being used to justify rolling back the bankruptcy safety net. In other words, now that more working Americans will be forced to file for bankruptcy because of circumstances beyond their control, we should make it harder for them to do so. I for one will have difficulty making that argument to the newly unemployed steelworkers in my state.

Unfortunately for businesses and consumers, Paul Wellstone died before the passage of the 2005 law. It is one of history’s great ifs whether that bill would have emerged form the Hill in its present form.

Instead in the Senate eighteen Democrats and one Independent voted with 55 Republicans to change the law. Only 25 Democrats voted no. Among them were Barack Obama, Charles Schumer, and Chris Dodd. Hilary Clinton was not present for the vote because her husband was undergoing open heart surgery. Joe Biden voted in favor if it as did John McCain and current majority leader Harry Reid.

The Big Picture

The repeal of the Glass-Steagall Act allowed banks and other financial institutions to engage in the shenanigans that helped to cause this crisis. The 2005 bankruptcy law changes, which were also a gift to those financial institutions, now make it more difficult for financially strapped businesses to reorganize.

It doesn’t take a Harvard economist to envision the scenario.  Banks get out of control after the repeal of Glass-Steagall. To stave off financial collapse they start calling in loans.  The 2005 law makes it more difficult for businesses to restructure that debt.  The result: a thousand bankruptcies per state in the last year.  But because of the law these are not your usual bankruptcies. The new law pushes more firms into Chapter 7.

I know just such a business.  It had been in the same family for three generations, having survived the Great Depression in part because one generation essentially defied New Deal regulations.  The company did not manufacture anything that would have benefited from World War II, yet it found a way to land a few key contracts.  After the war it prospered along with the rest of the country.  The company continued to survive because of the high quality of its products and the loyalty of its customers, but it found itself trying to compete in a market that had become dominated by a few giant corporations.

The town where this business was located could be any rural Midwestern city with plowed fields extending right to the city limits. In the summer you can see the corn stalks waving in the breeze and hear the cries of pheasants from between the rows. In this flat landscape the horizon seems to extend forever, promising endless possibility and a limitless future.  The heart of Main Street still consists of brick buildings with ornate stone façades sporting dates that hearken back to the 19th century carved into imposing gray granite blocks

Many of the businesses located behind the glass display windows that look out onto the wide streets are as old as the buildings themselves, having been in the same family for over a century. These people are survivors, for they weathered the dust clouds and stark realities of the Great Depression without ever closing their doors.  For people living in these towns, these old family business provide a solid foundation as massive as the stones that were used to build those stores.

These businesses are literally the heart and soul of these towns so when one of them fails it is not only the death of a business but a loss felt keenly by everyone living in those towns as keenly as if someone in their families had died. In these towns an empty storefront on Main Street stares back like a grim tombstone reminding all of their community’s mortality.

Clearly this business and the others that have failed testify that we do not yet truly understand the full dimensions of what this country faces. However there is a cultural and historical parallel that most analysts have overlooked.

A Parallel
In terms of large-scale corporate bankruptcies the closer parallel to our time is the so-called Long Depression that covered the last three decades of the nineteenth century, encompassing the famous 1893 Depression.  An article from the New York Times during those years sounds eerily familiar:

The year 1893 began in doubt and ended in disaster…Its opening found the financial community in a state of serious concern about the currency issue…Banks began to be rapidly drawn upon; contraction of loans followed; and then came the panic…The whole country seemed to be calling on New York for money…How far the decline will go, or how long it will continue, it is no use to try to guess. [December 31, 1893]

The article named the firms that had already gone down like a bell tolling the dead: National Cordage, the Reading Railroad, the Union Pacific and Great Northern. For the nineteenth century the railroads meant as much to the economy as automakers meant to the twentieth, so the parallels extend even deeper.

A second parallel is the degree of corporate concentration. In Democracy in Desperation, a history of the 1890s Depression, Douglas Steeples and David Whitten observed:

Nowhere was consolidation more rampant than in the railroad industry…By the early 1890s, the Pennsylvania, Reading, Santa Fe, Great Northern and New York Central; the Union, the Southern, and the Northern Pacific; and a few others controlled thousands of miles of track and millions in capital each. [p. 19]

A Cultural Implosion

The Long Depression of the last half of the 19th century was above all a cultural phenomenon in which America’s economic, social, and political arenas simultaneously underwent a fundamental shift in values. The nation experienced a change in its collective mindset as profound as the one which led their ancestors to sever their ties with Great Britain.  Historians have labeled this shift as a transition from a rural to an industrial society.

But it involved far more than merely changing the way the nation did business. No institution, no community, no individual was immune to the change. It altered everything that they did from the way they built their houses and raised their crops to the ways they schooled their children. In a famous 1855 painting The Lackawanna Valley, artist George Inness captured that shift in a single image. It shows a massive smoke- belching locomotive traveling across the pristine rural landscape of the Hudson River Valley.

Note still standing amidst the stumps remains scraggly tree visually blocking the path of the train that has emerged from the smoking roundhouse dominating the desert-like background.

Were I to be forced to select a single contemporary cultural document that forms the equivalent of that painting I would choose the Matrix movies with their stark vision of a future in which the differences between humans and robots have evaporated and all is under the control of a single massive computer.

Today the changes of the late 19th century are seen as historically inevitable.  But to the people of those times, they were far from that.  In fact opposition to the most dramatic of these changes in the form of the Progressive and Populist movements helped to lessen their more dramatic impacts and laid the groundwork for what I term the Second American Revolution in which this nation found a way to maintain its democratic commitment to the level playing field in the face of industrialization.

Today this economic crisis and asks whether we can maintain that principle as we confront the massive changes our society is undergoing.  Whether we can create the equivalents of the Progressive and Populist movements of a century ago may well determine whether our society survives. Paul Wellstone believed that America had in its soul the ability to weather this crisis. Let us hope that he was correct.

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“The core of our American democracy is the right to vote. Implicit in that right is the notion that that vote be private, that vote be secure, and that vote be counted as it was intended when it was cast by the voter. And I think what we’re encountering is a pivotal moment in our democracy where all of that is being called into question.”

Verified Voting Foundation

There are three areas in our lives where, with government connivance, we reluctantly accept intrusion on our privacy.  One is unsolicited phone calls, the second is bulk mail and the third is spam.

Phone Solicitor

The first came about because of collusion by phone companies which creatively sought a money maker in screening telephone solicitors by charging extra for caller ID.  So now a fair number of Americans pay what I consider to be an unnecessary fee because the government and phone companies won’t regulate intrusions on our domestic life.

After a fair number of years and much pressure they finally instituted the infamous do not call list, but it has the notorious “previous business relationship” clause that allows anyone you have bought something from some time in your life to call you. So unfortunately I regularly receive calls from a certain auto glass repair company that some years ago fixed a crack in my windshield because a dump truck carrying gravel without a cover — and also breaking the law — left enough of that gravel on my car that I might as well have been in a hailstorm.  No,  I did not get his license number.

Junk Mail

As for bulk mail it also exacts a fee from us just like telephone solicitors, that fee coming in increased postal rates because bulk rate mail is essentially subsidized by regular mail.  So every day our mailbox is full of catalogs, credit card offers, driveway black topping and roofing circulars, and everything else that falls under the category of junk mail.

In my feisty younger years I used to write “return to sender” on all junk mail but over time as the amount of bulk mail has increased I began to feel like the proverbial person with a finger in the dike.  Because magazines and nonprofits use bulk mail there has been much pressure to not raise its cost, because these organizations claim adding even a penny to the bulk mail rate would jeopardize their existence.

As a result, along with Newsweek we get the L L. Bean catalog, our former college news magazine and various small publications full of coupons for local businesses.  That government could correct the cost imbalance between bulk and regular mail seems obvious, but in these tough economic times raising the cost of bulk mail would put government in the unenviable position of increasing the cost of doing business.

Lately my state to government was even found to be selling off information from drivers’ license applications to phone solicitors and bulk mail senders.  Its excuse was that it helped to balance the budget.  That this constituted a tax on the rest of us seem to escape no new taxes politicians.

Spam

Which brings us to the third area — spam.  Just as with unsolicited phone calls lack of ISP policing and government action forces all of us to invest in anti-spam programs that unfortunately fail to keep my e-mail box from overflowing. Like many people I keep separate GMail and Yahoo accounts for those times when firms want my e-mail address. I call them my spam accounts.

Spam has now grown into a multimillion dollar industry, but it has also grown into a nightmare because through the door opened by spam come viruses, malware, and scams. As a result, like many users I now have anti-spyware, anti-spam, antivirus, and anti-malware programs.  Like having to subscribe to caller ID, this software adds to the cost of owning a computer, plus all of them hog memory because they are running in the background waiting to nab some threat to my files like a guard dog watching my house one program–Win Patrol, which I would recommend– even uses a dog as its symbol, barking a warning each time it catches something.

Like some old man reminding the grandkids of the old days, I’ve been building and programming computers long enough to remember a time when there was little or no spam, you didn’t need an antivirus program and no one had even heard of spyware.  Of course, back then installing memory chips was not for the fainthearted, hard drives held less than those stamp-sized memory cards and it took an hour to spell check a simple document, usually imperfectly

Spyware, malware and viruses should put people in prison just as if they burglarized your home, but government penalties for this are a mere slap on the wrist, plus trying to keep up with these jerks is like swatting mosquitoes.  What is more, as well all know, a good number operate well outside the three-mile limit. Meanwhile ISPs, which charge you to police this crap, sound as innocent as phone companies claiming they can’t regulate telephone solicitors. All this would probably just be an unwelcome nuisance were it not for those aspects of malware that take it far beyond the problems we face of with bulk mail and telephone intrusions.

Invasion of Privacy

Our Internet wanderings have now become a huge source of revenue for companies that gather these data and sell it to market research firms.  If you think Google has become rich just because it is a pretty good search engine, I have some real estate I’d like to sell you.  The holy grail of Internet marketing is targeted advertising.  The idea is I get on my screen ads for things that are directed at my tastes.  It sounds good in principle, but it has become annoying — and disconcerting — to see searches with businesses in my hometown turn up every time I use Google.

The long voiced fear by many has been what could be done with these data. To me gathering any data on me without my permission is a flat out invasion of privacy. In addition the data that is gathered about me is mine. I should decide who can access it and how it is used.

Yet today many Americans accept invasions of Internet privacy as they do some of the provisions of the Patriot Act.  Curiously the Patriot Act is one regulation that prevents you from guarding your privacy.  There are programs that will make your online activities totally anonymous, but the government discourages them or requires that they be less than perfect in hiding your activities because they also might cloak the activities of so-called terrorists.

To me the gathering of Internet data whether by spyware, cookies or other means is like having a permanent wiretap on my phone. However the electronic frontier types who oppose any Internet regulation and misguided souls who believe it is the price we have to pay to protect our democracy, make regulating these activities difficult.

Abuses

While the companies who gather these data claim to keep it under lock and key, there have been enough cases of hackers accessing these databases to lend support for the idea that anything you do on the net is as open as if you are house were bugged.

Let’s just start with the well-known fact that many of us work in cubicles where our Internet activities are closely monitored. If you work in a large office with a network you can assume that everything you do on the Internet is known by your employer. The media are full of cases of employees fired because they used the company computer to order from Lands End or play Internet Texas Hold’em.

Several futurists have proposed that the time will come when coporations will monitor your computer activity to keep track of your productivity. With spyware that can literally record keystrokes as you peck them, companies will be able to compare how much you do in  a day against how much I accomplish. It will be like the old days when miners were paid by the amo9unt of coal they shoveled.

As for surfing the net at home, the very nature of the way the Internet works operates against privacy. As we all know, each time we log on to the net we receive a unique IP address. Although that address is not tagged to our names, even the most elementary hacker can begin to connect the two. Look up your own IP at Who Is or one of the other IP tracking services and you will see what I mean. ISPs are supposed to keep IP addresses private, but my guess is that few people have ever read their ISP’s privacy notice.

Then there is email.  Most of us believe that it is illegal for someone to read or disclose the contents of an electronic communication, but this actually has dozens of loopholes, as the Privacy Rights Clearinghouse points out:

• The ISP may view private e-mail if it suspects the sender is attempting to damage the system or harm another user. However, random monitoring of e-mail is generally prohibited.

• The ISP may legally view and disclose private e-mail if either the sender or the recipient of the message consents to the inspection or disclosure. Many ISPs require a consent agreement from new members when signing up for the service.

• If the e-mail system is owned by an employer, the employer may inspect the contents of employee e-mail on the system. Therefore, any e-mail sent from a business location is probably not private. Several court cases have determined that employers have a right to monitor e-mail messages of their employees. (See PRC Fact Sheet 7 on employee monitoring, www.privacyrights.org/fs/fs7-work.htm .)

• Services may be required to disclose personal information in response to a court order or subpoena.  A subpoena may be obtained by law enforcement or as part of a civil lawsuit.  The government can only get basic subscriber information with a subpoena.  The government needs a search warrant to get further records.  A subpoena as part of a private civil lawsuit may disclose more personal information.

• The USA PATRIOT Act, passed by Congress after the terrorist attacks of September 11, 2001, and amended in 2006, makes it easier for the government to access records about online activity.

Even with these safeguards, there have far too many notorious cases of information leaks from online databases. Last August, the New Hampshire Attorney General announced a significant number of unauthorized transactions had been made using Well Fargo’s access codes. The report stated:

The information currently available indicates that personal information including name, address, and date of birth, social security number, and driver’s license number and, in some cases, credit account information was accessed by an unauthorized person or persons. About 7,000 individuals are affected by this incident.

Then there was the much-publicized case of the hacker who broke into Alaska Governor Sarah Palin’s private email account when she was running for Vice President and posted the information on the Internet. The New York Times reported that in 2008 a so- called “glitch” allowed the F.B.I to view hundreds of email accounts instead of just the one it had permission to investigate.

The Real Worry

Where this gets especially disconcerting is its impact on that often tenuous intersection between democracy and privacy, particularly as it concerns voting rights. Internet data is a serious threat to democracy, especially now that we are switching over to electronic voting. I have written before about the perils of electronic voting, so just a brief recital of some of the abuses and scandals will suffice.

• In 1999, officials of the Sequoia voting machines company were indicted for bribing Louisiana elections commissioner Jerry Fowler with $8 million. In 2005, Sequoia raised a few eyebrows when it was acquired by the Venezuelan company Smartmatic.
• In 2002, Bev Harris, who would write Black Box Voting–one of the classics of electronic voting literature–first began writing about electronic voting fraud after she discovered that U.S. Senator Chuck Hagel had ownership in and had been CEO of the company that built the machines which counted his own votes. (The company: Election Systems & Software).
• In 2003, Harris, whom Salon.com referred to as the “Erin Brockovich of elections” (Salon.com), just weeks after a stunning electoral upset in Georgia that tipped control of the U.S. Senate, discovered 40,000 secret voting machine files — including a set of files called “rob-Georgia” containing instructions to replace Georgia’s computerized voting files before the election. The files she found contained databases with votes in them and the voting machine programs themselves. She downloaded the files on Jan. 23, 2003 and set them free on the Internet a few months later, where they were studied by scientists and security experts.

Like marketers who pay dearly for information on your Internet wanderings, political consultants covet any information about voters.  The sophistication of analyzing voters has increased geometrically in the last decade.  The use of micro-targeting allows politicians to tailor their messages to areas as small as a city block.

It also allows them to construct voting districts that protect incumbents.  The true reason people are frustrated with politics has less to do with the bogeyman of corporate influence than it has to do with the fact that a majority of congressional seats are now safe.

Some Frightening Scenarios

The next stage of targeting voters is on the horizon and represents the most serious threat to voting rights since the framers wrote the Constitution.  It involves using Internet data along with micro-targeting with a few hacks thrown in for good measure. In short, the day is fast approaching where your vote is no longer private and Big Brother will watch over you.

The anonymous ballot is one of the most precious principles of any democratic society.  In this country we no longer fear that a negative vote will bring arrests, beatings or even death.  We do not fear the knock on the door in the middle of the night instead my political refugee family.

But there are many other potential forms of reprisal at the disposal of people who know your voting record. Start with the feared tax audit.  Add to that applications for government benefits or jobs, applications for private-sector jobs, home loans, or anything else you might apply for or need.

This may all seem fanciful but we are not far from being able to put in place voter recognition technology.  As the old rule goes — I believe it was Arthur Clarke who claimed this 1 — we’re a technology exists it will be abused.  That is why the examples of junk mail, telephone solicitors and spam become germane.  We have grown to accept them and with an intrusion on our privacy government has sided with the abusers and not with its citizens.

By allowing this, they have stuck the proverbial camel’s nose into the tent and the camel that threatens to walk in and lay waste to democracy is named voting privacy.  And lest we can rein in other abuses of our privacy is only a small step to abusing voter privacy.

Let me posit how it could be done.  All it would involve is linking voting records, marketing data and census information.  Put those three together along with hacking into computerized voting data and someone will be able to predict with surprising accuracy how you will vote.

The scary thing about voter privacy abuse is that because it will be private we will never know when it takes place.  We don’t get that job we applied for.  We fail a building inspection.  Our car insurance increases.  We pay more and we don’t know why.

From this the next step is to open the intimidation and voter coercion. Once voting is no longer anonymous you maintain power by openly intimidating voters. You no longer need to beat them or jail them, all you have to do is make their lives miserable.

This is the nightmare in the attic of the house we have permitted government and business to build around us the time is long overdue to put a stop to these current abuses of privacy.  The camel’s nose may be in the tent, but we can still keep it from getting in any further.

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I had to take a long walk after seeing Valkyrie, the Tom Cruise movie about Claus Schenk Graf von Stauffenberg’s attempt to assassinate Hitler. As I mentioned in the review of Benjamin Button, I tend to come late to movies, but actually I had intended to see this one in a theater.

I never made it–its run was rather short–but the reason for seeing it remained–a friend had told me that my grandfather was in the movie.  I found this a bit hard to believe, attributing it to the usual Hollywood plot-twisting, because at the time my grandfather was in the United States.  Yet one incident in my family’s life hung over the movie.

On my father’s last visit to Germany he had met with von Stauffenberg’s son. He dropped this casually into a conversation many years ago and then just as quickly ended any further inquiries. All he would say was that von Stauffenberg thanked him for all my grandfather had done to oppose Hitler and to rebuild Germany after the war.

It has only been a few weeks since returned from the National Archives after reading formerly top secret OSS documents about my grandfather, who headed one of three key German exile groups in this country.  Targeted by the Nazis for his outspoken opposition to Hitler, whom he termed a madman, he and my family fled the country two steps ahead of the Gestapo. The Nazis wanted him badly enough that several times they tried to have him extradited back to Germany for a trial by one of their kangaroo courts.

I suspect this history is why von Stauffenberg’s son met with my father. I could find nothing in the OSS files that even hinted that my grandfather played any role in the plot to kill Hitler.

Yet still I watched this movie with a closer eye than usual. Let me spare you, if you have not seen it: the movie is terrible–badly written, badly acted and badly directed. It is probably the worst film I have seen in the last few years. One reviewer said this movie gets the award as the film containing the worst acting performances by any of its stars. But its biggest problem is not aesthetics, but ethics. This movie raises too many uncomfortable questions–the kind that send you on long walks in the dark.

For the press the issue revolved around the casting of Tom Cruise, who as everyone who has not been on the moon the last few years know, is a highly-visible–and at times outspoken–member of the Church of Scientology, which the German government is on record as opposing. But in fact there is not only a misunderstanding of the German position on this issue but also a lack of sensitivity to the film’s deeper issues.

The Controversy

When word first leaked out about Cruise starring in a film about von Stauffenberg, objections surfaced from none other than the German government. The German Defense Ministry warned that if Cruise accepted the role, Ministry sites would be off-limits to the filmmakers. Time reported a Ministry spokesperson stated:

Stauffenberg played an important role in the military resistance against the Nazi regime. A sincere and respectful depiction of the events of July 20 [the failed plot to assassinate Hitler] is therefore very much in our interest. Tom Cruise, with his Scientology background, is not the right person for this.

Antje Blumenthal, a senior official in the ruling Christian Democratic Union party, also objected:

I am very glad that the filming permission for such a high-ranking Scientology member could have been prevented.

German journalist Josef Joffe put the casting in a perspective readers of the New York Times could understand:

Stauffenberg for Germans is like Jefferson and Lincoln, motherhood, and apple pie all rolled into one. Germany is a country of established churches, and so Scientology is viewed as a cult and, worse, totalitarian and exploitative. A professing Scientologist in the role of Stauffenberg is like casting Judas as Jesus. It is secular blasphemy.

Some of the Von Stauffenberg family was also outspoken in their objections to the film. In an interview published in Süddeutsche Zeitun, 72-year-old Berthold Maria Schenk Graf von Stauffenberg, a retired German army officer, the oldest of Claus von Stauffenberg’s five children and the man my father met, objected to Cruise playing the role in no uncertain terms:

It is unpleasant for me that an avowed Scientologist will be playing my father…I had hoped for a long time that the project was just a publicity stunt on the part of Cruise. Clearly that appears to not be the case. It’s bound to be rubbish.

On the other hand, Philipp von Schulthess, the soldier’s grandson who has a small role in the movie, had something positive to say.

Most of them (von Stauffenberg’s children) haven’t seen it. They’re crossing their fingers this turned out well. I think it did, and hope they agree.

Despite the opposition there also were many in Germany who welcomed both Cruise and the film believing it would help change images of their country and the war. The Burda publishing house even chose to give Tom Cruise the Bambi Courage award.  Frank Schirrmacher of the Frankfurter Allgemeine Zeitung wrote:

Because of Cruise’s courageous decision to play this role, he has indirectly fulfilled Stauffenberg’s intentions. Based on his story, a huge audience will come to understand that one can oppose inhumanity, and that a hero’s courage and nobility are even more important than the success of his deeds.

Tobias Kniebe gave the film a positive review in the Sueddeutsche Zeitung:

Valkyrie doesn’t re-invent cinema and it’s no masterpiece that will enable us to imagine the true story in all of its aspects – but it isn’t far from being so.

in the end despite the choice of box office draw Cruise, the film barely earned a profit on its US box office receipts, grossing $83 million against production costs of $75 million. The film received a 60% rating on the Rotten Tomatoes review site Tomatometer, respectful but nowhere near the 80% for Gran Torino. Most critics panned the movie.

This, of course, sets the stage for one of those arguments with no end which asks whether the controversy hurt the film.

Germany and Scientology

Many American papers made it seem as though German objections to Scientology were based on the group’s money-making schemes. Typical was this report in USA Today:

Germany has said it considers Scientology to be in conflict with the principles of the nation’s constitution, calling it less a church than a business that uses coercion to take advantage of vulnerable people.

But Ursula Caberta, the head of a government task force in Hamburg that opposes Scientology’s expansion in Germany, framed the issue far differently.

In Europe, but in Germany especially, we are more sensitive to totalitarian ideologies. Tom Cruise is not just an actor who is a Scientologist. He is an ambassador for Scientology. All totalitarian systems have their celebrities to open doors for them.

According to the BBC there are approximately 6,000 practicing Scientologists in Germany, a small enough number to not attract too much attention yet large enough to have some impact. The German Office for the Protection of the Constitution, which has investigated the church for several years, declared in one report:

There is substantial evidence that the Scientology organization is involved in activities directed against the free democratic order.

Hamburg Interior Minister Udo Nagel has called for a ban on the organization, saying Scientology aims at:

Complete repression of the individual.

In 2007 Nagel and other the German federal and state interior ministers moved to ban Scientology as an “organization that is not compatible with the constitution,” but dropped pursuit of the ban after finding insufficient evidence of illegal activity.  Erhart Koerting, Berlin’s top security official, told reporters:

This organization pursues goals — through its writings, its concept and its disrespect for minorities — that we cannot tolerate and that we consider in violation of the constitution. But they put very little of this into practice.

One reason for Germany’s reticence in going further may come from the United States and the former Bush Administration.  During those years the U.S. State Department regularly criticized Germany’s surveillance of Scientology in its annual Human Rights Report.

I cite this not to ignite an argument about whether Scientology is a religion or about its practices, but to illustrate the mindset of many Germans who are suspicious of the organization. Note that the thread running through these suspicions has less to do with money and more to do with what some consider to be the church’s anti-democratic practices. In short, many see it as a cult.

To go back to the USA Today quote, it is not the money-making but the coercion that worries many Germans. Perhaps the most definitive–and must-read– source about Germany and Scientology comes from none other than the German Embassy in Washington. In its paper “Understanding the German View of Scientology,” the embassy points out that the surveillance of the group came from a petition signed by over 40,000 citizens as well as complaints by people about the church’s coercive methods.

The embassy goes on to point out the country’s special circumstances:

Because of its experiences during the Nazi regime, Germany has a special responsibility to monitor the development of any extreme group within its borders — even when the group’s members are small in number. Given the indisputable evidence that the Scientology organization has repeatedly attempted to interfere with the American government and has harmed individuals within Germany, the German federal government has responded in a very measured legal fashion to the Scientology organization.

Where the report gets interesting is in its documentation of an organized public relations campaign by Scientology against Germany. If one places this campaign in the context of the film, the casting of Cruise seems less than innocent and the protests by director Singer that he had no idea about Germany’s feelings about Scientology seem either extremely naive (doesn’t this guy read the newspapers or watch TV) or very calculated.

What could be a better vehicle for pushing Scientology in Germany than to have its most visible member cast as one of Germany’s national heroes? The move also would force the German government into the difficult position of how to deal with Cruise and Singer’s requests to film at certain locations, particularly the national monument that has been erected at the site where Stauffenberg was executed.

Cruise is certainly not naive about the position of Scientology in Germany. He had to know exactly what he was doing and how the whole affair would play out in Germany. That he was in charge of the studio producing the film raises even more questions. Was it really Singer’s decision to cast Cruise in the role? Did United Artists back the movie because of the Cruise/Scientology connection? And the big one, is Cruise using United Artists to push his Scientology beliefs?

BTW, guess who financed the film–the now-collapsed Merrill Lynch, of mortgage crisis fame.

The Joffe quote again seems relevant:

A professing Scientologist in the role of Stauffenberg is like casting Judas as Jesus. It is secular blasphemy.
Filming at the Execution Site

The film makers continually pushed for location shots in Germany when alternatives existed. Was this done to place the German government in an awkward position and to raise awareness of Germany’s objections to Scientology?

Right at the top of their list was a request to film at the Bendlerblock, the site of a national memorial to von Stauffenberg and the others who were executed there.

When the German Defense Ministry learned about the casting of Cruise in the starring role it stated that Singer would not be permitted to film of sites of national or historical significance.  Cruise’s United Artists co-partner Paula Wagner immediate issued a blistering criticism stating that Cruise’s:

Personal beliefs have absolutely no bearing on the movie’s plot, themes or content.

But investigating all the sources shows that the shooting at the Bendlerblock was very cleverly arranged. The film makers cut a deal with a German company Studio Babelsberg and they applied for the permits to film, but not to the Defense Ministry but to a federal authority that rents out government buildings.

One does not have to write thrillers (maybe there is a movie to be made about the making of this movie) to imagine the exchange. A German company applies for a permit to film at the sacred site stating it is making a movie in collaboration with a major American studio about the plot to kill Hitler. At that time nothing had been released publicly about Cruise’s role.

When the Germans find out that Cruise is indeed in the movie, the permits have already been issued. Carl Woebcken, chief executive of Studio Babelsberg, came right to the point:

I hope we don’t have to go to court to enforce these agreements.

At that point the Defense Ministry could do nothing but back down. The fabled German bureaucracy had failed. This action becomes ethical question number two. Were those permits obtained under questionable circumstances?

Glossing Over the Reasons for the Plot

Questions about the casting of Cruise and the pretenses that were used to gain access to the Bendlerblock were not what sent me on that long walk. At that time I had not fully investigated these issues. What kept me awake most of that night was the content of the film.

If this ridiculous movie is to be believed the entire plot to kill Hitler stems from a record of Die Walkure which improbably begins playing on an old needle phonograph in the middle of a bombing raid that has the entire von Stauffenberg family huddled in a shelter as explosions punctuate the music. Prior to that moment von Stauffenberg had declined to join the conspiracy, but hearing the stirring sound of the Ride of the Valkyries accompanied by bombs changes his mind.

One half expects Cruise to whisper “Rosebud” at the end of the scene but then Orson Welles turned this seemingly simple device into great cinema while this movie has the entire history of the Second World War hinging on an improbable event. But director Singer cannot even leave this scene alone. Like some sophomoric film major he has the camera spin around and around with the record as if history itself were some dizzying dance.

The only scene more ridiculous than this one is the opening of the movie that has Cruise speaking German so badly that he sounds like a cast member from Hogan’s Heroes. That none of what he supposedly is writing in his diary was ever written by von Stauffenberg seems besides the point in this fantasy. After a few minutes of Cruise’s cartoon German accompanied by subtitles, director Singer switches to English which in this film means heavily-accented British English since the largely Brit cast, including the distinguished Kenneth Branagh, make no attempts to hide their accents. The notion of people who sound like British upper class twits playing German officers would have made a great Monty Python sketch but here it only adds another layer of surrealism to an already surreal project.

Both devices point to the film’s major ethical failure which is to all but ignore the moral reasons to kill Hitler. Except for that brief scene at the opening in which Cruise writes in his diary about the conduct of the war, no reference is made to the terrible crimes of the Nazis. Hitler himself appears only briefly in the film, his relatively benign demeanor providing no clue as to why people would risk their lives to kill him.

The subdued portrayal of Hitler in the film was in sharp contrast to the ideological madman. When Cruise meets him for the first time, happy children run from the room and the first shot of Hitler after Cruise enters the room shows the dictator petting his dog.

There is only a brief moment when Cruise convinces Hitler to sign the revisions of the Valkyrie contingency plan when the dictator makes a comment that you cannot understand National Socialism without understanding Wagner. This leaves even those who know the long-standing controversy about Hitler and Wagner standing in the dark, while those without such historical background are only left shaking their heads.

Blame it on Wagner, the film seems to be saying. Had he not written Die Walkure Adolf Hitler would have ended up painting houses and there would have been no war, no Holocaust and no film.

Richard Friedman of Fox411 wrote a blistering critique of the film which I quote at length because so many of its points are right on target:

I’m more concerned that “Valkyrie” could represent a new trend in filmmaking: Nazi apologia. We know already what Valkyrie is about: a group of German soldiers who tried to assassinate Hitler in 1944 and failed. Cruise plays Colonel Claus von Stauffenberg—referred to in this film constantly as “Stauffenberg”—as if to make him sound less German or something.

On top of that, there is the matter of the uniforms and the set design. Suddenly, we have German officers in World War II who are not wearing arm bands. Their swastikas are now small tokens on chests of medals. They look more like airline pilots than Nazi soldiers. When they meet, it looks like they’re at a lovely retreat in the Adirondacks.Director Bryan Singer is so sparing with his Nazi flags, swastikas, etc that you’d think the Nazis hardly existed. What’s everyone so upset about anyway?

Because in “Valkyrie” Singer opens the door to a dangerous new thought: that the Holocaust and all the other atrocities could be of secondary important to the cause of German patriotism. Not once in “Valkyrie” do any of there “heroes” mention what’s happening around them, that any of them is appalled by or against what they know is happening or has happened: Hitler has systemically killed millions in the most barbaric ways possible to imagine.

This picture bolsters Friedman’s critique of the film and tells us more than we want to know about the deliberate attempt to sanitize the film. Note how Cruise wears nothing on his uniform in contrast to the example on the left. For the real von Stauffenberg to appear without the decorations and other insignia would have been a serious offense just as it would be in our military.

I was unable to find a good photograph of von Stauffenberg in full uniform, but the hobby model below gives a reasonable approximation. Again note the contrast with the film’s “airline pilot” uniforms.

Contempt for Politicians

Another questionable thread in the film is its contempt for the politicians that were part of the resistance. Time and time again they are the ones who wimp out or who cause problems, leading Cruise to point out several times “this is a military operation.” The director reinforces this by always shooting the civilians as hovering in the background or always putting them in inferior positions on camera.

Yet the German resistance site tells a far different story. I would urge everyone who does not know the story of internal resistance to the Nazis to visit this site. It documents acts of resistance before and during the war, demonstrating that contrary to the film’s message the major players in the resistance were civilians.

The draft decree written by Carl Goerdeler, who was to have been named Chancellor, and Ludwig Beck that they planned to issue after Hitler’s death still makes for compelling reading.

No human community can exist without law; nobody, even if he thinks he can disregard it, can do without it. For each man the time comes when he cries out for justice. When God established order in the universe, created human beings and gave his commandments, he prescribed the necessity of law applied justly and impartially. He gave us the insight and strength to create the worldly institutions to secure this.

Among the many paragraphs of that decree is one pertaining to the persecution of the Jews.

Securing the law and propriety includes proper treatment of all human beings. The persecution of the Jews, which has been conducted with the most inhuman and merciless methods, in deeply shameful ways that cannot even be recompensed, is to cease immediately.

After the real coup attempt it was the civilians who received the full impact of the Nazi terror. Depending on estimates at least 200 people were executed for the plot, a significant number of them civilians. Von Stauffenberg and the officers were shot by a firing squad, but after enduring questioning by the Gestapo (and we all know what that meant) the civilians were murdered by the Nazis favorite perverse way of executing dissenters: wires were placed around their necks and they were hung from meat hooks. The film shows this only briefly at the end. It also does not tell us that the site of those executions is also a national memorial–the Plötzensee Memorial Center.

Adding it All Up

There is surely something perversely ironic about a Scientology practitioner making a film that glorifies the German military at the expense of civilian leaders. THAT is what had my awake all night. It was civilians who were the heart of the German resistance. The German people know this. Those of us whose families suffered under the Nazis know it especially well.

Tom Cruise has long been one of my favorite actors ever since his famous slide across the floor in Risky Business. They say the camera loves certain actors and Cruise seems to fit that description. He has always seemed to be having fun on the screen, even in serious roles, the way Magic Johnson always seemed to revel in playing basketball.

The Scientology angle seemed overblown, even in the reactions to the infamous remarks to Matt Lauer.  It is an American paradox that as a nation we have always felt someone’s religious beliefs were their own business, yet at the same time religion has long been an issue for public figures as Al Smith, John Kennedy, Jimmy Carter and Barack Obama can testify. For me, as for many Americans, Cruise’s religion has not been an issue–until this film.

Adding it all up, this film still leaves me with too many unanswered and uncomfortable ethical questions.

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