If Republicans are against lawfare, they shouldn’t have unleashed it

One of the hot topics of the 2024 presidential election is Democrats’ use of what Republicans call “lawfare,” using the law – and particularly the criminal law – to prosecute political opponents, using the system to target them accused of questionable crimes. I myself have denounced it here and here.

There is no way to justify this use of criminal law other than to say that it is a tool used by political and economic elites to achieve the same thing that Third World dictators did, but using high-minded terms like “rule of law “. and “fairness” as a cover for the use of naked political power. Furthermore, elites have accepted this as a legitimate way to increase their own power.

With all the references to lawfare, you might think it’s a relatively new thing; That’s not it. In fact, Democratic presidents, and to a much lesser extent Richard Nixon, have used the Internal Revenue Service as their political weapon of choice. Franklin Roosevelt’s administration used the IRS to target former Treasury Secretary Andrew Mellon, but failed to convict and imprison him. However, FDR discovered that the Internal Revenue Service was a convenient weapon against people he viewed as his political opponents and pursued others like Huey Long.

While Democratic presidents like FDR, John F. Kennedy and Barack Obama favored the IRS as their weapon of choice, Republicans resorted to the RICO statutes in the 1980s and terrorism laws after the 9/11 attacks, and now find that they did exactly what they did blows back at them. To understand how we got to this place today, we first need to know what happened.

Forty years ago, Wall Street was undergoing change as financial markets deregulated and new technologies became increasingly commercialized. As Murray Rothbard wrote:

In the 1960s, the existing corporate power elite that often ran its companies inefficiently—an elite effectively led by David Rockefeller—found itself threatened by takeover bids in which outside financial interests sought shareholder support against their own inept managerial elites. As usual, the departing business elites turned to the federal government, which readily passed the Williams Act, for help and bailouts [named for the New Jersey Senator who was later sent to jail in the Abscam affair] in 1967. Before the Williams Act, takeover offers could occur quickly, quietly and without much effort. However, the 1967 law significantly impaired takeover bids by mandating that a financial group that accumulates more than 5% of a company’s shares must stop publicly announcing its intention to arrange a takeover offer and then wait for a takeover offer It took a certain amount of time before the plans could be implemented. What Milken did was to revive and make the takeover offer concept flourish through the issuance of high-yield bonds (“leveraged buyouts”).

From the New Deal through the late 1970s, the U.S. financial system was a government-organized cartel that was extremely risk-averse and favored existing corporate elites over emerging high-technology companies. However, Michael Milken, working with the emerging investment banking firm Drexel Burnham Lambert, promoted the use of unsecured high-yield bonds to finance new businesses that the cartelized banking system would never have touched.

For example, Milken raised money for the Cable News Network (CNN), which was considered too far-reaching for news broadcasting when it was founded in 1980, and the banks and Wall Street were not interested in working with an iconoclastic figure like CNN’s founder, Ted Turner. Milken also led the financing of McCaw Cellular, a pioneer in cell phone technology that later became part of AT&T. Today we can’t imagine life before cell phones, but if established Wall Street firms had imposed their will, this industry wouldn’t have existed at all.

It was bad enough that Milken and his investment bank and other Wall Street upstarts were leaving the established financial system behind. However, they also led to a spate of corporate takeovers that angered a range of people, from leftists like John Kenneth Galbraith to establishment banker David Rockefeller to then-businessman Donald Trump. Rothbard wrote:

The new takeover process enraged the Rockefeller-like business elite and enriched both Mr. Milken and his employers, who had the good business sense to hire Milken on commission and maintain the commission despite the wrath of the establishment. Drexel Burnham developed from a small, third-rate investment firm into one of the giants of Wall Street.

The establishment was bitter for many reasons. The big banks, tied to the existing, inefficient corporate elites, realized that the emerging takeover groups could be put to an end by placing high-yield bonds on the open market. Competition also proved inconvenient for companies that issue and trade high-quality but low-yielding bonds. These companies soon convinced their allies in the mainstream media to derisively refer to their high-yield competitors as “junk” bonds, which is like the makers of Porsches convincing the press to call Volvos “junk” cars.

Of course, the financial and political elites could not cope with this by developing their own competitive financial instruments. After all, the 1980s were the “Decade of Greed,” brought about by Ronald Reagan, who was apparently guilty of unleashing a wave of free markets that would destroy the economy, or worse. Instead, a new hero emerged from the ranks of Republican officials – Rudy Giuliani – whom Reagan appointed as US attorney for the Southern District of New York, which includes Manhattan.

Giuliani had political ambitions and decided that the best way to gain support was to go after Milken and other Wall Street upstarts. For The New York Times And New Yorker crowd, he fought against greed and capitalism. He would advertise for established Wall Street firms like Goldman-Sachs responsible and respectable Capitalism.

His preferred legal tool was RICO, created in 1970 to move organized crime cases out of state courts and federalize prosecution to achieve more convictions. But the use of RICO to criminalize routine financial transactions was uncharted territory, and while some economists and lawyers raised obvious objections to where such prosecutions might lead, the academic, media, and political establishments treated Giuliani and his associates as a financial and legal messiah.

As Daniel Fischel states in his book, Payback: The Conspiracy to Destroy Michael Milken and His Financial RevolutionGiuliani and his lieutenants investigated the transactions to determine whether there were any possible violations of regulations that could be criminalized. Because most violations of the regulations were civil law and had no criminal consequences, Giuliani made liberal use of conspiracy laws to pile up dozens of charges from individual transactions, making it appear as if Milken and others had committed serious violations of the law. In reality, as Giuliani Lt. John Carroll boasted to some Rutgers University law students in 1992, prosecutors were discovering “crimes” that had never existed before and engaging in “criminalization of technical crimes” using “new” crime theories .

There were no gatekeepers keeping Giuliani in check until appeals courts later overturned some of the convictions, but these were Pyrrhic victories for the rule of law as Giuliani’s relentless prosecutions had driven companies and targeted individuals into bankruptcy. Milken himself pleaded guilty, not because he had committed any real crimes, but because federal prosecutors threatened his family. As I wrote Regulation:

In the end, federal prosecutors (after FBI agents went so far as to question Milken’s 92-year-old grandfather) used perhaps their strongest weapon, coercive methods, to obtain a guilty plea: If Milken agreed not to plead guilty to six subsequent crimes, then he would the Justice Department released his family. Milken agreed, although prosecutor Carroll admitted three years later that the actual charges were a product of the prosecutor’s creativity and not genuine criminal conduct. In fact, before Giuliani entered the scene, Milken would have had to pay a relatively small fine at worst.

By paving the way for the litigation on a large scale, Giuliani also unleashed federal prosecutors to take action against others. The federal prison population, which was about 20,000 in 1980, increased tenfold over the next 20 years and federal prosecutors became key players in the drug war.

Of course, Giuliani used his legal hero status to get into the mayor’s mansion of New York City, supported by the Wall Street establishment and the progressive media. The irony is that his expansion of the use of the RICO statutes to include politically unpopular individuals would allow unscrupulous prosecutors to bring charges him on RICO charges in Georgia for alleged interference in the 2020 presidential election.

Without going into the details of this case, it’s safe to say that Giuliani’s criminalization of, at worst, rule-breaking in the 1980s opened a Pandora’s Box for prosecutors. Certainly, the vast expansion of terrorism laws imposed after the 9/11 attacks would not have been possible without Giuliani’s previous legal rampages, since federal prosecutors had the power to do whatever they wanted. Riding the wave of hysteria after the attacks, a Republican Congress pushed through the Patriot Act and other laws that allowed federal prosecutors to lock up defendants even if their actions did not resemble terrorism.

Or take Trump’s Manhattan conviction, for example. Prosecutor Alvin Bragg’s case was admittedly based on a “new” legal theory, and most legal observers said it was doubtful that anyone else would be charged with the particular “crimes” that the Manhattan jury supposedly saw, a repeat of what what we saw Giuliani’s cases in the 1980s.

While Republicans today are right to denounce the political violence that Democrats have waged against Trump and others, they should not protest too loudly. Four decades ago, Republicans opened the box and now realized they can’t give back what they unleashed.