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Afraid of the Dark

Three new books delve into the recesses of the market

Dark Commerce: How a New Illicit Economy Is Threatening Our Future by Louise Shelley. Princeton University Press, 376 pages, $29.95.

Darkness by Design: The Hidden Power in Global Capital Markets by Walter Mattli. Princeton University Press, 264 pages, $29.95

New Dark Age: Technology and the End of the Future by James Bridle. Verso, 304 pages, $26.95.

These are dark times for the republic, all right-thinking persons agree. Unfortunately, most right-thinking persons don’t know the half of it. We’re understandably fixated on the fact that a vindictive, mean-spirited yahoo has a finger on the nuclear trigger and veto power over serious efforts to prevent global climate catastrophe. Disturbing, I grant you. But the First Bull in a China Shop and his Republican enablers are at least the devils we know. Their depredations are mainly wrought in the daylight, we can measure their damage, and we know (in theory) how to stop them.

Far more insidious are the systemic effects of a gamut of new practices—some legal, some illegal—out of public view. The political wrecking crew that governs us is ripping at the fabric of our economy and society from without. These new predators, discussed in three recent volumes, are consuming them from within.

The most eye-opening—indeed eye-popping—of these books is Dark Commerce by Louise Shelley, a professor at George Mason University and surely the doyenne of Illicit Studies, if there is such a field. (And if not, there clearly should be.) For readers not yet exposed to one of the classic volumes on this subject, Misha Glenny’s McMafia or Moisés Naím’s Illicit, or to one of Shelley’s previous books, it may come as a shock to learn how deep and wide is the extent of contemporary economic illegality.

The sums involved are enormous:

  • The estimated (by the UN Office on Drugs and Crime) annual revenue from all types of transnational crime is between $1.6 and $2.2 trillion, roughly 7 percent of global trade.
  • Estimated annual revenues from illegal drugs: $320 billion.
  • Annual sales of counterfeit and pirated goods (e.g., online sales of “discount” pharmaceuticals): $461 billion.
  • Illegal timber logging and export: $30–100 billion.
  • Illegal trade in fish, wildlife, minerals, and waste: $91–258 billion.
  • Diverted and substandard pharmaceuticals: $75 billion.
  • Illegal mining: $12–48 billion.
  • Cigarette smuggling: $8.7–11.8 billion.
  • Those are the most lucrative revenue sources, but other illegal activities are no less dangerous and despicable. Small arms and light weapons sales ($1.7–3.5 billion) generate profits for groups like FARC, Los Zetas, ISIS, Al-Nusra, and Al-Shabaab, who are both customers and suppliers in this sprawling market. WMD components are sold on the dark web, a vast, secret computer network accessible only via special anonymizing software. Less-developed or conflict-ridden countries are robbed of antiquities, to the tune of around $1.5 billion each year.

    And then there’s human trafficking, which comes in several varieties. There’s organ trafficking, worth around $1 billion annually. Trafficking of refugees and of indentured or forced labor yielded between 4.7 and 5.7 billion euros in Europe alone in 2015. Women are trafficked into both prostitution and forced marriage. Shelley does not offer a numerical estimate of the size of the traffic in women, but she does note that the International Labor Organization believes that 25 million people are held in one or another form of forced labor.

    The revenue numbers are not the only astonishing statistics in Dark Commerce. The dark web, Shelley writes, is “five hundred times the size of the surface World Wide Web.” Can that be true? It gets worse. Four out of five visits to the dark web “were to online destinations with pedophilia materials.” Egad. If the dark web is five hundred times larger than the lit web, and if 80 percent of visitors were seeking child pornography, what does that say about humankind? It seems to say that we’re a very twisted species. Maybe we should just give in to global warming and hope that whatever crawls out of the ocean in a few million years has better morals than we do.

    The World Is Not Enough

    Shelley is an expert on the international trade in rhino horns, to which she devotes a chapter here. A century ago, there were a million black rhinos in Africa. Today there are five thousand—a decrease of 99.5 percent. Extinction is likely—one calamity that cannot be blamed on global warming. Wealthy Chinese and Vietnamese make up the bulk of demand; they value rhino horns as a status symbol, for supposed medicinal effects, and increasingly, as extinction looms, as an investment. Decreasing supply has driven up the price to $60,000 a kilo. Generally, the customers place an order with Asian organized crime groups, who contact their counterparts in southern Africa. Unemployed local men are hired, outfitted, and sent out to kill the animals and cut off their horns. The horns are then transported to Asia with the cooperation of corrupt customs, transportation, police, and security officials, and in some cases, art dealers and auction houses. It takes a lot of hands to kill a species.

    We’ll miss the rhino, for a while at least—we’re a pretty thoughtless species, and we’ll soon have more existential worries. In any case, however valuable it may be, no one species can compete in value—biological or economic—with the world’s rainforests, which stabilize the planet’s climate and account for a high proportion of biodiversity. One of earth’s richest rainforests—“possibly the richest ecosystem in the world,” according to Shelley—used to be in Sarawak in Malaysia. From 1981 on, the country’s chief minister cut down and sold four-fifths of it, realizing $15 billion in profits for himself, family, and cronies. He was assisted by an $800 million loan from Goldman Sachs and by numerous other financial institutions, who were happy to help him stash the proceeds. (Like many rich criminals, he also went into real estate. He bought a building in downtown Seattle, into which the FBI later moved its Northwest U.S. headquarters and refused to leave when the building’s ownership was brought to their attention—yet another splendid example of the Bureau’s investigative prowess and rock-solid integrity.)

    Not content with destroying the environment, criminals are sabotaging efforts to save it. The EU’s European Commission has a “cap and trade” policy, involving carbon credits, which carbon-efficient firms can sell to polluting firms. Hackers broke into the EC’s carbon registry and stole credits, which they sold while also claiming rebates for VATs which they hadn’t paid, all to the tune of $6.5 billion. Moreover, “Interpol believes that the $176 billion carbon market is vulnerable to other forms of criminal penetration, such as securities fraud, transfer mispricing, and the sale of nonexistent carbon credits.”

    It takes a lot of hands to kill a species.

    Everything about the dark web is chilling. Whatever legitimate activities may go on there (if any), it appears to be primarily a supermarket for narcotics, child porn, human trafficking, weapons, and malware. The fabled dark site Silk Road processed six hundred thousand messages per month, translating into an unknown number of orders, and in its two years of operation facilitated the sale of $1.2 billion in drugs, arms, and malware, paid for in Bitcoin. Malware in particular is a growing market. Half a billion records are stolen each year, and five years ago an astonishing one in ten Americans over sixteen had their identity stolen. Before being dismantled in 2016, the cybercrime network Avalanche was estimated to be behind malware infecting up to half a million computers daily. They’re coming for you and me, no doubt—if, that is, they haven’t already.

    Financial institutions play a large role in Dark Commerce. All that dirty money has to be laundered, and many banks wittingly partake of the fun; four large banks—Citibank, HSBC, Wachovia, and Deutsche Bank—were fined heavily for this. Western Union is a major transmission belt of drug money from Mexico to the United States and of sex trafficking profits from Western Europe to Eastern Europe. An investigation of fifty-five developing countries found that illicit financial outflows equaled nearly 4 percent of their combined GDP in 2011. Real estate is a well-known medium: a study of six U.S. localities found that people who had come under police scrutiny had directly or indirectly transacted approximately 30 percent of real estate purchases. “Trade-based” money laundering is common: merchandise (cars, washing machines, etc.) is bought with dirty money and shipped to another country, where it’s sold again, the proceeds now being clean. Currency exchange also takes place on the dark web, and cryptocurrencies are sometimes said to be the future of money laundering. The libertarians who dreamed up cryptocurrencies wanted to free themselves from governments. It looks as though their main accomplishment may turn out to be freeing criminals from governments.

    Maybe we should just give in to global warming.

    Surely a vast and coordinated law enforcement campaign is under way on our behalf? How is it doing? Dismally. “No category of crime has shown marked decline” in the dark global economy, Shelley acknowledges—aside from the illegal trade of chlorofluorocarbons. Partly this is because so many law enforcement personnel are on the take, or simply intimidated. But also, crime fighting takes a great deal of resources, and government’s main source of revenue is taxes. Currently the rich are evading taxes on an epic scale: American corporate tax scofflaws alone shelter an estimated $2.1 trillion offshore. The wealthy of other nations are no doubt equally tax-averse. Conservatives, always soft on big crime, however noisily they condemn petty crime, are clearly not going to see that law enforcement has the money it needs to take on the big guys. Nor will they sign on to Shelley’s other proposals: “a modern-day Marshall Plan . . . to ensure that everyone has legitimate employment opportunities in their home country,” which would diminish the pool of the desperate, from whom criminal entrepreneurs typically recruit foot soldiers; and better access to health care to curb the demand for illegal pharmaceuticals from those who cannot afford Big Pharma’s offerings. God preserve us from such interference with the free market.

    The Usual Suspects

    For all their lethality, most forms of economic crime at least involve an exchange of some sort and are therefore comprehensible. What currently happens on Wall Street is something else. Over the last two decades, according to Oxford economist Walter Mattli, global capital markets have gone dark. That’s bad, even for those of us with little or no capital.

    Mattli achieves the difficult feat of making even non-rich readers nostalgic for the old New York Stock Exchange. For two centuries, the NYSE was the biggest game in town, and then in the country. The structure was fairly democratic: brokerages were relatively small and had equal votes on the Exchange’s governing body. A reputation for integrity is indispensable to a public trading house; and beyond that, the old burghers seemed to have plenty of old-fashioned civic spirit. (Try to imagine Robert Rubin, Jamie Dimon, Lloyd Blankfein, and the rest of today’s sharks and weasels with that quality.) So they invested the profits of the Exchange in good governance, collecting records and monitoring transactions. Fraud was rare, usually detected, and severely punished. As a result, the Exchange served its purpose well: to raise capital for new businesses and to discipline or reward the management of existing businesses.

    In the 1960s, the computer revolution began to arrive on Wall Street. First routine clerical tasks and then trading itself were automated. The necessary computers, servers, software, and IT staff were expensive, which meant an advantage for the bigger players: investment banks and brokerage houses. The latter went on a merger-and-acquisition spree, leaving the securities industry and the Stock Exchange dominated by a small number of giant firms.

    These firms—Goldman Sachs, Citigroup, Morgan Stanley, UBS, and others—no longer depended on the Exchange to match buyers and sellers or to supply liquidity (a backlog of funds that allows for smooth processing of orders). Their most profitable areas—internal or “dark” markets, block trading, and high-speed trading—were only hampered by NYSE oversight. So they did what Wall Street’s masters of the universe have always done: lobbied successfully for government action that suits their commercial purposes and portrayed it as unavoidable obedience to the imperatives of efficiency, progress, and modernization. In 2005, the Securities and Exchange Commission issued sweeping regulations restructuring the NYSE along the lines demanded by the big firms. The next year the old NYSE effectively gave up the ghost.

    Why should we care? Isn’t this just a case of one set of capitalist gangsters ambushing another? Predators succumbing to super-predators? Yes and no. The New York Stock Exchange was not made up of Daniel Berrigans and Dorothy Days, it’s true. But most of the activity there had some relation to the real world of production. Thanks to the extraordinary speeds made possible by microwave relays—in some cases approaching the speed of light—the volume of trading has increased a thousand-fold and the bulk of trading is arbitrage.

    Arbitrage—rapid-fire transactions that profit from tiny or temporary fluctuations in stock prices—is socially useless. The standard defense of the practice holds that arbitrage promotes efficient price determination. It doesn’t; and the same big firms who say it does are simultaneously undermining a genuinely useful tool of price determination: the informed investor. Individuals or managers of pension funds and mutual funds often do fundamental research on companies and arrive at investment decisions. High-speed traders have preferential access to an exchange’s data, and when they learn of a large institutional order, can step in front (it’s called “order anticipation,” today’s version of the outlawed practice “front running”) and buy or sell ahead of the order, changing the price and earning (if that’s the word) a small profit. Done millions of times, it not only steals a lot of money from pension and mutual funds (that is, you and me), it also discourages fundamental research on companies, which is what really keeps stock prices accurate.

    The fragmentation of the exchanges has meant a drastic change in the balance of power between the largest firms and the exchanges that are, in theory, responsible for setting the rules by which they operate. In reality, the exchanges are wholly dependent on the firms, which have extracted so many concessions and special privileges that there is no longer any pretense of equal treatment for large and small investors. Darkness by Design abounds with examples of such special treatment: preferential data feeds, “colocation” of large clients’ servers on the trading floor, quote stuffing, spoofing, and hundreds of Special Order Types (SOTs), some of which are designed by the big firms and all of which are, in essence, scams. I didn’t fully understand all of Mattli’s descriptions of how this new model of trading works, so I was comforted to read that “a retired regulator with a distinguished 15-year record at the helm of two major financial regulatory organizations recently confessed to me that he no longer understands how these complex capital markets really work.”

    The ultimate consequence of fragmentation is “dark pools”—private markets where share price and information about the size of orders are not made public. Originally meant to prevent front-running of large institutional orders, these pools have been engineered, via collusion between their administrators and participating high-frequency traders, to facilitate it instead.

    Mattli’s recommendations are delivered in the robustly common-sense tones of the Oxford professor. Let there be light unto the investors! Or, more prosaically, let Congress and the SEC do their jobs. Unfortunately, as he sometimes acknowledges, Congress and the SEC don’t want to do their jobs. The banking lobby is well-organized and—need we say?—well-financed; Mattli quotes a Wall Street observer from the 1970s: “banks . . . are already more powerful than Congress.” By now it’s no contest whatever. And the SEC is on one side of a revolving door, on whose other side is the big banks and brokerage houses (where, it’s said, one can, with the right attitude, make a lot of money). You may as well pray for rain in the Sahara as for light on Wall Street.

    After so many unfamiliar terrors it’s almost a relief to get back to some more familiar ones: the quandaries and dilemmas of our digital future. Actually, the digital present is already pretty scary, as James Bridle’s New Dark Age makes clear. The book is a shrewd and informative ramble through ten (tenuously) related topics—all of them, in a charming conceit, beginning with “C.” There’s no central thesis in New Dark Age, but there’s a good deal of reporting and reflection, about computational methods in pharmaceutical and nuclear fusion research; about the Keeling Curve, which charts the ever-increasing concentration of carbon dioxide in the atmosphere, and its inverse relationship to human cognitive capacity; about DeepDream, a program that feeds images into neuronal networks and generates some uncanny results; and other matters. Bridle is by turns amused, amazed, and indignant—just about the right approach to the future-devouring phenomena he describes.

    Bridle’s prose can by lyrical and menacing at the same time. Like this:

    Somewhere between the jihadis and the military strategists, between war and peace, between black and white, the gray zone is where most of us live today. The gray zone is the best descriptor for a landscape inundated with unprovable facts and provable falsehoods that nevertheless stalk, zombie-like, through conversations, cajoling and persuading. The gray zone is the slippery, almost ungraspable terrain we now find ourselves in as a result of our vastly extended technological tools for knowledge-making. It is a world of limited knowability and existential doubt, horrifying to the extremist and the conspiracy theorist alike. In this world we are forced to acknowledge the narrow extent of empirical reckoning and the poor returns on overwhelming flows of information.

    Straight to Video

    New Dark Age’s tour de force is a chapter, as strange as anything I’ve ever read, on YouTube’s children’s programming. A vast archipelago of videos, some produced by humans and some by software bots, compete for children’s views, which means, in the first place, attracting the attention of YouTube’s recommending algorithms. Unless they’re lucky enough to be noticed and recommended by a critical mass of children, the surest way to grab YouTube’s attention is to include the name of a currently popular video in your title.

    The initiative, it seems safe to say, lies with the wicked.

    Thus, for example, “Cars 2 Silver Lightning McQueen Racer Surprise Eggs Disney Pixar Zaini Silver Racers by ToyCollector.” It is “one of millions and millions of surprise egg videos on YouTube.” A surprise egg is a chocolate egg with a toy inside, or by extension, anything with anything else inside. Children apparently like this and other videos in which boxes are opened or packages unwrapped to reveal a surprise. One of the chocolate-egg-with-toy-inside-makers partnered with Cars, a blockbuster Disney children’s movie. Thanks to this happy synergy, “Cars 2 Silver Lightning, etc.” has gotten 33 million views and has given rise to countless variations—“millions and millions” of them. And “surprise egg” is only one genre of video. There is also the Fingers Family (dancing fingers singing doggerel: at least 17 million versions, billions of views), Learn Colors, Peppa Pig, Wrong Heads, and their countless imitators, all formulaic and some unknown fraction entirely automated.

    Why? What is the point of this ceaseless production of utterly, irredeemably worthless dreck? Ad revenue, of course. Videos are incessantly preceded or followed or sometimes interrupted by an ad aimed at the one-six demographic. The fee for the ad is shared between the video’s producer and YouTube’s owner, which is Google. This is big business. The platform’s most popular producers have earned tens of millions of dollars. God alone (and possibly the IRS) knows Google’s real profits.

    Is all this baby-babble and toddler-twaddle at least harmless? Far from it, Bridle reports. Never mind the shrinkage of millions of children’s imaginations—YouTube children’s videos are to traditional fairy tales and children’s stories as two dimensions are to three. Worse, some of them are positively toxic. Strange, even unintelligible, combinations of characters’ features and limbs; and not infrequently, coprophagy, sadism, rape, and violence: it is impossible that such things wouldn’t crop up in a population of tens of millions of videos, many of them produced in sweatshop conditions or by computer programs. “It’s not about intention,” Bridle concludes, “but about a kind of violence inherent in the combination of digital systems and capitalist incentives.” Of course it’s partly about intention: it’s what happens when you make children a profit center.

    The initiative, it seems safe to say, lies with the wicked. The amount and quality of energy and invention going into the nefarious activities described in these three books could easily vanquish poverty, inequality, international conflict, and climate change. Surely the perpetrators would find it more fun to run the world than to smuggle rhino horns or plant malware? If you can’t fight them, get them to join you. It just might appeal to their imagination.