Looking for Fraud? Don't Look at Food Stamp Recipients, Look at Wall Street

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The Guardian

Looking for Fraud? Don't Look at Food Stamp Recipients, Look at Wall Street

Food stamps keep 47 million people from going hungry, so cuts hurt. Congress should focus on where the real abuse happens

Hunger will drive kids to do crazy things. Like stay at school.

A few weeks ago South Bronx public schools had a half-day, with dismissal at noon. Yet almost all the kids stayed an extra hour, waiting in the cafeteria to eat the schools' free lunch.

Teachers even got calls from parents of children who hadn't stayed, asking them why they let their children leave without a meal. The teachers explained that this had never been an issue before. Kids had always left when they could. The parents responded, "That was before the cut in food stamps. We get $45 less a month now".

The cuts to food stamps had come two weeks earlier, on the first of November, a result of Congress failing to renew the increase to the program in the 2009 stimulus package. That increase was included as a small attempt to blunt the pain of a recession that was disproportionally affecting the poor.

The school kids' neighborhood, the South Bronx, has been hit particularly hard by the recession. Here families live day by day on an average income of roughly $16,000. A drop in income doesn't mean less money for retirement. It means less food now, less clothing now, less everything now. Food stamps are often the only thing keeping families fed, and $45 dollars less a month has an impact.

Sadly, Republicans in Congress are not just content to let the prior increases lapse, they are pushing for even greater cuts. They try to justify the reductions by pointing to the growth in food stamps and painting it as program rife with abuse.

They have gone to the media with tales of fraud, of people selling food stamps to buy luxury goods. One Fox news report detailed a surfer who used food stamps to buy sushi and lobster. A modern twist on an age-old narrative that plays into the tired stereotype of "welfare queens".

I have watched people sell food stamps for money. I see it almost monthly. They don't buy lobsters. They are homeless addicts, and they buy heroin, or crack, or dollar bottles of vodka. They don't just buy drugs. They also buy food from the dollar menu at McDonalds. Or sometimes they spend the money on blankets for their beds under bridges, next to expressways, or in abandoned buildings.

This is fraud, but it certainly isn't rife. The homeless addicts are the outliers, a tiny desperate sliver of the food stamp population. They are not proud of this. They are addicts who are trying to feed their addiction through any means. Selling food stamps is preferable to selling their body.

They don't just sell them, they also come up with elaborate schemes to skirt the rules, to turn food stamps into drugs or cash. I can't help but smile when they explain these games to me. Some are complex enough to be worthy of Wall Street.

I worked on Wall Street for 20 years. There, people regularly abuse rules and regulations, trying to exploit loopholes. This does not embarrass them – many take pride in it.

In the late '90's I helped my firm and its clients invest in the stocks and bonds of Brazil. We invested billions, lots of firms did this.

Yet some US firms invested first through a Canadian partner and then into Brazil. Why? Because Canada and Brazil had a tax treaty, designed to encourage long-term investments by Canadian companies into Brazil. You know, in things like roads, planes, and groves of oranges.

The Wall Street firms were doing little of those things, but they had found a way to make it look like they were. That way they could gain tax credits that could then be sold back to the Canadians.

They were not breaking the letter of the law – high-priced lawyers and tax consultants made sure of that – but they certainly were breaking the spirit of the law. And that was something to brag about at dinner to other Wall Street traders; it certainly wasn't something to be ashamed of.

We would sit around at those dinners eating sushi and lobster, drinking, and proudly telling stories about overcoming some regulatory obstacle, or finding some flaw in a law that could be exploited. One trader told how his firm, unable to invest in an Asian country because of local laws, bought a golf course and used it as a shell vehicle for investing in stocks and bonds. You see, foreigners could buy golf courses, but not stocks and bonds. Nobody was sure if they had actually done it.

We swapped stories with pride. We didn't call what we were doing fraud, which is such a louche word. We called it "arbitrage".

Of all the rule breakers out there, it's sad that Republicans seem to be focused only on the poor. You can look at any program and find some degree of abuse. When it comes to benefit fraud, food stamp abuse attracts a small, desperate group looking for another way to stay alive, to feed their addiction. They don't take any pride in their desperation.

Yet food stamps also keep about 47 million people fed, legally and efficiently. A tiny amount of fraud, estimated to be only 1.5% of the system, is not a bad price to pay for that to keep people from starving.

The much bigger abuser of programs, and exploiter of loopholes in rules, and regulations is Wall Street. They don't do it out of desperation. They do it out of greed.

When will congressional Republicans call them out for it?

Chris Arnade

Chris Arnade received his PhD in physics from Johns Hopkins University in 1992. He spent the next 20 years working as a trader on Wall Street. He left trading in 2012 to focus on photography. His "Faces of Addiction" series explores addiction in the south Bronx neighbourhood in New York City.

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