The owner of the proxy is not great, but the fact that its an open door to snoop on everything else on the entire network is the realy fucker there.

If the progression of security over the last couple years has made anything clear, it's that letting the barbarians knock down a couple of walls because "well we have more walls" is not a winning defense strategy. The barbarians are very creative and will often exploit the inch you give in unexpected ways.

Great, they have some isolated network.

What are the chances it _never_ touches a device with a path to an important computer (e.g., one core router or switch at some point)? Good thing there haven't been any Cisco/Juniper/etc vulnerabilities ever.

What are the chances no important device _ever_ touches this isolated network? No important person ever gets annoyed at the security/filtering on the secured network and decides to connect to the public one instead? The secured one has some sort of issue, so their phone decides to connect to the guest network?

Are they going to compromise the military C&C network in the underground bunker? Probably not.

But it's probably more realistically damaging if they were to compromise some high level staffer's phone and using it as a listening device in a bunch of mid-level Whitehouse meetings.

Remember all the senior people are engaged in blatant corruption and illegality.

So you're looking at not just national security stuff, but the ability to get personal data like selfies of fucking goats or screenshots of Maltese & Azerbaijan bank transfers, etc. Makes it easy for nefarious parties to manipulate standing with POTUS and blackmail people. The only escape for many of these people is pardons.