education / 学校 [學校] / учи́ть / Bildung

Uploaded on Jan 16, 2011

“bailouts after 2008 = financial Coup d’état”

control of the food-supply => implementing a global digital currency?

(indian gov forces it’s people to digitalize)

without transparency – crime will always pay(off) in an (death)economy – how can we make it expensive to be an criminal?

“controlling a very important physical asset (oil, food) is almost essential to currency-control”

“The battle is Centralized vs Decentralized” – “keep the money locally” – “community-bank”

Catherine explains what is going on and wrong in the financial sector, especially Wallstreet New York: “In an emergency situation – does the body send all the blood to the toe? No! It sends it to the lungs, heart and brain. But in the financial sector – we send all blood to the toes.”

“if you go through the household-budgets and cash-flows in every community – and you start looking to see – how can i take the blood out of the toes and engineer it back into the heart and lungs that makes me money – those opportunities are abundant – particularly if enough of us start to see them and do them”

“Tape-worm-Economy” = “Eisenhower’s Military-Industrial-(Financial)-Complex” = “few insiders can constantly drain subsidy from the outsiders in a way that preserves their wealth – but it shrinks total wealth – because the host is getting weaker and weaker and weaker”

“The Media feeds us information (tape-worm-drug) what is good for the tapeworm and bad for us”

“they (the tape-worms) get richer and we (the host) get poorer”

Every kid a laptop – jobs shipped to China – US-middle-class is toast – gov says no – instead of every kid get’s a laptop – we are going to have a housing-bubble – instead of building new skills we gonna build bigger houses – while everybody is building bigger houses and watching TV – we gonna quietly move all the money out of the country – and when it is all set and done – it will be too late – because they will instead of having less debt more debt – they will have fewer small businesses – so we gonna have a party and nobody notice – by the time they notice it will be too late.

The average US family was encouraged to take mortgage-debt, auto-debt, credit-card-debt that in many respects did not know they could not afford.

The amazing thing: Governments and Banks knew that they could not afford it.

In another words: They encouraged them to take this debt – knowing – that the policies would be engineered that caused their incomes to fall later on.


Man with family two kids – software developer – you feel like you are doing very well.

A hole things are going on behind the scenes – you are going to loose your job in 3-5 years – this is statistically very probable – you don’t know that – but the financial institutions are knowing that.

The banks don’t tell you what they know about your financial situation – here – have more debt that you can not repay – thanks – we take your house.

fraudulent inducement

the vast majority of mortgages were done after 1996 –  were fraudulent induced.

The reality is – our pension funds own them – so we just sold our fraudulent induced mortgages into the pensions funds – and if we can not pay of those mortgages – guess what happens with our retirement-savings.

Spiritual Frontier Foundation International

how the money works on organized crime” – “narco dollars for dummies” –

“EU sues Tobacco Company RJR Nabisco for money-laundering (owned by KKR = Blackstone and TPG pay $325m to settle collusion lawsuit

“RJR Nabisco, Inc., was an American conglomerate, selling tobacco and food products, headquartered in the Calyon Building in Midtown Manhattan, New York City.[1] RJR Nabisco stopped operating as a single entity in 1999; however, both RJR (as R.J. Reynolds Tobacco Company) and Nabisco (now part of Mondelēz International) still exist.”

“gov is using their governmental authorities to force profits into the pharmaceutical-tape-worm”

“a whole bunch of corporations use government to engineer more profits into them”

“greatest reason for bankruptcy is people with health-care-problems”

groups behind shadow-governments – if you look at the provisions that have been discussed – controlling doctors – dictating doctors what their policies would be – requiring disclosure to the government of all sorts of private info about people and their health – you are looking at the most effective tool to implement fascism that i have ever seen”

“if you walk into Washington what do you see? 21 agencies?

I see 3x defense contractors (Lockheed Martin, DynaCorp…(Revenue US$ 3.047 billion (2010)) control and operate the database/it-systems for all 21 agencies in Washington”

“what that means is – your whole life can be engineered to serve the corporations and not you”

“Black details the ongoing business relationship between Watson’s IBM and the emerging German regime headed by Adolf Hitler and his National Socialist German Workers Party (NSDAP).

Hitler came to power in January 1933; on March 20 of that same year he established a concentration camp for political prisoners in the Bavarian town of Dachau, just outside the city of Munich. Repression against political opponents and the country’s substantial ethnic Jewish population began at once. By April 1933, some 60,000 had been imprisoned.[7] Business relations between IBM and the Hitler regime continued uninterrupted in the face of broad international calls for an economic boycott.[8] Indeed, Willy Heidinger, who remained in control of Dehomag, the 90%-owned German subsidiary of IBM, was an enthusiastic supporter of the Hitler regime.[9]

On April 12, 1933, the German government announced plans to conduct a long-delayed national census.[10] The project was particularly important to the Nazis as a mechanism for the identification of Jews, Gypsies, and other ethnic groups deemed undesirable by the regime. Dehomag offered to assist the German government in its task of ethnic identification, concentrating upon the 41 million residents of Prussia.[11] This activity was not only countenanced by Thomas Watson and IBM in America, Black argues, but was actively encouraged and financially supported, with Watson himself traveling to Germany in October 1933 and the company ramping up its investment in its German subsidiary from 400,000 to 7,000,000 Reichsmark—about $1 million.[12] This injection of American capital allowed Dehomag to purchase land in Berlin and to construct IBM’s first factory in Germany, Black charges, thereby “tooling up for what it correctly saw as a massive financial relationship with the Hitler regime.”[12]

From Wiki:

“Fitts served as managing director and member of the board of directors of the Wall Street investment bank Dillon, Read & Co. Inc., as Assistant Secretary of Housing and Federal Housing[2] Commissioner at the United States Department of Housing and Urban Development in the first Bush Administration, and was the president of Hamilton Securities Group, Inc., an investment bank and financial software developer.”


Fitts has a BA from the University of Pennsylvania, an MBA from the Wharton School and studied Mandarin at the Chinese University of Hong Kong.

“Former Assistant Secretary of Housing under George H.W. Bush Catherine Austin Fitts blows the whistle on how the financial terrorists have deliberately imploded the US economy and transferred gargantuan amounts of wealth offshore as a means of sacrificing the American middle class. Fitts documents how trillions of dollars went missing from government coffers in the 90’s and how she was personally targeted for exposing the fraud.”

Community Wizard:

“In late 1995, The Hamilton Securities Group began work on Community Wizard, a software tool designed to facilitate community Internet access to all public data and some private data on local resource use, including federal tax, expenditures and credit data. The initial response to the tool from Congress, HUD and our technology networks was astonishing. People were ecstatic to realize that they did not have to continue to live and work in the dark financially. It was a relatively easy thing for new software tools to help people learn about the flow of money and resources in their community. Additional software tool development also resulted in numerous tools to analyze subsidized housing in a place-based context, including detailed pricing tools that combined significant databases on government rules and regulations with all of our pricing data from the various loan sales, with databases about mortgage, municipal and stock market financing of homebuilding and home ownership. Such tools would allow people to take a positive and proactive role in insuring that government resources were well used. Such tools would allow investors to improve the performance of local investment — particularly venture and equity investment in small businesses and farms.”



( PDF | ASCII text formats )

The following is mirrored from its source at:

The Myth of the Rule of Law:
How the Money Works: The Destruction of Hamilton Securities Group
by Catherine Austin Fitts
12 August 2002
Originally published in SRA Quarterly, London, November 2001



“As long as I can get government subsidies, what do I care if people have education or jobs?”

–Dick Ravitch, Chairman, AFL-CIO Housing Trust,
Developer of HUD & Mitchell Lama Housing in NYC


“The Latin American drug cartels have stretched their tentacles much deeper into our lives that most people believe. It’s possible they are calling the shots at all levels of government.”

–William Colby, former CIA director, 1995

Over the course of several years my company Hamilton Securities and I were subjected to a government investigation that ultimately resulted in the destruction of Hamilton and the loss of my personal fortune. This spring the government finally dropped its investigation, having failed to find or establish any evidence of wrongdoing at Hamilton or by me. This was not a surprising result, because there was none to find. Nevertheless, over the course of five years and at a cost of millions of taxpayers’ dollars, Hamilton and I were harassed into financial oblivion. Why?

It started in 1996 — at the same time that the San Jose Mercury News was preparing a story exposing the US government’s marketing of crack cocaine into South Central Los Angeles in the 1980’s. The year before Hamilton Securities had launched a company in the inner city to provide data servicing for our software tool, Community Wizard. The Wizard used geographic information systems software (GIS) to map the geographic patterns of government investment, including defaulted mortgage loans of the Department of Housing and Urban Development (HUD). At that time we put three maps up on the Internet site for a place-based survey for the HUD loan sales. They showed defaulted HUD mortgages in New Orleans, the District of Columbia and South Central Los Angeles.

High and expensive rates of HUD mortgage defaults coincided with areas of heavy narcotics trafficking in South Central LA. It seemed understandable that someone might want the Wizard team to be otherwise occupied when the San Jose Mercury News published the “Dark Alliance” series regarding the Iran-Contra drug dealing in South Central Los Angeles. Otherwise we might notice the suspicious patterns that exist between HUD defaulted mortgages and government sponsored narcotics trafficking.

After initial efforts to shut us down failed, a team of investigators working for the Department of Justice (DOJ) seized our office and destroyed our software tools and databases. If Wizard and supporting databases had not been stolen or ordered wiped clean from our computers, it would have linked national housing data to local housing data. It would have linked the databases on local housing down to the street address and local mortgage originations to the data on pools of housing tax-exempt bond and mortgage securities whose credit was backstopped by FHA and Ginnie Mae at HUD.

Wizard may have revealed that allegations that some US-guaranteed mortgage securities were fraudulently issued and were illegally draining HUD’s reserves merited serious investigation. Was it possible that the US Treasury and the Office of Management and Budget (OMB) were operating HUD as a slush fund to illegally finance black budget operations? The possible securities fraud implications would be without precedent. Were covert operations and political graft the political raison d’être for HUD’s existence?

The targeting of Hamilton and Fitts stopped in 2001. The final attempt to frame me was closed after 18 audits and investigations and a smear campaign that reached into every aspect of my professional and personal life. Years of hard evidence as to the baselessness of the government’s goals and the criminality of its conduct had been ignored. The corruption of the courts, lawyers and the Department of Justice had become painfully visible, then predictable, then comical. The flood of federal credit, subsidies and contracts bought off everyone around us and showed what happens when human greed and the need for safety mixes with cheap money.

Several things helped to finally bring relief. In 2000, we began to put all documentation on a website ( thus creating a pool of evidence freely available to reporters, editors and readers. A second factor was that a great deal of money was unaccounted for from the US Treasury. This now totals over $3.3 trillion based on General Accounting Office (GAO) reports. The notion that the US Treasury, OMB and DOJ might be capable of significant fraud was gaining credibility in the investment community. A handful of courageous reporters published stories about what was happening.

However, in a deeper sense, the targeting started long ago when narcotics trafficking and HUD fraud destroyed the Philadelphia neighbourhood where I grew up. It was then, as a young person, that I learned that the law was a tool of coercion — that there was no rule of law. It is a terrible truth. As a white, Anglo-Saxon protestant I had been counting on the rule of law to protect me. I found, instead, that it is a powerful myth, which has fuelled great wealth for those who run and rule the economy — both legal and illegal. The rule of law is the basis of liquidity. That is why so much time and money goes into sustaining the myth.

Capital gains are highest for those who can combine liquidity, the value creation of stock price multiples, and the power of new technology with the high margins of narcotics trafficking, financial fraud and control of the Congress, the courts and the enforcement agencies to create and protect markets. Transaction costs rise and market multiples fall as the myth deteriorates. The destruction of Hamilton Securities is a case study in the disintegration of the myth of the rule of law. As that disintegration debases the treasuries and currencies of nations and destroys the equity of communities, it is making its way to your door one way or another.


Why Target Hamilton Securities? For years rumours circulated that the National Security Council was managing narcotics trafficking directly from the White House under the direction of Oliver North and Vice President George Bush as part of an operation that came to be known as Iran-Contra. The story never seemed to catch on. It was unthinkable to most Americans that the White House was marketing drugs wholesale to be retailed to their children in order to pursue a foreign policy objective. No major media business could carry the story if it meant all the drug money pulled out of their stock. A sell off like that could kill a business over night. The truth is that the inability of America to come to grips with the Iran-Contra disclosures about narcotics trafficking by the US government indicated the extent to which our economy had become addicted to drug profits.

A note from our founder on Iran-Contra In the mid 80s two covert operations of the American government overseen by the National Security Council of the Reagan administration and sanctioned by the highest levels of political authority were exposed. These were the illegal sale of weapons to Iran and the provision of convert aid to the Contra insurgency in Nicaragua in violation of a Congressional vote banning such aid. An independent counsel was appointed to investigate the matter. The investigation resulted in no fewer than fourteen individuals being indicted or convicted of crimes. These included senior members of the National Security Council, the Secretary of Defence, the head of covert operations of the CIA and others. After George Bush was elected president in 1988, he pardoned six of these men. The independent counsel’s investigation concluded that a systematic cover-up had been orchestrated to protect the president and the vice president.

The sheer breadth of the covert operations was stunning. Indeed, it involved not only arms sales to Iran but also the solicitation of funds from third party governments as well as from wealthy Americans to pursue a foreign policy agenda in Central America that was not only controversial but illegal. During the course of the independent counsel’s investigation, persistent rumours arose that the administration had sanctioned drug trafficking as well as a source of operational funding. These charges were successfully deflected with respect to the independent counsel’s investigation, but did not go away. They were examined separately by a Congressional committee chaired by Senator John Kerry, which established that the Contras had indeed been involved in drug trafficking and that elements of the US government had been aware of it.

It was not until Gary Webb’s Dark Alliance expos originally published in the San Jose Mercury News that the government’s links to drug trafficking in the United States became established beyond a reasonable doubt. This in itself is curious, because Webb was hardly the first investigator to document the links between American intelligence and narcotics. Alfred McCoy, writing in the 70s, had documented the involvement of the CIA and the military in heroin and opium trafficking in Southeast Asia. Indeed, narcotics had been a source of covert funding and political leverage for years, extending at least as far back as the invasion of Sicily during World War Two. In retrospect, what was so startling about Iran-Contra was the scale of the financing operations involved, which reached even into the American banking system and included various forms of financial fraud. This gave the operation a link to the scandals that enveloped the savings and loan industry in the late 80s. Most observers do not connect these apparently diverse events when in fact they are part of a whole.

The Clintons’ rise to the White House was fuelled by the Iran Contra operations in Arkansas. The drugs and arms transhipment point in Mena Arkansas had allegedly been one of the most significant operations operating under the aegis of the NSC’s Oliver North. Some said that as much as $100MM a month of arms and drugs flowed through the airport at Mena Arkansas. The stories and lore — whether about the goings on or the deaths of the many people who tried to stop or expose them — took up thousands of pages on the Internet but never seemed to work their way into the “official reality” of national TV and newspapers.

When the Clintons arrived in Washington there were numerous efforts to investigate government narcotics trafficking and fraud. Sally Denton and Roger Morris probably got the closest. Their article on Mena was pulled by the Washington Post at the very last minute, eventually to run in Penthouse in the summer of 1995. But the journalist who finally broke through the nation’s mass denial was Gary Webb. And he made it through thanks to the Internet — a medium much harder to control than the broadcast or printed press.

In August of 1996, the San Jose Mercury News broke Webb’s story of illegal narcotics dealing by the US government, targeting South Central LA with crack cocaine. The story was told from the point of view of Ricky Ross, the legendary dealer who built the market in South Central. And what an incredible story it was.

While the San Jose Mercury News was not a big deal inside the Washington beltway and in New York media circles, it was a very big deal to the new markets growing up on-line. It was known as having the finest website of any newspaper on the World Wide Web. Its location in Silicon Valley meant that the techies read it and took it seriously.

When the News broke the story in mid-August, the story was serialised in a relatively short form, as news has to be. What was different was that the News website crew took the time to scan in thousands of pages of supporting legal documents available to read or download from its website. By the time the various intelligence agencies and major media centres had organised and succeeded in shutting down the story and getting Gary Webb transferred and then essentially fired, a rich network of alternative and minority radio stations and internet news sites had downloaded the documents and covered the story.

All the kings’ horses and all the kings’ men could not put Humpty Dumpty back together again. Thousands of Americans had copies of the original documentation. The evidence was hard. The allegations were true. The story was now out of the control of the official reality cops. The Internet created a vehicle that was helping America come to understand that one of the most profitable businesses in America might not be run by black teenagers and Colombian warlords, but by representatives of their own government.

America wanted the Dow Jones up, and Hamilton Securities’ Community Wizard threatened to provide a hard link between Gary Webb’s exposure of American intelligence’s narcotics trafficking connections and money laundering. In the corridors of power, there was no contest. The Dow Jones won.


Catherine Austin Fitts: Enemy of the State Though just a movie, Enemy of the State with Will Smith and Gene Hackman shows how the money really works in Washington. Will Smith plays a Washington lawyer who is targeted in a phoney frame and smear by a US intelligence agency. The spook types have high-speed access to every last piece of data on the information highway — from Will’s bank account to his telephone conversations — and the wherewithal to engineer a smear campaign. The organiser of an investment conference once introduced me by saying, “Who here has seen the movie Enemy of the State? The woman I am about to introduce to you played Will Smith’s role in real life.”

One day I was a wealthy entrepreneur with a beautiful home, a successful business and money in the bank. I had been a partner and member of the board of directors of the Wall Street firm of Dillon Read, and an Assistant Secretary of Housing during the Bush Administration. I had been invited to serve as a governor of the Federal Reserve Board and, instead, started my own company in Washington, The Hamilton Securities Group. Thanks to our leadership in digital technology, financial software and analytics, Hamilton was doing well and poised for significant financial growth.

The next day I was hunted, living through 18 audits and investigations and a smear campaign directed not just at me but also members of my family, colleagues and friends who helped me. I believe that the smear campaign originated at the highest levels. For more than two years I lived through serious physical harassment and surveillance. This included burglary, stalking, having houseguests followed and dead animals left on the doormat. The hardest part was the necessity of keeping quiet lest it cost me more support or harm my credibility. Most people simply do not believe that such things are possible in America. They are.

In 1999, I sold everything to pay what to date is approximately $6 million of costs. My estimate of equity destroyed, damages and opportunity costs is $250 million and rising. I moved to a system of living in four places on an unpredictable schedule in the hope that this would push up the cost of surveillance and harassment and so dissuade my tormentors from following.

One of my new homes is a small first floor apartment in a row house on 54th Street in the West Philadelphia not far from the neighbourhood where I grew up. It was here as a child that I watched the financial disintegration begin. Another new home was in Hickory Valley in Hardeman County Tennessee, a small farming community where my father’s family has lived since the 1850’s. For several years, I have travelled back and forth by car between Philadelphia and Hickory Valley. Travelling has given me a different perspective on what I call the financial holocaust. It is not just billions of dollars of wholesale capital movements. It is not just defaulted HUD mortgages, US Treasury market interventions, Federal Reserve bailouts of hedge funds and IMF bailouts of Wall Street investors, money laundering out of Russia or narcotics trafficking.

Now I see the signs of financial holocaust through the eyes of people who are being destroyed. Their currency is debased. Their children are targets of both “legal” and “illegal” drug trafficking and are condemned to learn in dumbed-down schools. Their small business equity is being extracted from under them. It is they who are carrying the burden of taxes without the benefits that government investment is supposed to provide. The cruel twist is that citizens are funding the financial ruin that is killing them and their children.

Now I understand the process by which the rich get rich and the poor get exhausted. I see it through the eyes of the ladies who run the food marts; the farmers who can not cover their costs; the small town banker who makes character loans; the teenagers who deal and take the drugs; the mothers who try to stop the schools from forcing their kids to take Ritalin; and the small business people who try to make it through life honestly. They are overwhelmed by the sadness of what they see happening and do not understand.

I used what I had learned about how the money worked to destroy Hamilton Securities Group to see how the money worked to destroy neighbourhoods and the people in them — one neighbourhood at a time. Families and neighbourhoods are the basic building blocks of the global economy. When the bubble bursts, all the key decisions must first be made there at ground zero. So that is where we shall start.


How the Money Works: the Destruction of Neighbourhoods The model works about the same in every country, although the particulars vary between domestic and international agencies and the military and enforcement bureaucracies. Some call it the securitisation process. Some call it corporatisation. Some call it privatisation. Some call it globalisation. What this means in layman’s terms is that the management of resources is centralised. This is done through a system of securitisation based on privilege and coercion rather than performance and the rule of law.

From the viewpoint of the neighbourhood there are six ways to centralise local capital:

  • First, you consolidate all retail sales into a few large corporations, including franchise operations, cutting out local small business.
  • Second, you outsource (“privatise”) all local government functions to a few large corporations or subject them to such an overwhelming amount of federal regulation that they can be controlled and managed for the benefit of a few large corporations and their investors.
  • Third, you buy up all the land and real estate, or encumber them with mortgages in a way that is as profitable as possible and allows you to get control when you want it.
  • Fourth, you finance the entire process with the profits from narcotics and organised crime that you market into the neighbourhood. This enables you to finance your expansion in a manner that lowers your cost of capital in a way that conveniently lowers the initial price of your investment and/or weakens your competition. I buy your business and land with your money at a fraction of the cost. No one sells her home faster and cheaper than a mother trying to make bail or pay a lawyer to save her family from jail or death. That is why narcotics trafficking is the ultimate form of neighbourhood leveraged buyout.
  • Fifth, you leverage all of this with tax shelters, private tax-exempt bonds, municipal bonds, government guarantees, and government subsidies — all protected with complex securities arrangements.
  • Sixth, you ensure that the only companies and mutual funds allowed meaningful access to capital are those run by syndicate-approved management teams. To raise significant campaign funds candidates for political office appoint syndicate-approved management teams. Investment syndicates define the boundaries of managed competition that cycle all capital back through their pipelines. That means the only local boys who can make good are those who play ball with the syndicate.

In this way the private equity in a community can be extracted at a near infinite rate of return to investors and a highly negative rate of return to taxpayers.


How the Money Works: Hardeman County, Tennessee My home in rural Tennessee shows the pattern well. A few years ago, about thirty small businesses shut down within six months after the new Wal Mart opened with the blessings of local government. The result within a year was that we transferred substantial equity and employment from local to corporate control without asking for a percentage of the equity to be created. Now a majority of our retail purchases produce not a dime of knowledge or equity for us. The knowledge of how to build and run retail businesses is leaving our workforce. We have no access to the data on how our retail money works locally.

At about the same time, a national prison company based in Nashville, Correction Corporation of America (CCA) got the deal to build and operate two prisons down the road in Whiteville. Local and state government provided them with a package of zoning, infrastructure, contracts, tax-exempt bonds and assumption of risk that created lots of equity for CCA and its investors. Hardeman County, of course, got zero. After the deal was over, we had the risk, and they had the equity, although rumours abound about the local officials who got stock. A little later, a Tennessee paper reported that the former chairman of the Tennessee Republican state party sold his CCA stock for $17 million. Government, that is to say taxpayers, paid the ticket, and the private investors and management reaped the equity.

The numbers on the prison deal help to explain the War on Drugs and welfare reform. The American people who make about $36,000 per year on average will not support paying $55,000 per year for a woman and her 1.8 children to live in HUD housing on welfare and food stamps. So the game of using HUD housing subsidies and tax shelters to warehouse people in communities can be extended only long enough to refinance the equity out of or gentrify investor’s current investments in HUD housing. The HUD development game is being replaced in part by a prison privatisation and development game that warehouses the same folks in prisons at a $154,000 all-in cost per person per year. The result is a rush of prison deals with government contracts, tax-exempt bond financing, and tax shelters combined with stock deals. Prisons have been sold to farming communities as “economic development.” In the meantime, corporations have consolidated control of seeds, agricultural biotech farming, food processing and distribution here and abroad.

During the mid-90’s, you could see it beginning inside the beltway in Washington. Mandatory sentencing legislation or an announcement to sell government prison facilities on a negotiated basis generates significant capital gains immediately. Who wants to work hard in the real world when one can make quick up-front profits on their prison stocks?

Drugs came to Hardeman County before I moved there. One of my friends is a farmer who said that she first noticed the drugs in 1986. Interesting. That coincides with activities at the airport in Mena, Arkansas — allegedly a significant drugs and arms transhipment point used during the Iran Contra operation. Mena is only a puddle jump away from our local airport in Bolivar, the county seat. It makes sense that with so much coming through Mena in the early 1980’s that the distribution routes would push into the surrounding states.

Fifteen years on, we are overwhelmed. Should you pass the airport late at night, very likely you would see a private plane landing. When a private plane lands at a rural municipal airport at 4am on Sunday morning, it does make you wonder. This summer, we have had a major drug bust at a farm half a mile down the road, robberies, and high-speed convoys of sheriff’s cars with sirens wailing every day for the last few weeks. A man down the road could not get off crack and so, at the age of 30, drank a bottle of acid and died. Who is taking all these drugs? They say it is the kids. The only statistics that I can find indicate that marijuana is Tennessee’s largest cash crop — bigger than cotton and hardwood. This may be so, but where is it growing and who is growing it?

The money-laundering situation fits the picture. If you travel by car enough you notice how many fast food restaurants and gas station food marts are far from doing the total retail necessary to support overhead and capital investment. One night I drove ten miles to Bolivar to go through the car wash at the local Amoco station. I tried to pay for a three-dollar car wash with quarters. I was told they would not take coins. It was a policy. Counting coins was too much work, explained two attendants as they chatted with friends, with no other customer but me. So I got back in my car and drove ten miles home and washed the car with a hose and some paper towels. The symbolic economy is too busy processing the proceeds of crime to do the work necessary in the real economy. Indeed, it makes you wonder, which one is the real economy?

I don’t mean to say that Hickory Valley is not wonderful. It is. The land is beautiful; we have wonderful churches and more than a few fine neighbours. The reality is, however, that too many people are making money by destroying what we have.

A note from our founder on PROMIS software… The significance of PROMIS software is that it was sold to banks, who wittingly or otherwise bought it with a trap door that allowed those with the requisite codes to get in. The software was allegedly developed in the 70s by a company called Inslaw. We say allegedly because there are those who believe that William and Nancy Hamilton, the owners of Inslaw, stole it themselves in the first place. The Hamiltons sued the government for stealing it. They charged that the government modified it to enable intelligence agencies to access bank records, accounts, and databases. The Promis affair is a difficult one to research, with much mis- or disinformation floating about. A reporter, Danny Casolaro who was investigating the story, was killed — officially ruled a suicide. Casolaro had, however, told friends that he was working on something dangerous and if he died he would have been murdered.

While the PROMIS potential alone is worrysome, the fact that intelligence agencies might have a software entry to most of, if not all, the banks around the world, is truly sobering. The implications are enormous. Aside from the obvious issues raised by the possession by spooks of entry into your bank account, there are other, mundane, questions raised. What is all the fuss about money laundering if the government has, and has had, such access to the financial system’s records? Who is kidding whom here?

You can read about the PROMIS story at the web site of Insight Magazine ( in a series of articles written by Insight investigative journalist Kelly Patricia O’Meara. For our own part, considering the number of US espionage cases in recent years, which often seem to involve the sale of software codes to foreign powers, we wonder about who else around the world has access to our bank accounts, and why?


How the Money Works: West Philadelphia, Pennsylvania Georgie lives upstairs from my apartment on 54th street. She does not understand how her richest friend could now be one of her poorest friends, and what am I going to do about it. Georgie can’t figure out why the Department of Justice will not pay Hamilton for work performed and accepted by the government. I have explained that the Department of Justice says that the US is now money laundering $500 billion – $1 trillion a year. Such a volume would require significant pro-active leadership from the US Treasury, the Federal Reserve and the Department of Justice. Between the fed wire system and tools like PROMIS software, it is fair to say that the war on drugs is more about keeping the price of drugs up and the costs down than denying retail narcotics distributors access to our children. We drew a map of the US to demonstrate that the four largest state markets in drug import-exports, California, Texas, New York and Florida, are also the four largest states in money laundering and the four largest states in banking and investment. California, New York, Texas and Florida along with the law firms, lobbyists and government contractors in the DC area generate almost half of the national campaign contributions.

Georgie said that looking at the big picture was simply too overwhelming and wondered how this could affect our block in West Philadelphia? So we got out a piece of paper and started to estimate.

Daily, two or three teenagers on the corner deal drugs across the street. Georgie and I did a simple exercise. We figured that our three street dealers had a 50% deal with a supplier, did $300 a day each, and worked 250 days a year. Their supplier could run the profits through a local fast food restaurant that was owned by a publicly traded company. So those three illiterate teenagers could generate approximately $2-3MM in stock market value and a nice flow of deposits and business for the Philadelphia banks and insurance companies. Indeed, if the DOJ is correct about $500 billion – $1 trillion of annual money laundering in the US, then about $20-40 billion should flow at some point through the Philadelphia Fed. Assuming a 20% margin and a 20x multiple, the total feasible stock market cap pre-leverage could be as much as $80-160 billion. Imagine the stock market crash if all those black teenagers stopped dealing drugs and all these kids stopped taking them.

What does this say about a society that we believe that a highly sophisticated multibillion-dollar financial business is managed and controlled by black teenagers, Colombian warlords and a few Italians? How is it that a military-enforcement complex with a $350 billion budget and a Federal Reserve system that controls the bank wire transfer system is helpless to stop them?


What’s HUD Got to Do with It? Using government guarantees to insure mortgages in a neighbourhood like ours makes sense. It protects investors from concern about the value of real estate. The value of residential real estate reflects first and foremost the safety and well being of the neighbourhood. If West Philadelphia were financed with private mortgages from big Philadelphia banks, then they would lose money on the economic withering of neighbourhoods. If they pooled all the mortgages in mortgage pass-throughs and sold them to the pension funds without government guarantees of any kind, the pension funds would start losing money if defaults started to happen.

For the banks, of course, it is impossible to refuse to make mortgage loans in a neighbourhood in which they are channelling the reinvestment of narcotics profits. First, there is the branding problem: they can not tell people they won’t finance their homes because they prefer to reinvest the profits of folks who sell narcotics to their children and they can not make money on both. That is a problem as well because the banks’ core business is based on using taxpayer’s credit, and moving the losses to the taxpayers when things go wrong. For large banks and corporations to extract equity out of a neighbourhood, it is essential that the local values not impair their assets or the mortgage securities they create and service. That is where government credit provided by agencies like HUD comes in.

More money can be made from narcotics if the housing market has enough liquidity and the neighbourhood deposits come your way. So government guarantees ensure that (a) the taxpayer foots the bill and (b) the politicians can say that they are doing something to improve local housing conditions. The beauty of government credit is that banks and mortgage companies and investment banks can finance communities and not worry about whether the neighbourhood is safe or the schools are decent. Add the rich tax shelters and credits offered by Treasury and the subsidies from HUD, and who cares what the fundamental economics are?

As an economic development consultant from Philadelphia said to me, “I don’t understand. I just had lunch with a guy from a large bank. They are financing housing that costs $150,000 per unit and selling it for $50,000. He says they are making a ton of money. How can that be?” I then explained what happens when you can create various combinations of tax shelters and tax credits and tax write-offs and tax exempt bonds and empowerment zones and mortgage pass-throughs with rich guaranteed financing and subsidies, all in no-risk packages. Investors such as pension funds, endowments and foundations do not even have to pay taxes on their income and capital gains.

The beauty of the “don’t worry, be happy” model of financing communities with obfuscated taxpayer losses divorced from the economic reality of risk, is that everyone eventually buys into it. Local residents do not want the neighbourhood to get better because their rents or home taxes would rise and they would be forced out. Local small businessmen would lose their livelihood if commercial rents went up. Local organisations are increasingly dependent on government subsidies that they win by persuading someone that things are dire and people need lots of expert help as they — by some mystery — are unable to turn off their TVs and go down to the library or community college to get an education. Everyone adjusts to a perverse model: neighbourhood equity down, Dow Jones Index up, debt up, crime up. It is all because that is how his or her financial incentives have come to work.

Meantime, the guys making all the money on the drugs take a small portion that they write off by moving it into charities and foundations. That means some of their principal can be invested tax exempt in perpetuity. Meanwhile the percentage of income that is spent for charitable purpose can go for a series of activities that keeps the bleeding hearts preoccupied. That way no one interferes with the fundamental issues and instead are preoccupied on token successes and systemic failures that help brand the donors as good and the poor as hopeless.

And so HUD plays an important role in the transition of neighbourhoods in which all the players have a vested interest in the neighbourhood succeeding in the most cost effective manner, to one in which the players make money on failure or indifference. HUD has over $500 billion of mortgage insurance outstanding and an equivalent amount of mortgage securities backed up by the taxpayer’s full faith and credit through HUD’s mortgage agency, Ginnie Mae.


Bubblemania Aside, 2 Plus 2 Still Adds Up to 4 There are two problems with federal investment in the US. The first is the imbalance between sources and uses. The second is that rates of return are negative. Let’s look at what is going on and why.

In a nutshell, Washington is a financial mechanism that raises $1 from the American people and then invests $2 dollars back. If the politicians in Washington ask for another dollar to balance the equation, they are voted out of office. If they borrow another dollar to balance the equation, they are criticised soundly. If they cut spending by a dollar, they are again voted out of office. It is easy to see why the debt has gone up.

In 1997, we did an analysis for a group of investors in the Philadelphia area. We estimated that the return on investment to taxpayers on total federal investment — subsidies, operations and financing — was negative. The majority of federal taxation and investment was lowering the Philadelphia share of the GNP. So the problem is not just that the government spends more than it taxes. There is an insidious shift from high return functions to low and negative return functions. The two dollars that Washington is spending is not generating four dollars or even the one-dollar that it is taking out for taxes. That means the local economy is losing five dollars from the proposition. Let’s look at this in the context of HUD.

HUD has a program called Hope VI, which is the construction of new public housing. Here is how the money works on Hope VI. We tax people who make $36,000 a year. We then take the money and use it to build housing that costs $150-250,000 (inclusive of all overhead, etc) per apartment unit, which we use to warehouse people who make $10,000 a year or less in a manner in which they are unlikely to become taxpayers. This generates a large number of jobs, profit, and private equity for a group of lawyers, accountants, developers, consultants and others who tend to make substantially in excess of $36,000, say anywhere from $75,000 to $500,000 or more a year. In the HUD programs, a surprising number of them went to Harvard, Harvard Business School, the Harvard Kennedy School, and last but most special, Harvard Law School. If not Harvard, someplace more like it than the University of Tennessee agricultural school.

A few years back I took the pricings on the HUD defaulted mortgage portfolio to the head of Hope VI. I explained that HUD had substantial single-family inventory in those same communities. Empty single-family homes could be bought and repaired at a fraction of the price of new construction of public housing by private developers. The HUD official said, “but then how would we generate fees for our friends?” You just have to love a woman who is that honest.

The result of this situation is summed up by this statistic: twenty or thirty years ago, 70 cents of every dollar of federal spending went into the pocket of someone in the neighbourhood it was targeted at. Today that number is less than 30 cents. What that means is that investment in community development has enjoyed about a 300-400% increase in overhead, at the same time that technology has actually made it possible for overhead to drop dramatically The public policy “solution” has been to outsource government functions to make them more productive. In fact, this jump in overhead is simply a subsidy provided to private companies and organisations that receive thereby a guaranteed return regardless of performance. We have subsidies and financing to support housing programs that make no economic sense except for the property managers and owners who build and manage it for layers of fees. We have a horde of service providers to federal programs who are “expert” at helping communities of people who rarely show signs of improvement.

At HUD, it is primarily defence contractors such as Lockheed, American Management Systems (AMS) and Dyncorp who run these same programs. Such companies tend to have numerous private conflicts of interest through companies owned directly or indirectly by their investors. They make money from the programs and serve as a revolving door for personnel between them and the government. Not surprisingly, they find it impossible to run HUD efficiently no matter how much they are paid. Incompetence is a moneymaker.

Take AMS of Fairfax, Virginia, for example. It is reported to have earned $206MM since 1993 to build and run the HUD accounting system, HUD CAPS. That system has had mysterious periods of not working during which everyone was too busy to use a pencil and paper to reconcile the checkbook with Treasury. In fiscal 1999, HUD refused to publish audited financial statements. Total reported undocumentable adjustments to force balanced books in fiscal 1998-1999 are now $149 billion.

When you see a company hired to operate financial control and accounting systems paid $206 million to mismanage or misreport $149 billion, you begin to appreciate the economics of bubblemania.

One way to prevent such discrepancies would be to check that the revenues flowing out the door at HUD matched up with the revenues reported to the IRS at Treasury. This is a reasonable idea. However, today the head of the IRS is the former Chairman of AMS (who was provided with a waiver that allows him to keep his significant position in AMS stock).

The truth is that the private sector is eating government programs and administration alive. This means that fundamental economic productivity is decreasing while government investment earns a constantly decreasing rate of return to taxpayers. This has been going on for a long time. For example, in 1988, I was invited to a budget briefing for business leaders by Secretary of Defence Weinberger at the Pentagon. For eight hours he and his corporate guests painted a clear and detailed picture as to how the top corporations in America would protect themselves during globalisation. This would be accomplished by substantially increasing the amount of cost-plus fixed price contracts they would be guaranteed from Washington. I had little appreciation then for what this meant Wall Street might be cooking up in the mortgage and mortgage securities market.


How the Money Works: RTC and the Prelude to HUD Loan Sales In 1989, US financial institutions experienced a wave of single family, multifamily and commercial mortgage defaults known as the Savings and Loan crisis. The resolution of the so-called S&L crisis saw the development of the Resolution Trust Corporation (RTC). The RTC was a mechanism by which the American taxpayers underwrote approximately $500 billion of waste, tax shelters and fraud in a manner that allowed the investors to buy the assets at a discount.

Two of the biggest winners were the large banks that were bust but did not go bust and the large banks that were not bust who enjoyed the ride. The former were floated out by a nicely upward sloping yield curve thanks to Alan Greenspan, Federal Reserve Chairman. The Fed pumped Citibank out of a negative equity position with royal amounts of federal credit arbitrage. Citibank could borrow short and reinvest long at a 500 basis point spread and just keep doing it until it had generated sufficient profits to comply with its regulatory requirement for equity capital. In the meantime, NationsBank and those who started with positive equity positions were having an even better time. Congress never discussed or voted on it.

In 1993, I had lunch with the head of corporate lending in the DC area from NationsBank. He explained that NationsBank had no plans to make small business loans of any meaningful volume in the district. I had checked their latest SEC filings that morning. NationsBank had approximately $110 billion in long treasury bonds on their balance sheet. Essentially, the American taxpayers were providing them with the mechanism to borrow short term at a low price using our credit, collect up all our deposits using our credit, then lend to our government long term at a 550 basis point spread where they had a recourse guarantee of our credit, and refuse to lend to my small business since it was not good enough business for them. The net result was that I could finance my government handing out more subsidy and credit to large corporations while I financed my small business with my credit card, paying them 18% to borrow my money provided with my credit and deposits.

As a board member at Sallie Mae at the time, I also got to see firsthand how the Government Sponsored Enterprises were doing. About a third of our balance sheet at Sallie Mae was borrowing short to invest long in what was essentially the same federal government credit arbitrage. It appeared that Freddie Mac and Fannie Mae were doing the same thing.

What we were creating was a society in which certain institutions were not only not allowed to fail, but were guaranteed profits using taxpayers’ credit. The best part yet was that every time the taxpayers and their credit bailed these folks out, they and their investors got to keep 100% of the equity. So heads you win, tails you stick the losses to the taxpayers. Large banks are not allowed to fail. This set the stage for a long series of taxpayer financed rescues: the Mexican bailout, the “restructuring” of Russia, and the Long Term Capital Management bailout.


A Word About Place-based Financial Disclosure When I joined the Bush Administration in 1989 as Assistant Secretary of Housing, I read the budget for the Federal Housing Administration. It described a $300 billion portfolio of mortgage insurance with about $50-100 billion a year of annual originations. I asked the person responsible for the comptroller function to direct me to the place in the budget where it explained how much we were making and losing. I was told there was no such place. I asked where the financial statements were. I was told that the accountants had them, that they reported to a different Assistant Secretary and that I was not allowed to speak with them. The Government Accounting Office (GAO) had audited our financial statements several years ago. We could not afford an outside auditor, let alone every year. Besides, we operated on a cash basis. The Office of Management and Budget (OMB) would never permit accrual statements.

After months of working with a variety of parties at HUD, OMB and in the Administration, and with much support from GAO, the accounting group was moved over to my area and legislation was introduced and passed that required a comptroller for the FHA Funds, a chief financial officer for the department, and a legal requirement for annual audited financial statements and actuarial statements.

When we got access to our financial information, it turned out that we were losing $11 million a day in the single-family fund, the Mutual Mortgage Insurance Fund, and more in the multifamily and special risk fund called the General Insurance Fund. What is more, I discovered that we had never tracked our financial results on a place-based basis. In other words, ten regional and eighty field offices had no idea how they were doing. So we put together crude place-based cash flows. What we found was simply astonishing.

First, the national data on which the portfolio was based turned out to be the irrelevant product of averaging. A look at all ten regions and eighty field offices showed that no one part of the portfolio fit the image depicted by the national averages. Our vision of our business had been substantially distorted by the way in which the data had been presented.

Second, it turned out that over 100% of our losses were generated in two regions. The first was headquartered in Texas, and included Oklahoma, Louisiana and Arkansas. We discovered that the Texas region had lost over $2 billion the year before. They had no idea. The second was headquartered in Colorado. What the numbers showed was that S&L fraud and HUD fraud were perpetrated by the same networks and in the same places involving the use of federal credit.

Meantime, back in Washington, everyone was talking about these two scandals — the S&L scandal and the HUD scandal — as if they were separate. It was clear that place-based financial data would have told us what had happened, who had profited and how to prevent it from happening again. It also became apparent that our investments in communities conflicted with the other federal, state and local investment in that place. There was no mechanism to optimise total government investment and operations within a place.

Federal spending seemed intentionally designed to insure that there could be no flexibility between categories. We were spending $55,000 a year for a woman and 1.8 children to live in a place and in a manner such that they would and indeed could never become taxpayers and get off the dole. We were spending $150-250,000 to build public housing while HUD foreclosed homes that could be bought and fixed up for $50,000 were available a block away. We were paying large corporations $35-150 dollars an hour to do things that people who lived in those neighbourhoods could be trained to do. The implications were enormous: theoretically, at least, there was the opportunity, using more accurate place-based information, to place public finances on a sounder footing in which the tax payers’ investment returns were positive. Therein lay a problem however, because there was no political constituency for place-based financial statements. Return on investment to special interests was not compatible with a positive return on investment to taxpayers. There were two kinds of special interests. The first were technically legal. The second were illegal. The second was growing. My refusal to follow illegal orders and success at cleaning up Iran Contra fraud ultimately led to my leaving the Administration in 1990. I was told the day after I left that the preparation of place-based financial accounting and statements had been terminated.

That was one of the reasons I turned down the opportunity to serve at the Federal Reserve and instead started Hamilton upon leaving the Bush Administration. It was the reason why we at Hamilton built Community Wizard. The Community Wizard made it possible for anyone to put together a sources and uses statement for government activities (taxes, time use, spending, credit, regulation, operations, and more) in their community. An easy step was just linking to the Consolidated Financial Reports (CAFRS). The shock of finding so much in the way of hidden assets and where the money was really going was always a pleasure to watch. Why should the finance committee chairmen of the political campaigns be the only ones to see the information on how the money works by place?

Luis Mendez, one of my partners at Dillon Read, visited me in Washington in 1996. He said that Wizard was a stupid idea that would not work. Things were hopeless, he said. I showed Luis a printout of the CAFR for his community of Bronxville, New York. When he saw the figures, he exploded in rage. The first item was $4 million of flood insurance. This was the worst form of corruption, Luis said. Apparently, Bronxville was on a hill. The next day Luis spent two hours on the phone with the Deputy Mayor of Bronxville going through each item and informing him this was all going to stop. Apparently, things were far from hopeless, once one had the information. It just took one good map to see how to fix thousands of little things, one at a time.


How the Money Works: HUD Loan Sales As non-performing mortgages cascaded into the RTC and private financial institutions in the late 1980’s and early 1990’s, auction markets in those loans developed. There were a wide variety of buyers — real estate investors looking to get control of properties, mortgage brokers buying and selling whole loans and securities firms looking to pool mortgages and issue new securities in the pools. The technology of mortgage workouts boomed.

HUD was the only major financial institution that stayed on the sidelines and simply let its portfolio grow, until by 1993 it had approximately $4 billion of performing and non-performing single family mortgages and $8 billion of multifamily mortgages. The cost of holding these mortgages in portfolio was substantial. The cost to nearby homeowners and residents was also substantial as homes sat empty and foreclosed or apartment buildings in need of workout went unattended. As field offices were overwhelmed, contractors were hired to help service the various portfolios. As the portfolio and losses grew, so did their business. And so did the criticisms. The HUD Inspector General criticised HUD for not having a loan sales program and the large portfolio of defaulted mortgages was listed as a “material weakness” by HUD’s outside auditor and the OMB.

This mess on the back end of the lending and borrowing process was also shutting down the ability to continue origination volume on the front end. Credit reform legislation passed during the Bush Administration was designed to prevent S&L type scandals happening with the $1.2 trillion of federal credit, of which HUD mortgage insurance as about one third. In addition to requiring annual financial statements and actuarial statements, new originations required loan loss reserves funded through appropriations.

In 1993, the Clinton Administration’s plan to issue lots of mortgage insurance faced a funding problem. High default rates on the mortgage insurance portfolio and low recovery rates on the defaulted mortgage portfolio had serious implications for the cost and volume of new originations. That meant that the pressure was intense to substantially improve the recovery rates.

At the end of 1992, HUD issued a competitive request for proposals from contractors to improve loan loss recoveries, a competition that Hamilton won in late 1993 due in part to the total disinterest of the financial advisory industry. The experts were confident that HUD could never successfully put into operation debt servicing options, including auctions. While we shared the widespread assessment of the difficulties of getting things done, HUD’s pool of data — the richest data on how all the money worked by place — was a significant attraction.

I also wanted to prototype the reengineering of government and private investment by place. HUD afforded a rare opportunity to transfer substantial amounts of assets to the private markets in a way that would encourage equity-based financing of communities — moving communities to a healthier and more productive economic basis. Hamilton sought to prototype the Community Wizard, through which the integration of new technology combined with the privatisation of government and the securitisation of the illiquid economy could create the greatest wealth.

To widespread surprise, the HUD loans sales were an astonishing operational and economic success. HUD sold $10 billion of loans between 1994 and1997, generating $2.2 billion of credit reform profits, and increasing recovery rates from 35% to 70-90%. The performance was attributed to a variety of factors, including several innovations introduced by Hamilton:

  • Low cost access to due diligence databases and packages and forward auction calendars, through the Internet, the World Wide Web and proprietary on line systems.
  • Optimisation bid technology adapted by AT&T Bell Labs from their original technology used to route telephone call and airline flight crew schedules. This allowed bidders to stratify the portfolio the way they wanted to. It dramatically increased competition between all sectors of the real estate, mortgage and securities market, both large and small. This also allowed HUD to calculate the performance of numerous groups of bidders and the financial costs of less attractive measures. In short, the facts were at hand for the first time.
  • The process was improved through adaptation of software development models to bid design and management by HUD. Auctions were designed on line through the creation of detailed design books owned by the government that allowed for much more precise communication and agreements between numerous parts of the government. This instilled accountability and clarity in a highly political environment — as well as radically reducing transaction costs and the ability to ensure that HUD was not dependent on a handful of contractors.
  • The HUD loan sales were a procedural but not a political success. Numerous groups and the trade and financial press were initially glowing. Barron‘s wrote an article entitled “Believe It or Not, HUD Does Something Right for Taxpayers” (Jim McTague, April 10, 1995) Congress and OMB were initially thrilled. The Administration and industry now had the means to fund the growth of new mortgage insurance originations. However, there were groups that felt the pinch:
  • Loan servicers were losing contract business as the defaulted portfolio decreased.
  • The enforcement teams in the Inspector General’s office and General Counsel’s office, which generated revenues for the government through civil money penalties on the defaulted portfolio, were unhappy. While they admitted that sales were better for HUD, they took the position that they were worse for their performance goals. Their message to the program staff was, in essence: to hell with the taxpayers, we only care about our stuff.
  • Property owners complained loudly about no longer getting below market workouts at 35%, and alluded to “special deals” they had been promised that loan sales now violated. Harvard Endowment’s NHP was the most vociferous and aggressive in their lobbying against the loan sales, working through the National Association of Homebuilders and the National Multi-Housing Council. Given how many people from Harvard populated the key political appointments at Treasury, OMB, DOJ and HUD, including the lawyers who ran the real deal behind the protection of attorney-client privilege and a maze of secrecy laws, this was a concern. Bob Rubin, Secretary of the Treasury, had been on the board of Harvard Endowment. His deputy, Lawrence Summers, had been a professor at Harvard (and would return as President in 2001). The current Harvard Endowment board member involved in Harvard’s HUD investments, Pug Winokur, was also the lead investor in and Chairman of Dyncorp. DynCorp was one of the leading military and intelligence agency contractors in the War on Drugs with contracts at DOJ, HUD and the State Department. DynCorp had a vested interest in neighbourhoods not working. DynCorp was one of the managers of the PROMIS system at DOJ and the lead contractor on DOJ’s Asset Forfeiture Fund.
  • Optimisation study results showed that the traditional HUD property managers and bankers were substantially under performing the bidding groups, coming in 25% or more below the winning bid levels. The message to everyone at HUD was that the absence of open disclosure and competition in their programs had cost them dear. If HUD applied the principles of disclosure and competition to new allocations of subsidy and credit, Harvard would be one of the larger losers.
  • Owners, general partners and limited partners in HUD-subsidised portfolios anticipated an immediate renewal of their subsidy contracts. If the principles of SEC standards of disclosure and competition were applied to them in the future, they could face tax recapture and potential securities fraud liability.
  • Other HUD contractors — HUD is essentially run and controlled by a group of defence contractors — appeared concerned that Hamilton’s financial software and portfolio strategy tools gave political appointees too much knowledge of how the money worked at HUD. This would harm their purpose and the profits of their networks. Lockheed and EDS personnel regularly made it difficult to access databases that they managed for HUD.

While the loan sales were an improvement over doing nothing, they represented only a first step. The loan sales had improved recovery rates from 35% to 70-90%, generating several billions of savings. However, there was still more room for improvement. The direction in which the loan sales and the portfolio strategies were being developed created some political problems.

  • Simple auctions gave the advantage to bidders that were bidding with “hot money”. So, arguably, the narcotics trafficking operation that had undermined neighbourhoods in a way that resulted in a mortgage going into default, had the money to bid the most aggressively on the auction.
  • HUD was moving to organise its bids on a place-based basis and to establish trusts in which the winning bid and performance was measured in terms of total savings to the government, not just to HUD. Such structures, once successfully prototyped and developed, would have produced a far better return for both government and the community. It would counter balance the hot money problem by providing local players with a way of outperforming national players.
  • Auctions held regularly from the field offices could move portfolio faster in a way that could help mitigate the deterioration in value while the mortgage was held in portfolio for national auctions.

There was a direct conflict between the interests of both taxpayers and community homeowners and residents on the one hand, and the interests of various intermediaries and special interests on the other. Decades of inertia had created a significant infrastructure of people who made money from managing poverty-not ending it. This infrastructure included contractors, property managers, not-for-profit institutions, mortgage bankers, investment bankers, consultants, state housing finance agencies and low income activists who made money from the average American not having access to education, jobs and capital based on performance. Performance was judged on the return on investment to special interests, not the return on investment to taxpayers. The two had devolved to a point where they were pitted in a win-lose relationship.

On the face of things, the loan sales were a grand success in the capital markets, in the technology world, in the reengineering world, and to the bottom line. Behind the scenes they were unhelpful for the Democrats who had to raise money in the 1996 elections and to the Republicans who were putting forward Jack Kemp, the former secretary of HUD. Everyone needed more pork and patronage to hand out, not less.

HUD was a slush fund. Some say the loan sales were initially used to increase slush fund resources. If Treasury colluded with Wall Street bidders, it is entirely possible to have stolen large amounts of resources without anyone on the HUD loan sales team knowing. In addition, loan sales generated the credit subsidy and high recovery rate assumptions needed to fund large increases of new originations. Were new originations needed to keep slush fund operations going? If so, once enough credit subsidy profits were generated to fund new originations, Wizard and the place-based trusts may have exposed slush fund operations.

In the end, HUD decided to resolve its ongoing single-family mortgage defaults with a foreclosure process that rejected resolution methods that could produce a 90% recovery rate. Instead, it chose a foreclosure and inventory property sales system that had historically produced 35% recovery rates. It was much more expensive for both defaulting and nearby homeowners, costing the HUD mortgage funds in the billions annually. The justification given by the deputy in charge of the single-family program was that maintaining a large foreclosed property inventory was essential to being a “full service real estate operation.” Losing billions a year so that a government agency is “full service” is bureaucrat-speak that intentionally obscures other objectives. Proof lay in the silence of the private mortgage insurance companies and the mortgage industry. These practices were fine with them. When the private sector concedes large market share to government graciously, something is up.


The National Security Council’s Point of View I used to have a partner who would always say, “Cash flow is more important than your mother.” If you want to understand anything, sit in the top guy’s chair and simulate the cash flows. Everything becomes very clear quickly.

Put yourself in this man’s shoes: It is 1996, and you are the Secretary of the Treasury, Bob Rubin. Your job is to keep the stock market up and the deficit financed. While you would like the economy to be good, the reality is that you need the profits and capital gains of the men who run all the money to be healthy and for their reinvestment to cycle back through your financial system’s pipeline.

To do this, you are dependent on the $500 billion to $1 trillion per annum of money laundering that passes through the American banking system as estimated by the Department of Justice. To get a proper idea of the importance of this flow to the banks that are your charge, imagine for the sake of example that the banks earn fees and commissions of 1% on those volumes. (Considering that the source of that money is illegal, 1% is almost certainly too low.) That amounts to $5 to $10 billion in pre-tax profits. Clearly, you need that number to grow. You need worldwide capital to move through your pipelines. One way to keep that flow growing is with government credit. Government credit supports the capital markets and prospective capital gains from those markets attracts more money. The growth of federal and federal supported credit was simply stupefying during the 1990’s. Republicans and Democrats tripped over each other in the competition to slap out ever more.

Another way is to run your enforcement, intelligence and military operations to consolidate the money laundering market and overall capital flow into those financial institutions that cycle the deposits and investments though the US financial markets. If you were Bob Rubin and the members of the National Security Council in 1996, you would have felt the pressure to keep the cash flow that comes through your pipelines growing. There was an election to win.

The1996 Presidential campaign was an unusually partisan one. The competition for fundraising was intense — involving lots of alleged money laundering schemes that tied into money abroad. Needless to say, the nostrum “it’s the economy, stupid” that informed the 1992 Democratic campaign and victory still held. That meant that for the incumbents to win, the stock market needed to be high and interest rates and gold prices low.

With substantial fundraising coming from the states (New York, California, Texas, Florida and the DC area) representing the highest money laundering flows, the reality of raising money was brought home by ex-CIA chief William Colby’s statement in 1995 that the drug cartels may now be calling the shots at all levels of government. Rumours abounded about money laundered into campaign coffers from government credit and deals extended to Russia and China.


From the NSC’s Point of View: What Does HUD Have to Do With It? Let’s look at HUD from Rubin’s point of view.

First, global money laundering and capital attraction is a lot easier with federal credit. No one needs to bother about credit quality, and it is readily marketable around the world. A significant amount of federal credit, whether on balance sheet through HUD, VA or Farmers Home, or off budget through FDIC and the GSE’s, backs the US mortgage finance system. It may seem counter intuitive to imagine that federal credit could be a vehicle for money laundering, but in reality it is simplicity itself.

It is well explained in Gary Webb’s book, Dark Alliance. It was published in 1998 after he was fired from the San Jose Mercury News for publishing the expose of the same title in 1996. In it, Ricky Ross, the dealer who led the crack cocaine explosion in South Central Los Angeles, explains to his Iran Contra supplier that he has a cash problem. The problem is that he has millions in cash underneath his bed and it just keeps growing. What can he do with the cash? The supplier says, “Don’t you know, you buy real estate.” So Ricky bought a string of properties. He wasn’t alone. Some estimates of the volume of Florida real estate transactions funded by illicit cash are as high as 70%. The lesson is clear. Publicly traded homebuilding and mortgage banking operations can be both a turbo-charged cash and capital gains machine. As of 1996, homebuilding and mortgage banking was unimpeded by any money laundering enforcement.

The following encounter illustrates this. At the Money Laundering Alert’s annual conference in Miami in the spring of 2000, I asked the senior representative of the US Treasury’s money laundering group, FinCen, what plans they had for protecting the federal credit programs particularly the ones in homebuilding and mortgage banking from money laundering. To her credit, she answered, “not only do I not know the answer to your question, I do not know enough about the federal credit programs to understand your question.”

I then visited the vendor fair. All the software providers who helped banks comply with money laundering regulation said that their banking clients would not let them near their mortgage banking subsidiaries, which were booming. A visit with the Lexus-Nexus affiliate indicated that the only reference he could find to money laundering enforcement in US homebuilding and mortgage banking indicated that HUD was the responsible enforcement authority — which means there was none.


The NSC’s Point of View: The Dark Alliance Allegations Another one of Bob Rubin and the NSC’s problems in 1996 was that the information regarding government narcotics trafficking kept seeping into the public awareness in a manner that could impair essential narcotics trafficking profits and reinvestment thereof.

Government deficit financing both in the US and worldwide had for decades depended on an ever-expanding illegal narcotics trade. Narcotics had been a banking business from the beginning, controlled for the benefit of those who wanted large pools of deposits to finance new investments or to take in payment for trade from those who could not access credit.

As head of the arbitrage desk at Goldman Sachs for many years, Rubin would have seen the process by which organised crime profits, cycled through Wall Street, bought up corporate America through mergers and acquisitions and leveraged buyouts. This was a game he must have understood.


The NSC’s Point of View: Missing Money and Slush Funds One of my accomplishments in the Bush Administration was to persuade the Office of Management and Budget to allow us to create a legal requirement that HUD and its component parts have a Chief Financial Officer (CFO) and audited annual financial statements with actuarial studies, and then to require it of all the other federal credit programs. After we won OMB’s support, the notion of CFOs, accrual statements and outside audits caught on all round the government. One of the reasons the “missing money” problems have come to the fore is that GAO is continually announcing that such and such an agency can not produce audited financials as required and the amount of the adjustments without documentation it requires to get the agency and the US Treasury to agree is such and such.

In March 2000, the HUD Inspector General testified that HUD would not publish financial statements for fiscal 1999 and that the undocumentable adjustments made so far to balance the books was $59 billion. A close reading of the undecipherable preliminary audit indicated that, in fact, the number was $17 billion in fiscal 1998 and $70 billion on the asset side and $59 billion on the liability side in fiscal 1999. As a practical matter, since HUD was assuring us that their systems did not work and that they had simply not bothered to check their accounts and cash balances in the old fashioned way using paper and pencil, we had no numbers of any meaning. In fact, anything was possible. Worse yet, GAO reports of the Treasury accounting systems — both as to their reliability and control by private contractors — are also disturbing. With little or no “info-sovereignty”, the internal controls are insufficient to assure that cash balance reconciliation between an agency such as HUD and Treasury are accurate.

When an agency can issue government guarantees and not record what they have issued correctly and then write checks that are not recorded correctly, then one or more of the players that handle the money, namely the US Treasury, the Federal Reserve Bank of New York, AMS and Lockheed, may be in a position to steal literally hundreds of billions of dollars with no one the wiser except those enjoying the fruits.

Such a thought seemed far-fetched not that long ago. Indeed, in 1994 after the first FHA/HUD financial audit was published, a mortgage banker came to see me. He was a serious engineering type who clearly worked hard and mastered the details of his business. He was distressed, he said. For decades he had been keeping a tally of total outstanding FHA/HUD mortgage insurance credit. He had brought printouts of his database for me. It turned out that the government’s published financial statements showed the amount outstanding was substantially less than the actual amount outstanding. He was sure.

I assumed that the guy was crazy. If what he said were true, then the US Treasury and the Federal Reserve would have to be complicit in significant fraud, including securities fraud. This was inconceivable. To this day, I regret not accepting a copy of the printouts from his databases. I wonder if they might have illuminated what our Wizard and other portfolio tools were about to find. They might have helped explain why our efforts to distribute information on the HUD outstanding mortgage and defaulted mortgage portfolios inspired such opposition and distress.

The indications are growing that Treasury and OMB are engaging in fraudulent transactions and that the key financing, accounting and payments systems are run by contractors who are either in on the deal or turn a blind eye. What this means is that the financial disclosure provided by the federal government may be essentially meaningless. It does not take long to realise that in a world with no financial controls — with the fox in control of the chicken coop — anything is possible. Life in the federal government is an endless series of shortcuts under impossible political stress and risk. With no internal financial controls, things can go far off course with no way for reasonable people to stop it.

The allegations about HUD missing money and slush funds that have come my way in the last few years are many and I have no way to sort through what is fact and what is fiction. At some point, however, there is merit to the saying that was thrown in my face so many times over the last six years, “where there is smoke there is likely to be fire.” Here are some of them:

  • HUD is being used to finance covert intelligence and military operations and research projects both domestically and globally.
  • Some of this funding is “black budget”; that is, it is not disclosed to or approved by Congress. That means it is in violation of the US Constitution.
  • HUD is one of the federal slush funds used to manage the accounts for domestic narcotics trafficking and to inventory profits on-shore where they are safe from foreign interference
  • State and local housing agencies that are used as local managers and distributors of HUD mortgage credit and subsidies are part of the money laundering chain. Allegations regarding the Arkansas Finance Development Agency, ADFA, give examples of how this works.
  • One of the mechanisms used to provide slush fund monies is with mortgage securities that are created in whole or in part with fraudulent mortgages. Churning mortgage defaults back through HUD supports debt service.
  • The Treasury conspired with winning bidders to rig some of the HUD loan sales
  • The HUD loan sales were used to launder money from abroad back into the Treasury’s Exchange Stabilisation fund (ESF).
  • PROMIS software was used by winning bidders — to help them submit winning bids.
  • Treasury, DOJ, and the intelligence agencies all have access to PROMIS as do one or more other governments, including Israel
  • Slush fund monies were used to fund the Treasury’s ESR’s funding of Swiss reparations to the Jewish victims of Nazi seizures.

While it would be nice to learn the truth of what fraud, if any, has transpired, what is important is to get our tax dollars managed properly and if money is missing, get it back. Scandals and blame games are not as useful as getting a proper system of resource management in place and recovering any stolen money.

For three years now I have listened to descriptions by retired military and intelligence folks about why so much money has gone missing at HUD and HUD’s role in a series of slush funds around the government.

The reality is that I have no idea what is true and what is false, what is information, what is exaggeration, what is misinformation and what is disinformation or incompetence. I am simply not qualified to say.

What I do know from twice trying to help run HUD on a financially responsible basis is that what they are saying is compatible with what I have experienced over the last twelve years. Nothing that I have experienced would indicate that their allegations are not feasible. I am convinced that some combination is true.

In 2000 I visited with a senior staff assistant to the Chairman of one of the appropriations committees for HUD. I asked him what he thought was going on at HUD. He said, “HUD is being run as a criminal enterprise.”

Based on the documentary evidence, that is absolutely correct.


Catherine Austin Fitts is the President of Solari, Inc, an investment advisor created to invest in equity managed by solaris, investment databanks and investment advisors for places of up to 10,000 people. She is a former Assistant Secretary of Housing-Federal Housing Commissioner in the first Bush Administration, a former managing director and member of the board of Dillon, Read & Co, Inc (now UBS) and President of The Hamilton Securities Group, Inc. Catherine provides risk management services to investors through Sanders Research Associates in London. She writes “The Real Deal” column for Scoop Media New Zealand.


Copyright © 2001 Catherine Austin Fitts
Copyright © 2002 Scoop Media
Reprinted for Fair Use Only.

Narco-Dollars for Beginners
“How the Money Works” in the Illicit Drug Trade
by Catherine Austin Fitts
Special to the Narco News Bulletin


Narco News Publisher’s Note: Catherine Austin Fitts is a former managing director and member of the board of directors of Dillon Read & Co, Inc, a former Assistant Secretary of Housing-Federal Housing Commissioner in the first Bush Administration, and the former President of The Hamilton Securities Group, Inc. She is the President of Solari, Inc, an investment advisory firm. Solari provides risk management services to investors through Sanders Research Associates in London.

“The Latin American drug cartels have stretched their tentacles much deeper into our lives than most people believe. It’s possible they are calling the shots at all levels of government.”

–William Colby, former CIA Director, 1995


Part I: Narco Dollars for Dummies TOP

A Simple Framework:
The Solari Index and the Dow Jones Index

The Solari Index is my way of estimating how well a place is doing. It is based upon the percentage of people in a place who believe that a child can leave their home and go to the nearest place to buy a popsicle and come home alone safely.

When I was a child growing up in the 1950’s at 48th and Larchwood in West Philadelphia, the Solari Index was 100 percent. It was unthinkable that a child was not safe running up to the stores on Spruce Street for a popsicle and some pin ball. The Dow Jones was about 500, the Solari Index was 100 percent and our debt per person was very low. Of course I did not think about it that way at the time. All I knew was that life on the street with my buddies was sweet.

Today, the Dow Jones is over 9,000, debt per person is over $100,000 and my favorite hairdresser in Philadelphia, Al at the Hair Hut in West Philadelphia, and I just had a debate yesterday afternoon while Al was cutting my hair about whether the Solari Index in my old neighborhood was 0 percent (my position) or 10 percent (Al’s position). Men always think it is higher than women.

Despite the boy-girl spread between us, it is fair to say that Al and I agree that the Solari Index is in the tank — both in the streets of Philadelphia and throughout America.

Life on the street ain’t sweet any more. I watched the slide of the Solari Index as a child. A lot of it had to do with narcotics trafficking and the people that narco dollars put in power on our streets — and in city hall, in the banks, in Congress and the corporations and investors down town and that ring the city.

My mission is to see the Solari Index return to 100 percent and to do so in a manner that moves the Dow up and our debt per person down and makes me and my partners a whole pile of money.

A few years back when my efforts to improve the Solari Index were threatening to reduce narcotics profits in a few places, I discovered that I could not look to the enforcement or the judicial establishment funded with my tax dollars to protect me. Narco dollars had the upper hand throughout government and the legal establishment.

That’s when I decided that I would have to learn how the money works on the drug trade.

Here is what I have learned that has been useful to me — and may help you have a better map of how narco dollars impact you, your business, your family and the Solari Index in your neighborhood.

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The Economics of Production:
Sam and Dave Do Boat Loads of White Agricultural Substances

Okay, let’s start at ground zero. It is 1947, and World War II is over. America is ready to go back to work to build the corporate economy. We are in New Orleans on the docks.

Two boats pull into the docks. The first boat is full of a white agricultural product grown in Latin America called sugar. The owner of the cargo, lets call him Sam, sells his boat load of white agricultural substance to the sugar wholesaler on the docks for how much money?

Ok, so let’s say that Sam sells his entire boatload of sugar to the sugar wholesaler on the docks for X dollars.

Now, after Sam pays his workers and all his costs of growing and transporting the sugar, and after he and his wife spend the weekend in New Orleans and he pays himself a bonus and buys some new harvest equipment and pays his taxes, how much cash does he have left to deposit into his bank account? Or, another way of saying this is: What is Sam’s net cash margin on his sugar business?

Well, it depends on how lucky and hard working and smart Sam is, but let’s say that Sam has worked his proverbial you know what off and he makes around 5-10 percent. Sam the sugar man has a 5-10 percent cash profit margin. Let’s call Sam’s margin S for slim or SLIM PERCENTAGE.

Back on the docks, the second boat — an exact replica of the boat carrying Sam’s sugar — is a boat carrying Dave’s white agricultural product called drugs. In those days this was more likely to be heroin, these days more likely to be cocaine. Whatever the precise species, the planting, harvesting and production of this white agricultural substance, Dave’s drugs, are remarkably like Sam’s sugar.

Ok, so if Sam the sugar man sold his sugar to the sugar wholesaler for X dollars, how much will Dave the drug man sell his drugs to the drug wholesaler for? Well, where Sam is getting pennies, Dave is getting bills. If Sam had sales of X dollars, let say that Dave had sales of 50-100 times X. Dave may carry the same amount of white stuff in a boat but from a financial point of view, Dave the drug man has a lot more “sales per boat” than Sam the sugar man.

Now, after Dave pays his workers and all his costs of growing and transporting the drugs, and after he and his wife spend the weekend in New Orleans and he pays himself a bonus and buys some new harvest and radar equipment and spends what he needs on bribes and bonuses to a few enforcement and intelligence operatives and retainers to his several law firms, how much cash does he have left to deposit into his bank account? Or, another way of saying this is what is Dave’s net cash margin on his drug business?

It’s also going to be a multiple of Sam’s margin, right? Maybe it will be 20 percent or 30 percent or more? Let’s call it B for Big, or BIG PERCENTAGE. Dave the drug man has a much bigger “cash profit per boat” than Sam the sugar man. Part of that is, of course, once Dave has set up his money laundering schemes, even after a 4-10 percent take for the money laundering fees, it’s fair to say his tax rate of 0 percent is lower than Sam’s tax rate. While it is expensive to set up all the many schemes Dave might use to launder his money, once you do it you can save a lot avoiding some or all of the IRS’s take.

Look at your estimate of Sam and Dave’s sales and profits. Now answer for yourself the following questions.

  • Who is going to get laid more, Sam or Dave?
  • Who is going to be more popular with the local bankers, Sam or Dave?
  • Who is going to have a bigger stock market portfolio with a large investment house, Sam or Dave?
  • Who is going to donate more money to political campaigns, Sam or Dave?
  • Whose wife is going to be bigger in the local charities, Sam or Dave’s?
  • Whose companies will have more prestigous law firms on retainer, Sam or Dave’s?
  • Who is going to buy the other’s company first, Sam or Dave? Is Dave the drug man going to buy Sam the sugar man’s company, or is Sam the sugar man going to buy Dave the drug man’s company?
  • When they want to buy the other’s company, will the bankers, lawyers and investment houses and politicians back Sam the sugar man or Dave the drug man?
  • Whose son or grandson has a better chance of getting into Harvard or getting a job offer at Goldman Sachs, Sam or Dave’s?

Don’t listen to me. And don’t listen to Peter Jennings, Dan Rather or Tom Brokaw. Who do you think pays their salaries? Who owns the companies they work for? Sam or Dave?

Don’t listen to anyone else. Think about the numbers and listen to your heart. What do you believe?

There is very little about how the money works on the drug trade that you cannot know for yourself by coming to grips with the economics over a fifty year period of Sam and Dave and their boat loads of white agricultural substance. It is the magic of compound interest.

As one of my former partners used to say, “Cash flow is more important than your mother.”

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Many Boatloads Later

It’s more than fifty years now since the boats transporting Sam and Dave’s white agricultural products docked in New Orleans. I don’t know what the Narco National Product (Solari’s term for that portion of the GNP coming from narco dollars) was in 1947, but lets say it was a billion dollars or less. Today, the Narco National Product that number is estimated to be about $400 billion globally and about $150 billion plus in the United States.

It helps to look at the business globally as the United States is the world leader in global money laundering. According to the Department of Justice, the US launders between $500 billion — $1 trillion annually. I have little idea what percentage of that is narco dollars, but it is probably safe to assume that at least $100-200 billion relates to US drug import-exports and retail trade.

Ok, so let’s think about how much Sam and Dave have in accumulated profits in their bank and brokerage accounts.

Let’s assume that the US narco national product in 1947 was $1 billion and it has grown to about $150 billion today. Assume a straight line of growth from $1 billion – $150 billion, so the business grows about $3 billion a year and then tops out at $150 billion as the Solari Index has bottomed out at or near 0 percent. America is about as stoned on illegal drugs as it can get, and growth in controlled “Schedule II” substances has moved to Ritalin and other cocaine-like drugs for kids that government programs and health insurance will now finance.

Let’s take the BIG PERCENT margin that we estimated for Dave the drug man’s net cash margin. Let’s say that every year from 1947 through 2001, that the cash flow sales available for reinvestment from drug profits grew by $3 billion a year, throwing off that number times BIG PERCENT. Okay, assume that the reinvested profit grew at the compound growth rate of the Standard & Poor’s 500 as it got reinvested along the way.

That amount is an estimate for the equity owned and controlled by those who have profited in the drug trade. Total narco dollars. How much money is that? I made an Excel spread-sheet once to estimate total narco capital in the economy.

My numbers showed that Dave the drug man had bought up not only Sam’s companies, but — if you throw in other organized crime cash flows — a controlling position in about most everything on the New York Stock Exchange.

When you think about it, this analysis make sense. The folks with the BIG PERCENT — big cash margin — would end up rich and in power and the guys working their you-know-what off for SLIM PERCENT — a low cash margin — would end up working for them.


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NYSE Chairman Richard Grasso Embracing a FARC Commmander (Colombian Rebel Group)

A Real World Example:
NYSE’s Richard Grasso and the Ultimate New Business “Cold Call”

Lest you think my comment about the New York Stock Exchange is too strong, let’s look at one event that occurred before our “war on drugs” went into high gear through Plan Colombia, banging heads over narco dollar market share in Latin America.

In late June 1999, numerous news services, including Associated Press, reported that Richard Grasso, Chairman of the New York Stock Exchange flew to Colombia to meet with a spokesperson for Raul Reyes of the Revolutionary Armed Forces of Columbia (FARC), the supposed “narco terrorists” with whom we are now at war.

The purpose of the trip was “to bring a message of cooperation from U.S. financial services” and to discuss foreign investment and the future role of U.S. businesses in Colombia.

Some reading in between the lines said to me that Grasso’s mission related to the continued circulation of cocaine capital through the US financial system. FARC, the Colombian rebels, were circulating their profits back into local development without the assistance of the American banking and investment system. Worse yet for the outlook for the US stock market’s strength from $500 billion — $1 trillion in annual money laundering — FARC was calling for the decriminalization of cocaine.

To understand the threat of decriminalization of the drug trade, just go back to your Sam and Dave estimate and recalculate the numbers given what decriminalization does to drive BIG PERCENT back to SLIM PERCENT and what that means to Wall Street and Washington’s cash flows. No narco dollars, no reinvestment into the stock markets, no campaign contributions.

It was only a few days after Grasso’s trip that BBC News reported a General Accounting Office (GAO) report to Congress as saying: “Colombia’s cocaine and heroin production is set to rise by as much as 50 percent as the U.S. backed drug war flounders, due largely to the growing strength of Marxist rebels”

I deduced from this incident that the liquidity of the NY Stock Exchange was sufficiently dependent on high margin cocaine profits (BIG PERCENT) that the Chairman of the New York Stock Exchange was willing for Associated Press to acknowledge he is making “cold calls” in rebel controlled peace zones in Colombian villages. “Cold calls” is what we used to call new business visits we would pay to people we had not yet done business with when I was on Wall Street.

I presume Grasso’s trip was not successful in turning the cash flow tide. Hence, Plan Colombia is proceeding apace to try to move narco deposits out of FARC’s control and back to the control of our traditional allies and, even if that does not work, to move Citibank’s market share and that of the other large US banks and financial institutions steadily up in Latin America.

Buy Banamex anyone?


Part II: Narco Dollars On Your Map TOP

It helps to look at the drug markets by looking at a map of the United States.

What are the four states with the largest market share in illegal narcotics trafficking? Draw a map if you want and shade them in on your map.

Yup. You got it.

New York, California, Texas and Florida.

It makes sense. Those are the biggest states. They have big coastal areas and borders and big ports. It would make sense that the population would grow in the big states where the trade and business flow grows. If you check back to Part I of “Narco Dollars for Dummies”, we described two businesses. One was Sam’s sugar business that had a SLIM PERCENTAGE profit. The other was Dave’s drug business that had a BIG PERCENTAGE profit. It would make sense that these four states would be real big in both Sam’s sugar business and Dave’s drug businesses.

OK. Now. What are the four states with the biggest business in money laundering of narco profits and other profits of organized crime?

Not surprising? Same four states. They are all known as banking power places.

New York, California, Texas and Florida.

What’s next? What are the four states with the biggest business in taking the laundered narco profits and using them to deposit money in a bank, or to buy another company, or to start a new company, or just buy stock in the stock market? That’s what I call the reinvestment business.

Same four, right? New York, California, Texas and Florida.

Who were the governors of these four states in 1996?

Well, let’s see. Jeb Bush was the governor of Florida. Governor Jeb was the son of George H. W. Bush, the former head of an oil company in Texas and Mexico and the former head of the CIA and the former head of the various drug enforcement efforts as Vice President and President. Then George W. Bush, also the son of George H. W. Bush, was the governor of Texas. So the governors of two of the largest narco dollar market share states just happen to be the sons of the former chief of the secret police.

Do you think it is possible to become the governor of a state with the support of the SLIM PERCENTAGE profit businesses and the opposition of the BIG PERCENTAGE profit businesses, particularly after the BIG PRECENTAGE profits have bought up all the SLIM PERCENTAGE profit businesses?

What about president?

Of course, George W. is President today fueled by the single most successful campaign fundraising in the history of Western civilization. Now do you know why Hillary Clinton wanted to be a Senator from New York? Now do you know why Andrew Cuomo wants to be New York governor and is reported to be doing polls to see if people associate him with the Mafia and organized crime?

When you think about it, the President would need to win the majority of the people who donate from the SLIM PERCENTAGE profit businesses but control the reinvestment of the BIG PERCENTAGE profit industry cash flow to win. The competition for the support of the people who control the reinvestment from the BIG PERCENTAGE profit business cash flow in the biggest states would be fierce.

According to the Center for Responsive Politics analysis of the 2000 elections, donors in California, New York, the District of Colombia Metro Area (which is full of lawyers and lobbyists who represent all the other states), Texas and Florida contributed $666.8 million, or approximately 47 percent of a total of $1.427 billion in donations.

I can just paraphrase Tina Turner singing in the background. Care to hum along with us? . . . .”What’s drugs got to do . . . got to do . . . with it?”

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Getting Out of Narco Dollars HQ

In 1996, my company and I were targeted by a private informant and a group of investigators working for the Department of Justice and the Department of Housing and Urban Development (HUD). If you have ever seen the movie Enemy of the State with Will Smith and Gene Hackman, then you understand how the drill works.

Will Smith plays a successful Washington lawyer who is targeted in a phony frame and smear by a US intelligence agency. The spooky types have high-speed access to every last piece of data on the information highway — from Will’s bank account to his telephone conversations — and the wherewithal to engineer a smear campaign through the papers and the Council on Foreign Relations types.

The organizer of an investment conference once introduced me by saying, “Who here has seen the movie Enemy of the State? The woman I am about to introduce to you played Will Smith in real life.”

One day I was a wealthy entrepreneur with a beautiful home, a successful business and money in the bank. I had been a partner and member of the board of directors of a Wall Street firm and then Assistant Secretary of Housing-Federal Housing Commissioner during the Bush Administration. I had been invited to serve as a governor of the Federal Reserve Board and instead started my own company in Washington, The Hamilton Securities Group. Thanks to our leadership in digital technology, financial software and analytics, Hamilton was doing well and poised for significant financial growth.

One of my software tool innovations, Community Wizard, helped communities access data about how all the money works in their place. Accessible through the World Wide Web, Community Wizard was illuminating an unusual pattern of defaults on HUD mortgages and other government and homeowner losses in areas in which the CIA had admitted to facilitating cocaine trafficking by Iran Contra supporters.

According to the CIA, we were paying our government to help the narco dollars make money in a way that — if you read Community Wizard’s comic book-like money maps — was losing taxpayers and homeowners billions of dollars.

The next day I was hunted, living through 18 audits and investigations and a smear campaign directed not just at me but also at members of my family, colleagues and friends who helped me. I believe that the smear campaign originated at the highest levels. For more than two years I lived through serious physical harassment and surveillance. This included burglary, stalking, having houseguests followed and dead animals left on the doormat. The hardest part was the necessity of keeping quiet about the physical danger lest it cost me more support or harm my credibility. Most people simply do not believe that such things are possible in America.

In 1999, I sold everything to pay what to date is approximately $6 million of legal and administrative costs. My estimate of equity destroyed, damages and opportunity costs is $250 million. I moved to a system of living in several places on an unpredictable schedule in the hope that this would push up the cost of surveillance and harassment and so dissuade my tormentors from following.

The places were chosen to move me as far away as possible from the corridors of power in Washington and on Wall Street filled with people benefiting from narco dollars and their reinvestment. That strategy-combined with excellent legal and administrative work by a first rate team of very courageous people — has been successful in besting the targeting. It made it possible for me to understand how our economic addiction to narco dollars worked and how to it was draining our neighborhoods. I teamed up with the members of my family and friends and their neighbors who were getting drained.

Four days after Insight Magazine published its cover story on me this summer, the head investigator targeting us resigned unexpectedly. Three weeks later the last of 18 audits and investigations was suddenly closed down. A follow-up article by Insight’s Paul Rodriguez described the closed investigation as something that “many inside both HUD and the Department of Justice regarded as a political vendetta against Fitts.”

The miracle had happened. We have overcome a serious targeting. Like in the movie where Will Smith comes out fine, my story has a happy ending. It’s a wonderful feeling. As Winston Churchill’s once said, “Nothing is more exhilarating than being shot at without result.”

I believe that one of the reasons for my happy ending was that our actions to deal with the investigation reflected the understanding of narco dollars that I acquired from living and traveling throughout America and talking with people from all walks of life about how narco dollars were impacting our lives and neighborhoods in many different places.

Understanding narco dollars is something I need to know to help entrepreneurs around the country build the profitable deals and businesses that will get the Solari Index and Dow Jones in our neighborhoods rising together.

Where I live, folks do not want to know about what is wrong on the Titanic. They do not want to know that a flood of narco dollars is rolling over us. They know these things. What they want to know is how to build arks.

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Georgie, West Philadelphia and the Stock Market

One of my new homes is in the city in Philadelphia, near where I grew up in West Philadelphia. Another is in a very beautiful and close knit farming community in Hickory Valley, Tennessee where my father’s family has lived since the 1850’s.

Once a month I drive to Philadelphia from my home in Hickory Valley to attend a board meeting. I stay in a lovely little apartment in the first floor of a row house owned by my friend Georgie.

Georgie is one of my favorite people in the world. She lives in the apartment on the second floor. Just about my favorite thing in the world is hanging out with Georgie. We watch Oprah, we talk, we go to movies, and we giggle over ice cream with long names and cookies. Georgie is an awesome cook and my little apartment fills up daily with the smells of something delicious that Georgie is making.

One day, Forest, my dog, and I were up in Georgie’s apartment to enjoy a fresh plate of scrapple that Georgie had fried up that morning. The conversation turned to narco dollars. Georgie said that looking at the big picture was simply too overwhelming. Couldn’t I explain this without using the words millions or billions — just dollars and cents in terms of our neighborhood in West Philadelphia?

I always have this problem explaining international money flows to moms and grandmoms. Most really great women want to know about the real world. The world of real people — her world full of her kids and grandkids and other kids she loves.

So we got out a blank piece of paper and started to estimate.

Every day there are two or three teenagers on the corner dealing drugs across from our home in Philadelphia. We figured that if they had a 50% deal with a supplier, did $300 a day of sales each, and worked 250 days a year that their supplier could run his net profits of approximately $100,000 through a local fast food restaurant that was owned by a publicly traded company.

Assuming that company has a stock market value that is a multiple of 20-30 times its profits, a handful of illiterate teenagers could generate approximately $2-3 million in stock market value for a major corporation, not to mention a nice flow of deposits and business for the Philadelphia banks and insurance companies.

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The Narco Dollar Double Bind:
Dow Jones Index Up, Solari Index Down

As described in Part I, the Solari Index is my way of estimating how well a place is doing. It is based upon the percentage of people in a place who believe that a child can leave their home and go to the nearest place to buy a Popsicle and come home alone safely. The Solari Index is about how safe you feel you and your neighbor’s kids are.

When I was a child growing up in the 1950’s at 48th and Larchwood in West Philadelphia, the Solari Index was 100 percent. It was unthinkable that a child was not safe running up to the stores on Spruce Street for a Popsicle and some pinball. The Dow Jones was about 500, the Solari Index was 100 percent and our debt per person was very low. Of course I did not think about it that way at the time. All I knew was that life on the street with my buddies was sweet.

Today, the Dow Jones is over 9,000, debt per person is over $100,000, and I think the Solari Index in my old neighborhood is 0 percent.

Life on the street ain’t sweet anymore.

To understand how this works, we need to understand “pop.”

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It’s Not Just About Profit, It’s About the Pop

Here is the part that is particularly hard for women. It took several times at our sheet of paper before Georgie understood what I was saying.

The power of narco dollars comes when you combine drug trafficking with the stock market.

The “pop” is a word I learned on Wall Street to describe the multiple of income at which a stock trades. So if a stock like PepsiCo trades at 20 times it’s income, that means for every $100,000 of income it makes, it’s stock goes up $2 million. The company may make $100,000, but its “pop” is $2 million. Folks make money in the stock market from the stock going up. On Wall Street, it’s all about “pop.”

The people who own a corporation make money on the stock going up. So a company has investors, with the most powerful investors typically being large institutions who are typically represented on the board of the company. The board is the group of people who decides what goes. The senior management officials who run the company day to day are also on the board. Most of the money they make comes from stock options that they get to encourage them to get the stock to go up for the investors. That means that what everyone who runs the company wants is for the stock to go up. The way to do that is to increase net income or to increase the multiple at which the stock trades.

So in the case of PepsiCo described above, if the management increases soda pop sales in a way that net income goes up by $100,000, the stock goes up $2 million. Now let’s say, the board and management do a whole series of things to attract new investors and improve the company’s image and, as a result, the stock starts trading at 22 times profits. Then, the stock value goes up even more. Whether increasing net income or increasing the multiple at which the stock market values the company profits, the board and the management are focused on making the stock go up. That is how their money works.

The winner in the global corporate game is the guy who has the most income running through the highest multiple stocks. He is the winning pop player. Like the guy who wins at monopoly because he buys up all the properties on the board, he can buy up all the other companies.

So if I have a company that has a $100,000 of income and a stock trading at 20 times earnings, if I can find a way to run $100,000 of narcotics sales by a few teenagers in West Philadelphia through my financial statements, I can get my stock market value to go up from $2 million – $4 million. I can double my “pop.” That is a quick $2 million profit from putting a few teenagers to work driving the Solari Index down in their neighborhood. Bottom line, I can make a lot of quick money on the stock going up and the Solari Index going down

OK, now what does this all mean for the Solari Index in Philadelphia? If I am a group of mothers in my neighborhood who want the Solari Index to go back up to a 100%, what’s stopping me?

Well, if the Department of Justice is correct about $500 billion-to-1 trillion of annual money laundering in the US, then about $20-40 billion should move annually through the Philadelphia Federal Reserve District.

Assuming a 20% margin for the BIG PERCENTAGE profits and a 20 times multiple on the stock of the companies that Dave and his investors and banking partners were using to launder the money, let’s look at how much of the stock market value would be “addicted” to the drug and money laundering profits flowing through the Philadelphia area.

The total stock market value generated in the Philadelphia area with $20-40 billion in narco retail sales would be about $80-160 billion. If you add all the things you could do with debt or and other ways to increase the multiples, and you could get that even higher, say $100-250 billion.

Assuming that there are 3 million people in the greater Philadelphia area, the total stock market value generated would average anywhere from $27,000-to-$85,000 per person. Imagine what would happen to the economy in Philadelphia if this stock market value suddenly disappeared because all the teenagers in Philadelphia stopped dealing or buying drugs?

Imagine what happens to your stock multiple if you are a Philadelphia corporate chieftain and you don’t run narco dollars or large purchases fueled by narco dollars through your financial statements and you don’t attract narco dollars to reinvest in your stock? What happens to your corporate income and your stock profit if the ones who invest narco dollars — accumulated over the last fifty years compounding at their magical compound interest — don’t like you? How is everyone in Philadelphia who loses money on your stock going down going to feel about you?

The Department of Justice says that we launder $500 billion – $1 trillion. Multiply those times a BIG PERCENTAGE cash flow profit margin. Now figure how much of that “income” gets run through the income statement of publicly traded banks and companies and multiply that number by the multiple of income at which their stocks trade.

Voila. I don’t know what your number is. All I know is that, as Ed Sullivan used to say, it is “really, really BIG.”


Understanding Money Laundering in America
Part III: Drugs as Currency

“Who can compete with the government?”

–John Gotti, Jr.

The Hickory Valley-Philadelphia Fast Food Franchise Pop

Two things helped me understand money laundering in America. First, as I drove from Hickory Valley to Philadelphia once a month and drove around the country with my dog Forest all sorts of people started to teach me about how the money worked truckers and the ladies who run the brand-name motels and the folks who work the late shifts at the gas station food marts. Second, I read Black Money, a mystery novel by Michael Thomas, a former partner of the Wall Street firm, Lehman Brothers.

In Black Money a government investigator investigating S&L fraud starts to look into the revenues and expenses of a fast food chain, which is experiencing far more deposits from sales than it is selling pizzas. As Thomas walks you through a handful of the near infinite number of possible money laundering schemes known to mankind, you start to get a sense for some of the economics of fast food franchises that have nothing to do with feeding people.

After I finished Black Money I started to pay attention to “how the money works” at the fast food and motel franchises at every interstate exit between Tennessee and Philadelphia. What I noticed about them was that no matter when I drove by — day or night, weekday or weekend — some of them were suprisingly empty. Indeed, one or two name brands were defined by their perpetual emptiness. Conversations every time I stopped filled in a lot here and there about how much cash was coming in and going out on the food and retail business.

Some quick estimation on what was being spent per interstate exit to start up and operate all the retail establishments versus what was coming in the door in terms of legitimate business said that some businesses had to be an excuse, an excuse to generate stock market capital gains by combining laundered money or phony profits with retail franchises — or both.

The problems this presents to people trying to run an honest business are numerous. The problems it creates for our work ethic and culture are numerous too. It increasingly puts the low performance people in charge, and everyone starts to behave like and follow them.

For example, I drove ten miles to Bolivar, our county seat, one night to go through the car wash at the local big chain publicly traded gas station. I tried to pay for a three-dollar car wash with quarters. I was told they would not take coins. It was a policy. Counting coins was too much work, the person at the register and then the manager said as they sat and gossiped with their friends, no other customers in sight. So I got back in my car and drove ten miles home and washed the car with a hose and some paper towels, the symbolic economy being too busy to care about steady customers or to do the real work in the concrete world.

If you are feeling energetic, go drive around to a few areas with a heavy concentration of retail fast food and motel franchises. Try estimating out the numbers. See how they work for you in your place. Are your local businesses in the retail business or the money laundromat business or both?

Another quick and dirty estimation technique for your neighborhood is to take the Department of Justice’s figure of $500 billion – $1 trillion and divide by 281 million Americans for a “per American” estimate of money laundering market share. Now multiply that times the number of people in your area. Now divide by the number of local banks. What do the numbers say to you?

The next time you are out on the streets, see if you can guess where the money is. It’s bound to be there someplace.

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Enforcement: At the Heart of the Double Bind

I tend not to get bogged down in discussions about how the various police, enforcement and prosecution industries relate to narco dollars.

Here is my bottom line on how the money works on enforcement and the war on drugs.

Every year since I was a child the Solari Index goes down and the budgets that I pay for as a taxpayer to fund more enforcement, prosecution and incarceration go up. If you look at what taxpayers are paying, you would think we were picking up all the narco dollar industry’s expenses.

The more we pay for enforcement, the more the Solari Index goes down and drug profits go up. The more we pay for national security, the more thousands of boat loads of white agricultural products seem to have no problem moving back and forth across the borders.

After fifty years, the correlation is documented and clear.

What is also clear is that the person who has inside help from the national security, intelligence, enforcement and prosecution bureaucracies will have the biggest BIG PERCENTAGE cash margin (see Parts I & II for background on BIG vs. SLIM PERCENTAGE).

John Gotti, Jr, not a reliable source, when asked by a reporter whether or not the New York Gotti family was dealing in narcotics said, “No, who can compete with the government?”

The CIA, also not a reliable source, backs up Mr. Gotti’s postion. According to the CIA’s own Inspector General, the government has been facilitating drug trafficking. Indeed, according to the CIA and DOJ (Dept. of Justice), the CIA and DOJ created a memorandum of understanding that permitted the CIA to help its allies and assets to traffic in drugs and not have to report it.

Where I come from powerful people pay for performance. I can only presume that the narco dollars are getting the performance they want from the expenditure of our tax dollars for more and more enforcement. After all, enforcement keeps profit margins up and the franchise controlled.

The best example I know is my own case. My estimate is that the federal enforcement establishment may have spent more to target me over the last six years than they spent to get Bin Laden before September 11. They clearly were not hampered in my case by having to respect the spirit or the letter of the law. I deduce from that only that the Solari model is not as good for the narco dollar and money laundering businesses as Bin Laden was — at least until recently.

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Drugs as Currency

One of challenges of doing the numbers on the narcotics business is that narcotics are not always a commodity — sometimes narcotics are a currency used to pay for other things.

The arms industry sometimes markets to third world countries, or groups such as terrorists, who cannot pay with cash, but can pay with drugs. So, for example, it is not unusual to see arms-drugs transshipment operations, in which payment for arms is taken with drugs and then the drugs retailed in the US to facilitate the arms trading and profits.

A case in point is the Iran-Contra operation at Mena, Arkansas. It has been alleged that Oliver North and the White House (National Security Council) were dealing drugs through Mena not to make money, but to facilitate arms shipments. Mena has received attention as a result of its alleged financial contribution to Bill and Hillary Clinton’s rise to national prominence.

You also see the arms-drugs relationship as you estimate how the money works on the private profits from various taxpayer funded wars. Vietnam, Kosovo, Plan Colombia, Afghanistan, what do they all have in common? Drugs, oil and gas, arms. Add gold, currency and bank market share and you have the top of my checklist for understanding how the money works on any war or “low intensity conflict” around the globe.

Many of the members of our global leadership were trained in wartime narcotics trafficking in Asia during WWII. George H. W. Bush and his generation watched our ally Chang Kai Shek finance his army and covert operations with opium. I am told that the Flying Tigers were the model that taught Air America how to fly dope.

If you trace back the history of the family and family networks of America’s leaders and numerous other leaders around the world, what you will find is that narcotics and arms trafficking are a multigenerational theme that has criss-crossed through Asia, North America, Europe, Latin America and Eurasia and back through the City of London and Wall Street to the great pools of financial capital. Many a great American and British fortune got going in the Chinese opium trade.

One of the benefits of learning how narco dollars work is that it will help you sort through the money laundering and insider trading news on the War on Terrorism. Terrorism and narcotics trafficking often get linked through narcotics as currency. Terrorists need guns. Narco dollars need private protection and covert operations.

| Top |

In Defense of the American Drug Lords

It’s 1947. You want to make sure that America wins in the great game of globalization. The winner will be the country that accumulates the largest pool of capital to finance its corporations and investment in new technology. That is a problem because Americans vote for leaders who help them spend, not save. No matter how hard Sam the sugar man works and no matter how much he saves, how much capital can be pooled at SLIM PERCENTAGE? It is fair to say it is not enough to beat the investment network that can pool capital at BIG PRECENTAGE growth rates. (See Part I for the story of Sam and Dave).

Indeed, what a history of narcotics trafficking and piracy and various other forms of organized crime over the last five hundred years show is that our leaders have been in a double bind for centuries. The only thing more dangerous than getting caught doing organized crime, is not being in control of the reinvested cash flows from it. This is why monarchs played footsie with pirates in Elizabethan times and no doubt have been doing so ever since.

After taxation, organized crime is a society’s way of forming lots of pools of low cost cash capital. Organized crime is a banking and venture capital business.

So the reality is that if you want to control the cash flow and capital that controls the overworld, you’ve got to control the cash flows getting generated by the underworld. Indeed, you’ve got to have an underworld. If it does not exist, you need to outlaw some things to get one going.

Here is the bottom line on how the money works on narco dollars. Unless Sam switches to dope, Dave will win his wife, his mistress, his banker, buy his company, buy his Congressman and be the star at the local charities. Everyone will admire and pay attention to Dave.

It’s the power of compound interest.

It’s 1947. If you don’t do it, you will be the loser. What would you do?

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The Pogo Problem: We Have Met the Enemy and It is Us

The Sam and Dave dilemma of “to deal or not to deal” is made worse by the power of popular opinion.

Last summer, I made a presentation called “How the Money Works on Organized Crime” to a wonderful group of about 100 people at an annual conference for a spiritually focused foundation in Philadelphia. This is a group of people who are committed to contributing to the spiritual evolution of our culture.

After walking through the various Sam and Dave dilemmas with Sam’s SLIM PERCENTAGE profits sugar business and Dave’s BIG PERCENTAGE profits drug business, as well as the intersection between the stock market and campaign fundraising and narco dollars for about an hour, I asked the group what would happen to the stock market if we decriminalized or legalized drugs?

The stock market would crash, they said.

What would happen to financing the government deficit if we enforced all money-laundering laws? Since most of the bank wire transfers are batched and run through the New York Federal Reserve Bank, this should not really be that hard, right?

Their taxes might go up. Worse, yet, their government checks might stop, they said.

I then asked them to imagine a big red button at the front of the lectern. By the power of our imaginations, if they pushed that button they could decriminalize narcotics trafficking and stop all money laundering in the United States.

Who would push the button?

It turns out that in an audience of approximately 100 people committed to spiritually evolve our society that only one person would push the button. Upon reflection, 99 would not. I asked why.

They said that if they pushed the button, their mutual funds would go down and their government checks might stop.

I commented that what they were proposing is that an entire infrastructure of people continue to market narcotics to their children and grandchildren to ensure that their mutual and pension funds stay high in value.

They said, yes, that’s right.

Which is why I say that America is not addicted to narcotics as much as it is addicted to narco dollars.

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The National Security Council’s Double Bind in 1996

Here is the acid test.

It’s August 1996. Gary Webb has just broken the story in the San Jose Mercury News about the CIA helping to deal drugs into South Central LA. He has put the legal documents up on their website. The proof is hard. The government is dealing drugs.

Catherine Austin Fitts’s company is publishing a tool on the web called Community Wizard that shows maps with Geographic Information Systems software that include patterns of defaults on HUD mortgages in the areas of LA with the heaviest concentration of CIA supported Iran Contra drug trafficking.

The patterns between HUD defaulted mortgages and narco dollars are much too close for comfort.

What would you do if you were Bob Rubin (Secretary of Treasury, now Co-Chairman of Citicorp), Larry Summers (Deputy Secretary of Treasury, now President of Harvard), John Hawke (Undersecretary of the Treasury; now Comptroller of the Currency), Al Gore (Vice President, now teaching) and John Deutch (Director of the CIA, now teaching) sitting on the national security council or the related narco dollars task force?

Would you target Webb and get him fired and the story discredited or would you let the story grow and flourish?

Would you target Fitts and have her business and her software tools and databases destroyed or would you let her business flourish, allowing every community to see and track the narco dollars that were helping to drive their Solari Index to 0% while driving the Dow Jones Index higher?

Which will it be in an election year? Will you do everything you can do to attract the reinvestment of the narco dollars into your campaign and into the stock market or will you let Fitts and Webb continue to illuminate “how the money works” on narco dollars in a way that might crash the stock market and make it harder and more expensive for the government to finance the deficit?

Before you answer, let me tell you one more story.

In 1999, I was at a revival for Christian women. One of the presidential candidates made a guest appearance. A friend of mine, an Afro-American minister, who used to work for the Drug Enforcement Agency (DEA), leapt to her feet to applaud him with tremendous enthusiasm. I was surprised at her response given that she understood his success in attracting narco dollars not to mention his and his colleague’s silence on Gary Webb’s Dark Alliance reports and the subsequent CIA admission of drug dealing by the government.

She looked at me and said, “He is going to be the winner.” So I said, “You mean, I am a loser because I tried to stop the corruption and he is a winner because he profited from it and helped it grow. So you will clap for him and not for me.” She replied, “That’s right. You are a loser. He is a winner”

Not such an easy decision to vote for the “rule of law” is it?

Indeed, Webb got fired and Fitts’ was targeted and, after spending $6 million on legal and related expenses, my fortune sank down to the same 0% as the Solari Index.

But whatever I do, I can’t blame it just on the top guys. Whatever they did, whoever it was, they were doing what it took to please and win the crowd.

Americans love a winner.

| Top |

Solari Index Up, Dow Up, Debt Down

The good news on all of this is that there are solutions. New technology blesses us with the potential tools we can use to radically increase productivity in a way that can “jump the curve” on our narco dollar addiction.

Will it happen? I don’t know.

My pastor says, “If we can face it, God can fix it.” The question is can we face our addiction to narco dollars? Can we do it in a way that entrepreneurs like me can build successful businesses and transactions that profit from getting the Solari Index and the Dow Jones Index to go up together?

Sound impossible? Far from it. It’s quite possible. Add up all the current income generated by small businesses in America. It is currently valued at a multiple of 1-5 times because it is private-not publicly traded in a liquid stock market. Investors have no way to invest in a liquid publicly traded stock.

The creation of a solari, a local knowledge manager/databank that publishes neighborhood financial statements and information and tracks the Solari Index in your place, can make it possible for your neighborhood to create a mutual fund that could channel capital to the profitable small businesses in your neighborhood so that participating small business income could start to trade at a multiple of 10 times — even 20 times or 30 times eventually. The potential capital gains are in the trillions of dollars.

That is a lot of low cost capital that local entrepreneurs can use to create jobs and to build their businesses — even start new ones.

Better yet, while your doing that how about reengineering billions of federal, state and local government investment that has a negative return on investment to both taxpayers and communities to a positive return on investment. More big capital gains that can be securitized and traded in a liquid stock market — again the potential profits are in the trillions.

Finally, add up the value of all the homes and real estate in your community. OK, what would happen to the value of that equity if the Solari Index went back up to 100 percent? Real estate financed through a local trust or REIT or mutual fund that could be traded in the stock market would create a way for investors to start to “trade places.” That means they would profit from the Solari Index going up along with local real estate owners, homeowners and small business folks. Add some more trillions to the potential capital gains.

Helping the Solari Index rise back to 100% is the biggest capital gains opportunity in America, particularly when combined with reengineering government investment and pooling small business equity in a manner that provides competitive access to the stock market. Generations of accumulated narco dollars could do very well investing successfully in such a capital gains opportunity.

A trillion here, a trillion there — pretty soon you are talking about a lot of “pop.”

It can only happen if we can look into the face of our addiction and start having a conversation about how we move out of our current financial incentives that keep the Solari Index down to a more positive, sustainable and wealthy future for our children and grandchildren. For example, think about what would happen if every government worker in America had their annual salary fluctuate based on the performance of the Solari Index in their jurisdiction? I bet it would take about three years to get the Solari Index back to 100%.

That is why all the yah-yah in Washington about new stricter money laundering laws to deal with terrorism won’t work. If government officials and bankers can keep making money when the Solari Index is at 0%, it will not rise no matter how many people — innocent or guilty — we put in jail. The day we decide that government officials only make money for performance and all the companies that get money from government — whether contractors or banks that use taxpayers credit — only get money if we are better off and the Solari Index is rising, is when we will start to face and solve the real problems in a money making way.

It’s time to face our addiction to narco dollars and to grapple with how to reverse our incentive systems. It is time to figure out how publicly traded companies and our banks and insurance companies can make more money from our kids succeeding then from them failing. Indeed, it can be done.

So here is my last message on how the money works on narco dollars. Now that we have run the Solari Index down to near 0% while fueling the rise of the Dow Jones about 20X since I was a kid, the new opportunity is going to be the fortunes to be made on businesses and investment vehicles that fuel the Solari Index rising.

Wouldn’t you pay for streets to be sweet for your child once again? Especially if it made you a whole bunch of money on an IPO of your neighborhood mutual or venture fund in the stock market?

I want to make money on kids succeeding. I want to teach Dave a way to make more money by getting out of narco dollars and backing Sam starting a solari and “trading places.”

My money is on Solari rising.


For more on starting a solari for your neighborhood, see, or contact Catherine at


Bibliography TOP

After three years of plowing through hundreds of books, videos and articles, here are the sources that I found most useful to helping me understand “how the money works” in the drug trade.

Assuming that you are a busy person who knows nothing about narco dollars and does not want to become an expert — you just want to have a good map of “how the money works” in your world — I have put an (*) next to my top four book and one video recommendations. These are the ones that will be the most useful to help you understand the drug trade and what it means to you, your family, your business and the Solari Index in your neighborhood.



Mena, Arkansas: Various articles:

Catherine Austin Fitts:


  • Air America, Mel Gibson
  • Bullworth, Warren Beatty
  • From
    • CIA Director John Deutch in Watts Video: Special Town Hall Meeting with John Deutch & Juanita McDonald, October 15, 1996 (*)
    • Mike Ruppert on CIA & Drugs: The Confession & The Impeachment, From The Wilderness. Video, 1999.
    • The Salon At Fraser Court, Mike Ruppert, From the Wilderness Video, 1999.
  • Enemy of the State, Will Smith & Gene Hackman
  • Telefon, Charles Bronson and Lee Remick
  • Wag the Dog, Dustin Hoffman

For More Narco News go to

Copyright © 2001 Catherine Austin Fitts
Copyright © 2001 Narco News
Reprinted for Fair Use Only.

Mayumi Hayashi: A video-interview concerning the Fureai Kippu

(International Journal of Community Currency Research


Japan’s Fureai Kippu (‘Ticket for a Caring Relationship’) refers to mutual support networks of members of all ages, targeted at providing care for older people through exchanges of time credits, sometimes supplemented by cash payments (‘time-­‐banking’).

This has attracted increasing attention as a potential contribution to the ‘Big Society’ with an ageing population.

However, despite its pioneering role and scale, relatively little is known about the details and outcomes of Fureai Kippu, and meanwhile simplistic and optimistic generalizations predominate.

This article, using historical analysis and empirical evidence, seeks to address these gaps by examining the origins of Fureai Kippu, its early expansion, post- 2000 slowdown and responses.

It considers the practical contributions and varied benefits potentially offered by the system, along with its operational difficulties. The conclusion is that Fureai Kippu is so complex that not only is evaluation difficult but also no universal panacea can be expected from it.

Read the whole article:

mirror / backup: Mayumi Hayashi Kings College London – JAPANS FUREAI KIPPU TIMEBANKING IN ELDERLY CARE ORIGINS DEVELOPMENT CHALLENGES AND IMPACT ijccr-2012-hayashi.pdf

Fureai Kippu

Fureai Kippu


The Fureai Kippu (literally ‘ticket for a caring relationship’) refers to a variety of Japanese national schemes and networks of mutual support dedicated to providing elderly care through the exchange of a complementary currency 1. The schemes enable individuals to earn time-credits by providing care to elderly people or people with disabilities. Those credits can then be transferred to relatives or friends in need of care, or be saved for the future when sick or old.

Of the two most prominent models of Fureai Kippu, one stands close to traditional timebanking, whereas the other enables conventional money transactions alongside time credits in exchange for the service provided. In the latter, volunteers can decide whether to receive a combination of national currency (yen) and time credits or either one as compensation for providing services 2.

The Fureai Kippu schemes can be considered as the Japanese versions of co-production through timebanking. The term Fureai Kippu has been in use since 1992 3.


The Fureai Kippu aims at developing and strengthening mutually supportive networks of informal elderly care in a country increasingly facing challenges related to a rapidly ageing population, decline in the capacity of family to care for the elder members and sky-rocketing healthcare costs 4.

Community Overview

Japan is a nation of approximately 128 million people 5. The country has the longest overall life expectancy at birth of any other nation on earth (UN, 2006). It is estimated that people born in the period 2010-2015 will live 83,5 years 6. After the post WW2 baby boom, Japanese population is rapidly aging, following a sharp decline in birth rates. In 2009 roughly 22,7% of the population was over 65 and following the trends, in 2050 almost 40% of Japanese will be 65+ 7.

Organisation and History

The Sawayaka Welfare foundation is a non-profit organization launched in 1991 that acts as the umbrella body of the local Fureai Kippu schemes in Japan. Similarly to Time Banks UK, it promotes best practices and assists local initiatives grow 8. Tsutomu Hotta, who also coined the term Fureai Kippu, launched the organization.

Japan has a long tradition of voluntary help and reciprocal assistance dating back to the post WW2 period. The world’s first time bank, named Volunteer Labor Bank, was founded in Osaka, Japan in 1973 9. This was a voluntary network of people providing assistance to each other through the exchange of a time-based complementary currency, named ‘Love Currency’. 10 This example was not part of the Fureai Kippu system, but paved the way for its widespread application in Japan.

The Fureai Kippu emerged in the 1980s, a period in which to overcome the limitations of family-based care, hundreds of grassroots groups of mutual help emerged across the country. The predominant model of Fureai Kippu evolved within these groups, after introducing a rather different reimbursement arrangement compared to conventional timebanking schemes already existing in Japan at the time. Under Fureai Kippu, volunteer members could decide to combine monetary remuneration with time credits: they could choose between earning conventional money (yen), time credits or both in exchange for the service provided. 11

According to data of 2012, 38% of Fureai Kippu are run by small grassroots groups; 21% by local government or quasi-government bodies; the remaining 41% are run by two non-profit organizations. 12


Research on Fureai Kippu suggested that overall the schemes have had a positive role in improving both physical and psychological health of volunteers and recipients of services; helped improve the condition and social relations of vulnerable people; and finally helped to establish more equal relationships between volunteer members and recipients due to the exchange of money (where applicable). 13

Overall, the Fureai Kippu has settled as an effective supplement to conventional professionalized health care resources in Japan. It is perceived to be less top-down and a more humane than the national healthcare service. 14

Currency Details

a. The system in numbers

A research of 2012 suggested there were 391 Fureai Kippu branches in Japan 15. Currently, no data is available on the number of volunteers involved neither on the number of recipients.

b. Function and Unit of Account

The function of time-credits under the Fureai Kippu schemes is to act as a medium of exchange. As the name suggests, the unit of account is time (hours).

c. Issuance

Issuance mechanism vary across the different instances. Typically, notes and tickets are used as the medium of exchange, with very few electronic systems as yet.

d. Software

The Japan’s biggest Fureai Kippu organization, Nippon Life Active Club, introduced customized software to record transactions of time credits in its 130-odd branches across Japan, thereby enabling it to produce its collective data as well as compare and analyse data between branches. However, issuing and redeeming time credits among members are done manually, based on paper-based record keeping.

e. Taxation and Compliance

In general, neither time credits nor cash payments (yen) in Fureai Kippu schemes are considered taxable [Ref needed], the latter (cash) usually being regarded as “donations”, thus exempted from taxation.

f. Funding – Business Model

The majority of Fureai Kippu schemes are run by non-for-profit organizations and communities of mutual-help, all of which are independent from government. Thus they receive few grants and instead self-fund through the membership fee and private donations, supplemented by user-fees for service recipients who do not have time credits to redeem.

How does it work in practice?

A Fureai Kippu branch in Los Angeles has some 100 Japanese immigrant members. One member, Tanaka-san, takes her neighboring older member food shopping by car once a week for about two hours and earns 8 to 10 time credits every month, based on a one-hour-one-credit formula. Tanaka-san then presents her accumulated credits to her frail older mother living in Tokyo where her mother uses the credits to buy weekly home help from her neighboring volunteer member in a Tokyo branch. Since her mother is living alone and has mobility problems, she looks forward very much to these visits, expressing that ‘She is like my daughter whom I can see only once a year when she comes back from Los Angeles’. Tanaka-san is also very happy to see her mother happy and be able to help her in an indirect, small but significant way. She also stresses the importance of an informal and humane relationship between her mother and the volunteer member through time credits, which are hard to get in commercial services provided by professional care workers.

Further readings and videos:

Nakagawa and Bovaird (2011), Hureai Kippu – lessons from Japan for the ‘Big Society’. Available at

mirror / backup: Hureai Kippu – Lessons from Japan for the Big SocietyCESedit17March2011.pdf

Nippon Life Active Club (NALC) (


  1. Hayashi, M. (2012) ‘Japan’s Fureai Kippu Time-banking in Elderly Care: Origins, Development, Challenges and Impact’ International Journal of Community Currency Research 16 (A) 30-44. Available at
  2. Hayashi, M. (2012) ‘Japan’s Fureai Kippu Time-banking in Elderly Care: Origins, Development, Challenges and Impact’ International Journal of Community Currency Research 16 (A) 35
  3. Hayashi, M. (2012) ‘Japan’s Fureai Kippu Time-banking in Elderly Care: Origins, Development, Challenges and Impact’ International Journal of Community Currency Research 16 (A) 36
  4. Hayashi, M. (2012) ‘Japan’s Fureai Kippu Time-banking in Elderly Care: Origins, Development, Challenges and Impact’ International Journal of Community Currency Research 16 (A) 30-44. Available at
  5. National Institute of Population and Social Security Research, 2012. Available at
  6. United Nations World Population Prospects, 2006 revision. UN. Available at
  7. (Japan Statistics Bureau, 2010
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