October 31, 2001
Narco News 2001
Narco-Dollars
for
Beginners
"How the
Money Works"
in the Illicit
Drug Trade
Part II: The Narco Money Map
Click
Here to Read Part
I
Click
Here To Read Part
III
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.
Narco
Dollars
On Your
Map
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?"
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.
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.
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."
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 to $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."
Next: Understanding Money
Laundering
in America
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Being
Shot At Without Result, 365 Days a Year