<i>"The Name of Our Country is América" - Simon Bolivar</i> The Narco News Bulletin<br><small>Reporting on the War on Drugs and Democracy from Latin America
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Al Giordano

Opening Statement, April 18, 2000
¡Bienvenidos en Español!
Bem Vindos em Português!

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Dillon, Read & Co. Inc. and the Aristocracy of Prison Profits: Part IV

The Clinton Years: Progressives for Private Prisons, HUD’s Corrupt Role in Centralizing Debt and Corporate Dirty Tricks

By Catherine Austin Fitts
A Six-Part Series for The Narco News Bulletin

March 7, 2006

This is Part IV of Catherine Austin Fitts’ six-part series on the hidden system of money laundering, drug trafficking and rigged stock market riches inside the financial world, government agencies and their private contractors. To read the introduction and Part I of this series, with a table of contents linking to other installments, click here.

The Clinton Administration: Progressives for For-Profit Prisons

Much has been written about the use of the War on Drugs to intentionally disenfranchise poor people and engineer the centralization of political and economic power in the U.S. and globally, including an explosive rise in the U.S. prison population. The purpose of this story is not to repeat this fundamentally sound thesis. For those who are interested in more on this topic, I would refer you to my article and audio seminar “Narco Dollars for Beginners” as well as Michael Woodiwiss’ book Organized Crime and American Power (University of Toronto Press, 2001) and their associated bibliographies.

U.S. Vice President Al Gore, Harvard trained supporter of significant increases in enforcement and private prisons.
What most people miss is the extent to which the day-to-day implementation of this intentional centralism is deeply pervasive and therefore deeply bipartisan. It receives the promotion and support from all political and social spectrums that make money by running government through the contractors, banks, law firms, think tanks and universities that really run the government. My intention for this story is to make clear how the system really works. A system in which a small group of ambitious insiders — who more often than not were educated at Harvard, Yale, Princeton and the other Ivy League schools — enjoy centralizing power and advantaging themselves. Paradigms of Republican vs. Democrat or Conservative vs. Progressive have been designed for obfuscation and entertainment. An endless number of philosophies and strains of religious and “holier than thou” moralism are really put on and taken off like fresh make-up in the effort to hide from view a deeper, uglier face. One person who may have described it more frankly during the Clinton years was the former Director of the CIA, William Colby, who writing for an investment newsletter in 1995 said:

“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.”

The Clinton Administration took the groundwork laid by Nixon, Reagan and Bush and embraced and blossomed the expansion and promotion of federal support for police, enforcement and the War on Drugs with a passion that was hard to understand unless and until you realized that the American financial system was deeply dependent on attracting an estimated $500 billion-$1 trillion of annual money laundering. Globalizing corporations and deepening deficits and housing bubbles required attracting vast amounts of capital.

Jamie Gorelick, Harvard trained Deputy Attorney General, 1994-97, credited with making private Federal prisons a reality.
Photo courtesy 9-11 Commission
Attracting capital also required making the world safe for the reinvestment of the profits of organized crime and the war machine. Without growing organized crime and military activities through government budgets and contracts, the economy would stop centralizing. The Clinton Administration was to govern a doubling of the federal prison population.[1]

Whether through subsidy, credit and asset forfeiture kickbacks to state and local government or increased laws, regulations and federal sentencing and imprisonment, the supremacy of the federal enforcement infrastructure and the industry it feeds was to be a Clinton legacy.

One of the first major initiatives by President Bill Clinton was the Omnibus Crime Bill, signed into law in September 1994. This legislation implemented mandatory sentencing, authorized $10.5 billion to fund prison construction that mandatory sentencing would help require, loosened the rules on allowing federal asset forfeiture teams to keep and spend the money their operations made from seizing assets, and provided federal monies for local police. The legislation also provided a variety of pork for a Clinton Administration vogue constituency — Community Development Corporations (CDCs) and Community Development Financial Institutions (CDFIs). The CDCs and CDFIs became instrumental during this period in putting a socially acceptable face on increasing central control of local finance and shutting off equity capital to small business.

The potential impact on the private prison industry was significant. With the bill only through the house, former Attorney General Benjamin Civiletti joined the board of Wackenhut Corrections, which went public in July 1994 with an initial public offering of 2.2 million shares. By the end of 1998, Wackenhut’s stock market value had increased almost ten times. When I visited their website at that time it offered a feature that flashed the number of beds they owned and managed. The number increased as I was watching it — the prison business was growing that fast.

However, the Clinton Administration did not wait for the Omnibus Crime Bill to build the federal enforcement infrastructure. Government-wide, agencies were encouraged to cash in on support in both Executive Branch and Congress for authorizations and programs — many justified under the umbrella of the War on Drugs — that allowed agency personnel to carry weapons, make arrests and generate revenues from money makers such as civil money penalties and asset forfeitures and seizures. Indeed, federal enforcement was moving towards a model that some would call “for profit” faster than one could say “Sheriff of Nottingham.”

Elaine Kamarck lobbied for private prisons as a senior advisor to Vice President Gore and part of Gore’s “Reengineering Government”, 1993-1997, then went to Harvard.
Photo courtesy Harvard University
On February 4, 1994, U.S. Vice President Al Gore announced Operation Safe Home, a new enforcement program at HUD. Gore was a former Senator from Tennessee. His hometown of Nashville was home of the largest private prison company, the Corrections Corporation of America (CCA). He was joined at the press conference by Secretary of the Treasury Lloyd Bentsen, Attorney General Janet Reno, Director of Drug Policy Lee Brown and Secretary of HUD Henry Cisneros who said that the Operation Safe Home initiative would claim $800 million of HUD’s resources. Operation Safe Home was to receive significant support from the Senate and House appropriations committees. It turned the HUD Inspector General’s office from an auditor of program areas to a developer of programs competing for funding with the offices they were supposed to be auditing — a serious conflict of interest and built-in failure of government internal controls.

According to the announcement, Operation Safe Home was expected to “combat violent crime in public and assisted housing.” As part of this program, the HUD Office of Inspector General (OIG) coordinated with various federal, state and local enforcement task forces. Federal agencies that partnered with HUD included the FBI, the Drug Enforcement Agency (DEA), the Bureau of Alcohol, Tobacco and Firearms (ATF), the Internal Revenue Service (IRS), the Secret Service, the U.S. Marshal’s Service, the Postal Inspection Service, the U.S. Customs Service, the Immigration and Naturalization Service (INS) and the Department of Justice (DOJ). The primary performance measures reported in the HUD OIG Semi-Annual Performance Report to Congress for this program are the total number of asset forfeitures/seizures, equity skimming collections and arrests. Subsequent intra-agency efforts such as the “ACE” program sponsored by DOJ and initiated by U.S. Attorney’s Offices, working with the DOJ Asset Forfeiture Fund, HUD OIG and HUD Office of General Counsel promoted revenue generating activities as well.

Christopher Edley, Jr., Harvard Law Professor who served in the Office of Management and Budget engineered the federal budget to support privatized federal prisons, now Dean of Berkeley Law School.
Photo courtesy Berkeley Law School
Behind the scenes what all this meant was big budget increases for DOJ and the portions of the agencies that were focused on profitable enforcement and the War on Drugs. Big budget increases meant big contract budget increases as government outsourced more and more work. In “Prisons for Profit: A special report; Jail Business Shows Its Weaknesses,” Jeff Gerth and Stephen Labaton in the New York Times

in November 1995 describe the political appointees in the Clinton Administration who were successful at overcoming the natural intelligence of the career civil service at DOJ:

“In the middle of last year, the White House sent its proposal to privatize prisons to the Justice Department, where it was greeted with a frosty response, according to officials involved in the discussions.

“To help overcome the resistance of senior officials at the Justice Department and the Bureau of Prisons, the plan’s architect at the White House, Christopher Edley Jr., asked Mr. Gore’s office to turn up the heat.

“Mr. Edley, an associate director of the Office of Management and Budget, enlisted the aid of Ms. Kamarck, Mr. Gore’s senior policy adviser overseeing his government review. She then called her friend, Ms. Gorelick, the Deputy Attorney General, who oversees the day-to-day operations of the Justice Department.

“I convinced Jamie to do more of it,” Ms. Kamarck recalled.

Cornell Corrections was one of the beneficiaries of Chris Edley, Elaine Kamarck and Jamie Gorelick’s efforts. According to Cornell’s 1996 Prospectus (the offering document provided to investors) filed with the SEC, after building a capacity of approximately 1100 beds over a five year period, Cornell in a nine month period was suddenly blessed with a feeding frenzy of new contracts, contract renewals and contract acquisition approvals that nearly tripled their capacity — all from the Federal Bureau of Prisons at the Department of Justice.

Contract Awards, Renewals and Acquistion Approvals to Cornell Corrections by DOJ, September 1995 to April 1996:

11/95San Diego50Pre-Release
12/95Salt Lake58Pre-Release
1/96Houston94Pre-Release *
2/96San Francisco81Pre-Release
2/96Big Spring, Texas1305Secure
3/96Santa Barbara25Pre-Release
4/96El Monte, California52Pre-Release
TOTAL 1726
Note: * This location is named the Peter A. Liedel Community Center after Cornell board member and Dillon Read officer Peter A. Liedel.

The acquisition of the Big Spring, Texas facilities from MidTex, signed in February of 1996 and closed in July 1996 brought on board Charles J. Haugh to be Cornell’s Director of Secure Institutions as of May 1997. Haugh had most recently been the Executive Director of MidTex. From 1963 to 1988, Haugh had served in numerous capacities for the Federal Bureau of Prisons at DOJ, including Special Assistant to Director Administrator of Correctional Services Branch, Associate Warden, Chief Correctional Supervisor and Correctional Officer.

Gerth and Labaton in “Prisons for Profit” describe who in the Clinton Administration got it done:

“Federal officials say they are comfortable with letting private companies run Federal prisons because the industry has become mature, gaining experience running state and local jails. But Federal officials have also grown comfortable with the prison industry because its ranks now include many former colleagues as senior and other law-enforcement officials have taken positions at private corrections companies, Washington’s latest revolving door profession.

“The industry leader is the Corrections Corporation of America, a 12-year-old company based in Nashville. Some of the company’s officials are former Federal prison employees, and the company’s director of strategic planning, Michael Quinlan, headed the Bureau of Prisons in the Bush Administration.

“Another industry leader is the Wackenhut Corrections Corporation of Coral Gables, Florida. Its directors include Norman A. Carlson, Mr. Quinlan’s predecessor as the director of the prisons bureau, and Benjamin R. Civiletti, a former Attorney General.

“The Acting Attorney General in the first months of the Clinton Administration, Stuart Gerson, is on the board of Esmor Correctional Services of Sarasota, Fla. Four months ago, the Immigration and Naturalization Service, a unit of the Justice Department, canceled its contract with Esmor after an uprising at its detention center in Elizabeth, N.J. An investigation by immigration officials concluded that Esmor, trying to cut costs, had failed to train guards, some of whom beat detainees.

“The revolving door is beginning to work both ways. Not only has the private sector turned to former Federal officials, the Government has also started to look to industry leaders for aid in developing plans to hand new prisons over to private management.

“Mr. Crane, a general counsel at the Corrections Corporation in the 1980s, was retained briefly as a consultant by the Bureau of Prisons to help write a model contract that is going to be used to hire the company to run the Federal prison in Taft.

The Mr. Crane who they have hired to develop the contract is the same Mr. Crane who arranged for the prisoners to be shipped from North Carolina to Rhode Island to save Cornell Corrections and Dillon Read’s municipal bond buyers.

The outpouring of contracts from the Department of Justice to Cornell was very significant. When Cornell did its IPO in October of 1996, I estimate it had an implied “per bed” or “per prisoner” valuation of $24,241. Valuing the company at the IPO price, the total company value was $81 million. Without the contracts from the Federal Bureau of Prisons, the company value would have been approximately $39 million, assuming the company could have held a $24,241 per prisoner multiple or come to market at all — both unlikely in my opinion. The increase in total valuation of stock held by Dillon and its funds based on these assumptions would have been a minimum of $18.5 million. In short, the Dillon Read officers and directors invested in Cornell experienced a more than double in the increase in their value of their personal holdings of Cornell stock as a result of six months of contract decisions by DOJ and its agencies.

Deputy Attorney General Jamie Gorelick, who according to the New York Times article had overseen the new policy of prison privatization, left DOJ in 1997. She then became a Vice Chair of Fannie Mae, a “government sponsored enterprise.” This means it is a private company that enjoys significant governmental support. Fannie Mae buys mortgages and combines them in pools. They then sell securities in these pools as a way of increasing the flow of capital to the mortgage markets.

The reader can appreciate why Wall Street would welcome someone as accommodating as Gorelick at Fannie Mae. This was a period when the profits rolled in from engineering the most spectacular growth in mortgage debt in U.S. history.[2] As one real estate broker said, “They have turned our homes into ATM machines.” Fannie Mae has been a leading player in centralizing control of the mortgage markets into Washington D.C. and Wall Street. And that means as people were rounded up and shipped to prison as part of Operation Safe Home, Fannie was right behind to finance the gentrification of neighborhoods. And that is before we ask questions about the extent to which the estimated annual financial flows of $500 billion–$1 trillion money laundering through the U.S. financial system or money missing from the US government are reinvested into Fannie Mae securities.

It is important before closing this description of Cornell’s extraordinary good fortune with the Federal Bureau of Prisons and DOJ in the fall of 1995 and the spring and summer of 1996 to provide some additional context. During this period, America was in the middle of a Presidential election. Bill Clinton and Al Gore were running for their second term. Dillon Read was a traditionally Republican firm, with the largest Dillon investors in Cornell giving generously to the Republican Party as well as to the Dole-Kemp campaign, whose campaign manager, Scott Reed, had been Kemp’s chief of staff at HUD and then Executive Director of the Republican Party. The corporate ancestry and relations of Cornell — Bechtel, Houston, their auditor, Arthur Anderson’s Houston office, their attorney, Baker Botts, and their construction company, Halliburton/KBR — are ties all deeply associated with the Bush family and Republican camp.

Federal Campaign Donations of Seven Largest Dillon Investors in Cornell Corrections Found in Center for Responsive Politics Database – 1995 & 1996:

David Niemiec10/29/1996($250)Weld, William F
Franklin Hobbs10/24/1996$1,000Weld, William F
Franklin Hobbs10/23/1996($2,000)Weld, William F
Peter Flanigan10/22/1996$450National Republican Senatorial Committee
Peter Flanigan10/16/1996$500Hutchinson, Tim
John Haskell10/14/1996$500National Republican Senatorial Committee
Peter Flanigan10/3/1996$500Cubin, Barbara
David Niemiec10/3/1996$5,000National Republican Congressional Committee
John Haskell9/13/1996$1,000RNC/Repub National State Elections Committee
David Niemiec8/30/1996$1,000Molinari, Susan
John Haskell8/29/1996$15,000RNC/Repub National State Elections Committee
Peter Flanigan8/12/1996$1,000RNC/Repub National State Elections Committee
David Niemiec8/7/1996$1,000Paxon, Bill
Peter Flanigan8/5/1996$500Weld, William F
Peter Flanigan7/31/1996$40,000RNC/Repub National State Elections Committee
Peter Flanigan5/28/1996$1,000Sessions, Jeff
John Haskell5/17/1996$500Livingston, Jeffrey
David Niemiec5/1/1996$5,000National Republican Congressional Committee
Peter Flanigan4/30/1996$5,000Republican National Committee
David Niemiec4/30/1996$15,000Republican National Committee
John Birkelund4/19/1996$1,000Dole, Bob
David Niemiec3/21/1996$5,000National Republican Congressional Committee
John Haskell3/8/1996$365New York Republican Campaign Committee
Peter Flanigan2/29/1996$250Cubin, Barbara
George Wiegers2/26/1996$1,000Alexander, Lamar
Franklin Hobbs2/23/1996$1,000Weld, William F
Kenneth Schmidt2/21/1996$500Alexander, Lamar
David Niemiec2/12/1996$250Weld, William F
Peter Flanigan2/2/1996$500New York Republican County Committee
Peter Flanigan1/29/1996$250Miller, James C III
John Haskell1/26/1996$1,000Smith, Gordon
Peter Flanigan1/23/1996$1,000Smith, Gordon
Peter Flanigan1/10/1996$1,000Weld, William F
Peter Flanigan1/2/1996$1,000National Republican Senatorial Committee
Peter Flanigan12/13/1995$15,000RNC/Repub National State Elections Committee
Franklin Hobbs12/9/1995$1,000Malcolm Forbes
Peter Flanigan12/6/1995$4,500Republican National Committee
David Niemiec11/22/1995$5,000Republican National Committee
John Haskell11/10/1995$1,000Boschwitz, Rudy
John Haskell11/7/1995$1,000Alexander, Lamar
John Haskell10/3/1995$200Millard, Charles
John Haskell8/31/1995$15,000Republican National Committee
Peter Flanigan7/31/1995$500Thompson, Fred
Franklin Hobbs7/13/1995$1,000Alexander, Lamar
David Niemiec5/5/1995$5,000National Republican Congressional Committee
Peter Flanigan3/22/1995$500New York Republican County Committee
John Birkelund3/9/1995$1,000Alexander, Lamar
John Birkelund3/7/1995$1,000Time Future Inc
Peter Flanigan2/25/1995($1,000) Gramm, Phil
Peter Flanigan2/22/1995$15,000Republican National Committee
Peter Flanigan2/14/1995$1,000Dole, Bob
Peter Flanigan1/27/1995$250Alexander, Lamar
Peter Flanigan1/25/1995$2,000Gramm, Phil
* Preliminary, Subject to Change
For data, see www.opensecrets.org Donor Lookup

If you want to see a bi-partisan system at work, follow the money. In the middle of a Presidential election, a Democratic administration engineered significant equity value into a Republican firm’s back pocket. If you step back and take the longer view, however, what you realize is that many of the players involved appear to have connections to Iran Contra and money laundering networks. A surprising number of them went to Harvard and other universities whose endowments are significant players in the investment world. And as it turned out, while the U.S. prison population was soaring from 1 million to 2 million people and US government and consumer debt was skyrocketing, Harvard Endowment was also growing — from $4 billion to $19 billion during the Clinton Administration. Harvard and Harvard graduates seemed to be in the thick of many things profitable.

Hamilton Securities Group

I left the Bush Administration in 1990, persuaded that digital technology and the Internet could be used by entrepreneurs to create new wealth in an investment model that created alignment between global investors and the land, environment and people. If we financed places with equity instead of debt, we could create a way for global investors to profit from reducing consumption, healing the environment and improving my rule of thumb for the health of a community — the Popsicle Index.[3] The Popsicle Index is the percentage of people in a place who believe a child can leave their home and go to the nearest place to buy a popsicle or snack and come home alone safely.[4]

Alexander Hamilton, first Secretary of the Treasury of the United States.
Photo courtesy Scottish Parliment
When I was a little girl growing up in West Philadelphia, the Popsicle Index was close to 100 percent. The Dow Jones was 150. Today, in my old neighborhood the Popsicle Index has fallen about 90 points to 10 percent while the Dow Jones has risen approximately twenty times to over 10,000. In short, we have a win-lose relationship between investors and communities. In addition, we also have a win-lose relationship between government and communities. After more than fifty years we have almost a perfect correlation between rising government budgets for programs and enforcement justified on the theory that they will make the Popsicle Index go up, and a falling Popsicle Index.

In 1991, at the same time that Dillon was bankrolling the Cornell Corrections start-up, I started an investment bank and financial software firm in Washington called The Hamilton Securities Group. Hamilton was named after Alexander Hamilton, one of the key drafters of the U.S. Constitution. While I worked at HUD, I tried on numerous occasions to persuade Secretary of HUD Jack Kemp and his staff not to abrogate government contracts or contractual obligations with respect to financial assets. I had a deputy who always reminded me that Alexander Hamilton had gone through a similar process of ensuring that the government did not illegally abrogate its obligations and debts when he was the first Secretary of the Treasury of the United States — and that Hamilton had always won. Numerous quotes from Alexander Hamilton became part of our way of cheering ourselves up in the midst of cleaning up nauseating levels of corruption. Sayings like “A promise must never be broken.”

Hamilton Securities Group Offices won an award from the American Institute of Architects for Advanced Technology Facility Design.
Photo courtesy The Hamilton Securities Group
One of The Hamilton Securities Group’s goals was to map out how the flows of money worked in the U.S. and create software tools that would make this information accessible to communities. We believed that the way to re-engineer government was for citizens to have access to the information about the sources and uses of taxes and government spending and financing in their community, and to participate in the process of making sure that these investments were managed to return our neighborhoods to a “Popsicle Index” of 100 percent. Transparency is essential for private markets to work and for government investment to be supportive of and accountable to both the democratic process and free markets. Otherwise, we will veer toward larger governments and central banks used to subsidize progressively less efficient corporations and private activities with growing corruption.

After I started The Hamilton Securities Group, I was approached by Nick Brady, still Secretary of Treasury, to serve as a governor of the Federal Reserve. When I declined, John Sununu, then White House Chief of Staff, had me appointed to the board of Sallie Mae, the corporation that helps to provide financing for student loans. While on the board of Sallie Mae, I was taken aside by the Chairman who explained that it was essential that I ask Nick to sponsor me for the Council on Foreign Relations (CFR). When I said that this was not something that I felt comfortable doing, he said, quite alarmed in a generous and caring manner, “You don’t understand, if you don’t join the Council, you will be out for good.”

Hamilton’s Information Systems integrated telephone and computer systems in 1995 in an open office design. Whether at a desk, in a conference room or in the kitchen, Hamiltonians and network members — many educated and experienced in information technology — could access state of the art technology, software tools and T1 Internet line.
Photos courtesy The Hamilton Securities Group

I did not join the CFR and in retrospect — after years of watching how the CFR and its members operate — believe it was a sound decision. My dream was to find solutions. That required getting in the trenches and prototyping maps, tools and transactions. Prototyping required high degrees of trust with diverse networks — in communities and financial markets alike. These networks would usually not welcome a central banker or members of the organizations like the CFR that provide the intellectual smokescreen for the centralization of financial data and flows and economic and political power. Over time I was increasingly shocked by the speed and ease with which many intelligent, attractive and seemingly competent members of the CFR appeared to eagerly justify policies and actions that supported growing corruption. The regularity with which many CFR members would protect insiders from accountability regarding another appalling fraud surprised even me. They seemed entirely indifferent to the extraordinary cost to all citizens of having our lives, health and resources drained to increase insider wealth in a manner that violated the most basic principles of fiduciary obligation and respect for the law. In short, the CFR was operating in a win-lose economic paradigm that centralized economic and political power. I was trying to find a way for us to shift to a win-win economic paradigm that was — by its nature — decentralizing.

The Hamilton Securities Group was financed with the money I made as a partner of Dillon Read and the sale of my home in Washington and then financed internally with profits. Several years after starting, we won a contract by competitive bid to serve as the lead financial advisor to the Federal Housing Administration FHA at HUD. As a result, I had the opportunity to serve the Clinton Administration in the capacity of President of The Hamilton Securities Group in addition to having served as Assistant Secretary of Housing-FHA Commissioner in the first Bush Administration.[5]

Catherine’s Home in Woodley Place, Washington, D.C. was sold to help finance Hamilton Securities.
Photos courtesy Catherine Austin Fitts
One of our assignments for HUD was serving as lead financial advisor for $10 billion of mortgage loan sale auctions. Using online design books[6] and our own analytic software tools as well as bidding technology from Bell Laboratories we adapted for financial applications, we were able to significantly increase HUD’s recovery performance on defaulted mortgages, generating $2.2 billion of savings for the FHA Mutual Mortgage Insurance and General Funds.

While we plowed all of our profits back into the expenses of building databases and software tools and into banking a community-based data servicing company, we were still profitable, generating $16 million of fee revenues and $2.3 million of net income in 1995.[7]

While the loan sales were a great success for taxpayers, homeowners and communities, it turned out that they were a significant threat to the traditional interests that fed at the trough of HUD programs, contracts and related FHA mortgage and Ginnie Mae, Fannie Mae and Freddie Mac mortgage securities operations.

For example, if you illuminated the sources and uses of government resources on a neighborhood by neighborhood basis, you would see that government monies were spent in ways that created fat stock market and personal profits for insiders at the expense of more productive outsiders who are providing most of the tax and other resources used. Insiders could include big developers and property management companies that specialized in HUD-subsidized properties like then Harvard Endowment-owned National Housing Partners (NHP) and their affiliated mortgage banking operations like Washington Mortgage (WMF), or for investment bankers like Dillon Read or Stephens, Inc. who issued municipal housing bonds for agencies like the Arkansas Development and Finance Agency (See “Narco Dollars in the 1980s—Mena Arkansas” above). When I suggested to the head of HUD’s Hope VI public housing construction program during the Clinton Administration that she could spend $50,000 per home to rehab single family homes owned by FHA rather than spending $250,000 to create one new public housing apartment in the same community, she got frustrated and said “How would we generate fees for our friends?”

Our efforts at The Hamilton Securities Group to help HUD achieve maximum return on the sale of its defaulted mortgage assets coincided with a worldwide process of “privatization” in which assets were, in fact, being transferred out of governments worldwide at significantly below market value in a manner providing extraordinary windfall profits and equity to private corporations and investors. In addition, government functions were being outsourced at prices way above what should have been market price or government costs — again stripping governmental and community resources in a manner that subsidized private interests. This is why I now refer to privitization as “piratization.”

One of the consequences was to steadily increase the political power of companies and investors who were increasingly dependent on this type of lucrative back door subsidy — thus lowering overall social and economic productivity. Hence, The Hamilton Securities Group doubling of government recovery rates on defaulted mortgages from 35 percent to 70-90 percent was running counter to global trends and ruffling feathers. We were requiring investors like Harvard Endowment to pay full price for assets while it appeared that they and investors like them were engineering progressively deeper and deeper windfall discount prices elsewhere in the U.S. and globally. Subsequent litigation against Harvard and independent journalist coverage regarding their role as a government contractor in Russia illuminated the extent of the windfall profits that they and members of their networks were able to engineer.[8]A criticism that I now have that I did not understand at the time was that the loan sales policies of insisting on open competition at the highest price ran the risk of advantaging players who were the most successful at laundering money for the “black budget.”

Things took an even darker turn when we started Edgewood Technology Services, a data servicing company in an Afro-American residential community in Washington, D.C.[9] Edgewood gave us the ability to build much more powerful databases and software tools as well as understand the investment opportunity to train people working at minimum wage jobs or living on subsidies to develop more marketable skills and earning power by doing financial data servicing and software development.

We also discovered that it was much less expensive to train people to do these jobs than to fund their living on HUD subsidies, let alone going to prison. For example, a woman with two children living in subsidized housing in Washington, D.C. on welfare and food stamps cost the government $55,000 or more. In 1996, the General Accounting Office (GAO) published a study showing that on average total annual expenditures for federal, state and local prisoners was over $150,000 per prisoner. Presumably this included all overhead and capital costs. If government funded the care of her two children while she was in prison, those costs would be in addition.

What we found at Edgewood was that there was a portion of the work force that, due to obligations to children and elderly parents, was not able to commute. Some of these people could be a productive work force working near their home and developing computer and software skills at their own pace. If training was combined with the creation of jobs, the economics of training people to do these jobs were sustainable and with proper screening and management could be profitable for the private sector. The potential savings to the public sector was astonishing — not to mention the potential improvement in quality of life for cities, suburbs and rural communities. With government leadership and large corporations actively working to move jobs abroad, people in all areas of the U.S. would need these kinds of new skills and jobs. Moreover, small businesses would need access to the kinds of equity we were proposing to invest in community venture capital and to encourage communities to circulate internally rather than investing their retirement savings in large banks and corporations.

During this period, The Hamilton Securities Group helped HUD develop a program to allow some of the costs of community learning centers to be funded from HUD property subsidy flows. This allowed apartment buildings in communities experiencing welfare reform, cutbacks in domestic programs and unemployment from jobs moving abroad to help residents improve their ability to generate income. It encouraged linkages between private real estate managers and community colleges and other organizations committed to helping people learn new skills.

As I traveled and researched around the country, it became apparent that data servicing jobs like those we were prototyping at Edgewood were highly competitive with jobs in the illegal economy. In other words, data servicing jobs paying $8-10 per hour and offering health care benefits and the opportunity to improve skills had the potential to attract a surprising number of people away from dealing drugs in areas with heavy drug dealing, prostitution and other street crime. The Hamilton Securities Group’s primary competition for the multi-racial younger portion of this work force appeared to be organized crime and the industries they feed — including enforcement and private prisons.

Meanwhile, The Hamilton Securities Group’s growing software and data infrastructure about public and private resource flows in communities indicated that the vast majority of government subsidies were not necessary and not economic — whether welfare and HUD subsidies or prisons and the huge and growing infrastructure of community and social development and private real estate and government contractors that they supported. There was a much more economic way for government to reduce domestic subsidies and crime. Indeed, with both the private sector and federal government predicting very significant increases in the need for data servicing support and other jobs that could be outsourced through telecommunications, there appeared to be a significant opportunity. We shared our data and results with HUD, The Department of Health and Human Services (HHS), Congress and the Office of Management and Budget at the White House, and with leaders within the real estate and community development industries.

While the initial response was positive from a number of quarters, there was concern from special interests whose business had become managing “the poor.” Many of these were traditionally powerful Democratic constituencies, including private for-profits, foundations, universities and not-for-profit agencies that had built up a significant infrastructure servicing and supporting all of these programs. If people were no longer poor, what was their purpose? When we made a presentation to a group of leading foundations, in partnership with a Los Angeles entertainment company interested in using entertainment skills to make training fun, the head of low- income programs at Fannie Mae told me that it was the most depressing presentation he had ever seen. It implied that the poor did not need his help — that his life and work had no meaning. Real estate interests that were hoping to gentrify neighborhoods as a result of welfare were also not pleased. They would make more money turning over populations.

One HUD official told Catherine that when the HUD Inspector General saw this June 1996 Washington Post article about Edgewood Technology Services she said “That’s it, I am going to get her (referring to Catherine.)”
We were also warned that the HUD Inspector General’s office had a very negative response, with one of the enforcement team members referring to our efforts as “computers for niggers.” Essentially, what we were proposing was in competition with their enforcement business, which consisted of dropping 200 person “swat” teams into a neighborhood to round up and arrest lots of young people who were in the wrong place at the wrong time and could not afford an attorney. This required a fundamentally different approach and philosophy.

The highly successful HUD loan sales had also run into a problem with the HUD Inspector General’s office. According to HUD staff, the HUD OIG wanted loans held out of sales so they could pursue civil money penalties against the owner. If the loans were sold, it would be better for the FHA fund and for building residents and the surrounding communities. However, it would make less money for the “Sheriff of Nottingham” business in HUD OIG.

Years later, when the HUD Inspector General was asked what the recovery rates were on HUD’s defaulted mortgage portfolio before, during and after the loan sale program that The Hamilton Securities Group pioneered, she said she had no idea. Her attitude appeared to be that this was not an important piece of information. Which means that she found something that had billions of impact on the FHA Fund each year to be of no interest. The focus in federal enforcement was on things that made money and headlines directly for the enforcement teams. This “for-profit” philosophy was evidently in full vogue. I was reminded of the Congressman who jumped up from dinner to cast his vote in appropriations committee and as he rushed off said to me, “Let’s face it, honey, I’m only here to protect my shit.”

In late 1995, The Hamilton Securities Group began work on Community Wizard, a software tool designed to facilitate communities access through the Internet to all public data on resource use in their area, including all federal expenditures and credit data. 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 illuminate 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 The Hamilton Securities Group’s pricing data from the various loan sales. Such tools would allow people to take a positive and pro-active role in insuring that government resources were well and lawfully used and increasing the betterment of themselves and their community.

Community Wizard brochure.
Photo courtesy The Hamilton Securities Group
There was only one problem. If communities had easy access to this data, the pro-centralization team of Washington and Wall Street would be in trouble. Everything from HUD real estate companies to private prisons would be shown to make no economic sense. And billions of government contracts, subsidies and financing made no economic sense. Indeed, communities were better off without them. Through our software, private citizens would see the cost of decades of accumulated “fees for our friends.”

And that was before we even asked the question: “Who was bringing in narcotics and where was all the money from the trafficking going?” If enough people stopped dealing drugs and taking drugs, then who needed more prisons and all these enforcement agencies and War on Drugs contractors?

Ask and answer those questions — as communities would now be able to start to do with tools like Community Wizard — and much Iran-Contra style narcotics trafficking, the private prison industry and the “Sheriff of Nottingham-style” enforcement programs so in vogue at the White House, DOJ and HUD OIG might just be dead in the water.

As part of our efforts, we started to publish maps on the Internet of defaulted HUD mortgages in affected places and to encourage HUD to create place-based bids that would integrate different types of assets in one place. If successful, it would permit us to create bids that optimized total government performance in a particular place — including all contracts, subsidies and services.

The map of South Central Los Angeles, California
Map courtesy The Hamilton Securities Group

One of the maps we put up in the spring of 1996 was a map of the properties collateralizing defaulted HUD single-family mortgages in South Central Los Angeles, California. The map showed significant HUD defaults and losses in the same area as the crack cocaine epidemic that was the basis of Gary Webb’s allegations in Dark Alliance. Such heavy default patterns are symptoms of a systemic and very expensive problem — including systemic fraud. This could occur in situations such as those in which mortgages were being used to finance homes above market prices with inflated appraisals or where defaulted mortgages were being passed back to private parties at below market values, or where these types of mortgage fraud were supporting fraudulently issued mortgage securities that did not have real collateral behind them. This is the type of mortgage fraud that launders profits in a way that can multiply them by many times. Los Angeles was also the area with the largest flow of activities in the Department of Justice’s Asset Forfeiture Fund. Whether drug arrests and incarcerations, legal support for HUD foreclosures and enforcement or asset seizures and forfeitures — these maps were illuminating areas that were big business for “Sheriff of Nottingham-style” operations.

The map of Washington, D.C.
Map courtesy The Hamilton Securities Group

The map of New Orleans
Map courtesy The Hamilton Securities Group

A Note on Protecting the Brand with Dirty Tricks

The process and technology of compromising and controlling honest business and government leaders and journalists — or destroying them when they can not be controlled — are closely guarded secrets known mostly to those who inhabit the covert world or, such as myself, are privileged to have survived their initiation and real world training program. [10] To understand how the process works and the extraordinary resources invested in such dirty tricks first requires an appreciation of the importance of “brand” to the management of organized crime as it is practiced through Wall Street and Washington.

The Wikipedia online encyclopedia defines “brand” as:

“...the symbolic embodiment of all the information connected with a product or service. A brand typically includes a name, logo and other visual elements such as images or symbols. It also encompasses the set of expectations associated with a product or service which typically arise in the minds of people. Such people include employees of the brand owner, people involved with distribution, sales or supply of the product or service, and ultimately consumers.”

A successful venture capitalist like John Birkelund would tell you that a great brand can make or break a company and its stock market value.

The supremacy of the central banking-warfare investment model that has ruled our planet for the last 500 years depends on being able to combine the high margin profits of organized crime with the low cost of capital and liquidity that comes with governmental authority and popular faith in the rule of law. Our economy depends on insiders having their cake and eating it too and subsidizing a free lunch by stealing from someone else. This works well when the general population shares in some of the subsidy, grows complacent and does not see the “real deal” on how the system works. However, liquidity and governmental authority will erode if the general population becomes aware of how things really work. As this happens, they begin to understand the power of innovative technology and re-engineering of government resources to create greater abundance both for themselves and other people. As this happens, they lose faith in the myth that the current system is fundamentally legitimate. This jeopardizes the financial markets that depend on fraudulent collateral and practices to continue to work. It also jeopardizes the wealth and power of the people who are winning with financial fraud.

In short, transparency blows the game and cannot be allowed. No expense will be sparred to insure that the insiders — at the expense of the outsiders — control financial data. As Nicholas Negroponte, founding Chairman of the MIT Media Lab, once said, “In a digital age, data about money is worth more than money.”

As a consequence, extraordinary attention and sums of money are invested in affirming the myth and appearance of legitimacy. This includes creating popular explanations of why the rich and powerful are lawful and ethical and the venal poor, hostile foreigners, crafty mobsters and incompetent and irresponsible middle class bureaucrats are to blame for the success of narcotics trafficking, financial fraud and other forms of organized crime.

If the normal successful retail industry — for example, women’s clothing or cars — has an advertising and marketing budget of — let’s just pick a number of say 10 percent of revenues —then what do we think that an estimated $500 billion–$1 trillion of annual U.S. money laundering flows will spend to protect its market franchise? Working with our number of 10 percent, how do we think $50-100 billion would be spent to protect the brand — particularly when governmental budgets can be used to fund the effort?

As a result, extraordinary amounts of money and time are spent destroying the credibility of those who illuminate what is really going on. All of this despite the obviousness of the economic reality that those whose wealth is growing the most must have an economic relationship to the business generating the most profit. Or, as in the words of John Gotti, Jr., in response to allegations that the Gotti crime family was dealing drugs, “Who can compete with the government?”

Only when you understand the value of the brand can you understand the extraordinary investment and criminal methods used to stop and suppress our software product Community Wizard and try to frame The Hamilton Securities Group and myself.

Catherine Austin Fitts is the author of the Narco News series “Narco-Dollars for Beginners: How the Money Works in the Illicit Drug Trade.” She 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 currenly president of Solari, Inc., an investment advisory firm (in formation) based in Hickory Valley, Tennessee.

Previously in Part III: Her time as Assistant Housing Secretary gives the author a front-row seat to the corruption of a federal government in league with big business and finance. Also, after leaving the Bush administration and re-entering the business world, she watches as her former firm, Dillon Read, goes into business with Cornell Correction, a prison contractor that seems to be bankrolled with both big oil and drug trafficking money.

Next in Part V: Catherine becomes a target of a two-year campaign of “enforcement terrorism,” mirroring the near-simultaneous campaign to discredit Gary Webb’s “Dark Alliance” series. Also, investors cash out on Cornell’s prison business.


[1] See page 72, Prison Nation: The Warehousing of America’s Poor, edited by Tara Herivel and Paul Wright.

[2] After 9-11, when Nick Brady’s old friend Governor Tom Kean (Brady lead his transition team when he was elected Governor of New Jersey) chaired the 9-11 Commission, Jamie Gorelick was chosen as a Commissioner. Reports at that time describe her role at DOD and DOJ.

[3] For more about the Popsicle Index and the Solari model, see Solari & the Rise of the Rule of Law.

[4] A Conversation About the Popsicle Index by Catherine Austin Fitts http://www.scoop.co.nz/stories/HL0301/S00117.htm

[5] See Personal Experience at FHA/HUD http://www.solari.com/gideon/fhalist.htm

[6] For an example of one of the single family design books, see: http://www.solari.com/gideon/legal/background/DesidnBk/Home.htm

[7] See “How the Money Works: The Hamilton Securities Group and Its Subsidiaries” http://www.solari.com/gideon/about/How%20The%20Money%20Works.PDF

[8] See The Myth of the Rule of Law, http://www.solari.com/gideon/q301.pdf

See Interview with Greg Palast http://www.solari.com/gideon/privatization030402.html

See links for Harvard and Russia at the Harvard Datadump at:

[9] See: The Story of Edgewood Technology Services, http://www.scoop.co.nz/stories/HL0207/S00101.htm

[10] For details on some of the specifics of modern day “crucifixions” see, Anatomy Of A SWAT From A Lawyer’s Perspective by Lucille Compton http://www.scoop.co.nz/stories/HL0504/S00241.htm

See The Swat List – Audits, Investigations, Inquiries, Leads, Conflicts of Interest, Harassment and Surveillance by The Hamilton Securities Group, Inc. http://www.solari.com/gideon/legal/audits.html

See The Professional Paranoid by H. Michael Sweeney

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