Narco-Dollars For Dummies
How The Money Works In The Illicit
by Catherine Austin Fitts
www.scoop.co.nz/, February 2002
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
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 the 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
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.
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
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
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
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
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."
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
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
Ok, so let's think about how much Sam
and Dave have in accumulated profits in their bank and brokerage
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
to $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.
A Real World Example: NYSE's Richard Grasso
and the Ultimate New Business "Cold Call"
Lest you think that 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
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
Buy Banamex anyone?
On Your Map
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
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
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
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 dogot 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
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
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
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
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
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 1, 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,
The Hickory Valley-Philadelphia Fast Food
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,
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
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
The next time you are out on the streets,
see if you can guess where the money is. It's bound to be there
Enforcement: At the Heart of the Double
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 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
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 then 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.
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
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?
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
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
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.
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
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
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
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. 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
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
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
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
My money is on Solari rising.
For more on starting a solari for your
neighborhood, see www.solari.com, or contact Catherine at email@example.com
AUTHOR NOTE: Catherine Austin Fitts, author
of Scoop's "The Real Deal" column, 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
War on Drugs