[Note from CAF: This post was originally published here in February of 2009.
In light of recent events, I am republishing.]

By Catherine Austin Fitts

In the fall of 2001 I attended a private investment conference in London to give a paper, The Myth of the Rule of Law or How the Money Works: The Destruction of Hamilton Securities Group.

The presentation documented my experience with a Washington-Wall Street partnership that had:

  • Engineered a fraudulent housing and debt bubble;
  • Illegally shifted vast amounts of capital out of the U.S.;
  • Used “privitization” as a form of piracy – a pretext to move government assets to private investors at below-market prices and then shift private liabilities back to government at no cost to the private liability holder.

Other presenters at the conference included distinguished reporters covering privatization in Eastern Europe and Russia. As the portraits of British ancestors stared down upon us, we listened to story after story of global privatization throughout the 1990s in the Americas, Europe, and Asia.

Slowly, as the pieces fit together, we shared a horrifying epiphany: the banks, corporations and investors acting in each global region were the exact same players. They were a relatively small group that reappeared again and again in Russia, Eastern Europe, and Asia accompanied by the same well-known accounting firms and law firms.

Clearly, there was a global financial coup d’etat underway.

The magnitude of what was happening was overwhelming. In the 1990’s, millions of people in Russia had woken up to find their bank accounts and pension funds simply gone – eradicated by a falling currency or stolen by mobsters who laundered money back into big New York Fed member banks for reinvestment to fuel the debt bubble.

Reports of politicians, government officials, academics, and intelligence agencies facilitating the racketeering and theft were compelling. One lawyer in Russia, living without electricity and growing food to prevent starvation, was quoted as saying, “We are being de-modernized.”

Several years earlier, I listened to three peasant women describe the War on Drugs in their respective countries: Colombia, Peru, and Bolivia. I asked them, “After they sweep you into camps, who gets your land and at what price?” My question opened a magic door. They poured out how the real economics worked on the War on Drugs, including the stealing of land and government contracts to build housing for the people who are displaced.

At one point, suspicious of my understanding of how this game worked, one of the women said, “You say you have never been to our countries, yet you understand exactly how the money works. How is this so?” I replied that I had served as Assistant Secretary of Housing at the US Department of Housing and Urban Development (HUD) in the United States where I oversaw billions of government investment in US communities. Apparently, it worked the same way in their countries as it worked in mine.

I later found out that the government contractor leading the War on Drugs strategy for U.S. aid to Peru, Colombia and Bolivia was the same contractor in charge of knowledge management for HUD enforcement. This Washington-Wall Street game was a global game. The peasant women of Latin America were up against the same financial pirates and business model as the people in South Central Los Angeles, West Philadelphia, Baltimore and the South Bronx.

Later, courageous reporting by several independent investigative reporters confirmed in detail that the privatization and economic warfare model I discussed in London had deep roots in Latin America.

We were experiencing a global “heist”: capital was being sucked out of country after country. The presentation I gave in London revealed a piece of the puzzle that was difficult for the audience to fathom. This was not simply happening in the emerging markets. It was happening in America, too.

I described a meeting that had occurred in April 1997, more than four years before that day in London. I had given a presentation to a distinguished group of U.S. pension fund leaders on the extraordinary opportunity to re-engineer the U.S. federal budget. I presented our estimate that the prior year’s federal investment in the Philadelphia, Pennsylvania area had a negative return on investment.

We presented that it was possible to finance places with private equity and re-engineer the government investment to a positive return and, as a result, generate significant capital gains. Hence, it was possible to use U.S. pension funds to significantly increase retirees’ retirement security by successfully investing in American communities, small business and farms — all in a manner that would reduce debt, improve skills, and create jobs.

The response from the pension fund investors to this analysis was quite positive until the President of the CalPERS pension fund — the largest in the country — said, “You don’t understand. It’s too late. They have given up on the country. They are moving all the money out in the fall [of 1997]. They are moving it to Asia.”

Sure enough, that fall, significant amounts of moneys started leaving the US, including illegally. Over $4 trillion went missing from the US government. No one seemed to notice. Misled into thinking we were in a boom economy by a fraudulent debt bubble engineered with force and intention from the highest levels of the financial system, Americans were engaging in an orgy of consumption that was liquidating the real financial equity we needed urgently to reposition ourselves for the times ahead.

The mood that afternoon in London was quite sober. The question hung in the air, unspoken: once the bubble was over, was the time coming when we, too, would be “de-modernized?”

In 2009 — more than seven years later — this is a question that many of us are asking ourselves.

Part II: Rethinking Diversification

Related Reading:

Dillon, Read & Co. Inc. and the Aristocracy of Stock Profits

151 Comments

  1. Speaking of paying off the debts so there is little or no debt burden on our shoulders, I wish to point out that Money is debt, debt is money. We borrow money from banks in order to get it created. When we pay off the debts, it is money UN-CREATED.

    Consider the following quotes:

    “That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.” Marriner S. Eccles, Chairman and Governor of the Federal Reserve Board

    “If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible — but there it is.”
    Robert Hemphill. Credit Manager, Federal Reserve Bank of Atlanta

    In other words, if we pay off all the debts, there will be no money in circulation.

    “Under the existing fractional reserve banking system, when a loan is made, both the principal of the loan and the deposit that appears in the borrowers checking account are created at the same time out of nothing but a computer entry. And when the loan is repaid, both the principal of the loan and a previously created deposit disappear.

    What needs to be clearly understood is the fact that our present “debt-money” disappears when it is repaid and we MUST replace it or we would have a severe deflation because of the lack of money to exchange our goods and services.” Richard D. (from email)

  2. Catherine,

    Thanks for the link. I agree with you wholeheartedly on your assessment of Perkins. A public confession, but it does personalize and bring home to the average reader a believable experience that readers can empathize with and understand, so it has value in that regard.

    As for Marjorie Kelly, I did not take your perspective away from my reading of “The Divine Right of Capital” at all. Although she definitely does not take covert revenue streams into account (she actually believes in “Business Ethics” – go figure), She also did not say that free markets are the problem. My take was that she strongly felt that the “rules” are the problem, i.e. Corporate Governance rules and the laws regarding Corporate Charters in all U.S. States are problematic, if not flat out fixes that ensure Corporations have all the rights and none of the responsibilities or accountability that individual citizens have to deal with.

    Admittedly her solution lives in the world of imagination – rules can be modified such that Corporation actually are “owned by stockholders”, transparency is enforced, Corps have to pay for everything they use or trash just as we do, and, finally, if they have the rights of individuals under the law, they must also bear the same responsibilities.

    I know the odds of Government allowing these changes are somewhere between Slim and None, but again, like Perkin’s book, it is explained in such a way that the average thoroughly indoctrinated person can read and quite possibly have the “lightbulb” light.

    Are people like Palast better at their jobs? Yes, but if I were teaching a few courses on “How Corporate Business Works”, both these books would be reading material for the “101” Intro.

    Your columns would be saved for the Upper Level Courses 🙂

    Regards,

    John

  3. This is really getting interesting. Almost a group session really, when you read between the lines. (And as a person with blended-bifocals, I’d appreciate some use of more paragraphs.)
    It’s not a search for solutions but more of an outline of opinion and what-ifs.

    There is an exposure of diverse subcultures to be recognized and… respected. It is of our fears of ‘tommorow’, hopes for our own and description of what we have experienced during our lives, now being shared.

    My thoughts go out to Mr. Reyes, who, has the gutts to express what lifestyle that’s being faced and how a system of survival and tolerance has been dealt with over the years. Apparently we do live in a variety of ‘worlds’ and that is my reference to our subcultures of these United States.

    The thing is to learn and understand the creation, history and expectation of these lifestyle and social-economic situations. Lifestyle, because that is what we have if we want it as such, being conditioned, or preference over change. Change, is thought, brought about by individual volition (willingness to do so), self-help and ‘practical’ education or taking advantage of the systems provided by either staying the system’s parameters, or going beyond it as a stepping stone to better the individual. And to define, what is better or progressive and contributing to a quality of life or social reform.

    (Whew. Sorry ’bout that.)

    Mr. Reyes tells us all of his present condition and how’s he’s been able to manage, well enough, for his immediate needs. A survivor’s story without the bologna of one of those rediculous, ‘survival-reality’ TV shows. It is basic, clear and sincere in what he has written.

    And, I might add… intellegent. And relative to many of us, if we can see this in his words.

    I too take care of my own father of 89 years, I am 58 and positioned myself for retirement shortly afer the death of my wife over a dozen years ago, as I had seen and done enough. We are surviving as well. Bankruptcy and Social Security has taught us much and given us some tools in the meantime. We at least still have a home over these 20 years. (Thanks to a third party dealing with the mortgage holders.)

    Such levels of cash exchange and barter transaction has been experienced (personal) through typical garage sales, flea markets, secondhand stores and earlier adventures with swap-meets and trade centers. One can truely learn from these opportunities of trade relationships and discover what it can mean what may be of material value to one another. As well, that can be a lifestyle in itself, as an independant business. And it is growing.

    (Notice the number of Salvation Army stores or new locations of St Vincent Depaul’s? Anyway, that’s what’s been happening arounf the Detroit area here.) More, ‘signs of the times’.

    Thank you once again, Anastacio (someone was a romantic to name you that) and in what you shared with the rest of us.

    By the way, I have a ’95 Grand Am that runs great and I work on it myself. At least I owe nothing on that. Good luck with the truck and any ‘future’ success, and good health for your family and friends.

    Stay the good course and continue to create new bonds. Better than money, right?

    Harry

  4. Dear Catherine: May I then be of service to your readers? What are the demographics of your readers? Are they of the real world of the masses of which we speak? My world is one of cash, poverty, families living at the edge. I have no bank account neither do many of my friends. We are literate in the sense that we read the daily papers with vigor but at the local library. We even talk about the Constitution of the United States, the socialism in Europe, the promise of Obama and laugh at the issues now faced by the elite. Yes, you home is Hickory Valley and on Google it says the median income for a household in the town was $15,313, and the median income for a family was $22,500. Males had a median income of $21,875 versus $14,688 for females. The per capita income for the town was $8,935. There were 18.4% of families and 16.2% of the population living below the poverty line, including 16.3% of under eighteens and 16.7% of those over 64. This sounds like the real world. Where there is no money for a 401K and thus no risk of “destroyed wealth”. Yes, poverty is colorless, and poor whites in my humble opinion are the most forgotten of all in the United States just as forgotton as poor others. As a man of colour, I think how sad that poor whites are so forgotten. But the same goes with poor anything. So readers please allow me an example of barter: My cousin lost his car and was thumbing it to work at a local company. My other buddy told me about my cousin thumbing it to work “‘cuz they p’cked’em up n took’em to work” when they see him on the road. Upon hearing this I said a prayer to my Dear Lord and asked Him to give me strength to help my cousin. I then saw a truck selling for $2,000 in my city (I live 270 miles nearby) and bought that truck with money I was saving because I needed that truck for my job but not quite yet. So I bought that truck and called my cousin that he shouldn’t be thumbin-it to work and I lent him my truck for only one year in exchange that he would watch over my 83 year old father who lived in a house one block from my cousin. He agreed to watch my father and his son mowed the lawn. We solved two problems – I had someone take care of my fathers home; and my cousin got to work. He saved money to get his own truck, I got my truck back a year later. And we have a bond that lasts longer than any bank loan. And we both rent…and bring up our families. I have countless stories of people at the edge. Now you tell me readers…is this the world that you know?

  5. Rep. Kanjorsky, during his recent appearance on C-Span, assuming he is correct in the dates, described Paulson’s statements to Congress in September concerning an event that took place “last Thursday”, in which a run was made on the money market that nearly crashed the American economy on the spot, and came within a couple of hours of crashing the global economy. The “last Thursday” he spoke of would have been September 11, 2008 between the hours of 9:00 and 11:00. If it had not been shut down and stabilized by changing the limits of insured deposits to 250,000, it is estimatad that 5.3 trillion dollars would have been sucked out of the system, collapsing the world economy, and who know what else.

    Had you heard of this new “Sept. 11” and what do you make of it?

  6. Great post.

    1st, we should begin by calling the FED, exactly what they are: “Private, Central Bankers”; this would peak the curiosity of the reader, and prompt them to read and investigate further, on their own.

    2nd, everyone should be encouraged to read anything they can about the ‘History of Money’, or the ‘History of Banking’; this will inevitably lead the reader to todays Federal Resrve System, their relationship to England, Germany, the CFR, etc. There are numerous online papers, articles and books. You do not need to leave your computer.

    It will then become clear, the relationship of industry, banking and government to each other.

    I believe the current state of our economy was known, in advance by the ‘FED’, and the plan all along was for the big banks to take over the little banks. The loose money policy was to expose banks to the credit defaults, and ultimately eliminate smaller banks as competitors, at the tax payers expense. Sort of a ‘Controllled Depression’.

    Finally, you need to EDUCATE your elected representatives, 1ST at the State level, and then the Federal Level. Because, I believe most if not all of them, do not have a clue.

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