October 24, 2001
Narco News 2001
in the Illicit
I in a Series
By Catherine Austin
Special to the Narco News Bulletin
Narco News Publisher's
is a former managing director and member of the board of directors
of Dillon Read & Co, Inc, a former Assistant Secretary of
Housing-Federal Housing Commissioner in the first Bush Administration,
and the former President of The Hamilton Securities Group, Inc.
She is the President of Solari, Inc, an investment advisory firm.
Solari provides risk management services to investors through
Sanders Research Associates in London.
Latin American drug cartels have stretched their tentacles much
deeper into our lives than most people believe. It's possible
they are calling the shots at all levels of government."
William Colby, former CIA Director, 1995
Solari Index and the Dow Jones Index
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.
Economics of Production:
and Dave Do Boat Loads
let's start at ground zero. It is 1947,
and World War II is over. America is ready to go back to work
to build the corporate economy. We are in New Orleans on the
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
Now, after Sam pays his workers and all
his costs of growing and transporting the sugar, and after he
and his wife spend the weekend in New Orleans and he pays himself
a bonus and buys some new harvest equipment and pays his taxes,
how much cash does he have left to deposit into his bank account?
Or, another way of saying this is: What is Sam's net cash margin
on his sugar business?
Well, it depends on how lucky and hard
working and smart Sam is, but let's say that Sam has worked his
proverbial you know what off and he makes around 5-10 percent.
Sam the sugar man has a 5-10 percent cash profit margin. Let's
call Sam's margin S for slim or SLIM PERCENTAGE.
Back on the docks, the second boat---an
exact replica of the boat carrying Sam's sugar---is a boat carrying
Dave's white agricultural product called drugs. In those days
this was more likely to be heroin, these days more likely to
be cocaine. Whatever the precise species, the planting, harvesting
and production of this white agricultural substance, Dave's drugs,
are remarkably like Sam's sugar.
Ok, so if Sam the sugar man sold his sugar
to the sugar wholesaler for X dollars, how much will Dave the
drug man sell his drugs to the drug wholesaler for? Well, where
Sam is getting pennies, Dave is getting bills. If Sam had sales
of X dollars, let say that Dave had sales of 50-100 times X.
Dave may carry the same amount of white stuff in a boat but from
a financial point of view, Dave the drug man has a lot more "sales
per boat" than Sam the sugar man.
Now, after Dave pays his workers and all
his costs of growing and transporting the drugs, and after he
and his wife spend the weekend in New Orleans and he pays himself
a bonus and buys some new harvest and radar equipment and spends
what he needs on bribes and bonuses to a few enforcement and
intelligence operatives and retainers to his several law firms,
how much cash does he have left to deposit into his bank account?
Or, another way of saying this is what is Dave's net cash margin
on his drug business?
It's also going to be a multiple of Sam's
margin, right? Maybe it will be 20 percent or 30 percent or more?
Let's call it B for Big, or BIG PERCENTAGE. Dave the drug man
has a much bigger "cash profit per boat" than Sam the
sugar man. Part of that is, of course, once Dave has set up his
money laundering schemes, even after a 4-10 percent take for
the money laundering fees, it's fair to say his tax rate of 0
percent is lower than Sam's tax rate. While it is expensive to
set up all the many schemes Dave might use to launder his money,
once you do it you can save a lot avoiding some or all of the
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
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."
more than fifty years now since the
boats transporting Sam and Dave's white agricultural products
docked in New Orleans. I don't know what the Narco National Product
(Solari's term for that portion of the GNP coming from narco
dollars) was in 1947, but lets say it was a billion dollars or
less. Today, the Narco National Product that number is estimated
to be about $400 billion globally and about $150 billion plus
in the United States.
It helps to look at the business globally
as the United States is the world leader in global money laundering.
According to the Department of Justice, the US launders between
$500 billion - $1 trillion annually. I have little idea what
percentage of that is narco dollars, but it is probably safe
to assume that at least $100-200 billion relates to US drug import-exports
and retail trade.
Ok, so let's think about how much Sam
and Dave have in accumulated profits in their bank and brokerage
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
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.
NYSE Chairman Richard Grasso with a FARC Commmander
Richard Grasso and the
New Business "Cold Call"
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?
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