Wall Street, Drugs, Prison, and HUD

The book that is the subject of this review contains valuable information regarding foreclosures nationwide, including the trap that many homeowners in various areas have fallen into within the past several years as the housing bubble has come and gone. While not directly related to helping a homeowner stop foreclosure, the information can be used to protect against falling into the trap again.

In fact, this review may be seen as a companion and background piece to our article on equity investing within a community to stop foreclosure.

Dillon, Read & Co., Inc. and the Aristocracy of Prison Politics is a book that was published as a series of articles online. The author is Catherine Austin Fitts, a former Wall Street investment banker and Assistant Secretary of Housing/Federal Housing Commissioner for George H.W. Bush.

The book follows Fitts as she discovers the prevailing visions of policymakers, both public and private, who are exercising control over the country and the world. Topics that are covered include drug smuggling, money laundering, the "War on Drugs," the housing bubble, and general corruption in Washington and Wall Street.

As Fitts draws the map of where the United States has been heading over the past decades, the perspective is at turns historical, informative, and autobiographical, as fits the situations.

The beginning point of the map is Fitts' work at Dillon, Read & Co., a Wall Street investment banker, during the transition when Reagan took office. Ownership of the firm changed hands, and leveraged buyouts became the new trend on Wall Street.

Another landmark that Fitts points us to is the story of RJR Nabisco, one of the largest food companies in the world that also markets cigarettes. It is RJR's involvement in the drug trade and money laundering that Fitts focuses on, especially the use of cigarettes as an alternate form of currency in the black market, and RJR's complicity and knowledge of the situation. In fact, the EU has brought a suit against RJR, detailing how the laundering scheme worked for drug smugglers.

To illustrate government involvement and complicity in drug running in the US, Fitts examines the Mena, Arkansas, and South Central Los Angeles, California cases. This is also where Fitts introduces the reader to Stanley Sporkin, the CIA General Counsel during Iran-Contra, and a judge in Federal Court. According to the author, this appointment left "the CIA with a legal license to team up with drug dealing allies and contractors."

The next topic Fitts looks at is how leveraged buyouts work. In essence, the buyer purchases the company on credit. The credit is backed by the target companies future ability to pay back the credit. This puts the creditors in charge of the company, essentially, regardless of which company originally purchased the target. She also points to the KKR takeover of RJR Nabisco, which Dillon, Read & Co. was involved in.

After leaving Dillon, Read & Co., due to their losing sight of the line "between financial engineering and financial fraud," Fitts was appointed as Assistant Secretary for Housing - Federal Housing Commissioner for FHA. In this position, Fitts runs into a number of situations showing that the government was quite complicit in losing the money of citizens in order to benefit private interests.

Fitts also moves into the area of prison politics and financial investment in companies that run prisons. This is where her argument begins to put some of the pieces together regarding the drug connection, government complicity in smuggling, and prison profits. Many of the aspects of these lucrative prison investments have their beginning in the outsourcing of public management of prisons to private companies traded on Wall Street. Fitts uses Cornell Corrections as a typical example, as well as its connection to Dillon, Read & Co.

Fitts states that the capitalization of prison companies is based on the price of each prisoner. For example, for each additional prisoner Cornell houses, he or she is worth roughly $24,000 to the company and its shareholders. In effect, this makes putting more people in its prisons a goal of these companies. This is where the drug connection comes into play. As the government allows and aids drug smuggling, citizens are caught and sent to jail, increasing the stock prices of prison companies. And many public names end up on the boards of these private companies, after leaving Washington.

Fitts, after leaving HUD, begins her own investment firm, Hamilton Securities. After making attempts to make money for HUD, as well as helping communities, some of Hamilton's investments end up putting together a program called "Community Wizard." This intriguing program was designed to allow citizens to go online and view exactly where government money was being spent in their communities. The only problem with the software was that it would expose the excessive waste of government projects, and the insider deals and financial arrangements made between government and private interests.

The public would also be able to see that money spent for the "War on Drugs" was being spent in areas that had the most drugs and large turnovers of houses; i.e., drugs would be brought in, citizens would be arrested for drugs and sent to private jails, their houses would go back to HUD, who would allow other private interests to make money on the defaulted homes.

Of course, the government could not allow Fitts to continue on with this line of examination and make it available to the public. So, in a lengthy lawsuit against Hamilton, the government was able to destroy or seize most of the software and information, all without ever winning a case against either Fitts or Hamilton Securities. Problem solved.

Fitts also touches on a huge number of other topics relating to these issues, including Dillon's eventual cashing out of Cornell, the Carlyle Group, the Harvard Endowment, Richard Grasso's meeting with Colombian FARC drug smugglers, Citigroup, and others.

And where does Fitts' map lead? In the end, she shows us how the vast majority of policymakers are not interested in changing how thing work; they are more than content to "go with the flow" of things. And private citizens, who may hate "the system" and yearn for change, are being gladly used as the conduit for "the system" that they hate.

Dillon, Read & Co. and the Aristocracy of Prison Politics was written to show us how the worlds of government and private businesses are in fact the same world. She leaves us with the hope of creating a new, better world on a smaller, community-focused basis, where money and power are taken out of the hands of large government and big businesses, and put back into the communities in which we all live.