| A Simple Whole World Setting
for Convergence of Community Development and Drug Related Covert Operations
Spring, 1999
I have been musing on what picture I could paint that would help us look at
our mutual worlds whole. What picture would help us take these different pieces of
the jigsaw puzzle and lay them down in a way that we could integrate what we know
in a simple and compelling way.
It’s Just Us Chickens
One way to think about this is to look at this in terms of people and market share.
There are approximately 300 million people in America. You can count them up in different
ways. Voters, taxpayers, citizens, consumers, savers and investors. You can break
them down in different ways: male, female, old, young, black, white. One way to describe
them is to group them by place. There are approximately 60,000 neighborhoods of approximately
5,000 people. We tend to put them into meta-groups of urban, suburban and rural and
East, North, Middle, South and West.
We have two "voting" systems for their optimization of resources. One
voting system is called democracy. That is what allocates about half the money and
the legal rules that influence 100% of the money. This money is organized into organizations
who provide products and services for communities or overall services for all communities
like national security. The other is called free markets. This money is organized
into organizations that make and distribute products and services to both communities
and broader intra-and inter-community markets. That is why to understand money you
need a model of how different kinds of organizations work, different kinds of communities
and then how government process or private markets interconnect the trading in and
between them.
Both systems depend on open shared disclosure, competitive process and protection
from risk afforded by the constitution to function. That is why when rapid economic
change is upon a society, the folks hoping to hold on to one or both pots of money
a little bit longer to amortize their sunk costs and maintain their power, try to
stop open disclosure and competitive process.
One of the things that is interesting about reading conspiracy theory is that much
of what folks think is conspiracy is really many people acting in concert to make
or protect their money. The organizing principle is often government or organized
crime money, and it’s interaction with the private markets. When the money is
legal private market money, it is very easy for folks to see and understand the swarm
as like minded or like-incentivized people acting in concert on a dispersed basis.
The way to see something simple is to just look at one little neighborhood and
then multiple that times 60,000. I am reminded of one of my partners who grew up in
the Caribbean when asked why he had such a great understanding of the American economy
said to me "Because, unlike most Americans, I understand that the United States
is just a very big island. What goes around comes around, it just takes longer than
on a real island."
Naturally, when I look at a neighborhood, I look at the money. Money is an organizing
principle that reflects all the consumer "votes" and democratic "votes",
albeit in a rigged and unilluminated system.
Looking at Our World from the Stoops and the Porches
We are sitting on a stoop in West Philadelphia. It’s April, 1999. Some kids
are playing bottle caps and wall ball. Parents are coming home from work. It is going
to be dark soon, so everyone needs to get in doors. It is not safe now. It sure is
not going to be after dark. Hmm, let’s look at how the money works and see if
we can figure out why.
What we have here in West Philadelphia is a market share battle. We have 5,000
customers whose attention is being competed for by two groups: The Post Toasties and
the Liquidators.
We can make money by doing things with us and for us that are generally positive.
We can make money by helping us get smarter (churches, education, computers, books),
we can make money by helping us get healthier (vitamins, sports, health foods stores)
we can make money by helping us have fun (entertainment) and by helping us move money
around (banking, securities, credit cards, pension and mutual funds). We can also
make money by simply helping us consume things we want and need, or do not need but
we want or we can convince us that we need. We can provide us with basic governmental
services; transportation, water and sewer, etc. Let us call the corporations and government
agencies that provide these various products and services the Post Toasties. They
make more money as income rises because they can help us increase our values and our
assets or sell more post Toasties to us.
Pitted in competition for our attention and consumer and tax dollar are the Liquidators.
The worse we do the better the Liquidators do. We have poverty management and maintenance,
organized crime, security, enforcement, prisons, and the justice system. The problem
with the Liquidators system is that it is not sustainable. They liquidate asset value
as they gain market share so that when they are through, there is no asset value left.
This, in fact, is the system goal in economic cleansing. You liquidate a population
by selling them drugs. Once their physical and financial health is liquidated, you
buy up their real estate and land for a song (or seize it in forfeiture so you can
play the game anew) and then make money processing them into subsidized housing or
into a prison or into a grave. It is essentially a sharecropping system. It is a race
between how fast they can reproduce and learn and how fast you can liquidate them
on a profitable basis. This kind of cleansing can happen due to a small bunch of well-organized
evil folks. It can also happen because various competing factions need a way to replace
losses in the market share battle and they do it by agreeing to settle their differences
by allying to steal the difference from a third and weaker constituency. They need
a short-term offset to a diminution in their power and money or that of a cranky rival.
In America, some folks are very clear about what they are doing and how economic
cleansing works. Many are not. Many are in fact in these jobs because they have legitimate
missions to help address evil and risk. Yet they are sucked into a system that has
no performance goals organized around diminution of risk. That is not an accident
and any effort to change the system to date results in the few intentional and clear
people making sure it does not change.
The interesting thing about West Philadelphia in 1999 is what technology has added
to the competition. It turns out that the Internet and digital technology mean powerful
illumination, increase in learning speeds and deflation. This means that the various
myths and financial systems used to control many by a few in an "open society"
are imploding on themselves. Case in point, Hamilton Securities can build a money
mapping operation ("Community Wizard") of relational databases that communities
can access through the web to see how all the money works in their place.
Ok, let us add the other piece of the money to the equation. We have the Post Toasties
and the Liquidators competing for the time and attention of the people, trying to
get Harry and Jane and the kids to buy cereal or to buy and sell drugs and go to jail.
They cannot do both. But there is another part of the competition between the Post
Toasties and the Liquidators. And that is who controls the money. The Post Toasties
and the Liquidators are competing for net income or tax dollar flow. The big money
is in whom owns the equity. So who controls the stock that trades from the net income
coming from sales or government contracts? And who owns and controls the real estate
assets and any other assets in the community. For this reason, let us identify separately
from the Post Toasties and the Liquidators, the Landlords and the Pension and Mutual
Funds. As we do that let’s note that the Pension and Mutual Funds are all of
our savings. A few folks may manage them, but it is all our money.
Right now, who ever controls the ownership and equity value, it is a remarkably
high percentage outside the community. The consumer and citizen get very little equity
participation. That means both the Post Toasties and Liquidators and the Landlords
and Pension and Mutual Funds share a common goal. That is keeping the entire equity
participation in the hands of the producers and their owners and out of the hands
of consumers. The way to do that is by keeping all the knowledge away from the consumer
about how the money works. The problem with that picture enters in with technology.
High interactive learning speeds between Post Toastie producers and consumers depends
on alignment of incentive systems. Ultimately the health of government financing and
the Pension and Mutual Funds depend on that happening. That means that the consumer
needs the knowledge about how the money works in their community and the things that
they buy and use. That opens up issues of earning equity participation and financing
communities with equity and not with debt.
The question is when will the Post Toasties and Pension and Mutual Funds see that
reality, and flip the switch? I do not know the answer to that question. A full discussion
of the issues is a topic for a subsequent memo. What is important here is to make
a couple of essential points on the role of the landlord and the role of government.
The Post Toasties and Pension and Mutual Funds problem is that they and the Liquidators
and Landlords are using litigation, politics and law enforcement to protect their
interests. Which means the competition between them is getting increasingly mean.
To win, the Post Toasties and Pension and Mutual Funds have to clean up government.
That has some negatives. A corrupt government is much easier for the Post Toasties
to deal with in terms of consolidating their own power, particularly vs the consumer
as well as scarfing up the growing income flow of outsourced government contracts
and work.
The likely leaders here are the Pension and Mutual funds which is why my focus
has been and continues to be the Solari Investment Model. Ultimately, the financial
system does not work unless the equity system works. And ultimately most of us are
taxpayers, voters and pension beneficiaries of public and private systems. If we all
lose value, our investments in ourselves will go down in value. It really is simple.
Landlords
There are many different kinds of landlords. But let us look at the landlords that
have been functioning in areas of high drug use and high government housing assistance
(the two appear to have worked in concert or grown up together) We have two kinds
of landlords. Local public housing authorities own the government housing. Private
for-profits and not-for-profits control and manage the private government subsidized
multifamily housing and some single family rental, with lots of the equity being provided
through partnerships and tax shelters by all sorts of folks not involved in management.
Some of these or the related management has been rolled up into publicly traded companies
in recent years.
If drugs are going to become a significant factor in a community over a long period,
at some point it is logical to assume that private landlords will have to adapt to
survive. That could mean several things. Drug operations go in and out of their building
in way that they do or do not make money on it. As this happens, the value of their
operation will go down unless they adapt and/or participate. They have to be on the
liquidator or liquidee side. Unless they get in the game, they are part of what is
liquidated. This may be ok. Government subsidy, tax benefits and fee flow may make
being a liquidee financially sustainable. (note the presence of government subsidy
means that the real estate owners tolerate things that need the strong and immediate
opposition of private equity interests usually provide).
But there is no doubt opportunity. What is going down can be offset by buying more
cheap and holding for the turn at a nice fee flow. Drug profits can be a source of
cheap capital to buy cheap or manage for those who do. If this has been the case traditionally,
imagine the irritation of a Gene Ford type owner when Goldman Sachs starts outbidding
him at auctions with great big gobs of money floating in from offshore in legal form.
Drug profits can also be an excellent opportunity for those who can use an apartment
rental flow, Laundromats, and other residential services to convert drug profits into
a legal corporate net income. And there are all sorts of ways to use insured financing
to do "loss" brokering for covert financing needs. It would be interesting
to go back to the coinsurance portfolio and DRG and Puller and see how much of some
of the dicey coinsurance operations were used in connection with CIA and Iran-Contra
network operations. That could sure explain why Kemp killed me for shutting down Puller
and how Puller turned up as one of the loans suing us with Ervin. Reed’s book
has a good description of how much North loved using insured assets for loan brokering.
Black Money has a great description of how to use retail services to cleanse and money
launder lots of drug money.
Let us assume that some of the private guys adapted to survive and avoid recapture
or to make money. Once in the game once only, they have a skeleton. This is added
to all the skeletons that they have in terms of their limited partners seeing the
normal industry games in terms of playing with net income.
What that means is that there are a whole lots of folks who would be terrified
that competition and open disclosure would not only take away their control or open
them up to tax liabilities, it could also expose them to social shunning and criminal
liability. Who would they go to for political protection? Seems to me the logical
place they would go to is those parts of the organized crime networks that financed
or supported government or whose support by government operations and politicians
gave them shared skeletons.
That means that there would be parts of the CIA networks, including CIA assets
integrated into the local police and media, that would have intimate and ongoing relations
over many years with parts of the multifamily industry. It would be one integrated
flow of money as it flowed through the community. In the process of getting through
the day---the great art of muddling through on a very large logistical and financial
operation---folks would simply get to know each other and work together. And when
one was threatened by the sunshine of a change in HUD’s policies and a related
private venture model bringing in computer networks and tools, they were simply a
domino that could start a chain reaction. For help, they would turn to that part of
the chain with the ability to fix the problem.
It seems to me that I need to walk around Edgewood and the three big HUD and HUD
financed buildings and think about how the money could have worked over the last thirty
years in a DC neighborhood and how that might have easily and simply related to domestic
CIA related drug operations and Iran-Contra. Remember that the Mayor Barry entrapment
was designed as a diversionary tactic to protect the Iran Contra crew. To see the
rural story, I need to walk around and understand the same picture in Bolivar, Hickory
Valley and Jackson Tennessee. CCA—the largest private prison company--- is present
in both communities, one on the supply side and one on the demand side, which is an
added advantage.
Government
The implosion of government is easier to see when viewed through this looking glass.
The Post Toasties and the Liquidators are competing for government’s support
in their quest for market share. They are also competing for government to increase
expenditures in their area for products and services that they can provide. Meantime,
they are spending a fortune in the media and in campaign fundraising to persuade the
government and general population to the themes that support swinging the money their
way. In this environment, the Liquidators have some natural advantages so long as
the citizens lack real time simple and effective information and disclosure. Liquidators
have more fear tactics. They also have money that can be spent on covert domestic
operations or cleansed and used to do everything under the sun, including using stock
market equity. So well run liquidation networks can benefit from cheaper cost of capital,
less internal network myths and less opposition. This will last as long as there is
no "amnesty". That is, legitimate Post Toasties, Landlords and Pension and
Mutual Funds and others are afraid of the ramifications of open disclosure, not only
to their equity participation vs consumers or each other, but the implications to
their constituents of admitting their silence or co-adaptation to what has been going
on. For example, any congressman in Washington who has not tried to do something about
Iran-Contra and the CIA IG reports is either dirty, stupid or silent. All three are
the basis for being fired.
So government is simply a series of puppets that are dancing to the tune of competing
puppeteers. And the extent to which everyone is now stepping on each other’s
and their own toes is stunning. The accounting and legal industry is trying to handle
both and they are getting passing out of headache phase to nightmare phase. Which
means the governance machinery of the system is about to implode/blow up. Y2K, deflation,
and e-commerce are the straws that may break the camel’s back.
It is very pogo. We have met the enemy and it is us.
Solari Investment Model
My solution for all of this is the Solari Investment Model. That includes the sunshine
of communities seeing how all the money works in their place. This is pretty easy
to do if Yahoo were not afraid of the Liquidators. Or if the compensation of every
government employee in the country as tied to the performance of the Popsicle Index,
we know this problem would solve itself lickety split.
Which gets us back to the practical way of getting us all out of this trick box
in a way that is fun and makes us money. I think we can figure out how to do this
from a Pension and Mutual Fund platform if we pool our various worlds and knowledge.
If I can understand how this happened and impacted Edgewood, DC and Boliver &
Hickory Valley Tennessee, then we can understand what has happened to our selves,
our families, our communities and the country we love.
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