Financial Ecosystems, Part II

Chicago’s 49th Ward

One of the reasons to map your financial ecosystems, is because it is best to understand existing resources and what has been happening to them before you take action. This is a bit like understanding history. As George Santayana said, “those who cannot learn from history are doomed to repeat it.”

The reason we are considering participatory budgeting is in response to the prospect of significant reductions in municipal revenues and spending. How do we find ourselves in this dilemma in the first place?

One approach, certainly the least offensive, is to take the current official version of municipal assets and revenues as a given—and the legal and regulatory rules that apply—and simply struggle to find ways of living within our means.

A second approach—one that leads to real solutions—is to step back and look at the bigger picture, the full financial ecosystem. For example, rather than just looking at the immediate assets on our municipal balance sheet, let’s incorporate the enormous pools of state and local pension funds and other capital reserves.

• Are we investing them in ways that create income in our economy or that strip our economy and savings with leveraged buy out and mortgage frauds?
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• Who is getting the fees from these pools? Is it ethical firms or is it the same Wall Street banks that have been so instrumental in recent financial frauds?
• Where are all the government contracts related to activities in our communities? Do they reflect productive expenditures, or are we pumping up corporate stocks paying someone $50-150 an hour to do something that someone in our community would love to do for $10-25 per hour plus health care benefits?
• Are we outsourcing tax payer funded jobs to Asia while paying Americans unemployment, welfare and food stamps, hence leaving the jobs here that would save taxpayers funds when we look at government budgets on an integrated basis within a place?
• What are the laws and regulations that create public and private expense in our place and who is making or losing money from them? Is it time to reinvent some fundamental rules?

So, let’s say we look at the bigger picture. We also need to look at the bigger picture through time. Available assets are not just those currently existing. We need to understand whether we are missing assets—either to understand the drains in our economy so we can heal them presently or determine if there are methods to recapture missing assets. In short, we want to understand who and what drained assets and what the state of economic warfare in a place is so that we can create lasting change.

• Who has been distributing narcotics into our communities? [See: "Narco Dollars for Beginners."]
• Who has been engaging in mortgage fraud? (See “The Myth of the Rule of Law.”}
• What money has gone missing from our various levels of government, including off balance sheet agencies and arrangements? [See: "The Missing Money."]
• What has been the impact on savings of Federal Reserve monetary policy and the manipulation of the precious metals and financial markets? [See: "Positioning Your Assets" and "Positioning Your Assets: Is Your Community Waving Goodbye to $3.3 Billion?."]
• Are public or private financial institutions engaging in usury, fraudulent inducement or other practices that are grounds which would allow recovery of illegal profits or abrogation of fraudulently created liabilities?

On one hand, these are not politic questions for a busy municipal official or a local citizen to ask. However, we need to find a process in which they can be asked, lest we wake up and find participatory budgeting is really a tool to wage the most offensive type of economic warfare to date.

Let’s step back and look at some of the financial ecosystems around the Chicago project.

The board of the Watson Institute at Brown University, sponsor of the participatory budgeting project, is chaired by John Birkelund my former partner from Dillon Read, a Wall Street investment bank, now part of UBS. John is a former Brown University trustee, is originally from Chicago and has played a leadership role in privatization efforts in Poland. [See: "A Rothschild Man."]

I published a story in 2006 about Dillon Read’s highly profitable creation of a private prison company, Cornell Corrections, “Dillon Read & the Aristocracy of Stock Profits.” I describe a predominant model for raising capital in America in which Wall Street and Washington insiders makes money on failure - on money laundering and government contracts while young people and communities are left to struggle with the consequences. (See also, “The Myth of the Rule of Law” and “The Story of Edgewood Technology Services.”)

The Brown University endowment profited on the Dillon private prison investment while also bestowing an honorary degree on Lou Gerstner. Gerstner ran RJR Nabisco, once an important Dillon Read’s client, at a time that the European Union alleged they were engaged in significant money laundering with various international mafias and drug cartels.

Also on the Watson board, is someone with ties to Citigroup. Citigroup’s role in virtually all the financial scandals of the last decade has been described throughout the media, so there is no need to cover it here.

There are numerous other investments interests represented on the Watson board and the Brown Corporation board, including several former Goldman Sachs partners. Goldman Sachs traditionally had a major presence in Chicago, having been the lead banker to Sears for many years. Hank Paulson, the Secretary of Treasury who arranged the initial bailout package, rose to the Chairman’s position at Goldman through the Chicago office. Like most investors, the Brown endowment is under pressure.

How the private interests of the board members relate to the Corporation’s endowments and investments is worth considering. If the 49th Ward enjoyed the same bailout policies that applied to Goldman Sachs, we would not be having this conversation.

I mention these connections because we stand at a crossroads. A wide variety of private financial interests have profited in ways that are highly destructive of communities. Are we to understand and address the root dynamics? Or is it only possible to address unproductive or economically destructive behavior by ordinary citizens and not the rich and powerful?

The federal Administration, with the assistance of Congress, has redirected trlllions of taxpayer resources to the very banking and investment interests that are responsible for the economic crisis and in the process are exhausting our currency and borrowing capacity to fund the so-called “bailout.” Now will we simply turn to municipal leaders and citizens and ask them to justify the abrogation of the social safety net and privatization and transfer of municipal and community assets on the theory that we can afford profligate banks but not local parks and services?

Indeed, when cutbacks came in the 1990’s in Russia, Eastern Europe, and Latin America, highly profitable asset stripping is what happened. More often than not, the asset stripping was engineered with the help of academics who served as financial advisors. Wall Street, university endowments, and other private investors made windfall profits as government and community assets were privatized at fire sale prices. [See Ann Williamson, "The Rape of Russia", Eastern Europe and Latin America; Greg Palast, Transcript of Interview with Alex Jones; and Naomi Klein, "Shock Doctrine," including on the role of the Ford Foundation.]

Do we run the risk that the investment interests that have engaged in a global financial coup d’etat are now interested in using the same model to asset strip American communities?

The Roman Emperor Vespasian said, “Money has no smell.” I disagree. America does not have an economic problem. We have a political problem. This includes an unproductive financial sector that no society can possibly afford. If we are going to transform to a healthy society, we are going to have to look in the mirror at who and what we are and decide to clean up our behavior and our money on both Main Street and Wall Street.

Let’s map our financial ecosystems first, so that participatory budgeting is real. Let’s make sure we do not use particpatory budgeting as a way to legitimize another round of insider deals by syndicates using the trojan horse of philanthrophy to keep an unproductive game alive.

See Financial Ecosystems, Part I

See Financial Ecosystems, Parts I and III

Mapping The Real Deal is a column on Scoop supervised by Catherine Austin Fitts. Ms Fitts is the President of Solari, Inc. http://www.solari.com/. Ms. Fitts is the former Assistant Secretary of Housing-Federal Housing Commissioner during the first Bush Administration, a former managing director and member of the board of directors of Dillon Read “ Co. Inc. and President of The Hamilton Securities Group, Inc.

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