MEDIA ROOTS — Many of us notice our society’s shift away from the use of anonymous cash and toward the use of databeast-tracked digital money.  But many are unaware that there are steps already being taken to outlaw cash in favour of debit/credit cards and digital transactions.  In Louisiana, House Bill 195 of the 2011 Regular Session (Act 389) was passed this summer by its State Legislature and Republican Governor Bobby Jindal.  This law makes it illegal to use cash in transacting second-hand goods.  The question becomes, ‘who actually motivated this law and why?’ 

The bill states:

“A secondhand dealer shall not enter into any cash transactions in payment for the purchase of junk or used or secondhand property.  Payment shall be made in the form of check, electronic transfers, or money order issued to the seller of the junk or used or secondhand property and made payable to the name and address of the seller.  All payments made by check, electronic transfers, or money order shall be reported separately in the daily reports required by R.S. 37:1866.”

Ackel & Associates LLC, a professional law firm in Louisiana, describes the new legislation as the U.S. Government taking private property without due process.  As one may have expected, the justifying pretext involves police crime-fighting. One Louisiana State Rep co-author of the bill, Rickey Hardy, argued the law is intended to be “a mechanism to be used so the police department has something to go on and have a lead” in combating theft.  Yet, while local cops take no interest in white-collar crime, even shielding major financial criminals from nationwide Occupy Movement protests, they will definitely be ready to bust thrift shops, local antique stores, flea markets, and anyone who dares to use cash in second-hand retail transactions in Louisiana.

Already, we see class-division in the U.S. reflected between those who make virtually all purchases through digital transactions and those who rely on cash.  Here’s one possible scenario:  First an individual legislator (with or without external influence) establishes a precedent under law enforcement pretexts in a state, which may not often capture the national imagination.  Then it spreads to other states.  Unchecked, something that seemed outlandish at first becomes orthodox convention.  First, second-hand cash transactions are outlawed.  Then the slippery slope slide into fully outlawing cash becomes inevitable.  It may sound like a far-fetched concept, but in light of this legislative trajectory it’s not implausible.

Messina

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NATURAL NEWS — Besides prohibiting the use of cash, the law also requires such “dealers” to collect personal information like name, address, driver’s license number, and license plate number from every single customer, and submit it to authorities. And the only acceptable form of payment in such situations is a personal check, money order, or electronic transfer, all of which must be carefully documented.

The stated purpose of the law, which excludes non-profits and pawn shops, is to curb criminal activity involving the reselling of stolen goods, particularly metals such as copper, silver, and gold. But according to A&A, existing Louisiana state law already requires businesses and other resellers of secondhand goods to account for transactions, and has specific laws already on the books that address the selling of stolen goods.

The new law is so broad and all-encompassing that individuals who buy and sell on sites like eBay or Craigslist using cash will also be in violation of it. Even a stay-at-home-mom who holds a garage sale with her neighbors more than once a month could be required to refuse cash from customers, as well as keep a detailed record of every single purchase made, and who made it.

There really is no legitimate reason for banning cash payments, especially in light of the required collection of detailed and excessive personal information. The measure is simply just another excuse for the government to spy on individuals, and take away their economic and civil liberties.

Read more about Louisiana prohibits residents from using cash when buying, selling secondhand goods.

© 2011 Natural News Network

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Photo by flickr user purpleslog

MEDIA ROOTS — Earlier this month, we featured the Guns & Butter broadcast with Catherine Austin Fitts, “Unpacking Mr. Global, Part 1.”  Today, we bring you “Unpacking Mr. Global, Part 2.” 

Last year, Washington D.C. national-security reporter, Sharon Weinberger wrote about the U.S. Military’s so-called Black Budget, “Not since the end of the Cold War has the Pentagon spent so much to develop secret weapons.”  Similarly, Catherine Austin Fitts says for decades we’ve been enabling a Black Budget, financed by Federal corruption siphoning off trillions of dollars per year, “enough money to endow a private government,” through various means of fraud, “enough money to buy and control the planet.”

Austin Fitts says $12 Trillion dollars siphoned by banks since the late ‘90s constitutes a leveraged buyout of the country and the planet, essentially, a financial coup d’état capable of permanently ending democracy. 

Messina

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GUNS & BUTTER — “So, we’re talking about enough money to buy and control the planet.  And, so, I think the time has come to ask the question, ‘What is the Black Budget?’  Who is it financing?  Where is the money really going?  And what are we gonna do about this?” –Catherine Austin Fitts

Bonnie Faulkner:  “I’m Bonnie Faulkner.  Today on Guns and Butter: Catherine Austin Fitts.  Today’s show: Unpacking Mr. Global, Part 2.  Catherine Austin-Fitts has been an investment banker, a government official, an entrepreneur, and an investment adviser.  She was a Managing Director and Member of the Board of Wall Street firm Dillon, Read & Company Incorporated; Assistant Secretary of Housing and Federal Housing Commissioner in the first Bush Administration; President of the Hamilton Securities Group (investment bank and financial software developer); and is currently Managing Member of Solari Investment Advisory Services and Sea Lane Advisory.  Catherine’s experiences on Wall Street and in Washington D.C. are chronicled in Dillon, Read and the Aristocracy of Stock Profits.

“Catherine Austin Fitts, welcome.”

Catherine Austin Fitts:  “It’s great to be back, Bonnie.”

Bonnie Faulkner (1:46):  “Well, what did you want to finish up saying about collateral fraud?”

Catherine Austin Fitts (1:49):  “What I discovered, ‘cos I went around the world.  You know, I spoke in London to investment managers.  I spoke in New Zealand.  I spoke in Sweden.   I spoke all around the world.  And I tried to warn people that the fraud was this significant.  And they literally couldn’t fathom it.  They literally couldn’t fathom it.  And the first time I saw somebody fathom it was, and I’ve written, one of my most popular blog posts is called ‘Financial Coup d’Etat.’  If you do a search for my name and ‘Financial Coup d’Etat,’ you’ll pull it up.  And I wrote it about a time, I was in London and there were three speakers who went right in a row.  John [Loughlin] who is a marvellous journalist in Europe told this story of the privatisation in Eastern Europe in the ‘90s.  And then Anne Williamson, who had reported for the Wall Street Journal in Russia, told the story of the privatisation and the rape of Russia in the ‘90s.  And then I presented a paper called “The Myth of the Rule of Law” talking about the privatisation in the United States in the ‘90s.  And we were all in a state of shock because what we realised was we were talking about the same banks, the same law firms, the same investors, and they were doing it everywhere.  It was one model and it was happening globally.  And it was a financial coup d’état.  It was amazing.  And that was one of the few times that I saw a group of investors get it and realise something:  ‘We’ve got to take this into account for purposes of our strategy because this is really happening.’  And it’s a global movement and it’s coming top-down.”

Bonnie Faulkner (3:28):  “With regard to the collateral fraud, how many people would have had to be involved in this?  I mean actually on the ground, buying and churning houses?”

Catherine Austin Fitts (3:39):  “You know; it’s funny how few people need to be involved, particularly, when you’re hiding behind the Federal credit.  So, if you’ve got control in the right places at Fannie, Freddie, and FHA, particularly, through the systems.  It’s a surprisingly few people.  What you do need is for everybody in 3,100 [U.S.] Counties involved in real estate to just shut up.  So, for example, you saw appraisers who knew that the appraisals were just, you know, going out of control and made no sense.”

Bonnie Faulkner:  “Right.”

Catherine Austin Fitts (4:17):  “And if you had [an] appraiser who wouldn’t play ball, he’d kind of be dealt with.  So, you had this sort of five to ten percent who objected to the corruption and would try and do something and would be dealt with in a variety of ways.  But what you needed was for everybody else to just play along and not ask questions.”

Bonnie Faulkner (4:36):  “Right, because they were making money.”

Catherine Austin Fitts:  “Right.”

Bonnie Faulkner:  “So, what did they care?”

Catherine Austin Fitts (4:39):  “Right.  And, so, literally, you know, sort of, the corruption of the housing bubble, it was essential that all the local realtors, home builders, attorneys go along with the corruption for a piece of the action, which most of them were willing to do.”

Bonnie Faulkner (4:56):  “Now, I understood your example of the drug dealer laundering money and then defaulting on the loan, but making money, ‘flipping the house,’ etcetera.”

Catherine Austin Fitts:  “Right.  Now, he wasn’t defaulting.  The straw buyer was defaulting.”

Bonnie Faulkner:  “Pardon me.  That’s right.  The straw buyer was defaulting.  But how many of those kinds of people would have to be involved in this?”

Catherine Austin Fitts:  “None.”

Bonnie Faulkner:  “None?”

Catherine Austin Fitts:  “Oh, well, you have people playing these default games on the mortgage.  But for the fraudulent mortgages, you could do the fraudulent mortgages with almost no one knowing.  Especially, once you get the MERS System [Mortgage Electronic Registration System] going because then you don’t have to deal with the local courthouse.”

Bonnie Faulkner:  “Right.”

Catherine Austin Fitts (5:31):  “So, if I’m sitting in Dubai and I’m buying a hundred million dollars of Fannie or Freddie securities, I don’t care if the houses are real or not because I’m looking to Fannie or I’m looking to, actually it’ll be Ginnie Mae.  So, if I have a Ginnie Mae, I’ve got the full faith and credit of the American Government.  What do I care if the houses are real or not?”

Bonnie Faulkner:  “Exactly.”

Catherine Austin Fitts:  “Right.  So, you need the big servicers to be handling the mechanics of it.  So, you absolutely need JP Morgan Chase and Citibank, you know, going along and engineering the heart of it.”

Bonnie Faulkner (6:07):  “Now, how many straw men would you need to be buying these houses?”

Catherine Austin Fitts (6:11):  “Well, to do a simple collateral fraud you wouldn’t need any straw buyers because you could just sell for every time you do a predatory loan you just create ten more mortgages and don’t—”

Bonnie Faulkner:  “I see.  You just make it up.”

Catherine Austin Fitts (6:27):  “Yeah.  Let’s go back to that story.  Remember when I said I was looking at the foreclosure list that said I had ten houses on this lot and I get there and there are no houses?  You know?  What’s that about?  It was really funny when I became the FHA Commissioner.  We were the number one property disposition operation in Washington and in the country.  And then the RTC, the Resolution Trust Corporation, was created to resolve the S&L Crisis portfolios.  And they put a wonderful guy in charge of all the property disposition.  And he and I used to compare notes all the time and that’s what he’d say.  He’d say, ‘We have 20 properties on this block and then we’d go there and there’s nothing there.’”

Bonnie Faulkner:  “Oh, my god.”

Catherine Austin Fitts (7:08):  “Well, I’m telling you the fraud, the Black Budget fraud in the ‘80s was the precursor to the Black Budget fraud in the ‘90s.  The only thing that happened in the ‘90s was, if you look at all the models they created, they created them, you know, I mean some of these models are very, very old and I can take you back to my neighbourhood.  That’s what got me involved in this in the first place.  But you saw the models that say they, sort of, developed and honed in the ‘80s.  All they did in the ‘90s was add the stock market and derivatives, which gave it so much more power.”

Bonnie Faulkner (7:39):  “And you were saying to me before we sat down that in the 21^st Century, they weren’t marking-to-market.  So, they couldn’t be cleaned up.”

Catherine Austin Fitts (7:49):  “Right.  And here’s the problem.  I think that collateral fraud was so significant.  They mark-to-market and let the market clear in ’89, ’90, ’91.  They haven’t been able to do that.  It’s interesting.  One of the things that happens, Bonnie, when you have an emergency in a county, there are all sorts of rules that, sort of, switch and allow you to pump money out of the government mortgage funds into that county in an emergency.  Well, 90% of the counties in this country have had emergencies so far this year.  And that’s what I say is a covert QE3.  I think they are creating or using emergencies to pump huge amounts of money to clean up this collateral fraud.  So, I think there’s all sorts of stuff going on, you know, behind the scenes is my guess.  But I think the reason they’re having to do that is the collateral fraud is so much you can’t mark-to-market ‘cos.  Here’s the problem.  In, both, the RTC loan sales and then the FHA loan sales that Hamilton Securities helped engineer for HUD, you would see people bid above the market.  And you’d think, ‘What was that?’  And then you’d realise, ‘Oh, they can’t afford for those files to get out, so they’re willing to pay a dollar for the mortgage and another fifty cents to make sure the criminal liabilities don’t get, you know, they buy back in.  And I think this time around the criminal liabilities in those files were so enormous that they couldn’t let the files get out in the market.  They had to control them.  And whether it was the Fed buying them or these games with the QE, QE-this and QE-that, or covert QE3, if I’m right about that, I think what they are trying to do is they’re trying to buy in those criminal liabilities.”

Bonnie Faulkner:  “Wow.  Well, is there any end in sight?  Where is this all gonna end?”

Catherine Austin Fitts (9:36):  “Well, here’s the question and it really does go back to the end of World War II.  We’ve had for decades, we’ve been financing what I call a ‘Black Budget.’”

Bonnie Faulkner:  “Right.”

Catherine Austin Fitts:  “So, we’ve seen trillions of dollars in tax money or Federal credit being harvested, pulled out and pulled out and pulled out.  So, we’re all getting up every day, we’re going to work, and we’re getting drained.  So, there’s a debasement machine.  But the debasement is far more than just monetary policy.  The debasement is this enormous amount of money being clawed out of the government and clawed out of society.  It’s the cost of organised crime.  It’s the cost of financial fraud.  The question is where’s that money going?”

Bonnie Faulkner:  “Exactly.”

Catherine Austin Fitts (10:23):  “Where’s that money going, number one.  And how do we make sure that the investment of that money adheres to the greater good of the whole?  Because that money is going someplace; and I assure you it is not going to Ferraris and off-shore bank accounts ‘cos we’re talking about much too much money.  We’re talking about the kind of money that builds private space programmes.  We’re talking about the kind of money that builds corporate armies.  We’re talking about enough money to endow a private government.  So, you’ve put enough money into an endowment that’s generating $2 Trillion dollars a year in dividends and interest, which can fund the equivalent of a private U.S. Government and private armies and private this and private that.  So, we’re talking about enough money to buy and control the planet.  And so I think Black Budget.  Who is it financing?  Where is the money really going?  And what are we gonna do about this?”

Bonnie Faulkner:  “Exactly.  That’s exactly the question.”

Catherine Austin Fitts (11:25):  “Right.  And I think the biggest problem is starting at the end of World War II, we created a financial mechanism through the CIA Act and the National Security Act in combination and then with a variety of Executive Directives that allowed private corporations to be the beneficiary of that money.  So, you’ve created between those steps, you created a financial mechanism where Government can borrow money and use that money to give money to private corporations on a non-accountable basis to own and control the most dazzling newest, hottest technology on the planet.  And Government and elected representatives lost control of the technology.  And as frustrated as we can sometimes get with Congress or the Federal Government, the reality is the Federal Government and Congress do not control that technology.  We now have private corporations in control of that technology.  And we have what I call a Breakaway Civilisation.  We have a group of people who have so much money and so much power and, literally, don’t feel under any compunction to obey the laws of the Constitution or any other laws for that matter.”

Bonnie Faulkner:  “And what kind of technology are we talking about?”

Catherine Austin Fitts (12:43):  “Well, that’s the question.  We can only speculate.  But I think we have the technology to control the weather or influence the weather.  I think we have technology that can trigger earthquakes and tsunamis.  I think we have invisible weaponry, certainly, that can basically invade any and all privacy.  And we have computer systems that can hack banks and on and on and on.  We have very, very powerful technology.”

Bonnie Faulkner:  “Yes.  And I’m sure they’re rolling a lot of it out in these wars that we’re not even aware of.”

Catherine Austin Fitts (13:16):  “Right.  Well, I’ll never forget.  I have a wonderful friend who wanted to buy a world bond fund, and this is many years ago, and they asked me to do a search.  And I looked and I looked.  And finally I found two that I could kinda stomach.  And, at the time, I wasn’t big on world bond funds, but, so they bought them.  One of them had 15% of the money in Indonesian sovereign debt.  And they bought them.  And then, about a week after they bought them, the one with the Indonesian sovereign debt dropped by 15% overnight, massive insider trading.  The market’s calm.  Interest rates are the same.  There’s no reason, nothing.  And we called the sponsor.  And we try and ask questions.  We were like, ‘What is going on?’  I couldn’t fathom it.  It was like the strangest thing I’d ever seen.  A week later the Indonesian Tsunami happened and I realised they knew.  They knew it was coming.  They knew.  How’d they know?  And it’s funny ‘cos I’m a very happy person.  I literally lay down and thought for a week.  I thought, ‘How do you manage money in a world where people know that a tsunami’s gonna happen a week later and keep it to themselves and just trade on the inside information?’

Bonnie Faulkner:  “Unbelievable.”

Catherine Austin Fitts (14:35):  “How do you manage money in that world?”

Bonnie Faulkner:  “And a sovereign debt fund doesn’t drop like that.”

Catherine Austin Fitts:  “15% overnight with no change in the market and no change in interest rates?  It didn’t make any sense.”

Bonnie Faulkner (15:02):  “Catherine you had said that it took $12 Trillion dollars to finance everything since the beginning of the country up until a few years ago.  Then, another $12 Trillion was given to the banks, which refinanced out all of the toxic paper and derivatives of the last 15 years, let’s say.  You have said that $12 Trillion dollars financed a leveraged buyout of the country and the planet.  You have described this as a financial coup d’état.  Could you elaborate on that?”

Catherine Austin Fitts (15:34):  “Sure.  One of the reasons I described the $12 Trillion dollars is [it’s] the equivalent of all the money we had borrowed.  And I should specify on the books.  It doesn’t include the collateral fraud.  But all the money we had borrowed since the beginning of the country is to help people understand the magnitude, the size of the bailouts, because you are, literally, saying, ‘We need to lend or give to the banks the equivalent of everything we’ve borrowed since World War I, World War II, the Korean War, the interstate highway system, everything.  I mean it’s such a phenomenal amount of money you just don’t even know how to express it in a way that really communicates the extent of it.  So, it was such an extraordinary amount of money.  Now, as I said before, at that time $8 Trillion dollars would have extinguished all the residential mortgages in the country.  So, that’s more money than 100% of the mortgages in the United States.  So, the question is: ‘What’s that about?’”

Bonnie Faulkner (16:45):  “Right.”

Catherine Austin Fitts (16:46):  “And I think what happened was we saw a global origination of massive amounts of debt on a fraudulent basis and that cash used to, literally, buy up a variety of positions, including control of the White House and the Congress.  So, phoney-baloney debt issued; the money used to buy control in a variety of ways.  And then once control was had the market is crashed and you use the cash of what you now control to pay off the phoney-baloney paper.  That’s a leveraged buyout.  You buy something with massive debt and then you use the cash of the target to pay back the massive debt.”

Bonnie Faulkner (17:31):  “Right.”

Catherine Austin Fitts (17:32):  “So, we, literally, watched a leveraged buyout of the United States and sovereign government.  And what I would say, looking at this from the very long-term view, is debt is being used to reengineer our governance systems.  So, let’s create a character for a second.  Let’s say there’s one person who runs the planet who I call Mr. Global.  Mr. Global said, ‘You know, the sovereign government thing isn’t working, so I think I wanna reengineer governance and what we’re gonna do is we’ll basically get control of all the governments by getting them completely indebted and in over their head.  We have the invasive technology.  So, they can never have a private conversation.  So, they don’t have financial sovereignty.  They don’t have information sovereignty.  And then we can basically dictate terms.’  So, you’re, literally, watching the end of democracy through the financial mechanism because the creditors are telling a government what it will and will not do and what it can and cannot do.  They basically have the government over the barrel and they are using debt to do it.”

Bonnie Faulkner (18:36):  “Right. Exactly.  Describe the Uruguay Round of GATT.  You have talked about this before the General Agreement on Trade and Tariffs of the early ‘90s.  What was this agreement and what have been the results.”

Catherine Austin Fitts (18:53):  “Right.  The Uruguay Round, one way to look at what’s happening at the economy is that we really made a decision in terms of the freedom and the way we operate global trade.  When the Uruguay Round passed in 1995, we created the World Trade Organization and then began, Bonnie, a whole new round of globalisation that allowed us to move capital and manufacturing globally in a whole new way.  It made everything much more fluid.  And what it did was it put us in a world where, ultimately, there was no reason why an hour of labour in North America should be any different from an hour of labour in Europe should be any different than an hour of labour in Brazil should be any different than an hour of labour in China.”

Bonnie Faulkner (19:46):  “Right.”

Catherine Austin Fitts (19:47):  “So, we went into what’s being called the rebalancing of the global economy.  Now, let me explain the power of what that did.  What that gave was it gave the central banks the ability to offset liberal monetary policy with labour deflation.  So, if I print lots and lots of money, normally I’ll kick up inflation.  But if I can drop the value of labour consistently, the more I print money I have monetary, something that should lead to inflation, but by dropping and squeezing labour, I can offset and not get the same kick-start in inflation.  Does that make sense?”

Bonnie Faulkner (20:30):  “Well, are you trying to say that people’s buying power goes down, so that inflation doesn’t kick in?”

Catherine Austin Fitts (20:36):  “Think of it this way.  If I’m making cars, a part of my cost is the cost of capital and a part of my cost is the cost of labour.”

Bonnie Faulkner (20:45):  “Right.”

Catherine Austin Fitts (20:46):  “If I can use this kind of globalisation to dramatically lower my cost of labour then I can print lots and lots of money and lots and lots of debt and debase the currency without kicking up the cost of the car.  Because I’m dropping—”

Bonnie Faulkner (21:02):  “Oh, I see, without kicking up, yeah, the price of the car.”

Catherine Austin Fitts (21:05):  “So, I continually squeeze.  By deflating labour I can prevent inflation from happening.  And so what we did was we entered into a shift of capital and a shift of economic activity that was very profound and was guaranteed, if you didn’t do something to intervene, was guaranteed to significantly lower the standard of living in the ‘First World’ countries.  Now, what was interesting about it was that one of the things that happened in that process is the Baby Boomer generation has created enormous amounts of pools of capital.  So, they’ve worked and they’ve saved and they’ve put their money in pension funds and they’ve put their money in IRAs and they put their money in 401(k)s.  Part of this rebalancing was taking that capital and reinvesting it abroad to help facilitate the shift.  So, literally, you had the Baby Boomers, you know, aging, aging, aging, and before they could retire to ask for that capital back you pulled it out and reinvested it abroad.  And, in fact, to the extent that that transfer was illegal, you took it permanently.

“So, there’s $4 Trillion dollars missing from the Federal Government during that period, the so-called missing money.  That money’s gone.  It got reinvested somewhere.  Maybe it was in Latin America.  Maybe it was Asia.  Maybe it was space.  Who knows?  But it’s no longer owned by the Government and the people here.  So, you, literally, saw a whole generation watch their capital get moved and they didn’t notice because they were enjoying the bubble.  Okay?  And now that the bubble is over, we’re all sitting here looking.  And, suddenly, the question is, ‘Well, what’s gonna finance our retirement?’  And whether it’s the pension funds or whether its the 401(k)s and IRAs, whether it’s the home that we thought was going up in value, all of the assets that we thought were standing behind our retirement are suddenly not looking as healthy as they once did.  And I think the big question for many people here is, ‘What’s the endgame on this?’”

Bonnie Faulkner (23:36):  “Well, now, exactly.  Now, what is in people’s pension funds if the real assets have been moved out?”

Catherine Austin Fitts (23:44):  “Well, I’ll give you an example ‘cos I think the pension funds are a mixed bag and it changes pension fund to pension fund. But pension funds own, the biggest financier of the Federal Government is not China.  It’s not Saudi Arabia.  It’s the pension funds.  So, as we were shifting money out of the country and moving jobs abroad, the pension funds were buying U.S. Government debt and were buying mortgage-backed securities.”

Bonnie Faulkner (24:15):  “I see.”

Catherine Austin Fitts (24:16):  “So, the pension funds played a major role in financing the bubble that kept everything going while the money was shifted out, which means now, let’s say all the kids in America and all the homeowners said, ‘You know something, this was all a scam; we’re gonna default on all the student loan debt; we’re just gonna walk away from the mortgage, from the [predatory] student loans.’  A lot of that would hit American pension funds because they’re holding a big, you know, we just sold the mortgages to ourselves.”

Bonnie Faulkner (24:47):  “Right, because the Government bailed out the banks.  So, they have the money.  And they bought the toxic waste.  So, that’s what the government has, right?

Catherine Austin Fitts (24:58):  “Well, the pension funds own a lot of, you know, whether it’s the Government paper or the mortgage-backed securities.  The pension funds have a lot of big, big positions in this stuff.  And that’s why the player who has the most to gain from a return to fundamental productivity at a County level are the pension funds because they are sitting with so much of this consumer and Government paper.  And if there’s anybody who can benefit from a reengineering of Federal investment by County and by place, it’s the pension funds.”

Bonnie Faulkner (25:33):  “Well, this sounds like a good time to talk about your experience with CalPERS in the spring of 1997.  Now, you had a meeting with them, right?”

Catherine Austin Fitts (25:44):  “This is actually a very important story.  I had a meeting; when I started Hamilton I said, ‘I wanna find real solutions. I wanna find a model for how we can invest our capital, so that private investors acting in their own interest will finance an economy, which is optimised across the board.’  Does that make any sense?”

Bonnie Faulkner (26:08):  “M-hm.”

Catherine Austin Fitts (26:10):  “Let me describe it this way.  An investment has a return to the investor, but it also has a return to the network.  And the combination is what I call a total economic return.  So, if I as an investor finance the building of a convention centre by a local government in a community, then I get a return to investor.  But if it’s successful, the community is better off and benefits.  That’s the return to the network.  So, my model is to always understand the total economic return and the return to network.  And use that knowledge to find opportunities for improving the return to the investor.  So, what I’m saying is understand your impact on the ecosystem and look for ways of adding value to the ecosystem to enhance your own returns.  Play win-win.  Okay?  And subject to one rule:  If anything you’re doing has a negative return on the total economic return, don’t do it even if it makes you money.  So, when somebody comes to me and says, ‘I want you to buy Monsanto; you could get a double.’  I say no.”

Bonnie Faulkner (27:16):  “Right.”

Catherine Austin Fitts (27:17):  “Whether it’s spiritual or financial, it’s funny, you know, I always say to people, ‘You lost everything in Enron and I still have the Hickory Valley meat market.’  And it’s amazing how many mistakes you avoid by following this simple rule.”

“Anyway, so, my company had a subsidiary that had a board of wonderful pension fund leaders, leaders in the pension fund industry.  And they were helping me figure out this model.  The question was:  How could we manage our funds so that we get an optimisation of the whole in a way that makes us more money?  And it’s the absolutely appropriate question for pension funds to ask.  Anyway, so we worked and worked and after much research we created relational databases, Community Wizard, that would let us look at all the government investment and private investment, by county, by place.  One of the things I discovered, Bonnie, was that if we just said, ‘Okay, we’re gonna forget about fees for our friends and we’re gonna re-optimise Government investment to make the pie as big as possible, forget who gets it just to make the pie as big as possible.’  There’s unbelievable wealth.

“What we discovered is the whole economy is so profoundly sub-optimised because, rather than Government playing the clean enforcer, Government is intervening in a way that makes the optimisation shrink.  Tyranny is unbelievably bad for business is what it says.  So, I took our results and we used the Philadelphia area.  I grew up in Philadelphia.  We used the Greater Philadelphia area and we did a sources and uses of Government money, using Community Wizard, in Philadelphia.  And what we showed was that the government investment in Philadelphia was slowly enervating and harming the economy because, whether it was people at the very top of society or people at the very bottom of society, we were basically paying people to do things that made them stupider.”

Bonnie Faulkner (29:36):  “M-hm.”

Catherine Austin Fitts (29:37):  “So, prisons:  Paying some people to learn how to sit around and watch other people sit around and do almost nothing, you know, it’s hugely wasting of human talent.  Okay, so, we made the presentation and then we showed if you reengineer the Government investment, but in a model where equity investors were investing in these community venture funds and investing in place, you could make a huge amount of money, including for the pension funds.  So, it was perfect.  And it’s funny; one of the guys who was a corporate pension leader from New England, he said, ‘this is great,’ he said, ‘we can save the country and make lots of money.’  And the head of CalPERS is a wonderful man.  I’ll never forget it.  He had worked for Saul Alinsky as a young man.  He said, ‘This is Saul’s model.’  He said, ‘But they were able to stop him.’  Well, he was right and I was wrong.  I said, ‘Saul Alinksy did not have the internet.’  You know, the learning speeds can go so much higher now.  And it’s much harder, well, of course, he was right and I was wrong.  So, he froze and he said, ‘You don’t understand; it’s too late.’  I said, ‘What do you mean it’s too late?’  He said, ‘They’ve made a decision to move all the money out of the country starting this fall.’  That was spring of 1997.  And that fall was October of 1998, the beginning of the ’99 fiscal year when all the $4 Trillion dollars started to go missing from the Federal Government.  He said, ‘you’ve gotta get to Nick Brady, who’d been the [68^th U.S.] Secretary of the Treasury in the [G.H.W.] Bush Administration, but [he was] Chairman of my firm on Wall Street [Dillon, Read & Co.].  And he said, ‘you’ve gotta tell ‘em it’s not hopeless. They think it’s hopeless. They’ve given up.’  And, um—”

Bonnie Faulkner (31:15):  “‘They’ meaning whom?”

Catherine Austin Fitts (31:19):  “Well, that’s the $64,000 dollar question.”

Bonnie Faulkner (31:20):  “Right.  Of course.  Yeah.”

Catherine Austin Fitts (31:21):  “If you’ve ever seen the movie “Captains and Kings,” there was a TV series.  And it was, sort of, a fictional version of the Kennedys, John Kennedy story.  And it describes this group of global magnates who were Mr. Global, the Committee Mr. Global, running the world.”

Bonnie Faulkner (31:38):  “Okay.”

Catherine Austin Fitts (31:39):  “And, so I presumed when he said, ‘They,’ he meant them.”

Bonnie Faulkner (31:43):  “Sure.”

Catherine Austin Fitts (31:44):  “So, here’s what was so interesting.  Then when the housing bubble took off and I saw what was happening, I realised that CalPERS was financing the Government debt and the mortgage-backed securities to finance this bubble while they’re sucking huge amounts of money out of the country.  Now, if you’re CalPERS and you know they’re moving all the money out of the country, well, that’s not a sound investment.  So, that’s in violation, to me, of the laws and so you ask the question, ‘Well, is CalPERS following the law?’  Is CalPERS acting in the best interest of the beneficiary?  Or is CalPERS being told by ‘They’ what they have to do upon pain of death?  So, my interpretation is CalPERS doesn’t have the control they need internally to follow the best interests of the beneficiaries.  They’re being told what to do from above.”

Bonnie Faulkner (32:40):  “And, of course, if that’s happening to CalPERS, it’s happening in other pension funds.”

Catherine Austin Fitts (32:43):  “Right.  CalPERS is the biggest pension fund in the country.  So, if it’s happening at CalPERS, it’s happening to everyone.”

Bonnie Faulkner (32:48):  “And that was, wow, over ten years ago.”

Catherine Austin Fitts (32:51):  “That was April of 1997.  Now, in fairness to CalPERS, if you believe you’re part of a centrally-managed model and the model’s gonna go to the right, then you’ve got to go to the right.  And I’ll tell you what was very interesting.  When I spoke in Europe and Asia and the United States about the housing bubble and warned people of the collateral fraud, one, I think that they couldn’t fathom that it was as bad as I was saying, but, two, they were kind of stuck in this model where the central banks are gonna make good.  So, I don’t need to worry that it’s trading sardines because I’m never gonna eat the sardines.  I’m just gonna trade ‘em to the next guy.  And 2008 was a profound wake-up call because 2008 said, ‘You know something? They’re not gonna keep, if you buy trading sardines at a hundred, they might be worth zero. They’re not gonna guarantee your price on the, they’re not gonna guarantee you a good exit.’  And that was the wake-up call that everybody got that, ‘Wait a minute, suddenly the line of who’s an insider and outsider can be moved dramatically quickly.”

Bonnie Faulkner (34:00):  “And what do you think of the crash in September 2008?  Was that managed?  Was that, you know, I mean we hear stories about the threats that [Henry] Paulson made against Congress when they first voted down the bank bailout.  So, what about the crash?  Do you think—”

Catherine Austin Fitts (34:19):  “Somebody was blackmailing.  Somebody was blackmailing and, frankly, every five minutes I would call my Congressman’s office and say, ‘You may not vote for this.’  ‘Cos my attitude was, ‘Fine, let it all crash.’  Here’s the thing.  If you look at a corporate stock, if a corporation makes a dollar and its stock goes up $20 dollars if it’s trading at a multiple of 20 times.  And that multiple from one to 20 comes about because the market believes in the rule of law.  Without the rule of law, one equals one.  The whole thing crashes down.  And so my attitude is, ‘Hey, let it crash because if there’s no rule of law then nothing has any value other than what I can protect with a gun.  So, let it crash because we need the Breakaway Civilisation to stop being able to blackmail us.  So, we have a lot of land.  We have a lot of resources.  We have each other.  And I, frankly, would rather live free.  Death is not the worst thing that can happen here.  It really is not.  And I, I’ve personally gone through this.  And the reason I’m alive here today is because many times I said, ‘Fine, kill me. I am not, I am not doing that because death is not the worst thing that can happen.’  Particularly, ‘cos we’re talking about a culture, a centralising culture, which can be phenomenally perverting.  I mean phenomenally perverting.  To me the bailout was a blackmail and I think I would’ve pushed the red button so to speak.  I would’ve said no to the blackmailers.  ‘Cos I think the rule of law is more important.  And now I can understand why somebody sitting in a politician’s chair would’ve let himself be blackmailed, but I like to take my pain early.  But I think that was a political situation, not a financial situation.

Bonnie Faulkner (36:13):  “Right.  And they did, indeed, start to crash the market, right?  And that’s when they got their bailout.”

Catherine Austin Fitts:  “Right.”

Bonnie Faulkner:  “Right, because I remember the major bank stocks went down to penny stocks, didn’t they?”

Catherine Austin Fitts (36:23):  “Right, but I don’t think the problem, if you look at what happened, Congress voted against it the first time and the market didn’t crash.  There was one bright shining moment when everybody felt good, like, ‘Oh, you know—”

Bonnie Faulkner (36:39):  “That’s right.”

Catherine Austin Fitts (36:40):  “Right.  And then they came back and lobbied hard.  And here is the core of the issue.  I think we are talking about people who have the ability to kill with impunity.”

Bonnie Faulkner (36:50):  “M-hm.”

Catherine Austin Fitts (36:50):  “Okay?  And, so, when they come into Congress to lobby, they’ve got your control file.  They’ve got your dirty pictures.  When I was in Washington, the fear always is if they’ve got dirty pictures on you you’ve gotta do what they say.  If they don’t have dirty pictures, then it’s a ten year litigation to prove that the dirty pictures they have are phoney-baloney.  They’ve got nothing.  But it, literally, took me ten years and $6 Million dollars to prove that their hand was empty.  So, most people are not prepared to go through a ten year, $6 Million dollar, proof to do it.  And the reality is I’m lucky to be alive.”

Bonnie Faulkner (37:32):  “Boy, I can say that again.  I still can’t believe that you did that for ten years.  I had to bring a lawsuit once and it was just horrible.”

Catherine Austin Fitts (37:41):  “Well, here’s the thing.  I have a, and it’s not something I’m recommending anyone to do, I had, you know, one of my prayers when it was happening was, ‘Please don’t let this be about old family business. Please don’t let this be about old family business.’  And the further along I got I realised, ‘This is probably connected to old family business.’  So, one of the reasons I, kind of, got sucked into it was my parents had problems with the same cast of characters.  And, after watching what happened to them and then having it happen to me, I just said, ‘You know something, we just have to fight.’  There are some times you just have to hold the line and you have to fight.  This was more than just a business.  This really had to do with the fundamental criminality of society.  And it’s a longer story.

“I ended up, it’s funny, when we had a very dirty moment in court and I popped out an article about my mother’s death, I believe my mother was murdered, I popped out a little article about my mother’s murder.  And something very dirty happened about six weeks ago when I started to write the story of my father’s death.  So those were, I wrote a book review on Dick Cheney’s new book.  It’s called ‘Dick Cheney’s Fluffernutter.’  If you do a search it’ll link to the article about my mother’s death, so you can get a taste of it.  And one of the things I said in it, I wrote it at the time when I was helping with a 9/11 Truth group.  One of the things I said in it is, ‘You know, there are thousands and thousands and thousands of people who have lost family and loved ones to the Black Budget.  It’s not just the families of 9/11.  If you look at the drugs, if you look at the nuclear testing, if you look at all the different things that the Black Budget folks in this Breakaway Civilisation have done, we’re talking about thousands and thousands of people at all classes and all levels across America.  But we’re not a We yet ‘cos we keep thinking, ‘Oh, it’s drugs.’  Or we keep thinking, ‘It’s nuclear testing or this or that.’  And it’s not.  It’s that you have a force in our society, which is above the law.  And we are all grappling with the cost of that.  And we need to step back and look at it and not get caught in our little boxes, but say, ‘Wait a minute. We have a bunch of people running around who think they can kill with impunity and we need to deal with that because that’s our economic problem.’”

Bonnie Faulkner (40:36):  “Well, so that’s interesting.  So, there was, as you phrased it, old family business, like your parents had to deal with this type of thing.”

Catherine Austin Fitts (40:42):  “Right.  And it’s funny ‘cos the way I got started on all of this, I grew up at 48^th and Larchwood in West Philadelphia.  You’re from California, so you’ve probably have never, this is one of those little row, lots of row houses financed with VA Housing.  My father was a surgeon.  He wanted to be near the hospital.  And there were four HUD fraud deals up catty-corner to our [house].  And he bought the house for $12,000 dollars.  So, figure he had like maybe two or three thousand of equity, which in those days was a lot of money.  And there were these four phoney-baloney HUD fraud deals, just of the kind that I just described to you, and it was catty-corner.  And, Bonnie, it wiped out the equity, you know, any house contiguous to that, it wiped out our equity.  And those houses sat empty for four years.  I’ll never forget it.  It was when I was about ten to fourteen.  And, so, we have these four boarded-up homes and they had this big sign on the front:  ‘By order of the Assistant Secretary of Housing, Federal Housing Commissioner,’ one of the longest titles in the Federal Government.

“Meantime, across from me is a family of six people living in a one-bedroom apartment while these four houses are empty.  And I thought this doesn’t make any sense because if you look at the amount of money they made on the fraud, it’s a lot less than all the equity wiped out by all these people.  And then you’ve got these people who would love to take care of one of those homes in this stupid one-bedroom apartment.  So, the whole thing was what a financial person would call an enormous sub-optimisation.  And that’s part of what got me interested in, ‘Okay, why can’t the honest people make more money making the Popsicle Index going up instead of going down?  And it was funny because I’ll never forget.  So, I would walk by this boarded up house at least once a week and I used to always think, ‘Who is that person, this Assistant Secretary of Housing, this horrible person?  And when I got sworn and the Secretary said, ‘By order of the President, you are now the Assistant Secretary of Housing, Federal Housing Commissioner,’ I said, ‘Oh, no, I’m the A-you-know-what. Oh, my god!’  And I went right downstairs and I called in the Single-Family Deputy and I said, ‘How many foreclosed properties do we have in America?’  He said, ’50 thousand.’  I said, ‘I want that 25,000 in a year.’  Well, of course, that’s the first thing I ever did that really irritated the Black Budget Black Budget guys ‘cos they were playing games on that inventory.”

Bonnie Faulkner (43:07):  “What a story.”

Catherine Austin Fitts (43:08):  “I know.  So, well, here’s the thing.  All the fraud on the planet can be brought down and expressed in the intimate financial flows in our lives.  That’s one of the reasons I say we’re all powerful.  I was sitting; I had a checking account at JP Morgan private banking.  You know, now it’s JP Morgan Chase.  Then it was JP Morgan.  And they were one of the lead banks at HUD.  And, so, when the litigation started and it was very ugly and dangerous and there was all sorts of physical harassment, I was writing a check and I realised, ‘Why am I banking at one of the banks that somehow must be connected to the people who are trying to kill m-, why am I doing this?’  I said, ‘I need to come clean. I need to clean up my own.’  And, so, the thing that’s powerful is if we all come to see our investment, not as something we do over here, but something that is connected to all the different flows.  I’m swimming in the ecosystem, whether it’s financial or it’s material.  And everything I do, everything I use, everything I think, participate in, invest in, I’m influencing.  I’m choosing.  I’m acting.  And if every one of us can say, ‘Wait a minute. I’m going to try and shift what I do and how I do it, so that I’m interacting with my ecosystem in a way, which, for me, is net energy plus and I do my best to not contribute to these things.’

“So, I got out of JP Morgan Chase and got into what is arguably the most wonderful, righteous, ethical community bank I’ve ever heard of and it’s a pleasure doing business in a bank you really love.  I mean, can you imagine banking in a bank where you love your bank?  It’s wonderful.  It’s really wonderful.  And it’s powerful if we all choose, but a lot of that, we’re trained to think of investment and the financial system as something over there and not part of my life.  And we’re all supposed to think of our participation in the financial system as not having an influence.  Somebody will say, ‘Well, my checking account’s really small; it doesn’t count.’  Wrong.  In an economy this centralised, layered up with derivatives, one account is really powerful because it’s levered many times upstairs.  So, what you do and what you think and how you do it is important.”

Bonnie Faulkner (45:38):  “Catherine, could you explain the significance and effect of three defence contractors controlling databases?  What are the three defence contractors and do they control all databases?”

Catherine Austin Fitts (45:52):  “If you look, there are several websites that track, contracting for the Federal Government.  And what you’ll see is the information technology contracts are very consolidated into a relatively small number of firms.  So, for example, when I was Assistant Secretary of Housing, Lockheed Martin got a hundred-fifty million dollars a year to manage both the IT and the payment systems at HUD.  I believe Lockheed Martin is still the number one contractor of IT and payment systems at the Department of Defense, which is a real conflict of interest because it means the company that’s sending bills for weapons and weapons systems is the company then paying those bills.  Now, I mention that because over $3.4 Trillion dollars is missing from the Department of Defense, which meant, if it’s missing then Lockheed, you know, whoever’s running the payment systems and is doing the depository banking, which is the New York Fed, is responsible.  For many years when the General Accounting Office would come back and say, ‘The Federal Government has refused to produce audited financial statements as required by laws,’ I had one friend who was a reporter who would constantly say, ‘Which contractors are running those payment systems?’  And they would never answer the question.  They were too afraid.”

Bonnie Faulkner (47:12):  “So, when you were at HUD, you would try and get information from Lockheed?”

Catherine Austin Fitts (47:15):  “When I was at HUD, both as Assistant Secretary, but even more so when we were the Financial Adviser.  We were responsible for portfolio strategy.  And, of course, the power of portfolio strategies when you have very rich relational databases that can look at your portfolio, both by function and type of mortgage but by place (real estate is local, right?), and I would try and get the data from Lockheed Martin.  They just wouldn’t give it to us.  They just wouldn’t.  I mean, it was a war.  We used to call it The Data Beast.  And I eventually wrote an article about ‘The Data Beast.’  But the reality was you had Lockheed Martin and their subcontractors owning and controlling that data and you couldn’t get it.  It was unbelievable.”

Bonnie Faulkner (47:58):  “But there are also these contractors are also running other databases, right?  I mean, how does this affect, let’s say, the health care bill?”

Catherine Austin Fitts (48:05):  “What I believe is if you were to look at the Federal Government, I wrote this in an article called “The Data Beast,” if you were to look at 21 Federal agencies, not as Government agencies, but as databases and you said, ‘Okay, which contractors have access to what data?’ you would see a very different map.  So, for example on the Census, the lead contractor on this latest Census was IBM.  So, you have IBM and its subcontractors putting together very, very rich databases of every house in the whole country.  And if you look at all the other databases that IBM and their subcontractors have access to government-wide, the question is if you integrate those databases what you’re talking about is a complete control system ‘cos you’ve got the mortgages, you’ve got the IRS payments, on and on and on and on and on.  So, if you watch the movie ‘Enemy of the State’ or you watch the movie ‘Listening,’ you’re talking about an intelligence capacity that can basically manage and manipulate the economy at a very detailed level, whether it’s manipulation of the stock in the financial markets or manipulation of households.”

Bonnie Faulkner (49:27):  “Oh, and that’s so scary because they have all the information on you.”

Catherine Austin Fitts (49:30):  “Well, IBM is one of the leaders in the software for the smart meters.  So, if you take the database they put together on the Census and you add the data they’re gonna create from these smart meters—”

Bonnie Faulkner (49:42):  “And you’re talking about your utilities.”

Catherine Austin Fitts (49:45):  “Yeah.  But if you look at the smart meters, my understanding on the smart meters is, they’re collecting that data and sending it back on a wireless basis, which means it’s easy to hack into.  So, there’s no reason.  So, the question is:  Who has that data?  But you’re talking about real-time data from the banking systems, from the mortgage system, from the housing system, all coming in and being used in a variety of ways, which are very invasive.  And the reality is if I, you know, Nicholas Negraponte once said that data about money was worth more than money.  If I have real-time data on all of your activities and transactions 24/7, then, ultimately, I can own you, particularly, if I can print money whenever I want to.  So, we’re talking about a complete control system.  And the scary thing about it, I would really encourage people to read my article, “The Data Beast,” because one of the things I point out was IBM was the company that built the infrastructure that made the Holocaust possible.”

Bonnie Faulkner (50:50):  “Oh, that’s right.”

Catherine Austin Fitts (50:51):  “Right.  So, if you go back and you read Edwin Black’s book about, literally, how the holocaust was made feasibly by advanced database technology.  And IBM really built it and managed it, from what I understand of his book, you’re basically having that same company build the ultimate databases today.  And the Government is paying them to do it.”

Bonnie Faulkner (51:20):  “Do you think that there will be a move on to do away with cash?”

Catherine Austin Fitts (51:27):  “Oh, absolutely.”

Bonnie Faulkner (51:29):  “Yeah, it seems like it to me, too.”

Catherine Austin Fitts (51:31):  “Sure, because, if you can go back to this data system and the value of data, if somebody does things with a credit card or a debit card or something that goes through, you know, if people are transacting with cash then I don’t have that data.”

Bonnie Faulkner (51:45):  “That’s right.”

Catherine Austin Fitts (51:46):  “Right.  I can’t control that.  I just posted an article up on the blog.  Louisiana is outlawing cash for second-hand transactions and barter, which I’m not clear how they can do it since it’s legal tender.  I don’t know if that’s constitutional, but anyway that’s what’s reported from Louisiana.”

Bonnie Faulkner (52:03):  “Yes, I heard about that, too, and I didn’t know whether to believe it or not.”

Catherine Austin Fitts (52:07):  “I don’t see how they could because right now it’s legal tender and you can’t refuse legal tender as a way of transacting.  So, what is really happening I don’t know, but we have seen, I have seen, enormous efforts by the banks to not pay out cash or to make it very expensive for merchants to get change.  So, there’s real, I would say there’s a real lock-down within the banking system to encourage only digital transactions and not cash transactions.”

Bonnie Faulkner (52:44):  “Yeah, that’s very creepy.”

Catherine Austin Fitts (52:46):  “Right.  Well, part of it, I think, is you get a lot more leverage without the cash and having that control.  But I think, here’s the funny thing:  You have throughout society about, I think Jon Rappoport breaks it down to about nine cartels.  You have the banking cartel.  You have the energy cartel.  You have the medical cartel.  You have the government cartel, the agents in intelligence agencies, you know, but a series of different cartels.  And, to a certain extent, they’re competing with each other for power.  And, so, one will do something invasive to control the [diadem] in their area and the others will follow, not because they are trying to, necessarily, hurt us, they are just trying to not get out-powered by the other cartel.  So, you have them all competing.  And as they all become more invasive, of course, what it does is it drains more and more value from the beast because nothing drains economic value out like the absence of privacy.

“And it goes back to, ‘How does tyranny destroy value?’  That’s one of the ways.  And, so, you have this competition among all the players.  And part of it is because the technology allows them to do it.  So, that’s one of the reasons we have to think very carefully about, ‘How do we wanna use technology?’ because we can use technology to decentralise.  But we can also use it to centralise in a way that’s negative.  And the more They try to control it, the worse the economy gets.  And the more They try and control it and it can’t be controlled, they’re frustrated.  And you see that frustration.  One of the things that’s got to happen here is it takes more than force to run a planet.  It takes more than force to govern a planet.  It takes alignment of spirit.  The thing that makes a culture powerful is it’s got some values higher than, ‘If you don’t do this, I’ll kill you.’

“So, we have this group of people who have unbelievably powerful technology and they’ve developed a learning speed, which is much faster than the rest of us.  So, we’ve got a huge non-alignment.  And I think the question is, ‘Okay, how do we create a culture to govern this planet, which will adapt to this new technology and adapt to taking responsibility bottom-up, but doesn’t force us into this high-tech-friendly fascism?’  Because fascism’s not gonna work.  So, that’s the conundrum.  And it gets us back to the question about, ‘Who in the world is They and why are They doing this?’   You know, to a certain extent, off and on my whole life I’ve struggled to watch and deal with the covert side.  And the hardest thing for me is having to live in a world where everybody wanted to pretend it really wasn’t there.”

Bonnie Faulkner (55:59):  “Right.”

Catherine Austin Fitts (56:00):  “You know?  So, if I just pretend it’s not there then it won’t bother me.  I can live over here in the bubble and meantime it’s growing stronger and stronger and stronger.  And, to a certain extent, no matter how depressing the world is right now, I, kind of, feel like I’m welcoming everybody, ‘Welcome to my world.’  You know?  Because it’s not gonna go away.  It’s gonna get stronger and stronger.  We all pay attention to it.  We all honour it.  We all want its money.  We want its treats.”

Bonnie Faulkner (56:25):  “Catherine, thank you.”

Catherine Austin Fitts (56:25):  “Thank you.”

Bonnie Faulkner:  “I’ve been speaking with Catherine Austin Fitts.  Today’s show has been ‘Unpacking Mr. Global, Part 2.  Catherine Austin-Fitts has been an investment banker, a government official, an entrepreneur, and an investment adviser.  She was a Managing Director and Member of the Board of Wall Street firm Dillon, Read & Company Incorporated, Assistant Secretary of Housing and Federal Housing Commissioner in the first Bush Administration, President of the Hamilton Securities Group (investment bank and financial software developer), and is currently Managing Member of Solari Investment Advisory Services and Sea Lane Advisory.  Catherine’s experiences on Wall Street and in Washington D.C. are chronicled in Dillon, Read and the Aristocracy of Stock Profits.  Visit her website at www.Solari.com.  Guns & Butter is produced and edited by Bonnie Faulkner and Yara Mako.  To make comments or order copies of shows, email us at [email protected] .  Visit our website at www.gunsandbutter.org.”

Transcript by Felipe Messina

***

MEDIA ROOTS — With the Occupy Movement rightly putting Wall Street and the ruling-class on blast, the Federal Reserve and the mechanics of our national money supply in relation to our national economic health and body politic, equally deserve scrutiny.  Despite the complexities of finance, the money supply, and Congressional budgets, we must consider such questions of political economy, and seek to understand them.  In a recent article, Ellen Brown, author of Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free, discusses the autocratic Congressional Super Committee.

The establishment insists budget cuts are inevitable, so its political servants don’t consider a necessary progressive tax code.  Ellen Brown disagrees and offers alternatives.  Brown points to the political theatre of the faux debt-ceiling crisis of 2011, as economist Dr. Richard Wolff, et al., have done.  This faux crisis led to the current incarnation of ruling-class assault against the working-class 99%.  Brown notes that the 1% have pushed for austerity before. So, if the Occupy Movement is to respond effectively to the sophistries of the 1%, they must first demystify the game of neoclassical economics.

Messina

***

TRUTHOUT — It is no great surprise that with only days to go, the Congressional “supercommittee,” given the Herculean task of carving an additional $1.2 trillion out of the federal budget, has failed to reach agreement. Why should six Republicans and six Democrats with diametrically opposed views agree in a few weeks, when Congress couldn’t shake hands on it after months of wrangling, despite the guillotine blade of a federal default hanging over their heads?  

Whether the supercommittee reaches agreement or not, however, the deficit hawks win. If they agree, either $1.2 trillion gets cut from the budget or taxes go up by that amount; and the committee co-chair has categorically stated taxes are not going up, so that means the budget will be cut. If agreement is not reached, $1.2 trillion in cuts automatically kick in, split evenly between domestic and military spending. Either way, the economy will wind up with $1.2 trillion less in purchasing power. The result will be to reduce demand, kill jobs and put more people on the streets.

For the deficit hawks, however, it all seems to be going according to plan. The supercommittee is characterized as an emergency measure that was rushed through to avoid an arbitrarily imposed August deadline for freezing the debt ceiling, but it has actually been in the works for years. In 2009, it was called the “Bipartisan Task Force for Responsible Fiscal Action.” That plan died when its Senate sponsors, Judd Gregg and Kent Conrad, failed to secure 60 votes for passage in the Senate. The Gregg-Conrad bill was criticized as railroading through legislation that would unconstitutionally slash domestic services without Congressional debate, but its task force would actually have been LESS autocratic than the supercommittee, which has sweeping powers and needs only a simple majority among its 12 members to prevail.

What has been forced out of the debate is whether cutting the budget is a good idea at all. The Peter Peterson Foundation, which has been pushing “austerity” for years, has finally gotten its way. Hedge fund magnate Peter G. Peterson was chairman of the Council on Foreign Relations until 2007 and head of the New York Federal Reserve between 2000 and 2004. He made his fortune with the controversial Blackstone Group, which he co-founded and chaired for many years. The Peter Peterson Foundation was established in 2008 with a $1 billion endowment to raise public awareness about US fiscal-sustainability issues related to federal deficits, entitlement programs and tax policies. The money was used to spearhead a massive campaign to reduce the runaway federal debt. Hysteria over the debt then prompted Tea Party newbies in Congress to hold a gun to Congress’ head by arbitrarily capping the debt. 

In the campaign to educate us to the debt’s perils, we were repeatedly warned that when foreign lenders decided to pull the plug, the US would have to declare bankruptcy, that we were mortgaging our grandchildren’s futures and selling them into debt slavery; and that all this was the fault of the citizenry for borrowing and spending too much. The American people, who are already suffering massive unemployment and cutbacks in government services, would have to sacrifice more and pay the piper more, just as in those debt-strapped countries forced into austerity measures by the International Monetary Fund.

The fear mongering, however, is a red herring. A sovereign nation can always find the money to pay debts owed in its own currency. The Federal Reserve can buy the debt itself – just as it has been doing. That alternative would effectively eliminate the problem of interest, since the Fed returns its profits to the government after deducting its costs. 

Alternatively, Congress could reclaim the power to issue money from the banks and fund its budget directly. The US could pay its bills using debt-free US Notes or Greenbacks, just as President Lincoln did to avoid a crippling debt during the Civil War. Congress could do this without changing any laws. Congress is empowered to “coin money,” and the Constitution sets no limit on the face amount of the coins. It could issue a few one-trillion dollar coins, deposit them in an account and start writing checks.

Neither option need inflate prices. As long as the money is used to purchase goods and services, the result will simply be to increase demand, increasing production. Prices will not increase until the economy reaches full employment and, at that point, any excess in the money supply can be taxed back to the government, keeping prices stable.

The key to all this is that our debt is owed in our own currency – US dollars. Our government has the power to fix its solvency problems itself, by simply issuing the money it needs to pay off or refinance its debt. The US federal debt has been carried on the books since 1835. It has NEVER been paid off during that time, but just continues to grow. This has not hurt the economy, which for most of that period has been among the most vibrant in the world. The federal debt IS the money supply. All of our money except coins is created as bank debt. Historically, when the deficit has been reduced, the money supply has been reduced along with it, throwing the economy into recession.

The real problem with a growing federal debt is the interest on it, which WILL become an insurmountable burden if allowed to grow exponentially. Interest paid on the federal debt in 2010 was $414 billion, or about one-half of personal income tax receipts. That’s about as high as we dare let it go. But this problem can be eliminated either by funding the debt through the nation’s own central bank, effectively interest free; or by the Treasury issuing the money outright, interest free.

The burgeoning debt has been blamed on reckless government and consumer spending; but the debt crisis was created, not by a social safety net bought and paid for by the taxpayers, but by a banking system taken over by Wall Street gamblers. The banking debacle of 2008 caused credit to collapse, businesses to go bankrupt and unemployment to soar, drastically reducing the federal tax base. If anyone should be held to account, it is Wall Street; but the bankers were bailed rather than jailed and the taxpayers got billed for the crime.

We have been deluded into thinking that “fiscal responsibility” is something for our benefit, something we actually need in order to save the country from bankruptcy. In fact, it has simply been an excuse to impose radical austerity measures on the people, measures that benefit the 1 percent while locking the 99 percent in a dungeon of debt peonage.

This work by Truthout is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License.

Image by Donkey Hotey

MEDIA ROOTS — When Naomi Klein’s seminal book The Shock Doctrine hit the scene, the U.S. political Left was forced to look beyond simply complaining about conservatives or Washington corruption and was stimulated to pay closer attention to the actions of Wall Street and the world of economics.

With the introduction of concepts, such as economic hitmen and disaster capitalism, and the rise of economists, such as Dr. Michael Hudson and Dr. Richard Wolff, economics has seen resurgence in the minds of the working-class, especially since the Great Recession and the advent of the OWS Movement.  After witnessing ostensibly liberal Obama stuff his cabinet with Wall Street players and facilitate massive ‘bailouts,’ or legalised theft, we’ve become ever more compelled to understand how economics is mystified by elites in order to widen inequality.

One particularly compelling figure offering a critique of the world of business and finance is Catherine Austin Fitts.  Fitts was likely the earliest proponent of moving one’s money out of monopolistic Wall Street banks to local credit unions and keeping community money as local as possible with a view toward even more progressive banking paradigms.

Recently, Catherine Austin Fitts visited KPFA Radio’s Berkeley studios to discuss a broad range of socioeconomic issues with Bonnie Faulkner, host of Pacifica Radio’s “Guns and Butter.”

Bonnie Faulkner began by asking Catherine Austin-Fitts about the Federal Reserve allowing BofA to dump $75 Trillion in derivatives on U.S. tax-payers.

In this engaging and far-ranging discussion, Austin Fitts parsed manifold topics, including the two-tiered financial system; corruption at the Department of Housing and Urban Development; collateral fraud leading up to the housing bubble; the mechanics of FHA collateral fraud; the evisceration of the U.S. educational system and shipping jobs overseas, leaving students encumbered with enormous school debt and dwindling employment prospects; and the ruling-class profiting from student loans, financial engineering and manipulation, and, ultimately, financial coup d’état.

Towards finding solutions, Austin Fitts described her work with Hamilton Securities, the concepts of the Popsicle Index and Community Wizard, prototyping community venture funds, and ideas for keeping capital within one’s local community.  In telling this particular story, Austin Fitts exposed what the ruling-class establishment (via the Department of Justice) did with the prosecution of Hamilton Securities in retaliation to her efforts.

One may question capital itself, but en route to such questioning, Catherine Austin Fitts provides plenty of food for thought.

Messina

***

GUNS & BUTTER — Unpacking Mr. Global, Part 1

“You know, if you look at the black budget being financed out of HUD, one of my theories was it was really being managed from the National Security Council.  And so I started to get involved for a variety of reasons, not just this, and 9/11.  And Kyle Hence from 9/11 would invite me to speak on 9/11 in Washington.  And every time I made an appointment to speak, the judge would announce a hearing at that time.” —Catherine Austin Fitts

Bonnie Faulkner (4:57):  “I’m Bonnie Faulkner.  Today on Guns and Butter:  Catherine Austin-Fitts.  Today’s show:  ‘Unpacking Mr. Global, part 1.’  Catherine Austin-Fitts has been an investment banker, a government official, an entrepreneur, and an investment adviser.  She was a Managing Director and Member of the Board of Wall Street firm Dillon, Read, & Company Incorporated, Assistant Secretary of Housing and Federal Housing Commissioner in the first Bush Administration, President of the Hamilton Securities Group (investment bank and financial software developer), and is currently Managing Member of Solari Investment Advisory Services and Sea Lane Advisory.  Catherine’s experiences on Wall Street and in Washington D.C. are chronicled in Dillon, Read and the Aristocracy of Stock Profits.  Today, we discuss the crisis in the financial system, fraud at the Department of Housing and Urban Development, collateral fraud, and a two-tiered economic system.  Catherine Austin-Fitts, welcome.”

Catherine Austin Fitts:  “It’s great to be back, Bonnie.”

Bonnie Faulkner:  “Catherine, it’s great to have you right here in Berkeley in person.”

Catherine Austin Fitts:  “I know, in the studio.  It’s fabulous.”

Bonnie Faulkner (6:07):  “In an article on Bloomberg, October 18^th, entitled ‘BofA Said to Split Regulators On Moving Merrill Derivatives to Bank Unit,’ the Federal Reserve has allowed the Bank of America holding company (BAC) to transfer $75 Trillion of derivatives from its Merrill Lynch affiliate to the Bank of America, putting the Federal Deposit Insurance Corporation, the FDIC, on the hook to cover depositors’ losses in case of bank failure.  It seems that the FDIC does not agree that this transfer should have taken place.  Bank of America has over $1 Trillion dollars in deposits.  Could these deposits be wiped out by their derivative exposure?”

Catherine Austin Fitts (6:54):  “I think, in theory, yes, if the FDIC doesn’t basically make good on their deposit insurance.  And I think the question is not will it wipe out the BofA deposits in the event of a BofA bankruptcy or default.  The question is will it wipe out the FDIC.  ‘Cos what you’re seeing is the FDIC guarantee being put behind the liquidity of those derivatives.  And I’m assuming, if the Federal Reserve did this, and we don’t know the whys and wherefores, but if they did this, it’s because they were concerned about the liquidity of this book.  And it’s a way of saying to the marketplace this book is strong and can maintain its contracts.  But what it does mean, Bonnie, is that you’ve basically got the Federal credit now financing and funding the most speculative positions on the planet.  And this gets back to the whole question of what didn’t get done in the Dodd-Frank Bill, which is ‘why are we giving Government guarantees to speculative investment activity?’  Now, I’m assuming, if the Fed did it, it was because they were afraid it could literally take the economy down.  But what we’re watching throughout society is a class society that’s divided between the people who can use the Federal credit to do almost anything and people who have to earn credit in the marketplace the old-fashioned way.  And it’s one of the reasons that we’re centralizing the economy because you have insiders being able to do unbelievable things with the Federal credit.  And one of the reasons we got there is by chipping away at the historical rules that said, ‘if you got depositor credit, you only could do certain things with it.’  You certainly couldn’t engage in wild, speculative activity, let alone derivatives.  But here we are.”

Bonnie Faulkner:  “Right.  Is there $75 Trillion dollars in the world?”

Catherine Austin Fitts (8:55):  “Um, there is certainly $75 Trillion dollars of value in the world.  When you look at the way derivatives price, the notational value can be much higher than the present value of the position.  So, you get these numbers that look far greater, you know, you get something that’s worth a dollar and its notational value is $25 dollars, or many multiples of its value.  There’s a tremendous amount of value in the world.  And one of the problems is we’re basically reengineering that value over time to be used in certain ways through the derivatives market.  It’s a way for insiders, literally, to rig forward how the world’s gonna be managed.  You know, you lock in the future and then everybody has to go there because otherwise it’ll crash the global financial system.”

Bonnie Faulkner (9:46):  “Now, are these derivatives mainly credit default swaps, that is, insurance on derivative bets made by other financial institutions, many of which are European banks?”

Catherine Austin Fitts (9:57):  “There are many different kinds of derivatives.  One kind is the credit default swap, which is:  I do a transaction with another party, but I don’t want to accept their credit; so, I go out and I get insurance.  And we saw that type of derivative be a very important part when the housing bubble crashed because so many players had bought credit default insurance, essentially, from AIG, and AIG was not able to stand by it.  And that’s when the Government interceded.  The biggest use of derivatives is also interest rate swaps.  So, one of the reasons we see interest rates low and not going up in situations where you think there might is there’s such enormous positions being used to swap interest rates out in the future to keep interest rates down.  A variety of us believe that that’s being engineered by the central banks and Government because it’s such a big position.  And there’s really, you know, other than Government and the central banks, there’s nobody on the other side.  So, I would say credit default and the interest rate swaps are the two primary kinds.”

Bonnie Faulkner (11:01):  “Bank of America’s credit rating was downgraded a month ago.  Do you think this is significant?”

Catherine Austin Fitts (11:07):  “Yes, I think it’s significant.  I think Bank of America is having a variety of problems.  And I think what we’re watching, among other things, is the banks, both in Europe and the United States, struggling through huge debt positions that were never economic to begin with.  So, that was a matter of policy.  We decided to make a whole lot of loans, both for government and on mortgages and consumers that was, essentially, fraudulent inducement.  So, I think that’s number one.  Number two, though, I think that government has made a command decision, and I should really say the central banks and the government, to put the banks in a box.  For the last 20 years we financed the Federal government with more and more debt being sold to the pension funds, more and more debt being sold to China.  And I think we are now coming into a period when the banks are gonna be the new China.  So, the banks are gonna be forced to raise deposits short and lend long to government.  And be the intermediary that’s really reengineering how the sovereign government system works.  So, I think the banks are kind of being put in a box.  And Bank of America, if anybody in the United States right now, is number one on the hit list.”

Bonnie Faulkner (12:26):  “What do you mean ‘the hit list’?  Who’s the ‘hit list’?”

Catherine Austin Fitts (12:28):  “Um, the hit list on a variety of players, but I would say, first and foremost, the regulators.  I think the regulators are, uh, you know, we have excess capacity in the banking system.  And when BofA bought Merrill Lynch, they took on a huge amount of contingent liabilities and legal liabilities.  And I think they’re having to slug their way through that.  And you also see BofA in California.  California has the most underwater mortgages.  And because it’s the biggest real estate market, um, big positions to work through.  So, I think BofA is managing a huge amount of liabilities and legal liabilities within the system.”

Bonnie Faulkner (13:13):  “Now, you mentioned regulators.  Is the U.S. Government really regulating anything?  It seems to me, from what I’ve been reading lately, they haven’t been doing much regulating.”

Catherine Austin Fitts (13:23):  “Oh, I think, well, that’s because the regulation is political.  You know, we have an official reality.  And our theory is that regulators are supposed to implement that official reality.  And because they’re not implementing that official reality we say they’re not regulating.  And, instead, if you look at regulation as a political force to be used to get the system where it’s really wanted to go, I think they are doing that very well.  So, I do think they’re constructing a structure where the banks will be the new Chinas, if you will.  The banks will really, remember ‘cos the Government needs the banks to keep organising and managing the dollar system and the Government financing.  And they’re putting more and more pressure on the banks to do it exactly as they wish, so that you have a little power struggle.  And I think the regulators are doing that.”

Bonnie Faulkner (14:16):  “Well, now when you say that the banks will become the new China are you implying that the banks have gotten money out of the Government, so that they’re in a position to lend to the Government?”

Catherine Austin Fitts (14:27):  “Sure.  Let me give you an example.  Um, when I left the Bush Administration in 1991, you know, we had that crash, the crash of the last housing bubble.  And what happened was you had a series of banks, including Citigroup, at the time who was underwater.  So, they had negative equity and the question was would the regulators shut ‘em down.  And instead what Alan Greenspan did at the time was he ran a sharply upward sloping yield curve, which means you could borrow short or raise deposits as a bank would CDs.  And this gets back to the use of the Federal credit.  So, he could raise your CD or my CD at, let’s say at the time, X% and then proceed to take that money and buy a Treasury Security at, you know, 5½%-plus of what he was paying to take the thing.  And so you could run just a matched, you know, a matched book and make a fortune.  You know, so for every $100 Billion dollars you made $5½ Billion dollars of pure profit.  And if you levered it, it was even more.  And if you added derivatives it was even more.  And, you know, it was a money-making machine.  Now, here’s the interesting thing.  If the Federal government is gonna finance itself, why does it need to pay the bank $5½ Billion on every $100 Billion to do that?  Why can’t,  I mean, if eBay let’s us go directly to each other, why can’t the Treasury just create an eBay and instead of using the bank as an intermediary, just raise deposits directly from citizens, right?”

Bonnie Faulkner (16:00):  “Right.”

“If you look at any picture of the U.S. dollar, what it shows is since the creation of the Federal Reserve System, American savers have lost, one estimate by the American Institute for Economic Research in Massachusetts, is, as of five years ago, we’ve lost $17 Trillion dollars through debasement.” —Catherine Austin Fitts

Catherine Austin Fitts (16:00):  “Right.  Why can’t it?  Well, because that game, that ballooning of the banks’ balance sheet, provides it with tons and tons of credit.  Okay?  And it’s that ballooning of the balance sheet that creates more and more money that allows it to borrow more and more money.  Now, it debases our savings.  If you look at any picture of the U.S. dollar, what it shows is since the creation of the Federal Reserve System, American savers have lost, one estimate by the American Institute for Economic Research in Massachusetts, is, as of five years ago, we’ve lost $17 Trillion dollars through debasement.  Okay?  Because what you’re doing is you’re ballooning the Federal credit in certain places and allowing that money to be used in certain ways, you know, directed politically.  And this gets back to, are we gonna allocate our credit as a society according to some criteria related to economic performance, which most markets will do reasonably well, or are we gonna direct it politically?  And that’s why among my group there are those of us, among us, who say the Soviet Union won the Cold War because, if you look at our society, both Government spending and Government credit, it’s unbelievably, unbelievably governmentised.  Okay?  And let me step back and give you an example because it’s one of the reasons that we’re being overwhelmed with complex rules, Bonnie, I mean, we’re being regulated to the ground.

“I’ll give you an example.  When I was Assistant Secretary of Housing, I got to HUD and I couldn’t figure out why things were so complicated.  And then it took me a long time, you know, why does gridlock keep happening?  And, finally, I figured it out.  At the time, we were originating $5 Billion dollars of mortgage insurance a year for apartment buildings, so mortgages on apartment buildings.  And we had about $25 Billion dollars of demand for that $5 Billion dollars.  And the reason was we were charging way below market.  If we had charged a mortgage insurance premium related to market, we would have had $5 Billion dollars of demand for $5 Billion dollars of mortgage.  So, I said okay, well, if you have $25 Billion dollars of demand at a cheaper price, don’t you just set rules of who you want to get it?  So, all pink apartment buildings west of the Mississippi get first crack and second crack go to polka dot apartment buildings, you know, north of Boston.  You know, whatever your criteria is, you set a criteria and you’re clear.  And then, you know, $5 Billion will get that.  And what I discovered was if you had that clear criteria the problem was the criteria wasn’t to the people who were gonna donate the most money to the President’s re-election campaign.  See what I mean?  So, we had the official reality criteria and then everything would come in.  And you made the underwriting process unbelievably complicated, so everything would gridlock.  And then the ‘right’ lawyers would just channel the ‘right’ applications through, so that the $5 Billion who were gonna contribute to the re-election campaign were the ones who got it.  Okay?  So, complexity served a purpose.

“Now, let me step back and go back to the BofA/Merrill Lynch story, or the enforcement story.  We’re just printing massive amounts of unbelievably low-priced, cheap, Federal credit to a variety of, sort of, insiders.  And then we create millions and millions of complex rules, so that we can sort of allocate that cheap credit because it’s way below any kind of market price.  And what we do in those rules is we make sure that, you know, the insiders get it.  And the outsiders get regulated or enforced [to death].  It’s funny.  I don’t know if you’ve read Matt Taibbi’s book, Griftopia.  He does a wonderful job of going into how we have two groups of, you know, sort of, two classes of society.  And one is drowning in rules.  And the other is above the law.  And every time the above-the-law people offend everybody else because they’re above the law, the political process says, ‘Oh, we’ll pass more rules!’  You know?  And the guys who are being, you know the outsiders say, ‘Yeah! More rules!’  The problem is those rules only come back and give burden to the, the first-class doesn’t have to obey the rules.  So, what we’re watching throughout society is the debasement of everything economic from this process of cheap Federal credit and this two-class society, one that doesn’t have to obey the rules or can afford to spend a fortune, you know, playing the rules and then the rest of us who are just dying.  You know, small business, most small businesses just drowning and overwhelmed by these rules.  The food safety rules are being used to destroy small farms, destroy small food businesses, on and on and on.  So, it’s a two-tiered society and it’s a highly complicated game.”

Bonnie Faulkner (21:23):  “There was a segment on the BBC that went viral.  An interview with a trader named Alessio Rastani.”

Catherine Austin Fitts:  “Yeah.  Very funny.”

Bonnie Faulkner:  “They were asking him about the Eurozone Rescue Plan.  He said, ‘Get prepared.  The governments don’t rule the world.  Goldman Sachs rules the world.  Goldman Sachs doesn’t care about this Rescue Plan.  All the traders care about is making money, not how all of this is going to sort itself out.’  He said that ‘in less than 12 months the savings of millions of people are going to vanish.’  Do you agree with his assessment?”

Catherine Austin Fitts (21:55):  “Um, I, you know, I think that we are in an unbelievably volatile environment.  And I believe the chances of a collapse scenario of the kind that you would think he was talking about are relatively small.  It’s feasible, but I think it’s relatively small.  I do think the possibility of going through another 2008 kind of scenario is reasonably good.  And the possibility of tremendous volatility is reasonably good.  I just finished writing a new article.  I don’t know if you’ve seen it.  It’s called the William M. Diefenderfer:  The Financial Hit Man of Student Loans and that’s a perfect example where, Peter Drucker once said that the greatest governmental investment we ever made was in the GI Bill.  It was a massive investment in human and intellectual capital.  And if you look at the impact that the GI Bill had on the, sort of, the population and therefore on the health of the economy, it was tremendous.  Well, what was our equivalent of the GI Bill?  We did the reverse.  We basically took all the young people, all our potential innovators, all our potential human intellectual capital, and we made sure that, unless they were very wealthy, by the time that they got out of college, they were completely locked into a position of indebtedness, which in many cases could never be paid off.  Because the thing that’s interesting about it was the person that I mentioned, the financial hitman of student loans, was somebody who had been on my Board at Hamilton.  And so there was nothing he didn’t know about the fact that we were sending all the jobs abroad and we needed to help people find new ways of creating income because, otherwise, their incomes were gonna plummet.  So, he was on the Board of Sallie Mae and was part of the group when all the changes were made further locking in this model that would enable people to make money on students not being able to pay back their student loan.

“I thought I’d seen the worst, including derivatives rigging us into a negative future.  But this is the worst thing I’ve ever seen because when you destroy the ability of young people to build a future and to innovate, you destroy the future itself.” —Catherine Austin Fitts.

“So, literally, you’re creating a corporate model where people could make more money from students failing and not being able to pay back their student loans than being able to pay them back when they knew that many would never be able to pay it back because we were shipping the jobs abroad.  So, it’s the worst form of fraudulent inducement, very, very ugly.  Well, you know, it’s funny.  I said to somebody, I worked with a wonderful person who helped me with the research and I said, ‘You know, I thought I’d seen the worst that financial fraud can do.’  I thought I’d seen the worst, including derivatives, sort of, rigging us into a negative future.  But this is the worst thing I’ve ever seen because when you destroy the ability of young people to build a future and to innovate, you destroy the future itself.  You destroy the future itself, not just their future, but our future, our whole society’s future.  It was like, why don’t we just get together as a tribe and commit suicide?  It’s like those, you know, everybody taking acid and dying.  I mean, it was just, I, you know, I couldn’t believe that a human being that I used to think of someone that I respected would even do that.  It’s kind of like, you know, we’ve all lost our minds.”

Bonnie Faulkner (25:04):  “Now, how do they make money on student loans defaulting?”

Catherine Austin Fitts (25:07):  “Well, because you set it up so that if there’s, you know, different kinds of technical defaults or other problems that you can raise the rates or raise the fees.”

Bonnie Faulkner:  “Yes.”

Catherine Austin Fitts (25:19):  “And on student loans they tightened up the provisions that mean you can’t extinguish them in bankruptcy.”

Bonnie Faulkner:  “That’s right.”

Catherine Austin Fitts (25:23):  “Right.  So, here you have somebody who is struggling and can’t pay back their student loan and so the amount that they owe back, the more they can’t pay it back, the more it goes up.  So, you have the ability to keep them in the box and just keep charging more and more money.”

Bonnie Faulkner:  “Well, right, then they’ve got that noose around their neck for the rest of their life.  Right?  Oh, I see what you mean.”

Catherine Austin Fitts:  “Right.  It’s a combination of fraudulent inducement and predatory lending and the inability to extinguish it in bankruptcy.  It’s the worst thing I’ve ever seen.  We have two pieces.  If you go to my homepage at Solari.com, we have two pieces.  One is a review of a wonderful book by an engineer student who went to Cal Tech and got into the student loan trap and has written one of the best books on, sort of, the student loan scam.  So, we write a review of that and go through some of the more detailed provisions.  And then I wrote this other one called William M. Diefenderfer:  The Financial Hit Man of Student Loans.  And that was because I wanted to, I wanted to take the problem and make it intimate.  ‘Cos I had been on the Board of Sallie Mae and then after I left, Bill, who had been on my board, joined the Board of Sallie Mae.  And a lot of the people at Sallie Mae were people I had known as a Board Member.  So, I’m looking at this fraud.  And these are people, these aren’t strangers, these are people I knew, including people I liked and respected.  So, part of it is an exploration of, you know, what happened?  It was very, just as a personal search for me, I, you know, I left the Bush Administration [in ‘91], Bonnie, and I came out and I said, ‘The fascists are gonna kill us all,’ because one of the things I had seen in the Bush Administration, I had literally seen a combination of the power that technology was giving to what I now call ‘the Break-Away Civilisation.’  And I saw the ‘Break-Away Civilisation’ operant.

“There was one very famous story where I was in a meeting with the Secretary of HUD.  And he was quite upset that day and quite frustrated and it was almost a manic episode.  And one of the regional, we were meeting with all of the regional administrators from around the country, and one of the regional administrators, he was yelling at him, in fact it was the California Regional Administrator.  It was always California, which is the outlier.  So, he said, ‘But Mr. Secretary, I had to do it; it was the law.’  And the Secretary went nuts.  He just turned bright red.  He said, ‘The Law! The Law!? I’m above the law! I don’t have to obey the law!  I report to a higher moral authority!’  It was like the veil opened and you were in the ‘Eyes Wide Shut’ world.  You realise, they really didn’t think they had to obey the law.  I’ll never forget.  There was another meeting where the Secretary was promoting something, which really was illegal.  And I was trying to stop it because it was really outside of the Constitution.  So, he said to the General Counsel, ‘Well, can we do it?’  And the General Counsel said, he used the eff word, he said, ‘Eff them.  So what if it’s a violation of the law?  By the time they sue in court and win we’ll be gone.’  There was no, government was just a power to be used to reengineer things in the way they wanted.  Have you ever seen Charlie Ferguson’s movie ‘No End in Sight’ about the Iraq—”

Bonnie Faulkner:  “No.”

Catherine Austin Fitts (28:46):  “Oh, I recommend it.  It’s the same kind of demonic lawlessness.  Anyway, so I came out of the Bush Administration [circa ‘91].  I said, ‘Well, we need a plan.’  And one of the things I had discovered was the power of the internet and technology to so enhance the learning speeds in a community and between communities.  Then I said, ‘We don’t have to go through these central systems.’  We can go direct.  So, we can, just as we cab do an eBay on the asset side of the balance sheet, we can do an eBay for equity or for loans, you know?  There’s a way that we can network with this technology.  We don’t need to be a captive of Wall Street or Washington.  And so I created Hamilton Securities Group and for a couple of years it was that bright shining moment when you thought anything was possible.  And one of the things we did was we created a software tool called Community Wizard.  And the idea of Community Wizard was that if you go and you study how we’ve organised government and governance in the United States, one of the things you find is we vote for political representation.  So, we vote for a senator.  We vote for a congressperson.  We vote for a governor.  But we don’t have an annual financial statement that shows us what happened to our money.  So, if I buy corporate stock by law I’m required to get an annual report.  And there are quarterly reports that say, ‘Here’s what we’re doing with your money. And here’s how we’re doing.’  But we don’t get the equivalent for Government.  Now, when you realise, with all the software tools and what software can do, why not?  You know?  So, if I’m gonna vote for my congressperson, I need to see a sources and uses contiguous to the area of political representation on what’s going on with the money.  And one of the things I discovered when I worked in the [G.H.W.] Bush Administration is if every voter had that 90% of this fraud would just stop.  It’s amazing.”

Bonnie Faulkner (30:41):  “Because there would be transparency.”

Catherine Austin Fitts:  “Because when I go in and I look at the budget or the financial reports of the U.S. Government, they say here’s what’s going on in transportation everywhere.  Here’s what’s going on in housing everywhere.  But they don’t say here’s what’s going on in your congressional district.”

Bonnie Faulkner (30:57):  “Right.”

Catherine Austin Fitts (30:57):  “It’s function based, not place based.  Now, with relational databases, which I discovered in 1991, you know, there’s no reason why it can’t be both.  Why you can sort back and forth ‘cos the software can do it all.  And one of the things I discovered when I was Assistant Secretary of Housing, I would get these lists of foreclosures.  And then when I would go fly some place, I’d say, ‘Oh, we have ten foreclosures on this block.’  And you’d fly there and it was like an empty lot.”

Bonnie Faulkner (31:24):  “No houses there.”

Catherine Austin Fitts:  “No houses there!  That’s when I realised, if everybody could get this data, including with geographical information software, ‘cos most of us are graphical.  We don’t relate to text.  You know, a lot of this fraud could stop because the best internal financial control is the citizen watching the money in the world that they drive around in now.  ‘Cos that’s how a lot of the waste, and if you look at the collateral fraud, we used to have homes, well, I’ll tell you the funny story.  And in this happened in both the [G.H.W.] Bush Administration and then my company Hamilton was hired back in on competitive bid to serve as Financial Advisor to HUD during the Clinton Administration.  So, I dealt with it in both Republican and Democrat, um, we found places, Bonnie, New Orleans was one, where the Government was spending $250 thousand dollars per unit to build or rehab apartments and $50 thousand would buy and rehab a single family home in the same four-block area.”

Bonnie Faulkner (32:26):  “Wow.”

Catherine Austin Fitts:  “So, I went to see the woman who was the assistant to the person running that programme.  And I said, ‘Mindy, we could have four or five homes for the price of one.’  And she turned bright red and said, ‘But how would we generate fees for our friends?’  And this relates to everyone because we’ve had 50, 60 years of ‘fees for our friends.’  So, there’s tremendous opportunity, I found, through Community Wizard to re-optimise Government money.  And it gets back to where we started about this two-class, so much money is being spent, Bonnie, to prop up corporate stocks and to prop up insiders and then to pay everybody else to shut up and go along with it.”

Bonnie Faulkner (33:25):  “You’ve been talking about Hamilton Securities, the company that you started.”

Catherine Austin Fitts:  “Uh-huh.”

Bonnie Faulkner:  “What happened there?  That says a lot about what happened to you and that company and then the lawsuit that you had to bring.”

Catherine Austin Fitts (33:41):  “Well, we, it’s one of those long, shaggy dog stories.  I once had a woman introduce me at a wonderful conference.  She said, ‘Who here has seen the movie enemy of the state?’  Have you seen ‘Enemy of the State’?”

Bonnie Faulkner:  “Oh, sure.”

Catherine Austin Fitts:  “I love ‘Enemy.’  And she said, ‘This woman played Will Smith in real life.’  And it’s so funny ‘cos when the movie starts out it opens up in Will Smith’s office, law offices a block from where my, it was right next door, it was right across the street.  It was funny that the guy who directed ‘Enemy of the State’ at one point told somebody, ‘Thank her for just keeping this movie on the front of everybody’s—”

Bonnie Faulkner (34:17):  “No, it’s a great movie.”

Catherine Austin Fitts:  “Oh, it is.  It’s a great movie.  And I hate to say it; it’s more true than you might think.  Although, Will Smith managed to get it all figured out in about six days and it took me 12 years.  Anyway, but, um, what happened was we were doing a series of things, which if they were successful would really shift the model, the economic model.  So, we were promoting things that decentralised.  They decentralised knowledge.  They decentralised technology.  They decentralised the economic activity.

“They were all lobbying me for something that would make their stocks go up.  But their stocks were not organised on a place-based basis.  So, it was gonna make their corporate stocks go up, but it was gonna hurt the value of places.  Everybody had the Dow Jones Index of the S&P 500.  But nobody had a simple, understandable description of community wellbeing.  So, that’s where I came up with the Popsicle Index.” —Catherine Austin Fitts

“So, one of the things we were working on is community venture funds.  Think of it as like a little mutual fund for your community.  And what I was very interested in doing when I worked in the [G.H.W. Bush] Administration for the first 30 days, Bonnie, I had the most amazing feeling of free-floating anxiety.  I’m a very intuitive person.  And the homebuilders would come in and the realtors would come in.  And they’re all lobbying me for stuff and I was feeling more and more uncomfortable and more and more uncomfortable.  And I couldn’t tell why.  And finally I realised they were all lobbying me for something that would make their stocks go up.  But their stocks were not organised on a place-based basis.  So, it was gonna make their corporate stocks go up, but it was gonna hurt the value of places.  So, I came up with a name because everybody had the Dow Jones Index of the S&P 500.  But nobody had a simple, understandable description of community wellbeing.  So, that’s where I came up with the Popsicle Index.”

Bonnie Faulkner (33:53):  “Oh, right.”

Catherine Austin Fitts:  “So, the Popsicle Index is the percent of people who believe a child can leave their home, go to the nearest place to buy a Popsicle and come home alone safely.  Now, when I was a little girl growing up, I grew up in a very modest neighbourhood in West Philadelphia, but the Popsicle Index was very high.  It was unthinkable a child couldn’t go up to Spruce Street, play the pins, buy a Popsicle, and come home alone safely.  So, I started to say, well, all these guys want the Dow Jones to go up, but there’s no constituency for the Popsicle Index.  And I realised, um, a second thing happened was my staff, it was at the end of the last housing bubble bust in ’89, and my staff brought in a list of foreclosures.  We had 50,000 foreclosed homes at that time and massive defaults in mortgages.  And there was this one town in New Mexico where 70% of the mortgages were in default and owned by Freddie, Fannie, and FHA.”

Bonnie Faulkner (36:44):  “Wow.”

Catherine Austin Fitts:  “And I said, ‘Well, that town we don’t need to aggressively service.  That town needs to reinvent itself.  Why don’t you have the town buy the mortgages?’  And they said, ‘That town doesn’t have any money.’  I said, ‘I’m from Wall Street! We would buy the world without any money. We’d just create an entity and issue shares.’  So I said, ‘Tell the town to create a trust or a [read] or whatever the structure should be and we’ll swap them the mortgages for the stock.’  And they looked at me like I was nuts.  But that’s when I realised, ‘Oh, we need to create the equivalent of a venture fund or a mutual fund for a neighbourhood because if everybody in a neighbourhood who wants to own stock, and that stock can finance the businesses and real estate in that place, then the higher the Popsicle Index, the more money they make.  So, we’ll get the financial system organised so they can make money, not just on functional enterprises going up, but on places going up.  And so we were prototyping community venture funds.  And that’s when I discovered that, you know, if small business has access to the capital within that place, then that capital won’t go to Wall Street.  Wall Street has a problem with that.  They were centralising and so small businesses were failing and they were financing franchises to come in and take over the market.  And so you literally had a hit on small business going on.  And what I was doing was basically reversing the financial flows that were making that hit financially feasible because imagine if all the small businesses in a place, and it would never be all, but if some of the small businesses in a place are financed through a vehicle where, in my IRA or 401K, I can buy that vehicle and then the more I shop locally the more I make in my 401K or IRA, well that changes the politics.  Okay?  And it also changes the politics of government money because all of a sudden the local players have mechanisms to start to compete for money.  I’ll give you an example.  And this was one of the problems with Community Wizard.  I have rarely seen a community where the Federal Government wasn’t paying somebody $100 to $150 dollars an hour to do something that somebody in that community would love to do for $20 to $25 dollars.  So, have you ever heard my food stamp example?”

Bonnie Faulkner (39:05):  “No.”

Catherine Austin Fitts:  “Okay.  In 30-plus states, I think it’s 37 states, including Tennessee, if you get food stamps and you call in on the hotline, you don’t get somebody in Tennessee or somebody in the United States, you get somebody in India working for JP Morgan Chase.”

Bonnie Faulkner (39:18):  “Oh, that’s right.”

Catherine Austin Fitts:  “Okay, so what that means is I’m paying somebody money to not work in the United States and I’m also paying somebody in India to do a job that that person could do.”

Bonnie Faulkner (39:28):  “Right.”

Catherine Austin Fitts:  “Now, that’s paying twice.”

Bonnie Faulkner:  “That’s right.”

Catherine Austin Fitts:  “That’s not financially efficient.  But those are the kinds, when you start to look at data on a place-based basis, particularly tax-payer money, that’s when you start to see those, what I call, arbitrages.  Those opportunities to save money for tax-payers that in fact enhance the incomes and the equity values in that place.  And you give small business the ability to compete in that way against big business.  And big business is gonna lose a lot of business.”

Bonnie Faulkner:  “Yeah, but they’re sending those jobs overseas for their own reasons.”

Catherine Austin Fitts (40:08):  “Right.”

Bonnie Faulkner:  “They’re not trying to help communities.”

Catherine Austin Fitts (40:10):  “Right.”

Bonnie Faulkner:  “I mean there’s a bigger reason why they’re doing that, right?”

Catherine Austin Fitts:  “Well, in that case I would say they’re trying to control the food systems.  If you drive across Tennessee you see tremendous amounts of beautiful land lie fallow.  And, in the meantime, we are shipping in a billion dollars of food a year from, you know, including hundreds of millions of dollars from Latin America.  And that is facilitating the industrialisation of agriculture globally.  And so they wanna use Federal money to kick start that process.  And it’s funny because oftentimes you’ll hear someone say, ‘Oh, well, big business can do it cheaper.’  Well, no, no, no.  When you look at the entire ecosystem of that thing, so if we take food and we look at what we’re spending on the people who are not working or the people who are getting sick ‘cos they’re not eating fresh food and you go ecosystem-wide, what you realise is the agricultural system can do this one process faster, cheaper.  But when you look at the whole ecosystem, it’s not saving money at all.  It’s creating a very dysfunctional system.  That gives these players control.  But it’s not economically healthy and there’s a much better system.”

Bonnie Faulkner (41:27):  “Oh, well, of course.”

Catherine Austin Fitts:  “Right.”

Bonnie Faulkner:  “No, but it puts control into certain hands.”

Catherine Austin Fitts:  “Right.”

Bonnie Faulkner:  “Exactly.”

Catherine Austin Fitts:  “Right.”

Bonnie Faulkner (41:32):  “Well, what happened to you at Hamilton Securities?  I know you—”

Catherine Austin Fitts:  “Well, I’m still asking that question.  What happened was we had our offices seized and all of our software, literally, taken.  They wouldn’t give it back.  It took six years to get it back.  And when—”

Bonnie Faulkner:  “And that included this Community Wizard.”

Catherine Austin Fitts:  “Yeah, well, when we finally got it back the most valuable pieces had disappeared forever.  It was gone.  So they seized.  I started litigating.  Well, the litigation started in ’96, but I first filed my lawsuits in ’98 and there were twelve pieces of litigation that went from ’96 to 2006—so, ten years, and interspersed with a variety of smear campaigns and very serious physical harassment that got unbelievably serious.  And it was one of those things, Bonnie, they tried to do a fishing expedition to find something that they could, you know, they accused us of all sorts of wrongdoing.  And then they went on a fishing expedition, trying to find a parking ticket to prove it.”

“When I wrote this story, I wanted a case study that would really help people who are not financial people to go into the inner workings of the financial system and see how Wall Street and Washington rig these deals.  What’s the financial engineering that allows all this financial manipulation and financial coup d’état to take place?” —Catherine Austin Fitts

Bonnie Faulkner (42:34):  “And you’re talking about the Government went after your company.”

Catherine Austin Fitts:  “Yeah, the Department of Justice.  And so it’s a long, shaggy-dog story.  And I should just say I wrote a story that tells a lot of it and then puts up hundreds, thousands and thousands and thousands of pages of legal documentation.  So, if you wanna know the whole story, have at it.  It’s called Dillon, Read & the Aristocracy of Stock Profits.  And it’s about this two-tiered system and how it’s engineered and I use a case-study of a prison company that was financed by my old firm on Wall Street, Dillon Read.  So, it’s Dillon, Read & the Aristocracy of Stock Profits and the URL is dunwalke.com, D-U-N-W-A-L-K-E-dot-com.  And if you go into the resource section was, when I wrote this story, Bonnie, I wanted a case study that would really help people who are not financial people to go into the inner workings of the financial system and see how Wall Street and Washington rig these deals.  You know, how does, what’s the financial engineering that allows all this incredible, sort of, manipulation and financial coup d’état to take place?  So, we put a resource centre that documents every part of the story.  I mean, it just goes on and on and on.  The reader Resource Centre is much, much longer than the, it’s really an on-line book.  So, if you want the documentation go under organisations, under Hamilton Securities.  There’s thousands of pages of the litigation and explanations, so I don’t wanna tell the whole shaggy-dog story.  But, essentially, what happened was they wanted to have a housing bubble.  And you couldn’t have a housing bubble if the honest people were in charge of HUD.  And so you had to kind of get the honest people out.  And we were the lead contractor for some very fine Government officials.  And they needed us gone.

“And we went into the court in 2004 and the judge kept postponing the night before.  He kept postponing because he kept hoping we’d settle.  I kept saying, ‘No, I won’t settle, I won’t settle.’  So, we get into court and there’s nothing.  They have no evidence.  They have nothing.”  —Catherine Austin Fitts

“So, what they did was they had a phoney-baloney scan-, so, we were accused of wrongdoing.  And they went on a fishing expedition and couldn’t find anything.  So, they were trying to falsify evidence and I caught them and was able to doc-, it’s all up there on the website.  I was able to document them falsifying evidence.  And so that stopped that.  And then what happened was, that was sort of ’99, they came to us and said, we’ll settle because we tried to frame you and we can’t find anything wrong.  And I got, I, sort of, got my back up, which is funny ‘cos I’m a lover not a fighter.  And I said, ‘You know something? No. I’m not gonna settle. You have to come into court and produce evidence of wrongdoing ‘cos I have to prove that it’s an empty suit.’  Well, that’s when it got really ugly because the litigation went on ‘til 2003.  It came from twelve pieces of litigation down to three.  And I won the very big one in 2003.  That’s when the poisonings got really bad.  Because then the Government was in a pr-, you know, they had no way out.  They had no face saved.  They had no excuse.  What was this all about, if there was never any evidence of wrongdoing?  Why had they spent tens of millions of dollars and made so much noise?  And what was this about?

“Well, of course, it was about, you know, you can’t run a housing bubble with a kind of collateral fraud in it with someone like me saying what I was saying.  So, let me, I’ll finish this and let me come back to the collateral fraud because that’s the important takeaway from what happened to Hamilton.  So, we won the big case in 2003 and then went back into the, there were sort of two courts involved, and went back into the other court and battled it out since 2004 and then went to settlement in 2006.  And one of the reasons I agreed to settle was having gone through the first process and all the courts, I had proof that they had no evidence.  It was really funny.  One of my attorneys just couldn’t believe that they had nothing.  That it was an empty suit.  And I kept saying, ‘It’s empty, it’s empty, it’s empty.’  And we went into the court in 2004 and the judge kept postponing the night before.  He kept postponing because he kept hoping we’d settle.  I kept saying, ‘No, I won’t settle.’  So, we get into court and there’s nothing.  They have no evidence.  They have nothing.

“So, you know, what happened, Bonnie, was when you have these kind of fights,  there’s what you’re fighting about, really, and then there’s the pretence that’s used to play the game.  So, what we were litigating about was the pretence.  The fight was about something else.  And it was interesting.  One of the things I finally realised was that the only way I could really stop it, in the ‘90s, was to launch a website with all the documentation.  And the major lawsuit against us had been brought under seal.  And we were not allowed to see it.  And we were not allowed to know who was accusing us of anything.  But they would always leak to the press.  So, I had to address the allegations, but I could never force them into court ‘cos I couldn’t even see them.  So, this went on for years and years and years.  And finally what I did was I launched the website against my attorney’s advice and the key [time] was unsealed in a week.  So, then the investigation kept going on and on and on.  So, I finally got a wonderful reporter, Paul Rodriguez, wrote a story in Insight magazine, got the investigation [side].  So, one of the things I discovered was there was no point in fight-, you know, I had to address the specifics of the litigation I was dealing with, but I had to attack them on the real issues.

“So, let me give you an example.  When Paul wrote the story, it came up on Friday.  On Saturday, WorldNetDaily picked it up.  And on Tuesday the HUD Inspector General was fired, who was one of the lead enforcers coming after me.  Insight magazine had written a story about all the money that was going missing in the Federal Government, including HUD, there was massive amounts of money just disappearing out the back door through HUD.  And the reporter writing the story and I met the following week.  And HUD’s new financial statements had just come out.  And I spent, I don’t know, ten hours walking through them with a reporter and helping them design specific questions to ask about what was going on financially at HUD.  Now, he would have had to be a very significant insider at HUD to be able to, you know, sort of, unpack the information and develop these questions.  The reporter faxed in those questions at 12:30 in the afternoon to the HUD IG’s office.  At 4:30 in the afternoon, my attorney’s got a fax saying the investigation of me was over.  So, I was attacking them, not on, you know, the little game, we were playing.  I was attacking them on the fact that, if you look at what was happening financially, billions of dollars was being stolen out the back door at HUD.  And that’s why they wanted the clean team out.”

Bonnie Faulkner (49:44):  “So, then as soon as you attacked them on the real political issues, then it stopped.”

Catherine Austin Fitts:  “Well, it changed.  That piece of it stopped.  I still had to go to court.  And I’ll tell you.  I used to get into this dance because if you look at the black budget being financed out of HUD, one of my theories was it was really being managed from the National Security Council.  And so I started to get involved for a variety of reasons, not just this, and 9/11.  And Kyle Hence from 9/11 would invite me to speak on 9/11 in Washington.  And every time I made an appointment to speak, the judge would announce a hearing at that time.  And it was really funny.  And, of course, I couldn’t talk to my attorneys about this.  They just didn’t want to believe there was any connection.  So, finally one day I said to Kyle, Kyle called me and all the families were coming to the national press conference for a conference and so I agreed that I would speak.  And then, sure enough, our judge announced a hearing that afternoon at like 1:30.  So, I called Kyle and I said, ‘Can I go on first? Because if I have a car waiting and I go on first, I can make it across town.’  And so Kyle let me go on first and, you know, all the cameras were there.  We had all the big, major media.  I jumped in a cab, got over, walked into court, sat down, and the judge walked, he was so angry.  He was looking at me like [laughs], and that’s when I said, ‘This National Security Council thing is probably true.’

Bonnie Faulkner (51:21):  “You know, I remember back in the early days after 9/11, the unanswered questions—”

Catherine Austin Fitts:  “Yeah.”

Bonnie Faulkner:  “—that you were a part of—”

Catherine Austin Fitts:  “Right.”

Bonnie Faulkner:  “—that you were talking about.  I remember that.”

Catherine Austin Fitts:  “Right.  It was a very a very fascinating story because I, when I first got involved in, what happened to me is in 1997 I said, ‘Look, I, you know, I would not be, I’m in a political mess. And the reason I’m in a political mess was because I didn’t see the game around me.  So, I need to look at all the covert money flowing in and out of HUD and I need to understand, you know, what’s really going on.  And so that got me into talking and learning from a lot of people who were trying to research and understand the corruption.  And one of the things I discovered was that they were really thinking too small.  First of all, they were, they’d get a little piece of information and they’d try and horde it.  So, they weren’t sharing information and collaborating.  But the second thing was that they were trying to answer, you know, they’d get a little piece of information about something where they didn’t see the whole picture.  And they’d try to answer what was happening instead of asking questions because the worst thing you could do is diagnose, for example, never operate until you know what the diag-, you know, until what’s really going on.”

Bonnie Faulkner:  “Right.”

Catherine Austin Fitts (52:46):  “So, I really felt we needed a new way of collaborating and we needed a way of keeping something open and not bringing certainty until we really had knowledge or evidence.   One of the wonderful researchers on 9/11, I think his, somebody X, do you remember him?  He was a Canadian who published a series of articles in Scoop Media.  But he came up with this, sort of, idea of unanswered questions.  And I said, ‘That’s it. That’s what we need to do. We need to just, we do not have the power to create evidence in a court of law ‘cos we’re not the Government, we don’t have subpoena powers. But what we can do as citizens is we can ask questions.’  And so Tom [Flaco], I’d known Tom through the suppression of precious metals market and that group, and he had come to our press conference at the National Press Club and that’s when we decided, okay, let’s do the same thing.  And because I had been an Assistant Secretary of Housing, that gave us the entrée to have a, you know, something at the National Press Club.  So, we did.  And it was very, very successful because before the architects and scientists that really built up a formidable book of analysis, you know, you needed the time when people could say, ‘I don’t know, but something’s wrong’ and ask questions.  And as that happened, and it was very collaborative, it was very global, it just kept the space open and it kept it alive.  And then over time, people who had real powerful expertise came in and took it over.  And I think that’s when it really went.”

Bonnie Faulkner (54:17):  “Well, what did you want to finish up saying about collateral fraud?”

Catherine Austin Fitts:  “Collateral fraud is as follows.  Let’s say I have a house.  Let’s say the house is worth a hundred thousand dollars.  And let’s say the person in the house can afford to support an $80,000 dollar mortgage.  If I’d lend them a hundred-thousand-dollar mortgage, that’s predatory lending or fraudulent inducement or something like that.”

Bonnie Faulkner:  “Because they can’t afford to pay—”

Catherine Austin Fitts:  “Because they can’t afford to pay a hundred thousand.”

Bonnie Faulkner:  “Yeah.  And you know it’s fraudulent inducement because you as the lender know they can’t before, right?”

Catherine Austin Fitts (54:52):  “Well, it’s only fraudulent inducement if they don’t know.  So, let’s say they’re a software developer in an area where I know as a financial institution I’m financing those jobs moving abroad, but they don’t know it.  That’s fraudulent inducement.”

Bonnie Faulkner (55:09):  “But the person you’re lending to can’t know this.”

Catherine Austin Fitts:  “Right.”

Bonnie Faulkner:  “I see.”

Catherine Austin Fitts:  “My failure to disclose to them something about their financial system that I know that they don’t know, that’s fraudulent inducement.  Per my understanding.”

Bonnie Faulkner:  “Yeah.”

Catherine Austin Fitts:  “Okay.  Collateral fraud is, while I’m at it, if I create nine other mortgages on that home, but don’t tell them, but put it into a mortgage-backed securities pool, which I layer with derivatives on top.  Okay?  So, now I’ve got one home and ten mortgages.”

Bonnie Faulkner:  “Now, how do you get the ten mortgages?”

Catherine Austin Fitts:  “Uh, I just create the paper.”

Bonnie Faulkner:  “Oh, I see.  Yeah, okay.”

Catherine Austin Fitts:  “I just, they’re fraudulent.”

Bonnie Faulkner:  “Yeah.  Right.”

Catherine Austin Fitts:  “Now, the question is, how do I keep paying the debt service on the nine mortgages?”

Bonnie Faulkner:  “Right.”

Catherine Austin Fitts (55:45):  “And we used to see these communities.  It used to happen a lot in Chicago where you’d see one house default five times a year.  And you’d think, ‘How can a house default five times a year?’  And what you realise is they were churning those houses, I think, to generate the debt service to keep the mortgage debt service paid on the pools full of fraudulent mortgages.  So, I think what happened was—”

Bonnie Faulkner:  “Well, now wait a minute.  When you say ‘they were churning’ the houses to raise the money to service the debt, how were they ‘churning’ them?  What do you mean?  They were loaning them out to more people?”

Catherine Austin Fitts (56:16):  “So, let’s say I bring drugs into a community.”

Bonnie Faulkner:  “Yeah.”

Catherine Austin Fitts:  “Okay.  And so now I’ve got a hundred thousand dollars of drug profits.”

Bonnie Faulkner:  “M-hm.”

Catherine Austin Fitts:  “But I need to launder it ‘cos it’s not clean.”

Bonnie Faulkner:  “Right.”

Catherine Austin Fitts (56:29):  “So, I buy a real estate property for a hundred thousand or let’s say I buy it for $80,000 and I do some slap-dash rehab for $20,000 dollars.  Okay, so I’ve got a hundred thousand dollars in it.  I turn around and sell it to a straw buyer.  I get a phoney-baloney appraisal and I sell it to a straw buyer for $200,000.  Okay, so now I’ve got $200,000 and it’s been washed by the sale.  So, it’s clean.”

Bonnie Faulkner:  “Okay.”

Catherine Austin Fitts:  “So, my money’s laundered.  I’ve doubled my money.  I have to pay a couple of bribes, but let’s say I’ve got $180,000.  Okay, that’s a quick profit.  Um, you default.  The straw buyer defaults immediately on the mortgage.  It goes back into the FHA Fund.  Okay, so now the FHA Fund owns the foreclosed property.  I take $80,000 from my $180,000 and I buy the property again.  And I keep doing it.  And I can generate significant profits.  Let’s say I do it five times.  And let’s say I can generate $400,000 to $500,000 dollars in pure profit.  I’m just pulling money out the back door of the Fund.”

Bonnie Faulkner:  “You’d make a good criminal.”

Catherine Austin Fitts (57:30):  “Yeah. [Laughs]”

Bonnie Faulkner:  [Laughs]

Catherine Austin Fitts (57:30):  “It’s really funny.  One guy who’d do Iran-Contra frauds swore to me that Oliver North used to say that HUD was the candy store of covert revenues.  And it’s funny because what happened was my lawyers got me to record history of my chronology, all the, sort of, problems I had dealing in the [G.H.W.] Bush Administration.  And after I had recorded it, I listened to it and then through the process of doing the research on the litigation, I started to meet all sorts of people from the intelligence agencies who had done that kind of fraud.  And they would explain to me how the different frauds worked.  And then I would go back and look at what had, and I was like, ‘Oh, that’s what that was about! Oh!’  You know, finally, it all made sense.  You know, until then I felt like I was living in a puzzle palace.  So, I took a lot of the fraud back and sort of compared it, unpacked it.  But my guess, Bonnie, is during the ‘80s we had a huge amount of fraud in the housing bubble in the ‘80s.  And I was part of cleaning it up in ’89 and ’90, including the fraud at HUD.  And I think what happened in the ‘90s is, given securitisation and then derivatives on top of it, I think the collateral fraud has been so enormous that you literally can’t mark-to-market ‘cos it’s too much.”

Bonnie Faulkner (59:00):  “Right.”

Catherine Austin Fitts:  “And we’re seeing a variety of things being done very surreptitiously and with the bailouts.  ‘Cos, think about it, when the bailouts happened, $8 Trillion dollars would have paid out all the residential mortgages in the country.”

Bonnie Faulkner (59:14):  “Is that right?  $8 Trillion?”

Catherine Austin Fitts (59:14):  “Right.  So, the bailouts were $12 Trillion.  They were 150% of all outstanding mortgages or supposed to be.  And I think one of the reasons you saw bailouts so much greater was because of the collateral fraud in derivatives.  And you know all this.  You know, one of the things I always tell somebody who is negotiating on a foreclosure is, ‘Demand to see the note.’

Bonnie Faulkner:  “Yes.”

Catherine Austin Fitts:  “And in many cases you find these cases where people can’t get the note.  And I think one of the reasons is ‘cos there’s not one note, there’s ten notes and the system has so much fraud.  I think that’s one of the reasons they created the MERS System [Mortgage Electronic Registration System].  So, you didn’t have to go through the local courthouse.  You could go through the local courthouse on one, but then you could do the rest of it behind MERS.”

Bonnie Faulkner:  “And that’s a computer system, right?”

Catherine Austin Fitts:  “Right.  It’s a national computer system.  And it’s funny because, you know, I started to tell people this in 1998 and told them all the way through to 2008.  You know, it’s now 2011 and they’re still trying to grapple with it.  And that is, you know, if outstanding mortgages are $8 Trillion, it wouldn’t surprise me if there’s another $2 Trillion of collateral fraud or more because the system got that completely out of hand and out of control.  Or I shouldn’t say it got out of hand and out of control.  It got that busy financing things that have nothing to do with the law or the official story as we know it.  I don’t, in one sense I don’t think it was out of control, I think it was doing what it was supposed to be doing.”

Bonnie Faulkner:  “I’ve been speaking with Catherine Austin Fitts.  Today’s show has been ‘Unpacking Mr. Global, Part 1.  Catherine Austin-Fitts has been an investment banker, a government official, an entrepreneur, and an investment adviser.  She was a Managing Director and Member of the Board of Wall Street firm Dillon, Read, & Company Incorporated, Assistant Secretary of Housing and Federal Housing Commissioner in the first Bush Administration, President of the Hamilton Securities Group (investment bank and financial software developer), and is currently Managing Member of Solari Investment Advisory Services and Sea Lane Advisory.  Catherine’s experiences on Wall Street and in Washington D.C. are chronicled in Dillon, Read and the Aristocracy of Stock Profits.  Visit her website at Solari.com.  That’s www.solari.com.  ‘Guns and Butter is produced by Bonnie Faulkner and Yara Mako.  To make comments or order copies of shows, email us at [email protected] .  Visit our website at www.gunsandbutter.org.”

An audio archive of “Unpacking Mr. Global, Part 1″ may also be found here.

Transcript by Felipe Messina

Image by flickr user alancleaver_2000

MEDIA ROOTS— Recently, economic journalist Doug Henwood was interviewed on Pacifica Radio’s “Against the Grain” to dispel various myths he and his interviewer tied to the Occupy Wall Street Movement.  One of which was about the Federal Reserve being the source of all evil.

The Federal Reserve System is the private U.S. central bank which controls our monetary policy.  And although Federal Reserve Banks are “privately owned and locally controlled corporations,” run by ruling-class elitists, we’d be worse without it, claimed Henwood.

The interviewer associated OWS concerns over the Fed with conspiracist quackery, but avoided all of the real perils of the Fed in its current structure.  Henwood’s main arguments in favour of the Fed included assuring, contrary to popular belief; it wasn’t nefariously hatched up at some secret meeting on Jekyll Island, but that it was instead “a project of many decades undertaken by the ruling-class.”  Gee, that makes me feel much better…

The scale of our modern economy, per Henwood, necessitates a central bank capable of injecting liquidity into the system swiftly in times of crisis, something the gold standard could not do.  Henwood also cited Bernanke regarding the virtues of stimulus, despite the fact that stimulus is rigged for the 1% to horde capital whilst the 99% pray for crumbs and sink deeper into debt.

The biggest problem is that the Federal Reserve system works above the law, which is why Bank of America has gotten away with dumping $75 Trillion of derivatives on U.S. taxpayers with Federal approval.  With the Fed having to answer to no one, why wouldn’t its ruling-class drivers horde profits whilst shifting liabilities onto taxpayers?  It’s unlikely to be due to the benevolence of their hearts.

Messina

***

SEEKING ALPHA— Bloomberg reports that Bank of America (BAC) has shifted about $22 trillion worth of derivative obligations from Merrill Lynch and the BAC holding company to the FDIC insured retail deposit division. Along with this information came the revelation that the FDIC insured unit was already stuffed with $53 trillion worth of these potentially toxic obligations, making a total of $75 trillion.

Many big banks, including Bank of America, issue derivatives because, if they are not triggered, they are highly profitable to the issuer, and result in big bonus payments to the executives who administer them. If they are triggered, of course, the obligations fall upon the corporate entity, not the executives involved. Ultimately, by allowing existing gambling bets to remain in insured retail banks, and endorsing the shift of additional bets into the insured retail division, the obligation falls upon the U.S. taxpayers and dollar-denominated savers.

Even if we net out the notional value of the derivatives involved, down to the net potential obligation, the amount is so large that the United States could not hope to pay it off without a major dollar devaluation, if a major contingency actually occurred and a large part of the derivatives were triggered. But, if such an event ever occurs, Bank of America’s derivatives counter-parties will, as usual, be made whole, while the American people suffer. This all has the blessing of the Federal Reserve, which approved the transfer of derivatives from Merrill Lynch to the insured retail unit of BAC before it was done.

The FDIC opposed the move, but there is nothing the FDIC can do, except file a petition for a writ of mandamus in court, against the Federal Reserve, seeking a declaration that the approval was illegal. But, the FDIC would lose, because Congress has given the Federal Reserve Board ultimate power to do whatever it wishes.

So, the bottom line is this: When something bad happens, and the derivative obligations are triggered, the FDIC will be on the hook, thanks to the Federal Reserve. The counter-parties of Bank of America, both inside America and elsewhere around the world, will be safely bailed out by the full faith and credit of the USA. Meanwhile, the taxpayers and dollar denominated savers will be fleeced again. This latest example of misconduct illustrates the error of allowing a bank-controlled entity, like the Federal Reserve, complete power over the nation’s monetary system. The so-called “reforms” enacted by Congress, in the wake of the 2008 crash, have vested more, and not less, power in the Federal Reserve, and supplied us with more, rather than less instability and problems.

This is not an isolated instance. JP Morgan Chase (JPM) is being allowed to house its unstable derivative obligations within its FDIC insured retail banking unit. Other big banks do the same. So long as the Federal Reserve exists and/or other financial regulatory agencies continue to be run by a revolving door staff that moves in and out of industry and government, crony capitalism will be alive and well in America. No amount of Dodd-Frank or Volcker rule legislation will ever protect savers, taxpayers or the American people. Profits will continue to be privatized and losses socialized.

Read more about how Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval.

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