In Banks We Trust
Money making, lending, and laundering
from boardrooms to back alleys
by Penny Lernoux
Penguin Books, 1984, paperback
David Rockefeller, who tended to treat the bank as an instrument
of his political ambitions. Unlike his brother, Nelson, David
Rockefeller was interested not in public office but in the political
power conferred by international finance. He saw himself as a
white knight, charging about the world's capitals to slay socialist
dragons. But, as one observer noted, when so engaged Rockefeller
often seemed like a caricature of an international capitalist:
He wag a man capable of describing himself as "the spider
in the center of a web of international intrigue."
Actually, Rockefeller was no better at
intrigue than at banking. His Trilateral Commission,* founded
in 1973 with an all-star cast of businessmen and politicians from
the First World (it included Jimmy Carter), was supposed to plan
strategy for outsmarting the Third World. Instead it was soon
overwhelmed by the political and economic differences that divided
the triangle of Japan, Europe, and the United States. While the
commission managed to provoke considerable wrath in the developing
countries, its only evident contribution to the North-South dialogue
was a book suggesting that democracy was bad for business.
Rockefeller's relations with Iran and
Argentina proved notably shortsighted. As the "Shah's banker,"
Rockefeller was on warm terms with Mohammed Reza Pahiavi, and
Chase made more loans to Iran than did any other U.S. bank. But
when the Shah was deposed in 1979, Chase became an Iranian symbol
for the hated "Yankee imperialism." Rockefeller hardly
helped matters by persuading the Carter administration to admit
the Shah to the United States, thereby precipitating the hostage
Nor were European bankers amused by Chase's
decision to declare a $500 million syndicated loan to Iran in
default. Ten days earlier the Iranian Government had instructed
Chase to pay the interest on the loan out of Iran's London deposits,
and the European banks in the syndicate protested that Chase had
no right to call a default. They said that Chase was following
its own narrow interests to the detriment of the syndicate and
the whole global banking system, because Rockefeller, mixing his
personal brand of politics with banking, was bent on punishing
the revolutionary government in Iran. In retrospect the Europeans
were right: Iran repaid all other bankers without such arm-twisting,
and Chase was left with a black eye.
Rockefeller proved similarly indiscreet
in Argentina, where he went out of his way to praise the policies
of his good friend, Economy Minister José Martinez de Hoz,
who was shortly to be sacked by Argentina's military government
for bringing on the worst economic debacle since the Depression.
Rockefeller is also remembered by thousands of victims of the
military's repression as the American banker who told Argentina's
generals not to worry about human rights.
The bigger the bank, the less likely it is to be deterred by government
overseers(mere gnats buzzing around an elephant. Small banks may
be forced to pay dearly for their sins, but the big ones know
that the most they need fear is a slap on the wrist, since the
government will do nothing to jeopardize their solid reputations.
"The Federal Reserve takes the position that it cannot make
a judgment [on the big banks] because such a judgment might lead
to a lack of confidence," explained a congressional source.
Of the giants, Citibank is the recognized
champion at running rings around the regulators. "Citibank's
role," said a congressional critic, "is to defy the
law. As noted in a memorandum prepared by a Citibank vice president,
the bank's management "feels it can defend all the tricks
it is presently engaged in [and] receive no stronger than a sharp
reprimand and a 'don't do it anymore' "- assuming, of course,
that the regulators even discover the "tricks."
Back in the 1970s, when Citibank was aiming to be first among
U.S. banks, Chairman Wriston rashly set a goal of 15 percent a
year in earnings growth. For most of the decade Citibank met that
goal, but in the process it endangered longer-term profits and
stability. Citibank representatives in foreign countries were
not asked to estimate the likelihood of repayment when they pushed
loans, as long as they could demonstrate a 15 percent annual growth
rate. But in the 1980s, when countries all over the world were
announcing their inability to pay the interest-never mind the
principal-these loans pulled down Citibank's earnings. The bank's
"aggressive management" also blanketed the United States
with twenty-six million unsolicited credit cards in a bid to corner
that market. "Naturally," said one observer, "people
with credit problems accepted the offer." Such consumer operations
cost the bank $225 million in 1980 and 1981. "The reality,"
said The New Republic's financial writer, William Quirk, "is
that Citibank is bust. The true value of what it owns is less
than what it owes. "
a specialist in financial crimes
The public tolerates white-collar crime
because it is presented to them as victimless.
They don't realize that someone always pays.
U.S. sociologists say that there is a difference, in the popular
moral judgment, between a businessman or banker who may "trifle"
with the law and street criminals who "really" break
it. The difference arises, of course, because of the fear of physical
violence, but in a lifetime of crime, muggers will not steal what
white-collar thieves take in a single year.
Bankers spend a great deal of money on publicity to convince the
local community that "you can trust in us," yet they
themselves do not think of banking as a trust. Ethical considerations
that formerly served as operational guidelines have become anachronistic,
and naturally the changed atmosphere has attracted gamblers and
con men. A bank's style is set by top management; and if a chairman
or president tolerates corner cutting ... that is reflected in
the ranks, in the employment of people with questionable backgrounds
... and the type of people with whom they do business... And behind
the con men may will be organized crime.
The huge sums of money criminal enterprises now generate amounts
that can be handled only by a bank. Drug traffickers and other
criminals still tote suitcases of money across borders, but it
is a risky business and nowadays represents only a small fraction
of the cash volume. Gold, jewelry, and other valuables also present
transport problems. Banks, on the other hand, can instantly telex
billions of dollars to any city in the world, and criminal investigators
say that when a bank wants to hide the trail it is almost impossible
to follow. Banks have the added advantage of being the least-regulated
sector of international business because of bank reserve. Unlike
the producer of manufactured goods or a commodities trader, a
banker needs no license to export and is not required to provide
detailed data on foreign dealings. Thus there are no physical
barriers and almost no legal ones to recycling dirty money.
The Nugan Hand Bank  ... attracted depositors with offers
of private-banking services, the highest interest rates in the
region, tax-free deposits, and complete secrecy. Within six years
it had twenty-two branches around the world. But Nugan Hand [bank's]
biggest business came from laundering money for Asian and Australian
heroin dealers; not coincidentally, the bank's officers read like
a Who's Who of the CIA. Despite CIA denials of involvement, there
is strong historical evidence to support the suspicion that the
bank was founded to help finance the CIA's role in Southeast Asia's
As noted by scholar Alfred W. McCoy in
The Politics of Heroin in Southeast Asia, after World War II Washington
believed that the United States was the rightful heir to Europe's
Asian colonial empires. To legitimize their "foreign adventures,"
America's cold warriors embraced a militant ideology that regarded
all Asian nationalist struggles as pawns of "international
communism." The CIA became the vanguard of the anti-Communist
crusade; any ally was welcome and any means justified. During
the early 1950s, for example, the CIA backed the formation in
Burma of a guerrilla army of Nationalist Chinese, who were responsible
for almost a third of the world's illicit opium supply. In Laos
the CIA created a Meo mercenary army whose commander manufactured
heroin for sale to American GIs in South Vietnam. And in late
1969 new heroin laboratories sprang up in the Golden Triangle,
where Burma, Thailand, and Laos converge. "The State Department,"
wrote McCoy, "provides unconditional support for corrupt
governments openly engaged in the drug traffic."
In view of such activities, a drug bank
set up by the CIA has a certain logic, particularly since a bank
was obviously necessary to recycle the huge sums of money involved
in the heroin traffic.
The question is whether the people who ran the bank [Nugan Hand]
were in it for the money or because they thought they were serving
a political cause. McCoy, whose observations were made in the
late 1960s, did not think the CIA was in the drug traffic to finance
its clandestine operations or because of a few corrupt agents.
Rather, its role was the "inadvertent [and] inevitable consequence
of its Cold War tactics."' But by the mid-1970s the cold
war hysteria had passed, and political reasons for dealing with
drug traffickers seemed less compelling. So either the CIA was
carrying on its own private cold war or Nugan Hand was an intelligence
cover for crime. Frank Nugan's activities suggest the latter.
The [Nugan Hand] bank was actively engaged in the drug trade.
One of its principal branches was in Chiang Mai [Thailand], in
the heart of Thailand's poppy-growing fields. Australia's biggest
drug pushers operated out of this region; they also banked with
Nugan Hand. Among the bank's clients was the $100 million "Mr.
Asia" heroin syndicate, which also arranged for the contract
murders of at least three persons in Australia. Neil Evans, former
head of the Chiang Mai branch, testified that during six months
at the bank he saw millions of drug dollars pass through the branch.
He also said that Hand had told him that he had arranged for Nugan
Hand to become the CIA's paymaster "for disbursement of funds
anywhere in the world on behalf of the CIA and also for the taking
of money on behalf of the CIA."
A former executive of the [Nugan Hand] bank told Inquiry magazine
that under William Colby the CIA laundered millions of dollars
through Nugan Hand to support pro-U.S. political parties in Europe,
allegedly including Italy's Christian Democrats. The bank was
founded while Colby was director of the CIA, and he continued
to play a part in its affairs after he left the agency.
... In addition to drugs, Nugan Hand was
involved in various arms deals with Indonesia, Thailand, Malaysia,
Brazil, and the white Rhodesian Government of Ian Smith.
The [Nugan Hand] bank apparently was originally part of a deep-cover
intelligence operation known as Task Force 157, which worked with
the CIA but was controlled by the U.S. Office of Naval Intelligence
and was directly responsible to strong-willed Secretary of State
Nugan Hand's part in the heroin and arms traffic underscores the
increasing importance of the financial sector for criminal elements.
Investigations by the Australian Royal Commission showed that
the bank regularly transferred funds from Sydney to Southeast
Asia for payment of heroin shipments to Australia, which were
sent in containers to the West Coast of the United States. The
bank also appears to have been a financial conduit for an Australian
mobster in his business dealings with Santo Trafficante, Jr.,
the underworld's boss in Florida and the heir to Lucky Luciano's
heroin network. In addition to drugs, both Nugan and Hand were
personally involved in the illegal arms traffic. The CIA prefers
such "bankers" because they have no qualms about financing
the agency's political causes, and association with the CIA provides
the bankers with a cover for criminal activities.
As observed by [Alfred] McCoy in 'The Politics of Heroin in Southeast
Asia', addiction in the United States was nearly eliminated during
World War II because heroin supplies were cut off and the international
criminal syndicates were in disarray. Within a few years of the
war's end addiction was again on the rise due to reorganization
of the drug syndicates and expansion of Asia's opium industry,
in which the CIA played a major role for political reasons. As
documented by McCoy, the CIA helped "inflict a heroin plague
on ourselves," because it thought that any means justified
the end, though in this case the end was as dubious as the means.
Miami lawyer Paul E. Helliwell used banks to serve his CIA drug
connections in Southeast Asia. But Helliwell was far more experienced
in the politics of drugs... In a long career that embraced the
opium trade in China, CIA covert work in Florida, and Mob-connected
schemes in the Caribbean, Helliwell faltered only once, when one
of his CIA banks ran afoul of the Internal Revenue Service. Until
its demise in 1977, his Castle Bank in the Bahamas formed a Caribbean
bridge between the poppy fields of Thailand and organized crime
in the United States. A spook's spook, Helliwell also proved a
master manipulator of Caribbean bank havens and Panamanian shell
companies in his dual role as CIA paymaster and mobsters' counselor...
Helliwell's career in intelligence and
drugs dated to World War II, when he served as chief of special
intelligence in China for the Office of Strategic Services (OSS).
When the latter was reorganized as the CIA, he was in on the ground
floor... After the war he returned to his native Florida, where
he helped set up and run Sea Supply Inc., a CIA front in Miami...
Sea Supply sent huge amounts of weapons and equipment to opium-smuggling
Nationalist Chinese troops in Burma and to Thailand's police,
who were also involved in the opium trade.
In those years Helliwell was also the
Thai consul in Miami. The consulate operated out of his offices;
its registered foreign lobbyist was Washington lawyer James Rowe.
And Rowe's partner Was the more powerful lobbyist Tommy "The
Cork" Corcoran, who at United Fruit's behest had helped trigger
the CIA's overthrow of the Arbenz government in Guatemala. Corcoran
also represented Chiang Kai-shek's relatives and the Civil Air
Transport, a CIA front that, like Sea Supply, was involved in
the Asian opium trade. At the time Helliwell employed Rowe, he
and Corcoran were two of the closest advisers to Lyndon Baines
Johnson, the rapidly rising Senate majority leader.
Narcotics have often been used as a political
weapon, one of the best known examples being General Chiang Kai-shek's
regime in China before World War II. Thailand's government in
the 1950s also depended on the opium trade to finance political
and intelligence activities. It came to power through the arms
provided by Helliwell's Sea Supply.' An "old China hand,"
Helliwell met many of the principals in the notorious "China
lobby." Back in Florida, he arranged a secret account for
Chiang Kaishek's relatives at one of his Caribbean shell banks,
and rich Thais and other Asians invested in Florida land-development
companies associated with Helliwell.
During World War II heroin addiction dropped
dramatically not only because supplies were cut off but also because
the crime syndicates were in disarray. Five years before the United
States entered the war, organized crime was dealt a serious blow
with the arrest and conviction of the legendary Salvatore Lucania,
known to the world as Charles "Lucky" Luciano. Charming
and strikingly handsome, Luciano ranks as one of the most brilliant
criminal executives of the century: It was due to his efforts
that the old Mafia was reorganized and modernized as twenty-four
family cartels. Luciano also forged an alliance between the Mafia
and the Jewish gangs of Meyer Lansky, who became Luciano's lieutenant
and later the financial genius of organized crime. With the end
of Prohibition in sight, Luciano turned to heroin, which offered
an attractive substitute for liquor. His agents developed an efficient
supply network in China, where Chiang Kai-shek had come to power
with the help of the Shanghai heroin cartel.'
But in 1936 Thomas Dewey's organized-crime
investigators put Luciano behind bars, removing the underworld's
most influential mediator from active leadership. At the same
time that Dewey was "racket-busting," Benito Mussolini
was waging a vicious vendetta against the Mafia, which had insulted
him during a state visit to western Sicily. The outraged dictator
responded by unleashing a reign of terror that nearly destroyed
the Mafia. But World War II gave American and Italian mobsters
a new lease on life, thanks to a cynical alliance between the
U.S. Government and organized crime that involved the intelligence
community in the politics of drugs.
Apprehensive that Nazi saboteurs might
be infiltrating the docks and shipyards of the East Coast, U.S.
Naval Intelligence officials struck a bargain whereby Lansky,
then Luciano's lieutenant, would provide Mafia henchmen to patrol
the waterfront in exchange for the promise of Luciano's release
from prison at the end of the war. Shortly after V-E Day, New
York's Governor Dewey, who had made his reputation by putting
Luciano behind bars, signed the parole papers. The Mafia had also
made a deal, known as Operation Underworld, with the OSS to provide
gangland assistance for the Allied armies when they landed in
Sicily. Later, when he was deported to Sicily, leaving Lansky
to look after the shop in the United States, Luciano expanded
the syndicate's overseas connections, with more than a little
help from his friends in the OSS, now called the CIA. When Communist
waterfront strikers shut down Marseilles in 1947, thus closing
a major French port to American shipping, the CIA called on Luciano.
He furnished hit men; the CIA supplied money and weapons. After
several murders the docks were reopened for American shippers-and
the syndicate's heroin smugglers.' To prevent further strikes,
the CIA provided support and money for former Nazi collaborators
in the postwar unions of France.
When the syndicate later moved into Southeast
Asia's Golden Triangle, the CIA was again accommodating. Ever
zealous to fight communism, the agency shipped cash and munitions
to Laotian, Nationalist Chinese, and Thai mercenaries, who were
also opium growers employed in the syndicate's heroin trade. CIA
planes provided safe passage for the first leg of the drug's journey
to the ghettos of the United States.' In later years the CIA was
to employ Cuban exiles in the South American cocaine and marijuana
trade as informants and hit men for covert operations in Latin
America. The end result of such activities was that the CIA became
a crucial middleman for drug producers and organized crime.
Relying on a strict code of banking secrecy that makes the Swiss
look like blabbermouths, hundreds of banks have set up operations
in the Caribbean. Some are legitimate, but most are what is known
as "brass plate" operations: They consist of a name
on the door, a telex number, and a part-time secretary. About
15,000 companies are chartered in the Bahamas , and there
is one bank for every 600 residents-twenty \ I' times the U.S.
ratio. In the Caymans, once known mainly to skin divers and stamp
collectors, companies have set up more than 14,000 telex numbers
(there are only about 13,500 people in the area) to serve as "domiciliary
The Caribbean banks are used by organized
crime and Latin-American drug merchants to launder money; they
are also ideal instruments to evade taxes. Often the money is
used to buy stateside real estate; in one twelve-month period,
for example, offshore firms bought more than $130 million worth
of Florida real estate, almost all of it in Dade County. Gangsters
win both ways: Not only is their dirty money now invested in clean
enterprises but their offshore firms can claim nonresident tax
benefits. IRS findings show that at least $150 billion are involved
in tax haven operations, and the amount is steadily growing.
After Castro's revolution in 1959, Miami took on a new texture
with the arrival of several hundred thousand Cuban refugees. Recently
they have been joined by impoverished blacks fleeing the tyranny
of the Duvalier family in Haiti, wealthy refugees from the political
turmoil of Central America, and middle-class Colombians in search
of economic opportunities. (Altogether about seven hundred thousand
Latins, or 40 percent of the population, live in Dade County.)
They give the city its special flavor, making it more lively and
cosmopolitan, providing a cultural mix that has helped to make
Miami the United States' principal bridge to Latin America.
While most of the Cuban exile community is honest hardworking,
some have continued careers in crime begun in prerevolutionary
Cuba; others have resorted to violence for political motives or
because it seemed an easy way to make money. Whatever their trade,
all have been marked by a single event - the 1961 Bay of Pigs
invasion, which brought the CIA to Miami in force. Some two thousand
Cuban exiles were hired by the agency, which trained them in the
arts of bomb construction, demolition, and efficient murder. But,
as one historian has observed, "With the failure of the Bay
of Pigs, Cuba became to America what Algeria had been to France."
Like the right-wing Organisation de l'Armée Secrete (OAS),
which rebelled against Charles de Gaulle's accommodation with
Algeria, the CIA's Cuban agents were left in political limbo when
the invasion failed.
Some continued to work with the CIA in
its secret war against Cuba, while others served as CIA mercenaries
abroad" "Monkey" Morales did in the Congo.' But
patriotism soon degenerated into thuggery, with anticommunism
as a cover for blackmail and drug running. "These people
came out knowing how you do it," said a former commando leader
who trained Cubans for the invasion. "They found it absolute
child's play when they started in [with drug smuggling] over here,
because we [i.e., U.S. law enforcement] didn't have that type
of defense. They didn't even need most of their expertise."
Washington's first inkling of a "Cuban
Connection" came in 1970, when the Bureau of Narcotics and
Dangerous Drugs, the Drug Enforcement Administration's predecessor,
cracked a major heroin and cocaine ring run by Cuban exiles. By
the mid-1970s law enforcement agencies were inundated by an exile-directed
drug flood. Other criminal activities flourished, again with political
cover. Miami police said that many instances of crime in the Cuban
exile community alleged to have been politically motivated, such
as the kidnapping and fleecing of supposed Castroite sympathizers,
were actually straightforward shakedowns. "Ninety percent
of the people in exile terrorist organizations like Alpha 66 and
Omega 7 are extortionists," said a former member of the Dade
County Organized Crime Bureau. "They have no intention of
going back to Cuba-that's just a cover for the same old Mob rackets.
But people are afraid to challenge them because they're killers."
The record of these Cubans is impressive:
It far surpasses the terrorist acts of Italy's Red Brigades or
Libya's assassin squads. Many of those responsible for such terrorism
(e.g.Morales) are also in the narcotics big time. As noted by
crime historian Hank Messick, the original excuse for expanding
the Miami cocaine market was to fight communism. Just as [Meyer]
Lansky excused some of his crimes in the name of protecting Jews
and then Israel, so did some Cubans hide their appetite for quick
money behind the flag."
It was an amazingly successful ruse. Because
of their alleged hatred of Castro, these Cubans [anti-Castro Cubans
exiles in Miami] were literally allowed to get away with murder.
Today they are "comfortably into their third decade as America's
first and only home-grown international terrorist group,"
Despite their bloody careers, they move about freely, hold press
conferences, and rarely go to jail; when they do, they stay but
Under the corrupt dictator Fulgencio Batista, Cuba became the
principal U.S. entry point for heroin shipments from Lucky Luciano's
China network.* Meyer Lansky, Luciano's lieutenant, controlled
the Cuban traffic as well as most of Havana's gambling casinos.
But Lansky's main base was Florida, where he met a Sicilian-born
Tampa gangster called Santo Trafficante. The latter had earned
his reputation as an effective organizer in the Tampa gambling
rackets, and in 1940 he assumed responsibility for Lansky's interests
in Havana. By the early 1950s Trafficante had become such an important
figure that he delegated his Havana concessions to Santo Trafficante,
Jr., the most talented of his six sons. When his father died in
1954, Trafficante Junior succeeded him as Mafia boss of Florida
and fell heir to his relationship with Lansky. Unostentatious
and self-effacing, he proved one of the most effective organized-crime
leaders in the United States.
After Luciano's death in 1962, the logical
successors to his leadership in the narcotics trade were his two,,
subordinates, Lansky and Vito Genovese. But Genovese was serving
a fifteen-year sentence on a heroin-trafficking charge; and Lansky,
then in his sixties, was too old and too carefully watched to
become actively involved. Thus, by death and default the responsibility
fell to Trafficante.
Castro's revolution not only upset policymakers
in Washington but also cost Trafficante and Lansky their lucrative
Cuban base. The loss was partially offset by Trafficante's control
of the Florida bolita lottery, a Cuban numbers game that became
enormously profitable when the refugees started pouring into Florida.
Trafficante's organization recruited Cuban gangsters to run the
lottery and serve as narcotics couriers and distributors; and
when the CIA called for volunteers for the Bay of Pigs invasion,
Trafficante supplied his quota.
The foundations for Miami's emergence as an international crime
center were laid in the 1930s and 1940s, when gangsters like [Meyer]
Lansky and [Santo] Trafficante settled there, but it was not until
after the CIA organized hundreds of trained killers in the early
1960s that Miami began to fulfill its promise of notoriety. Protected
by their CIA ties and frustrated in their political ambitions,
these agents turned to the drug trade for a living. When America's
drug boom took off in the mid-1970s, they became the pioneers
of a criminal-industrial complex in southern Florida that now
ranks as the state's biggest business.
The irony is that while the U. S. Government
allowed [drug traffickers] to operate freely for reasons of "national
security," it ignores the genuine weakness they expose in
the nation's physical safety. Cuban and Colombian drug traffickers
have proved that the country's air defenses are a joke. Dozens
of drug planes penetrate U.S. air space daily, undetected by radar.
If they can fly in and out with impunity, a hostile plane or some
mercenary terrorist could do the same.
[Marijuana is] now believed to be the United States' third most
valuable cash crop.
the chairman of a Florida bank
We bankers are always saying how Miami
has become an international banking center like London or New
York. But that's a lot of hogwash. The reason so many banks opened
offices here is because of the hot money, particularly drug money.
Legitimate trade between Latin America and Florida amounts to
more than $18 billion a year, but that is less than a quarter
of the earnings generated by the narcotics traffic, 80 percent
of which flows through southern Florida.
Charles Kimball, a real estate economist who keeps close watch
on foreign purchases of southern Florida property, estimates that
nearly half the $1.5 billion invested yearly by foreign companies
in Miami real estate comes from illegal sources - drug dealers,
organized-crime syndicates, foreign criminals, and international
a spokesman for U.S. Customs (one of five federal agencies trying
to stop the drug traffic in Florida)
You know what would happen if we really
did our job here? If we were 100 percent effective, we would so
drastically affect the economy that we would become the villains.
[There is a] nationwide hypocrisy that blames Latin Americans
for the drug traffic but refuses to recognize that there would
be none without a U.S. market of fifty-two million consumers.
In 1981 Dade County recorded 1.6 homicides a day, putting Miami
at the top the FBI's list of the most dangerous cities in the
United States. Six other cities among the FBI's top eleven were
also in Florida.
The Miami police force has been enlarged by the addition of new
recruits, and there are more judges on the criminal circuit, but
even so the city cannot cope. "In an average month we file
2,705 felony cases after screening," said Lieutenant George
Ray Havens, head of Miami's Criminal Investigative Division. "If
every individual charged was granted a jury trial, we wouldn't
be able to file another case for at least three years. The U.S.
attorney's office has sixty-three full-time lawyers, but even
if they didn't take any more cases it would take nine years to
finish the ones already filed." The Criminal Investigative
Division has twenty-seven agents and receives 476 requests for
investigations every month. "If the case is complicated-say,
a financial racket -we just can't handle it," said the lieutenant.
The Miami police refuse to accept drug
cases because they have no more room to store the seized drugs,
even after burning tons of marijuana in the Florida Power and
Light Company's furnaces. At any given moment the sheriff's office
in Key West is sitting on a $4 million stash of evidence-a target
so inviting that the sheriff's men do little except guard it.
Paroles jumped 50 percent between 1978 and 1980--convicted drug
dealers have so crammed Florida prisons that burglars, armed robbers,
and the like are being turned loose to make room. Even so, most
drug traffickers, and especially the biggest of them, serve only
a short time; the average sentence is less than two years, with
parole in a year. About all the hard-pressed authorities can do
is keep a body count, and even that is a challenge: So many bodies
have piled up at the Miami morgue that the Dade County medical
examiner has rented a refrigerated hamburger van to house the
overflow. "If you stay here, you arm yourself to the teeth,
put bars on the windows, and stay at home at all times,"
said Arthur Patten, a . Miami insurance executive. "I've
been through two wars and no combat zone is as dangerous as Dade
Of all the ethnic mafias, the Colombians
are most like the Sicilians, with tightly knit organizations based
on blood ties. The penalty for family betrayal is death; it is
usually carried out by a shuttle assassin, who takes the morning
flight from Bogota to Miami and returns that night. Long the world's
leaders in counterfeiting dollars, the Colombians have become
more sophisticated in recent years, combining drugs, stolen securities,
and counterfeit money in giant money-cycling operations that span
three continents. Since the mid-1970s, when their role was primarily
that of supplier, they have taken over most of the U.S. distribution
of cocaine. The Cubans still dominate marijuana distribution.
Police say that the traffic's rationalization closely resembles
the organizational changes brought about by Prohibition, when
a network of cooperative syndicates developed throughout the United
States. The older syndicates continue to deal in drugs, but they
function mostly as wholesalers dependent on the Colombian and
Cuban networks for their supplies. The Latin mafias operate like
any multinational corporation, with separate divisions for imports,
transport, distribution, and finance. Each smuggling operation
has one hundred to two hundred employees in Miami, usually illegal
aliens on false passports. The Florida organizations are supported
by larger ones in the producing countries, where complacent politicians
are often paid to look the other way. Some two hundred thousand
peasant families in four countries depend on the traffic for their
If caught, the most a trafficker need expect is a year in jail,
and that deterrent is trivial in view of the enormous profits.
As for the State Department's idea that the traffic can be halted
by dumping the herbicide paraquat all over the Third World, it
is about as realistic as the DEA's infatuation with statistics.
As in Turkey, the peasants just move their crops elsewhere. Moreover,
there is no known herbicide for the coca leaf bush, which is the
source of cocaine and the biggest item in the South American drug
trade. If any deterrent is to be found, it has to be at the money
end. The law of supply and demand has already been at work in
the marijuana market. Marijuana is a declining crop in such producer
nations as Colombia and Jamaica because it can no longer compete
with U.S. production. The DEA didn't stop Colombia's L marijuana
shipments; economics did.
According to GAO, the Justice Department's poor record in seizing
financial assets can be attributed to the failure of DEA and department
prosecutors to press such cases in court. As revealed by the Miami
Herald study, such cases have not been pursued, primarily, because
they are more time-consuming and complex than the quick buy-busts.
According to Lieutenant Havens, "The attitude of the average
bureaucrat is: big cases, big problems; little cases, little problems;
no cases, no problems. People don't want problems."
It is also unhappily true that most people
have a price, and with so many "narcobucks" floating
around Miami, the corruption of some police agents, judges, and
others is inevitable. Half of an entire division of the Dade County
police force has been indicted for payoffs and drug trafficking.
Two individuals were charged with working with a known drug racketeer.
John Scharlatt, a former group supervisor of the DEA's Miami offices
who was assigned to Vice President Bush's task force, skipped
town in the summer of 1982 after being indicted by a federal grand
jury on smuggling and corruption charges.° Admitted Florida's
Attorney General Jim Smith, "Frankly, I lie in bed sometimes
at night and it ... just scares me, the level of corruption we
may have in Florida.
Outspoken Miamians like insurance executive
Arthur Patten have been vilified by their fellows for speaking
their minds about the city's "combat zone." Municipal
leaders called Patten a coward and told him to shut up. He also
lost business from hotel clients who were angered by the bad publicity.
But playing ostrich won't solve the problem. As the Miami Herald
has repeatedly said, "Reality, not image, is South Florida's
A Florida grand jury that studied Miami's
crime problems agreed with the Miami Herald: "We recommend
that the hard issues begin to be addressed. We find that we have
not fully committed ourselves as a society to eradicate narcotics,
and probably we never will. Our local economy apparently has benefited
enormously and our culture has become tolerant of marijuana and
even of cocaine. Yet we ask the small numbers of law enforcement
personnel assigned to narcotics interdiction to stop a supply
for which we create a demand. That is clearly a costly hypocrisy."
Miami, the Wall Street of the $79 billion narcotics traffic, has
attracted more than one hundred banks from two dozen countries.
... If a bank attracts even a small fraction
of the $4 billion deposited by foreigners each year, the profits
can be enormous. Much of the money is "hot" and therefore
accepted only in non-interest-bearing accounts, or changed into
cashier's checks, which can take several months to return to the
bank for collection, giving it another source of interest-free
funds. If the bank is willing to
launder drug money on a regular basis,
it can collect 2 percent commission, in addition to having interest-free
money to lend out at daily rates as high as 20 percent. And if
a bank should prove unprofitable, its owners can sell it to a
foreigner for two or three ( times its real value just because
it has a Florida charter.
Aristides Sastre, president of Republic National Bank, Miami
I don't know anywhere else in the United
States where people just walk off the street and offer to buy
The out-of-state and foreign buyers claim that their institutions
have been attracted to southern Florida by the area's explosive
growth, its Latin-American trade, or the need to service customers,
like the, multinational corporations in Coral Gables. But according
to the Treasury Department there is an additional attraction for
at least one third of the banks in Miami: the huge profits to
be made from laundering drug money.
Since the drug boom began, the Florida banking system has consistently
registered staggering surpluses of cash each year-$8 billion in
1982-or more than twice the surplus cash in all the rest of the
country. Financial experts calculate that more than half the surplus
is hot money.
The regulatory agencies cannot, or will not, stop bank [money]
laundering. The Bank Secrecy Act of 1970 gave regulators a powerful
tool for uncovering illegal bank transactions, but according to
GAO they have not used it. The act requires banks to identify
the depositor and source of money for cash transactions of $10,000
or more, except in the case of customers, like big retail operations,
that have large cash flows. The information is supposed to be
filed with the Treasury within fifteen days of the money's receipt.
Transfers of $10,000 or more to foreign banks must also be reported.
However, GAO found that a significant number of banks ignore the
... According to one Florida state regulator,
most of the bank reports that are filed gather dust in Treasury
offices since "nobody knows what to do with them".
Paul Homan, deputy controller of the Office of the Comptroller
of the Currency, explaining why the regulators are not keen to
prevent bank laundering
So long as the bank invests those [drug]
deposits in overnight money and is able to cover when the deposits
are withdrawn, there is no financial threat to the bank other
than the peripheral one of perhaps affecting the confidence that
people have in it because of known associations with criminals...
the fact that a bank does business with criminals, or is even
owned by them, is of minor importance to the overseers of the
Senator William Proxmire
Many banks are addicted to drug money,
just as millions of Americans are addicted to drugs.
Since it is the source of three quarters of the cocaine and marijuana
entering the United States, Colombia plays a key role in laundering.
The principal exchange houses for drug laundering are located
in Barranquilla on the Caribbean coast (marijuana) and Medellin
(cocaine). The more sophisticated operations include a network
of offshore bank havens in Panama, the Bahamas, and the Cayman
Islands, as well as shell companies incorporated in Panama and
the Netherlands Antilles. The idea is to create so many zigs and
zags of intermediary money stops that it becomes virtually impossible
to trace the paper trail out of, and often back into, the United
Probably the most common method of laundering money is through
cashier's checks, which are safer and more portable than cash
and less easy to trace than ordinary checks because they do not
have to bear the recipient's name and address. The checks usually
change hands eight or nine times before returning to the bank,
and they are common currency in the black markets of the drug-producing
countries. According to bankers, any bank that has more than 3
percent of its deposits checks is likely to be engaged in a laundering
operation... Additional profits are made in money-cycling operations,
of which several of the most sophisticated are located in Medellin
and Panama. As dirty money is moved through a series of currency
transactions in Europe, the Middle East, and Latin America, sizable
profits can be made by taking advantage of exchange differences.
The money can then go through the black market, to be loaned out
at interest rates of up to 55 percent, and returned to the United
States with tax advantages through an offshore haven. By that
time it is completely clean.
Cruz de la Sierra, in the eastern part of Bolivia... is the capital
of Bolivia's $1.6 billion annual cocaine traffic and the most
pro-Nazi city in South America.
... Klaus Barbie earned the title of "Butcher
of Lyons" as Gestapo chief of the French city during World
War II. In his two-year reign, according to French authorities,
he was responsible for 4,342 murders and 7,591 deportations to
death camps.' Notwithstanding this fact, after the war U.S. intelligence
installed him in a safe house in Augsburg and gave him a sanitized
identity and $1,700 a month in return for information on the Soviets.
Erhard Dabnnghaus, a former U.S. counterintelligence agent who
was one of Barbie's interrogators, admitted that the Americans
kept his hiding place secret from the French, who were urging
the U.S. authorities in Munich to surrender him. According to
French Nazi hunter Serge Klarsfeld, the French made twenty different
requests for Barbie's surrender, none of which was answered. In
1983, thirty-eight years after the war, the Justice Department
belatedly recognized that U.S. intelligence officers had arranged
for Barbie's escape to Bolivia and that they had lied when denying
that he was under their protection. According to the Justice Department's
218-page report on Barbie, he left Europe with Red Cross papers
supplied by a Croatian priest. (Some fifty thousand Nazi war criminals
were aided by the International Red Cross, which sent them to
South America on Bishop Alois Hudal's "underground railroad,"
some with fake Vatican passports and clerical robes).
Using the assumed name of Klaus Altmann,
Barbie lived quietly with his family in Santa Cruz [Bolivia],
where he opened a sawmill. Among his acquaintances was former
SS Colonel Frederick Schwend, a leader in the Nazi escape organization
Odessa. Barbie also worked with Hugo Banzer, who was implicated
in Bolivia's cocaine traffic; and when the colonel seized the
government in 1971 in a right-wing, U.S.-backed coup, Barbie became
his security adviser, with instructions to reorganize the secret
police. During the period leading up to the coup, Barbie made
several trips to Miami, allegedly to buy arms for Bolivian paramilitary
groups. Miami was-and still is-the principal U.S. port of entry
for Bolivian cocaine, and there is evidence that Barbie and Schwend
were part of a guns-for-drugs trade financed by Florida drug importers.
Although Barbie's cover was blown in 1971
after a German executive in Peru recognized a picture of him circulated
by Klarsfeld, his military connections in Bolivia protected him
from the French and West German governments, which fruitlessly
sought his extradition. After the cocaine coup in 1980, Barbie
reached new pinnacles of power. He was feted as an official guest
in the presidential palace and apparently was given official support
for his recruitment of the German and Italian neo-Nazis, who used
the Santa Cruz ranch to train paramilitary squads for the Bolivian
military's drug syndicates. Known as "The Colonel's Syndicate"
(for Colonel Arce Gomez) or "The Black Eagles," they
sowed terror in Santa Cruz...
U.S. and European authorities were powerless
to do anything about the Santa Cruz killers and dope dealers as
long as the coke-smuggling generals remained in control of the
government. But in the fall of 1982, when the military could no
longer keep its hold on Bolivia in the face of bankruptcy and
severe general unrest, an honest civilian was recalled to take
over the mess. Hernán Siles Zuazo, a left-of-center politician
whose election as president in 1980 had sparked the cocaine coup,
wanted to rid Bolivia of the Nazis and drug traffickers.
Believing that his military connections
would protect him, Barbie carried on as usual, but when he appeared
at a government office in early 1983 to pay a fine, he was seized
by the Bolivian authorities. A few days later he was on a plane
bound for Lyons, where the French Government charged the sixty-nine-year-old
Nazi with "crimes against humanity." But Barbie remained
unrepentant. "What is there to regret?" he told an interviewer,
"I am a convinced Nazi... and if I had to be born a thousand
times, I would be a thousand times what I have been."
[The Vatican Bank's] two principal financial advisers and partners,
Michele Sindona and Roberto Calvi, were members of P-2, a neofascist
Masonic lodge in Milan headed by the Italian fascist financier
Licio Gelli ... P-2 was "a state within the state,"
its aim being to restore fascism in Italy and buttress its hold
on Latin America.
[Michele Sidona - a Sicilian banker who
established an international banking network; principal financial
adviser to the Vatican Bank until 1974; the financial brains behind
the P-2; alleged conduit for CIA funds to right-wing groups in
... Sindona's contacts with the Vatican
began in 1969, when he became financial adviser to Pope Paul VI,
who had known him in Milan. The son of a bankrupt farmer, Sindona
had early learned to manipulate church patronage when, as a young
man in Sicily, he had used the influence of the bishop of Messina
to acquire a truck to transport suspect goods. After graduating
from the University of Messina, he wrangled an introduction to
the powerful Monsignor Giovanni Montini in Milan, who would later
become Pope Paul VI. Montini introduced the smooth-talking Sicilian
to his friend Giulio Andreotti, a pillar of the Christian Democratic
Party and frequent cabinet minister in Italy's revolving-door
governments. With such contacts Sindona soon prospered, buying
one bank after another, until he had assembled a multinational
empire worth hundreds of millions of dollars. As he had done in
his youth in Sicily, he
assiduously courted those with power; and when Andreotti's Christian
Democrats faced electoral
peril from the Communists, he was an unstinting contributor as
well as a funnel for
supporting funds from the CIA.
... The Vatican
Bank had been established in 1942 by ... Pope Pius XII, to secure
Vatican monies from the effects of World War II. Most of its holdings
came from a 1929
agreement with Benito Mussolini, who paid the Holy See $83 million
as compensation for papal
territory seized by the Italian republic in the previous century.
But Pius had no idea how to
run a bank, and most of its advisers were relatives, princes,
and counts without financial
experience. The majority of the bank's money was invested in poorly
run Italian companies... When[ Michele] Sidona appeared on the
scene in 1969, he was given a free hand to divest and diversify,
primarily into banks outside
Italy and into U.S. stocks and securities.
... [Michele] Sidona knew that the Vatican
Bank, owned by the Vatican State, was not subject to any controls
by the Italian central bank, or
beholden to stockholders, and therefore could do many, things
forbidden to other banks, such as
the export of capital.
In the years after World War II the CIA pumped some $65 million
into Italy to support centrist and right-wing political parties,
as revealed by the House of Representatives' Pike Report on CIA
After the war against fascism in Europe [WWII], the CIA proceeded
to finance the fascists' cause in Italy.
In eighteenth-century Europe, Freemasonary was the semisecret
party of republican revolution. In Latin America, the Masons played
a similar anticlerical role, although they tended to remain a
conservative force, often allied with the military, as in Chile.
In nineteenth-century Italy the liberal revolution was led by
secret societies called Carboneria, which were similar to Freemasons
(Garibaldi, Italy's national hero, was a Mason). To curry favor
with the Vatican Mussolini banned the Italian Masonic orders,
but the ban was not seriously enforced. Thus the Americans were
able to build on an existing network after World War II.
The Americans wanted to fill key positions
with people who were neither fascists nor leftists, and a solution
was to rely on the Italian-American international organizations.
For Sicily this meant mainly the Mafia, but the Masonic lodges
were probably more helpful in the rest of Italy. At that time,
Italian-American Masons tended to be Democrats, like New York
Mayor Fiorello La Guardia. Some were immigrants, such as unionist
Guiseppe "Joe" Lupis, who channeled American union money
into Italy to splinter the labor movement and create anti-Communist
unions during the cold war. According to one former prominent
Italian Mason, the split in the Italian Socialist Party (PSI)
that created the Italian Social Democratic Party (PSDI) was "entirely
provoked by Freemasons in the United States and Italy." Thus
the anti-Communist imperative pulled Italian Freemasonry to the
right, and in the 1950s the lodges provided ex-fascists with democratic
cover and contacts with American brothers ready to raise funds
to stop communism. The lodges in general, and the P-2 in particular,
began to recruit heavily among military men eager for promotion.
Membership in a lodge was reliable evidence of the anticommunism
required for a successful career in a NATO military force.
Paraguay has traditionally been the last refuge in Latin America
for right-wing villains on the run, a haven for German Nazis as
well as for former Nicaraguan dictator Anastasio Somoza. General
Alfredo Stroessner, the region's longest-ruling dictator, has
also given sanctuary to drug traffickers and neofascist terrorists.
In the 1970s, when the world was awash in petro dollars from the
newly rich oil-producing nations, many bankers were convinced
that they had a unique opportunity to make enormous profits, while
providing a service by recycling oil money through loans to the
developing countries. The stampede to lend money began in 1973,
when oil prices skyrocketed and private banks, stuffed with Arab
cash, sought new customers in the Third World. Until then most
developing countries had borrowed primarily from governments or
multilateral institutions, such as the World Bank; but in less
than a decade that situation had reversed, with commercial banks
funding up to two thirds of the loans. When the boom started,
most large U.S. and European banks already had branches in the
Third World to serve the needs of the multinational corporations,
but it was only when small and medium-sized banks joined the majors
that Third World lending was raked with the fever of a gold rush.
As bankers readily admit, lending tends
to be a sheep-like exercise. If one or more well-known banks are
lending to a certain country, all the other banks want part of
the action. But the "loan-pushing" bankers did not pause
to consider the likelihood of interest default, let alone the
loss of principal. So billions upon billions of dollars were thrown
at the Latin Americans-and sometimes even shoved down their throats.
Of course, many of the governments were corrupt and only too glad
to take the handouts, which were diverted to private Swiss accounts
or spent on flashy palaces and costly armaments.
The Federal Reserve deliberately disguised the origin and size
of OPEC deposits in U.S. banks because Arab rulers did not want
their people to know that so much oil money was in the hands of
David Rockefeller's Trilateral Commission aimed for a world order
... controlled by multinational corporations and banks.
The IMF was running out of money and was forced to borrow from
commercial banks, thus setting yet another debt trap. The IMF's
1982 reserves were just sufficient to cover the needs of Mexico,
Argentina, and Brazil, with nothing left over for the rest of
the world. In a panicked about-face from its earlier position
of "no free lunches for the Third World," the Reagan
administration agreed with central bankers from France, West Germany,
Great Britain, and Japan to seek a 50 percent boost in IMF quotas
to increase its lending reserves. But even if the increase were
approved by the IMF's members--a complicated process that also
involves changing the ratio of quotas and hence the voting influence-the
earliest that new funds could be available would be the end of
1984, which would perhaps be too late for some emergency cases.
Finding the money is just the start of
the problem, because IMF programs are designed to brake an economy's
growth, and it is therefore an open question whether the medicine
administered in return for IMF loans will not kill the patient.
Most Latin-American nations were experiencing zero growth rates
when they went to the IMF, and its tough austerity measures could
only worsen their economic condition. Quite apart from the suffering
they impose on the people, such programs usually don't work. By
the IMF's own reckoning, fewer than one third of the twenty-one
countries that followed its dictates between 1973 and 1975 achieved
their monetary goals, and then only "with some qualifications."
Seventeen countries suffered worse inflation. Specific fund recommendations
suggest why. In its report on Haiti, the poorest nation in the
Western Hemisphere, the IMF "staff welcome[d] the decision
to eliminate promptly restrictions on luxury model [automobiles}"
because that move somehow conformed to the IMF's ideas on free
Money was only part of the IMF's problems.
As has been pointed out by many economists, the IMF lacks the
breadth of vision necessary to deal with a global problem. While
its economic formulas are always the same, be the country in Latin
America, Asia, or Africa, the IMF treats each sick client separately,
thus hastening contagion. For example, its insistence that Argentina
reduce its imports contributed to Bolivia's failure to pay foreign
bankers, since Bolivia depends on Argentina to buy its natural
gas exports. Similarly, Mexico's austerity program caused a $6
billion cutback in U.S. imports in 1982, costing an estimated
150,000 jobs in the United States, according to Wharton Econometric
Forecasting Associates, Inc. Moreover, many insolvent countries
are themselves creditors of debt-ridden nations, as in the case
of Brazil, which is owed money by bankrupt Poland."
Not only is the IMF's economic vision
flawed, but it also fails to consider the political consequences
of its acts. In Mexico agricultural development programs established
to prevent recurrent land takeovers by peasants were cut back
under pressure of IMF-imposed budget-cutting. In Chile the IMF
was pressing its demands for a 50 percent cut in public spending
even though that country's unemployment rate had shot up from
4 to 26 percent. And in Argentina the IMF was forcing the government
to reduce its deficit spending by almost two thirds in the face
of an unemployment rate that had tripled between 1981 and 1983.
There were riots in Argentina, Bolivia, Chile, and Brazil, all
of which were suffering from a double squeeze of growing unemployment
and declining wages. Political and economic observers predicted
more turmoil, because none of these nations has unemployment insurance
or welfare benefits to cushion the effects of austerity. "The
IMF has destroyed more governments than communism by imposing
measures which are technically perfect but politically impossible,"
said a Chilean business leader.
In December 1982 Ronald Reagan flew down to Brazil with a $1.2
billion Christmas present from U.S. taxpayers. Actually the present
wasn't for the Brazilians but for Citibank, Chase Manhattan, and
the like, since they could collect from the Brazilians only if
the U.S. Treasury gave them the money. The handout came on top
of a $3.8 billion rescue of U.S. banks in Mexico, and there was
talk of another $2 billion for Mexico's Christmas stocking. The
Treasury Department was also pressing Congress to increase the
U.S. contribution to the IMF by $8.4 billion to enable it to expand
its lending to these countries so that they could pay back the
banks. Unlike European and Japanese central bankers, who were
telling their banks to tighten lending procedures because there
was no lender of last resort to bail them out, the "New Right"
administration of Ronald Reagan was putting taxpayers in hock
for the follies of U.S. banks. (This was the administration that
came to power on a promise "to get the government off the
backs of the American people.")
It was all perfectly legal. Unbeknownst
to most of its members, in March 1980 Congress voted a bank bailout
into law when it approved the Depository Institutions Deregulation
and Monetary Control Act. The main purpose of the eighty-five-page
act had been to require banks to belong to the Federal Reserve
system and to allow commercial banks to accept Negotiated Order
of Withdrawal (NOW) accounts. However, just before the bill was
approved by a joint House-Senate committee six lines were added
at the request of the Federal Reserve Board. It is estimated that
no more than ten congressmen were even aware of the insert. that
gave the Federal Reserve the right to buy securities of foreign
governments just as it buys securities issued by the U.S. Treasury,
thereby allowing the Fed to prop up U.S. banks by covering the
deficits of foreign governments.
... U.S. taxpayers learned that they had
been sucked into the debt trap only after President Reagan visited
Brazil to confirm the swap arrangement between the U.S. and Brazilian
treasuries, whereby dollars were exchanged for bad Brazilian paper
held by U.S. banks. The deal had been worked out secretly two
months earlier but was not made public until the details were
leaked in Brazil.
The bank bailout made a mockery of Reaganomics
since it undercut the administration's fight against inflation.
By buying up defaulted loans with dollars, the Federal Reserve
was increasing the money supply around the world while simultaneously
undermining the drive to control the federal budget. One argument
for pushing toward a balanced budget is that if the federal government
stopped running deficits the Fed wouldn't have to increase the
money supply to cover them. But with the Fed in the business of
monetarizing foreign as well as domestic debt, there is no point
in balancing just the U.S. budget. "It is bad enough when
the U. S. Treasury repays its own obligations by issuing new ones,"
complained William E. Simon, former Secretary of the Treasury,
"but to do this for the likes of Tanzania, Rumania and oil-rich
Mexico indicates that we have taken leave of our senses."
The bank rescue also made nonsense of
the Fed's tight monetary policies and Volcker's unyielding stand
on high interest rates. While such rates had proved profitable
for the banks, they were one of the primary causes of the developing
countries' inability to service their loans. Since most of the
Third World's debt is in dollars, the cost of repayment in depreciated
local currencies added greatly to the burden. Indeed, every time
U.S. interest rates increased by one point, it cost a country
like Brazil or Mexico $750 million more a year in debt service.
As the Brazilians and Mexicans were quick to point out, a sizable
portion of their debt was unreal-money they never received, in
the form of unconscionable interest that had piled up because
of an experiment with the free-market theories of economist Milton
Friedman. Volcker's tight-money policies also contributed to a
prolongation of the recession in the United States, which, in
turn, deepened the world recession. "The Reagan administration
may have [made] the gravest policy mistake of this century,"
wrote Princeton economist Peter B. Kenen. "Beguiled by the
doctrines of economists whose contempt for evidence was exceeded
only by their craving for publicity, it brewed a mix of fiscal
and monetary policies that poisoned the world economy."
... While U.S. bankers frankly admitted
that the taxpayer was providing a bailout for their Latin-American
ventures, they claimed that there was no alternative. After all,
they said, Washington could not set off a worldwide depression
by allowing the banks to fail, nor could it risk triggering a
revolution in Mexico or Brazil by letting their economies collapse.
The arguments had some validity, but, as pointed out by U.S. critics,
the problem was that American taxpayers were footing the bill
for the mess, not the bankers who were responsible for it."
W. Herbert and Nelson Bunker Hunt had succeeded in cornering two
third of the world's silver market, but when silver prices suddenly
dived from $50 to $10 per ounce in March 1980, the Hunts faced
the prospect of losing their fortune. Although the brothers guessed
wrong on a dangerous, high-stakes gamble, they did not have to
liquidate their assets because Volcker came to their rescue. Congressman
Fernand St. Germain, chairman of the House Banking Committee,
said that his action showed that when big speculators lose money
they turn to Voicker for "a quick fix" (Time [May 12,
1980]; Business Week [May 19, 1980]).
The banking reforms of the 1930s were designed to guard the public
interest by separating commercial banking (taking deposits and
making loans) from investment banking (underwriting and dealing
in securities). Until the law was changed, bankers had participated
in nearly two thirds of all new stock and bond issues-sometimes
for dubious reasons. Congressional hearings showed that Chase
had absorbed $10 million in securities of doubtful quality to
aid its securities affiliate, and Citibank (then known as National
City) apparently sold its subsidiary about $25 million in speculative
loans that were paid out of new stock issues. So great was the
public outcry following such revelations that even before Congress
passed the Glass-Steagall reforms in 1933, many banks had already
spun off their investment subsidiaries...
The effects of Roosevelt's New Deal legislation
were long-lasting, and it was only in the late 1950s, after World
War II and a decade of prosperity, that bankers began to emerge
from their somnolence to reassert their financial power.
Banks are crucial to [drugs and right-wing terrorism] because
they launder illegal gains and provide financing for criminal
projects. In places where such activities are widely accepted,
such as southern Florida, even honest bankers have difficulty
resisting the enormous profits...
When one third of the banks in a large metropolitan area [Miami]
are suspected of laundering drug money, they reflect the mores
of the community as well as those of the banking profession. As
observed by a Florida grand jury that studied Miami's crime problems,
it is "clearly a costly hypocrisy" to pretend that a
commitment exists to eradicate narcotics when "our local
economy apparently has benefited enormously and our culture has
become tolerant of marijuana and even of cocaine.