PAGE 10
THE REAL DEALABOUT ENRON
AN INTERVIEW WITH CATHERINE AUSTIN FITTS
STANTIS
‘If my years working on the clean up of BCCI and the S&L crisis taught me one thing
that I would communicate today to shareholders, retirees and employees who have been
harmed, it is this: people like those on the board of Enron absolutely make money from
insider trading, bid rigging and fraud, and they do so with help from the highest levels. ’
-CATHERINE AUSTIN FITTS
.
BY DAN ARMSTRONG
What investment banker Catherine Austin Fitts invari
ably emphasizes in her discussion of global money flows is the
extent to which criminal proceeds play a part in the real world
economy. This should come as no surprise to anyone. Not after
all America watched their pension funds stripped away, while
dot.com CEOs pocketed millions of dollars in profits from stock
market “pump and dump” schemes. Not after energy traders
like Enron, Dynergy and Reliant have been accused of using
the California energy crisis to manipulate the market, causing
vicious price hikes, rolling brownouts and power shortages. No.
In this past year our naïveté and trust in Wall Street, perhaps
the world in general, has collapsed much like the World Trade
Center did that fateful September morning.
The world really isn’t any different, it’s just that some
of the veils have been shorn away, and long-time Wall Street
insider Fitts figures there’s no sense pretending innocence any
longer. Tax evasion, insider-trading, drugs sales, black budgets
and terrorism are significant parts of global economic dynamics.
It’s simply how the money works in a financial system where so-
called creative accounting methods are as transparent as mud
and money laundering is part of the quantum mechanics of
financial law. “The real deal," as Fitts refers to her straight
analysis of money flows, “is that financial fraud in all its wide
variety of deceits, is the most profitable business on the planet
today." Based on her eleven years experience on Wall Street
and eight years working with federal agencies cleaning up HUD
and several large banking scandals, my guess is that Ms. Fitts
knows what she’s talking about.
The U.S. Department of Justice estimates that $500
billion to $1 trillion in criminal proceeds are laundered annually
worldwide. It may be twice that. And the Real Deal is you can’t
do accurate economics if this isn’t accounted for. Sums this
large — tens or hundreds of billions of dollars, says Fitts, can
only be laundered into the system through Wall Street and the
central banking system. Companies like Worldcom, Tyco and
Global Crossing. Banks like Citigroup, JP Morgan-Chase and
the New York Fed This isn’t wild talk. We’ve heard it all in the
.
unraveling of the Enron web already. The largest banks do the
largest business transactions and they are the only ones capable
of disguising the underside of these vast financial flows. This
is curious and profound commentary from a former Managing
Director and board member for the elite New York firm Dillon
Read, Inc and onetime Assistant Secretary of HUD. When she
looks at the Enron bankruptcy, with her BCCI (known as the
“Bank of Crooks & Criminals") and Savings & Loan (S&L)
cleanup experiences to draw upon, she aptly quotes Yogi Berra,
not Paul Volcker, to describe what she sees: “It’s déjà vu all over
again."
Catherine Austin Fitts began her career in 1978 at Dillon
Read in corporate finance and mergers and acquisitions. Eight
years later she became the firm’s first woman Managing Director
and board member. Her success raising capital for renovation
of New York’s subway system, City University of New York, and
several other major projects prompted Business Week to refer
to her as a “Wonder Woman” and provoked a reputation in
financial circles that she could fix anything.
Fitts left Dillon Read in 1989 to join the first Bush
administration, working as assistant secretary to Jack Kemp at
the Department of Housing & Urban Development with the task
of “fixing" HUD and the Federal Housing Administration, and
cleaning up the S&L scandals. In 1990, she was named to the
Securities & Exchange Commission's Emerging Market Advisory
Committee. A year later Treasury Secretary Nicholas Brady and
Chief of Staff John Sunnunu asked her to be a governor on the
Federal Reserve Board and a member of the board of Sallie
May Heady stuff for a woman of 40. But she had already started
her own investment bank and software firm, Hamilton Securities
Group, Inc., and respectfully turned down the Federal Reserve
offer.
In 1993, Hamilton Securities, Inc. successfully won a
competitive contract bid with HUD to reengineer portions of
its $500 billion portfolio of mortgage insurance, mortgages and
properties. While fulfilling its contract, repackaging and auction
ing off $10 billion of defaulted FHA loans, Hamilton Securities
developed a package of software tools to access publicly avail
able online government financial records.This included an online
disclosure and bid optimization system for the sale of defaulted
I
UittxM'.ok-.
nut ’«wi «<1.v<j —
HUD loans and an easy-to-operate program called Community
Wizard, which allowed local users to create “place-based" data
bases to track government money flows and facilitate business
in their own neighborhoods.
Hamilton Securites' efforts and loan sales software
would save the FHA funds billions of dollars and earned
Vice President Al Gore’s ‘Hammer Award' for reengineering
government. Also Community Wizard, perhaps Hamilton's most
powerful innovation, became the central piece in prototyping
a computer learning center and data process service in the
Edgewood Terrace apartment building, as part of Fitts’ idea
to move neighborhoods from government subsidy to entrepre
neurial business through private markets and investment.
Following her very successful career line, Fitts again was a
shining light in the dark of federal credit and balance sheets.
However, an unforeseen side-effect of online tools like
Community Wizard was that while clearly showing how clean
money worked in neighborhoods, the software also showed how
the dirty money worked, inadvertently providing a checks-and-
balances for the use of federal housing moneys. Certain HUD
problems became more visible. The detailed “place-based”
data provided the basis to estimate who had been getting inside
sweetheart deals or where fraud was indicated. There were also
many discrepancies in HUD’s books — later it became apparent
that they ran into the tens of billions of dollars.
The next thing Fitts knew she was under investigation
by the Department of Justice (DOJ), FBI and HUD Inspector
General in response to a series of lawsuits filed by a HUD
contractor, Ervin Associates, whose servicing contracts and
responsibilities dealing with defaulted mortgages had been
displaced by Hamilton Securities' loans sales auctions. This
began a process of audits, investigations and inquiries as well
as a smear campaign to discredit Fitts personally and profes
sionally. As it turned out, for all its benefit to accounting clarity
and the efforts of honest people, Community Wizard's open
window to federal money and credit was not what the politically
inbred contractor fraternity wanted.
Seven years and all-hell-to-pay later (she compares her
life during this period to that of a character played by Will Smith
in the movie Enemy of the State), Fitts and Hamilton Securities,
A lliance for D emocracy
GODFATHER’S BOOKS
AND ESPRESSO BAR
Audio Book Sales & Rentals ¡k Cards * Pastries
Incense * Occult i Metaphysical * Lattes & Literature
1100 Commercial • Astoria, OR 97103
Phone: (503) 325-8143
he Alliance-for Democracy is a new movement
that seeks to end the domination of our economy,
our government, our culture, our media and the
environment by large corporations.
T
We have united to examine the ways in which various eco
nomic interests either enhance or harm the health of de
mocracy and we focus on creating basic change.
End
corporate
rule;
revive
democracy.
Piecemeal reform has been rendered ineffective. We seek
deep systemic alterations to establish economic and politi-
cal democracy.________________
681 Menn Street, Waltham, MA 02451 • Tele: (781 ) 894-1 1 79 • Fax:(781)894-0279
E-mail: peoplesall@aol.com • Web site: www.afd-online.org