How The Drug Money Flows Into The financial System
Two boats pull into the docks. The first boat is full of a white agricultural product grown in Latin America called sugar. The owner of the cargo, Darin, sells his boat load of white agricultural substance to the sugar wholesaler on the docks for how much money $10,000.
Now, after Darin pays his workers and all his costs of growing and transporting the sugar, and after he and his wife spend the weekend in Miami and he pays himself a bonus and buys some new harvest equipment and pays his taxes, how much cash does he have left to deposit into his bank account?
What is Darin's net cash margin on his sugar business? Let's say that Darin has worked hard he makes around 10% or $1000 cash Profit margin. Let's call Darin's margin S for slim %.
Back on the docks, the second boat---an exact replica of the boat carrying Darin's sugar---is a boat carrying Barry's white agricultural product called cocaine. The planting, harvesting and production of this white agricultural substance, Barry's cocaine, are remarkably like Darin's sugar.
Well, where Darin is getting pennies, Barry is getting bills. If Darin had sales of $10,000, Barry had sales of that x 1000 or $1 million cash profit margin. Darin may carry the same weight of white stuff in a boat but from a financial point of view, Barry the coke guy has a lot more "sales per boat" than Darin the sugar guy.
Now, after Barry pays his workers and all his costs of growing and transporting the drugs, and after he and his wife spend he weekend in Miami and he pays himself a bonus and buys some new boat and radar equipment and spends what he needs on bribes and bonuses to a few enforcement and intelligence operatives and retainers to his several law firms, how much cash does he have left to deposit into his bank account?
Barry the coke guy has a much bigger "cash profit per boat" than Darin the sugar guy. Even after Barry has set up his money laundering entities and after paying the 8-15 % money laundering fees, it's fair to say his tax rate of 0 percent is lower than Darin's tax rate. $920,000 -$850,000 VERSUS $10,000.
If you look at Darin's and Barry's sales and profits and ask yourself the following questions.
Who is going to get laid more, Darin or Barry?
Who is going to be more popular with the local bankers, Darin or Barry?
Who is going to have a bigger stock market portfolio with a large investment house, Darin or Barry?
Who is going to donate more money to political campaigns, Darin or Barry?
Whose wife is going to be bigger in the local charities, Darin or Barry?
Whose companies will have more prestigious law firms on retainer, Darin or Barry?
Whose children are going attend the most exclusive private schools, Darin or Barry?
Who is going to be more influential within their local community, Darin or Barry?
Who is going to buy the other's company first, Darin or Barry?
Is Barry the coke guy going to buy Darin the sugar man's company, or is Darin the sugar man going to buy Barry the coke man's company?
When they want to buy the other's company, will the bankers, lawyers and investment houses and politicians back Darin the sugar guy or Barry the coke guy?
Whose son or grandson has a better chance of getting into an Oxbridge or Ivy league school or getting a job offer at Goldman Sachs ?
Citing findings by two Colombian academics, Alejandro Gaviria and Daniel Mejía in their study, Anti-Drugs Policies In Colombia: Successes, Failures And Wrong Turns. Ed Vulliamy disclosed “that 2.6% of the total street value of cocaine produced remains within the country, while a staggering 97.4% of profits are reaped by criminal syndicates, and laundered by banks, in first-world consuming countries.”
Don't listen to me. And don't listen to BBC, CNN or Reuters Who do you think pays their salaries?
Who owns the companies they work for? Darin or Barry?
There is very little about how the money works on the drug trade that you cannot know for yourself by coming to grips with the economics over a fifty year period of Darin or Barry and their boat loads of white agricultural substance. It is the magic of compound interest.
Many Boatloads Later
It's more than fifty years now since the boats transporting Darins and Barry's white agricultural products docked in Miami. We don't know what the Narco National Product was 50 years ago, but lets say it was a billion dollars or less. Today, the Narco National Product is estimated to be about $400 billion globally and about $150 billion plus in the United States.
It helps to look at the business globally as the United States is the world leader in global money laundering. According to the Department of Justice, the US launders between $500 billion - $1 trillion annually. I have little idea what percentage of that is narco dollars, but it is probably safe to assume that at least $100-200 billion relates to US drug import-exports and retail trade.
So let's think about how much Darin or Barry have in accumulated profits in their bank and brokerage accounts.
Let's assume that the US narco national product 50 years ago was $1 billion and it has grown to about $150 billion today. Assume a straight line of growth from $1 billion to $150 billion, so the business grows about $3 billion a year and then tops out at $150 billion.
Let's say that every year from 1964 through 2014, that the cash flow sales available for reinvestment from drug profits grew by $3 billion a year, throwing off that number times big %. Assume that the reinvested profit grew at the compound growth rate of the Standard & Poor's 500 as it got reinvested along the way. That amount is an estimate for the equity owned and controlled by those who have profited in the drug trade.
Total Narco dollars. How much money is that?
We made an Excel spread-sheet once to estimate total Narco capital in the economy. Our numbers showed` that Barry the coke guy had bought up not only Darin's companies, but ---a controlling position in about most everything on the NYE, FTSE, DAX and the TSE.
When you think about it, this analysis make sense. The business people with the big % --- big cash margin ---- would end up rich and in power and the guys working
hard for a slim % --- a low cash margin --- would end up working for them.
NYSE's Richard Grasso and the Ultimate New Business "Cold Call"
In late June 1999, numerous news services, including Associated Press, reported that Richard Grasso, Chairman of the New York Stock Exchange flew to Colombia to meet
with a spokesperson for Raul Reyes of the Revolutionary Armed Forces of Columbia (FARC), the supposed "Narco terrorists" with whom we are now at war.
The purpose of the trip was "to bring a message of cooperation from U.S. financial services" and to discuss foreign investment and the future role of U.S. businesses in Colombia.
Some reading in between the lines said to me that Grasso's mission related to the continued circulation of cocaine capital through the US financial system. FARC, the Colombian rebels, were circulating their profits back into local development without the assistance of the American banking and investment system. Worse yet for the outlook for the US stock market's strength from $500 billion - $1 trillion in annual money laundering - FARC was calling for the decriminalisation of cocaine.
To understand the threat of decriminalisation of the drug trade, just go back to your Darin and Barry estimate and recalculate the numbers given what decriminalisation does to drive big % back to slim % and what that means to Wall Street and Washington's cash flows. No Narco dollars, no reinvestment into the stock markets, no campaign contributions.
It was only a few days after Grasso's trip that BBC News reported a General Accounting Office (GAO) report to Congress as saying: "Colombia's cocaine and heroin production is set to rise by as much as 50 percent as the U.S. backed drug war flounders, due largely to the growing strength of Marxist rebels"
We deduced from this incident that the liquidity of the NY Stock Exchange was sufficiently dependent on high margin cocaine profits (Big %) that the Chairman of the New York Stock Exchange was willing for Associated Press to acknowledge he is making "cold calls" in rebel controlled peace zones in Colombian villages.
I presume Grasso's trip was not successful in turning the cash flow tide. Hence, Plan Colombia is proceeding apace to try to move narco deposits out of FARC's control and back to the control of our traditional allies and, even if that does not work, to move Citibank's market share and that of the other large US banks and financial institutions steadily up in Latin America.
What are the four states with the largest market share in illegal narcotics trafficking? New York, California, Texas and Florida.
It makes sense. Those are the biggest states. They have big coastal areas, borders and big ports. It would make sense that the population would grow in the big states where the trade and business flow grows. If you check back to the two businesses models. One was Darin's sugar business that had a SLIM % profit. The other was Barry's drug business that had a BIG % profit. It would make sense that these four states would be real big in both Darin's sugar business and Barry's drug businesses.
What are the four states with the biggest business in money laundering of Narco profits and other profits of organised crime? Not surprising? Same four states. They are all known as banking power places.
New York, California, Texas and Florida.
What's next? What are the four states with the biggest business in taking the laundered Narco profits and using them to deposit money in a bank, or to buy another company, or to start a new company, or just buy stock in the stock market? That's what I call the reinvestment business.
Same four, right? New York, California, Texas and Florida.
Who were the governors of these four states in 1996?
Well, let's see. Jeb Bush was the governor of Florida. Governor Jeb was the son of George H. W. Bush, the former head of an oil company in Texas and Mexico and the former head of the CIA and the former head of the various drug enforcement efforts as Vice President and President. Then George W. Bush, also the son of George H. W. Bush, was the governor of Texas. So the governors of two of the largest narco dollar market share states just happen to be the sons of the former chief of the secret police.
Do you think it is possible to become the governor of a state with the support of the slim % profit businesses and the opposition of the big % profit businesses, particularly after the big % profits have bought up all the slim % profit businesses?
When you think about it, a governor would need to win the majority of the people who donate from the slim % profit businesses but control the reinvestment of the big % profit industry cash flow to win. The competition for the support of the people who control the reinvestment from the big % business cash flow in the biggest states would be fierce.
Drugs as Currency
One of challenges of doing the numbers on the narcotics business is that narcotics are not always a commodity -- sometimes narcotics are a currency used to pay for other things.
| Former CIA Asset |
If you trace back the history of the family and family networks of America's leaders and numerous other leaders around the world, what you will find is that narcotics and arms trafficking are a multi-generational theme that has criss-crossed through Asia, North America, Europe, Latin America and Eurasia and back through the City of London and Wall Street to the great pools of financial capital. Many a great American and British fortune got going in the Chinese opium trade.
One of the benefits of learning how narco dollars work is that it will help you sort through the money laundering and insider trading news on the War on Terrorism. Terrorism and narcotics trafficking often get linked through narcotics as currency. Terrorists need guns. Narco dollars need private protection and covert operations. Indeed, what a history of narcotics trafficking and piracy and various other forms of organised crime over the last five hundred years show is that our leaders have been in a double bind for centuries. The only thing more dangerous than getting caught doing organised crime, is not being in control of the reinvested cash flows from it. This is why monarchs played footsie with pirates in Elizabethan times and no doubt have been doing so ever since.
The Bottom Line
Here is the bottom line on how the money works on narco dollars. After taxation, organised crime is a society's way of forming lots of pools of low cost cash capital.
Organised crime is a banking and venture capital business. Unless Darin switches to cocaine, Barry will win his wife, his mistress, his banker, buys his company, buys his MP or congressman and gets be the star at the local charities. Everyone will admire and pay attention to Barry.
