[CAF Note: This article was originally published on May 29, 1999. To celebrate the new movie, Kill the Messenger, about Gary Webb’s efforts to publish the Dark Alliance story this month, I am republishing today.]
EXCLUSIVE
Former Bush Assistant Secretary for HUD Reveals “Ethnic Cleansing”
Connected to CIA Drug Dealing in Los Angeles
Government Spends Millions in Campaign to Silence Former Wall Street Banker, Cover Up Connections to Dark Alliance Stories & CIA Inspector General Report on Drug Trafficking
by
Catherine Austin Fitts
I was ten years old when the combined action of HUD housing investment and heroin trafficking destroyed my West Philadelphia neighborhood. The combined real estate and drug play destroyed the equity in our homes and businesses. Many of us left. Those who stayed were embroiled in the increasing stress of what happens as neighborhoods deteriorate into crime and decay. I decided that I would learn how money worked. I was too young to understand fully how the combination of HUD investment and drugs could move control and ownership from the many people who lived in a community to a few people who lived outside the community. — C.A.F.
* * * * *
I’m an investment banker. In the eighties I was a Managing Director and member of the Board of Directors at the Wall Street investment bank Dillon, Read & Co., Inc. I managed the firm’s large municipal and government clients. My projects included the financing of billions of dollars of improvements in New York City’s subway, bus and commuter rail systems. I also organized the financing for hundreds of millions in renovations to the infrastructures of New York and New Jersey. I regularly handled hundreds of millions of dollars in transactions.
I also helped to make tens of millions of dollars in profits for my firm and I raised tens of thousands of dollars for the George Bush Presidential campaign in 1988. Nicholas Brady, who became George Bush’s Treasury Secretary, had been my partner and boss at Dillon Read.
I was a Wall Street insider and a political insider – or so I thought. I was successful at Dillon Read because I created new investment models that helped ordinary people while making a profit. I thought “outside the box.” When Iran-Contra came and went I was oblivious. I had no idea about the drugs. It never entered my mind. Yet today I am convinced that the illegal drug trade, the enormous cheap capital it generates, and the CIA’s role as enforcer/protector for the profits of that trade is a dominant factor in the economy of this country. It is a factor, which is destroying the entire American culture and is utterly out of control. As an investor and banker and as a former Cabinet level appointee, I tell you this is true.
My evolution came slowly. In 1989 I was named Assistant Secretary of Housing-FHA Commissioner under Housing and Urban Development Secretary Jack Kemp. I managed $300 billion of mortgage insurance, mortgages and properties of the Federal Housing Administration and, as Commissioner, I advised the Secretary on another $1 trillion of mortgage financing. I was fired by Jack Kemp in late 1990 because I would not go along with the questionable political practices, which seem to be built into HUD’s machinery and purpose. But still I did not see the bigger picture.
In 1990, after leaving HUD, I started my own investment company, The Hamilton Securities Group, and I devised new and creative ways to save taxpayers billions of dollars. In 1993, Hamilton secured contracts with HUD through Secretary Henry Cisneros. Hamilton saved taxpayers billions of dollars by taking defaulted HUD housing mortgages, repackaging them and auctioning them on the private market. Hamilton began putting wealth back into inner city projects by hiring women living in HUD housing and teaching them how to use computers to build data bases on how money works in 63,000 neighborhoods throughout America. Hamilton started a data processing company with these women in a HUD project (Edgewood Terrace) in Washington. The women who lived there earned stock in the company. The company made money and proved the concept of what on-line access in communities could do to build jobs and businesses. We used the success of that effort to persuade HUD to fund computer learning centers in other housing projects. Hamilton was extremely successful. We made millions and we saved the government billions.
Fulfilling my childhood dream, Hamilton also created new software and money management tools, which were, for the first time ever, able to map down to the neighborhood, exactly how HUD and other federal money worked, who profited when loans defaulted, and how money came into or left a community. For example, we were often able to see where HUD was spending $100-250,000 per unit on apartment buildings when there was single family housing available within walking distance for $25-50,000.
Secretary Cisneros had been extremely supportive of our work. We had unrestricted access to rich quantities of government financial data that was supposedly public but hard to understand. We were translating that into useable information so that people in any community could see how the money flowed through their neighborhood. We helped HUD get increasing amounts of data up on its web site. An unforeseen side effect for the women at Edgewood, and for Hamilton, was that by seeing clearly how the clean money worked, we also began to see how the dirty money worked.
As an investor for more than twenty years, I believed that it was actually more profitable for people to own their own neighborhoods and businesses and to know exactly how the money worked. The MONEY MAPS we made were so simple to understand that they looked like comic books.
As it turns out we mapped a great deal more than we knew.
In 1996, as reporter Gary Webb was busy writing a series of stories connecting CIA and the Contras to the crack cocaine epidemic in Los Angeles, I was busy using the money maps in a way that would help people move people from government subsidies to home ownership and entrepreneurship.
I was also advocating that U.S. government investment in communities should be subject to the same public disclosure rules that private companies are obligated to follow under the Securities and Exchange Commission Rules. If you are a shareholder in a company, that company is using your money. The law requires that they use your money legally and that they do their best to protect your money and make you more. To earn money, and to do so in a fair, honest and competitive way, federal and state laws require companies to report performance and key transactions to you, the shareholder. Every citizen is a shareholder in the government. If governments worked like they require corporations to work, they would be required to report to you, in the sunshine, exactly how the money was working, in your neighborhood, and you could either approve – or disapprove of the fairness and effectiveness of that, based upon your understanding of your own needs. That is very threatening to those who have used agencies like HUD as a trough to pay off political cronies.
On August 1, 1996, I gave the keynote address at a Neighborhood Networksconference in Boston, Massachusetts to 500 owners, managers and tenants in private HUD housing. As part of the speech I showed a slide of one of our money maps of Los Angeles. As I put the slide up I made the following statement:
“One of the products that has been most successful for the first data servicing sites, Edgewood Technology Services, has been “geo-coding” databases and mapping. I wanted to show you this map; it’s up on the World Wide Web. This is a map of Los Angeles. Can anyone figure out where south central LA is from looking at where the HUD properties are on this map? This is the same thing as the Washington DC map I showed earlier. The little red dots are single family properties that were financed by (now) defaulted HUD-held mortgages. This map was geo-coded and designed and programmed by a woman who, four months before, had been on unemployment compensation and is a tenant in HUD housing”
If you compare this map with the fact that Freeway Ricky Ross – the crack cocaine kingpin described in Gary Webb’s Dark Alliance was known for buying up real estate along the Harbor Freeway and selling drugs throughout this exact area – the mathematical correlation is staggering. Every dot represents a HUD mortgage where the taxpayers lost money in a defaulted FHA loan and where somebody else bought the property for pennies on the dollar. Most of those loans defaulted as the crack cocaine epidemic ravaged Los Angeles. The taxpayers bear the costs of not only the defaulted mortgages, but also deterioration in property value, the crime, and ultimately the depopulation due to very expensive prison warehousing and welfare.
Exactly who bought and traded in properties throughout this area should be the subject of congressional hearings looking into corrupt HUD practices from the period and continuing to this day. I suspect that many of the same players connected to the Savings and Loan scandals, who have also been tied to Iran-Contra and CIA’s drugs will surface yet again. Demographically it is also easy to see now that the racial composition of South Central has changed radically and that African-Americans have been geographically and politically fragmented as, I believe, an intended result. Their political power has been weakened.
Just days after showing this first map, I received a subpoena from the Office of the Inspector General of HUD asking for extensive data and records from Hamilton. Suddenly, the loan sales and Hamilton were under investigation. The HUD IGÕs actions were doubly surprising given their intimate involvement in and positive feedback about the loan sales program and because a HUD OIG audit team had just finished an audit of the loan sales program and had informed our project manager and HUD that our performance was excellent and there were no problems whatsoever.
At the same time, we got calls from a team of reporters from US News & World Report. They had been assured “at the highest levels” of the HUD Inspector GeneralÕs office that we were guilty of criminal action and that I and would soon be indicted. The recent favorable audit disappeared. Investigators started doing interviews where they did more seed planting than information gathering.
The “investigators” at HUD started suggesting to reporters that bid rigging had occurred in the loan sales. This was just after members of the HUD IG audit team had actually sat in on one sale, and concluded that bid rigging was impossible. They had also concluded that there was no way that “rigging” could have taken place because in a sealed-bid auction, you cannot favor one bidder when all bidders have access to the same information. That audit report was suppressed while the IG investigators pushed the exact opposite notion to reporters.
On August 10, Bob Dole announced Jack Kemp as his running mate. Meantime, the Republican appropriations committee, chaired by Republican Congressman Jerry Lewis of San Bernardino, gave Susan Gaffney, the HUD IG a large appropriations increase for her program Operation Safe Home, which targeted black communities for visible media “wag-the-dog” roundups of drug offenders. At the same time, our model for computer learning and data processing by people who had a stake in the company that did the work was adopted by Unicorp. Unicorp is the Department of Justice private business that markets prison labor to federal agencies.
Suddenly, the black people who were apparently not smart enough to do database and software development near their children and parents were more than competent enough to do it in prison. The prison investment boom was taking off, fueled by new and longer mandated sentences. We at Hamilton felt like we were walking around with a big bullseye on our back because we wanted the communities of America to know what we knew, which was how to make maps that tracked the money flow in their own home towns.
I was not the only one dealing with Inspector General inquiries. The HUD officials working with me were also inundated with an investigation marked by leaks and dirty tactics. The former Deputy Assistant Secretary for Multifamily at HUD, Helen Dunlap, was one of the people targeted. She was from California and had previously run the California Housing Partnership. She had lots of experience in real estate and community development in Los Angeles. Gary Squier, the Housing Commissioner of LA, on loan from Los Angeles, who was not involved in mortgage sales with Hamilton, nonetheless found himself dealing with similar probes from the HUD OIG. He was later to be turned down for a position by the White House despite impeccable credentials. No one could figure out why.
Suddenly I was persona non grata to long time friends and business relations in and around the government. I believe the leak campaign was far more sophisticated than something the HUD Inspector General could or would do on her own. It appeared that major economic and political powers had ordered that Hamilton be destroyed. More importantly, they wanted the evidence of what we knew – the maps – destroyed. That is also why, to this day, we believe the Federal government has destroyed many, but not all, of our tools and databases.
We didn’t realize it at the time, but I am now convinced that in the summer of 1996, our software and mapping techniques uncovered evidence of ethnic cleansing on Los Angeles. Hamilton’s map revealed that one of the most significant effects of the crack cocaine epidemic was that black homeowners, faced with payments on unlivable and unsellable properties, simply defaulted and fled the city to get away from the shootings and the drugs. Those properties: industrial, residential and commercial were scooped up for pennies on the dollar. Wouldn’t it be fascinating to know who bought the properties and how much money has been made on them since?
Thanks to people like Gary Webb, Peter Dale Scott (Cocaine Politics), Alex Cockburn (Whiteout), Mike Ruppert, brave DEA Agents like Celerino Castillo – and now to the CIA’s own reports – we can prove that the CIA knew full well what it was doing.
ETHNIC CLEANSING IN LOS ANGELES
Ethnic cleansing is a bit trickier in South Central Los Angeles than it is in South Central Europe. It is essential in a “democracy” to have people do it in a way that makes it look like they’re “doing it” to themselves. You need a socially induced suicide.
So how do you get people to commit suicide? You make it very attractive for their children to make money doing something illegal. Then you arrest them for it in a very visible way (Remember the battering rams and armored cars?). You design stories to make people blame themselves for what has happened. This is how branding works. Pepsi = tastes good, Black people = cause illegal drugs and crime. Support all this by a national media owned by defense contractors and other corporate interests. That way the nightly news has lots of moneymaking incentives to cover HUD OIG sponsored drug raids in black communities rather than doing a story on CIA drug trafficking.
The most efficient ethnic cleansing is self-financed or, better yet, profitable. Drugs and alcohol are excellent tools toward this end, especially when they are combined with easy access to guns. Sell large amounts of addictive substances to a group of people in an area you want to take over, then use the cash flow to buy up their homes and commercial real estate for 10 cents on the dollar, without much competition, while you enjoy the full value of their cash flow. You can then afford the long holding period required to make the land profitable again after the cleansing period is over.
I believe that if the Federal government would make citizens’ data (and it is our data) available, instead of trying to suppress it, it would prove that taxpayers are losing money to fund ethnic cleansing while the people in South Central LA are losing their lives. And I believe that it was the effectiveness of our maps which threatened to expose the deeper financial agendas of the eighties. I believe our current model, the Solari Investment Model, (www.solarivillage.com) which I am still developing, may well tie Iran-Contra, The Savings and Loan Scandals and the HUD scandals of the late 1980s into one big economic package designed to benefit a very few. The way to start to do this is to look closely at all the government investment, credit and regulations in Los Angeles since 1980.
Our maps suggest to me and others that the crack cocaine epidemic, created by the CIA was, I believe, just as much a program of ethnic cleansing and land grabbing economic warfare as it was about a bunch of rebels in Central America who were notthe equivalent of our Founding Fathers. But this kind of ethnic cleansing was hard to contain and it spread to other races and classes. It reached the rural and suburban neighborhoods of places like Iowa, Ohio and Tennessee. By the end of the 1980Õs it had reached all my friends and relatives who listen to Rush Limbaugh, voted for George Bush and donated money to Oliver North – not knowing that, according to CIA’s own reports, the networks he controlled were the key to the supply of drugs flowing to their kids and communities. As Michael Ventura once wrote, “We all live in the South Bronx now.” White families all across America were hurt by drugs and violence and their pocketbooks also got drained, even as the media reinforced the notion that drugs were a black problem.
MAP SHOWN BY C.A. FITTS AT BOSTON HUD Neighborhood Networks Conference – 8/1/96
MOST OF THESE HUD/FHA SINGLE FAMILY LOANS DEFAULTED BETWEEN 1982 AND 1990.
THE HARBOR FREEWAY, WHICH GAVE “Freeway” RICKY ROSS HIS NAME, IS THE VERTICAL LINE RUNNING STRAIGHT THROUGH THE CENTER OF THE MARKS COVERING SOUTH CENTRAL
After the 1996 election, Secretary Cisneros was asked to resign from HUD. The choice of Cisneros’ successor seemed strange and somehow connected to Hamilton’s predicament. The Afro-American mayor of Seattle was widely considered to be a shoe-in. After the White House floated his name, another investigation by the HUD OIG into possible misuse of HUD monies in Seattle caused him to be dropped. Two days later we were assured that an Afro-American woman from Los Angeles, Yvonne Braithwaite-Burke, was the PresidentÕs leading candidate. Then suddenly, she disappeared from the radar screen and Andrew Cuomo was announced with surprisingly strong bipartisan support for someone with such a partisan history.
Cuomo moved into the Secretary’s office at HUD from his then current position as Assistant Secretary for Community Development and Planning. Rumors started to float around the HUD networks about minorities and people sympathetic to minorities being moved out. Meantime, the new Secretary made it clear that his top priority was enforcement and it appeared that the Secretary and the OIG were going to compete for an ever-growing budget via media-worthy enforcement actions. So, then came the Urban Fraud Initiative and increased funding for Operation Safe Home, targeting tenants, real estate owners and managers in black communities. At the time, we made no connection between these actions and the promotion of prison privatization by Vice President Gore’s National Performance Review. New Federal sentencing guidelines helped increase black inmates to approximately 50% of a rapidly expanding prison population. All this at an extraordinary cost to taxpayers.
As the audits of Hamilton continued, forcing us to spend hundreds of thousands on legal fees, Secretary Cuomo and the Inspector General’s staff, who were later to withhold $2 million in payments, became obsessed with seizing our data and software. This was software we were planning on giving away via the web! The critical issue from October 1997 through the following March seemed to be – our knowledge! In October, great emphasis was placed on our returning all of our HUD databases, including those that were supposed to be publicly available, and certifying that we had done so. In the following months, the HUD OIG tried to seize all of our documents, including originals, with no basis in law. After demanding physical access to our computers, government employees made back-ups of our data which, whether intentionally or not, seriously damaged it.
And no one has yet officially accused us of any wrongdoing. We were, and are to this day, only being investigated. It is clear to us that the intent of this campaign was to drive the company into bankruptcy. The leak campaign against the company and me has since reached new heights of absurdity. As the HUD IG keeps assuring the media that that I am guilty of criminal violations they now have investigators focusing on my sex life! Worse still, HUD IG agents recently showed up at the home of my 72 year old uncle with a subpoena for records of a family owned farm house that doesn’t even have indoor plumbing, implying some kind of fraudulent transaction. Members of my family have reduced or cut off communications, fearing they could be targeted too.
After court battles and negotiation, in March of 1998 HUD insisted that all of our computers be scrubbed. We were not going to be allowed to transfer our own proprietary data and the Federal District Court Judge, Stanley Sporkin, appointed a Special Master as trustee to manage all our digital and paper records. Inexplicably, HUD was quite upset when they found we had taken our main server with us and not sold it, in spite of the government’s destruction of its files. The HUD investigator made it clear that we could not keep the server because – “We were not allowed to have any of the knowledge”. We could not explain this bizarre position and neither could they.
What I did not know until approximately a year later was that hearings were held on Volume I of the CIA Inspector General’s report on the Dark Alliance allegations on March 16 of 1998. At the same moment the government was trying to steal Hamilton’s data and knowledge.
We also did not notice in February when Vice President Al Gore announced that Secretary Cuomo was bestowing an empowerment zone and $300 million in tax credits on Maxine Water’s congressional district. That was just before the March 16th hearing where Maxine Waters performed brilliantly against CIA in a show that nobody watched. We were busy, at the time, moving our computers over to our law firm to protect the MONEY MAPS from a series of break-ins and other harassment around my home.
Our growing fear of being set up in an asset forfeiture case, after the Department of Justice threatened my assets personally, dominated our lives and does so to this day.
And so we did not notice when the damning Volume II of the CIA Inspector General’s report was released on October 8th, one hour after Henry Hyde’s Committee started the Impeachment inquiry. And we did not notice that Maxine Waters’ voice suddenly fell almost silent as Bill Clinton saved his presidency by blackmailing the Republicans with Volume II and its contents. I made efforts to communicate with Maxine Waters in November and December 1998 about possible connections between our case and CIA drug dealing but, aside from an initial contact, our calls were not returned.
To date we estimate that the HUD Inspector General investigation targeting my companies and me has cost the American taxpayer $35MM. To date we have not been successful in getting the Department of Justice or the HUD OIG to tell us what they are investigating or even who is in charge of the investigation. The investigation continues with no end in site. We have multiple lawsuits filed against HUD and are filing more. We continually hear Judge Stanley Sporkin, rule against us with statements that he disagrees with the law so we should take it up with Congress.
The company I founded, Hamilton, was liquidated a year ago to pay the bills of the ongoing campaign to discredit us. As a result of the persecution we have lost more than millions in equity value. I have sold my home, lost millions of dollars in unpaid HUD contracts, endured eighteen audits, burglaries, physical harassment and an unending smear campaign which has produced not a single complaint or indictment after almost three years. I believe this is because I have the pieces to help prove that what Gary Webb stumbled upon was ethnic cleansing – American style.
My bottom-line? For those of you pushing for testimony on Volume II, let’s try another tactic. Let’s push for a Congressional and GAO investigation on how all the federal investment, credit and regulation worked in Los Angeles from 1980 to 1994. Let’s look at how our government was used, from CIA to DEA to HUD, to destroy and loot our communities. The key is HUD. Let’s look at how the Section 8 owners, managers and tax partnership beneficiaries worked along side the drug traffickers. Let’s look for patterns of loan brokering, money laundering, cleansing and other relationships between real estate, land, prison growth and privatization and the kind of investors who control CIA and intelligence networks. Then let’s look how this ties in to campaign fundraising.
The present economic and political system is not workable and must change. New investment models in the information age will show us that integrity, honesty and win-win investment models, rooted in community and place based autonomy are actually more profitable than the liquidate and destroy models currently operating. Like the auto mechanic said to the car owner who needed repairs, “You can either pay some now – or pay a lot more later.” But we have to solve some problems first. Finding the will to do that is made easier for me as I recall the words of Bishop Alfred Owens of the Greater Mount Calvary Holy Church, “If we can face it. God can fix it.”
After a lifetime of study, from Wharton to the inner sancta of government, I believe there are solutions. All of them require, however, that we begin with an honest assessment of where we are and where we want to go.
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Catherine Austin Fitts, is a 1978 Graduate of the Wharton School of Business with an MBA in Finance. From 1978 to 1989, Fitts worked at the Wall Street investment bank Dillon, Read & Co, servicing from 1986-9 as a Managing Director and member of the Board of Directors.
From 1989-90 Fitts served as Assistant Secretary of Housing – Federal Housing Commissioner at the Department of Housing and Urban Development. From 1991-7 she served as President of the Hamilton Securities Group.
She is now President of Solari, Inc.
