The Post Toasties and the Liquidators

Memo

To: Solari Network

From: Catherine Fitts

CC: Solari Team on Gideon; DBR

Date: Spring, 1999

Re: A Simple Whole World Setting for Convergence of Community Development and Drug Related Covert Operations

Purpose of Memorandum

I have been musing on what picture I could paint that would help us look at our mutual worlds whole. What picture would help us take these different pieces of the jigsaw puzzle and lay them down in a way that we could integrate what we know in a simple and compelling way.

It’s Just Us Chickens

One way to think about this is to look at this in terms of people and market share. There are approximately 300 million people in America. You can count them up in different ways. Voters, taxpayers, citizens, consumers, savers and investors. You can break them down in different ways: male, female, old, young, black, white. One way to describe them is to group them by place. There are approximately 60,000 neighborhoods of approximately 5,000 people. We tend to put them into meta-groups of urban, suburban and rural and East, North, Middle, South and West.

We have two "voting" systems for their optimization of resources. One voting system is called democracy. That is what allocates about half the money and the legal rules that influence 100% of the money. This money is organized into organizations who provide products and services for communities or overall services for all communities like national security. The other is called free markets. This money is organized into organizations that make and distribute products and services to both communities and broader intra-and inter-community markets. That is why to understand money you need a model of how different kinds of organizations work, different kinds of communities and then how government process or private markets interconnect the trading in and between them.

Both systems depend on open shared disclosure, competitive process and protection from risk afforded by the constitution to function. That is why when rapid economic change is upon a society, the folks hoping to hold on to one or both pots of money a little bit longer to amortize their sunk costs and maintain their power, try to stop open disclosure and competitive process.

One of the things that is interesting about reading conspiracy theory is that much of what folks think is conspiracy is really many people acting in concert to make or protect their money. The organizing principle is often government or organized crime money, and it’s interaction with the private markets. When the money is legal private market money, it is very easy for folks to see and understand the swarm as like minded or like-incentivized people acting in concert on a dispersed basis.

The way to see something simple is to just look at one little neighborhood and then multiple that times 60,000. I am reminded of one of my partners who grew up in the Caribbean when asked why he had such a great understanding of the American economy said to me "Because, unlike most Americans, I understand that the United States is just a very big island. What goes around comes around, it just takes longer than on a real island."

Naturally, when I look at a neighborhood, I look at the money. Money is an organizing principle that reflects all the consumer "votes" and democratic "votes", albeit in a rigged and unilluminated system.

Looking at Our World from the Stoops and the Porches

We are sitting on a stoop in West Philadelphia. It’s April, 1999. Some kids are playing bottle caps and wall ball. Parents are coming home from work. It is going to be dark soon, so everyone needs to get in doors. It is not safe now. It sure is not going to be after dark. Hmm, let’s look at how the money works and see if we can figure out why.

What we have here in West Philadelphia is a market share battle. We have 5,000 customers whose attention is being competed for by two groups: The Post Toasties and the Liquidators.

We can make money by doing things with us and for us that are generally positive. We can make money by helping us get smarter (churches, education, computers, books), we can make money by helping us get healthier (vitamins, sports, health foods stores) we can make money by helping us have fun (entertainment) and by helping us move money around (banking, securities, credit cards, pension and mutual funds). We can also make money by simply helping us consume things we want and need, or do not need but we want or we can convince us that we need. We can provide us with basic governmental services; transportation, water and sewer, etc. Let us call the corporations and government agencies that provide these various products and services the Post Toasties. They make more money as income rises because they can help us increase our values and our assets or sell more post Toasties to us.

Pitted in competition for our attention and consumer and tax dollar are the Liquidators. The worse we do the better the Liquidators do. We have poverty management and maintenance, organized crime, security, enforcement, prisons, and the justice system. The problem with the Liquidators system is that it is not sustainable. They liquidate asset value as they gain market share so that when they are through, there is no asset value left.

This, in fact, is the system goal in economic cleansing. You liquidate a population by selling them drugs. Once their physical and financial health is liquidated, you buy up their real estate and land for a song (or seize it in forfeiture so you can play the game anew) and then make money processing them into subsidized housing or into a prison or into a grave. It is essentially a sharecropping system. It is a race between how fast they can reproduce and learn and how fast you can liquidate them on a profitable basis. This kind of cleansing can happen due to a small bunch of well-organized evil folks. It can also happen because various competing factions need a way to replace losses in the market share battle and they do it by agreeing to settle their differences by allying to steal the difference from a third and weaker constituency. They need a short-term offset to a diminution in their power and money or that of a cranky rival.

In America, some folks are very clear about what they are doing and how economic cleansing works. Many are not. Many are in fact in these jobs because they have legitimate missions to help address evil and risk. Yet they are sucked into a system that has no performance goals organized around diminution of risk. That is not an accident and any effort to change the system to date results in the few intentional and clear people making sure it does not change.

The interesting thing about West Philadelphia in 1999 is what technology has added to the competition. It turns out that the Internet and digital technology mean powerful illumination, increase in learning speeds and deflation. This means that the various myths and financial systems used to control many by a few in an "open society" are imploding on themselves. Case in point, Hamilton Securities can build a money mapping operation ("Community Wizard") of relational databases that communities can access through the web to see how all the money works in their place.

Ok, let us add the other piece of the money to the equation. We have the Post Toasties and the Liquidators competing for the time and attention of the people, trying to get Harry and Jane and the kids to buy cereal or to buy and sell drugs and go to jail. They cannot do both. But there is another part of the competition between the Post Toasties and the Liquidators. And that is who controls the money. The Post Toasties and the Liquidators are competing for net income or tax dollar flow. The big money is in whom owns the equity. So who controls the stock that trades from the net income coming from sales or government contracts? And who owns and controls the real estate assets and any other assets in the community. For this reason, let us identify separately from the Post Toasties and the Liquidators, the Landlords and the Pension and Mutual Funds. As we do that let’s note that the Pension and Mutual Funds are all of our savings. A few folks may manage them, but it is all our money.

Right now, who ever controls the ownership and equity value, it is a remarkably high percentage outside the community. The consumer and citizen get very little equity participation. That means both the Post Toasties and Liquidators and the Landlords and Pension and Mutual Funds share a common goal. That is keeping the entire equity participation in the hands of the producers and their owners and out of the hands of consumers. The way to do that is by keeping all the knowledge away from the consumer about how the money works. The problem with that picture enters in with technology. High interactive learning speeds between Post Toastie producers and consumers depends on alignment of incentive systems. Ultimately the health of government financing and the Pension and Mutual Funds depend on that happening. That means that the consumer needs the knowledge about how the money works in their community and the things that they buy and use. That opens up issues of earning equity participation and financing communities with equity and not with debt.

The question is when will the Post Toasties and Pension and Mutual Funds see that reality, and flip the switch? I do not know the answer to that question. A full discussion of the issues is a topic for a subsequent memo. What is important here is to make a couple of essential points on the role of the landlord and the role of government. The Post Toasties and Pension and Mutual Funds problem is that they and the Liquidators and Landlords are using litigation, politics and law enforcement to protect their interests. Which means the competition between them is getting increasingly mean. To win, the Post Toasties and Pension and Mutual Funds have to clean up government. That has some negatives. A corrupt government is much easier for the Post Toasties to deal with in terms of consolidating their own power, particularly vs the consumer as well as scarfing up the growing income flow of outsourced government contracts and work.

The likely leaders here are the Pension and Mutual funds which is why my focus has been and continues to be the Solari Investment Model. Ultimately, the financial system does not work unless the equity system works. And ultimately most of us are taxpayers, voters and pension beneficiaries of public and private systems. If we all lose value, our investments in ourselves will go down in value. It really is simple.

Landlords

There are many different kinds of landlords. But let us look at the landlords that have been functioning in areas of high drug use and high government housing assistance (the two appear to have worked in concert or grown up together) We have two kinds of landlords. Local public housing authorities own the government housing. Private for-profits and not-for-profits control and manage the private government subsidized multifamily housing and some single family rental, with lots of the equity being provided through partnerships and tax shelters by all sorts of folks not involved in management. Some of these or the related management has been rolled up into publicly traded companies in recent years.

If drugs are going to become a significant factor in a community over a long period, at some point it is logical to assume that private landlords will have to adapt to survive. That could mean several things. Drug operations go in and out of their building in way that they do or do not make money on it. As this happens, the value of their operation will go down unless they adapt and/or participate. They have to be on the liquidator or liquidee side. Unless they get in the game, they are part of what is liquidated. This may be ok. Government subsidy, tax benefits and fee flow may make being a liquidee financially sustainable. (note the presence of government subsidy means that the real estate owners tolerate things that need the strong and immediate opposition of private equity interests usually provide).

But there is no doubt opportunity. What is going down can be offset by buying more cheap and holding for the turn at a nice fee flow. Drug profits can be a source of cheap capital to buy cheap or manage for those who do. If this has been the case traditionally, imagine the irritation of a Gene Ford type owner when Goldman Sachs starts outbidding him at auctions with great big gobs of money floating in from offshore in legal form. Drug profits can also be an excellent opportunity for those who can use an apartment rental flow, Laundromats, and other residential services to convert drug profits into a legal corporate net income. And there are all sorts of ways to use insured financing to do "loss" brokering for covert financing needs. It would be interesting to go back to the coinsurance portfolio and DRG and Puller and see how much of some of the dicey coinsurance operations were used in connection with CIA and Iran-Contra network operations. That could sure explain why Kemp killed me for shutting down Puller and how Puller turned up as one of the loans suing us with Ervin. Reed’s book has a good description of how much North loved using insured assets for loan brokering. Black Money has a great description of how to use retail services to cleanse and money launder lots of drug money.

Let us assume that some of the private guys adapted to survive and avoid recapture or to make money. Once in the game once only, they have a skeleton. This is added to all the skeletons that they have in terms of their limited partners seeing the normal industry games in terms of playing with net income.

What that means is that there are a whole lots of folks who would be terrified that competition and open disclosure would not only take away their control or open them up to tax liabilities, it could also expose them to social shunning and criminal liability. Who would they go to for political protection? Seems to me the logical place they would go to is those parts of the organized crime networks that financed or supported government or whose support by government operations and politicians gave them shared skeletons.

That means that there would be parts of the CIA networks, including CIA assets integrated into the local police and media, that would have intimate and ongoing relations over many years with parts of the multifamily industry. It would be one integrated flow of money as it flowed through the community. In the process of getting through the day---the great art of muddling through on a very large logistical and financial operation---folks would simply get to know each other and work together. And when one was threatened by the sunshine of a change in HUD’s policies and a related private venture model bringing in computer networks and tools, they were simply a domino that could start a chain reaction. For help, they would turn to that part of the chain with the ability to fix the problem.

It seems to me that I need to walk around Edgewood and the three big HUD and HUD financed buildings and think about how the money could have worked over the last thirty years in a DC neighborhood and how that might have easily and simply related to domestic CIA related drug operations and Iran-Contra. Remember that the Mayor Barry entrapment was designed as a diversionary tactic to protect the Iran Contra crew. To see the rural story, I need to walk around and understand the same picture in Bolivar, Hickory Valley and Jackson Tennessee. CCA—the largest private prison company--- is present in both communities, one on the supply side and one on the demand side, which is an added advantage.

Government

The implosion of government is easier to see when viewed through this looking glass. The Post Toasties and the Liquidators are competing for government’s support in their quest for market share. They are also competing for government to increase expenditures in their area for products and services that they can provide. Meantime, they are spending a fortune in the media and in campaign fundraising to persuade the government and general population to the themes that support swinging the money their way. In this environment, the Liquidators have some natural advantages so long as the citizens lack real time simple and effective information and disclosure. Liquidators have more fear tactics. They also have money that can be spent on covert domestic operations or cleansed and used to do everything under the sun, including using stock market equity. So well run liquidation networks can benefit from cheaper cost of capital, less internal network myths and less opposition. This will last as long as there is no "amnesty". That is, legitimate Post Toasties, Landlords and Pension and Mutual Funds and others are afraid of the ramifications of open disclosure, not only to their equity participation vs consumers or each other, but the implications to their constituents of admitting their silence or co-adaptation to what has been going on. For example, any congressman in Washington who has not tried to do something about Iran-Contra and the CIA IG reports is either dirty, stupid or silent. All three are the basis for being fired.

So government is simply a series of puppets that are dancing to the tune of competing puppeteers. And the extent to which everyone is now stepping on each other’s and their own toes is stunning. The accounting and legal industry is trying to handle both and they are getting passing out of headache phase to nightmare phase. Which means the governance machinery of the system is about to implode/blow up. Y2K, deflation, and e-commerce are the straws that may break the camel’s back.

It is very pogo. We have met the enemy and it is us.

Solari Investment Model

My solution for all of this is the Solari Investment Model. That includes the sunshine of communities seeing how all the money works in their place. This is pretty easy to do if Yahoo were not afraid of the Liquidators. Or if the compensation of every government employee in the country as tied to the performance of the Popsicle Index, we know this problem would solve itself lickety split.

Which gets us back to the practical way of getting us all out of this trick box in a way that is fun and makes us money. I think we can figure out how to do this from a Pension and Mutual Fund platform if we pool our various worlds and knowledge.

If I can understand how this happened and impacted Edgewood, DC and Boliver & Hickory Valley Tennessee, then we can understand what has happened to our selves, our families, our communities and the country we love.