Drug War: Covert Money, Power & Policy: SETCO

Immediately on taking office, Reagan began the "deregulation" of the savings and loan industry, allowing S&L's to offer any interest rate they wanted and do anything with the money. Reagan's administration regularly approved unqualified hoods for federally-insured bank ownership. Hood banks often looted their entire cash reserves, lending them to their own front companies, washing the money out the front companies through various transfer tactics, and then declaring the front companies bankrupt, which in turn forced the bank's collapse. The money was gone into hood hands, and the FDIC/FSLIC was liable to reimburse depositors, to the tune of hundreds of billions of taxpayer money - some estimates go as high as one trillion dollars - that's one-seventh the entire annual GNP.

These cooperating hoods and businessmen, Marcello, Beebe, Renda, Mischer, Lyon, Khashoggi, Murchison, Helliwell, Hernandez-Cartaya, Charles, Rebozo, the Bushes, etc. were indistinguishable from the intelligence community and from the Republican establishment, although there are certainly plenty of Democrats on the list as well.

President Bush’s Federal Housing Administration Commissioner, Catherine Austin Fitts, Assistant Secretary of Housing under HUD Secretary Jack Kemp, got a close-up look at the modus operandi of this establishment. Unlike many of her fellow Reaganauts, Fitts, a former Managing Director and Board member of the prestigious Wall Street investment bank Dillon Read & Co, was a religiously-motivated idealist, not a money-motivated hustler. As Bush’s manager of the FHA’s gigantic $300 billion mortgage and properties portfolio, she set out to revamp the system from the botton up, whoever’s ox got gored. Secretary Kemp, fearing for his oxen, fired Commissioner Fitts.

Catherine Austin Fitts

After leaving at loggerheads with the corrupt bureaucracy she found at HUD, Catherine Austin Fitts did something really remarkable. She showed new HUD Secretary Cisneros, in 1993, how to save taxpayers billions by empowering the very people in danger of defaulting on their HUD mortgages or living in HUD-supported housing. Using a bottom-up rather than top-down model, Fitts’ new Hamilton Securities Group developed a pilot project at a HUD housing project, Edgewood Terrace. Hamilton taught the local women how to use computers to build data bases that tracked the money flowing through their own neighborhood. Since their neighborhood wasn’t particularly different than the other 63,000 neighborhoods in HUD’s database, what Edgewood Technology Services did was help HamiltonSecurities create software and money management tools applicable to the whole country.

The women of Edgewood Terrace proved that they could be as computer literate as anyone else, given the sweat-equity subsidy, and were rewarded with stock in their company and a decent income doing highly productive work. The real value of Edgewood Terrace property, of course, rose as its pain level dropped. Edgewood Terrace could no longer be bought for pennies on the dollar for condo conversion. Fitts’ practical tools for dealing with “How the $ Works and How to Reengineer How the $ Works” can be found at her site, www.solari.com. I particularly recommend Fitts' essays and articles, up at her site. Catherine's new essay on the huge Harvard octopus, which includes the CIA's DynCorp, up at newsmakingnews.com, is particularly brilliant.

With her ‘geo-coded’ data base she was able to demonstrate that defaulted HUD mortgages were concentrated in areas of structural poverty, and that those were precisely the “drug areas” the Prohibitionists were most up in arms about. “Freeway” Ricky Ross’ Harbor Freeway, running right through the center of South Central L.A., was a concentrated mass of defaulted HUD/FHA single family loans. Fitts’ map of defaults looks quite like a pollution-induced disease cluster centered around the Harbor Freeway. Catherine tells the story of the price she paid for this kind of thinking best. It is one of the most revealing true stories of America's contemporary political tragedy: The Solari Story.

Failure to address neighborhood structural poverty results in a pain-filled neighborhood dependent on the default painkiller economy. The resultant anarchic poverty and violence collapses neighborhood property values. Why pay off an apparently worthless mortgage when it makes more sense to move? Prime urban real estate can then be bought for pennies on the dollar.

And who was buying this prime real estate? The HUD contractors -indistinguishable from the intelligence community and the Republican establishment. The same “liquidators” that had made the neighborhood ripe for a “drug epidemic” in the first place, the same military intelligence operatives dealing the drugs, were using their drug money to buy the now devalued neighborhoods for a pittance - for cheap conversion into condos, malls and industrial parks. These were the very same radical Prohibitionists demonizing those using the pain killers and then vying for the resultant prison contracts.

That is, from the perspective of the “liquidators,” there is no difference between Angelinos and Campesinos. Economic fascism, corporate colonialism, is indeed threatened by prosperous, empowered campesinos because they represent an economic model that could easily spread throughout the third world, quite like Fitts’ bottom-up American model. The little domino that finally snuffed the drug-dealing, U.S.-run maniac Anastasio Somoza Debayle, whose family virtually owned Nicaragua from 1934 to 1979, was therefore viewed as a serious threat by the Reagan/Bush administration. It could become a model for the entire region.

Anastasio Somoza Debayle of Nicaragua, Generals Jorge Videla and Roberto Viola of Argentina

Immediately on assuming office, Reagan's CIA Director William Casey, OSS veteran, mob partner and mob lawyer, Nixon's SEC chairman, went into action against the Sandinistas. He arranged with his Cocaine Coup partners, Argentine President-designate Gen. Roberto Viola, left, and Chief of Staff General Alvaro Martínez, Gen. Suárez Mason's boss, to use veteran trainers from their dirty war to remold the remnants of Somoza's National Guard. They called themselves the Nicaraguan Democratic Force, the FDN, but the Sandinistas' derisive nickname, "the Contras," was the one that stuck. This effort was begun by CIA cutouts Videla of Argentina and Stroessner of Paraguay immediately on the fall of Somoza, a year before Reagan took office in 1980, under Carter's orders.

In 1934, the elder Somoza, at the head of the U.S.-trained National Guard, secured his power by assassinating the dashing Augusto Sandino, below, a charismatic poet and mystical socialist revolutionary. Sandino had fought the U.S. Marines and the puppet Nicaraguan government to a standstill in a spectacular 7-year guerrilla war. He was assassinated under a flag of truce, while peacefully negotiating a coalition government.

Anastasio Somoza García and Augusto Sandino, just prior to Somoza’s assassination of Sandino; Nicaraguan National Archives

Gen. Smedley Butler, the legendary Marine sent to track down Sandino's Nicaraguan predecessors, was so disgusted by the cruelty and slave-labor he encountered that he concluded Sandino was right. "War is a Racket," wrote this marvelous old warrior. "Only a small 'inside' group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes….How many of these war millionaires shouldered a rifle?"  His small book then goes on to excoriate, by name, the multinational corporations then running Central American politics for their own advantage. Butler was disgusted by the stealthy assassination of Sandino, a legitimately elected populist democrat. That wasn't what he was fighting for.

Like Emiliano Zapata and Joe Hill, of course, Augusto Sandino never really died. After they took power in July of 1979, the Sandinistas won an award from the World Health Organization for the radical drop in the infant mortality rate they engineered. Their budget stressed health care and education, and they instituted an effective land reform program which enabled their rural campesinos to become self-sufficient.

José de Paredes, Augusto Sandino and Augustín Farabundo Martí

The Sandinistas turned the huge absentee-owned coffee, cotton and banana plantations, export monocrop slave-labor factories, into diversified family farms or community-owned cooperatives. Women with key roles in rural health and vaccination programs were also encouraged to lead the rural literacy programs. These were often organized around church Bible study groups.

It was these programs that President Carter wisely backed with $125 million in aid. Carter's quid pro quo, which the Sandinistas were perfectly happy to live with, was that they not ship arms to the rebels in El Salvador. Of course, when the Reagan administration blocked Carter's funds and started attacking Nicaraguan campesinos with an army of Somocista murderers, the deal was off.

In 1985, Daniel Ortega, in response to questions put to him by Peruvian writer Mario Vargas Llosa on behalf of Venezuelan President Jaime Lusinchi, repeated what had always been the Sandinista position: "We're willing to send home the Cubans, the Russians,the rest of the advisors. We're willing to stop the movement of military aid, or any other kind of aid, through Nicaragua to El Salvador, and we're willing to accept international verification. In return, we're asking for only one thing: that they don't atack us, that the United States stop arming and financing the gangs that kill our people, burn our crops and force us to divert enormous human and economic resources into war when we desperately need them for development."

But stopping Sandinista development was precisely the point. The Sandinistas weren't building from a top down, IMF-defined production-for-export model, they were building from the bottom up. It's the difference between a Nicaragua that is an agricultural giant able to grow all its own food, and a nation of serfs dependent on absentee-owned factories and plantations producing for export. It's the difference between campesino-owned family farms, and sweatshop slums peopled by ex-campesinos, who must trade their miserable wages for cupfuls of imported U.S. grain. This is not a question of capitalism vs. socialism, because independent family farms are capitalist institutions. It's a question of a "national and independent capitalism vs. feudalism," as Jacobo Arbenz put it - owners vs. sharecroppers.

Prosperous family farms, of course, generate buying power. But that buying power isn't consumerist, it's tribal - spent on local goods and services. In 1983, the Inter-American Development Bank declared that the Sandinistas' "noteworthy progress in the social sector" was "laying a solid foundation for long-term socio-economic development." The World Bank called Nicaragua's development under the Sandinistas "remarkable.... better than anywhere in the world." That, of course, was before the massive U.S. warfare and economic sanctions took their toll.

If Sandinista economic nationalism spread to neighboring countries, what would become of the absentee landlords? As Nixon's Secretary of State Henry Kissinger succinctly put it, "I don't see why we need to stand by and watch a country go communist due to the irresponsibility of its own people."

The Contra staging areas, originally set up under Carter, were in Guatemala and Honduras. Mario Sandoval Alarcón's MLN played the role of host in Guatemala. In 1978 the President of Guatemala was the unelected General Romeo Lucas García, former president Laugerud's defense minister. Lucas and Sandoval were particular favorites of Reagan's constituency.

In December of 1979 a delegation from the American Security Council, led by "retired" Generals John Singlaub and Daniel Graham - the one a very high ranking CIA agent and the other, Graham, a former Director of the Defense Intelligence Agency - visited Lucas in Guatemala City. They denounced Carter for calling this mass-murderer a mass-murderer and cutting off military aid. Lucas was promised that Reagan would resume military aid as soon as he took office.

Singlaub and Graham were followed by the Young Americans for Freedom, the Heritage Foundation, the Moral Majority and the Center for Strategic and International Studies. Pat Robertson and Jerry Falwell prayed for "mercy helicopters" for Lucas. The Guatemalan leader of this publicity campaign was none other than Roberto Alejos Arzu, whose finca in Retalhuleu had been the staging area for the Bay of Pigs invasion. The CIA's very own Vernon Walters, who represented the interests of an oil company, Basic Resources, in Guatemala, also made a point of stroking Lucas.

Reagan, of course, did resume both overt and covert military aid, from Taiwan, Israel and Argentina, which was immediately put to use by Lucas in a "pacification" plan designed by U.S. military experts. In May of 1982 the Guatemalan Conference of Bishops, a very conservative group, declared that "never in our history have such extremes been reached, with the assassinations now falling into the category of genocide." These same Church officials estimated that Lucas killed as many as 150,000 Guatemalans.

Obviously, the guerrillas gained many new adherents as Lucas resorted to burning their highland forests, causing, like Saddam Hussein, massive, irreversible environmental destruction. A destruction, oddly enough, almost never mentioned in the American mass media, which prefers to fixate on celebrity sexuality, plane crashes and wacko loners.

On Feb. 11, 1982, two months after President Reagan first formally authorized covert CIA support for the Contras, Attorney General William French Smith, at DCI Casey's request, released the CIA from its legal responsibility to report narcotics law violations. Smith's letter to Casey was published as part of CIA Inspector General Frederick Hitz' 1/29/98 report to Congress on Contra-CIA drug connections. The letter was read into the Congressional Record on 5/7/98 by L.A.'s enraged Rep. Maxine Waters, despite the CIA's inisistence that the entire report was "classified." It is interesting that Smith didn't release the CIA from any of its other responsibilites under federal law - the requirement to report murder, Neutrality Act violations, espionage, arson, etc. - but only the requirement to report narcotics law violations.

A series of concomitant Executive Orders and National Security Decision Directives, many of which have been declassified, reveal that Vice-President Bush, the former DCI, had formal executive control of all Reagan administration intelligence operations, and was, in fact, DCI Casey's commanding officer. Casey's request for the narcotics reporting exemption, then, as part of the initial administration planning for Contra operations, indicates a premeditated conspiracy to do what the Reagan administration actually did - operate a massive illegal drugs-for-arms network.

May 14, 1982: "National Security Decision Directive 3, Crisis Management, establishes the Special Situation Group (SSG), chaired by the Vice President. The SSG is charged...with formulating plans in anticipation of crises.... [Relevant agencies are to] provide the name of their CPPG [Crisis Pre-Planning Group] representative to Oliver North, NSC staff....'' The memo was signed "for the President" by Reagan's national security adviser, William Clark, and declassified during the Iran-Contra hearings.

Later spin-offs of this structure, which cut "non-operational" State Department people out of the loop, included the Vice President's Task Force on Combatting Terrorism, and the Operations Sub-Group, composed of the same people - Bush, Gregg, Clarridge, North, Poindexter, Allen, Oakley, Koch, Moellering, Revell and others.

Their first crisis was not long in coming. On December 21, 1982, Congress passed the Boland amendment to the Defense Appropriations Act: "None of the funds provided in this Act may be used by the Central Intelligence Agency or the Department of Defense to furnish military equipment, military training or advice, or other support for military activities, to any group or individual ... for the purpose of overthrowing the government of Nicaragua.''

Mass murder in Guatemala, apparently, was not proscribed. The transparent Lucas was replaced as President in late 1982 by Gen. Rios Montt, a graduate of just about every counterinsurgency course offered by the U.S. military. Although Rios Montt's "Plan Victoria" was simply a repeat of Lucas' highland scorched earth policy, his line was smoother. This enabled the January 1984 Kissinger Commission to certify the great human rights improvement wrought by this more subtle lunatic, so massive overt military aid was resumed.

Working with Guatemala's Sandoval, Nicaragua's Somoza and his Salvadoran allies Cuellar and Santivañez, was Roberto D'Aubuisson, deputy chief of the CIA-created and funded Salvadoran National Security Agency, ANSESAL.  D'Aubuisson used ANSESAL to form the Armed Forces of National Liberation - War of Extermination, the FALANGE. D'Aubuisson's FALANGE spawned the White Warriors Union, the Secret Anticommunist Army and other contract death squads. Pursuant to his CIA-KMT training, D'Aubuisson gave his death squads a political base by forming the party of the Army, the Nationalist Republican Alliance, ARENA.

D'Aubuisson reacted to the October 1979 Salvadoran coup engineered by reformist junior officers by activating his death squads. First he killed the attorney general of the new pluralist government, Mario Zamora, brother of FMLN leader Rubén Zamora. Then, in March 1980, D'Aubuisson went after his next most dangerous critic, the Archbishop, who was shot through the heart while giving mass. Archbishop Romero had insisted that the neighboring Sandinistas were preoccupied with their own development and therefore were no military threat to El Salvador.

In a famous letter sent just before his death, the Archbishop begged President Carter not to aid ARENA's military. He said such aid would be used to "sharpen injustice and repression against the people's organizations" which were struggling "for respect for their most basic human rights." Nicaragua's Sandinistas, said the Archbishop, seemed to be acting more like Christians than Communists. The morality inherent in their economic model reflected the true message of Christ, and therefore was a good economic model for El Salvador. Salvadorans, added the Archbishop, were right to insist on absolute freedom of speech and regular democratic elections. "You can be a Communist," explained Roberto D'Aubuisson, "even if you personally don't believe you are a Communist."

Ten days after the murder of the Archbishop, Roberto D'Aubuisson explained to his American Republican supporters, in a meeting room of the U.S. House of Representatives, that "In order to define the State Department policy, we could use this axiom: who is a communist? Those who consciously or unconsciously collaborate with the Soviet cause. We can ascertain that present [Carter] State Department policy toward Central America has candidly favored communist infiltration." That was, word for word, the line peddled at the 1980 Buenos Aires meeting of the CIA's Confederación Anticomunista Latina, CAL, that D'Aubuisson would attend in September, in celebration of the Bolivian Cocaine Coup.

Also attending the September 1980 CIA/CAL celebration was John Carbaugh, an aide to Republican Senator Jesse Helms. Helms, a rabid red-baiting segregationist in the 1950's, was an enthusiastic supporter of the fascists. As a ranking member of the Senate Foreign Relations Committee, of course, Helms knew all there was to know about the death squads, but that didn't stop him from solemnly taking testimony from ARENA's distinguished killers. Between 1980 and 1992 Helms helped funnel $6 billion into the Salvadoran military.

Hobnobbing with Carbaugh at the CAL confab was Stefano delle Chiaie, Klaus Barbie's top aide. Carbaugh had extensive personal contact with D'Aubuisson, and was instrumental in packaging the ARENA publicity campaign in Washington. Also attending the 1980 CAL meeting was Margo Carlisle, legislative aide to Senator James McClure (R-ID) and staff director of the Republican Conference of the U.S. Senate. Carbaugh and Carlisle hired Mackenzie-McCheyne to handle ARENA's advertising, while Paul Weyrich taught ARENA operatives effective campaign tactics.

In 1980 ARENA killed at least 10,000 Salvadorans, including quite a few members of the new progressive junta, which collapsed under the terror. In July of 1980 D'Aubuisson was fêted in Washington by the Heritage Foundation, the Council for Inter-American Security, the American Security Council and the American Legion. ARENA became, under Reagan, the very symbol of democratic liberalism and the recipient of all the military hardware it could absorb. When the going got too tough for the freedom fighters of ARENA, of course, they could always count on American jets to drop high explosives and napalm on El Salvador's desperate campesinos. The ranks of the FMLN, the Marti Front for National Liberation, swelled, as whole villages were incinerated.

In May, 1980, at the Sumpul River crossing, more than 600 unarmed men, women and children were machine gunned to death by cooperating Salvadoran and Honduran troops on either bank as they tried to flee Salvadoran territory into Honduras. Little children, caught in the middle of the river, were cut to ribbons.

In December of 1981, at the villages surrounding El Mozote in El Salvador, more than 800 defenseless people were massacred, according to the Salvadoran Catholic Church. In 1992, Tutela Legal, the legal arm of the Salvadoran Church, hired the distinguished international experts of the Argentine Forensic Anthropology Team to conduct excavations at El Mozote. In the ruins of a single-room building attached to the village church, the team found 143 human skeletons, 131 of which were children under the age of 12. They had all been machine-gunned to death by standard U.S. Army issue M-16 ammunition manufactured at the Lake City Plant in Independence, Missouri. That was the ammo used by the Atlacatl Batallion, which had been formed by experts from the U.S. Army School of Special Forces in March of 1981, Barry McCaffrey's outfit.

Aside from massacre by rifle fire, the Atlacatl Batallion and its clones practiced rape, decapitation and disembowelment on a massive scale. By 1982, 600,000 Salvadorans were left homeless - and terrified enough to stop demanding any political rights at all.

The CIA-Contra military plan that so upset Archbishop Romero was run by Gen. McCaffrey and Col. Steele out of Milgroup at Ilopango in El Salvador.  It was based on the same idea as the Bay of Pigs. The idea was to seize a patch of Nicaraguan territory, 1500 square miles of uninhabited mountains in fact, and force overt U.S. military intervention in support of "Free Nicaragua." But even the CIA couldn't sell that one to the Joint Chiefs. They knew that an overt U.S. invasion of Nicaragua would be a bloody nightmare. The Pentagon's Rand Corporation estimated that the popular Sandinistas could bog down 100,000 U.S. troops almost indefinitely. That, of course, would completely enrage all our Latin friends. Colombia, Mexico, Panama and Venezuela - the Contadora group - were in fact quite sympathetic to the Sandinistas, traded with them extensively, and violently opposed military intervention.

Choppers returning Contra troops to Ilopango from Nicaragua; Castillo

The Somocistas, at any rate, had so little popular support they couldn't hold a mountaintop long enough to dig a deep latrine. They could hit, and they could run. The CIA, and certainly the State Department, did what it could to patch together a centrist coalition of Nicaraguans who weren't Somocistas, but their coalition had no operational control of "their" military. 46 of the 48 top Contra leaders were CIA Somocistas, that is, former officers of Somoza's National Guard. The other two, apparently, just liked killing. An August 1985 incident is typical. When the Contras couldn't hold the town of La Trinidad for more than five hours, the time is took Sandinista troops to reach them, they beheaded quite a few townspeople by way of farewell.

The frustrated CIA then hit on the bright idea of blowing up international shipping in Nicaragua's harbors with mines, a transparently illegal act of international terrorism. In fact if Nicaragua had done that to the United States, it would have constituted legal grounds for a declaration of war. Placed in January and February of 1984, the mines, which were designed to be non-lethal, sank a few fishing boats and punched holes in a few freighters, but had no effect whatever on Nicaragua's trade. The U.S., however, found itself facing a losing case in the World Court. And the Soviet Union was provided with the pretext it needed to begin delivering Mi-25 Hind helicopter gunships, the "flying tanks" Daniel Ortega was now convinced he needed.

A humiliated Congress, facing the outrage of all our allies, led by the chairman of the Senate Select Intelligence Committee, Barry Goldwater, whose advance consent was supposedly required for such an operation, ended the entire Contra aid program. "The second Boland amendment" banned any further consideration of Contra aid until March of 1985. Contra aid continued unabated, however, since Congress couldn't find a way to end the illegal cocaine, heroin, pot or arms trade.

The Honduran airline SETCO, according to the Kerry Subcommittee, "was the principal company used by the Contras in Honduras to transport supplies and personnel for the FDN…from 1983 through 1985….SETCO received funds for Contra supply operations from the Contra accounts established by Oliver North."

SETCO was run by Juan Ramón Matta Ballesteros, above, an agent of the Mexican DFS who had worked with the legendary Mexican-based CIA Cuban Alberto Sicilia Falcón. Matta, a Honduran chemist, had helped Sicilia set up his Andean cocaine connections. Matta was hunted as a major drug kingpin by the DEA throughout the 70's. The DEA first arrested him in 1970 at Dulles Airport with 54 pounds of cocaine, but that was in his small-time early days. When Sicilia fell in 1976, Matta inherited much of his network, including a heroin franchise from Guadalajara's great opium grower and heroin manufacturer Miguel Angel Félix Gallardo and a cocaine distribution franchise from the Medellín cartel. Matta, and his Guadalajara cartel partners, ran the "Mexican trampoline" that bounced cocaine from Colombia into the U.S. They became the business partners of Gen. Policarpo Paz García, and in 1978 financed the Honduran "Cocaine Coup" that brought Paz into power. Both worked with Col. Gustavo Álvarez Martínez, head of the Public Security Forces (FUSEP), the secret police.

Both also worked with Álvarez' CIA-DIA contact, Maj. Gen. Robert Schweitzer, a director of strategy for the Army's deputy chief of staff for operations. Schweitzer had been engineering the use of Honduras as a Somocista base since early 1980, a year before Reagan took office. Since Schweitzer promised these ballsy entrepeneurs an avalanche of largesse from the U.S. military, they volunteered to help him supply the Contras. Bush/Casey made Schweitzer an advisor to the National Security Council.

A 1983 Customs Investigative Report stated that "SETCO stands for Servicios Ejecutivos Turistas Commander and is headed by Juan Ramon Matta Ballesteros, a class I DEA violator….SETCO aviation is a corporation formed by American businessmen who are dealing with Ballesteros and are smuggling narcotics into the United States."

So, armed with this intelligence, Lt. Col. Oliver North, under specific orders, proceeded to set up the bank accounts through which SETCO would be paid for services to the U.S. military. The July 9, 1984 entry in North's diary, obligingly published by Senator Kerry, states, in Ollie's own hand, "wanted aircraft to go to Bolivia to pick up paste, want aircraft to pick up 1,500 kilos." The July 12, 1985 entry reads, "$14 million to finance [arms] Supermarket came from drugs." August 9, 1985: "Honduran DC-9 which is being used for runs out of New Orleans is probably being used for drug runs into U.S." All told, Ollie referred to CIA drug dealing in more than 250 entries.

When thinking about the credibility of people like Oliver North, it's always a good rule to ponder how much human blood they have on their hands. Lotsa blood, little credibility. Killing campesinos requires a deeply ingrained moral dishonesty. It is interesting that the diagram found in North's White House safe, outlining the Contra "private aid" network, shows many of the same banks and foundations involved in the savings and loan debacle and also indicted as drug money laundries. All were close political allies of North's commanding officer, Vice-President George Bush.