Drug
War: Covert Money, Power & Policy:
The Solari Story
My name is Catherine Austin Fitts. I live in Hickory Valley, Tennessee.
I am an entrepreneur starting a new company--Solari. Solari's mission
is to help communities start local software tool and database developer/knowledge
management operations called solaris. Think of it as a local "resource
compass" for a neighborhood that helps communities continuously reengineer
their resource use to support local prosperity in a global environment.
My goal is to start Hickory Valley Solari this year and use our website
to teach others how to do the same. I am a former Managing Director and
member of the Board of Directors of Dillon Read & Co, Inc. and Assistant
Secretary of Housing-FHA Commissioner in the Bush Administration. For
my complete resume, see: http://www.solari.com/about/ca_fitts.html
After leaving the Bush Administration in 1990, I started The Hamilton
Securities Company in Washington, DC. I declined an offer from the Administration
to be nominated as a governor of the Federal Reserve Board. My tour of
duty in the Administration had persuaded me that new software, networking
and telecommunication tools made it possible to build a new kind of collaborative
economy based on knowledge as the principal wealth creating resource.
If you have read Peter Drucker, the Solari model is geared towards the
practical integration of these ideas and new technology into new forms
of high performance organizations and communities. Eighteen months at
HUD persuaded me that communities needed to take the lead in reengineering
government and essential services investment locally. This reengineering---despite
common notions---could not be done from Washington. If anything we needed
to get Washington out of our communities.
We started in a little brownstone off of 14th street in Washington. It
did not take long to figure with the right computer set up and a satellite
dish on the roof, that it did not matter if we were in a bad part of town.
Our mission statement was "to liquefy and make accessible". We believed
that new technology and tools could so increase learning speeds in both
organizations and communities that private entrepreneurs could end poverty
with education and small business creation. After several years, we found
a loft space on DuPont circle and created the first open office in DC
over looking the circle and the fountain on the second floor over CVS
Pharmacy, with integrated phone and computers, which was to win an award
from the American Institute of Architects: http://www.e-architect.com/conted/advntech/projcts/proj10.asp
The first phase of Hamilton's business was to build the "know how" of
prototyping the new tools sufficient to understand how to invent a new
form of collaboartive organization and community venture capital. We sought
any financial advisory assignment that would permit us to prototype reengineering
and venture transactions and business starts up that would inform how
to finance a small business network and a community with private equity
controlled within the community that promoted substantially high learning
speeds and knowledge. Overview information about clients, assignments,
finances and software development can be found at: http://www.solari.com/gideon/about/index.html
To say that Hamilton's culture was unique, does not begin to touch on
how magical it was to start, to build, to grow. We started on the premise
that knowledge and learning can solve the most intractable problems by
building a alignment and moving out of a combative model and into collaborative
learning models that used software tools and development techniques to
simply and make accessible things that had once seemed hopeless complicated
or uncertain. Our work force was remarkably diverse in a very wonderful
way. The amazing thing was how financially successful our model was. We
were a huge hit. The market for our tools and skills was very strong.
We got things done. We were fun to work with. Everyone wanted to come
over to our place. The food was great.
In late 1993, we were hired through a competitive process to help the
Department of Housing and Urban Development (HUD) determine if they wanted
to do with their $12 billion portfolio of defaulted mortgages. We understood
the risks the working with government. At the same time, HUD had the richest
databases on how the money worked in communities. We helped HUD determine
that they wanted to do loan sales, and then proceeded to serve as their
lead financial advisor, with a twist. We took a software developers approach,
developing a variety of tools to design, implement and bid the transaction
that enabled HUD to manage the transactions with a small group of people
with little experience, and quickly bring on lots of other contractors
to do it. We became, in short, the brain and the tool shop, helping support
the loan sales process with knowledge management that gave HUD near complete
control of what was happening. For example, all transactions were designed
out ahead of time in writing in Design Books, that were eventually posted
on the Web so that all parties to a bid could understand what could happen
and why. For an example of such a design book see:
http://www.solari.com/gideon/legal/background/DesidnBk/Home.htm
As a result of this approach, the loan sales program was far more successful
than anyone believed possible. Between 1994 and 1997, HUD sold $10 billion
of mortgages, bringing their recovery rates from 35 cents on the dollar
to 70-90 cents on the dollar, and generating $2.2 billion of budget profits
used to fund the deficit and HUD programs. The improved performance also
enabled HUD to dramatically drop the price of new insurance, as loan sales
had cut the cost of expected defaults in half. Transaction costs were
substantially lower than other government agencies. The response in the
media and the market was one of substantial praise. The loan sales were
considered a real triumph of government reengineering. The most glowing
reports came from the HUD Inspector General office audit team, who had
helped design the sales and support and whose criticisms had inspired
doing them in the first place.
Not everyone was happy. There is a large number of people who make money
on neighborhoods not working. Traditional HUD landlords were losing control
of properties where they had defaulted on debt to more aggressive competitors.
HUD contractors losing servicing business were unhappy. The HUD and Department
of Justice (DOJ) partnership in enforcement operations in the HUD Inspector
General Office and General Counsel's office and DC US Attorney and DOJ
Civil Division depended on the defaulted portfolio to make money on civil
money penalties and seizures and were unhappy. In addition we suspect
that the various interests profiting from drug trafficking in neighborhoods
were concerned with our efforts to encourage HUD to integrate on line
computer learning centers in subsidized housing and to make available
through the internet all the data on federal investment by place. In fact,
we were building a tool for web based roll out called Community Wizard
which would assist any neighborhood in America in accessing much of the
publicly available data about how resources were managed in their neighborhood.
Finally, the loan sales leaders within HUD were ---with our help---implementing
numerous internal controls and disclosure process which were making fraud
and patronage more and more difficult to do.
In early 1996, as the campaign fundraising was clearly on its way to
be an intense cycle, I was told by the HUD Assistant Secretary in charge
of our contract that he had been ordered by the White House to not let
us win a new contract and hence to phase us out. He chose to ignore that
order, as it was illegal. I assumed at that time that the order was inspired
by then Assistant Secretary Cuomo who had promised the HUD IG earlier
that year that he had plans to get rid of Hamilton and me. The politics
that year became very intense, with traditional HUD constituents who were
supporters of the President and Congress lobbying for a return to insider
35 cents on the dollar deals, even while they were enjoying the new low
costs of new financing that had resulted from getting the recovery rates
up to 70-90 cents on the dollar.
During this period, I was taken aside by one of the partners of one of
the largest HUD landlords, NHP, and was told "Well, we tried to have you
fired through the White House, and that did not work. So now the big boys
have gotten together and you are going to jail." There was a history of
executives of NHP and their lead investor, Harvard Endowment, expressing
disatisfaction with our helping HUD promote greater competition in HUD
programs. They had just finished a public stock offering and were very
concerned about doing everything possible to get their stock up so they
could get their money out of the company. I remember saying in response
to that comment that a "fix" of me would never happen. Hamilton had been
designed with substantial internal controls and internal and external
disclosure. I was convinced the company could withstand the type of targeting
I had seen done to other companies. I was wrong.
In the summer of 1996, we were targeted by the Department of Justice,
working with the HUD IG's office and a private "snitch" who was a HUD
contractor who was losing business as a result of the loan sale program
and who had been fired by HUD for a failure to perform. Since then Hamilton
and I have survived eighteen audits, investigations and inquires, and
a wide variety of litigation, both offensive and defensives, some of which
are continuing. To date, no wrong doing by Hamilton or me has been found....not
even a parking ticket, despite being gone over by scads of auditors and
investigators.
Hamilton and I have now been wiped out of approximately $6MM of cash,
$250MM of equity and all my personal assets, including house, furniture,
family land and heirlooms, art, books, etc. It was one of those horrible
periods, when the bank and numerous other organizations and people decide
to help the bad guys or to simply dump the good guys because it is too
dangerous to do the right thing.
A summary of these events, including physical harassment and surveillance
that we experienced, through March 2000 with a May 2000 can be found at:
http://www.solari.com/gideon/legal/index.html
I am now preparing an update of all events through January 2001. Much
has transpired since we moved all of our legal documents and data on the
DOJ targeting of us in early 2000. If you are interested in receiving
this package, e-mail me an address at: catherine@solari.com
My take on what has happened is that it is a miracle that I am alive
and proven innocent. I have no other explanation for my survival other
than spiritual and the seen and unseen help of countless family, friends
and individuals who demonstrated extraordinary courage and generosity.
My church has an extraordinary bible institute, including curriculum in
Spiritual Wafare. This teaching, combined with watching others be targeted
and learning from them, has made an important contribution to our understanding
of the day-to-day techniques of surviving such an operation.
My partners, Carolyn Betts, Ozzie Blake, and I, and our attorneys, Drinker
Biddle & Reath, have been able to document some of the DOJ wrongdoing.
We now have documents (court transcripts and affidavits) which can prove
DOJ and their investigator (a former DOJ prosecutor who had become General
Counsel to the Inspector General at HUD)
(i)lying in court on numerous occasions and counts (ii) implying that
they arranged to have the disgruntled contractor files suits against the
government, that they have now negotiated settlements on (iii) falsifying
evidence, (iv) trying to force an auditor to change their audit findings
when they found allegations to be false, and (v) withholding evidence.
We also have evidence and circumstantial evidence of abuse of process
and intentional leaks and smear campaigns. From what we can tell, most
of the DOJ attorneys involved were reporting to---through April 1999--
Frank Hunger, head of the civil division, Al Gore's brother in law. Hunger
was described by the Washington Post as Al Gore's closest confident. The
majority of the HUD attorneys were reporting to Cuomo, with the exception
of the counsel leading the investigation who was apparently reporting
to DOJ.
My goal today is to try to get HUD to pay us the money they owe us for
work done---approximately $2.5MM. They refuse to do so. Our understanding
from private efforts to intercede on our behalf is that it appears that
Secretary Cuomo was concerned about his private liability if we had sufficient
funds to pursue discovery in court. (Under the law, a government official
who violates the law can be sued personally in a Bivens action.) This
goal includes getting the investigation ended, as well as the private
suit that the disgruntled contractor has brought against us with the funds
provided by HUD in a recent civil settlement. I am hoping that our efforts
will be helped by recent headlines that HUD's financial statements can
not be certified and that HUD reports missing $59 billion in Fiscal 1999.
It would appear that DOJ and Cuomo's efforts to destroy internal financial
controls were highly profitable.
What is the moral of the story? While DOJ did a good job of trying to
make this thing hopelessly complex, I think the story is simple. Software
entrepreneurs believe that we live in a democracy with free markets and
that we can introduce new software tools that will bring sunshine to how
things work and then make it possible for ordinary people to do things
better and simpler and in more efficient ways.
The problem is that the reality is that our markets are often controlled,
whether though government intervention, or dirty tricks, or secret societies,
or organized crime. Where something does not work, there is often someone
making money on it not working who have strong opinions on young people
or new people or dot.com people coming along and helping it to work. A
perfect description is to be found in the new movie Anti-Trust.
Unfortunately, the "law" in the form of the Department of Justice exists
to protect the monopolists, not the rule of law, and not free markets.
Just look at the incentives of the people who work there. They make money
on doing enforcement and seizures, but do not make money as a result of
increasing performance for taxapayers. So they will pay a "snitch" 15-30
% of doing a seizure of loan sales, although Hamilton could earn no %
of the $2.2 billion we generated for taxpayers. Indeed, when the effort
failed, they gave their informant $2MM dollars although all his allegations
had proved false. This means that the DOJ arranged for someone to sue
the government, and then turned around and negotiated a $2MM settlent.
In the court transcripts they refer to him as their "bounty hunter."
What that means is that to the extent we protect the cash flows from
governments subsidies and from drug trafficking to help finance our deficit
or fuel our stock market today, we stomp out the very sunshine, innovation
and liquidity that we need to build high learning speeds in companies,
communities, and in personal networks. We centralize more resources with
powerful tools, rather than decentralize power and money for new innovation
and greater wealth creation. We chose non-performance based central control,
rather than using the marketplace to decide what is productive. This moves
us away from optimizing all our resouces on a sustainable basis. It is
in decentralization that the opportunity to build a healthier environment
and culture exists.
New tools and technology are powerful. We can use them for good or for
evil. To increase access to knowledge or to "dumb down" and enforce with
sophisticated tools of brainwashing and controlled media. Which will it
be?
My pastor is a brilliant and wise man. He says "If we can face it, God
can fix it". That is the question. Can we face it? My faith says we can.
My faith says to start again and build Solari to teach thousands of neighborhoods
how to create new jobs and safety for themselves and their families despite
the increased presence of organized crime and the commitment on the part
of our leadership to "dumping down".
I have a few wonderful partners who have stuck with me through all of
this. Our mission statement is the same as Hamilton's "to liquefy and
make accessible." Our motto is "a penny saved is a penny earned." Our
story is a story that proves out many things mathematically. Financial
transactions and software illuminate reality in suprising ways. The most
powerful people in our society do not believe in the power and potential
of the common man, of free markets, and of democratic process. We do.
We believe markets with open access to knowledge work. We believe that
freedom is worth living and fighting for. We believe that knowledge and
learning holds a key to that door to freedom.
For the stories we have published about our experiences being targeted,
see the three stories on Edgewood Technology Services at http://www.solari.com/gideon/articles/index.html
Blessings,
Catherine Austin Fitts
Solari
catherine@solari.com
http://www.solari.com
