The Case for Fraud – all-American business enterprise

The Case for Fraud – all-American business enterprise

(A version of this article was published in Typepad on September, 2008)

(first of a four-part series)

Catherine Austin Fitts

Don’t expect miracles from the Obama administration. Granted, the electorate had spoken, and the Bush-era is over, so this in itself is no small feat. Besides, Mr. Obama is no fool. His choice of Rahm Emmanuel, for example, as White House Chief of Staff is a commendable one, and it speaks well of Mr. Obama’s political acumen. In addition to being well-connected to the powers that be – Madame Speaker in particular – Mr. Emanuel is well known for his tough, no-nonsense approach to politics. His addition to Mr. Obama’s Cabinet is bound to prove an invaluable asset. There are credible rumors, besides, of making Hillary Clinton Secretary of State.

Couple this now with the understandable reaction from our European allies and the rest of the world, lauding America for having broken down the glass ceiling and chosen an African-American — or a woman, as the case could have been — for the highest office in the land, and the odds are good that we may yet shed our long-deserved reputation for having been the lone ranger and the only superpower in the world and start acting in concert with the community of nations in solving our increasingly global problems,

Consequently, my reservations aren’t really about the man or his intentions, but the kinds of problems that beseech us: they’re rooted in a system that’s rotten to the core.

 I further believe it’s long past due when a political party, Republican or Democratic, can reverse the years of damage and undo the corruption that had set in and implicated both business and government in this most unholy alliance. 


In a way, this article is a follow-up to an earlier discussion. See, for example, my two pieces, “Setting Matters Straight,” parts I and II.  

There, I tried to identify the root causes behind the erratic behavior of the markets and, generally speaking, the meltdown of our financial institutions and major industries. In particular, I focused on greed as the primary cause of our troubles and the engine of our destruction: 

  • the greed of fund managers intent on maximizing return on investment by hook or by crook;
  • the greed of CEOs eyeing the bottom line to the exclusion of everything else;
  • the greed of unscrupulous brokers and market technicians trading in “derivatives” and other financial instruments so far removed from the usual sense of what constitutes an honest-to-goodness commodity that you have to be a financial wizard even to begin to understand what on earth they’re talking about; 
  • greed, in short, on the part of all those who have long abandoned the good, old-fashioned idea of making money by earning it and in the interest of time, prompted by lack of application, hard work, and talent, have reduced the equation to its bare bones: buying low and selling high!

It isn’t to say I was wrong in my original assessment, for greed remains the chief motivational factor. Ambition – or one-upmanship, if you like – is another, and if you ever worked on Wall Street, you’d know what I mean. (Barbarians at the Gate offers a unique glimpse into the psyche of the major players, and it’s a must-see for our troubled times.) But motivation aside, the picture is incomplete without detailing the mechanism at work — fraud !

Since the current crisis transcends the customary notions of a typical business cycle with its attendant fluctuations but is indicative instead of a general breakdown of the West and all its institutions, political, economic, and legal, it behooves us to examine it more closely. It is, therefore, by far a more commanding issue than the change of the guard in the White House.


How did we get here? And how does one document fraud?

Unfortunately, fraud is so commonplace these days, almost banal, that it fails to get the kind of attention it deserves. It doesn’t make for a fascinating story or a captivating plot, not unless, of course, it’s also connected to more dramatic events such as conspiracy or murder. Only a novelist can make it exciting, but once you’ve crossed that line, you’re in the realm of fiction. (That’s why John Grisham et al. will always command a wider readership than Bob Woodward and such — which is also why any fictionalized narrative will always win hand-over-fist over any documentary!)

So the odds of unraveling fraud are minuscule to begin with, and the instances of it making headlines are rarer still. One reason has to do with the complexity of the underlying arrangements, rather mundane for the most part. More importantly, however, the motivation is missing: Because everyone does it, no one really cares. So unless you’re a dedicated public servant, or a whistle-blower, or have a vendetta against someone, the odds are you’ll look the other way.

It’s a thankless job of our attorney generals to prosecute fraud, and most such cases don’t see the light of day. For every Enron, there are thousands and thousands of cases which barely get a mention. And they don’t make for fascinating reading either.


Be that as it may, let me introduce you to Catherine Austin Fitts’ memoirs – “Dillon Read & Co. Inc., and the Aristocracy of Stock Profits.”  If you find some of it subversive, I’ve got news for you: Ms. Fitts has been a respectable member of the financial community since 1977 and still is a devout conservative.

Her résumé is equally impressive. From 1986 to 1989, for example, she was a Managing Director and Board member of Dillon Read & Co., a prestigious NY investment banking firm. From 1989 through 1990, she served as Assistant Secretary of Housing & Urban Development (HUD) under Jack Kemp. And after her brief stunt with HUD, she was the president and founder of the Hamilton Securities Group, Inc., then a major consulting firm for HUD. Since 1998, she was president and managing member of Solari Inc., an online media outlet focused on ethical investment and preserving family wealth.

The fact it had taken Ms. Fitts years to come to her realizations – the memoirs weren’t written until 2005 – lends further credence to her story. Fraud is so deeply embedded in everyday practices of companies and organizations, so pervasive day in and day out, so much a part of our lives, that one barely notices it anymore, even if one is as savvy as Catherine Austin Fitts must have been


Standing among the beautiful vegetables and flowers that Montana summer day, I was facing the futility of trying to craft investment solutions without some basic consensus about the economic tapeworm that is killing us and all living things – while we blindly feed the worm. In a world of economic warfare, we have to see the strategy behind each play in the game. We have to see the economic tapeworm and how it works parasitically in our lives. A tapeworm injects chemicals into a host that causes the host to crave what is good for the tapeworm. In America, we despair over our deterioration, but we crave the next injection of chemicals from the tapeworm.

With this in mind, I decided to write “Dillon Read & Co Inc and the Aristocracy of Stock Profits” as a case study designed to help illuminate the deeper system. It details the story of two teams with two competing visions for America. The first was a vision shared by my old firm on Wall Street – Dillon Read – and the Clinton Administration with the full support of a bipartisan Congress. In this vision, America’s aristocracy makes money by ensnaring our youth in a pincer movement of drugs and prisons and wins middle class support for these policies through a steady and growing stream of government funding and contracts for War on Drugs activities at federal, state and local levels. This consensus is made all the more powerful by the gush of growing debt and derivatives used to bubble the housing and mortgage markets, manipulate the stock and precious metals markets and finance trillions missing from the US government in the largest pump and dump in history – the pump and dump of the entire American economy. This is more than a process designed to wipe out the middle class. This is genocide – a much more subtle and lethal version than ever before perpetrated by the scoundrels of our history texts.

The case study provides a detailed example of the financial kickback machinery that makes the process go. It works something like this. A group of executives and investors start a company. Rather than build a business the old fashioned way, company profits are pumped up with government legislation, contracts, regulations, financing, subsidies and/or enforcement. This dramatically increases the value of the company’s financial equity. The company and its initial investors then sell their stock at a profit. Such profits replenish contributions made to the kind of politicians who can arrange such government benefits. Such profits also fund philanthropy to foundations and universities that have large endowments [and] that invest alongside the investors. These tax-exempt organizations provide graduates to staff positions in the game, intellectual justification to attract popular support and photo opportunities which bestow legitimacy and social stature. Personnel cycle through the management and boards of business, government and academia, as real productivity falls and government deficit grows.

The second vision was shared by my investment bank in Washington – the Hamilton Securities Group – and a small group of excellent government civil servants and appointees who believed in the power of education, hard work and a new partnership between people, land and technology. This vision would allow us to pay down public and private debt and create new business, infrastructure and equity. We believed that new times and new technologies called for a revival that would permit decentralized efforts to go to work on the hard challenges upon us – population, environment, resource management and the rapidly growing cultural gap between the most technologically proficient and the majority of people. We believed that private and public capital should flow to that which was most economically productive rather than be mixed in a complex cocktail of insider deals designed to hollow out the American economy and culture.


So writes Ms. Fitts in her introduction to Dillon Read (“Why I Wrote This Story?” — a series of exposés and a chockfull of examples on any number of topics, seemingly unrelated at first until we discern a common thread running through them all: the culture of corruption at every level of business and government.

We may not agree with some of Ms. Fitts’ solutions, for which she argues most passionately at times on the pages of her Solari website. I think they’re unduly utopian ever to be implemented on any large scale or in a meaningful way. Still, we can’t question her insider’s knowledge. It’s an eye-opener to anyone unfamiliar with the workings of Wall Street and high-level government.


In the next two segments, I’ll focus on two of Ms. Fitts’ many-faceted themes: 

(i) privatization of our prison industry (see also “Politics And Ethics: State-Of-Nature Theories”); and 

(ii) the complicity of HUD in helping forge the housing bubble in our real estate and mortgage markets.   

Both suggest the collaboration between big business and government and the crony brand of capitalism – the “new” ways of making money. Both illustrate today’s Zeitgeist – of how a political idea, such as “War on Drugs” or “Affordable Housing,” can be turned on its head and used for ill-gotten gains! Both are part of the all-American business enterprise!

But that’s just a drop in the bucket, for human ingenuity when it comes to making money is truly without limits. And fraud, though far from ingenious, can masquerade under any number of guises.


Enter your email address to subscribe and receive notifications of new posts by email.

Follow Us

Become A Contributor

CNN - Top Stories

Share This Article

Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on reddit
Share on email


Views from abroad

Culture and Society

The Arts

Food & Fashion

{ 0 comments… read them below or add one }

Leave a Comment

We respect your privacy and will not publish your personal details.

You can use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Keep Reading....

Scroll to Top

Comments Policy:

We are offering a venue for lively debate. Comments must contribute to the discussion.