Coke Capitalism

lambert directs our attention to one hell of a story. Paging Daniel Hopsicker!

The United Nations' crime and drug watchdog has indications that money made in illicit drug trade has been used to keep banks afloat in the global financial crisis, its head was quoted as saying on Sunday.

Vienna-based UNODC Executive Director Antonio Maria Costa said in an interview released by Austrian weekly Profil that drug money often became the only available capital when the crisis spiralled out of control last year.

"In many instances, drug money is currently the only liquid investment capital," Costa was quoted as saying by Profil. "In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor."

The United Nations Office on Drugs and Crime had found evidence that "interbank loans were funded by money that originated from drug trade and other illegal activities," Costa was quoted as saying. There were "signs that some banks were rescued in that way."

Profil said Costa declined to identify countries or banks which may have received drug money and gave no indication how much cash might be involved. He only said Austria was not on top of his list, Profil said.

I'd reeeeaally like to know what Paul Krugman thinks of this allegation.

A few of lambert's reactions:

Drug money involvement would explain why the bailout had no visible effect -- working on the idea that TARP repaid a short term loan. The TARP money went right back into the underground economy

This analysis may be a little shortsided. The IHT story cited above refers to banks worldwide.

Drug money involvement would explain why Afghanistan is "the real war" -- and why the Afghans are growing as much opium as ever (and that ring road is useful for other commodities than oil, I bet).

Would that be why LIBOR, the privatized and opaque rate for interbank loans, suddenly spiked? Because the risk -- to the, er, health of the bankers -- really did increase? (And to think I put that down to market manipulation. I guess I'm not cynical enough.)

How much of the relative economic health we've enjoyed during the Bush years (if you can call that "health") was due to drug money in the banking system? Hopsicker has devoted innumerable stories to the theme of government-sanctioned drug dealing. We've always presumed that individual greed motivated our guardians to look aside and/or to protect the drug thugs. But what if something more than greed is involved? What if the very health of the modern financial system depends on that trade?

Are banks addicted to addicts?

Costa is quoted at greater length here. (Yes, I'm linking to a LaRouche site. Yes, I still think that Lyn is loony.)

Asked if the drug trade is one of the most important in the world, Costa told Profil: "If you look at agriculture markets, it is the most important. According to our calculations, the wholesale value of illegal drugs is more than $90 billion, in the range of world meat and grain trade. The street trade, we assess at a volume of over $320 billion."

Profil then asked if the world financial crisis was having a notable effect on a market of this size -- over half a percent of world GDP. Costa answered: "Certainly. The drug trade at this time could be the only growth industry, with little unemployment. The money that is being made, is flowing only partly back into illegal activities, in parts of Asia, Africa, and South America, where it is used to bribe politicians, buy elections, or finance insurgents, such as the Talibans in Afghanistan, the Tamil Tigers of Sri Lanka, or the FARC in Colombia, for example."

The rest of the money, he said, "is fed into the legal economic circulation through money laundering. We do not know how much, but the volume is imposing. As such, seen from the macroeconomic effect, this is simply bringing in investment capital. There are indications, that these funds also ended up in the finance sector, which has been under obvious pressure since the second half of last year."

Asked how this was done, Costa answered: "It appears that interbank credits have been financed by money which comes from the drug trade and other illegal activities. It is naturally hard to prove this, but there are indications that a number of banks were rescued by this means."

Hopsicker has, on several occasions, made note of banks in Chicago being used to launder money from "protected" drug operations.

The real test of Obama's bona fides, it seems to me, would be his willingness to take on the drug trade -- an industry which may well be the foundation of the modern economy.