Our financial elites are the new secessionists
by Mike Lofgren / August 27, 2012

It was 1993, during congressional debate over the North American Free Trade Agreement. I was having lunch with a staffer for one of the rare Republican congressmen who opposed the policy of so-called free trade. To this day, I remember something my colleague said: “The rich elites of this country have far more in common with their counterparts in London, Paris, and Tokyo than with their fellow American citizens.” That was only the beginning of the period when the realities of outsourced manufacturing, financialization of the economy, and growing income disparity started to seep into the public consciousness, so at the time it seemed like a striking and novel statement.

At the end of the Cold War many writers predicted the decline of the traditional nation-state. Some looked at the demise of the Soviet Union and foresaw the territorial state breaking up into statelets of different ethnic, religious, or economic compositions. This happened in the Balkans, the former Czechoslovakia, and Sudan. Others predicted a weakening of the state due to the rise of Fourth Generation warfare and the inability of national armies to adapt to it. The quagmires of Iraq and Afghanistan lend credence to that theory. There have been numerous books about globalization and how it would eliminate borders. But I am unaware of a well-developed theory from that time about how the super-rich and the corporations they run would secede from the nation state. I do not mean secession by physical withdrawal from the territory of the state, although that happens from time to time—for example, Erik Prince, who was born into a fortune, is related to the even bigger Amway fortune, and made yet another fortune as CEO of the mercenary-for-hire firm Blackwater, moved his company (renamed Xe) to the United Arab Emirates in 2011. What I mean by secession is a withdrawal into enclaves, an internal immigration, whereby the rich disconnect themselves from the civic life of the nation and from any concern about its well being except as a place to extract loot.

Our plutocracy now lives like the British in colonial India: in the place and ruling it, but not of it. If one can afford private security, public safety is of no concern; if one owns a Gulfstream jet, crumbling bridges cause less apprehension—and viable public transportation doesn’t even show up on the radar screen. With private doctors on call and a chartered plane to get to the Mayo Clinic, why worry about Medicare? Being in the country but not of it is what gives the contemporary American super-rich their quality of being abstracted and clueless. Perhaps that explains why Mitt Romney’s regular-guy anecdotes always seem a bit strained. I discussed this with a radio host who recounted a story about Robert Rubin, former secretary of the Treasury as well as an executive at Goldman Sachs and CitiGroup. Rubin was being chauffeured through Manhattan to reach some event whose attendees consisted of the Great and the Good such as himself. Along the way he encountered a traffic jam, and on arriving to his event—late—he complained to a city functionary with the power to look into it. “Where was the jam?” asked the functionary. Rubin, who had lived most of his life in Manhattan, a place of east-west numbered streets and north-south avenues, couldn’t tell him. The super-rich who determine our political arrangements apparently inhabit another, more refined dimension. To some degree the rich have always secluded themselves from the gaze of the common herd; their habit for centuries has been to send their offspring to private schools. But now this habit is exacerbated by the plutocracy’s palpable animosity towards public education and public educators, as Michael Bloomberg has demonstrated. To the extent public education “reform” is popular among billionaires and their tax-exempt foundations, one suspects it is as a lever to divert the more than $500 billion dollars in annual federal, state, and local education funding into private hands—meaning themselves and their friends. What Halliburton did for U.S. Army logistics, school privatizers will do for public education. A century ago, at least we got some attractive public libraries out of Andrew Carnegie. Noblesse oblige like Carnegie’s is presently lacking among our seceding plutocracy. In both world wars, even a Harvard man or a New York socialite might know the weight of an army pack. Now the military is for suckers from the laboring classes whose subprime mortgages you just sliced into CDOs and sold to gullible investors in order to buy your second Bentley or rustle up the cash to get Rod Stewart to perform at your birthday party. The sentiment among the super-rich towards the rest of America is often one of contempt rather than noblesse.

Stephen Schwarzman, the hedge fund billionaire CEO of the Blackstone Group who hired Rod Stewart for his $5-million birthday party, believes it is the rabble who are socially irresponsible. Speaking about low-income citizens who pay no income tax, he says: “You have to have skin in the game. I’m not saying how much people should do. But we should all be part of the system.” But millions of Americans who do not pay federal income taxes do pay federal payroll taxes. These taxes are regressive, and the dirty little secret is that over the last several decades they have made up a greater and greater share of federal revenues. In 1950, payroll and other federal retirement contributions constituted 10.9 percent of all federal revenues. By 2007, the last “normal” economic year before federal revenues began falling, they made up 33.9 percent. By contrast, corporate income taxes were 26.4 percent of federal revenues in 1950. By 2007 they had fallen to 14.4 percent. So who has skin in the game? While there is plenty to criticize the incumbent president for, notably his broadening and deepening of President George W. Bush’s extra-constitutional surveillance state, under President Obama the overall federal tax burden has not been raised, it has been lowered. Approximately half the deficit impact of the stimulus bill was the result of tax-cut provisions. The temporary payroll-tax cut and other miscellaneous tax-cut provisions make up the rest of the cuts we have seen in the last three and a half years. Yet for the president’s heresy of advocating that billionaires who receive the bulk of their income from capital gains should pay taxes at the same rate as the rest of us, Schwarzman said this about Obama: “It’s a war. It’s like when Hitler invaded Poland in 1939.”  For a hedge-fund billionaire to defend his extraordinary tax privileges vis-à-vis the rest of the citizenry in such a manner shows an extraordinary capacity to be out-of-touch. He lives in a world apart, psychologically as well as in the flesh.

Schwarzman benefits from the so-called “carried interest rule” loophole: financial sharks typically take their compensation in the form of capital gains rather than salaries, thus knocking down their income-tax rate from 35 percent to 15 percent. But that’s not the only way Mr. Skin-in-the-Game benefits: the 6.2 percent Social Security tax and the 1.45 percent Medicare tax apply only to wages and salaries, not capital gains distributions. Accordingly, Schwarzman is stiffing the system in two ways: not only is his income-tax rate less than half the top marginal rate, he is shorting the Social Security system that others of his billionaire colleagues like Pete Peterson say is unsustainable and needs to be cut. This lack of skin in the game may explain why Romney has been so coy about releasing his income-tax returns. It would make sense for someone with $264 million in net worth to joke that he is “unemployed”—as if he were some jobless sheet metal worker in Youngstown—if he were really saying in code that his income stream is not a salary subject to payroll deduction. His effective rate for federal taxes, at 14 percent, is lower than that of many a wage slave. After the biggest financial meltdown in 80 years and a consequent long, steep drop in the American standard of living, who is the nominee for one of the only two parties allowed to be competitive in American politics? None other than Mitt Romney, the man who says corporations are people. Opposing him will be the incumbent president, who will raise up to a billion dollars to compete. Much of that loot will come from the same corporations, hedge-fund managers, merger-and-acquisition specialists, and leveraged-buyout artists the president will denounce in pro forma fashion.

The super-rich have seceded from America even as their grip on its control mechanisms has tightened. But how did this evolve historically, what does it mean for the rest of us, and where is it likely to be going? That wealth-worship—and a consequent special status for the wealthy as a kind of clerisy—should have arisen in the United States is hardly surprising, given the peculiar sort of Protestantism that was planted here from the British Isles. Starting with the Puritanism of New England, there has been a long and intimate connection between the sanctification of wealth and America’s economic and social relationships. The rich are a class apart because they are the elect. Most present-day Americans, if they think about the historical roots of our wealth-worship at all, will say something about free markets, rugged individualism, and the Horatio Alger myth—all in a purely secular context. But perhaps the most notable 19th-century exponent of wealth as virtue and poverty as the mark of Cain was Russell Herman Conwell, a canny Baptist minister, founder of perhaps the first tabernacle large enough that it could later be called a megachurch, and author of the immensely famous “Acres of Diamonds” speech of 1890 that would make him a rich man. This is what he said:

I say that you ought to get rich, and it is your duty to get rich. … The men who get rich may be the most honest men you find in the community. Let me say here clearly … ninety-eight out of one hundred of the rich men of America are honest. That is why they are rich. That is why they are trusted with money. … I sympathize with the poor, but the number of poor who are to be sympathized with is very small. To sympathize with a man whom God has punished for his sins … is to do wrong … let us remember there is not a poor person in the United States who was not made poor by his own shortcomings.

Evidently Conwell was made of sterner stuff than the sob-sister moralizing in the Sermon on the Mount. Somewhat discordantly, though, Conwell had been drummed out of the military during the Civil War for deserting his post. For Conwell, as for the modern tax-avoiding expat billionaire, the dollar sign tends to trump Old Glory. The conjoining of wealth, Christian morality, and the American way of life reached an apotheosis in Bruce Barton’s 1925 book The Man Nobody Knows. The son of a Congregationalist minister, Barton, who was an advertising executive, depicted Jesus as a successful salesman, publicist, and the very role model of the modern businessman.

But this peculiarly American creed took a severe hit after the crash of 1929, and wealth ceased to be equated with godliness. While the number of Wall Street suicides has been exaggerated in national memory, Jesse Livermore, perhaps the most famous of the Wall Street speculators, shot himself, and so did several others of his profession. There was then still a lingering old-fashioned sense of shame now generally absent from the über-rich. While many of the elites hated Franklin Roosevelt—consider the famous New Yorker cartoon wherein the rich socialite tells her companions, “Come along. We’re going to the Trans-Lux to hiss Roosevelt”—most had the wit to make a calculated bet that they would have to give a little of their wealth, power, and prestige to retain the rest, particularly with the collapsing parliamentary systems of contemporary Europe in mind. Even a bootlegging brigand like Joe Kennedy Sr. reconciled himself to the New Deal. And so it lasted for a generation: the wealthy could get more wealth—fabulous fortunes were made in World War II; think of Henry J. Kaiser—but they were subject to a windfall-profits tax. And tycoons like Kaiser constructed the Hoover Dam and liberty ships rather than the synthetic CDOs that precipitated the latest economic collapse. In the 1950s, many Republicans pressed Eisenhower to lower the prevailing 91 percent top marginal income tax rate, but citing his concerns about the deficit, he refused. In view of our present $15 trillion gross national debt, Ike was right. Characteristic of the era was the widely misquoted and misunderstood statement of General Motors CEO and Secretary of Defense Charles E. “Engine Charlie” Wilson, who said he believed “what was good for the country was good for General Motors, and vice versa.” He expressed, however clumsily, the view that the fates of corporations and the citizenry were conjoined. It is a view a world away from the present regime of downsizing, offshoring, profits without production, and financialization. The now-prevailing Milton Friedmanite economic dogma holds that a corporation that acts responsibly to the community is irresponsible. Yet somehow in the 1950s the country eked out higher average GDP growth rates than those we have experienced in the last dozen years.

After the 2008 collapse, the worst since the Great Depression, the rich, rather than having the modesty to temper their demands, this time have made the calculated bet that they are politically invulnerable—Wall Street moguls angrily and successfully rejected executive-compensation limits even for banks that had been bailed out by taxpayer funds. And what I saw in Congress after the 2008 crash confirms what economist Simon Johnson has said: that Wall Street, and behind it the commanding heights of power that control Wall Street, has seized the policy-making apparatus in Washington. Both parties are in thrall to what our great-grandparents would have called the Money Power. One party is furtive and hypocritical in its money chase; the other enthusiastically embraces it as the embodiment of the American Way. The Citizens United Supreme Court decision of two years ago would certainly elicit a response from the 19th-century populists similar to their 1892 Omaha platform. It called out the highest court, along with the rest of the political apparatus, as rotted by money.

We meet in the midst of a nation brought to the verge of moral, political, and material ruin. Corruption dominates the ballot-box, the Legislatures, the Congress, and touches even the ermine of the bench. The people are demoralized. … The newspapers are largely subsidized or muzzled, public opinion silenced, business prostrated, homes covered with mortgages, labor impoverished, and the land concentrating in the hands of capitalists. The urban workmen are denied the right to organize for self-protection, imported pauperized labor beats down their wages. … The fruits of the toil of millions are boldly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind, and the possessors of these, in turn, despise the Republic and endanger liberty. From the same prolific womb of governmental injustice we breed the two great classes—tramps and millionaires.

It is no coincidence that as the Supreme Court has been removing the last constraints on the legalized corruption of politicians, the American standard of living has been falling at the fastest rate in decades. According to the Federal Reserve Board’s report of June 2012, the median net worth of families plummeted almost 40 percent between 2007 and 2010. This is not only a decline when measured against our own past economic performance; it also represents a decline relative to other countries, a far cry from the post-World War II era, when the United States had by any measure the highest living standard in the world. A study by the Bertelsmann Foundation concluded that in measures of economic equality, social mobility, and poverty prevention, the United States ranks 27th out of the 31 advanced industrial nations belonging to the Organization for Economic Cooperation and Development. Thank God we are still ahead of Turkey, Chile, and Mexico!

This raises disturbing questions for those who call themselves conservatives. Almost all conservatives who care to vote congregate in the Republican Party. But Republican ideology celebrates outsourcing, globalization, and takeovers as the glorious fruits of capitalism’s “creative destruction.” As a former Republican congressional staff member, I saw for myself how GOP proponents of globalized vulture capitalism, such as Grover Norquist, Dick Armey, Phil Gramm, and Lawrence Kudlow, extolled the offshoring and financialization process as an unalloyed benefit. They were quick to denounce as socialism any attempt to mitigate its impact on society. Yet their ideology is nothing more than an upside-down utopianism, an absolutist twin of Marxism. If millions of people’s interests get damaged in the process of implementing their ideology, it is a necessary outcome of scientific laws of economics that must never be tampered with, just as Lenin believed that his version of materialist laws were final and inexorable. If a morally acceptable American conservatism is ever to extricate itself from a pseudo-scientific inverted Marxist economic theory, it must grasp that order, tradition, and stability are not coterminous with an uncritical worship of the Almighty Dollar, nor with obeisance to the demands of the wealthy. Conservatives need to think about the world they want: do they really desire a social Darwinist dystopia? The objective of the predatory super-rich and their political handmaidens is to discredit and destroy the traditional nation state and auction its resources to themselves. Those super-rich, in turn, aim to create a “tollbooth” economy, whereby more and more of our highways, bridges, libraries, parks, and beaches are possessed by private oligarchs who will extract a toll from the rest of us. Was this the vision of the Founders? Was this why they believed governments were instituted among men—that the very sinews of the state should be possessed by the wealthy in the same manner that kingdoms of the Old World were the personal property of the monarch? Since the first ziggurats rose in ancient Babylonia, the so-called forces of order, stability, and tradition have feared a revolt from below. Beginning with Edmund Burke and Joseph de Maistre after the French Revolution, a whole genre of political writings—some classical liberal, some conservative, some reactionary—has propounded this theme. The title of Ortega y Gasset’s most famous work, The Revolt of the Masses, tells us something about the mental atmosphere of this literature. But in globalized postmodern America, what if this whole vision about where order, stability, and a tolerable framework for governance come from, and who threatens those values, is inverted? What if Christopher Lasch came closer to the truth in The Revolt of the Elites, wherein he wrote, “In our time, the chief threat seems to come from those at the top of the social hierarchy, not the masses”? Lasch held that the elites—by which he meant not just the super-wealthy but also their managerial coat holders and professional apologists—were undermining the country’s promise as a constitutional republic with their prehensile greed, their asocial cultural values, and their absence of civic responsibility. Lasch wrote that in 1995. Now, almost two decades later, the super-rich have achieved escape velocity from the gravitational pull of the very society they rule over. They have seceded from America.

Plutonomy: The Memo Citigroup Doesn’t Want You to See – Bill Black
White collar criminologist William Black dissects a 2005 Citigroup memo intended for its wealthist clients that describes the US, UK, and Canada as plutonomies — countries where rule by an ultra-rich managerial class has replaced democracy. Black is former federal regulator and author of “The Best Way to Rob a Bank is to Own One.”

Two bombshell documents that Citigroup’s lawyers try to suppress, describing in detail the rule of the first 1%
by Patrick  /  December 10, 2011

“Are they real?” That’s the question people usually ask when they hear for the first time of the “Citigroup Plutonomy Memos.” The sad truth is: Yes, they are real, and instead of being discussed on mainstream media outlets all over America and beyond, Citigroup was surprisingly successful so far in suppressing these memos, using their lawyers to issue takedown-notices whenever these memos were being made available for download on the internet. So what are we talking about? In 2005 and 2006, several analysts at Citigroup took a very, very close look at the economic inequalities within the USA and other countries and wrote two memos which were addressed to their very wealthy customers. If there is one group of people who need to know the truth about what is really going on within the society and the economy, minus the propaganda, then it’s businesspeople who have a lot of money to invest, and who want to invest wisely. So Citigroup did their duty and published two explosive memos, which should have become mainstream news, but eventually did not. The first memo is dated October 16, 2005 (35 pages) and is titled:“Plutonomy: Buying Luxury, Explaining Global Imbalances.” The second memo is dated March 5, 2006 (18 pages) and is titled: “Revisiting Plutonomy: The Rich Getting Richer”

Memo March 5, 2006 - screenshot

A few years ago, two copies of these memos were leaked and were published on the internet. Usually one should think that once such important documents are in the “public domain”, nothing should stop them any more from being distributed and being openly discussed. However, the lawyers of Citigroup, Kilpatrick Townsend & Stockton LLC, work hard to prevent exactly that from happening. Examples of their activities can be found all over the internet. It is apparent that Citigroup is paranoid that these memos by their analysts are being widely distributed. It is not necessary to include a download link in this post, as the memos are pretty easy to find with a simple google search. However, Citigroup seems to have been successful in preventing a wider discussion about the memos, due to their legal actions. This needs to stop, as every American and every citizen in the western world needs to know what people like the analysts of Citigroup really think about the inequalities which exist within the societies, how the rich should preserve their domination, and what possible “backlash” can be expected – and what the consequences are of living in a “plutonomy.” At the beginning of the first memo “Plutonomy: Buying Luxury, Explaining Global Imbalances”, the analysts introduce the subject:

Little of this note should tally with conventional thinking. Indeed, traditional thinking is likely to have issues with most of it. We will posit that:

1) the world is dividing into two blocs – the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest. Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S. What are the common drivers of Plutonomy? Disruptive technology-driven productivity gains, creative financial innovation, capitalist- friendly cooperative governments, an international dimension of immigrants and overseas conquests invigorating wealth creation, the rule of law, and patenting inventions. Often these wealth waves involve great complexity, exploited best by the rich and educated of the time.

2) We project that the plutonomies (the U.S., UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization.

Citigroup explains how the “non-rich” consumers become increasingly irrelevant within the “plutonomies”:

4) In a plutonomy there is no such animal as “the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie. Consensus analyses that do not tease out the profound impact of the plutonomy on spending power, debt loads, savings rates (and hence current account deficits), oil price impacts etc, i.e., focus on the “average”consumer are flawed from the start. It is easy to drown in a lake with an average depth of 4 feet, if one steps into its deeper extremes. Since consumption accounts for 65% of the world economy, and consumer staples and discretionary sectors for 19.8% of the MSCI AC World Index, understanding how the plutonomy impacts consumption is key for equity market participants.

USA Sources of Income, Top 1% (Source: Citigroup Investment Research)

The analysts of Citigroup then invent a new term – “The New Managerial Aristocracy”:


Let’s dive into some of the details. As Figure 1 shows the top 1% of households in the U.S., (about 1 million households) accounted for about 20% of overall U.S. income in 2000, slightly smaller than the share of income of the bottom 60% of households put together. That’s about 1 million households compared with 60 million households, both with similar slices of the income pie!

Clearly, the analysis of the top 1% of U.S. households is paramount. The usual analysis of the “average” U.S. consumer is flawed from the start. To continue with the U.S., the top 1% of households also account for 33% of net worth, greater than the bottom 90% of households put together. It gets better(or worse, depending on your political stripe) – the top 1% of households account for 40% of financial net worth, more than the bottom 95% of households put together. 

This is data for 2000, from the Survey of Consumer Finances (and adjusted by academic Edward Wolff). Since 2000 was the peak year in equities, and the top 1% of households have a lot more equities in their net worth than the rest of the population who tend to have more real estate, these data might exaggerate the U.S. plutonomy a wee bit. Was the U.S. always a plutonomy – powered by the wealthy, who aggrandized larger chunks of the economy to themselves? Not really.

Citigroup also makes clear what the CEO’s of the world need: More money.  Quote:

Society and governments need to be amenable to disproportionately allow/encourage the few to retain that fatter profit share. The Managerial Aristocracy, like in the Gilded Age, the Roaring Twenties, and the thriving nineties, needs to commandeer a vast chunk of that rising profit share, either through capital income, or simply paying itself a lot. We think that despite the post-bubble angst against celebrity CEOs, the trend of cost-cutting balance sheet-improving CEOs might just give way to risk-seeking CEOs, re-leveraging, going for growth and expecting disproportionate compensation for it. It sounds quite unlikely, but that’s why we think it is quite possible. Meanwhile Private Equity and LBO funds are filling the risk-seeking and re-leveraging void, expecting and realizing disproportionate remuneration for their skills.

But does placing so much money in so few hands also pose risks? Maybe the 99% of the population, or let it be 90-95%, it does not matter, will be unhappy about being ruled by the super rich? Fortunately for the investors, the analysts at Citigroup also considered these points and started to think about the plebs who, as history shows, have a tendency to be unruly, if poor. So the analysts started to think about “losers”, as they call them, or the people who could need a bath, as Newt Gingrich would call it. The Citigroup analysts basically predicted the OWS-movement. In considering these aspects, the analysts also discovered that there is a terrifying factor to consider – that the poor don’t have much economic power, but that they “have equal voting power with the rich.” Quote:


Plutonomy, we suspect is elastic. Concentration of wealth and spending in the hands of a few, probably has its limits. What might cause the elastic to snap back? We can see a number of potential challenges to plutonomy.

The first, and probably most potent, is through a labor backlash. Outsourcing, offshoring or insourcing of cheap labor is done to undercut current labor costs. Those being undercut are losers in the short term. While there is evidence that this is positive for the average worker (for example Ottaviano and Peri) it is also clear that high-cost substitutable labor loses. Low-end developed market labor might not have much economic power, but it does have equal voting power with the rich. We see plenty of examples of the outsourcing or offshoring of labor being attacked as “unpatriotic” or plain unfair. This tends to lead to calls for protectionism to save the low-skilled domestic jobs being lost. This is a cause championed, generally, by left-wing politicians. At the other extreme, insourcing, or allowing mass immigration, which might price domestic workers out of jobs, leads to calls for anti-immigration policies, at worst championed by those on the far right. To this end, the rise of the far right in a number of European countries, or calls (from the right) to slow down the accession of Turkey into the EU, and calls from the left to rebuild trade barriers and protect workers (the far left of Mr. Lafontaine, garnered 8.5% of the vote in the German election, fighting predominantly on this issue), are concerning signals. This is not something restricted to Europe. Sufficient numbers of politicians in other countries have championed slowing immigration or free trade (Ross Perot, Pauline Hanson etc.).

Then comes a key-part of the first “Plutonomy” memo: Plutonomy only works if the members of a society have the impression that they can still participate, despite the harsh inequalities, that they “can join it.”The analysts use the term “robber-baron economies” and conclude that a “potential social backlash” is possible. Becoming a “Pluto-participant” is the “embodiement of the ‘American Dream'” -and this dream should not die, otherwise the Plutocrats could be in real trouble. Quote:

A third threat comes from the potential social backlash. To use Rawls-ian analysis, the invisible hand stops working. Perhaps one reason that societies allow plutonomy, is because enough of the electorate believe they have a chance of becoming a Pluto-participant. Why kill it off, if you can join it? In a sense this is the embodiment of the “American dream”. But if voters feel they cannot participate, they are more likely to divide up the wealth pie, rather than aspire to being truly rich.

Could the plutonomies die because the dream is dead, because enough of society does not believe they can participate? The answer is of course yes. But we suspect this is a threat more clearly felt during recessions, and periods of falling wealth, than when average citizens feel that they are better off. There are signs around the world that society is unhappy with plutonomy – judging by how tight electoral races are. But as yet, there seems little political fight being born out on this battleground.

A related threat comes from the backlash to “Robber-barron” economies. The population at large might still endorse the concept of plutonomy but feel they have lost out to unfair rules. In a sense, this backlash has been epitomized by the media coverage and actual prosecution of high-profile ex-CEOs who presided over financial misappropriation. This “backlash” seems to be something that comes with bull markets and their subsequent collapse. To this end, the cleaning up of business practice, by high-profile champions of fair play, might actually prolong plutonomy.

The second memo, titled “Revisiting Plutonomy: The Rich Getting Richer” deals mainly with the consequences for investments which follow the analysis in the first memo. Quote:

There are, in our opinion, two issues for equity investors to consider. Firstly, if we are right, that plutonomy is to blame for many of the apparent conundrums that exist around the world, such as negative savings, current account deficits, no consumer recession despite high oil prices or weak consumer sentiment, then so long as the rich continue to get richer, the likelihood of these conundrums resolving themselves through traditionally disruptive means (currency collapses, consumer recessions etc) looks low. The first consequence for equity investors who worry about these issues, is that the risk premia they ascribe to equities to reflect these conundrums/worries, may be too high. Secondly, if the rich are to keep getting richer, as we think they will do, then this has ongoing positive implications for the businesses selling to the rich. We have called these businesses “Plutonomy stocks”. We see three reasons to take another look at those plutonomy stocks.

Citigroup seems to be perfectly happy with the rule of the rich. They are also perfectly happy to suppress these explosive memos. What if Americans don’t believe into the American Dream any more? What if the thoughts of OWS-protesters slip into the mainstream? (Fortunately, this is already happening). The rule of the 1% is not a conspiracy theory, it’s a fact, as the Citigroup analysts explain in great detail. The citizens in the “Plutonomies” are expected to swallow this bitter pill. The Koch Brothers and others can buy politicians and make sure that they get their way, also thanks to the Koch-friend Clarence Thomas and his colleagues in the Supreme Court who made the “Citizens United” decision possible. But don’t forget: You “have equal voting power with the rich.” To me, free elections do not seem to be compatible with a plutonomy. But the 1% seem to try to take care of this problem, as the USA has witnessed sophisticated examples of election fraud since 2000, and the country is at the same time drowning in propaganda, for example by the Koch-Brothers propaganda machine, who are gearing up for 2012, the “the mother of all wars”, because “we have Saddam Hussein”, as Charles Koch casually remarked at their secret summer seminar in 2011:

While I researched the subject, I discovered that there also exists an additional third, shorter Citigroup memo, dated September 29, 2006, which is being mentioned here. The summary on the first page of this memo, which another report for their super-wealthy investors, boldly presents “Plutonomy” not only as a fact, but a business great business opportunity:

The Plutonomy Symposium — Rising Tides Lifting Yachts

➤ Time to re-commit to plutonomy stocks – Binge on Bling. 
Equity multiples appear too low, the profit share of GDP is high and likely going higher, stocks look likely to beat housing, and we are bullish on equities. The Uber-rich, the plutonomists, are likely to see net worth-income ratios surge, driving luxury consumption. Buy plutonomy stocks (list inside).
➤ Plutonomy stocks at a premium, but relative pricing power is key. 
➤ Our Plutonomy Symposium take-aways. 
The key challenge for corporates in this space is to maintain the mystique of prestige while trying to grow revenue and hit the mass-affluent market. Finding pure-plays on the plutonomy theme, however, is tricky.
➤ Plutonomy and the Great Conundrums of our age.
We think the balance sheets of the rich are in great shape, and are likely to continue to improve. Don’t be shocked if the savings rate worsens as equities do well.
➤ What could go wrong?
Beyond war, inflation, the end of the technology/productivity wave, and financial collapse, we think the most potent and short-term threat would be societies demanding a more ‘equitable’ share of wealth.

Yes, what could possibly “go wrong?” The “threat” exists that societies would be “demanding a more ‘equitable’ share of wealth.” Thank God that we have such splendid police forces whose members seem to be very happy to quash any unrest with batons, tear gas, pepper spray and a high degree of rough behaviour in order to keep the plutonomists happy! Despite not having received widespread mainstream coverage, the Citigroup memos have been discussed in a handful TV-clips or documentaries. When Bill Moyers “signed off” with his last broadcast in 2010, he extensively quoted from the Citigroup memos and explicitly warned that Plutocracy and Democracy “do not mix”:

Finally, a note for you-know-who:

17 U.S.C. § 107

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Ram Singh, 17, earns just one dollar from the 100 cups of tea he makes every day outside Delhi railway station, but each evening, after packing up, he goes to the bank and deposits nearly half of it. Singh holds an account at a special bank, run for – and mostly by – Indian street children, that keeps what little money they have safe and seeks to instil the idea that savings, however meagre, are important. Just one among millions of street children who rely on menial jobs for survival, Singh is determined to make his work pay some sort of future dividend. “I’m smart, but that alone isn’t enough to start a business. I save money everyday, hoping to start something of my own. Someday soon,” he said as he served glasses of India’s ubiquitous, spicy milk tea in sweltering heat at a stall near the teeming train station.

The Children’s Development Khazana (treasure chest) opened its first office in New Delhi 2001 and has since spread across the country and overseas with 300 affiliated branches in India, Nepal, Bangladesh, Afghanistan, Sri Lanka and Kyrgyzstan. Delhi counts 12 branches with around 1000 child clients aged between nine and 17. The brightly painted metal cubicles which serve as teller counters are located in shelters that provide children with free meals and sleeping mats, as well as school classes.

The branches are run almost entirely by and for the children, with account holders electing two volunteer managers from the group every six months. “Children who make money by begging or selling drugs are not allowed to open an account. This bank is only for children who believe in hard work,” said Karan, a 14-year-old “manager”. During the day, Karan earns a pittance washing up at wedding banquets or other events. In the evening, he sits at his desk to collect money from his friends, update their pass books and close the bank. “Some account holders want to withdraw their money. I ask them why and give it to them if other children approve. Everyone earns five per cent interest on their savings.”

An adult staff member is always present to collect the takings at the end of each day, depositing the cash in a nationalised bank to earn the interest component. Sharon Jacob, who works for the rights group Butterflies that set up the bank, said it aimed to give the children a genuine stake in their own future. “They work in shops as hawkers or porters but they never had a safe place to keep their money. They were always cheated of it or somebody also stole their money,”Ms Jacob said. “So this is a place where they could keep their money safely and they are also taught life skills, how to manage their finances. They are taught budgeting, they are taught democratic participation,” Ms Jacob said.

Child labour is officially illegal in India but millions of boys and girls have no choice but to earn a living to support themselves or help their families. Many move to the cities from rural areas, seeking an escape from grinding poverty or abusive homes. “I ran away from home at the age of 11 after my father beat me for stealing a kitchen appliance,” said Samir who works in a sweatshop. “For days I slept on a railway platform. I was beaten by the police and even harassed by the drug peddlers. I wanted to go back home but was ashamed of myself.” Now 14, Samir lives in the children’s shelter and holds an account in the bank. “I have saved 4000 rupees ($70.68) in the last seven months. It’s a good feeling to have some money. I will buy a shirt and a watch for my father and send it to him to seek his apology.” “He might forgive me and ask me to be with him at home.”

A group of kids in a shelter for homeless children in New Delhi have a few lessons for the world’s international bankers. They have invented a financial system of their own to save for a brighter future. In a shelter for homeless runaway teens in New Delhi, a tiny, self-starting democracy has sprung up. The residents have created an unlikely society where everything from healthcare to banking has been initiated, implemented and executed by the kids themselves. “There are children who have a job and they deposit their money in our bank and even the children who go to school save their money,” explained bank manager Satish Kumar. Satish Kumar’s peers elected him to be bank manager of this branch of the children’s development ‘khazana’ (Indian for ‘treasure’) that serves around 9,000 street children across South Asia and has 77 branches in the region.

Many of the runaway teens now have a place to safely keep their money, save for the future and take out development or welfare advances to invest in starting businesses or buying books for school. Mohammad Shah, a 12-year-old bank client, told RT that he has taken an advance three times. “The first time I took 500 rupees to buy the school uniform and other things, the second time I took the advance because my mother was sick. I took 1000 rupees and got the necessary check up done for my mother. The third time I took the advance was because I had to repay some money I had borrowed to help my father open a shop,” he said. The kids have a monthly meeting where they review applications for those who wish an advance and then, based on their track record of saving and earning, they decide who to grant the advances to and how quickly they need to pay it back.

In a time when many people would argue that the global financial system is on the brink of collapse and that the system itself might be fundamentally flawed, it seems like these teenagers from the streets of New Delhi have the whole thing figured out. They hold everyone from the account managers to the clients accountable for their financial decisions. Through meetings and discussions over lunch the children have taught each other how to save and invest in their future: “I think that if we don’t put the money in the bank then we tend to spend it on unnecessary things and waste the money. So when we save the money it can be used to do important things that may come up in the future like buying new clothes,” Sameer, a bank client, shared. It’s a sense of responsibility and survival that has shocked the supervisors of the shelters themselves and one that they say leaders around the world might want to take a look at. “They can be the super models in this whole thing because they know how to save money. They know how to utilize money for the best because they learn how to prioritize their needs, which we as adults actually don’t know,” Sharon Jacob from “Butterflies” child rights non-profit organization said.

Mohammad Shah is hoping that he can save the money he makes selling bottles of water at night to put towards his education so he can one day accomplish his goal of becoming a policeman. “I am thinking for the future as I want to save the money and do some thing useful with it when the time comes,” he says.



Has De La Rue Already Printed the Post-Euro Currencies?
by Peter C Glover  /  Jun. 04, 2012

Rumours that British firm De La Rue Currency, the world’s largest banknote printer, has started printing drachmas in anticipation of Greece’s euro exit have been rife for a while. However, I have received information that a De La Rue insider confirms that not only has the Hampshire-based company printed drachma, it has already printed substantial reserves of all 17 pre-euro banknote currencies, including the Deutschmark.

While there is no way of independently verifying this it would make sense for a number of reasons. Not least the inevitability that ‘somethings gotta give’ and soon in Euroland. And no one can predict the extent of the economic fallout. De La Rue’s CEO Tim Cobbold has already stated that to print new currency in the space of a couple of weeks “would be impossible”. Indeed the sheer number of banknotes required to replace a national currency requires strategic forward planning. It would not be at all surprising therefore if a currency Plan B was in place in the event of a euro break-up, or in lieu of an exit by the Greeks. And I am advised that De La Rue is currently in an even higher state of information lockdown than usual.

There is little point in asking De La Rue. They have a long-standing and strict policy of never commenting on their currency printing arrangements. CEO Cobbold would only, as he has done before, point out that most Eurozone states have their own printers. True enough. But De La Rue has the advantage of a solid history of high security and its printing press is outside prying Eurozone eyes. Given that news of an official sanctioning of the printing of pre-euro currencies would likely create a run on European banks already teetering on the brink of crisis, keeping tight-lipped about contingency arrangements is hardly surprising. And there is background that lends support to the view that anyone looking for a good investment could do a lot worse than consider how well-placed De La Rue is to cash in on the meltdown of the European single currency.

De La Rue is a half a billion pound operation that prints banknotes and other security documents, including passports for 150 countries. As recently as 2011, the discovery of “production irregularities” at De La Rue caused it to lose some market credibility, a key customer (India), and its then chief executive. Rumours of a takeover by French rival Oberthur surfaced. As a listed UK company, De La Rue’s economic fortunes remain unchanged for a number of years. Since last year that has begun to change.

With the arrival of new CEO Tim Cobbold, De La Rue’s market stock has stabilised and steadily risen. But it was Cobbold’s reference to “a strong pipeline of opportunities” in the group’s annual results published in May that sent the currency whispers into overdrive. The company admits that its order book has increased by 14 percent to £248 million, but it won’t reveal details. Operating profits are also currently up post-tax by 56 percent. At the beginning of this year a further formal bid of £9.35 from Oberthur was again rebuffed. Just a few months later De La Rue’s shares are trading just above the £10 mark. Even so, investors considering De La Rue for a quick killing on the back of the euro crisis should be warned it would not be without risk. Even if oodles of pre-euro currencies are sitting in De La Rue’s warehouse in southern England, the EU has a history of making political decisions aimed at keeping the ‘European Dream’ alive at almost any cost to its constituent states and its taxpayers.

Meanwhile the chorus for a new economic arrangement is growing by the day. The latest voice calling for a Plan B for the eurozone is that of Mario Draghi, President of the European Central Bank. Draghi has lately made it clear that the current set up for the euro is “unsustainable”. Just how far EU and Eurozone leaders will go to sustain Plan A remains unclear. And that means that investors considering a swoop for De La Rue shares could still get their fingers burnt, printed pre-euro currencies or not.

But, as former UK PM Maggie Thatcher famously pointed out, “The trouble with socialism is that eventually you run out of other people’s money”. The moment the Germans pulled the life support system plug on the profligate southern socialist states, the writing was on the wall. Indeed, Belshazzar’s mene, mene, Tekel u-pharsin is a more than an apt analogy for a collapsing empire and its centrally planned economic system weighed by market forces – and found wanting.

De La Rue shares have staged a recovery since scandal struck in 2010
Return of drachma could be good news for De La Rue
by Toby Green /  15 May 2012

While markets were panicking over the future of the euro yesterday, not everyone appeared so worried. Trading screens may have been swamped in red, but De La Rue managed to climb amid suggestions that the banknote printer could be in the money if the eurozone breaks up. The group ticked up 31.5p to 1,024p as dealers speculated whether it may find itself in line for new contracts if currencies need to be revived. Back in November, De La Rue’s boss, Tim Cobbold, said the crisis “can create opportunities for us” although he refused to go into great detail.

Some of the more cautious voices in the City argued that Greece’s size meant a return to the drachma may not be that lucrative, while Mr Cobbold has pointed out that the country has its own state-owned printer. However, Panmure Gordon’s Paul Jones – who called De La Rue “a good stock for political turmoil” – argued that even if De La Rue did not win the contract it “would be a beneficiary”, saying that “the knock-on effect would probably be to tighten the market given the speed of printing necessary”.

At the same time traders were pointing out that the group – which rejected two takeover bids from France’s Oberthur in 2010 and 2011 – would get a boost if the Bank of England decides that another round of quantitative easing is required The fears over Greece saw the FTSE 100 slump 110 points to 5,465.52, a new low for 2012. With the benchmark index now having given up 6 per cent in just eight sessions, Capital Spreads’ Angus Campbell warned that the “likelihood of [a Greek government] being able to steer the country through the crisis whilst staying in the euro is very slim”.
Banknote printer won’t be drawn on drachma rumours
De La Rue refused to confirm rumours it was printing drachmas in case Greece leaves the eurozone
by Josephine Mould  /  29 May 2012

Banknote printer De La Rue said a strong performance in currencies drove underlying profits up 73% last year, but refused to confirm rumours it was printing drachmas in case Greece leaves the eurozone. Chief executive Tim Cobbold said: “There are 200 countries in the world. Every country doesn’t order every year. This year there are orders for customers we didn’t supply in a previous year.” Forward orders for currencies at the year end in March rose 18%, compared with long-term growth in the banknote market of 4%.

De La Rue is still recovering from a scandal in 2010 when employees were found to have falsified certain paper specification test certificates for a limited number of customers. Its then-chief executive and several managers subsequently resigned and profits tumbled. Cobbold said on Tuesday morning that “discussions remain ongoing with the principal customer concerned”, previously identified as the Reserve Bank of India. He said the dispute was taking longer to settle because the company had to deal with a government who “have a whole series of pressures on them”. Last summer De La Rue introduced a so-called improvement plan, closing two facilities, which resulted in 200 job losses. Asked whether there would be any further job losses, Cobbold said: “Largely we have been through the actions on the improvement plan.” He said the company was making “good progress” with the plan and is on track to hit its target of over £100m operating profits next year.

Full-year pre-tax profits fell by 55% to £32.9m as a result of a one-off boost to profits last year from the sale of De La Rue’s stake in Camelot, and the one-off costs of implementing the recovery plan. But underlying pre-tax profit rose to £57.7m and revenues were up 14% at £528m. Chairman Nicholas Brookes will retire in July, handing over to Philip Rogerson, 67, who is also chairman of Bunzl and Carillion. Cobbold said: “[Rogerson] joined the board on March 1. I can only say from the time he’s given since then that I’m very confident he will have the time to dedicate to De La Rue.” The company will pay a final dividend of 28.2p on 2 August, making the total dividend 42.3p, the same as the previous year. The shares slipped 7p to £10.02.
UK banknote printer readies for Greek call – source
by Neil Maidment  /  May 18, 2012

De La Rue (DLAR.L) has drawn up contingency plans to print drachma banknotes should Greece exit the euro and approach the British money printer, an industry source told Reuters on Friday. The news comes as EU trade commissioner Karel De Gucht said on Friday the European Commission and the European Central Bank are working on an emergency scenario in case Greece has to leave the euro zone – the first time an EU official has confirmed the existence of contingency plans. The source, who asked not to be named, said that as a commercial printer De La Rue needed to be alive to the possibility of a Greek exit from the single currency and prepare accordingly.

Crisis-hit Greece will be led by an emergency government into new elections on June 17 which will ultimately determine whether it must quit the euro – possibly spreading financial devastation across the continent. An exit from Europe’s single currency would spark a major demand for the returning drachma and while the country’s state printers could orchestrate its production, a handful of global firms like De La Rue could be called on to help. Buffeted equity investors looking for respite from the Greek turmoil have been busy buying up De La Rue shares in anticipation, helping push them up 11 percent in the last month.

Panmure analyst Paul Jones said the firm would be in with a chance of work if extra capacity was needed and could also benefit from other work as Greek printers were less likely to be quoting for contracts elsewhere. “If they (Greece) decide to pull out of the euro the first thing is it won’t be an overnight job, partly because of the implications of what they are trying to do but secondly because of the sheer number of banknotes that are needed to replace a currency,” Jones told Reuters. “It will be a huge job which the state printing works will do, but they will probably pull in some additional volume from outside and De La Rue will be in with a chance.” On Thursday, as rating agency Fitch downgraded Greece’s debt a further notch below investment grade to CCC, a poll showed Greek voters returning to pro-bailout parties, offering some encouragement to markets shaken by the prospect of a euro exit.

De La Rue, the world’s largest commercial banknote printer producing over 150 national currencies, told Reuters in November that regime changes and the euro zone crisis could fuel further growth for the group. Shares in the FTSE-250 firm, which has not produced drachma in over 20 years, were up 0.3 percent at 994.5 pence by 11:20 a.m., outperforming a 0.8 percent weaker FTSE 250 midcap index .FTMC.

Staff at De La Rue falsified data for quality control tests on banknote paper


The Serious Fraud Office has been called in by currency printer De La Rue after the company discovered that employees faked the results of quality control tests on paper used for banknotes. The company admitted in July that it had uncovered ‘quality and production irregularities’ at a plant producing high-security paper. Last month, chief executive James Hussey abruptly quit, declaring he had to take responsibility for the debacle. And yesterday, De La Rue announced that following an investigation, the managing director of its currency business and another senior employee had quit.

‘The company has reported its findings to the relevant law enforcement agencies,’ said De La Rue. According to rel iable sources, the Serious Fraud Office has been asked to monitor De La Rue’s internal inquiry. The company is using law firm Herbert Smith to help find out what has been going on. De La Rue said yesterday that ‘some of the company’s employees have deliberately falsified certain paper specification test certificates’. It insisted that in a ‘small number’ of cases, paper used in banknotes was not up to scratch. Paper was shipped to customers before De La Rue realised that the results of quality control tests had been faked.

De La Rue £1bn note
Our De La Rue £1bn note features these details: 1. RAF airdrop of notes printed by De La Rue. 2. The Park Lane Hotel: the company regularly entertains ambassadors and diplomats in London. 3. Company founder Thomas de la Rue. 4. Spies: the world of espionage has often crossed paths with De La Rue. 5. The fall of the Shah of Iran. 6. Former boss James Hussey’s university, Oxford. 7. De La Rue’s Overton plant. 8. US troops guard the arrival of Iraqi currency. 9. £1bn: The estimated company value in June this year

What went wrong with the British company with a licence to print money?
by Adam Luck /  16 October 2010

It was a brilliant British success story: the impeccably well-bred banknote makers with a licence to print money in 150 countries – and are a retinue of former MI6 men to throw a cloak and dagger at upstart rivals. And then De La Rue decided to cut corners…

The Boeing 747 banked over Baghdad Airport before entering a steep dive, levelling up at the last moment and touching down on the runway. A line of U.S. military Humvees and armoured personnel carriers, flanked by more than 80 heavily armed infantrymen, fanned out across the Tarmac. Their job was to protect one of the most secretive cargos to be landed in the aftermath of the allied invasion of Saddam Hussein’s Iraq. They hadn’t been told that 90 tons of freshly printed Iraqi dinars, remarkable for not bearing the head of the deposed dictator, were stacked in the hold of the specially adapted jumbo; only the British sales executives who’d arrived with the steel crates of vacuum-packed notes were privy to that information. The troops simply ferried the crates into the vehicles and drove in convoy to the sanctuary of Baghdad’s Green Zone, while Apache helicopters hammered out a steady drumbeat above. Once the cargo had arrived in the Green Zone it was broken up and dispatched to various ‘secure’ points around the country to be dispersed. The notes were designed to kick-start the paralysed Iraqi economy. They were also a powerful symbol of President Bush’s determination to wipe the slate clean. But it wasn’t just the Americans who’d pulled off a coup in Iraq; this was a significant moment for the British company that printed the notes. The new Iraqi dinars had been flown in from the UK and were the work of one of our most daring and secretive institutions. De La Rue had been handed the $120 million contract to make the high-security, counterfeit-resistant notes by the U.S.-led Iraqi administration with good reason. The company supplies banknotes to over 150 countries across the world and has brokered deals in some of the most volatile nations on the planet.

Former De La Rue chief executive James Hussey
Former De La Rue chief executive James Hussey resigned in mid-August

De La Rue’s personnel are used to danger and secrecy. The company has routinely employed former military specialists, many of them linguists with an intelligence background, and has close ties with the Foreign Office and the Secret Intelligence Service, MI6. In the world in which they operate, murders, coups, espionage and dirty tricks are routine. De La Rue was a true British world leader and, with its licence to print money, was worth nearly £1 billion in June this year. But that was before disaster struck. Production of banknote paper at its dedicated plant was halted in July; a month later its chief executive James Hussey, an Old Etonian and godson of the Queen, resigned; and then it emerged staff had falsified test certificates that were meant to prove the paper was up to scratch. Three months later, De La Rue is worth a third less, around £650 million, and the company is now facing the mother of all battles for its future. The sprawling industrial complex of Overton Mill, overlooking the Hampshire village of Overton, abuts the north side of the railway line from London to Salisbury. Security at De La Rue’s paper-production plant borders on military-grade, as one might expect of the factory that makes the security paper for all Bank of England notes, euro notes and scores of other currencies. The squat gatehouse has thick bulletproof glass. Double sliding gates and two layers of high-security fencing keep out prying eyes. Access to the most highly sensitive areas, such as research and development, are controlled by iris-recognition cameras. Most staff only have clearance for their specific work area and nothing more. All are carefully vetted by an internal security department, which scrutinises bank statements, mortgage contracts and previous employment history to ensure none are apparently living beyond their means and therefore vulnerable to blackmail or temptation. Mobile phones are strictly forbidden inside, principally to prevent photographs being taken. The heart of this most mightily secure of operations is a series of giant wire-mesh drums, 6ft high and 6ft wide. Resembling out-sized Catherine wheels, they’re the starting point for an impressively rigorous production process. The wheels dip down into industrial baths containing millions of strands of cotton fibre, pick up the fibres and revolve to drain them of water. The layers of pulp that remain are then compressed into large sheets, rolled and dried in a series of procedures, each requiring verification and the completion of a test certificate. In this process covert security features are added, the most sensitive being the watermark. Each customer will have their own specifications; anti-counterfeiting measures incorporated in the paper will broadly reflect the budget of the client. (The Bank of England specifications are particularly exacting, with notes undergoing additional checks before being shrink-wrapped.)

De La Rue's Debden plant where bank notes are printed for The Bank of England.De La Rue’s Debden plant where bank notes are printed for The Bank of England. Security borders on military-grade

Once the security paper is ready, it’s transferred to the similarly well-protected printing plant at Debden in Essex. Here the sheets are fed into a German-made and Swiss-designed ‘Super Simultan’ press, which prints the background images and designs for both sides of the notes. The ‘Super Giori’ machine is then fed 10,000 sheets at a time, each sheet yielding 40 to 60 notes depending on their size. The portrait of the relevant monarch or state principal and the denomination are printed on each note, with 300-400,000 produced per hour. They’re then passed onto the ‘Foiler’, which inserts the thin strip of foil used in British notes as another anti-counterfeiting measure. The fourth stage sees the sheets fed into a rotary numbering machine, which applies serial numbers via ink-covered barrels; finally they’re fed into a ‘cut-pack machine’, with 100 sheets going in one end and 1,000 shrink-wrapped and sequentially numbered bundles of individual notes emerging from the other. Throughout, a number of inks are used, including fluorescent and UV ink, as well as OVI, or optically variable ink (which displays different colours depending on the viewing angle). Less well-known features include ‘see-through registration’, allowing a note to be checked for precise alignment between the printing on each side; micro-lettering and fine lines that ensure photocopies come out blurred; and ‘intaglio’ elements – the raised writing and ridges you can feel on the surface of notes. Confidence in the quality of De La Rue’s security paper helped it to post impressive annual results earlier this year. Profits and sales were up. But in late July, the company stunned the market by revealing it had ceased production of a type of banknote paper in Overton. The company cited ‘quality’ issues and said production and shipment of the paper had been halted while it investigated the problem. Its shares dropped 16 per cent.

Iraq’s bank notes made by De La Rue. Saddam Hussein had his done in China, replacing him on the note is non-political Abu Ali Hasan Ibn Al-Haithan

In mid-August, Hussey resigned after taking ‘responsibility’ for the unfolding disaster. Shares dropped by a further 12 per cent. Weeks later De La Rue revealed that an internal investigation had uncovered evidence that staff had been guilty of falsifying test certificates. The implications were profound, even if De La Rue insisted the paper in question was nothing to do with sterling or euros. The fear is that some of the substandard paper may have got into circulation, allowing counterfeiters to understand the security measures by comparing the high-quality paper to the poor quality. They could then exploit the weakness to produce their own notes. De La Rue has attempted to shrug off the security implications. After the company’s own internal investigations, the Serious Fraud Office was informed. And if shareholders weren’t already concerned at the prospect of an SFO investigation, they were then warned the affair was likely to cost the company at least £35 million. Shares dropped a further three per cent. In an industry where quality, reliability, reputation and discretion, not to mention secrecy, are fundamental to success, it couldn’t get much worse for De La Rue. ‘In the highly developed world of banknote printing, secrecy is paramount, because none of the central banks want their super anti-forgery device talked about,’ says banking expert Michael Jones, who was a senior executive at the Bank of England. ‘They don’t even want anyone to know the devices are there; it doesn’t matter if it’s in the paper or printing. You can’t underestimate the impact this will have on De La Rue and its business.’

Murders, coups and billion-pound banknote deals

Thomas de la Rue set up shop as a stationer and printer in London in 1821. The Guernsey-born businessman initially specialised in playing cards, but tax and postage stamps soon followed. By 1860 the company was printing its first banknotes, for Mauritius. Excluded from printing Bank of England banknotes because it zealously kept production in-house, De La Rue focused on the Empire, and when colonies gained independence, it was well placed to profit. World War II also offered the company the chance to build ties with exiled governments. Yugoslavs, Greeks, Czechs, Poles and Norwegians paid their resistance fighters in notes printed by De La Rue and flown in by the RAF in cloak-and-dagger operations. ‘In many ways the perfect cover for James Bond would be as a De La Rue salesman,’ says analyst Paul Jones from broker Panmure Gordon. Indeed, many of the firm’s staff have worked for MI6. ‘There was one man at De La Rue who I knew was with the intelligence agencies,’ says a former De La Rue executive who, like all his contract-bound colleagues, cannot be named. ‘He’d disappear for months at a time on leave sanctioned by the company. Apparently he has specialist skills, but I never found out what they were, where he went or what he was up to.’ By the late Fifties the company had 10,000 employees working in 24 plants in 14 countries. And throughout the next 30 years the company’s fluctuating fortunes echoed the rhythms of boom and bust in its traditional markets. By the turn of the millennium, however, De La Rue was suffering in the face of competition from German rival G&D (see below), and three outsiders were brought in as chief executive in quick succession to turn the business around.

Then in 2003 De La Rue won a seven-year contract to take over the running of the Bank of England’s printing plant in Debden, Essex. It also won the contract with Iraq. As the decade drew to a close results and prospects started to improve, but there were also plant closures both here and abroad. Many experienced staff left, and those still around were often asked to assume multiple roles. By the time James Hussey was appointed chief executive in 2009 the workforce had shrunk to barely 4,000. Hussey was a De La Rue man to the core and is one of the best-connected businessmen in London. His father was Marmaduke Hussey, the former BBC chairman, and his mother Lady Susan Hussey is a lady-in-waiting to the Queen, as well as a godmother to Prince William. Every summer De La Rue executives play host to their banker clients at Wimbledon in the company’s hospitality suite. In June the company also holds its famously discreet Ambassadors Reception at London’s Dorchester hotel. This has long been regarded as one of the high points of the diplomatic calendar, with as many as 200 ambassadors, diplomats, politicians, top brass and bankers gathering for a banquet and speeches. Before World War II, royals and Prime Ministers were regular visitors, and De La Rue was renowned for the presents it handed out to guests. In one case each guest was presented with monogrammed gold cufflinks.

De La Rue's Overton printing plant in Hampshire
De La Rue’s Overton printing plant in Hampshire, where staff were found to have falsified test certificates. The fear is that some of the substandard paper may have got into circulation

But the event has also attracted the wrong sort of attention. In 1982 the Israeli ambassador Shlomo Argov was shot and paralysed by followers of the notorious terrorist Abu Nidal after leaving the reception. The incident provoked Israeli Prime Minister Menachen Begin into launching his country’s invasion of Lebanon. For De La Rue, Hussey’s appointment signalled a return to not just old money, but also the old school. His patrician charm, however, belied his drive and ambition, and many claim he countenanced no contradiction. When he announced results in May this year Hussey appeared to have good reason to be pleased. Revenues had increased 12 per cent to £561 million and profits before tax stood at £97 million. The currency division, which prints the notes, contributed over 73 per cent of total revenues, and banknote-paper production had risen three per cent in the year. It was then that disaster struck at Overton. To compound the problems, the paper affected was destined for India and one of De La Rue’s biggest clients, the Reserve Bank of India, which is believed to account for up to a third of the company’s profits. One industry insider said, ‘There was a lax management culture, and below senior-management level, people were doing things that were detrimental to the business. They were cutting corners.’

An air of obsessive secrecy surrounds De La Rue to this day. One of the world’s most eminent experts in banknote printing and security paper, Rudolf van Renesse, refused to even comment on the controversy, simply noting, ‘I will get into trouble with my friends.’ De La Rue’s strict hierarchy meant that few people were prepared to speak out, and as a consequence, falsifying certificates became routine. The Overton paper mill was running at close to capacity. Managers and staff found themselves under immense pressure to get the paper printed and out of the gates, at any cost. One source close to the company told Live that De La Rue simply couldn’t achieve the paper-security specifications required by the Reserve Bank of India. ‘The implication is that this problem arose because of commercial pressures,’ says Paul Jones. ‘They cut corners to make sure the contract was fulfilled. Now you have to wonder what else has been going on within the company.’ De La Rue has admitted that ‘the full impact on the current-year financial results and on the group’s prospects has yet to be determined. You have to remember that these countries will have perhaps a 12-month contract with De La Rue and there will probably be penalty clauses built into those contracts,’ adds Jones. ‘They will have breached the contract, because the shipments have been delayed. When that contract comes round for renewal, what do you think the clients will be saying? They’ll be asking for a discount, or they may decide not to renew at all.’ The Indian bank has already sent over a high-level delegation to the Overton plant, and is now talking about making its own paper. Both the Bank of England and the European Central Bank are expected to follow with delegations of their own. But De La Rue doesn’t only have to worry about its clients. Its competitors are watching, and with its share price and credibility on the slide, it’s increasingly vulnerable to a takeover ‘This is a mature market,’ says Jones. ‘The demand for banknotes will surely decrease over time, and you can see the argument for consolidation. Competitors may look at De La Rue and may well be prepared to take a bit of a chance.’ At one point De La Rue toyed with the idea of taking over its long-term rival G&D, but its approach was rebuffed by the Germans, who bristled at the idea of being consumed by a British company. The irony is that the Germans could yet end up printing Bank of England notes. This, after all, can’t be any more far-fetched than a British company printing banknotes for Iraq.

People waiting outside a Tripoli bank
People waiting for money outside a bank in Tripoli
How did Libyan money come to be printed in Britain?
by Chris Summers / 2 September 2011

The RAF has delivered £140m worth of Libyan banknotes back to the country after the downfall of Colonel Muammar Gaddafi. But why is so much foreign currency printed in the UK? It is perhaps unsurprising that De La Rue, the British firm which printed the 280 million Libyan dinars (£140m) returned this week, is somewhat reticent about its business. The banknotes were ordered by the Gaddafi regime a year ago but were seized following the imposition of sanctions by the United Nations. When the rebels reached Tripoli and overthrew the Libyan leader, the UN agreed to lift sanctions and unfreeze some of the $20bn of assets the Libyan government had in the UK. A total of 1.86 billion dinars (£929m) would be returned. Foreign Secretary William Hague said: “The bank notes will be used to pay the wages of Libyan public sector employees, including nurses, doctors, teachers and police officers.” The cash will also be used to restock depleted cash machines across Libya.

Increasing demand
Pira International, a world authority on the print industry, said the global banknote trade was enormous. A total of 150 billion banknotes were printed last year, which is likely to rise to 162 billion this year and carry on rising, partially driven by increasing demand for cash in booming China. Pira’s chief consultant on print security, Michael Chamberlain, said 84% of the world’s banknotes were printed by state-owned enterprises – but the remaining 16% included 76% of the world’s currencies. Many countries, including Britain, the United States, Russia and China, will not allow their notes to be printed abroad. The US dollar is printed at two federal government-owned sites, in Washington DC and Fort Worth, Texas. But many smaller countries approach De La Rue or its main rival, Giesecke & Devrient. The German firm’s customers include Japan, Cambodia, Croatia and Guatemala. But De La Rue, based in Basingstoke, Hampshire, produces 150 foreign currencies as well as passports, driving licences and identity cards for several nations.

Old Libyan banknotes
Libyan banknotes carry the image of fallen leader Colonel Gaddafi

De La Rue was founded in Guernsey in 1813 by Thomas De La Rue, originally printing newspapers and later postage stamps before turning to paper money. It began printing money for foreign countries in 1930, when Chiang Kai-Shek’s Chinese nationalist government put in an order. Since 2003 it has also been producing Bank of England banknotes, from a printing plant in Debden, Essex. But the company refuses to give details of its overseas customers and a spokeswoman told the BBC: “We are bound by confidentiality with our customers and we have to respect their wishes not to have publicity.” There is no international body for the regulation of currency issue, which means there is nothing to stop companies printing money for “rogue states” like Syria or North Korea, or “emerging” states like Somaliland or Western Sahara which are not universally recognised.

Security threads
Mr Chamberlain said: “These states don’t have difficulty getting their money printed. The Chinese might do it, or the Russians.” De La Rue is fairly tight-lipped about their operations but it does admit to having plants in Loughton, Essex; Gateshead, Tyneside; and Bathford, Somerset. It uses security threads and holography as well as special security paper to defeat the counterfeiters. Some countries are happy to admit their banknotes are printed by De La Rue. One of them is Samoa in the South Pacific. De La Rue printed tens of thousands of notes for the Central Bank of Samoa, which introduced its new currency in 2008. Leasi Papali’i Tommy Scanlan, who stepped down recently as the bank’s governor, recently told De La Rue’s company magazine: “Counterfeiting was one of the biggest problems we faced with our previous banknote issue. “This is one of the main reasons we decided to issue a new series of banknotes, incorporating the latest security feature.” Counterfeiting is a lot harder nowadays.

A man holds up a Saudi banknote
Saudi Arabia is one of many countries which use De La Rue to print their notes

In the 1940s Adolf Hitler used a group of concentration camp inmates to create fake sterling banknotes in an attempt to destabilise Britain’s economy. Last month a set of fake notes from that wartime operation were put up for auction in Shropshire. There have also been allegations that North Korea has been printing fake US dollars, although the dollar is much harder to counterfeit than it was 10 years ago. Technology has moved on a great deal in the last 70 years and De La Rue has cornered the market. It also makes electronic identity cards for Rwanda and passports for Malta, Qatar and the Bahamas.

Regime change
Another banknote customer is Saudi Arabia, which uses the face of King Abdullah Bin-Abd-al-Aziz Al Saud on all denominations except the 500 riyal. The Saudi king and Queen Elizabeth II are not the only heads of state to be used on banknotes, but it can be a problem when there is a regime change. For the next couple of years Libyans will just have to put up with carrying around notes bearing the likeness of their fallen leader, just like Iraqis did with Saddam Hussein. Mr Chamberlain said: “They will have to use them but the new government is probably already thinking about issuing a brand new currency with the appropriate message on it.”



“Following the political crisis, the older banking system collapsed, including the Central Bank of Somalia’s right of being the sole and exclusive issuer of the Somali banknotes and coins, and as of today, the formal commercial banking activity in the context of Monetary Policy does not exist and there reserve money is wholly composed of bank notes issued by various unofficial issuers. Since 1996, Warlords and business people have been printing Somali Shillings Bank notes. The Central Bank of Somalia is resuming its role as the sole and exclusive authority to issue banknotes and coins as a first step to take control of monetary policy.”

Currency traders at work

A Currency Issued in the Name of a Central Bank that No Longer Exists
Somalia’s mighty shilling : Hard to kill / Mar 31st 2012

Use of a paper currency is normally taken to be an expression of faith in the government that issues it. Once the solvency of the issuer is in doubt, anyone holding its notes will quickly try to trade them in for dollars, jewellery or, failing that, some commodity with enduring value (when the rouble collapsed in 1998 some factory workers in Russia were paid in pickles). The Somali shilling, now entering its second decade with no real government or monetary authority to speak of, is a splendid exception to this rule.

Somalia’s long civil war has ripped apart what institutions it once had. In 2011 the country acquired a notional central bank under the remit of the Transitional Federal Government. But the government’s authority does not extend far beyond the capital, Mogadishu. The presence of the Shabab, a murderous fundamentalist militia, in the south and centre of the country, makes it unlikely that Somalia will become whole anytime soon. Meanwhile, 2.3m people are in need of edible aid. Why, then, are Somali shillings, issued in the name of a government that ceased to exist long ago and backed by no reserves of any kind, still in use?

One reason may be that the supply of shillings has remained fairly fixed. Rival warlords issued their own shillings for a while and there are a fair number of fakes in circulation. But the lack of an official printing press able to expand the money supply has given the pre-1992 shilling a certain cachet. Even the forgeries do it the honour of declaring they were printed before the central bank collapsed: implausibly crisp red 1,000-shilling notes, with their basket weavers on the front and orderly docks on the back, declare they were printed in the capital in 1990.

Abdirashid Duale, boss of Dahabshiil, the largest network of banks in Somalia, says that his staff are trained to distinguish good fakes from the real thing before exchanging them for dollars. Others accept the risk of holding a few fakes as a cost of doing business (shillings are often handed over in thick bundles of 100 notes). By this alchemy, an imitation of a thing which is already of notional value turns out to be worth something.

Shelling out shillings
A second reason for the shilling’s longevity is that it is too useful to do away with. Large transactions, such as the purchase of a house, a car, or even livestock are dollarised. But Somalis need small change with which to buy tea, sugar, qat (a herbal stimulant) and so on. Many staples are not produced domestically, making barter impractical. The shilling serves as well as shells or beads would as a medium of exchange. It also has a role as a secondary store of value. Once a year the economy gets an injection of dollars when goats are sold to Saudi Arabia to feed pilgrims undertaking the haj. Herders need to find ways to save money received then for spending over the next year. The shilling is one of them.

The shilling has a further source of strength. Since each party to a transaction is likely to be able to place the other within Somalia’s system of kinship, the shilling is underpinned by a strong social glue. Paper currencies always need tacit consent from their users that they will exchange bills for actual stuff. But in Somalia this pact is rather stronger: an individual who flouts the system risks jeopardising trust in both himself and his clan.

Having survived against great odds, the shilling now faces a serious challenge in the form of dollars transferred by mobile phone. Zaad, a mobile-money service, allows users to pay for goods by texting small amounts of money to a merchant’s account, and is proving popular in Mogadishu. But the shilling’s endurance suggests it should not be counted out. If it can survive without a government, it can probably brush off modern technology, too.


ZAAD is a MOBILE MONEY service, allowing customers to use their money for transfers, purchases, payment of bills , and airtime recharge.

ZAAD services is a benefit for the following sectors:
The whole community
Government and non-government organizations Major companies and agencies

Telesom ZAAD Service
Telesom is pleased to become the Fifth company in the world after (Smart, MTN, Vodafone, Zain ) to provide Mobile Money. Telesom is the first African fully owned company in the world to announce Mobile money . ( MTN is a multinational company based in South Africa )

Somalia Central Bank officially re-opened by PM / February 2, 2011

“Somali Prime Minister Mohamed Abdullahi Mohamed (Farmajo) had made as one of his top priorities the re-operationalisation of the country’s central bank which had grinded to a halt since 1991. The Central Bank of Somalia was established on June 30, 1960 and has now opened its doors to the public. The Prime Minister said the bank opening is an important symbol for the independence and sovereignty of somalia, as well as the growth and stability of the institution. The Central Bank of Somalia was one of the largest financial institutions in Somalia, with 130 branches located throughout the country. The bank of the nation was destroyed by warlords and Criminal gangs that overthrew Somali President Mohamed Siad Barre in 1991.”


“In 1996 Mohammed Farah Aideed, still the head of one of the major forces in Somalia, placed an order for Somali shillings with the British American Banknote Company, a Canadian company based in Ottawa. Despite condemnation in Canada for the transaction, the banknotes were printed and delivered to Somalia. The deal was evidently brokered by a Malaysian businessman on behalf of Aideed. However, Mohammed Farah Aideed never saw the money, as he died on 1 August 1996 from wounds received during a battle in Mogadishu. Ultimately, his son, Hussein Aideed, and other members of his clan received four shipments of the currency that was estimated at 165 billion Somali shillings.

The notes printed for Aideed were probably in denominations of 500 and 1000 shillings, although this has not been confirmed, and they can be identified in a number of ways. Firstly, the notes carry the date ‘1996’ at the bottom of the notes and they are signed by Ali Amalow as Guddoomiyaha. Amalow was appointed Governor of the Central Bank of Somalia in October 1990, just prior to the fall of Siad Barre, and he did not sign any ‘official’ notes issued by the Central Bank of Somalia. Secondly, the use of the letter ‘D’ as the series identifier for the 1000-shilling notes suggests that these were the notes introduced by Aideed, as it can be expected that he would use the existing identifier for this series. The only known 500-shilling note issued after the fall of Siad Barre uses the same font for the serial numbers as the 1000-shilling note with the ‘D’ series identifier, suggesting they were printed at the same time. However, the use of ‘A’ as the series identifier for the 500-shilling notes does not follow the use of ‘D’ for the previously issued notes and therefore there is some doubt as to whether these notes were printed for Aideed.

The bold initiative by Aideed, of issuing his own notes, did not go unnoticed by other faction leaders in Somalia. In 1999 the Puntland administration contracted printers in Indonesia to produce Somali shillings for their own use. These notes can be recognized by the different colour for the number ‘1000’ that appears in the centre of the notes. On these notes the number is purple, whereas for all other printings of this note it is green. In fact the differences are more varied, but this is the chief distinguishing point. On the original notes, there is a green, orange and purple intaglio print, but on the Indonesian-printed notes there is no intaglio printing. Instead the colours are printed by lithographic printing and areas that should have been green are printed in purple.

Following the conclusion of the Somali National Peace Conference in Djibouti on 22 August 2000, a Transitional National Government was elected with Abdiqasim Salad Hassan chosen as president. As there had been a dozen different peace conferences over the previous ten years with no satisfactory outcome, this result looked promising. Relocating to Mogadishu, the government moved tentatively and soon the control of the government moved to businessmen who worked in concert with the politicians. One of the products of this collaboration was that the Transitional National Government became involved in importing fake banknotes to help prop up the economy. The Transitional Government imported Somali shillings from an unknown source but when it became apparent that almost anyone could have money printed and imported into the country, many business men did just that.

In February 2001 Mogadishu businessmen imported 60 billion Somali shillings into the country. In order to gain control of the economy, the Transitional Government was forced to purchase this money from the businessmen for the cost of printing and transportation. An undertaking was also elicited from the businessmen that they would import no more money. However, later shipments of banknotes were brought into the country under the protection of the Transitional Government. Endnote

Around May 2000 it was reported that Mohamed Hasan Nur, the leader of the Rahaweyn Resistance Army, had visited Italy and had arranged to have 500- and 1000-shilling notes printed in Italy and shipped to Somalia. He evidently intended that the currency would circulate in the Bay and Bakool regions of Somali, which were under his control. Endnote (It is not known whether these notes were actually printed and delivered.)

The importation of fake currency was not limited to the old Somali shilling. It was only a matter of time before importations of fake new shillings began to appear and notes of this issue with a prefix commencing with ‘X’ are believed to be an ‘unauthorized’ importation. The new shillings were apparently imported by Mogadishu businessmen who probably found that there was more profit to be made in importing the higher value notes.

It is not easy to follow all the trading, importing and printing of fake Somali banknotes. Certainly, the printing of notes by the British American Banknote Company for Mohammed Farah Aideed is one of the few well-documented cases of the printing of fake notes. However, many reports implicate Canada, Indonesia and Malaysia as sources of fake money without nominating the recipient or the printer. One report nominates the Indonesian company Pt. Pura Baru Kudus, located in Java, as involved in printing US$4 million worth of Somali bank notes, but there is no indication whether they were the suppliers for the Puntland administration or for another authority. While most of the businessmen importing currency are nameless, Mohamed Abdulle Daylaaf and Hussein Goley of Mogadishu are two businessmen who have been reported as importers of fake currency.

(There is one interesting aspect to the factions circulating fake currency in Somalia. On 3 September 1998 Mohamed Said Hersi, known as ‘General Morgan’, declared Jubaland independent. Jubaland is in southern Somalia, bordering on Kenya, and has as its capital Kismayo. Of all the reports concerning fake currency, none have been found in reference to the administration led by Hersi. However, his reign was short, surviving only until June 1999, and it is understood that he may not have had the finances to purchase a stock of banknotes.)

In many ways it is surprising that the importation of fake Somali shillings continues to occur. When the importation of the fake notes first occurred, importers realized a huge windfall due to the seigniorage gained in the issuing of the currency. Seigniorage is the difference in the cost of producing the banknotes and the value of the note when placed into circulation. It was reported by some Somali businessmen that the cost of producing a 1000-shilling note was US$0.028. In 1991 1000 shillings was worth US$0.20 and so the seigniorage (excluding transport and storage) was US$0.172 per 1000-shilling note. The exchange rate fluctuated over the ensuing years, but towards the end of the 1990s the rate plunged dramatically to the extent that, by 2001, a 1000-shilling note was equivalent to US$0.0416 and, if the cost of production remained steady, the seigniorage had dropped to US$0.0136. At some point in time, if inflation continues, it becomes unprofitable to print 1000-shilling notes. This is why 500-shilling notes are no longer printed. However, where 50-new-shilling notes are printed, it remains profitable for a much longer period.

A significant aspect to consider in regard to the distribution of fake shillings is the social and economic effect on the market into which the currency is introduced. If fake currency floods the market, it immediately devalues the currency in circulation. In Somalia, where the poor are affected, this causes distress amongst the majority of people who have lower incomes. The BBC News reported in June 1999 that two people were killed by market guards in Mogadishu after riots broke out following the importation of fake currency. Endnote By this time the public of Somalia were all too aware of the economic impact of the importation of fake currency and in this instance the riot was the result of people venting their anger.




After reading some books about banking, Denny Ray Hardin set up a website, created 2,000 fake promissory notes, and opened up “the Private Bank of Denny Ray Hardin” (not necessarily in that order) from his home in Kansas City. How entrepreneurial! And illegal. On his website—sorry, the Private Bank’s website—Hardin claimed that the notes, which he made on his home computer, were bonded and authorized by the U.S. Treasury Department. From September 2008 to September 2009 he sold more than $100 million of these things, reports the Kansas City Star.

In a March 2010 profile by the Kansas City alt-weekly The Pitch, Hardin comes off as a tragic and complicated character who has some altruistic motives but is also driven by extremist “don’t tread on me” ideology. Fittingly, the article introduces him by way of a his many life troubles, which seem to have begun when he and his girlfriend were in a car accident, she lost her ability to work, and he was laid off from his construction job. “The one good thing we had was Betsy,” he told The Pitch, referring to his beloved Corvette Stingray. But then a friend set him up in a small-time marijuana deal, and Hardin was arrested. The cops confiscated the Corvette, and Hardin was sentenced to jail time plus probation. Upon his release, he experienced this horror: “The next time Hardin saw Betsy, almost a year later, she had been painted up as an ad for the D.A.R.E. program.” Seriously, that’s tragic.

Besides seeing his old hot rod being used to promote snitching on your parents, Hardin faced other troubles. His woman left him. He began smoking crack. His life essentially fell apart. Then he went to rehab and read about various subjects, including banking. He applied his knowledge and opened the Private Bank of Denny Ray Hardin, under this theory that we don’t understand:

Hardin theorizes that it’s possible to file a document that renounces one’s U.S. citizenship and instead declares what he refers to as American citizenship. By doing this, the newly declared American citizen can take possession of an account that is supposedly set up by the feds on the occasion of every person’s birth. Next, the American citizen can file a financial statement with the U.S. Secretary of State and copyright his or her name. The Americans Republic Party explains that with these three simple steps, it’s possible to become a sovereign with the right to cash checks from one’s established-at-birth account.

Hardin didn’t really charge people much of a fee to his customers, whose mortgages he paid off using his special-issued Denny Ray bonds (for more on how this works, see this LA Timesarticle). Like an official bank, he gave his customers information packets describing “all the steps he had taken, what laws he had to abide by, the ordinances that must be followed.” And, as The Pitch notes, he was just one banker in a small yet diverse niche market; the Gadsden flag-flyingAmericans Republic Party, which has supported Hardin over the years, knows of other private banks operating right here in America.

On Wednesday, Hardin was found guilty in federal court on 11 counts of creating fictitious obligations and 10 counts of mail fraud, reports the Kansas City Business Journal; he now faces at least 20 years in prison. At the time of his indictment in May 2010, he was already incarcerated in state prison on a probation violation based on a 2006 incident in which he tried to arrest the lieutenant governor of Kansas for violating the Constitution. The government did not agree with Hardin about the lieutenant governor’ behavior. Hardin and the government are rarely in agreement on the issues, it seems.

It’s amazing that people would do business with a bank named after some random guy. Then again, people do business with all kinds of banks. At least this can be said about the now-shuttered Private Bank of Denny Ray Hardin: it was probably one of the only banks in Kansas City that was helping people to avoid foreclosure instead of making foreclosure more likely.

Among those who say Hardin is their savior (from left): Denelle Ginder-Brown; her husband, James Brown; and their daughter, Michelle Elam. – Michael McClure


Denny Hardin’s weapon against the U.S. government: his own private bank
by Peter Rugg  /  March 11, 2010

It started over a cherry 1977 Corvette named Betsy. “Ever since they took that car, the fight’s been on,” Denny Hardin says. He’s talking to The Pitch by phone from the Moberly Correctional Center, where he’s serving the first months of a five-year sentence for a probation violation. By “they,” he means the United States of America. Hardin didn’t plan to wage a one-man war against the government. He was once a loyal citizen; he even served in the Navy in the 1980s. By 1991, he was in his late 20s, divorced from the wife he’d met in Tokyo, and back in his hometown of Kansas City. He began dating a hairdresser named Sherry Lee, who wanted to open her own salon. They found a space and started work on it, sleeping on the floor of the shop when they didn’t have enough money to also rent an apartment. But then they were in a car accident. The insurance company paid out $20,000 for medical bills and the cost of the car. They spent $7,780 on Betsy. Hardin found the car on the lot of a Raytown Chevrolet dealer. It was in such pristine condition that it was just a thousand dollars less than the original sticker price. A ’77 Stingray is one of the most popular Corvette models ever made, the type of car that bikini-wearing models still recline against on the covers of muscle-car magazines. The rest of the money went to medical bills, but Lee couldn’t work. Her hands, which she had relied on to style hair, now shook uncontrollably. “Then I got laid off from my construction job,” Hardin remembers. “The one good thing we had was Betsy.” For the next few months, money was scarce. One day, a friend of Hardin’s from grade school asked if Hardin could help him find some weed. His friend promised that Hardin would make a couple of bucks for setting up the deal. When they got to the dealer’s house, the friend feigned shyness, telling Hardin that because the dealer didn’t know him, it was better that he stay in the car while Hardin bought the dope. Hardin went in and bought a half-pound of pot. When he came back out, police arrested him. “It turned out, that friend had been busted by the cops earlier, and he set me up because he’d made a deal with them to deliver people,” Hardin says. He served 120 days and got five years’ probation. Even worse, the cops claimed that the Stingray had been bought with drug money, so they confiscated it. The next time Hardin saw Betsy, almost a year later, she had been painted up as an ad for the D.A.R.E. program.

Lee eventually left him. He knows that she’s in Iowa somewhere, working as a paralegal, but they haven’t spoken in years. “When they took Betsy away, that just about destroyed her. Betsy was repayment for almost dying,” he says. “I promised her I’d make up for what they did, and I still keep that promise.” He didn’t start right away. Hardin spent the next few years in a crack-smoking stupor, dropping down to 87 pounds before checking himself into a hospital for rehab. As he convalesced, he read history and law books. Eventually, the man who was still three credits short of his associate’s degree at Longview Community College was offering legal advice to friends and family. Before long, he learned how to make his own bank.

The Private Bank of Denny Hardin, responsible for writing more than $160 million in bonded promissory notes to borrowers all around the country, is a two-story house on the East Side of Kansas City. Taped to the door is a notice declaring that no foreign agents are allowed to search the premises. Inside, shelf after shelf is filled with accordion folders holding the names and addresses of the people for whom Hardin, with the help of his fiancée, Melinda Harrington, has written bonds. Hardin theorizes that it’s possible to file a document that renounces one’s U.S. citizenship and instead declares what he refers to as American citizenship. By doing this, the newly declared American citizen can take possession of an account that is supposedly set up by the feds on the occasion of every person’s birth. Next, the American citizen can file a financial statement with the U.S. Secretary of State and copyright his or her name. TheAmericans Republic Party explains that with these three simple steps, it’s possible to become a sovereign with the right to cash checks from one’s established-at-birth account.

In April 2009, the Office of Inspector General at the U.S. Department of the Treasury posted a fraud alert. In 2008, Treasury agents noticed that people were sending in notes and bonds to pay their taxes. “These scams have been directed towards banks, charities, individuals, and companies which seek payment on the fraudulent securities,” the Treasury warned. In most cases, perpetrators were writing bonds with a Treasury Bureau routing number in place of a bank’s and were writing their own Social Security numbers where the checking-account numbers would normally be listed. “Fraudulent seminars are being held throughout the United States, which teach attendees how to create the aforementioned fictitious documents and how to use federal routing numbers,” the Treasury warned.

Other than the part about putting on seminars, the warning was essentially a description of Hardin’s operation. Hardin says he has never charged his clients anything more than the administrative cost of filing his notes (typically no more than $100) and has never asked for repayment on a loan. If he’s telling the truth, that’s a lot of risk for little payoff. One of Hardin’s early customers was Bob Suppenbach, who had known him when the cops took Betsy but had lost track of him. (Those were the years when Hardin was addicted to crack, Suppenbach learned.) “I ran into a mutual friend, and he told us what had happened to him.” The mutual friend then told Hardin about running into Suppenbach. “Denny came out to see us two days later and he’s been coming to the house ever since.” Suppenbach wasn’t immediately sold on Hardin’s new calling. But as a man who had his own troubles with the government, he saw the appeal. In the late 1960s, state agents removed Suppenbach and his three brothers from their mother’s care. Suppenbach says his two brothers were later molested by people who were supposed to watch out for them, and both died in the 1980s after contracting HIV. Before Hardin was busted in a drug sting, Suppenbach served four months in the U.S. Penitentiary at Leavenworth for making cable descramblers for satellite dishes. “I’m the only man in the whole damn country who’s served time in a federal prison for stealing HBO,” Suppenbach says.

He had money troubles, too. “Seems like everything I went and got involved in, for one reason or another after two or three years, got obsolete. Got into TV repair, VCR repair, then computers. Then I thought I’d try construction. I got a company set up, got all my trailers, my tools, spent thousands of dollars getting set up in construction. Then the market fell out.” Suppenbach had a $60,000 mortgage hanging over him. Then in 2006, he joined the class of plaintiffs in a multistate lawsuit against the company that supposedly held his title, Ameriquest Mortgage. The nation’s largest subprime lender settled claims of predatory lending by agreeing to pay $295 million in restitution and changing its lending practices. A year later, Suppenbach got a collection notice for the same loan from Citibank, whose parent company, Citigroup, had acquired much of Ameriquest in 2007. During last year’s bank bailout, Citigroup’s arrangement with the government ensured that about $20 billion in federal dollars would be directly invested in the company, in addition to $306 billion to help back loans and securities. “They were selling them back and forth. It didn’t matter that they defrauded me and I won in court. They got rewarded for it.”

When it comes to not knowing exactly who owns his mortgage, Suppenbach has a lot of company. In many cases, even the banks aren’t sure. (Last year, researchers at the University of Iowa found that out of 1,733 foreclosures begun in 2006, 40 percent of the foreclosing creditors showed no proof of ownership on the note or security investment in the property.) If a bank has to contest a payment’s legitimacy — for example, if payment is presented in the form of a bonded promissory note from a self-proclaimed banker — then not being able to show proof of ownership could actually help the homeowner, or at least let the homeowner delay getting kicked into the street. After Hardin’s 2009 incarceration, the Americans Republic Party Web site posted a list of other private banks. As of February, the only links were to a man named Charles Elliot in Henderson, Arkansas (who did not return The Pitch‘s calls), and J.W. Patterson, president and founder of Shadow Mountain Bank in Ash Fork, Arizona. The latter is probably the only financial institution in the country whose Web site includes links to prove it’s a real bank, along with clip art of doves carrying roses in their teeth and a teddy bear that somersaults and dances over the P.O. Box number. Patterson says the Treasury Department is just catching up. “I’ve been doing this since the ’80s,” he says.

The Private Bank of Denny Hardin is the originator of more than $160 million – in bonded promissory notes to borrowers all around the country. – Sarah Rae

Patterson says he has written bonds for thousands of people, including members of the Montana Freemen — the group that spent 81 days in a standoff with the FBI in 1996, defending land they claimed was their own, separate from the United States. (They were also known for passing counterfeit checks and money orders.) Today, the group’s most famous former member is Scott Roeder, admitted killer of Kansas abortion provider George Tiller. Patterson won’t say how many clients request his help in a given day, just that Shadow Mountain has a budget of $500 a week for ink. In Kansas City, at least one family considers Hardin an angel. In March 2009, KCTV Channel 5 aired video of a 44-year-old named Denelle Ginder-Brown, who was near tears. All around the country, people had been losing their homes. Ginder-Brown, who worked as a cashier, lived in a house on East 93rd Street near Indiana Avenue with her husband, 63-year-old James Brown, and their two children. They had lived there for 15 years and had a deal with the owner: They would make the monthly mortgage payments and eventually the house would be theirs. In 2004, the owner died and willed the house to them. They kept writing checks to Capitol Federal and never missed a payment.

But within months of the owner’s death, Capitol Federal ordered that the remaining $10,000 balance on the mortgage be paid immediately or else it would foreclose on the house. The Browns didn’t have the money. A representative from the Neighborhood Assistance Corporation of America — a group that helps families facing foreclosure — looked at the case and discovered that Capitol Federal had continued accepting payments even though it knew that the Browns’ deal wasn’t a legal sale of the property. NACA’s local director tried to work out a payment plan, but Capitol Federal refused. In a suit brought against Ginder-Brown by Capitol Federal, a judge ruled that the bank owned the property because her name was never on the title. The family was given a week to find a new place to live. Channel 5 aired the story on Monday, March 2, 2009, and the property was scheduled for auction on Monday, March 9.

On the day of the auction, Channel 5 aired a new story. This time, Denelle Ginder-Brown was smiling. Capitol Federal had relented because, as it turned out, it was only servicing a loan that was owned by Freddie Mac, which had decided to work with her on a new loan. But there was even better news. An anonymous good Samaritan had seen the Browns on the previous week’s broadcast and offered to pay the loan completely. All Ginder-Brown had to do was wait for the bank to confirm that it had received the house payment in full, and then she could see her name on the title. The moral to the story: There are good people in the world. The family’s anonymous savior was Hardin. “We got down on our knees and we prayed for God to help us because we didn’t have anything else we could do,” says Brown, who is currently on disability. “We believe God makes a way out of no way, and he sent Denny Hardin.”

At first, the Browns were skeptical of Hardin’s claims that he was a private bank. Then he gave them a packet with all the steps he had taken, what laws he had to abide by, the ordinances that must be followed. They decided their prayers had been answered. Immediately after Hardin paid their mortgage, the couple says, they received a visit from FBI agents telling them that Hardin was paying off other people’s homes with fraudulent bonds. James Brown claims that the agents asked him to inform on Hardin. But it’s hard to convince people to roll on a man sent by God to save them. The Browns believe that the status of their house is still uncertain; they claim that they’re still fighting over the initial loan disagreement. Most of their belongings are in storage, and they’re ready to move on a moment’s notice. “We’re down to the barest of essentials in here,” Brown says. “Our house is almost naked because we don’t know the final outcome. But if it hadn’t been for Denny’s help, we’d have been steamrolled right over from the start.” Since he started his bank in September 2008, Hardin says, most of the $160 million in notes that he has written have been to pay off people’s bank loans and keep them from going into foreclosure. “As far as I can tell, nobody’s lost their house who he helped,” Brown says. “He put a new roof on our house, and he saved us from being on the street, and he never asked us for a dime.”

The thing about probation-violation hearings is that they’re supposed to be simple. There are no mitigating circumstances. There are no degrees of violation. Either you broke the terms of your probation or you didn’t. Denny Hardin has a gift for making simple things complicated. At this late-summer hearing in 2009, Hardin is accused of violating a probation order restricting him from appearing in court or filing papers on behalf of anyone other than himself. The probation stems from an incident in 2006, when he camped out on the steps of the Capitol in Jefferson City and tried to arrest Lt. Gov. Peter Kinder for violating the U.S. Constitution. Hardin appears unassuming for a man who wants to bring down the federal government — a “paper terrorist,” as some agents refer to him. He is slight, with long hair and a beard, wearing blue jeans and a T-shirt that reads “Americans Republic Party” and “Don’t Tread On Me.” Along with the slogans, the shirt bears the yellow Gadsden flag — a favorite symbol among Tea Partiers — with its symbol of a coiled snake ready to strike.

The snake also appears on the chests of 30 other men and women of the Americans Republic Party who have filled the right side of the courtroom. Each one holds a black, leather-bound copy of the Constitution. The Browns are there. So is Suppenbach. Several supporters are Hardin’s bank customers. Over the course of what becomes a two-hour hearing, Hardin objects to every possible authority that the court tries to exert over him, including its authority to make him sit down. On this point, Judge Stephen Nixon concedes, and Hardin spends the trial brandishing a copy of the Constitution over his head as if it were a Bible at an exorcism. Hardin’s argument against being forced to sit down is the only victory he has today. To list each overruled objection would take more pages than a pocket Constitution. Nixon overrules with a calm that seems uncaring to the members of the Americans Republic Party and generous to the two prosecuting attorneys.

Hardin’s most minor objections involve claims that he was forced to sign documents under duress. His most sweeping denounce the legitimacy of the judge, the court, the legal systems of the state of Missouri and the United States, and the bar-admitted lawyers who have sworn allegiance to British royalty. Hardin’s followers take copious notes, recording their leader’s argument every time Nixon denies a motion. When the hearing ends, Hardin has been sentenced to five years in prison. There’s a collective gasp from Hardin’s supporters. The prosecuting attorneys and the judge are unmoved. Sentencing is always followed by a gasp. Hardin takes off his choker necklace and gives it to Harrington. “I guess now I’ll be writing that letter to the president of the United States from the Jackson County Jail,” he says, before officers escort him away in handcuffs.

In the Moberly Correctional Center, Hardin’s days are scheduled around four strict appointments. At 7:15 a.m., 11 a.m., 4 p.m. and 7 p.m., he gets a phone call from Harrington. Hardin spends time in the law library. Being incarcerated hasn’t given him second thoughts about offering his services to his fellow inmates. “My theory is that if there’s no property damage and no injured party, there’s no crime,” he tells The Pitch. “Most of the guys in here never committed a crime. It’s just the system bringing them in so it can make money off of their incarceration.” He’s certain that if he files enough motions, if he cites the right laws, he can build a chain of arguments he can follow back to the world. In Kansas City, the Americans Republic Party is confident that, any day now, Hardin will be released. “We’re all working on it and doing what we can,” James Brown says. “I think he’ll be out in a couple weeks.” Patterson, in Arizona, is also trying to help. “Probably 90 percent of the people he was helping have come to me,” Patterson says. “I’m writing a bond to try and get him out right now. Of course, he didn’t set his bank up totally right — he missed a few things, but I can help him correct it all when he gets out.” The right paperwork is crucial, Hardin says. “I have to show them I’m right. We can’t be violent. We can’t tell people to go out and get guns. We have to win with the power of our reason. We have to show them they’re wrong and we’re right.”



by Ellen Brown / January 12, 2012

An electronic database called MERS has created defects in the chain of title to over half the homes in America. Counties have been cheated out of millions of dollars in recording fees, and their title records are in hopeless disarray. Meanwhile, foreclosed and abandoned homes are blighting neighborhoods. Straightening out the records and restoring the homes to occupancy is clearly in the public interest, and the burden is on local government to do it. But how? New legal developments are presenting some innovative alternatives.

John O’Brien is Register of Deeds for Southern Essex County, Massachusetts. He calls his land registry a “crime scene.” A formal forensic audit of the properties for which he is responsible found that:

• Only 16% of the mortgage assignments were valid.
• 27% of the invalid assignments were fraudulent, 35% were “robo-signed,” and 10% violated the Massachusetts Mortgage Fraud Statute.
• The identity of financial institutions that are current owners of the mortgages could be determined for only 287 out of 473 (60%).
• There were 683 missing assignments for the 287 traced mortgages, representing approximately $180,000 in lost recording fees per 1,000 mortgages whose current ownership could be traced.

At the root of the problem is that title has been recorded in the name of a private entity called Mortgage Electronic Registration Systems (MERS). MERS is a mere place holder for the true owners, a faceless, changing pool of investors owning indeterminate portions of sliced and diced, securitized properties. Their identities have been so well hidden that their claims to title are now in doubt. According to the auditor: “What this means is that . . . the institutions, including many pension funds, that purchased these mortgages don’t actually own them”.

The March of the AGs
When Massachusetts Attorney General Martha Coakley went to court in December against MERS and five major banks—Bank of America Corp., JPMorgan Chase, Wells Fargo, Citigroup, and GMAC—John O’Brien said he was thrilled. Coakley says the banks have “undermined our public land record system through the use of MERS.” Other attorneys general are also bringing lawsuits. Delaware Attorney General Beau Biden is going after MERS in a suit seeking $10,000 per violation. “Since at least the 1600s,” he says, “real property rights have been a cornerstone of our society. MERS has raised serious questions about who owns what in America.”

Biden’s lawsuit alleges that MERS violated Delaware’s Deceptive Trade Practices Act by:
·         Hiding the true mortgage owner and removing that information from the public land records.
·         Creating a systemically important, yet inherently unreliable, mortgage database that created confusion and inappropriate assignments and foreclosures of mortgages.
·         Operating MERS through its members’ employees, whom MERS confusingly appoints as its corporate officers so that they may act on MERS’ behalf.
·         Failing to ensure the proper transfer of mortgage loan documentation to the securitization trusts, which may have resulted in the failure of securitizations to own the loans upon which they claimed to foreclose.

Legally, this last defect may be even more fatal than filing in the name of MERS in establishing a break in the chain of title to securitized properties. Mortgage-backed securities are sold to investors in packages representing interests in trusts called REMICs (Real Estate Mortgage Investment Conduits). REMICs are designed as tax shelters; but to qualify for that status, they must be “static.” Mortgages can’t be transferred in and out once the closing date has occurred. The REMIC Pooling and Servicing Agreement typically states that any transfer after the closing date is invalid. Yet few, if any, properties in foreclosure seem to have been assigned to these REMICs before the closing date, in blatant disregard of legal requirements. The whole business is quite complicated, but the bottom line is that title has been clouded not only by MERS but because the trusts purporting to foreclose do not own the properties by the terms of their own documents.

Courts Are Taking Notice
The title issues are so complicated that judges themselves have been slow to catch on, but they are increasingly waking up and taking notice. In some cases, the judge is not even waiting for the borrowers to raise lack of standing as a defense. In two cases decided in New York in December, the banks lost although their motions were either unopposed or the homeowner did not show up, and in one there was actually a default. No matter, said the court; the bank simply did not have standing to foreclose. Failure to comply with the terms of the loan documents can make an even stronger case for dismissal. InHorace vs. LaSalle, Circuit Court of Russell County, Alabama, 57-CV-2008-000362.00 (March 30, 2011), the court permanently enjoined the bank (now part of Bank of America) from foreclosing on the plaintiff’s home, stating:

[T]he court is surprised to the point of astonishment that the defendant trust (LaSalle Bank National Association) did not comply with New York Law in attempting to obtain assignment of plaintiff Horace’s note and mortgage. . . .

[P]laintiff’s motion for summary judgment is granted to the extent that defendant trust . . . is permanently enjoined from foreclosing on the property . . . .

Relief for Counties: Land Banks and Eminent Domain
The legal tide is turning against MERS and the banks, giving rise to some interesting possibilities for relief at the county level. Local governments have the power of eminent domain: they can seize real or personal property if (a) they can show that doing so is in the public interest, and (b) the owner is compensated at fair market value.

The public interest part is obvious enough. In a 20-page booklet titled “Revitalizing Foreclosed Properties with Land Banks,” the U.S. Department of Housing and Urban Development (HUD) observes: “The volume of foreclosures has become a significant problem, not only to local economies, but also to the aesthetics of neighborhoods and property values therein. At the same time, middle- to low income families continue to be priced out of the housing market while suitable housing units remain vacant.” The booklet goes on to describe an alternative being pursued by some communities: “To ameliorate the negative effects of foreclosures, some communities are creating public entities — known as land banks — to return these properties to productive reuse while simultaneously addressing the need for affordable housing.”

States named as adopting land bank legislation include Michigan, Ohio, Missouri, Georgia, Indiana, Texas, Kentucky, and Maryland. HUD notes that the federal government encourages and supports these efforts. But states can still face obstacles to acquiring and restoring the properties, including a lack of funds and difficulties clearing title. Both of these obstacles might be overcome by focusing on abandoned and foreclosed properties for which the chain of title has been broken, either by MERS or by failure to transfer the promissory note according to the terms of the trust indenture. These homes could be acquired by eminent domain both free of cost and free of adverse claims to title. The county would simply need to give notice in the local newspaper of an intent to exercise its right of eminent domain. The burden of proof would then transfer to the bank or trust claiming title. If the claimant could not prove title, the county would take the property, clear title, and either work out a fair settlement with the occupants or restore the home for rent or sale.

Even if the properties are acquired without charge, however, counties might lack the funds to restore them. Additional funds could be had by establishing a public bank that serves more functions than just those of a land bank. In a series titled “A Solution to the Foreclosure Crisis,” Michael Sauvante of the National Commonwealth Group suggests that properties obtained by eminent domain can be used as part of the capital base for a chartered, publicly-owned bank, on the model of the state-owned Bank of North Dakota. The county could deposit its revenues into this bank and use its capital and deposits to generate credit, as all chartered banks are empowered to do. This credit could then be used not just to finance property redevelopment but for other county needs, again on the model of the Bank of North Dakota. For a fuller discussion of publicly-owned banks, see

Sauvante adds that the use of eminent domain is often viewed negatively by homeowners. To overcome this prejudice, the county could exercise eminent domain on the mortgage contract rather than on title to the property. (The power of eminent domain applies both to real and to personal property rights.) Title would then remain with the homeowner. The county would just have a secured interest in the property, putting it in the shoes of the bank. It could then renegotiate reasonable terms with the homeowner, something banks have been either unwilling or unable to do. They have to get all the investor-owners to agree, a difficult task; and they have little incentive to negotiate when they can make more money on fees and credit default swaps on contracts that go into default.

Settling with the Investors
What about the rights of the investors who bought the securities allegedly backed by the foreclosed homes? The banks selling these collateralized debt obligations represented that they were protected with credit default swaps. The investors’ remedy is against the counterparties to those bets—or against the banks that sold them a bill of goods. Foreclosure defense attorney Neil Garfield says the investors are unlikely to recover on abandoned and foreclosed properties in any case. Banks and servicers can earn more when the homes are bulldozed—something that is happening in some counties—than from a sale or workout at a loss. Not only is more earned on credit default swaps and fees, but bulldozed homes tell no tales. Garfield maintains that fully a third of the investors’ money has gone into middleman profits rather than into real estate purchases. “With a complete loss no one asks for an accounting.”

Not only homes and neighborhoods but 400 years of property law are being destroyed by banker and investor greed. As Barry Ritholtz observes, the ability of a property owner to confidently convey his property is a bedrock of our society. Bailing out reckless financiers and refusing to hold them accountable has led to a fundamental breakdown in the role of government and the court system. This can be righted only by holding the 1% to the same set of laws as are applied to the 99%. Those laws include that a contract for the sale of real estate must be in writing signed by seller and buyer; that an assignment must bear the signatures required by local law; and that forging signatures gives rise to an actionable claim for fraud.

The neoliberal model that says banks can govern themselves has failed. It is up to county governments to restore the rule of law and repair the economic distress wrought behind the smokescreen of MERS. New tools at the county’s disposal—including eminent domain, land banks, and publicly-owned banks—can facilitate this local rebirth.

Ellen Brown is an attorney and president of the Public Banking Institute, In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are and


New York state enacts land bank law
by Kerry Curry / July 29, 2011

New York became the latest state Friday to enact land bank legislation to deal with the burgeoning problem of vacant and blighted properties — one of the aftereffects from the nation’s foreclosure crisis. New York Gov. Andrew Cuomo signed the law Friday in what was described as a bipartisan effort. Land banks are entities that take control of problem properties and either rehabilitate the property or bulldoze it to redevelop the land. The strategy has met with success in some of the nation’s inner cities that have been ravaged by the foreclosure crisis, such as Detroit and Cleveland. Land banks have assembled parcels for green space, urban farming, side lots, community amenities, commercial development and affordable housing, among other uses.

New York’s law will allow cities and counties across the state the ability to develop land banks, which would be tasked with converting vacant, abandoned or tax-delinquent properties into productive use. The issue is of particular importance in Western New York, where the volume of abandoned housing stock is overwhelming. Center for Community Progress President Dan Kildee, who wrote a piece on land banks for HousingWire’s August magazine, worked closely with the lawmakers who crafted the bills, which are modeled on the example of Flint, Mich., a city ravaged by the downturn in the American auto industry. The Genesee County Land Bank, created there in 1999, has been the primary vehicle for redeveloping the city’s vacant housing.

Kildee, the creator of that land bank, says he believes land banking can yield similar results for New York. He told HousingWire that the Flint land bank has acquired nearly 10,000 vacant homes since its inception, demolishing more than 1,300 of those. Its projects have included redevelopment or repurposing of 2,500 properties. Kildee said the land bank has attracted more than $60 million in new investment to Flint. “Around the country, as communities face the fallout of a changing economy and the foreclosure crisis, land banking is giving local governments the chance to help re-set the real estate market and promote sound development plans for the future,” he said. Similar legislation is up for consideration in Pennsylvania and Tennessee, while Georgia legislators are debating an update of a land banking law already on the books there, according to the Center for Community Progress.

A Solution to the Foreclosure Crisis / by Michael Sauvante

Not since the Great Depression have so many homes been seized in foreclosure proceedings. With no end in sight, our country and local communities are faced with the realization that neither Washington nor Wall Street is willing or able to solve the problem. National Commonwealth Group has developed a set of solutions that can be initiated at the local level independent of outside help. They begin with actions that just take some political will on the part of local county officials, which “political backbone” they might conveniently find with the help of local citizens action groups, the small business community and local newspapers, TV & radio.

We have defined a 6 step program that communities can put in motion. The first 4 steps represent largely mitigation efforts that can dramatically reduce the negative impact that foreclosures have on homeowners, their neighbors, the banks and the community as a whole. In some cases those steps will translate into stopping certain foreclosures outright. However, if a community wants to step them entirely, then steps 5 and 6 provide them with the means to do that. We have detailed those 6 steps in the following downloadable document entitled “Stopping Foreclosures: A Local Action Plan“. It is our understanding that not all states and counties in the country, due to local and state laws, would be able to apply these recommendations as is. Nonetheless, a sufficiently large enough segment of the states and their counties could follow these guidelines that they should start to have impact on a large number of communities impacted by the foreclosure problem. We are working with some experts in those states that have a different foundation for how foreclosures are administered to develop an alternate plan for them as well.

In the meantime, we recommend you read the “Stopping Foreclosures: A Local Action Plan” document first and then proceed to read the balance of this section, as it drills deeper into our recommendations contained in Steps 5 & 6. Steps 5 & 6 entail local governments, in particular counties and larger cities, using two sets of laws that will allow them to seize control of their local foreclosure problem and bring about a halt to the devastation they cause to the community and all participants. The first set of laws related to the eminent domain powers of government bodies and the second set of laws relate to banking. Here is a brief synopsis of those two solutions. It is followed by a more in-depth exploration of the whole topic, including a downloadable .pdf document that can be read offline.

Let us begin with the eminent domain powers of these entities. We recommend this solution be pursued primarily at the county level. Here’s why: Counties are the government entity most concerned with foreclosures in their jurisdiction, in that legal proceedings occur at the county court level and county sheriffs are the law enforcement agency tasked with carrying out evictions. The first step we recommend is that a county issues a moratorium on foreclosures within the county, along with ordering the sheriffs to discontinue any evictions (of homeowners facing foreclosure or those who move back in post foreclosure as currently promoted by Occupy Our Homes et al.). Counties can take such actions under their mandate to promote the public good.

Next, they can address the problem of MERS, the principal perpetrators of foreclosure actions against homeowners. MERS was established to bypass the normal title transfer process and costs, resulting in purported title holders unable to prove clear title. Few homeowners have the financial resources to fight foreclosures on this basis, but counties clearly have the financial muscle, ability and motivation to challenge MERS on title questions. If MERS (or any other purported title holder) cannot prove clear title, then it is in the interests of the county and the homeowner for the county to step in and seize the mortgage contract for the property under its eminent domain authority. (Note – as explained here, eminent domain can be used to not only seize real property, but personal property like contract rights and other intangible property, including mortgage contracts.) Post seizure (which costs the county virtually nothing), the county is in a position to work out new terms with the homeowner, allowing them to remain in the home and make mutually agreed upon payments. In the process, the county and all other local constituents avoid the negative impact a foreclosure has on the community and the homeowner gets to stay in the home.

The above solution could address about 50% of the pending foreclosures in the community, corresponding to the percentage of all mortgages held by MERS. If that happens in enough counties, the magnitude of the losses to MERS may well force a national solution to the title issue, but in the meantime, counties could use the process to begin to address their local foreclosure problem. That begs the question of what can be done about the mortgages held by legitimate titleholders, such as community banks, that did not resell their mortgages? A county could still exercise its eminent domain rights and seize those mortgage contracts to those properties as well. In those circumstances, eminent domain rules dictate that the county need only pay a “fair market” value for the mortgage, just as it does with any other normal eminent domain purchase. This would actually currently yield more income to the selling bank than it would see through a foreclosure auction, a plus for the bank.

{Download the full article that explores the eminent domain and county bank solution here:}

Ending Foreclosures With Local Solutions
Wall Street abuses! Inaction in Washington! Regardless of where one points the finger, the foreclosure crisis continues to devastate the American economy. Community banks are particularly hard hit, through no fault of their own, and many have failed, seized by regulators or snatched up by larger banks seemingly immune to regulatory heavy handedness. Collapsing real estate markets have a domino effect on institutions that are dependent on healthy real estate values, in particular local governments that rely on property taxes. The problem is that the players who might have a solution to the crisis are pressured in ways that exacerbate it. For example, community banks would be penalized by the FDIC and other regulators if they tried to help homeowners by renegotiating their loan payment amounts, providing them payment holidays or simply writing down the value of the loans. The federal government would have to initiate a massive new program to cover the costs to the banks that would produce, or require regulators to radically alter their rules to allow banks to take such actions without a negative impact on their own status. Neither is politically feasible. And Wall Street banks have no motivation to step in and solve the crisis that they helped to create. But there is a way out. Local governments, primarily at the county level, can exercise certain of their legal rights, including the right of eminent domain. And they can go much further if they also make creative use of existing banking laws.

Counties and Foreclosure
Most of the legal procedures associated with foreclosures occur at the county level, including legal filings, court hearings and the too familiar process of sheriffs evicting homeowners after foreclosure. This allows counties to begin implementing a solution in three simple steps:

Step 1: Counties can declare a moratorium on foreclosures on the grounds that they are economically harmful to all residents of the county, not just individual homeowners and mortgage holders. The decline in overall property values following foreclosures impacts the revenue of the county and other government entities that depend on property tax revenues. Reducing or stopping foreclosures is clearly in the public interest and is the first step in solving the problem locally.

Step 2: The county can order its sheriffs not to evict any property owner as a result of already instituted foreclosure proceedings or other parties that have moved into foreclosed homes as part of the Occupy Our Homes movement and other similar activities. That would prevent homeowners being thrown out on the street and provide homes for those already evicted.

Step 3: The county can begin working with homeowners who are under threat of foreclosure to distinguish which homeowners have mortgages primarily with local institutions versus those that have been re-sold and currently held by MERS (Mortgage Electronic Registration Systems, Inc.) or other non-local institutions. MERS is a private mortgage registry that Fannie Mae and Freddie Mac formed along with major banks to bypass public registration of deeds and facilitate the creation of mortgage-backed securities. MERS holds about half of the mortgages in the country.

The Problem with MERS
MERS was created to simplify the bundling of large numbers of individual mortgages into other financial instruments, which resulted in the breakdown of the normal process of title transfer. One reason for that was a desire by the owners of MERS to avoid title transfer costs and thus increase their profits on securitizing those mortgages. The result is that many homeowners are paying on mortgages for which no clearly defined mortgage holder can be identified.

The majority of state attorneys general are in battles with Fannie and Freddie over their unresponsiveness to homeowners’ need to reduce their debt and the imposition of foreclosures even when proper title cannot be presented. (See “Kamala Harris, California Attorney General, To Fannie And Freddie Head: ‘Step Aside’ Over Mortgage Crisis” and “Beau Biden, Delaware Attorney General, Sues Big Banks’ Mortgage Registry”) Yet in order to perfect a foreclosure claim, a mortgage holder is supposed to have clear title to the property, giving them the right to seize the property for non-performance on the part of the mortgagee (homeowner). Where clear title cannot be evidenced, the law should be on the side of the homeowner. But courts, banks and law enforcement have often run roughshod over homeowners who, without the financial resources to fight foreclosure proceedings, are often powerless to stop the juggernaut. If the purported mortgage holder cannot prove clear title, then the law is clear that the homeowner should be able to retain possession and control of their property. Yet many homeowners have been foreclosed improperly and forced out of their homes. Some homeowners have successfully prevailed in court by demanding that the foreclosing entity prove title, which in many cases they could not. Of course, such a legal battle requires financial resources that are usually missing because the homeowner is already in financial difficulties, causing the foreclosure proceedings in the first place.

Counties, MERS & Eminent Domain
This is where counties can come to the rescue. If the financial institution (typically downstream from the originating bank and rarely a community bank) cannot demonstrate clear title, the county can invoke its power of eminent domain to resolve the issue. Eminent domain allows a government entity to seize not just physical property but intangible property such as contract rights, patents, trade secrets and copyrights, provided that doing so is in the public interest and the owner is compensated at fair market value. Counties simply need to provide adequate public notice that the property is subject to eminent domain seizure. If the lender cannot provide proof of title by the end of the notice period, the county can proceed with the seizure uncontested. Since there is no identifiable party to compensate, this procedure costs the county next to nothing. Regardless of the cloud over the title prior to the seizure, clear title is once again established afterward. We have a long history of counties re-establishing clear title, as in cases where property is seized (e.g., for failure to pay taxes) and sold in what are often called “sheriff’s sales.” The title industry considers such sales to wipe out all previous title history, and any future title searches only go back to that date. As the title cost the county essentially nothing, it can negotiate terms with the homeowner that will redefine what portion of the property the homeowner is allowed to retain and also allow the homeowner to remain in the home. That could include a temporary moratorium on any payments pending improvement on the homeowner’s financial condition. At a very minimum the county can then rent the home to the (former) homeowner. (See ““Right-to-Rent”: A Simple, Sensible Idea That Dysfunctional Washington Is More Than Happy to Let Die”)

The net result of this process is:

  • Foreclosures and their negative ripple effect on the local economy are reduced.
  • More homeowners remain in their homes, helping to preserve neighborhoods.
  • The county receives new revenues.

The Moral Argument
In addition to the economic benefits of stopping foreclosures, this process addresses the fact that the MERS system was designed to skirt legal procedures in pursuit of profit. The foreclosure crisis stands at the very center of our economic woes, and since the federal government appears incapable or unwilling to address this problem, this solution lies with local communities. The nature of free market capitalism is that you risk losing your investment. If, like the owners of MERS, you do so because you played fast and loose with the rules, then taxpayers especially should not be required to bail you out, as MERS owners might demand if their system starts to significantly unravel.

What About Legitimate Mortgages?
What can the county do when the titleholder is a financial institution, like a community bank, that normally does not re-sell its mortgages? The county can still exercise eminent domain and seize the property, paying fair market price. Actually, were the bank to be paid the current appraised value for the property, it would in most cases come out financially ahead of what it could realize from a foreclosure sale. How does the county finance the eminent domain purchase of a property at fair market value? Currently, that means borrowing the funds from other institutions and repaying them out of tax revenues and/or the revenues realized from payments by the homeowners. One could argue that the revenue from all of the properties seized (both the MERS properties and those bought for full market value) should be adequate to service the debt. But the county has another tool that allows it to go far beyond financing seized properties and into facilitating the larger credit needs of the county and its residents. That solution is called Public Banking. See the section entitled Public Banking to see what it is and how we can use the concept to get credit flowing in our communities again and to free us up from the tyranny of the Wall Street banks.

Start Now
At the very least county administrators should be petitioned to place a moratorium on local foreclosures and exercise the eminent domain seizure of those foreclosure candidate properties for which no clear titleholder can be established. That will require no new systems at the county level and will go a long ways to ending the devastation of foreclosure.


Revitalizing Blighted Communities with Land Banks / by Jessica de Wit

A land bank is a public authority created to efficiently hold, manage and develop tax-foreclosed property.(1) Land banks act as a legal and financial mechanism to transform vacant, abandoned and tax-foreclosed property back to productive use. Generally, land banks are funded by local governments’ budgets or the management and disposition of tax-foreclosed property.(2) In addition, a land bank is a powerful locational incentive, which encourages redevelopment in older communities that generally have little available land and neighborhoods that have been blighted by an out-migration of residents and businesses.(3) While a land bank provides short-term fiscal benefits, it can also act as a tool for planning long-term community development. Successful land bank programs revitalize blighted neighborhoods and direct reinvestment back into these neighborhoods to support their long-term community vision.

Why have a land bank?
Land is one of the most important factors in local economic development today and must be managed well to improve existing land use practices, enhance livability of communities, and support local community development.(4) In recent surveys, the Brookings Institute found that on average 15% of the land in major American cities is vacant.(5) Vacant and abandoned land does not produce sufficient property tax revenue for cities, which generally is their main revenue source. This lack of funds impedes a city’s ability to sustain its operations, programs, and services. In addition, vacant and abandoned land discourages property ownership, depresses property values, attracts crime and creates health hazards.

To understand why it is important to have a land bank, it is necessary to assess the costly impact of vacant and abandoned land in communities. When there are vacant and abandoned properties in communities, neighboring property owners and the municipalities incur significant costs. The U.S. Fire Administration reports that over 12,000 vacant structure fires are reported each year in the U.S., which results in $73 million in property damage annually.(6) In addition, abandoned properties tend to attract crime. A 1993 study of 59 abandoned properties in Austin, Texas, found that 34 percent were used for illegal activities and of the 41 percent that were unsecured, 83 percent were used for illegal activities.(7) This crime drains police department resources and leaves residents feeling unsafe in their own neighborhoods.

When property owners neglect and abandon their properties, the local municipality must use its own resources to clean and maintain the properties as part of their nuisance abatement responsibilities to protect the public health, safety and welfare of its community. For example, from 1999 to 2004, St. Louis spent $15.5 million, which equates to nearly $100 per household, to demolish vacant buildings.(8) Detroit spends roughly $800,000 per year to clean vacant lots.(9) Abandoned and vacant properties drive down the surrounding property values, which lowers the property taxes that most municipalities rely on as a primary source of revenue.

Property abandonment can destabilize a neighborhood by causing an out-migration of property owners, who are worried about losing value on their properties due to surrounding vacant and abandoned land. A Temple University study suggests that, all things being equal, the presence of an abandoned house on a block reduces the value of all the other property by an average of $6,720.(10) According to Emory University Professor Frank Alexander’s research, “failure of cities to collect even 2 to 4 percent of property taxes because of delinquencies and abandonment translates into $3 billion to $6 billion in lost revenues to local governments and school districts annually.”(11) While it is difficult to quantify all of the costs associated with vacant and abandoned properties, it is clear that they place a tremendous cost burden on communities.

Land Bank Benefits
While abandoned and vacant properties depress property values, discourage property ownership, and attract criminal activities in the surrounding area, a land bank provides tools to quickly turn these tax-reverted properties back into usable parcels that reinvest in the community’s long-term vision for its neighborhoods. Land bank programs act as an economic and community development tool to revitalize blighted neighborhoods and business districts. Land banks can benefit urban schools, improve tax revenues, expand housing opportunities, remove public nuisances, assist in crime prevention and promote economic development.(12)

Source: 2004 Kirwan Institute for Study of Race & Ethnicity, Ohio State University.

By transferring vacant and abandoned properties to responsible land owners through a land bank program, local governments benefit because they avoid the significant cost burden of property maintenance, like mowing and snow removal, as part of their nuisance abatement responsibilities. In addition, local governments benefit from increased revenue because the new property owners pay taxes on the property. Also, the local schools benefit because they receive more funding when there is an increase in property owners in their school districts. Land bank programs can increase the variety of mixed-income housing offered and provide more opportunities for affordable housing. Also, land bank properties, which become owner-occupied, discourage criminal activity thereby benefiting public safety and decreasing the cost burden on the local police and fire departments. Finally, the more residents and businesses that occupy property in a neighborhood, the more services and amenities will be needed, which boosts local economic activity. Many cities, like Atlanta, GA; St. Louis, MO; Genesee County, MI; and Cleveland, OH; have established land bank programs to redevelop vacant and abandoned land as a productive use for their communities. These communities are using land banks as a tool to reuse their urban land and stimulate economic development and neighborhood revitalization.

Land Bank Challenges
While there are many benefits to establishing land banks in communities, there are also many challenges in operating and maintaining them. Several U.S. municipalities have had challenges with running their land banks. Atlanta’s land bank has a lack of sufficient acquisition funds for both Community Development Corporations (CDC) and the land bank authority (LBA).(13) In addition, they have a need for ongoing improvement coordination among community development departments of local governments, the LBA and the Tax Commissioner.(14)

Cleveland’s land bank challenges are the capitalization of projects, the CDC’s limited capacity to take and rehab land acquired from the land bank and the time consuming administrative procedures, including the legislative process and aldermanic approvals.(15) CDCs want the City to go beyond supporting primarily tax-delinquent vacant properties and take the lead on tax-delinquent properties that have existing structures and the possibility of environmental contamination.(16)

Genesee County’s land bank challenges are whether urban tax-reverted properties have enough value to be purchased, even with the latest Land Bank Fast Track legislation.(17) In addition, there are concerns whether there will be enough revenue generated by the sale of these properties to pay the costs associated with administering a Redevelopment Fast Track Authority.(18)

Case Study: Michigan’s Land Banking Enabling Legislation
To better understand how land bank programs work, it is helpful to review a case study. Following is a case study of Michigan’s Land Bank Enabling Legislation and Michigan’s Genesee County land bank program. It is important to first review a State’s particular Land Bank Enabling Legislation because these laws provide land bank programs with the legal and financial tools needed to operate and maintain a land bank. Prior to January 2004, Michigan’s tax foreclosure laws on abandoned properties were ineffective because local governments did not have the authority to effectively manage tax-reverted land and prevent blight. Now, Michigan has one of the most progressive land banking laws in the nation.(19)

In January 2004, Governor Granholm signed into law the Land Bank Fast Track Legislation, Public Act (PA) 258, to provide communities with better legal and financial tools to put vacant and abandoned properties back into productive use.(20) This law establishes a state land bank authority while also enabling the establishment of city and county land bank authorities.(21) In addition, the law permits these authorities to expedite quiet title on properties, which it possesses, and make them available at nominal prices for productive reuse in the community.(22) The quiet title process is a legal action that eliminates all liens and past claims on a property and clears the title so a new owner may purchase the property without worrying about any unresolved claims.

In conjunction with PA 258, the Governor also signed into law four other related Public Acts:

PA 259 amends the Michigan Brownfield Redevelopment Act to allow any land bank authority owned property to be defined as “blighted property”, which enables a tax increment financing board to provide assistance to a land bank authority with clearing or quieting a title, and disposing of property owned or held by a land bank authority.(23)

PA 261 creates the Property Tax Exemption Act, which exempts property, with titles held by land bank authority, from taxes and exempts property sold by a land bank authority from general property taxes for five years.(24)

PA 260 creates the Tax Reverted Clean Title Act to impose a specific tax, which would have the same rate of general property taxes for five years, on property sold by a land bank fast track authority. While one half of the revenue from this specific tax funds an authority’s title clearance and land disposition costs, the remaining half is earmarked for local and state collecting units on a pro-rata basis.(25)

PA 263 amends the General Property Tax Act to permit a foreclosing governmental unit to request a title product other than an unreliable title search to identify the owners of tax delinquent properties at the time of foreclosure and describe a reasonable process for identifying these owners and providing public notice to them.(26)

Michigan’s Genesee County Land Bank
In Michigan, Genesee County has been a leader in creating a successful land banking program. Under the Genesee County Land Bank Authority, tax foreclosed properties are held for a period of time before being returned to the market. This allows for the grouping of parcels together to provide a more attractive resale opportunity and the assessment of potential property owners to ensure that they will contribute to the long-term vision of the community.

The Genesee County Land Bank Authority has acquired title to more than 3400 land parcels, including nearly 6% in the City of Flint in the first three years of the program.(27) They have successfully transferred 130 foreclosed tenant occupied properties to non-profit housing agencies, whose goal is to stabilize neighborhoods and encourage home ownership.(28) In addition, the LBA has redeveloped a 30,000 sq. ft. mixed use building in downtown Flint, which has been empty since 1980, and they have assembled hundreds of empty lots for city development projects and local non-profit and community organization projects.(29)

Land Banks as a Smart Growth Planning Tool
While other cities’ land bank programs, like St. Louis, have been used primarily as a fiscal tool to stimulate growth in their communities, Genesee County’s land bank program has been used as a planning tool to align with their communities’ long-term redevelopment plans that provide the greatest benefit. When Michigan’s Governor Granholm signed the latest land bank legislation in 2004, she said, “Together these new laws will help local planning officials to look at an entire area or region when developing land use plans.”(30) In addition, the Governor said, “To make headway against urban sprawl, we must think regionally and use new tools.”(31) Land bank programs are one of these smart growth tools that counter sprawl and revitalize the inner core of Michigan’s cities. Based on Governor Granholm’s state-wide smart growth goals, it is imperative that Michigan communities focus on city and region-wide planning instead of just fiscal objectives when implementing land bank programs.

References and related links
1) 2005. Smart Growth Tactics. Michigan Society of Planning, January.
2) Brooks, Amy; Collins, Demetria; Eichmuller, Barbara; Tintocalis, Melissa; van Leeuwen, Simon. 2004. Harnessing Community Assets: A Detroit Land Bank Authority. Taubman College of Architecture & Urban Planning, University of Michigan, April.
3) Blakely, Edward and Bradshaw, Ted. 2002. Planning Local Economic Development. California: Sage Publications.
4) Ibid.
5) Pagano, M. & Bowman, A. 2000. Vacant Land in Cities: An Urban Resource, Survey Series. The Brookings Institute.
6) 2004. Vacant Properties and Smart Growth: Creating Opportunity from Abandonment. Funder’s Network For Smart Growth and Livable Communities, September.
7) Ibid.
8) Ibid.
9) Ibid.
10) Ibid.
11) Ibid.
12) 2004. The Multiple Benefits of Land Banking and Comprehensive Land Bank Planning for Detroit. Kirwin Institute for the Study of Race & Ethnicity, Ohio State University, April.
13) Local Initiatives Support Corporation. 2005. Atlanta Case Study: Model Practices in Tax Foreclosure and Property Disposition. Retrieved from
14) Ibid.
15) Local Initiatives Support Corporation. 2005. Cleveland Case Study: Model Practices in Tax Foreclosure and Property Disposition. Retrieved from
16) Ibid.
17) Wyckoff, Mark. 2003. All Communities to Benefit from New Land Use Legislation. Planning & Zoning News, December.
18) Ibid.
19) 2005. Smart Growth Tactics. Michigan Society of Planning, January.
20) Brooks, Amy; Collins, Demetria; Eichmuller, Barbara; Tintocalis, Melissa; van Leeuwen, Simon. 2004. Harnessing Community Assets: A Detroit Land Bank Authority. Taubman College of Architecture & Urban Planning, University of Michigan, April.
21) Ibid.
22) Ibid.
23) 2005. Smart Growth Tactics. Michigan Society of Planning, January.
24) Brooks, Amy; Collins, Demetria; Eichmuller, Barbara; Tintocalis, Melissa; van Leeuwen, Simon. 2004. Harnessing Community Assets: A Detroit Land Bank Authority. Taubman College of Architecture & Urban Planning, University of Michigan, April.
25) Wyckoff, Mark. 2003. All Communities to Benefit from New Land Use Legislation. Planning & Zoning News, December.
26) Ibid.
27) 2005. Smart Growth Tactics. Michigan Society of Planning, January.
28) Ibid.
29) Ibid.
30) Crowell, Charlene. 2004. In Lansing, A Legislative Breakthrough. Michigan Land Use Institute. Retrieved from
31) Ibid.

A revolutionary who won over Victorian liberals
by Tristram Hunt / 20 September 2004

While land reform has been alive in British radical thinking since 1066, it was an American who managed to craft the first credible programme for change. Medieval critics of the “Norman Yoke”, the Diggers and Levellers of the English civil war, and the 18th-century opponents of land enclosure had all longed without success for the return of a golden age in which land would be equitably distributed according to need. But the campaigning California journalist Henry George transformed nostalgia into public policy with a tour through 1880s Britain, energising public opinion and making land reform the foundation stone of progressive politics.

Late 19th-century Britain enjoyed a wealth of radical debate. New ideas, new movements and new leaders were systematically unpicking the intellectual hegemony of mid-Victorian laissez-faire. In the town halls of Birmingham, Glasgow and London, the coming creed of municipal socialism was displaying the practical benefits of an activist council; the works of Marx and Engels were being translated and distributed; even John Stuart Mill, the high priest of negative liberty, was turning his attention in “Chapters on Socialism” towards a future ideal of communal harmony. Mill showed that forms of property ownership, rather than being the sacrosanct foundations of modern society, simply reflected the cultural ethos of each civilisation. Private property had no unimpeachable status.

At the same time, there was a growing awareness that the wealth wrought by the industrial revolution and empire was not being evenly spread. The 1880s downturn witnessed the rediscovery of poverty as the dark continents of outcast London, Manchester and Liverpool were traversed by growing numbers of journalists and social investigators. While W T Stead exposed in the Pall Mall Gazette the immoral underbelly of the capital, Charles Booth walked the streets of the East End to discover rates of poverty far higher than even the socialists had predicted. As Beatrice Webb put it, there was “a growing uneasiness . . . that the industrial organisation, which had yielded rent, interest, and profits on a stupendous scale, had failed to provide a decent livelihood and tolerable conditions for a majority of the inhabitants of Great Britain”.

Into this fertile intellectual terrain stepped Henry George to deliver a series of lectures on his book, Progress and Poverty (1879). Initially employed in Ireland as an American correspondent for Irish World, he soon immersed himself in Irish politics and caught the nationalists’ attention with his case for land reform. He was arrested for speaking out against the British – a political coup which made his eventual entry into British public life all the more anticipated. Thousands turned up to hear his lectures; tens of thousands read his book.

After 80 years of economic growth, George considered that “the association of poverty with progress [is] the great enigma of the day”. Moreover, it was in the most highly developed capitalist economies such as the United States and Great Britain that were found “the deepest poverty, the sharpest struggle for existence, the most enforced idleness”. An Atlanticist radical in the vein of Paine and Cobbett, George identified the problem as one of monopoly. (Lizzie Magie, the future inventor of the board game Monopoly, was a keen follower of George.) Where the “natural” means of production had been privately appropriated, rent absorbed all increases in the nation’s wealth. The monopoly of land caused fundamental inequality and poverty, because whenever there was an increase in efficiency the profits would go not to the workers – or even to the capitalists – but to the landlords. Such a grotesque monopoly of wealth was clearly in opposition to natural law. No man made the land, and by ancient right and custom it should not be permanently alienated from the nation at large. As a monopoly, held in trust for the people, land must be made to bear its fair obligations to the public weal.

George’s solution was a land-value tax, a “single tax” that would both confiscate the rent from land and remove all other forms of taxation. This would enable progress to alleviate poverty, as economic growth would be distributed more widely and a land tax would also allow for the subsidy of a vast network of public services, from utilities and housing to culture. The clarity of George’s proposals and the power of his rhetoric pushed land reform to the top of political debate. J A Hobson declared that George “exercised a more directly powerful, formative and educative influence over English radicalism of the last 15 years than any other man”. Both liberals and socialists were drawn to his ideas. In the Fabian pamphlet Capital and Land, Sydney Olivier proposed that the landlords’ “unearned increment” ought to be confiscated through taxation. Reform movements such as the Land Nationalisation Society and the English Land Restoration League sprang up around George’s public meetings, while the Marxists of the Social Democratic Federation were clearly attracted to the nationalisation argument.

Yet George was ambivalent about full-blooded socialism. The management of land through market mechanisms such as taxation, rather than government control, was his favoured option for reform. This explains why so many liberals were equally drawn to Progress and Poverty. Joseph Chamberlain declared himself “electrified” by the book and the ensuing Radical Programme reflected this pressing concern with the land question. The liberal Winston Churchill argued that the land monopoly was detrimental to the public interest, while Herbert Asquith supported Lloyd George’s proposal “to free the land that from this very hour is shackled with the chains of feudalism”.

Views from a Georgist Ecologist

Land Value Tax, which is in my opinion the Holy Grail of legislative changes to protect wildlife, is the simplest expression of the Economic theories of Henry George. This theory goes that if we abolish all harmful taxes on our hard work and trade and instead charge a rent for the use of natural resources such as Land we will not waste them or allow private interests to exploit the rest of humanities access to them.
Such a tax would not only stimulate jobs and enterprise but put a value on all of our natural resources and force us to look after them. If it was implemented for agricultural land, where the lower value of perpetually designated wilderness or natural grazing land is reflected in its land value taxation, it would be the surest way to save the wildlife of the UK and for the least cost to the taxpayer”.

This would mean hard to farm areas, steep banks, riverbanks, rocky outcrops and areas landowners want to designate a nature reserves, which must be legally binding, could be set aside for wildlife and as such attract no taxation. The result of this would be that unproductive and marginal land would become wildlife havens and receive long term protection for future generation to enjoy.

by Jill Lepore / October 15, 2011

Henry George, the most popular American economic thinker of the 19th century, was a populist before populism had a name. His economic plan was known as the Single Tax. George was born in Philadelphia in 1839. He left school at 14 to sail to India and Australia on board a ship called the Hindoo. At the time, a lot of people were writing about India as a place of jewels and romance; George was struck by its poverty. Returning to Philadelphia, he became a printer’s apprentice. He went to New York where he saw, for the first time, “the shocking contrast between monstrous wealth and debasing want.” In 1858, he joined the crew of a ship sailing around the Cape Horn because it was the only way he could afford to get to California. In San Francisco, he edited a newspaper; it soon failed. He spent most of his life editing newspapers, and, as with every other industry in the 19th century, many of them failed. In 1865, George was reduced to begging in the streets.

The 19th century was the Age of Progress: the steam engine, the power loom, the railroad. (Awestruck wonder at progress animated that era the way the obsession with innovation animates American politics today.) George believed that the other side of progress was poverty. The railroad crossed the continent in 1869. From the West, George wrote an essay called “What the Railroad Will Bring Us.” His answer: the rich will get richer and the poor will get poorer. In a Fourth of July oration in 1877, George declared, “no nation can be freer than its most oppressed, richer than its poorest, wiser than its most ignorant.” In 1879, George finished a draft of his most important book. “Discovery upon discovery, and invention after invention, have neither lessened the toil of those who most need respite, nor brought plenty to the poor,” George wrote. He thought the solution was to abolish all taxes on labor and instead impose a single tax, on land. He sent the manuscript to New York. When no one would publish it, he set the type himself and begged publishers simply to ink his plates. The book, “Progress and Poverty,” sold three million copies.

George was neither a socialist nor a communist; he influenced Tolstoy but he disagreed with Marx. He saw himself as defending “the Republicanism of Jefferson and the Democracy of Jackson.” He had a bit of Melville in him (the sailor) and some of Thoreau (“We do not ride on the railroad,” Thoreau wrote from Walden. “It rides upon us.”) But, really, he was a Tocquevillian. Tocqueville believed that democracy in America was made possible by economic equality: people with equal estates will eventually fight for, and win, equal political rights. George agreed. But he thought that speculative, industrial capitalism was destroying democracy by making economic equality impossible. A land tax would solve all.

In 1886, George decided to run for mayor of New York. Democrats urged him not to, telling him he had no chance and would only raise hell. “You have relieved me of embarrassment,” George answered. “I do not want the responsibility and the work of the office of the Mayor of New York, but I do want to raise hell.” The Democrat, Abram Hewitt, won, but George got more votes than the Republican, Theodore Roosevelt.

In the 1880s, George campaigned for the single tax, free trade and ballot reform. The last succeeded. George is why, on Election Day, your polling place supplies you with a ballot that you mark in secret. This is known as an Australian ballot, and George brought it back from his voyage halfway around the world. George ran for mayor of New York again in 1897 but died in his bed four days before the election. His body lay in state at Grand Central. More than 100,000 mourners came to pay their respects. The New York Times said, “Not even Lincoln had a more glorious death.” And then: he was left behind. Even Clarence Darrow, who admired him, recanted. “The error I found in the philosophy of Henry George,” Darrow wrote, “was its cocksureness, its simplicity, and the small value that it placed on the selfish motives of men.”

This image (from a Henry George Cigar box) reflects George’s fame at the time of his run for the Mayoralty of New York in 1886 (and later in 1897). George outpolled a young Theodore Roosevelt, but lost to machine Democrat Abraham Hewitt. The rooster was George’s campaign icon, and his slogan was “The democracy of Thomas Jefferson. And although the cigars were advertised “for men”, George was in fact an outspoken advocate for women’s suffrage.

by Agnes George de Mille  /  January, 1979

A hundred years ago a young unknown printer in San Francisco wrote a book he calledProgress and Poverty. He wrote after his daily working hours, in the only leisure open to him for writing. He had no real training in political economy. Indeed he had stopped schooling in the seventh grade in his native Philadelphia, and shipped before the mast as a cabin boy, making a complete voyage around the world. Three years later, he was halfway through a second voyage as able seaman when he left the ship in San Francisco and went to work as a journeyman printer. After that he took whatever honest job came to hand. All he knew of economics were the basic rules of Adam Smith, David Ricardo, and other economists, and the new philosophies of Herbert Spencer and John Stuart Mill, much of which he gleaned from reading in public libraries and from his own painstakingly amassed library. Marx was yet to be translated into English.

George was endowed for his job. He was curious and he was alertly attentive to all that went on around him. He had that rarest of all attributes in the scholar and historian that gift without which all education is useless. He had mother wit. He read what he needed to read, and he understood what he read. And he was fortunate; he lived and worked in a rapidly developing society. George had the unique opportunity of studying the formation of a civilization — the change of an encampment into a thriving metropolis. He saw a city of tents and mud change into a fine town of paved streets and decent housing, with tramways and buses. And as he saw the beginning of wealth, he noted the first appearance of pauperism. He saw degradation forming as he saw the advent of leisure and affluence, and he felt compelled to discover why they arose concurrently. The result of his inquiry,Progress and Poverty, is written simply, but so beautifully that it has been compared to the very greatest works of the English language. But George was totally unknown, and so no one would print his book. He and his friends, also printers, set the type themselves and ran off an author’s edition which eventually found its way into the hands of a New York publisher, D. Appleton & Co. An English edition soon followed which aroused enormous interest. Alfred Russel Wallace, the English scientist and writer, pronounced it “the most remarkable and important book of the present century.” It was not long before George was known internationally.

During his lifetime, he became the third most famous man in the United States, only surpassed in public acclaim by Thomas Edison and Mark Twain. George was translated into almost every language that knew print, and some of the greatest, most influential thinkers of his time paid tribute. Leo Tolstoy’s appreciation stressed the logic of George’s exposition: “The chief weapon against the teaching of Henry George was that which is always used against irrefutable and self-evident truths. This method, which is still being applied in relation to George, was that of hushing up …. People do not argue with the teaching of George, they simply do not know it.” John Dewey fervently stressed the originality of George’s work, stating that, “Henry George is one of a small number of definitely original social philosophers that the world has produced,” and “It would require less than the fingers of the two hands to enumerate those who, from Plato down, rank with Henry George among the world’s social philosophers.” And Bernard Shaw, in a letter to my mother, Anna George, years later wrote, “Your father found me a literary dilettante and militant rationalist in religion, and a barren rascal at that. By turning my mind to economics he made a man of me….”Inevitably he was reviled as well as idolized. The men who believed in what he advocated called themselves disciples, and they were in fact nothing less: working to the death, proclaiming, advocating, haranguing, and proselytizing the idea. But it was not implemented by blood, as was communism, and so was not forced on people’s attention. Shortly after George’s death, it dropped out of the political field. Once a badge of honor, the title, “Single Taxer,” came into general disuse. Except in Australia and New Zealand, Taiwan and Hong Kong and scattered cities around the world, his plan of social action has been neglected while those of Marx, Keynes, Galbraith and Friedman have won great attention, and Marx’s has been given partial implementation, for a time, at least, in large areas of the globe. But nothing that has been tried satisfies. We, the people, are locked in a death grapple and nothing our leaders offer, or are willing to offer, mitigates our troubles. George said, “The people must think because the people alone can act.” We have reached the deplorable circumstance where in large measure a very powerful few are in possession of the earth’s resources, the land and its riches and all the franchises and other privileges that yield a return. These positions are maintained virtually without taxation; they are immune to the demands made on others. The very poor, who have nothing, are the object of compulsory charity. And the rest — the workers, the middle-class, the backbone of the country — are made to support the lot by their labor.

We are taxed at every point of our lives, on everything we earn, on everything we save, on much that we inherit, on much that we buy at every stage of the manufacture and on the final purchase. The taxes are punishing, crippling, demoralizing. Also they are, to a great extent, unnecessary. But our system, in which state and federal taxes are interlocked, is deeply entrenched and hard to correct. Moreover, it survives because it is based on bewilderment; it is maintained in a manner so bizarre and intricate that it is impossible for the ordinary citizen to know what he owes his government except with highly paid help. We support a large section of our government (the Internal Revenue Service) to prove that we are breaking our own laws. And we support a large profession (tax lawyers) to protect us from our own employees. College courses are given to explain the tax forms which would otherwise be quite unintelligible. All this is galling and destructive, but it is still, in a measure, superficial. The great sinister fact, the one that we must live with, is that we are yielding up sovereignty. The nation is no longer comprised of the thirteen original states, nor of the thirty-seven younger sister states, but of the real powers: the cartels, the corporations. Owning the bulk of our productive resources, they are the issue of that concentration of ownership that George saw evolving, and warned against. These multinationals are not American any more. Transcending nations, they serve not their country’s interests, but their own. They manipulate our tax policies to help themselves. They determine our statecraft. They are autonomous. They do not need to coin money or raise armies. They use ours. And in opposition rise up the great labor unions. In the meantime, the bureaucracy, both federal and local, supported by the deadly opposing factions, legislate themselves mounting power never originally intended for our government and exert a ubiquitous influence which can be, and often is, corrupt.

I do not wish to be misunderstood as falling into the trap of the socialists and communists who condemn all privately owned business, all factories, all machinery and organizations for producing wealth. There is nothing wrong with private corporations owning the means of producing wealth. Georgists believe in private enterprise, and in its virtues and incentives to produce at maximum efficiency. It is the insidious linking together of special privilege, the unjust outright private ownership of natural or public resources, monopolies, franchises, that produce unfair domination and autocracy. The means of producing wealth differ at the root: some is thieved from the people and some is honestly earned. George differentiated; Marx did not. The consequences of our failure to discern lie at the heart of our trouble. This clown civilization is ours. We chose this of our own free will, in our own free democracy, with all the means to legislate intelligently readily at hand. We chose this because it suited a few people to have us do so. They counted on our mental indolence and we freely and obediently conformed. We chose not to think.

Henry George was a lucid voice, direct and bold, that pointed out basic truths, that cut through the confusion which developed like rot. Each age has known such diseases and each age has gone down for lack of understanding. It is not valid to say that our times are more complex than ages past and therefore the solution must be more complex. The problems are, on the whole, the same. The fact that we now have electricity and computers does not in any way controvert the fact that we can succumb to the injustices that toppled Rome.To avert such a calamity, to eliminate involuntary poverty and unemployment, and to enable each individual to attain his maximum potential, George wrote his extraordinary treatise a hundred years ago. His ideas stand: he who makes should have; he who saves should enjoy; what the community produces belongs to the community for communal uses; and God’s earth, all of it, is the right of the people who inhabit the earth. In the words of Thomas Jefferson, “The earth belongs in usufruct to the living.” This is simple and this is unanswerable. The ramifications may not be simple but they do not alter the fundamental logic. There never has been a time in our history when we have needed so sorely to hear good sense, to learn to define terms exactly, to draw reasonable conclusions. As George said, “The truth that I have tried to make clear will not find easy acceptance. If that could be, it would have been accepted long ago. If that could be, it would never have been obscured.” We are on the brink. It is possible to have another Dark Ages. But in George there is a voice of hope.




“the scene of so many crimes: want to add accusations to this non-comprehensive tour? please ‘submit a report’ above to add a new address, or add additional links to existing addresses as comments. ideally locations are in walking distance of liberty plaza. historical sites and current business addresses are both appropriate, as are broader sites ‘of interest’. and thank you for assisting the many visitors to New York City learn about modern finance.”


Wall Street is a highly influential financial district but its history is rarely talked about. In order to understand the largesse of Wall Street and the system of global capitalism, it is crucial to know Wall Street’s history. Wall Street was founded on slavery and, to this day, it remains a key pillar in upholding racial inequality and economic oppression.

New York City was a Dutch settlement known as New Amsterdam in the Dutch colonial province called New Netherland during much of the 17th century. Through the Dutch West India Company, the Dutch utilized labor of enslaved Africans who were first brought to colony around 1627. The African slaves built the wall that gives Wall Street its name, forming the northern boundary of the colony and warded off resisting natives who wanted their land back. In addition, the slaves cleared the forests, built roads and buildings, and turned up the soil for farming. Slavery was not phenomenon limited to the southern American colonies. Northern colonies, such as Boston and New York, participated in the trans-Atlantic slave trade.

Harper’s Magazine illustration of the New York City slave market in 1643.

In 1664, control of the colony was handed over Britain and New Amsterdam was renamed New York in honor of James II, the Duke of York. The Royal African Company had a royal monopoly on the British slave trade and James II was a major shareholder. With the Dutch gone, the British maintained the system of slavery in New York. They immediately created a series of laws to protect it. In 1665, a law was passed that legalized slavery. In 1682, slave masters were given the power of life-and-death over their slaves. Twenty years later, in 1702, New York adopted its first comprehensive slave code and it equated slave status with being African. The entire system of slavery was justified by an ideology of white supremacy that considers black Africans inferior and white Europeans superior — an ideology that still exists.

Slavery became the backbone of New York’s economic prosperity in the 1700s. To normalize this massive trade in human beings, in 1711, New York officials established a slave market on Wall Street. Slave auctions were held at Wall Street selling African slaves as property to traders wanting to buy them. Between 1700 and 1722, over 5,000 African slaves entered New York, most of whom came directly from Africa, while the rest from British colonies in the Caribbean and southern colonies. Throughout the 17th and 18th centuries, as Phyllis Eckhaus points out, New York had “the largest urban slave population in mainland North America”. Therefore, New York was a crucial location in the trans-Atlantic slave trade, which established it as the world’s financial capital. Many well-known companies and financial institutions benefitted from the trans-Atlantic slave trade.They include Lehman Brothers (which went bankrupt in 2008), J.P. Morgan Chase, Wachovia Bank of North Carolina, Aetna Insurance, Bank of America, and the Royal Bank of Scotland. Banks, such as Wachovia’s predecessors Bank of Charleston, South Carolina, and the Bank of North America, and J.P. Morgan Chase’s predecessor banks, made loans to slave owners and accepted slaves as “collateral”. When the slave owners defaulted on their loans, the banks became the new owners. The Lehman family members who established Lehman Brothers started their company to trade and invest in cotton, a cash crop produced by African slaves. Aetna sold insurance to slave owners who wanted to protect their investments in slaves aboard slave ships in case one of them died (this was a very common occurrence as millions of African slaves died on ships carrying them from Africa to the Americas). The insurance company’s policies compensated slave owners for the loss of people who were considered “property”. To this day, there are lawsuits against these corporations to seek reparations for their participation in the trans-Atlantic slave trade.

Detail of the plaque with the Burgis map image of the Wall Street Slave Market

The trans-Atlantic slave trade built the foundation for modern global capitalism. Millions of Africans (somewhere between 12 to 30 million or more) were ripped away from their homes in Africa to work as slaves in European colonies in North and South America and the Caribbean. Unlike native Americans and other white Europeans, free African labor was plentiful (if one died, they could be replaced with another from Africa), Africans had no connections to American lands, and they knew how to grow essential cash crops like cotton and sugar that grew in both Africa and the Caribbean and southeastern United States. These factors made Africans the perfect slave labor force for European colonial powers. The slaves, along with performing many other services, were used to produce commodities that were sold in international markets for a profit (a characteristic of modern capitalism). In addition, slaves, themselves, were considered property and sold on markets. The benefits of this went to slave owners and investors — not the slaves. As a result, wealth was transferred from black African slaves (and their descendants) to white European slave owners and other whites who benefitted from this system (this laid the foundation for current wealth inequality between whites and blacks). This ensured that blacks would remain socioeconomically subordinate to whites for generations to come. Slavery went on for nearly 300 years from the sixteenth century to the mid-nineteenth century when Britain, America, and other countries that participated in the trans-Atlantic slave trade abolished it. Even after it ended, the foundation of modern capitalism and racial inequality was already built.

The end of slavery brought new political rights for black people in America, such as the right to vote. However, these political rights were very limited, particularly under the Jim Crow system in the American South. This system barred blacks from voting, segregated them in inferior schools, confined them to low-paying jobs, discriminated against them in numerous areas of life, and perpetuated heinous acts of racist violence against black people, such as lynching. While northern states did not have a de jure system of racial discrimination, there was similar de facto racial discrimination in housing and employment. The civil rights movement of the 1950s and ’60s eliminated legalized racial discrimination with the Civil Rights Act of 1964 and Voting Rights Act of 1965, thereby dealing a deathblow to Jim Crow. Despite the end of slavery and advancements of the civil rights movement, African-Americans remain socioeconomically oppressed. Black people disproportionately suffer more poverty, unemployment, and socioeconomic misery compared to whites and other ethnic groups. As of December 2011,unemployment for African-Americans is 15.8%, the same as it was at the beginning of 2011. While unemployment for whites is 7.5%, down from 8.5% at the beginning of the year. According to the Census Bureau’s Income, Poverty, and Health Insurance Coverage report for 2010, the poverty rate (defined as a family of four earning less than $22,314 a year) for African-Americans is 27.4%, while for whites it is 13% and 36.6% for Latinos.

The financial sector plays a substantial role in economically oppressing African-Americans. Racial segregation in housing long existed in the United States as a way to keep African-Americans living in separate, poorer neighborhoods away from whites. Redlining, which is the practice of denying or increasing the price of insurance and other financial services to certain neighborhoods based on race, contributed to racial segregation in America for much of the twentieth century. The practice began in the 1930s when the Home Owners’ Loan Corporation (HOLC), established to send loans to homeowners at risk of foreclosure, created a risk-rating system for communities to be used by mortgage lenders. The idea was to protect the long-term value of the property, which was undermined by the introduction of “undesirables” (usually blacks but also Latinos, Asians, and Jews) into a neighborhood. Using real-estate maps, the HOLC developed a classification system for communities. There were four classifications. Type A areas, coded green, were affluent areas in the suburbs and the most desirable for investment. Type B areas, coded blue, were still desirable, fully developed, but less affluent. Type C, coded yellow, were older, declining areas. Type D areas, coded red, were those with low homeownership rates, poor housing conditions, were in older, inner-city neighborhoods heavily populated by black people. These areas were considered undesirable and too risky for investment — hence the term “redlining”. As a result, HOLC did not provide any loans for black people at risk of foreclosure during the 1930s. This created a system, perpetuated by the Federal Housing Administration (FHA), lending institutions, and insurance companies, that made it difficult for black people to own homes and accumulate wealth in their communities, thereby, entrenching racial segregation and inequality.

While redlining was outlawed by the Fair Housing Act of 1968 and Community Reinvestment Act of 1977, similar racial discriminatory practices continue and achieve the same effect as redlining — further racial segregation and inequality. One common practice is known as steering. Real estate agents will steer people to neighborhoods predominantly populated by people of similar ethnic background. Whites are steered to “better”, white neighborhoods, while blacks and Latinos are steered toward neighborhoods with more black and Latinos, which tend to be poorer. Another racial discriminatory practice, which led to the financial crash and current depression, is predatory lending. Rather than deny financial services, financial institutions targeted the black community, and other nonwhite communities, to sell them risky, high-priced subprime mortgage loans. Because of this, the practice is also known as “reverse redlining”. Subprime loans are typically made to people with poor credit histories and, hence, come with higher interest rates. According to a 2009 NAACP “Discrimination and Mortgage Lending in America” report, “even when income and credit risk are equal, African Americans are up to 34 percent more likely to receive higher-rate and subprime loans” than whites. This predatory lending perpetuated a decade-long housing bubble from the late-1990s to late-2000s.

Wells Fargo is one of many financial institutions that engaged in predatory lending in black communities. As the New York Times reported in June 2009, Wells Fargo “saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania.” Revealing the big bank’s true racism, loan officers at Wells Fargo commonly referred to African-Americans as “mud people” and subprime loans as “ghetto loans”. Wells Fargo has been sued by individuals and groups, such as the NAACP, for its racial discriminatory practices. In late-November 2011, a regretful former regional vice president of Chase Home Finance in southern Florida (a subsidiary of JP Morgan Chase, whose roots lie in slavery), James Theckston, admitted the predatory lending practices of big banks to New York Times columnist Nick Kristof. In fact, predatory lending was incentivized since lenders earned higher commissions from subprime loans than normal prime loans. In his column, Kristof notes:

“One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. Sothey looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.”

So not only did big banks intentionally push black people and other people of color to buy subprime loans but they were well aware of the racism behind their actions. Moreover, the banks did not care if people lost their homes because of these risky, high-priced subprime mortgages.

The reason why subprime mortgage loans were aggressively pushed on to millions of people was so they could be bundled up into mortgage-backed securities. In 1999, the Glass-Steagall Act, which separated commercial from investment banking, was repealed under Clinton. This made it easier for subprime mortgage loans to be bundled into securities and sold on Wall Street for massive profits. When the housing bubble burst in 2007, that led to the financial crash in September 2008 and the current economic depression. Wall Street got bailed out but the people got stuck with massive poverty and unemployment. Millions of people lost their homes and many are on the edge of foreclosure. Black and Latino households were hit the hardest. As the Center for Responsible Lending points out, around 25% of all black and Latino borrowers lost their home to foreclosure or are close to foreclosure, compared to under 12% of all white borrowers. Home equity makes up the largest portion of overall wealth in black and Latino communities. Because of the collapse of the housing bubble and resulting foreclosures, black and Latino communities have experienced a dramatic wealth decrease in their communities. According to a recent Pew Research Center report, in 2005, median net worth (or total household wealth) of white households was $134,992, for Latinos it was $18,359, and $12,124 for blacks. In 2009, median net worth for white households dropped 16% to $113,149, Latino households experienced a 66% drop to $6,325, while black households experienced a 53% drop to $5,677. Pew rightly attributes this drop to the bursting of the housing bubble and recession that followed from it.

Wall Street, since its founding as a slave market, continues to play a substantial role in oppressing African-Americans and other working-class people. To fully understand racial inequality, it is important to know Wall Street’s historical roots in the trans-Atlantic slave trade. With this knowledge, we can combat the oppression of African-Americans by challenging the greed and oligarchy of Wall Street. Fortunately, there is already a movement doing just that — Occupy Wall Street.


Historical sources:

  • David McNally, Another World Is Possible: Globalization & Anti-Capitalism, (Winnipeg: Arbeiter Ring Publishing, 2006), Ch. 4, pp. 137 – 204
  • Howard Zinn, A People’s History of the United States: 1492 – Present, (New York: HarperCollins Publishers Inc., 2003), Ch, 2, pp. 23 – 39
  • Lerone Bennett, Jr., Before the Mayflower: A History of Black America, (New York: Johnson Publishing Company, Inc., 1982)
  • James W. Loewen, Lies My Teacher Told Me: Everything Your American History Textbook Got Wrong, (New York: Simon & Schuster Inc., 1995)
  • See also Douglas Massey & Nancy Denton, American Apartheid: Segregation and the Making of the Underclass (Harvard University Press, 1993) for history of racial segregation in the U.S.

African American history in New York City began in the Dutch colonies. The first Africans arrived in New Amsterdam as enslaved men in 1625 and 1626; the first enslaved women in 1628. They worked as farmers and builders and in the fur trade of the Dutch West India Company. Some helped build the wall intended to keep settlers safe from the native population at the location of today’s Wall Street. In 1644, the Company granted “conditional freedom” to the enslaved on condition that they make an annual fixed payment of farm produce. The children of the “conditionally freed” people, born and unborn, remained the property of the Company. Most of the families received grants to lands they had been farming before becoming “free.” At the time the area was generally undesirable swamp land. Today most of the area is in Greenwich Village. The Dutch continued to expand and to import enslaved Africans to meet growing labor needs. Between 1649 and 1659 they imported hundreds of men, women and children. In New Amsterdam, the first sales tax, an import tax of 10%, was imposed to discourage merchants from selling “human cargo” outside of the colony. Though not comprehensive, Dutch records do note that there were Africans who had never been enslaved who were living on the “free Negro lots” which today are located on land between from Astor Place and Prince Street.

In 1665, the Dutch surrendered New Amsterdam/New Netherlands to the British. For most European settlers, little changed in what became New York. For African New Yorkers, both enslaved and freed, British occupation meant severe change. Under Dutch rule, some Africans had gained half or full freedom. Even if enslaved, they had legal and social rights. One example is that no master could whip an enslaved African without the permission of the Dutch Common Council. This and other rules changed under the British rule. In a move toward commercial efficiency, the British formed the Royal African Company to import slaves directly from Africa to New York. “From the start of the English occupation the creation of a commercially profitable slave system became a joint project of both government and private interests. Unlike the Dutch West India Company which used slavery to implement colonial policy, the Royal African Company used the colony to implement slavery.” (Historian Edgar J. McManus) New York’s first slave market during the British period was established at Wall Street and the East River in 1709. In the early 1700’s there were 800 African men, women, and children in the city; about 15% of the total population. Local and state documents did not distinguish between free and enslaved Africans until 1756. Before then the term “slave” was used to describe all Africans and their decedents. They were all looked upon as valuable sources of labor.

The British enacted numerous laws that restricted where Africans could be employed and how they could be freed. Laws were passed to prevent free Africans from aiding runaway slaves. The New York “Slave Codes” grew so numerous that they are seen as a major cause of the 1712 slave revolt. In the revolt, enslaved Africans and natives gathered in an orchard on Maiden Lane with hatchets, guns, knives, and hoes and set out to burn and destroy property in the area. Nine whites were killed during the revolt. Twenty-one enslaved Africans were executed and six were reported to have committed suicide. After the revolt more laws were passed that prohibited Africans and natives from carrying weapons and entering military service. There were strict curfews and laws against gathering of more than two or three enslaved people. The revolt emphasized the growing fear that European New Yorkers had of the growing African population. At this time, Europeans in New York outnumbered people of African descent five to one, but the city contained the largest absolute number of enslaved Africans of any English colonial settlement except Charleston, South Carolina, and held the largest proportion of enslaved Africans of any northern settlement. By the first decade of the 1700’s, forty percent of New York’s households contained at least one enslaved African; again, the largest proportion of any northern settlement.

Metal Branding Irons with Owners’ Initials


In 1711, New York was growing quickly, and the growing needs of the city were often supplied by slave labor. Nearly 1,000 out of about 6,400 New Yorkers were black, and at least 40 percent of the white households included a slave. In these homes, enslaved workers cooked, washed, sewed, hauled water, emptied the chamber pots, swept out the fireplaces and the chimneys, and cared for the children. Along the East River they built, loaded, and unloaded, the ships. They cleared the land uptown, and then planted and harvested the crops. And up and down the narrow streets they pedaled their master’s goods and even supplied the city’s first fast foods—fresh oysters and steaming hot corn on the cob. As the number of slaves imported into the city soared, barrel makers, butchers, carpenters, blacksmiths, and tin workers began to purchase young enslaved men in order to teach them their trades. Typically, when a slave owner ran out of work, they hired their slaves out at half the rate of free labor. Often the slaves themselves were sent out to find work. In a time when fear of a slave uprising was ever-present, the sight of so many enslaved men walking the streets looking to be hired caused alarm. Fearful white citizens began to complain. They demanded a market where slaves could be hired, bought, and sold. Finally, on December 13, 1711, the City Council passed a law “that all Negro and Indian slaves that are let out to hire…be hired at the Market house at the Wall Street Slip…” This market, known as the Meal Market (because grains were sold there), was located at the foot of Wall Street on the East River. It was the city’s first slave market.


The hidden history of slavery in New York calls myths of American morality into question
by Phyllis Eckhaus / January 6, 2006

Americans excel at ego-boosting myths of exceptionalism: It’s our ingenuity, energy and can-do attitude that explain our rise from frontier to world power. But what if slavery were the real secret of our success? We like to condemn slavery as an exotic evil perpetrated by plantation Southerners, but two new books and a museum exhibit provide nightmarish reminders that slavery was the norm in the early years of this country, and that up through the eve of the Civil War, Northern bankers, brokers and entrepreneurs were among slavery’s staunchest defenders. In Complicity, a team of Hartford Courant journalists investigates this history, producing 10 stories that explore how deeply the fortunes of New York and New England were tied to the slave trade. “Slavery in New York,” an exhibit at the New York Historical Society through March 5, reveals New York as a city substantially built by slaves. The companion book of the same name, elegantly designed and illustrated, anchors the exhibit in a series of scholarly essays. Together, these works echo and amplify each other, providing a kind of surround-sound opportunity for an anguished identity crisis: If our supposedly freedom-loving forebears were not “good guys,” what were they? And what are we?

From the get-go, Americans were profiteers, and plundering the New World was backbreaking work. Writing in 1645 to John Winthrop, governor of the Massachusetts Bay Colony, his brother-in-law Emanuel Downing complained, “I do not see how we can thrive until we get a stock of slaves sufficient to do all our business.” Further south, in New Amsterdam, slaves built Wall Street’s wall and cleared what became Harlem and Route 1. When a new shipload of slaves proved insufficiently hardy, Director General Peter Stuyvesant expressed his displeasure to the Dutch West India Company, insisting that the company supply the best slaves to Christian and company enterprises, while unloading the feeble on “Spaniards and unbelieving Jews.” For much of the 17th and 18th centuries, New York boasted the largest urban slave population in mainland North America. Slaves made up one-fifth the population. And white New Yorkers lived in terror of slave revolt. An alleged 1741 plot led to the jailing and torture of scores of slaves, 30 of whom were executed, 17 by burning at the stake. For slaves, the Revolutionary War was a liberating experience–but only if they fought for the British, who promised them freedom. Though George Washington sought to reclaim the colonists’ slaves, British General Guy Carleton oversaw the evacuation of more than 3,000 black Loyalists, who fled New York for Nova Scotia and other British outposts.

New York slowly and reluctantly abolished slavery; federal census figures showed slaves in the state until 1850. But the death of slavery in New York scarcely impeded the city’s business in the slave trade. In the peak years of 1859 and 1860, two slave ships bound for Africa left New York harbor every month. Although the trade was technically illegal, no one cared: A slave bought for $50 in Africa could be sold for $1,000 in Cuba, a profit margin so high that loss of slave life was easily absorbed. For every hundred slaves purchased in Africa, perhaps 48 survived the trip to the New World. By the end of the voyage, the ships that held the packed, shackled and naked human cargo were so filthy that it was cheaper to burn some vessels than decontaminate them. Law-abiding Northerners made money off slavery through the cotton trade. “King Cotton” was to antebellum America what oil is to the Middle East. Whole New England textile cities sprang up to manufacture cloth from cotton picked and processed by millions of slaves. In 1861, the United States produced more than 2 billion pounds of cotton, exporting much of it to Great Britain via New York. No wonder then that as the South began to talk secession, so too did New York Mayor Fernando Wood, who proposed that Manhattan become an independent island nation, its cotton trade intact.

How do we reconcile these facts with our mythology of the Civil War and our convenient conviction that the evils of slavery were contained within the South? Obviously, we can’t. Slavery was such a huge and gruesome enterprise, supported by so many, that it explodes inflated notions of American character. Instead, we might appropriately draw parallels between antebellum America and Nazi Germany. This is not to assert that ordinary Americans were “evil,” but rather that our insistent sorting of the world into “good guys” and “evildoers” distorts reality. Today, progressives are justly suspicious of the high-flown “freedom” rhetoric our government deploys to advance American empire. But we need always to be skeptical of reductive, righteous narratives. Far from promoting morality, such fictions allow us to hide our worst impulses from ourselves.