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Via Workers World News Service
Reprinted from the Oct. 3, 1996
issue of Workers World newspaper
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The banks, the government and the drug trade

[In preparation for a tribute to Sam Marcy on Oct. 5, Workers World is printing excerpts from articles he has written over the years. This one is from Sept. 7, 1989, issue.]

There's a problem the Bush administration has kept under wraps for a considerable period, and it's with the big banks.

The big banks have been particular favorites during the Reagan and Bush administrations, above and beyond the "call of duty." The whole deregulation of industry was propelled by the banks. They also initiated the industrial and technological restructuring which has caused so much havoc for millions of workers.

Deregulation has meant dissolving any restraints or regulations previously imposed on businesses and banks to protect the safety and well-being of the people.

But there comes a time when even the most symbiotic relationship becomes strained under the impact of new objective conditions. When this happens, their close partnership can be torn asunder and the gates opened wide for the intervention of the broad masses of people in a struggle for their own class interests.

Such is the significance of the ever-mounting casualties from the epidemic of drugs. The more money is spent, the more the various repressive agencies of the government get involved, the more killings there are-while the real culprits are obscured.

They are the biggest banks and multinational corporations on a global scale.

Criminal money laundering

The banks are involved head over heels in the criminal laundering of ever vaster sums of money, without which the giant drug dealers could not possibly survive.

There is a silent, secret but nonetheless deadly partnership between the drug lords and the lords of high finance. They need each other. The drug business could not stand as a big business without this relationship.

Consider this: No big business can survive without depositing its funds in the banks. Big business is characterized by the chase for lucrative super-profits. Even if the money could be hoarded, idle funds bear no interest. For every day, every hour, that millions of dollars are stashed away in places other than banks, much interest is lost.

Idle funds are a burden, and not only a financial one. They are the target of raids by the government as well as by other elements of the criminal underworld.

In the banks, the money is safe and secure. Outside of the banks, it is at high risk. The risk in holding large sums of currency comes partly because it is the best evidence if there's a raid by the government. Money deposited in the banks and laundered is a shield which no drug dealer could possibly overlook.

But what's in it for the banks, one may ask?

Super-profits are as much an attraction to the banks as drugs are to drug addicts.

For the big banks, the rollover of huge sums means super-profit because it involves little in the way of bookkeeping compared to the accounts of thousands of small depositors. That is a great lure, especially if the money is rolled over several times. Even the small drug accounts run in the tens of thousands, and in cash no less.

Time was when the drug business was considered nickel-and-dime stuff. But that was at least two decades ago. It has since grown to an international financial phenomenon whose magnitude staggers the imagination. It's in the hundreds of billions of dollars. This can't exist let alone grow without the protection of the banks.

Cash is the bottom line

Of course, banks can and do invest the money elsewhere, from which they draw enormous profits. That much everybody understands. But there is still a more potent basis for intimate collaboration. The drug dealers have cash. At certain moments cash in a bank vault is of supreme significance to the existence of the bank as a viable institution.

In order to prove that a bank is failing, it is necessary to show that it has experienced huge losses, either from sudden significant withdrawals, or because it made very accommodating loans, or as a result of the failure of one or several ventures in which the bank had invested heavily. But arriving at such proof depends upon the none-too-rapid processes by which banks are inspected by government officials.

It's more likely that a crisis occurs when the bank's reserves are inadequate to meet the requirements of the Federal Reserve. It is at those moments, when the bank's reserves are dwindling, that cash in the vault of a bank is a life saver.

Cash is the bottom line to everything in banking. It should be remembered that for every seven dollars in deposits, one dollar has to be kept in legal reserves. That means either government bonds or other government-supported securities, plus cash in the vault.

Every bank tries to keep the barest minimum of legal reserves. Having in excess of the legal requirement is unprofitable. The legal reserves of a bank do not produce interest for the bank.

The anxiety to maintain the legal reserve requirements becomes critical whenever the Federal Reserve suddenly raises these requirements. This may cause a crisis, not only for small banks. Big banks like Franklin National and Continental Illinois have faced just such a situation. They have had to scramble to meet the legal requirements.

If this should coincide with a time of widespread withdrawals due to seasonal factors in industry, or pre-holiday withdrawals, bankers become desperate as they face the possible abyss: a failure, which most often also brings charges of corruption, mismanagement, embezzlement, etc.

It's enough to drive them into the arms of any drug dealer.

Reagan gave banks autonomy

The bankers got a completely free hand from the Reagan and Bush administrations, which released them from any kind of significant restraints on who they could lend to, where the money was kept, and how they related to the Federal Reserve, the government's central bank. The big banks today are mostly autonomous.

This is the opposite of what happened in the early 1930s, when the big banks were strictly controlled in order to save the capitalist economy from completely disintegrating after the big collapse of the stock market.

Can it be that the bankers don't know where the drug money is? In point of fact, the Federal Reserve, the Secretary of the Treasury and the comptroller of the currency all know where the dollars are at any one time. The tremendous advances in telecommunications have made it easier to know where the money is. They may not be able to predict how the price of money will rise or fall. And they can't control the ups and downs of the capitalist market. But they do know where all the money is.

Generally the big banks have little to fear from government investigations. Convictions are minimal and considered laughable. The government doesn't want to show the real source of the drug traffic. They will accuse some underlings, some minor figures, but they do not want to point out the real center of it-the big banks and the Federal Reserve system itself.

Banks investigated in 1986

The Reagan administration and the banks got off easy in 1986. The Treasury department had been investigating the laundering of money by the big banks. It could have been an enormous scandal showing a corrupt criminal conspiracy between the banks and the drug dealers. But instead it was handled as a low-profile investigation.

No criminal charges were filed. Nevertheless, some of the biggest banks-including Bank of America, the First Boston Corporation, Chase Manhattan, Manufacturers Hanover Trust, Chemical, Crocker National and Irving Trust-all had to pay civil penalties, some in millions of dollars, because of money laundering. Bank of America, which was fined $4.75 million, had failed to report 17,000 large cash transactions. This was reported in the New York Times of Jan. 22, 1986, but then quickly forgotten.

How could all this be treated in such a matter-of-fact way when in reality it showed profound ties between the big banks and the criminal underworld? The answer of course is the symbiotic relationship between the banks and the government. A few underlings may be convicted, but never the big bankers.

Not until the source of the drug pestilence is made clear will any real progress be made. It won't be made with more cops arresting and beating up young people, or picking up petty drug dealers.

The government claims it is involving all elements of the population in the "war against drugs," but two fundamental constituents, the labor movement and the oppressed communities, have no authority-and more important, are allocated no funds.

Now more than ever is an opportunity for the labor movement, for the Black, Latin, Asian, Native, lesbian and gay movements, to make a strong intervention, put the spotlight on this deadly partnership and let the mass of people have a hand in uncovering this most vicious of all conspiracies in order to effect a practical, working-class solution to the problem.

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