~ Sir Peter Medawar
By Catherine Austin Fitts
Voting with our time, attention, and money is a powerful concept. Is it working? Or are secrecy, disinformation, and covert operations being used to steer our hard-earned capital back into the hands of the purveyors of warfare, organized crime, and surveillance capital? Are we financing ourselves out of democracy and human rights and into central control through technocracy?
These questions bring me back to my classic Red Button story:
Catherine Austin Fitts – The Red Button
The Solari Report looked at investment screening in our 3rd Quarter 2016 Wrap Up: Investment Screening: Can We Filter for Productive Companies? My answer was “yes, of course we can,” there being thousands of productive companies operating around the world and more available for investment every year. However, we can do so only if—and the “if” is important—we have a good map of what is really going on in the world. Unfortunately, national security and municipal and financial markets secrecy is significant and growing, making it difficult to determine who and what is truly productive and who and what is not.
Our 1st Quarter 2019 Wrap Up: Will ESG Turn the Red Button Green? continues the discussion, inspired in part by the explosive growth in ESG (environmental, social, and governance) investment over the last two years. Can ESG turn the red button green? Again, the answer comes down to whether or not we apply our ESG criteria using a reliable map of our world. The more we practice ESG without sound maps of the real political and economic flows around us, the more the cost of secrecy rises and the greater our misallocation of capital. And secrecy in the financial markets is still growing.
The Global Sustainable Investment Alliance (GSIA)—a collaboration of sustainable investment organizations around the world—just published its 2018 trends report. GSIA’s analysis shows that global investment subject to ESG criteria grew from $22 trillion to $30 trillion since the Alliance’s 2016 report. Does this mean that more people are “voting with their money,” or is Mr. Global using this well-intentioned impulse—post-financial crisis and post-bailouts—to instead recycle our hard-earned capital back into “same old, same old”?
There are numerous indications that trends in political and economic performance are not positive, despite the explosive growth in ESG investment. For example, income inequality is growing. Recent reports indicate that large U.S. banks can borrow at the Fed window at a near-zero cost of capital, whereas the average U.S. credit card holder pays 17%.
I wanted to take a look at these issues now, while the ESG industry and standards are still young. Having operated the Solari World investment screen for two years, an “audit” of industry best practices helps to inform my approach. A growing number of talented, caring people and enterprises are developing the ESG industry. It is exciting to learn more about the products and services they offer. There are many positive, impressive developments.
Unfortunately, despite the hard work and sincerity of many investment professionals in the ESG industry, I am persuaded that Mr. Global intends to use ESG to engineer global technocracy, including uneconomic privatization and the use of a misleading and fraudulent climate change “op,” to override human and property rights. This will enable further central control of land, real estate, and new technology—essentially forcing a societal-wide economic and social restructuring under the guise of caring for the environment. If I am right, Solari Report subscribers need to anticipate and be prepared to navigate the resulting political and regulatory tsunami headed into our lives, our homes, and our businesses.
For those interested in integrating “the real deal” into their map of the world, I want to contribute to the ESG industry. This starts with ensuring that the industry understands FASAB 56 (see below) and recent developments in the U.S. federal government’s decades-long refusal to obey financial management laws. My goal is to provide sufficient information so that ESG professionals can incorporate these developments into their analytics and process—no small undertaking. Ideally, this could create significant support for U.S. compliance with financial management laws. Without a reduction in secrecy by the U.S. and global governments, the application of ESG criteria to investment will backfire.
The U.S. Federal Accounting Standards Advisory Board (FASAB) released Statement of Federal Financial Accounting Standards 56 (FASAB 56) last fall. Our report on FASAB 56 can be found online at https://constitution.solari.com/fasab-statement-56-understanding-new-government-financial-accounting-loopholes/.
The exposure draft (the document intended to solicit public comment) for FASAB 56 was published on July 12, 2018, with comments due by August 13, 2018. Seventeen comments were submitted by various departments, agencies, and accounting firms. The final Statement 56 was published on October 4, 2018, with little if any change from the exposure draft.
Reporter Matt Taibbi aptly described the FASAB 56 issuance in his January 2019 article in Rolling Stone titled “Has the Government Legalized Secret Defense Spending?” and subtitled “While a noisy Supreme Court fight captivated America last fall, an obscure federal accounting body quietly approved a system of classified money-moving.” Taibbi wrote:
October 4th, 2018, was a busy news day. The fight over Brett Kavanaugh’s Supreme Court nomination dominated the cycle. The Trump White House received a supplemental FBI report it said cleared its would-be nominee of wrongdoing. Retired Justice John Paul Stevens meanwhile said Kavanaugh was compromised enough that he was “unable to sit as a judge.”
#NationalTacoDay trended on Twitter. Chris Evans told the world production wrapped on Avengers 4.
The only thing that did not make the news was an announcement by a little-known government body called the Federal Accounting Standards Advisory Board—FASAB—that essentially legalized secret national security spending. The new guidance, “SFFAS 56 – CLASSIFIED ACTIVITIES” permits government agencies to “modify” public financial statements and move expenditures from one line item to another. It also expressly allows federal agencies to refrain from telling taxpayers if and when public financial statements have been altered.
Carolyn Betts and I discussed the U.S. Securities and Exchange Commission (SEC) comments on FASAB 56 before its issuance in our article, “Caveat Emptor: Why Investors Need to Do Due Diligence on U.S. Treasury and Related Securities”:
Given that the main goal of SEC regulations is transparency in disclosure to investors and the general public, it is worth noting that the SEC’s only comment on the Exposure Draft of Standard 56 is in response to the question whether every component reporting entity of the federal government should be required to disclose that certain presentations may have been modified. SEC’s comment was:
“We believe that this would be misleading and likely to cause confusion for financial statement readers, by implying that SEC is involved in classified activities. It’s likely that SEC, as well as other agencies, would receive numerous inquiries from the public and from the media by including such an unexpected disclaimer in its financial statements.”
In essence, the SEC had no comment on the use of an obscure accounting policy board statement to override the U.S. Constitution and financial management laws to take a large portion of the U.S. securities market dark.
Apparently, the issuance of FASAB 56 did not make waves in the ESG industry either. But on October 1, 2018—three days before the issuance of FASAB 56—CalPERS, the New York State Comptroller, PRI (UN Principles for Responsible Investment), and scores of luminaries of the U.S. investment and legal professions submitted a 19-page petition to the SEC requesting that the agency create a framework that would require public companies to disclose ESG aspects relating to their operations. You can read the petition and see the full list of signatories here: https://www.sec.gov/rules/petitions/2018/petn4-730.pdf.
Apparently, more data about companies’ ESG impact was more important than basic data on real operations and financials in the U.S. Treasury and mortgage markets and related financial institutions, contractors, and companies.
These events followed on presidential candidate Senator Elizabeth Warren’s September 2018 sponsorship of a Climate Risk Disclosure Act. As summarized by Betty Huber for Davis Polk (traditionally, JPMorgan’s lead counsel) on October 4, 2018 (https://www.briefinggovernance.com/2018/10/investors-petition-the-sec-to-develop-esg-reporting-requirements/), the Act seeks to “require the SEC to issue rules requiring public companies to disclose climate change-related risks, including climate change scenario analyses similar to those called for by the FSB Climate Task Force referenced in the petition, as well as companies’ direct and indirect greenhouse gas emissions, the total amount of fossil fuel-related assets they own or manage and their management strategies related to physical risks posed by climate change.”
To my knowledge, there is no indication that Senator Warren had any problem with FASAB 56 taking the majority of the U.S. securities market dark. She also has been silent regarding $21 trillion of undocumentable adjustments at DOD and HUD between federal fiscal 1998–2015, and silent regarding the recent announcement by the Harvard Endowment—a source of a significant amount of her personal wealth—that future financial results would no longer be disclosed.
This, of course, raises the question, if financial disclosure is going to be meaningless, why make it more complicated and expensive to provide? If you look at the proposals being made for company climate change disclosure and compliance, they have the potential to drive many companies into bankruptcy or into the arms of their larger competitors at a cheap price.
The Solari team published a wealth of information about FASAB 56 and the “missing money” in our 2018 Annual Wrap Up: The Real Game of Missing Money. If you have not had a chance to read it, I strongly recommend reviewing the first volume (Part I) and the missing money portions in the second volume (Part II). This is critical “due diligence” information for any retail or institutional investor globally or any citizens dependent on (or whose country is on the sanctions list maintained in connection with) the U.S. security umbrella—essentially, everyone on the planet.
Please feel free to share our information regarding FASAB 56 with your financial professionals, and certainly with any ESG provider. The more transparency we can achieve on this issue, the better off we will all be.
As we finalize our written discussion for the 1st Quarter 2019 Wrap Up, we note that the U.S. House of Representatives approved a resolution in July 2019—by a vote of 398 to 17—condemning the global Boycott, Divestment, and Sanctions (BDS) movement, which seeks to pressure Israel to comply with international law. This follows a steady and successful effort to lobby state governments to require contractual commitments to not participate in BDS boycotts as part of the award of government grants. Twenty-six states have laws or policies on the books that tell businesses they can’t boycott Israel.
This raises another question: what is the point of an ESG industry if government is going to dictate that the politically protected will be immune? This House Resolution has extremely ominous implications for the future of ESG investment, let alone for the government’s involvement in setting, controlling, enforcing—and politically abusing—standards.
Examples always help, so I want to give at least one example in this presentation of applications of ESG that I find stupefying.
If $21 trillion of undocumentable transactions and adjustments have occurred in the U.S. federal accounts, then those and related transactions were processed through the U.S. federal bank accounts.
The U.S. federal bank depository is the New York Federal Reserve Bank, which is owned, governed, and operated by its member banks. The largest of these banks—in fact, the largest U.S. bank—is JPMorgan Chase. Like the other leading members and owners of the New York Fed, the stock of JPMorgan Chase is a prominent holding in many ESG mutual funds, exchange-traded funds, and private portfolios. This is despite several decades of significant settlements with regulators for violations of civil and criminal law. (See the Table in the full discussion in this Wrap Up.) Yet, if you read JPMorgan’s disclosure on their record in social responsibility, you will understand why I believe that Jamie Dimon, Chairman of JPMorgan Chase, and the board of directors deserve an award for “Best Multiple Personality Disorder Management Execution” in the United States.
JPMorgan Chase can borrow at the Fed window for 2.25%; the average U.S. credit card holder is paying 17%. I don’t know what the average student loan borrower is paying, but it is a lot more than 2.25%, and the loans come with the stripping of standard consumer protections. We used to call this usury and entrapment—and it used to be illegal. Now JPMorgan calls it their “return to the community.”
Despite this, I continue to encounter Solari Report subscribers who bank at JPMorgan Chase or the other leading New York Fed and San Francisco Fed banks whose participation in the bailouts, responsibilities for U.S. government transactions, and litigation and regulator settlements document clear patterns of fraudulent dealings that harm millions of consumers and citizens.
Why? Please don’t tell me that you or your account are not important. You are important to me. I do not want you to be defrauded. I do not want you to be harmed by data or identify theft. You deserve a fine banker attending to your needs—and the fine bankers of this world deserve your support and your business. If you don’t have an excellent bank, finding one is an important opportunity.
The growth of ESG investing is important. If it is applied sincerely, it could be powerful. If used as a Trojan horse with controlled politics, controlled science, and controlled media to further privatization and technocracy, it could be dangerous. Consequently, this discussion will continue on The Solari Report and in our lives. I hope this 1st Quarter 2019 Wrap Up helps you to explore the connections between this trend and your life and work—helping you see how you can best live your free and inspired life!