The story, titled “Geithner, Member and Overseer of Finance Club,” chronicles Treasury Secretary Timothy Geithner’s close and repeated contacts with Wall Street moguls when he was the president of the Federal Reserve Bank of New York and on his way to becoming the “leading architect of [the financial] bailouts.” The Times story did not quite suggest corruption on Geithner’s part. Rather, its orientation is more systemic, the point being that whoever regulates banks, especially those on Wall Street, is bound to be caught up in a particular culture in which regulators and regulated tend to see things from the same perspective. It’s not that Geithner would knowingly put the interests of Wall Street ahead of those of the people in general. It’s that he would tend to equate those interests, even when they objectively diverge.

As the Times put it, “His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.”

In fact, as the New York Fed is structured, the line between regulator and regulated is quite fine. The bank, the Times notes, oversees “many of the nation’s most powerful financial institutions.” At the same time, “The New York Fed is, by custom and design, clubby and opaque. It is charged with curbing banks’ risky impulses, yet its president is selected by and reports to a board dominated by the chief executives of some of those same banks. . . . [T]op executives of global financial giants fill many seats on the board. In recent years, board members have included the chief executives of Citigroup and JPMorgan Chase, as well as top officials of Lehman Brothers and industrial companies like General Electric” (emphasis added).

As to be expected, Geithner’s contact — personal and professional — with “bankers, hedge fund managers and others” was hardly infrequent. His meal and meeting partners were top people from Goldman Sachs, Citigroup, Morgan Stanley, and JPMorgan Chase. Some of these get-togethers were at the executives’ homes.

Geithner began his career with Kissinger and Associates, an international consulting firm founded by former Secretary of State Henry Kissinger, a Rockefeller family confidant. Geithner worked in various capacities for Treasury beginning in 1988, spent some time at the Council on Foreign Relations, then moved to the International Monetary Fund. His mentor is Robert Rubin, who was Treasury secretary under President Clinton. Before that, Rubin had been a top executive at Goldman Sachs. After leaving Treasury he went to Citigroup, “the largest bank under his [Geithner’s] supervision” at the New York Fed.

Thus before he took over the New York Fed at age 42, he was a man with deep connections to the financial establishment. Rubin was on the search committee that recommended Geithner for the job. Sanford Weill, a major Goldman Sachs figure, was on the board of the bank. “He didn’t have a lot of experience in dealing with the industry,” Weill said of Geithner. Thanks to what Weill calls “his willingness to listen to people,” however, he apparently quickly learned the ropes from the people he was monitoring.

Financial Meltdown

When Wall Street’s mortgage-related problems, which Geithner did not foresee, began to surface, he worked behind the scenes for a plan favored by Citigroup and others to reduce their capital requirements. Around this time, late 2007, when the company was looking for a new CEO (after Rubin became chairman), Weill proposed Geithner for the job. (Of course, he didn’t take it.)

As the government-built financial house of cards began to tumble, Geithner was a key designer of the bailouts, along with then-treasury secretary Henry Paulson (another Goldman alumnus) and Fed chairman Ben Bernanke. Geithner helped get JPMorgan Chase to assume control of Bear Stearns – with the aid of a $29 billion government check in exchange for Bear’s toxic paper.

When AIG (American International Group) started tottering, Geithner, again, was there. While looking for private money to save the insurance giant, he enlisted Goldman Sachs to assist in the rescue, even though AIG thought that would involve a conflict of interest. When the government took on the rescue itself, “A.I.G.’s trading partners, including Goldman, were compensated fully for money owed to them by A.I.G.”

As New York Fed chief, it was Geithner’s idea to have the FDIC guarantee the debt of banks and investment companies. “Mr. Geithner’s program was enacted and to date has guaranteed $340 billion in loans to banks,” the Times wrote. (The government has collected about $7 billion in fees from the banks.)

Finally, Geithner raised eyebrows by awarding three no-bid contracts, worth about $71 million, to the BlackRock financial company for help in managing the iffy assets bought by the Fed bank. “Mr. Geithner socialized with Ralph L. Schlosstein, who founded the company and remains a large shareholder, and has dined at his Manhattan home. Peter R. Fisher, who was a senior official at the New York Fed until 2001, is a managing director at BlackRock” reports the Times. Geithner says no other company had the expertise to handle the contracts.

Since becoming Treasury secretary in the Obama administration, Geithner has continued to devise ways to help struggling giant financial companies. For example, he launched a program to provide FDIC-backed loans to hedge funds for the purchase of consumer-debt-backed securities. Thanks to Geithner and others, the U.S government has committed the taxpayers to $12.8 trillion in various forms of assistance to the financial industry. That’s almost equal to the country’s GDP.

Geithner also advocates comprehensive new powers that would permit the government to take over (“rescue”) not only banks, but insurance and other financial companies, such as hedge funds, whose failure would allegedly pose a systemic risk.

The extent of Geithner’s connections are startling — but only until one understands the origins of the Federal Reserve System. Seen in that context, the Geithner saga seems more like business as usual. You’ll see why next week when we look at the Fed’s origins.

In the past few years, the cartels and other drug trafficking organizations have extended their reach across the United States and into Canada. Law enforcement authorities say they believe traffickers distributing the cartels’ marijuana, cocaine, heroin, methamphetamine and other drugs are responsible for a rash of shootings in Vancouver, British Columbia, kidnappings in Phoenix, brutal assaults in Birmingham, Ala., and much more.

United States law enforcement officials have identified 230 cities, including Anchorage, Atlanta, Boston and Billings, Mont., where Mexican cartels and their affiliates “maintain drug distribution networks or supply drugs to distributors,” as a Justice Department report put it in December.

In response the Obama administration says it will send nearly 500 additional agents to reinforce the Border Patrol, Immigration and Customs Enforcement, and Bureau of Tobacco, Firearms and Explosives.  Millions of dollars and military equipment, including three Black Hawk helicopters, will be given to the Mexican government. “If anything, this is really the first wave of things that will be happening,” said Homeland Security Secretary Janet Napolitano. She’s also considering requests by the governors of Texas and Arizona to deploy the National Guard.

These events are also fueling sentiment for new control of guns, especially so-called “assault weapons” (a bogus category dreamed up by gun controllers) since it has been reported that the cartels are entering the United States to buy guns to take back to Mexico.

Does anyone still think the “war on drugs” is a good idea?

That may strike some people as an odd question under the circumstances, so let’s take it from another direction. Have you seen the news stories about the violence on the border being perpetrated by the Mexican whiskey and cigarette cartels?

No? That’s probably because there was no such violence and are no such cartels.

So why are there violent cartels in the marijuana, cocaine, and heroin trades but not in the whiskey and cigarette trades?

All together now: prohibition.

Of course the politicians blame everything and everyone but themselves for this spreading violence. “Our insatiable demand for illegal drugs fuels the drug trade,” Secretary of State Hillary Clinton said. “Our”? Including hers? “Our inability to prevent weapons from being illegally smuggled across the border to arm these criminals causes the deaths of police officers, soldiers and civilians.” Her answer, in addition to sending the Mexican government taxpayer money, is to go after consumers of drugs and manufacturers and dealers of guns she doesn’t like.

Excuse me? Drug users and gun dealers are to blame for drug-cartel violence? That makes no sense. If it did, then drinkers and smokers, along with gun dealers, would be creating violence, too. What’s missing?

Once again in unison: prohibition. Who brought us prohibition?  Politicians. Every politician, bureaucrat, and agent who facilitates or enforces prohibition is an accomplice in the violence because he or she helps to create the conditions in which thugs have a comparative advantage in dealing drugs.

Variety of Evils

For years advocates of free trade in drugs—that is, basic rights to life, liberty, and property for drug consumers, producers, and merchants—have pointed out that prohibition, in addition to being an immoral invasion of liberty by the State, sets in motion a variety of concrete evils that harm innocent people. (No one has been more consistent and rigorous in this than Thomas Szasz). These evils include the corruption of law enforcement, violent crime, and the expansion of intrusive government. Besides these domestic evils, the U.S. government has alienated farmers in foreign lands by helping to destroy their crops and livelihoods. If that’s not terrorism, nothing is. Crop destruction has been a recruiting tool for guerilla organizations, while black-market profits finance them and others with malign intent.

Few listened to these Cassandras against the anti-drug crusade. Maybe they will listen now.

While violent gangs that make their money selling drugs in the black market are murdering and kidnapping people, invading homes, and committing other atrocities, the politicians have nothing to say but the same bromides they’ve been repeating for years. Thinking we’re either simpletons or amnesiacs, they expect us to be comforted by their words. (Will they be right?) They promise to defeat the cartels, crack down on drug use, and disrupt the gun trade. It won’t work. It’s never worked. It can’t work. Black-market operators are always steps ahead of the plodding bureaucrats. Break up one gang and another emerges. The drugs keep flowing (there’s plenty of bribe money), and consumers will have what they want when they want it. The profits made possible by the black market are powerful incentives to keep the industry going. Government is impotent.

Out of Business

Yet the gangs could be put out of business overnight. How? By removing the criminal penalties for the production, trade, and consumption of all drugs; by bringing the black market into the open, so disagreements can be resolved through civil channels and the talent for violence is no longer an advantage; by dissolving the extraordinary profits that illegal industries always reap.

Yes, it is that easy.

People will recoil. We can’t do that! No? Then accept as normal the unspeakable violence that is starting to spread from city to city, because that is the alternative to the stubborn refusal to end the “war on drugs,” which is really a war on people. Even full police-state tactics will not be able to control it, though that won’t stop demagogic politicians from giving them a try. (They can’t keep drugs out of prisons!)

I don’t expect the multitude of officials who depend on the drug war for their livelihoods and power to endorse an end to prohibition. They have shown themselves more than willing to accept the violence (against others) as the price of their ambition. The new threat to us is an opportunity for them to amass more power, bigger budgets, and higher salaries.

But the rest of us have no reason to support the complex of government and “private” tax-financed agencies that grow fat prosecuting this detestable war. The worn-out rationalizations can’t stand examination. Prohibition keeps no one from getting any drug he wants at an affordable price. On the contrary, it encourages the creation of cheaper, more potent drugs, just as alcohol prohibition replaced wine and beer with hard liquor. (More bang in a more compact form.) Prohibition doesn’t keep our children safe. It makes drugs into enticing forbidden fruits and pushes the trade into less visible channels. Drugs aren’t “dangerous,” though people are capable of doing harmful things with drugs and many other things. (Jacob Sullum’s  Saying Yes is an eye-opening book that I highly recommend.) Addiction is not a disease; it’s a choice.

Everything the drug warriors have said is wrong—and often a conscious lie.

Drugs are to our society what Eurasia and East Asia were to Oceania in Orwell’s 1984: a convenient conjured-up demon to justify expansion of power and the usurping of liberty—in the name of keeping us safe.

What will it take, if not the current violence from Mexico, to make people see through the scam?

Look around. It’s our self-proclaimed protectors from whom need we protection most.