23 The Real Game of Missing Money When I left the board several years later, I had dinner with Harry in New York. He talked about the extent to which the United States economy had become dependent on arms sales and financial engineering. Harry was too discreet to say “financial fraud”; however, after dealing with DOJ on the BCCI/First American scandal, we both knew what he meant when he said “financial engineering.” He was deeply worried about where America was heading. My own worries included the rumors that the asset forfeiture fund at DOJ was financing secret, highly classified intelligence operations. As financial advisor to FHA/HUD, Hamilton Securities designed and led $10 billion of mort- gage auctions for FHA. By improving the recovery rates on defaulted mortgages from 35% to an above-industry-average of 70% to 90%, loan sales were able to generate $2.2 billion of savings for the FHA Funds. According to reviews by the GAO, the results were favorable for the real estate and local communities. However, the improvements for FHA Fund performance were not popular with the people who had been profiting from low recovery rates, such as NHP and the Harvard Endowment. Government and community failure is very profitable for those invested in it—a bigger group than you might think. I describe these issues in greater detail in the “Hamilton Securities Group” chapter of Dillon Read & Co., Inc. & the Aristocracy of Stock Profits (https://dillonreadandco.com/hamilton-securities-group/). The beneficiaries of failure included servicers on the defaulted portfolios such as John Ervin & Co. Without HUD’s large portfolios of defaulted mortgages, Ervin would have no business. Another beneficiary included the HUD Inspector General’s (IG’s) office. Distressed mortgages held by HUD meant the IG’s office could make money doing enforcement actions and ap- plying civil money penalties. When FHA staff explained to the HUD IG that the money they were making was less than the FHA Fund was losing by not selling, the IG explained that they did not care about the FHA Funds or the taxpayers—they cared only about what they could make. In other words, the agency’s own auditor was financially vested in keeping more mon- ey flowing out the back door to developers who were not paying their debt service. This was, in part, thanks to the Congressional appropriators who were willing to increase government budgets as a result of their rising penalties, fines, asset forfeitures, and seizures—and the settle- ments that could be negotiated on threat of these actions and indictments. The DOJ and the enforcement arm of government agencies were now—thanks to the U.S. Congress—Sheriff of Nottingham style moneymakers. “Just-us” racketeering was open for business, supported by plans to build private prisons and rendition centers globally. “Play ball or else” was the implicit threat. Unfortunately, Hamilton’s goals of decentralized wealth creation conflicted with the numerous efforts underway to centralize control of capital and wealth, reflected in the push for globaliza- tion, the rejection of place-based development, the expansion of the private prison model, and the subversion of pension funds. Globalization: The Clinton administration was committed to globalization, implementing NAFTA and the next round of GATT, which led to the creation of the World Trade Orga- nization (WTO) at the end of 1994. While Hamilton’s work on place-based economic de- velopment focused on helping the American people succeed in the face of globalization, the administration rejected our proposals and instead encouraged significant increases in consumer, mortgage, student loan, and government debt. When Sir James Goldsmith came to America to