How did drug money potentially save the US economy in 2008 from collapsing

even further than it did?

Sources:
1. https://www.youtube.com/watch?v=VTbVeSoNmbU
2. file:///C:/Users/ralph/Downloads/session-iv-soloveichik.PDF
3. https://www.theguardian.com/global/2009/dec/13/drug-money-banks-saved-un-cfief-
claims
4. https://www.ifsahansraj.com/post/power-play-of-drug-money-in-an-economic-crisis
5. https://www.investopedia.com/stock-analysis/2013/investing-news-for-jan-29-hsbcs-
money-laundering-scandal-hbc-scbff-ing-cs-rbs0129.aspx
6. https://www.youtube.com/watch?v=22i6tpq1dRA
7. https://www.incb.org/documents/Publications/AnnualReports/AR2002/
AR_02_Chapter_I.pdf
8. https://obamawhitehouse.archives.gov/ondcp/ondcp-fact-sheets/how-illicit-drug-use-
affects-business-and-the-economy
9. https://insightcrime.org/news/30-years-after-escobar-how-the-cocaine-trade-has-
changed/
10. https://www.justice.gov/archive/ndic/pubs38/38661/drugImpact.htm
11. Former Credit Suisse – Hong Kong CEO
12. Golman Sachs – Head of Distribution and equities in Asia
( writing roughly in order of the sources)

Introduction
Firstly, in order to truly answer the question critically, we need to first understand the
question. Thus, after comprehending why the global economy collapsed in 2008–2009, what
drug money is, and how the various dominant banks in America used this to potentially save
their economy.
How did the global economy crash?
In the early 2000s, there was a significant increase in housing prices, fuelled by low interest
rates and easy access to credit. Lenders issued subprime mortgages that were lent to
people who lenders would never normally permit. All to allow more income because all
bankers believe the housing market will continue to rise. And to make subprime mortgages
more ‘friendly,’ lenders bundled subprime loans into mortgage-backed securities (MBS) and
collateralized debt obligations (CDOs), which were both known to be safe and reliable. But
due to the ‘Law of Supply', when the supply goes up, demand does the opposite, thus
starting the spiral that we know as the Great Financial Crisis. But it did not stop, due to the
deluded state of the people everyone was trusting their money in, all banks invest heavily in
MBS and CDOs, often using high levels of leverage. Even banks as big as Goldman Sachs.
But then arguably a more important question, being what is drug money? By definition it is:
Money, cash, funds, whether in hand, cold hard or electronical funds, its currency earned
from selling drugs, from as amateur as slinging coke on your nearest street corner, to as
professional as having a weed smuggling branch you bought out from the Cartel, it's all drug
money and of course, is usually illegally earned. So how has money with this nature made
its way into the formal economy. But the quantity of the drug money was not minimal it was
estimated by Antonio Costa, Executive Director of the United Nations Office on Drugs and
Crime (UNODC), that $352bn in criminal proceeds was effectively laundered by financial
institutions.
Then the final question, the last of the trifactor, what is money laundering, and why did the
Banks do it?
The term money laundering originated from Al Capone. Credited by some with inventing the
term money laundering by purchasing Laundromats to funnel his mob profits through,
Chicago gangster Al Capone is the most famous money launderer in American history. But
the term originated even further as some say that over two thousand years ago wealthy
Chinese merchants started to ‘clean’ their funds to avoid regional trading bans. But how did
you do money laundering and how did banks potentially embezzle these funds. To launder
funds, the banks inflate daily revenue figures to influence the dirty money into the clean
market, which is then deposited into the business's bank accounts as legitimate earnings.
The company's financial records simply record the illicit funds as additional revenue.
EVIDENCE
An example which has been the basis of a generous portion my research has been the
Lehman brothers, who escaped the law for a minimum of 7 years. Which consisted of the
scandal known as the Repo 105. Which is thought to maneuverer to pay down $50 billion in
liabilities to reduce leverage on their balance sheet, which could have a large amount of
illegal, and drug related assets. But how did this Repo 105 work? It worked buy using fault in
the laws to do with what is a sale and what is a loan, to make these ‘bad’ assets appear as
they have been sold, but in fact they have just been loaned to another party. This would then
cause the quarterly reports deem Lehman’s leverage ratio to be good but in fact they were
incredibly poor. But this would only delay their eventual collapse. To believe that the
business that lent out around $60 billion in 2006 declared bankruptcy in 2007, calling it crazy
would be an understatement. Furthermore, in September 2008, Lehman Brothers filed for
bankruptcy, becoming the largest U.S. bankruptcy in history (as of May 31, 2008, total debt
was $613 billion). Now, financial institutions were forced to deal with worthless subprime
mortgages worth trillions of dollars.

One of HSBC's worst periods came in the early 2010s when the 150-year-old company,
which had survived financial crises, stock market booms, and two world wars, was shaken
by a money laundering scandal. HSBC had been centralising its global operations, selling off
unproductive subsidiaries, and restructuring aggressively. Despite being made with the
intention of streamlining the business, these modifications subtly undermined HSBC's
compliance procedures. All of this causing them to be fined around $1.9 billion. Due to acting
primarily as an intermediary for Mexican drug gangs. Along with $665 million in civil
penalties, the fine revealed serious issues with the bank's anti-money laundering (AML) and
compliance procedures. It is one of the biggest fines ever against a bank for violating US
law. The arrangement allowed HSBC to maintain its U.S. charter while acting as a warning
sign for the bank to improve its practices. This strategy was chosen by regulators in order to
avert the possible failure of a well-known financial institution, which may have had global
repercussions, but still has major affects for the people working the in and outs of the
laundering process and many people have been thought to be seriously injured or worse
during their engagement with the Cartel.
Although HSBC were only one of the string of banks fined post financial crisis.
Encompassing Syria, Sudan, Iran, and Cuba. 2009 saw a $536 million settlement from
Credit Suisse; 2010 saw Barclays agree to pay $298 million; 2012 saw ING fined $619
million; 2012 saw Standard Chartered fined $330 million (plus an additional $1.1 billion in
2019); 2014 saw BNP Paribas fined $8.9 billion; and 2015 saw Deutsche Bank pay $258
million. Each fine was for wilfully flouting regulations set out by the Office of Foreign Asset
Control (OFAC) by aiding and abetting illicit transactions with nations like Iran and Libya.
HSBC have not been doing this only post war, they have been doing deals with Iran since
the 2000’s and have processed 19.7B USD through trades with them. This plus the 881M
with El Chapo is really telling about the Banks priorities. But the incentives for the banks
heavily out way the consequences after potentially 12 years of money laundering the Bank
got fined 1.9 billion USD which is a drop in the ocean compared to the 16.8 billion the bank
brought in, in 2011 alone. Furthermore, just after the financial crisis a bank that large cannot
go bankrupt, and due to the financial repercussions thus the government are stuck with no
option but a petty fine and no lawsuits.

ECONOMIC AND MORAL IMPACTS

Although it is not thought to, drugs trade actually adds 111 billion dollars to the GDP of
America, and altogether makes up 0.4 percent of the total US economy, due to the
international narcotics control board. Many people with low skill levels find employment in
the agriculture sector in rural parts of several nations thanks to the illicit drug trade.
education, like workers who travel on the job and small farms. In addition, the illegal drug
trade employs money launderers, retail distributors, runners, wholesale distributors, and lab
operators. For nations with high unemployment rates and illegal crop farming, these job
possibilities may be crucial from an economic standpoint, and potential lead to short term
economic gains. It is estimated that 3 percent of the combined rural population of Bolivia and
Peru was engaged in illicit drug production in the late 1980s. It is estimated that a similar
percentage of the combined rural population of Afghanistan and Colombia was engaged in
illicit drug production at the end of the 1990s. And this can only increase, as you can see
here:
But it has been even more exponential with cocaine:

But so far, I have only listed the positives, as sadly and I am sure you will have guessed is
that the negatives far out way these economic sided positives. Firstly, to look at it from a
school perspective, Students who are not current marijuana users are more than twice as
likely to report an average grade of “A” than those who are current users of marijuana
(30.5% vs. 12.5%). College students who use illicit substances for non-medical reasons
typically have lower grade point averages and are more likely to be heavy drinkers and users
of other illicit drugs. They also are more likely to meet diagnostic criteria for dependence on
alcohol and marijuana, skip class more frequently, and spend less time studying. And due to
the statistic issued by the US department of justice stating that, 14.2 percent of people over
ages of 12 have used drugs in the past year means, that the future of our economy will
severely impacted by the efficiency and smarts of our future workers, and people between
the ages of 18 and 35 have rates up to 33.5.

But the threats to our economy do not stop there, as there are health issues do to the intake
of these illicit substances. The Department of Justice even states, ‘In 2008, NSDUH
estimated that seven million individuals aged twelve and older were dependent on or had
abused illicit drugs in the past year, compared with 6.9 million in 2007. The drugs with the
highest dependence or abuse levels were marijuana, prescription pain relievers, and
cocaine. The number of individuals reporting past year marijuana abuse or dependence was
4.2 million in 2008, compared with 3.9 million in 2007; the number of individuals reporting
past year prescription pain reliever abuse or dependence was 1.7 million in both 2007 and
2008; and the number of individuals reporting past year cocaine abuse or dependence was
1.4 million in 2008, compared with 1.6 million in 2007.’

But the consequences and affects do not stop their as, there is a large impact on the
Criminal justice systems, The most recent annual data from the Federal Bureau of
Investigation (FBI) show that 12.2 percent of more than 14 million arrests in 2008 were for
drug violations, the most common arrest crime category. The proportion of total drug arrests
has increased over the past 20 years: in 1987, only 7.4 percent of all arrests were for drug
violations. Approximately 4 percent of all homicides in 2008 were drug-related, a percentage
that has not changed significantly over the same 20-year period.

CONCLUSION
Although the economy has been heavily boosted, and potentially saved by this drug money
being laundered through these banks, and potentially more than I have listed. And when
banks do not have enough capital, or liquidity they end up self-combusting and so does the
economy, and thus many people lives are in danger, due to poverty being everywhere and
people Jobs going out the window. But does this out way the listed affects of drugs in the
economy. To conclude, the notion that drug money might have benefited the American
economy depends on how illegal money supplied vital liquidity in times of economic
contraction, as the Great Recession of 2008. Drug money, which was frequently laundered
via a number of financial institutions, may have helped sustain companies, banks, and real
estate markets at this time, preserving cash flow and the local economy in the areas most
affected by financial turmoil. The drug trade unintentionally produced jobs and local
spending in locations with few options for legal business ventures, offering a short-term
economic boost. But these advantages also have major societal costs and ethical and legal
ramifications. Substance abuse's negative health effects, such as addiction and overdose,
result in high medical expenses. Investment is discouraged and community well-being is
compromised by rising crime and social unrest. Further, Drug money may provide some
temporary financial comfort, but the long-term social and economic effects are negative. The
core causes of drug usage and economic vulnerability must be addressed for there to be a
sustainable economic recovery and growth. Fostering a healthier, more resilient society
requires comprehensive policy and social interventions targeted at enhancing public health,
social stability, and economic possibilities. Therefore, I think that the short-term advantages
of drug money significantly exceeded the drawbacks of letting the drug economy grow by
having banks launder the money.