UN Office of Drugs and Crime director Antonio Costa told the Austrian weekly Profil this week that the world illicit drug trade is "the most important of all agricultural markets," with drug transactions totalling $320 billion.
For comparison's sake $320 billion is slightly more than the revenues of BP, and slightly less than that of Royal Dutch Shell. Wal-Mart leads the pack worldwide at $380 billion in revenues. Apropos of nothing, the world's 5 largest revenue generating enterprises, including the drug trade, are primarily involved in distribution. Of course, the retail drug trade has around 150% net margins, while BP has 8% margins. The real money in business seems always in distribution, not production.
The wholesale value of all illegal drugs totals about $90 billion, which was roughly the same as the 2007 revenue of Goldman Sachs. Which brings us to an interesting point.
Antonio Costa noted that "It appears that interbank credits have been financed by money which comes from the drug trade and other illegal activities. It is naturally hard to prove this, but there are indications that a number of banks were rescued by this means."
Banks rescued by drug money. Somewhere Oliver Stone is laughing.
Money laundering efforts have had some effect in making it harder to launder money through banks than in the past, although it is clearly still going on. So where is the rest of the money going? Costa notes "In many cases, drug money is currently the only liquid investment capital, to buy real estate, for example. In the second half of 2008, liquidity was the biggest problem the banking system had, and therefore, this liquid capital (drug money) became an important factor."
So in an environment in which liquidity has disappeared, due in large part to Goldman Sachs and its ilk, drug money has become important in providing fresh liquidity in the real estate market. It makes sense, the money has to go somewhere. Strip malls, restaurants, and homes are having their values propped up in part by the illegal drug trade.
A real irony lies in Costa's assertion that drug money is being used to recapitalize banks, presumably larger banks where the deposit and interbank activity would be less noticeable.
In "Scarface," Tony's boss says "Never underestimate the other guy's greed." With the big banks and investment banks, we did. Tony's mistress says "Never get high on your own supply." The big banks did (money supply) and we're paying for it. The U.N. now says drug money is bailing out the big banks? They deserve each other.
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