Helicopter Geithner’s NY Fed $40 Billion Iraq Money Drop

Reader 1SK sent me a story which I felt I had to call to the attention of Naked Capitalism readers. It strikes me as devious public relations ploy, in which an episode that sounds at best poorly executed and at worst a scandal is reframed by focusing on an account of alleged exceptional individual performance that also provides an unverifiable answer to a key question in an ongoing investigation.

The incident in question is the air shipping of a claimed $40 billion in cold hard cash airlifted from the New York Fed to Iraq from 2003 to 2008. This operation took place largely if not entirely on Tim Geithner’s watch, since he was president of the New York Fed from October 2003 to November 2008. So while the US has never had a Helicopter Ben, Iraq had a Helicopter Geithner.

As you will read in due course, CNBC has found a supposedly knowledgable individual who says the amount transported, but we don’t have and are pretty much guaranteed never to get an official tally. The New York Fed has made excuses for its failure to cooperate with the inspector general for Iraq reconstruction. From a June CNBC report:

The New York Fed will not reveal details, the inspector general said, because the money initially came from an account at the Fed that was held on behalf of the people of Iraq and financed by cash from the Oil-for-Food program. Without authorization from the account holder, the Iraqi government itself, the inspector general’s office was told it can’t receive information about the account.

The problem is that critics of the Iraqi government believe highly placed officials there are among the people who may have made off with the money in the first place.

And some think that will make it highly unlikely the Iraqis will sign off on revealing the total dollar amount.

“My frustration is not with the New York Fed, it is with the Iraqis,” said Stuart Bowen Jr., the Special Inspector General for Iraq reconstruction (SIGIR). “They haven’t been sufficiently responsive.”…

Determining the total amount of money that has gone missing — and who was responsible for losing it — is much more than an academic question. Some Iraqi government officials have threatened to sue the United States over the missing money, arguing that the government had a fiduciary obligation to apply appropriate financial controls, and is therefore liable for any losses.

The reason I have trouble swaLLowing this story is it would not be hard for the right signals to be sent from the US officialdom to the Iraqi government to ignore this request, giving the New York Fed a badly needed out. Let’s face it, if some Iraqi government officials are upset and want an accounting of the funds, why has there been no authorization to release the information to the inspector general? Clearly, the requests are being sent to parties guaranteed to put them in the circular file.

And this would not be the first time the NY Fed has pinned its desire to maintain secrecy on cooperative scapegoats. For instance, some parties have asked for the contracts between the New York Fed and Blackrock for Blackrock’s services as asset manager for the Maiden Lane bailout vehicles (one for Bear Stearns, two for AIG) be disclosed. The NY Fed has refused, saying Blackrock has insisted they remain secret. A colleague who spoke to Blackrock’s CEO Larry Fink says Fink says that’s untrue, Blackrock has in fact pushed the NY Fed to publicize them. But the Blackrock does a lot of business with the Fed and presumably is not willing to cross an important client by calling them a liar.

Since the Fed isn’t lifting a finger to help, the inspector general has focused on the chain of custody, basically what happened after the money left the Fed, since much of it appears to have gone missing. The latest CNBC report says that one source claimed that the money drops totaled $40 billion. The article also states the funds were used “to pay for the reopening of the government and restoration of basic services.” I have a strong suspicion they defrayed the costs of the war and occupation, rather than the just the rebuilding of the government. (One other rationale would be simply to send cash to replace the old Iraq currency, to create a dollarized or semi-dollarized economy. But you’d need to look to see if local banks offered dollar based accounts to ordinary Iraqis to see if that took place, because you’d expect the authorities to have followed through on the local end if that were the case).

The notion that the mysterious NY Fed money drops were supporting more than just the narrow restoration of government services open up other nasty possibilities. Remember the many complaints about the impact of the big budget deficits run during the war. They were two-fold. One was that the deficits were the worst of all possible worlds, since the war spending was going heavily to contractors in the Middle East and hence not simulating the US economy. Second was that the contractors were extraordinarily inefficient, with multiple layers and huge markups at each level.

Now it is in fact quite possible that the NY Fed more than $40 billion, and more important, more than was held in the Iraqi custody accounts. Who would know if the decision was made to “print” to provide a stash for either extra operations related to the Iraq war that the officialdom wanted to keep below the radar or to send some (a lot?) of extra dough along with this massive money airlift to fund all sorts of black operations?

Implausibly, we are told only one man was on the receiving end of all these shipments:

And although the money was handled by a variety of trained American officials and military officers in the first legs of its trip halfway around the world, CNBC has learned that something unusual happened on the Baghdad side of the transaction: Each of the money flights to Baghdad was met at the airport in Iraq by the same man.

The previously unknown Coalition Provisional Authority (CPA) official was tasked with picking up the bales of billions as they were unloaded from C-17s and arranging for them to get to the Central Bank of Iraq in downtown Baghdad. It was a perilous journey of about seven miles over a road the U.S. military called “Route Irish” through territory often controlled by insurgents. Travelers faced the threat of rocket propelled grenades, mortars, car bombs and IEDs….

The CPA official was a stocky, middle-aged naturalized American citizen of Lebanese descent who was born in Saudi Arabia. His first name is Basel. At his request, CNBC has agreed to withhold his last name from this story. Basel ferried cash in Baghdad for the CPA and the American embassy from 2003 until 2008—all told handling, he said, about $40 billion in cash.

His job made him the very last American to see that money before it disappeared into the vaults at the Central Bank of Iraq. And it may have made him the only person in the history of the world to oversee the movement of $40 billion in a combat zone.

It doesn’t seem that anyone in the US government planned ahead of time to put so much responsibility—and temptation—into the hands of just one man. Former Republican Connecticut Congressman Christopher Shays co-chaired the Commission on Wartime Contracting, digging into waste, fraud and abuse in Iraq. He has traveled to Iraq scores of times to oversee US efforts there. Shays did a double take when CNBC told him how much money Basel said he handled in Iraq.

“Wait, one person?” Shays asked. “One person received $40 billion?”

Look at how convenient this is. We have one man surface who allegedly managed all the money sent. That allows him to present a dollar amount to be bandied about in the media and throw the inspector general a bone. The $40 billion total is likely big enough to represent a substantial portion of what the Iraqis might guesstimate was in the account held in the NY Fed. In addition, the presence of single actor greatly tidies up the story. The official account its thus that all the money got to the Iraqi central bank. Anything that went amiss was further downstream.

And the documentation to support the claim that Basel made the deliveries is garbage:

One document Basel showed CNBC was a one-page receipt of shipment for a billion-dollar delivery in April of 2006. Basel typed it up himself. It read, in part: “This is to testify that we, the undersigned, have received in our custody from [Basel’s full name] … the total amount of USD 1,000,000,000.00 (United States Dollars One Billion Only).” At the bottom were the hastily scrawled signatures of two officials of the Central Bank of Iraq.

What this “documentation” proves is no one gave a damn as to whether the money was properly handled. Do you honestly think that anyone on the receiving end counted the money when he delivered it? $1 billion in $100 bills is for all practical purposes NOT countable unless you have lots of super high speed counting machines. Basel was evidently doing what he could to protect himself against accusations of pilferage through these made-up receipts.

Now that Basel is the official face of how the funds got to the Iraqi central bank, it is a certainty no one else will come forward. It may be true that the total was $40 billion and it may be that Basel was the only person to handle the logistics of getting the pallets from the airfield to the central bank. But this is all a tad too tidy, and serves to divert attention from the unanswered question of how much money really left the New York Fed, which is essential to determine how much went missing.

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  1. rafael bolero

    The $40B is in a warehouse with the 40 tons of plastic explosives the US Army ignored and lost in the drive into Babylon. This constitutes a government-start-up kit: add blood, stir. Nation building in a box.

  2. sleeper

    With all the talk about debt, deficit, and taxes / tax relief why is no one asking questions ?

    Questions like –

    Who knew ? Bush ? Geithner ? Any senators ?

    Did anyone sign off ?

    When did they know ?

    What effect did the 40 billion have on our economy ?

    Where did the money go ?

    Did it work ? Did it stimulate the Iraqi economy ? And if it did work would a similar program work for the US economy ?

    Did / will anyone go to jail ?

    1. Yves Smith Post author

      The party line is we were just sending Iraqi money held in custody back to Iraq to rebuild their government. If you believe that, I have a bridge I’d like to sell you.

      1. sleeper

        OK I’ll buy the party line and the bridge you want to sell.

        We can say we are merely returning the tax dollars that are collected from each state (and most citizens)in a cost effective direct manner.

        What better way to do this equitably and efficiently than an air drop from say 10,000 feet.

        Note that no gevernment red tape, no regulations, no taxes would be involved.

        A perfect solution.

        1. mansoor h. khan

          Yes. This idea is called “social credit”. By Clifford H. Douglas (1879 – 1952).

          Also, this idea is consistent with MMT ideas and Keynes’ model of relationship between demand, money, inflation and the goods and services production process.


          The only possible fly in the ointment is peak oil. Keynes’ model assumes essentially limitless natural resources with spending (with new money or existing money) metered to minimize inflation.

          Actually, peak oil makes this idea even more relevant because fractional reserve banking is not sustainable without growth (based on limitless natural resources).

          I not sure our current “screwed up” economic situation is because of peak credit (like during the great depression) or peak oil. Either way, FRB needs to go the way of the dodo bird and money (currency) needs to be serve humanity rather than humanity serving the banking cartel!


          1. aet

            yes, tell us all about the religion of social credit. I do so like fairy tales!

            This 40 billion is only a very small part of what the world has been over-charged for oil in the past fourty years or so.

            “Peak oil” is a post-Iraqi-invasion myth (unlike global warming caused by the burning of fossil fuels – as an aside, it is interesting that somebody had enough money to get the former “accepted” as truth, and the latter “dismissed” as falsehood – while the precise opposite is the truth! Go US Mass media!).

            Violence in the Middle East serves mostly, perhaps only, to keep the price of oil far far higher than the costs of its production there – and thus far far more profitable – than it should , or would otherwise, be.

            On the plus side, if the oil co is a State entity, some people – the citizenry of the oil state – get a big break on taxes to be paid, and fat subsidies to receive.

            But if it goes into “private” pockets, they’ll certainly use a part of those invreased profits to keep the pot boiling (that is, keep the violence going), simply to keep prices high, and every body (especially those people who live in the oil-producing regions) but the private oil co will end up worse off.

            Particularly so, in light of the very rapid changes our climate is now experiencing due to our use of coal, oil and gas.

          2. bluntobj

            Choosing not to provide an alternate to a bad idea does not then validate the bad idea.

            As a collorary, some bad ideas are so bad that even acknowledging that they are in the set of possibilities gives them validation. Therefore the only correct response is to dismiss them out of hand.

    1. sleeper

      I’d like to propose an experiement –

      Let’s load up 40 billion dollars in an approriate number of C5As
      and dump it over Detroit,Cleveland, or some other distressed city (Las Vegas?) and see what happens.

      Does it fix the economy ?

      40 billion dollars will hardly be missed and the argument over whether austerity is better than stimulus will be answered.

      1. Different Chris

        This is why I support income tax cuts/holiday in the current environment. Getting out of the BSR is all about deleveraging and how quickly the private sector can do it.

  3. pj

    This is laughable, purely laughable. We are supposed to swallow this b.s.?
    It’s criminal how ignorant some wish others would be.
    Does anyone here believe an American politician would allow $10 to get past him, let alone $40 billion?
    Pols, check your pockets. You’ll find the “missing” money there, I’m sure.

    1. aet

      As these funds were withheld payments due to Iraq for goods already received by the USA, it is hard to see how the USA got to keep control of it, without being seen as thieves.

      Oh, right – it ain’t theft unless the US Congress says so!
      In fact, it doesn’t exist if the US Congress says it doesn’t!

      Isn’t that in the Constitution, somewhere?

      Like torture is not torture, if the US Congress says so!

  4. Renodino

    Basel is in Dubai and he’s not coming back home to the U.S. That pretty much explains everything.

  5. beowulf

    Amazing, has there ever been a bigger case of embezzlement? of course this had nothing to do with “returning” the Iraqis their money, To do that, the Fed would simply have marked up Iraq’s reserve account and marked down Oil for Food fund’s reserve account.
    Even leaving aside that the Iraqis already had their own currency (the CPA contracted with British firm De La Rue to print dinars), its military SOP to never ever bring greenbacks into a war zone, to instead use military scrip (with frequent replacements), 1. to disrupt the black market and 2. to keep someone from taking advantage of the fog of war to walk off with a king’s ransom (sounds crazy I know).

    Military personnel deployed abroad (protective or occupation) are generally paid in military scrip, which prevents legal tender from going into the black market, plus it is an excellent way of keeping tabs on military payments and spending. For US Forces following WWII this was called MPC Military Payment Certificate. This type of scrip can be exchanged through the military for legal tender upon return to the home nation. Military occupying powers have also been known to issue occupation scrip for local civilian use as a means of controlling the local economies.

    1. citizendave

      One day in 1969 in Viet Nam I had lunch with a man dressed in Army fatigues and showing E7 rank. We were in a secure area and for whatever reason he decided to tell me his story. He said he was a CIA analyst. I was in the Army’s NSA branch, and everything he said seemed plausible to me. He said CIA’s policy was to allow the black market to flourish in the communist countries, both in Viet Nam and in Eastern Europe, thereby to physically demonstrate the fruits of our Western consumer economy to the people living under communist rule. It’s surely a different problem in Iraq. (Currency was strictly controlled. I saw no US money that entire year, only military payment scrip, and Vietnamese currency.) After reading the article on this subject in Rolling Stone, which put the figure at about $12 billion, IIRC, my instinct was that the purpose was to make things happen for anybody trying to work with local people. One wonders if it were possible to purchase the desired outcome of the war — we heard about bought off militias — wouldn’t that be consistent with neo-con logic? If dollars are circulating in the local economy in Iraq, wouldn’t that be easily discoverable?

      1. Susan the other

        I wonder, if Bremer was scared, would he have been more nervous that he could get prosecuted for black marketeering or that he might get his legs blown off. There must be all sorts of diplomatic immunity for a “diplomat” under Iraq law; how about under the laws of the diplomat’s own country? It does seem like the same template was used (Vietnam and Iraq). Certainly no State Department person nor any CIA person was ever held to account in the 70s for the debacle in Vietnam. But we did grill General Westmorland; and “Colonel” Lansdale was impugned. It will be a question of accounting for the money only, if ever.

      2. Viet Vet

        I was stationed in Viet Nam all of 1969 and I saw lots of US dollars there. I was an MP in Saigon and saw plenty of US dollars in Vietnamese bars, and elsewhere. I also went into a US MP protected bunker at Tan Son Nhut air base (next to Saigon) which contained pallets of bundled $100 dollar bills piled head high.

        If you were in Saigon in 1969 and did not see US dollars, you were not where the action was. Just because you did not see them does not mean they were not there.

  6. skinla

    Basically, this just seems to be a cover up for how the U.S. government was instigating and funding war in Iraq by paying private mercenaries. This could have been the way to avoid knowledge and approval of the Congress and American public. For history, remember Reagan and Iran-Contra scheme.

    Also, check antiwar perspective on this rip off:
    Billions Lost in Secret Fed Funding of Iraq War

  7. Susan the other

    circa 2005 (?) I remember seeing footage of Ambassador Bremer in Bagdad. His tension was palpable thru the tv screen. He always dressed in a suit but he wore combat boots. Really. He was ready to run for the helicopter at a moment’s notice. And when he spoke he was skittish. The rumor was he was an old school mate of W, so he could be trusted with this delicate mission. But it was never explained. For sure Bremer knows what happened to all that cash. He probably knows where the priceless artifacts from the Iraqi Museum are. Bremer got out as fast as he could – after the pallets of US dollars arrived – and was replaced by Negroponte, a less flighty character. Anyway that footage showed Bremer, and panned down to his boots as the camera swept past a pallet of money. Bremer was there.

  8. Procopius

    I thought it was $120 billion, all in 2003. Oh, no, that was from the Pentagon account to the Coalition Provisional Authority. In cash. Shrink-wrapped packages on pallets. And nobody knows where most of it went. One story I heard was that they would just leave piles of cash unattended in an office and anyone who wanted to could come in an help themselves. I don’t know, that sounds pretty far out. But there are so many questions about missing money. And we’ve never been told who made the decision to disband the Iraqui army without disarming them. So much incompetence, and the same people are still being paid millions of dollars a year.

    1. Evan J

      You can’t be sure that “incompetence” was a factor unless you understand the true mission. For example, if the mission was to secretly redistribute a stupendously huge pot of unreported money to US politicians, military contractors, and other hangers-on, then it was likely handled with thorough and absolute competence. In that case, we would also need to reassess GWB’s “Mission Accomplished” speech. We just didn’t know what mission he really meant.

  9. Frank in midtown

    For some strange reason that can’t be fathomed, the heads of the Treasury and Federal Reserve seem to think that a functioning banking system is a requirement of a modern society. It’s un-understandable.

  10. niat holder

    Oh, Pleases…Start looking in Abu Dhabi,gold reciepts in exchange for stolen oil by Bush/Cheney,Halliburton and paid mercenaries during Iraqi Freedom. Start Gen.Jay Garner, David J. Lazar, the Saudi Prince Abdullah and former pm Blair talking…this has all been reported at least abroad by many who witnessed first hand…. http://www.dailymail.co.uk/news/article-434557/363-tonnes-US-cash-sent-Baghdad-handover.htmlhttp://www.guardian.co.uk/world/2006/mar/20/usa.iraqhttp://www.pbs.org/wgbh/pages/frontline/shows/truth/interviews/garner.html

  11. Evan J

    I wonder how much of the $40B was quietly shipped from Baghdad back to Washington in diplomatic pouches, to buy votes for ongoing war appropriations, and prevent potential investigations? It’s a safe bet we’ll never know the answer, but the amount of money and the total secrecy makes it a convincing theory.

    1. Yves Smith Post author

      No, we are correct on this one. We do not mean the asset level detail in the Maiden Lane vehicles. We’ve written about that extensively pre and post their publication. Those were released by the NY Fed ONLY after considerable public pressure, in particular from this blog (Darryl Issa released the transaction level details of ML III after we showed in a series of posts that over 80% were already public and you could easily compile considerable detail about them, and hence the “we can’t let the market know what we have” argument was pure bullshit).

      By “contracts”, we mean the agreement between the NY Fed and Blackrock regarding how the fund management services are to be provided for each of the vehicles and among other things, what fees Blackrock gets.

      1. MJ

        Yves, those contracts ARE on the website…Follow the link and scroll down to the section called “Vendors.” Click on the BlackRock name to bring up the PDF. Page 32 / Exhibit B shows the fee schedule.

  12. Susan the other

    We are ragtag children at the table. We are poor but we have each other. And we are very hungry. We each have a plate and there are three bowls of food prepared. Our behavior is disgsraceful because we have not been taught to trust each other. Suddenly we all stand up, aggressively, shouting and pushing each other; and we try to grab the bowls. Some of us succeed. We take a serving and pass the bowl on. Others of us just eat the whole damn thing.

  13. Paul Tioxon

    Well, $50Billiion, oh now, small potatoes, who cares, they have spent $3TRILLION and counting to prosecute the war in Afraquistan, and you are worried about $50Billion? What about Richard Perle and Dick Cheney who spear headed the war effort with the state power afforded them by stealing a presidential election from Al Gore? It’s like prosecuting steno pool in Hitler’s bunker to worry about $50billion. Really, cheese and crackers!!!!

  14. Horatio Parker

    If I were the Iraqi govt I’d be tempted to say, “yes it’s our money but you still owe us $40B”. Being the fall guy oughta be worth something.

    Someday the truth will come out.

  15. steelhead23

    There is so much wrong here, I hardly know where to begin. Let’s start with the Fed Charter – the Federal Reserve Act. In what way would funding the reconstruction of a foreign nation serve the Fed’s chartered objectives (“to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates”)? I would argue that if the U.S. wished to fund Iraqi reconstruction, it should have done so through the U.S. Treasury and authorized by the U.S. Congress. Basically, the Fed did Bush’s bidding here and even if the money was actually embargoed Iraqi funds from the food for oil program, using that money for reconstruction had no legal basis. Thus, I would argue that even from its origin, these funds were tainted.

    In a normal circumstance, if the Fed were to lend money to a foreign country, there would be a clear bookkeeping record, subject to Congressional review (although the Fed would not agree). Here we have the Fed, printing FRNs en masse, transporting them to a foreign nation, entrusting said bills to a single individual – and then losing track of them?! OMG – honestly, I happen to believe that the Fed is misguided, driven by bad policy and ideology, but I am stunned to witness how utterly incompetent it is. END THE FED.

  16. mk

    War Is A Racket

    A speech delivered in 1933, by Major General Smedley Butler, USMC.

    Smedley Butler

    WAR is a racket. It always has been

    It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives.


  17. Malcolm Kettering

    Here’s an anecdote: my in-laws live in Amman, Jordan, where there are a lot of middle- and upper-class Iraqi refugees now residing. My in-laws tell me it is not uncommon to see these folks in the various banks in Amman with garbage bags full of US dollars to deposit. Seriously.

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