Catherine Austin Fitts is the founder of the Solari company, which provides a unique commentary on the global financial and political economy. This includes such things as the flow of money between overt and covert sectors. Catherine has been an executive on Wall Street as well as owning an investment bank and financial software firm.
The Solari Company has a sincere believe that we as a society can transform our economy and our world. To quote Catherine, “I believe we can start doing this wherever we live, beginning in our own towns, neighborhoods, and villages. We can do this by voting with our time and our money in the marketplace as well as the voting booth, in a way that creates jobs and financial security in our communities, strengthens our small businesses and farms, and generates attractive investment returns for local and global investors.” This is what the Solari Company stands for. In addition, Catherine served as Assistant Secretary of Housing/Federal Housing Commissioner at HUD during George Bush Sr.’s presidential administration.
She has supervised cleanup of around $300 billion of troubled mortgage insurance as well as related Savings and Loan, Iran Contra, and black budget scandals. Catherine also tracked the Enron debacle and 9-11 profiteering very closely. Fitts has an MBA in Finance from The Wharton School and an undergraduate degree in History from the University of Pennsylvania.
This was a refreshing interview because Fitts brings such an eye-opening perspective to our economic system, as well as her opinion about the free market system. This is Part 1 of our two-part conversation.
Optionetics: How did you first become interested in investing and economics?
Catherine: The Popsicle Index is a rule of thumb I use to assess the health of a place. It is the % of people in a neighborhood who believe that a child can leave their home alone and go to the nearest place to buy a popsicle and return home alone safely. I grew up in Philadelphia during the 1950s. The Popsicle Index was 100%. It was unthinkable for a child to not be safe running up to Spruce Street for a snack and to play some pinball.
I watched my neighborhood destroyed by narcotics trafficking and mortgage fraud that generated much higher margins than legitimate businesses. The Dow Jones Index rose as the Popsicle Index fell. I was persuaded that the waste in the win-lose relationship offered an "arbitrage" opportunity. In short, if we could retool the financial system to reflect the economic value of knowledge, it was possible to create a much wealthier society in which a rising Popsicle Index fueled a rising stock market. It is the largest capital gain opportunity on the planet today.
Optionetics: What kind of decision-making process do you go through before deciding on a particular investment and a particular sector of the economy that would be worthy of money flow?
Catherine: We are in a political economy in which central banks and governments are using sovereign credit, enforcement and regulatory powers and access to data to manipulate financial and commodity markets. This makes investing complicated, as investors need to track the political economy as an ebb and flow of economic warfare while also assessing fundamental economics. I look for fundamental economic opportunities but am mindful that fundamental economics are not necessarily relevant in the short and intermediate term.
Optionetics: What are the things you like best about running Solari and the kind of financial services you provide?
Catherine: Our plans to start an investment advisory business have been on hold while we finished up litigation with the federal government and built an analytical map of how the political economy works. With the key milestones in the litigation finished as of this summer, we are proceeding with investment and risk strategy advice with a handful of clients.
What I most like about Solari is helping our clients understand this environment in a manner that significantly reduces their risk and increases both their financial and business security and their sense of personal well-being. Our clients are usually people whose business or lives have been touched by the extraordinary levels of corruption in recent years. They are very energized by discovering tools to deal with it -- and by the thought that they can be part of a network that understands and will help them be safe.
Optionetics: How do you treat losses and how do you go about establishing your risk tolerance before an investment is entered?
Catherine: Risk flows out of understanding the strategic purpose of a portfolio and – within it – individual investments. Because we look at everything through the eye of both the political economy and fundamental economics, we look a great deal at systemic financial risk. For example, the US federal credit is essentially bankrupt, not to mention the possibility of fraudulent collateral issues. That has real implications for what could happen to US Treasury and agency securities such as Ginnie Mae as well as Freddie, Fannie and the other GSEs in the event that global liquidity becomes a problem.
To the extent that liquidity continues, productive parts of the economy will continue to be liquidated to subsidize the drain of propping up those parts of the economy that enjoy federal credit support. In either scenario, we want our client to be safe and to prosper.
Optionetics: What are some of the key rules that you feel are most important for an investor or entrepreneur to keep in mind when evaluating any potential economic opportunity?
Catherine: Markets are not free. Financial capital is highly centralized. Business is defined by economic warfare in which – increasingly – anything goes. Get good maps. Build excellent allies. Work hard. Pray for wisdom. Give thanks without ceasing.
Optionetics: Thanks, Catherine, for sharing you’re trading experiences and discussing your philosophy of investing in the markets. Part 2 of this interview will be posted next Friday.
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