WEBVTT - How the US Dollar Became an International Weapon of War 0:00:10.520 --> 0:00:14.400 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:14.520 --> 0:00:16.960 I'm Joe Wisenthal and I'm Tracy Allaway. 0:00:17.160 --> 0:00:21.200 Tracy, you know something that has always struck me about 0:00:21.440 --> 0:00:24.239 I don't know, the financial system, I guess, is that 0:00:24.920 --> 0:00:29.840 from the US perspective, it feels like any time anyone 0:00:29.960 --> 0:00:34.680 spends any money anywhere, particularly dollars anywhere, like the US 0:00:34.760 --> 0:00:38.159 could sort of go after them, even if it's overseas 0:00:38.560 --> 0:00:41.400 completely out of the country. It feels like the US 0:00:41.520 --> 0:00:46.319 basically has the prerogative to say, you're breaking the law. 0:00:46.440 --> 0:00:48.160 So what you're doing something we're not going to allow. 0:00:48.400 --> 0:00:50.280 This is what exorbitant privilege looks like. 0:00:50.440 --> 0:00:52.680 Right, Yeah, this is it. I guess that's it. 0:00:53.080 --> 0:00:55.800 Well, I think you're hitting on something that's kind of 0:00:55.840 --> 0:00:59.720 fundamental about the current financial system, which is the dollar 0:00:59.840 --> 0:01:04.160 is the global reserve currency, and there are some pros 0:01:04.240 --> 0:01:07.240 and benefits that come with that. One of them is 0:01:07.280 --> 0:01:11.080 that you can use it as a tool of state craft, 0:01:11.160 --> 0:01:14.120 so you can go after people that you don't like 0:01:14.200 --> 0:01:17.800 or people that are breaking the law. But there is 0:01:17.880 --> 0:01:21.360 also this tension on the other side where it seems 0:01:21.400 --> 0:01:25.880 like there are some downsides too, right, like maybe at 0:01:25.920 --> 0:01:30.000 certain times the US would desire a weaker dollar in 0:01:30.240 --> 0:01:36.919 order to jumpstart economic growth or certain exports, manufacturing, things 0:01:37.000 --> 0:01:39.520 like that. I think on the whole, most people would 0:01:39.560 --> 0:01:42.720 agree that the dollar's special status in the financial system 0:01:43.080 --> 0:01:46.880 has been a massive benefit for the US, viz. The 0:01:47.280 --> 0:01:51.400 huge deficit and people willingly funding that and things like that. 0:01:51.640 --> 0:01:54.919 But there are downsides, and that debate kind of bursts 0:01:54.920 --> 0:01:56.920 into the public consciousness every once in a while. 0:01:57.280 --> 0:02:02.640 Yeah, one thing, obviously since early twenty twenty two, when 0:02:02.760 --> 0:02:08.320 Russia invaded Ukraine, that sort of seems to have you know, 0:02:08.440 --> 0:02:11.519 then the US responded with an extraordinary amount of sanctions 0:02:11.560 --> 0:02:14.960 and cutting off Russia from the dollar base system almost 0:02:15.000 --> 0:02:19.280 every way imaginable. It's sort of like, you know, maybe 0:02:19.440 --> 0:02:23.480 catalyzed the new round of talk of, okay or parts. 0:02:23.200 --> 0:02:25.280 Of the world power of the dollar, the. 0:02:25.320 --> 0:02:28.040 Power of the dollar, exactly right. And I think that 0:02:28.200 --> 0:02:30.800 was sort of a pivotal moment. I don't know if 0:02:30.800 --> 0:02:32.760 it will be a pivotal moment for the future of 0:02:32.800 --> 0:02:35.640 the dollar, but at least it was a pivotal moment 0:02:36.240 --> 0:02:39.239 at least in this current cycle of people talking about 0:02:39.280 --> 0:02:40.200 dollar alternatives. 0:02:40.240 --> 0:02:42.799 You know, it's interesting you bring that up because you're 0:02:42.840 --> 0:02:45.760 absolutely right. It feels like that was the catalyst for 0:02:45.919 --> 0:02:49.400 the current round of discussion about the power of the 0:02:49.440 --> 0:02:52.160 dollar and the future of the dollar in the financial system. 0:02:52.600 --> 0:02:57.360 But thinking back to some all blots history, when I 0:02:57.440 --> 0:03:01.680 think about that question of the US maybe overreaching or 0:03:01.800 --> 0:03:05.320 using the dollar in this particular way, in the way 0:03:05.360 --> 0:03:07.880 they used it for Russia, I think about the conversation 0:03:08.120 --> 0:03:12.280 we had with the former head of Afghanistan Central Bank. 0:03:12.960 --> 0:03:16.959 Do you remember that, Yeah, because there was I think 0:03:17.080 --> 0:03:21.080 like seven or eight or nine billion dollars worth of 0:03:21.160 --> 0:03:25.760 reserves held by the Afghan Central Bank, and when the 0:03:25.760 --> 0:03:29.480 Taliban took over, the US basically seized all of it. 0:03:29.680 --> 0:03:32.800 They put some of it aside for nine to eleven litigation, 0:03:32.960 --> 0:03:35.040 and then some of it got put into a fund 0:03:35.120 --> 0:03:38.320 that was supposed to be dispersed to the Afghan people 0:03:38.440 --> 0:03:41.440 in some way. But that to me, and maybe we 0:03:41.560 --> 0:03:43.160 touched on it in the episode, but that to me 0:03:43.320 --> 0:03:46.040 was sort of the crossing the rubicon moment when you 0:03:46.080 --> 0:03:49.880 can actually say I'm going to take these central bank reserves. 0:03:49.840 --> 0:03:50.200 You know what. 0:03:50.240 --> 0:03:52.960 It sort of gets to this idea in my head, 0:03:53.000 --> 0:03:55.080 and I think that's a great example, which is that 0:03:55.680 --> 0:03:59.600 a dollar is not really a thing that you have 0:04:00.120 --> 0:04:06.800 to claim to capacity on this global, complicated dollar network, right, 0:04:07.040 --> 0:04:09.080 and so we think maybe it's like, oh money, it's 0:04:09.200 --> 0:04:11.000 you have it. It's sort of like property, but it's 0:04:11.000 --> 0:04:14.440 not like really like property. It's really just it's almost 0:04:14.480 --> 0:04:16.680 like it's almost like a ticket in some way to 0:04:17.320 --> 0:04:19.919 like a plane, but if the plane doesn't want to 0:04:19.920 --> 0:04:22.880 honor your ticket, if the airline like it can and 0:04:22.960 --> 0:04:25.160 so it almost feels like there's sort of a reminder 0:04:25.200 --> 0:04:28.719 that yes, you could theoretically hold dollars, but in the end, 0:04:29.040 --> 0:04:31.400 like the US could sort of decide like, actually, your 0:04:31.440 --> 0:04:33.000 dollars are no good here anymore. 0:04:33.120 --> 0:04:37.080 Yeah, there's conditions attached to that ticket or that it's 0:04:37.080 --> 0:04:39.640 not an actual piece of paper, but that line item 0:04:39.760 --> 0:04:41.239 in a computer system somewhere. 0:04:41.400 --> 0:04:43.440 And so I think it's really interesting, like what is 0:04:43.520 --> 0:04:46.839 the history of all of this, What are the limits 0:04:47.000 --> 0:04:50.279 to this power? How did we sort of emerge with 0:04:50.400 --> 0:04:54.039 this capability to sort of track the dollar flows and 0:04:54.080 --> 0:04:56.320 decide who gets access and how do we cut people 0:04:56.360 --> 0:05:01.239 off from the dollar system? It's extremely extremely interesting question. 0:05:01.400 --> 0:05:04.800 Yeah, and it's definitely core Audlot's content at this point. 0:05:04.880 --> 0:05:07.080 So in addition to speaking to the former head of 0:05:07.200 --> 0:05:10.279 Afghan Central Bank. We've had Sultan Poso Yeah, on a 0:05:10.360 --> 0:05:14.039 number of times to talk about his vision of dedollarization 0:05:14.240 --> 0:05:18.400 and Bretton Wood's three. We've had Perry Marling debate Sultan 0:05:18.480 --> 0:05:22.000 to talk about this particular issue. And I'm happy to 0:05:22.040 --> 0:05:24.440 say that today we have one of our own Bloomberg 0:05:24.520 --> 0:05:25.560 colleagues to talk about this. 0:05:25.800 --> 0:05:29.440 We literally have the perfect guest. We are going to 0:05:29.480 --> 0:05:33.520 be speaking with senior Washington correspondent for Bloomberg News, Salia Mosen. 0:05:33.880 --> 0:05:38.440 She is the author of a brand new book, paper Soldiers, 0:05:38.480 --> 0:05:43.799 How the Weaponization of the Dollar changed the World order. Seleia, 0:05:43.920 --> 0:05:45.520 thank you so much for coming on odd Laws. 0:05:45.760 --> 0:05:46.760 I'm so excited to be here. 0:05:46.839 --> 0:05:49.800 Joe and Tracy, why did you write this book? What 0:05:50.000 --> 0:05:53.560 prompted this book about the weaponization of the dollar. 0:05:53.720 --> 0:05:56.440 It's a crazy thing. It might have been January sixth, 0:05:56.640 --> 0:05:59.200 the insurrection. I don't know. It's hard for me to 0:05:59.200 --> 0:06:01.760 put a pinpoint where, you know, for a journalist, it's 0:06:01.760 --> 0:06:04.880 a natural course to say, oh, well, maybe I'll write 0:06:04.880 --> 0:06:08.560 a book. But something happened that day. A lot of emotions. 0:06:09.120 --> 0:06:12.440 Let's set most of them aside and just talk about 0:06:12.720 --> 0:06:16.520 the Treasury Department and the dollar on January sixth, and 0:06:16.600 --> 0:06:19.520 in the couple of days that followed, we all saw 0:06:19.560 --> 0:06:23.120 reports and I reported on how then Treasure Secretary Stephen 0:06:23.200 --> 0:06:26.960 Mnushan may or may not have been involved in talks 0:06:27.080 --> 0:06:30.039 about the twenty fifth Amendment, and do we need to 0:06:30.720 --> 0:06:35.239 sideline President Donald Trump? And I thought to myself, Wow, 0:06:35.360 --> 0:06:39.240 the Treasure Secretary's job has just gotten so huge. You know, 0:06:39.360 --> 0:06:41.640 a couple of weeks ago, he was in Congress trying 0:06:41.680 --> 0:06:44.680 to get another spending bill through. A couple of days 0:06:44.720 --> 0:06:46.840 after that, he was in the Middle East pitching our 0:06:46.880 --> 0:06:52.719 international economic policy and economic sanctions programs and other elements 0:06:52.720 --> 0:06:56.159 of geopolitics. And here we are now he might be 0:06:56.320 --> 0:07:00.960 involved in removing the president. That combined with a op 0:07:01.160 --> 0:07:06.120 ed that Bob Rubin wrote right after January sixth, And 0:07:06.400 --> 0:07:08.479 he wrote an op ed. It was about a couple 0:07:08.520 --> 0:07:13.400 of different things, but there was one sentence that I 0:07:13.440 --> 0:07:16.560 think it kind of sums up the kind of reporting 0:07:16.560 --> 0:07:19.160 that I've done for many years now, and it sums 0:07:19.240 --> 0:07:22.080 up why I wrote the book. He said in this column, 0:07:22.560 --> 0:07:26.440 faith in democracy and faith in markets go hand in hand. 0:07:27.000 --> 0:07:30.120 And I just thought, oh my gosh, the dollar is 0:07:30.200 --> 0:07:32.840 part of our democracy. Democracy is part of our dollar, 0:07:33.160 --> 0:07:35.520 and that's kind of what started everything for me in 0:07:35.520 --> 0:07:35.920 my brain. 0:07:36.280 --> 0:07:39.360 So I'm glad he brought up Trump here because this 0:07:39.400 --> 0:07:42.960 came up on an episode relatively recently. Actually, I think 0:07:43.040 --> 0:07:46.760 Trump is kind of, for once a very good prism, 0:07:46.840 --> 0:07:49.840 a very clear prism to view some of the debate 0:07:50.360 --> 0:07:54.760 around the dollar, because he sort of instinctually understands that 0:07:54.880 --> 0:07:58.160 a strong dollar might be in the US interest. It 0:07:58.320 --> 0:08:01.040 sounds good to be able to say, like, we have 0:08:01.200 --> 0:08:05.640 the world's reserve currency, and the dollar is great, et cetera. 0:08:06.080 --> 0:08:08.560 But on the other hand, there were times during his 0:08:08.800 --> 0:08:12.960 administration where he would talk about the desire for a 0:08:12.960 --> 0:08:16.320 weaker dollar and we need a weeker dollar in order 0:08:16.360 --> 0:08:20.040 to boost manufacturing, get more jobs back to the country, 0:08:20.080 --> 0:08:23.240 et cetera. In your reporting, was it ever clear to 0:08:23.280 --> 0:08:27.960 you like which side he landed on, or even broadening 0:08:28.040 --> 0:08:31.120 it out. The US Treasury kind of has a long 0:08:31.480 --> 0:08:37.240 and complex history when it comes to expressing its desire 0:08:37.400 --> 0:08:39.360 for the green back, whether it wants a strong one 0:08:39.520 --> 0:08:39.720 or not. 0:08:40.600 --> 0:08:44.160 Absolutely, And that's what Paper Soldiers is all about. It's 0:08:44.240 --> 0:08:49.280 all about the complexities of Treasury secretaries and any other 0:08:49.840 --> 0:08:53.760 fed or White House or congressional official talking about the 0:08:53.840 --> 0:08:58.480 dollar and how sensitive each in every syllable can be. 0:08:58.640 --> 0:09:00.880 You know, if we talk about Bob Ruba and how 0:09:00.920 --> 0:09:04.600 many words he used to describe his view on the dollar, 0:09:04.679 --> 0:09:07.520 what order those words were in currency traders in the 0:09:07.600 --> 0:09:11.600 nineties used to listen to everything to determine how to 0:09:11.600 --> 0:09:14.680 make their trades. Now, on the question of Donald Trump 0:09:15.320 --> 0:09:19.000 in you know, from twenty seventeen through twenty twenty into 0:09:19.000 --> 0:09:22.880 twenty twenty one, you know, as usual, he's a mercurial person, 0:09:23.720 --> 0:09:30.560 lots of gray areas. He definitely saw the benefits of saying, yes, 0:09:30.720 --> 0:09:32.840 we have a strong dollar policy, we have a strong 0:09:32.920 --> 0:09:36.720 dollar because it reflects a strong economy. But he was 0:09:37.160 --> 0:09:42.960 the first politician who in any real way realized that 0:09:43.080 --> 0:09:46.360 a strong dollar and that policy from the nineties and 0:09:46.400 --> 0:09:50.959 that had persisted, was hurting certain parts of the country. 0:09:51.000 --> 0:09:54.200 And we're talking about the forgotten man in you know, 0:09:54.280 --> 0:09:59.439 like the manufacturing sector, the roust belt of the country. 0:09:59.480 --> 0:10:01.960 And I in book I take you into Weir in 0:10:02.000 --> 0:10:06.320 West Virginia, into Marine Ohio and what happened to those 0:10:06.440 --> 0:10:10.600 factory workers in the manufacturing sector. As globalization, which is 0:10:10.679 --> 0:10:15.400 underpinned by a strong dollar policy sort of overtook everything 0:10:15.440 --> 0:10:18.880 and people kind of forgot about the economic scarring that 0:10:19.000 --> 0:10:23.199 happened as the manufacturing sector in the US kind of disappeared. 0:10:23.280 --> 0:10:26.080 So he kind of looks at it both way. But actually, 0:10:27.080 --> 0:10:30.760 earlier in March, Trump was on as a presidential hopeful 0:10:30.880 --> 0:10:37.280 again on CNBC talking about how he thinks it's dangerous 0:10:37.320 --> 0:10:40.679 that people are talking about de dollarization. He is wading 0:10:40.720 --> 0:10:43.920 into the d dollarization to debate, and we've all learned 0:10:43.920 --> 0:10:47.520 that he puts action behind those kinds of words. 0:10:48.120 --> 0:10:51.600 So there's two things, and they're sort of related, but 0:10:51.640 --> 0:10:54.000 they're also sort of separate. So there is the strong 0:10:54.120 --> 0:10:56.800 dollar in the sense of the price of the dollar 0:10:56.880 --> 0:10:59.560 against our trading partners or the price of the dollar 0:10:59.640 --> 0:11:02.640 again and the end and the euro and all that. 0:11:03.000 --> 0:11:05.480 And then there is the sort of strong dollar, which 0:11:05.520 --> 0:11:09.079 is it is the currency that everybody for the most 0:11:09.080 --> 0:11:13.080 part uses globally to settle trade. And you know, and 0:11:13.120 --> 0:11:16.480 this sort of gets to the incredible power that the 0:11:16.640 --> 0:11:22.679 US has over this network, Like just high level, what 0:11:22.840 --> 0:11:26.280 is the limits of what the US can do to 0:11:26.360 --> 0:11:28.800 the dollar network, to the various like banks, et cetera, 0:11:29.000 --> 0:11:33.320 and messaging services where dollars and goods are traded, like 0:11:33.720 --> 0:11:36.320 what is this sort of what is the perimeter of 0:11:36.400 --> 0:11:40.800 America's ability to I guess police transactions. 0:11:40.080 --> 0:11:40.480 In the dot. 0:11:40.840 --> 0:11:44.160 It's a debate that's raging in political and economic circles 0:11:44.200 --> 0:11:46.959 in Washington and I think in pretty much every capital 0:11:47.160 --> 0:11:52.080 around the world, because the US is actually figuring out 0:11:52.320 --> 0:11:57.160 what that perimeter is, where that boundary is. There's been 0:11:57.200 --> 0:12:00.520 a couple of moments where the US has real ooh, 0:12:00.600 --> 0:12:02.600 I touched it and it was too hot. So there 0:12:02.760 --> 0:12:08.959 was in twenty eighteen when Steven Mnusian's Treasury department sanctioned 0:12:09.520 --> 0:12:13.199 olag Derpaska, a Russian oligarch who owned a majority stake 0:12:13.320 --> 0:12:16.320 of Russol at the time, like one of the largest 0:12:16.679 --> 0:12:21.040 aluminum makers in the world, and Treasury in the US 0:12:21.200 --> 0:12:24.000 found out kind of the hard way that maybe we 0:12:24.080 --> 0:12:28.600 overdid it or didn't look into these sanctions deeply enough, 0:12:28.840 --> 0:12:32.560 because we had a lot of blowback from them. You know, 0:12:32.640 --> 0:12:35.040 there was a lot of self inflicted wounds there because 0:12:35.360 --> 0:12:42.840 commodity prices swung twenty percent on each headline about those sanctions. 0:12:42.920 --> 0:12:44.920 Any kind of change in the date that they would 0:12:44.920 --> 0:12:47.199 be implemented, or what kind of carve outs were coming. 0:12:48.000 --> 0:12:51.200 Markets swung, And that's not actually a goal of OPAC, 0:12:51.280 --> 0:12:55.360 which sort of oversees the Treasure Department's sanctions implementation. The 0:12:55.440 --> 0:13:00.360 Office of Foreign Assets Control. They want to move a 0:13:00.360 --> 0:13:03.800 little bit, a little bit more softly without triggering this 0:13:04.160 --> 0:13:09.760 much turmoil. And what we saw was, you know, a 0:13:09.800 --> 0:13:16.480 little manufacturing plant in Ireland that is realizing that, well, 0:13:16.600 --> 0:13:20.560 sanctions might completely muck up our cash flow, so we 0:13:20.640 --> 0:13:24.440 might be forced to shut down our smelter. Okay, that 0:13:24.559 --> 0:13:29.120 smelter runs at two eight hundred degrees fahrenheit. It costs 0:13:29.160 --> 0:13:31.040 a lot of money to shut it down. If it 0:13:31.080 --> 0:13:33.360 should take days or maybe a couple of weeks to 0:13:33.440 --> 0:13:35.920 actually physically shut it down, but if they run out 0:13:35.960 --> 0:13:38.560 of money, they have to shut it down quickly. That 0:13:38.600 --> 0:13:41.200 means there's going to be all these toxins polluting the 0:13:41.240 --> 0:13:44.240 air and the water supply. But sanctions are going to 0:13:44.280 --> 0:13:46.960 trigger that closure. Treasury did not think it through. That 0:13:47.120 --> 0:13:50.320 was one example of the Treasure Department learning boundaries. And 0:13:50.360 --> 0:13:52.680 the other one is the one that Joe Trees you 0:13:52.720 --> 0:13:56.400 guys just mentioned the big sanctions in February twenty twenty two, 0:13:57.600 --> 0:14:00.839 with you know, cutting Russia off from the dollar. 0:14:17.880 --> 0:14:20.600 So you go into detail on this in your book, 0:14:20.640 --> 0:14:23.240 and by the way, I love that example of the 0:14:23.280 --> 0:14:27.280 smelter and sort of an unanticipated consequence of doing this. 0:14:27.400 --> 0:14:31.600 But you talk in your book about the internal debate 0:14:32.040 --> 0:14:34.520 of whether or not to sanction Russia, and I think 0:14:34.560 --> 0:14:37.240 you mentioned that Janet Yellen sort of had to be 0:14:37.360 --> 0:14:41.680 convinced and that there was this memory of the oh 0:14:41.720 --> 0:14:46.400 like dere Paska incident sort of hovering around. I guess 0:14:46.560 --> 0:14:49.160 what I want to ask is how much of this, 0:14:49.160 --> 0:14:53.000 this weaponization of the dollar is a question of political 0:14:53.080 --> 0:14:56.000 will and how far the US Treasury wants to push 0:14:56.080 --> 0:15:01.080 on that string versus technological ability. It seems like the 0:15:01.200 --> 0:15:05.120 US does have the capacity to shut people off in 0:15:05.160 --> 0:15:08.360 some respects, so for instance through the swift system, which 0:15:08.400 --> 0:15:11.560 again you go into some detail on, but there is 0:15:11.600 --> 0:15:14.880 this overarching question of whether or not it should, whether 0:15:14.960 --> 0:15:17.960 or not it'll backfire either in the short term or 0:15:18.000 --> 0:15:21.400 in the long term by diminishing the desirability of the 0:15:21.440 --> 0:15:22.920 dollar as a reserve currency. 0:15:23.920 --> 0:15:27.480 It's complicated, as things tend to be in Washington. There 0:15:27.640 --> 0:15:31.760 is huge political will to use economic sanctions and to 0:15:32.640 --> 0:15:35.800 make them even more sophisticated than they've ever been. What 0:15:35.840 --> 0:15:39.640 we've seen is we've gone from you in the early 0:15:39.720 --> 0:15:42.720 nineteen hundreds up until pretty much two thousand and one. 0:15:43.280 --> 0:15:46.360 OPHAC was a bit of an orphan of the Treasure Department. 0:15:46.600 --> 0:15:51.000 No one really paid attention to them. Economic sanctions at 0:15:51.000 --> 0:15:53.520 that time, they were so blunt. It was just like 0:15:53.920 --> 0:15:59.000 embargoes on Cuba. It didn't really have this great big impact. 0:15:59.080 --> 0:16:03.200 It wasn't discussed in two thousand and one. Nine to 0:16:03.200 --> 0:16:07.280 eleven hits, and you know, the global War on terror 0:16:07.480 --> 0:16:12.240 did not start with military tanks rolling into some country 0:16:12.680 --> 0:16:16.760 or American troops in their boots hitting the ground somewhere. 0:16:16.840 --> 0:16:20.040 It started September twenty fourth, two thousand and one, with 0:16:20.120 --> 0:16:23.480 George W. Bush, with a stroke of a pen, giving 0:16:23.760 --> 0:16:27.560 the US Treasury Department the authority to weaponize the dollar, 0:16:27.640 --> 0:16:31.520 to use the dollar to find out how did the 0:16:31.640 --> 0:16:35.520 terrorists finance those attacks? Because nine to eleven it costs 0:16:35.560 --> 0:16:38.520 those terrorists like four hundred thousand dollars, and later officials 0:16:38.520 --> 0:16:41.560 found out that that money was moved in the light 0:16:41.600 --> 0:16:45.240 of day. So the US realized that, okay, we can 0:16:45.600 --> 0:16:48.960 track these money flows and either stop the next attack 0:16:49.080 --> 0:16:53.280 or just choke off, you know, bad actors or terrorists, organizations, 0:16:53.360 --> 0:16:57.240 or terrorists themselves from money flow and the ability to 0:16:57.280 --> 0:17:00.800 get cash by cutting them off from the global financial 0:17:00.840 --> 0:17:03.280 system because we control the dollar. That's kind of where 0:17:03.280 --> 0:17:07.080 it started, and sanctions have gotten more and more sophisticated. 0:17:07.359 --> 0:17:11.040 Treasury created an entire unit called the Terrorism and Financial 0:17:11.080 --> 0:17:15.280 Intelligence Unit that was created in the aftermath of nine 0:17:15.320 --> 0:17:18.200 to eleven in two thousand and four and built out 0:17:18.680 --> 0:17:22.480 a basically an intelligence unit within the Treasure Department. So 0:17:22.640 --> 0:17:25.280 Treasury in the US is the only finance ministry in 0:17:25.320 --> 0:17:28.360 the world with its own intelligence operation. 0:17:28.640 --> 0:17:32.520 Basically. Yeah, this is so fascinating, And I thought this 0:17:32.640 --> 0:17:35.240 part of your book where you talk about nine to 0:17:35.240 --> 0:17:37.760 eleven was really interesting. So what were these sort of 0:17:37.960 --> 0:17:42.239 capabilities of o FAC or the Treasury in terms of 0:17:42.359 --> 0:17:46.879 tracking illicit money flows prior to nine to eleven and 0:17:46.920 --> 0:17:50.520 then like sort of what was the difference between specifically 0:17:50.560 --> 0:17:52.840 what they did, what they could could do, and then 0:17:53.200 --> 0:17:54.320 pre and post nine to eleven. 0:17:54.600 --> 0:17:56.640 They didn't have much Before nine to eleven, Like I said, 0:17:56.640 --> 0:17:59.400 OPHAC was this orphan No one really paid attention to them. 0:17:59.800 --> 0:18:02.199 They did a lot of work, but their budget was small, 0:18:02.320 --> 0:18:04.119 their staffing was small. They didn't have a lot of 0:18:04.119 --> 0:18:07.439 access to the Treasury Secretary, which you know, then you 0:18:07.480 --> 0:18:09.040 have no one to sort of lift the profile. But 0:18:09.119 --> 0:18:14.919 also the US wasn't looking at how to work in 0:18:15.000 --> 0:18:18.760 this space. That's between kinetic action, which is you know, 0:18:18.840 --> 0:18:23.520 sending tanks and forces in and diplomacy. That's what sanctions are, right, 0:18:23.520 --> 0:18:26.760 It's that spot in the middle, meaning diplomacy has failed us, 0:18:26.800 --> 0:18:29.119 but we are not ready for like an actual, live, 0:18:29.480 --> 0:18:32.440 bloody war. So let's go in the middle and use sanctions. 0:18:32.440 --> 0:18:34.439 And it's pretty cheap, right, So that's where the like 0:18:34.560 --> 0:18:36.879 what Tracy asked earlier, that's where the political will is 0:18:36.920 --> 0:18:41.280 that it's not as expensive and doesn't spill blood as 0:18:41.359 --> 0:18:44.360 like a war, but it's a good option when diplomacy 0:18:44.520 --> 0:18:45.119 isn't working. 0:18:45.520 --> 0:18:46.280 We talked us a. 0:18:46.280 --> 0:18:49.639 Little bit more about technological ability. This is why I 0:18:49.680 --> 0:18:51.920 was curious, like how much of it is the politics 0:18:52.359 --> 0:18:55.639 versus what we are actually physically able to do. In 0:18:55.680 --> 0:18:59.879 the financial system, so if I have a dollar, to 0:19:00.080 --> 0:19:04.000 Joe's point in the intro, there are certain conditions that 0:19:04.080 --> 0:19:07.720 are attached to that dollar, and there is to some 0:19:07.880 --> 0:19:11.800 extent visibility on that dollar as well talk to us 0:19:11.800 --> 0:19:15.040 a little bit more about what a dollar looks like 0:19:15.280 --> 0:19:19.000 or how much visibility the US government can have into it. 0:19:19.640 --> 0:19:23.080 That's such a good question, Tracy, because dollars are actually transported, 0:19:23.119 --> 0:19:26.960 sometimes wrapped in plastic shrink wrap and in trucks like 0:19:27.119 --> 0:19:31.320 loaded into Afghanistan, Like the New York Federal Reserve actually 0:19:31.359 --> 0:19:35.320 sends money like this to Cobble, or they did in 0:19:35.359 --> 0:19:37.919 the past. Right, That's why the Treasure Department would have 0:19:37.960 --> 0:19:41.960 an attache in Cobble there to sort of witness that 0:19:42.240 --> 0:19:47.000 millions of dollars of actual physical cash greenbacks coming into 0:19:47.000 --> 0:19:50.320 the country. So that's the really hard part, right, how 0:19:50.320 --> 0:19:56.720 to monitor that. Banks do have a responsibility to tell 0:19:56.760 --> 0:20:01.240 the Treasure Department through these Suspicious Activity Reports sars when 0:20:01.320 --> 0:20:06.800 they see transactions happening that touch their financial institution that 0:20:07.080 --> 0:20:10.280 look suspicious to them. But these sars are just it's 0:20:10.359 --> 0:20:15.480 just like throwing something in some obscure filing box and 0:20:15.520 --> 0:20:18.080 maybe someone shifting through it will see what they need 0:20:18.119 --> 0:20:21.520 to see. It's hard to see a pattern. Basically, after 0:20:21.640 --> 0:20:24.439 nine to eleven, officials realize that they don't have a 0:20:24.560 --> 0:20:29.600 ton of visibility the US itself autonomously to see how 0:20:29.640 --> 0:20:33.080 dollars are moving through the global financial system. And this 0:20:33.200 --> 0:20:36.320 is where it gets interesting. After nine to eleven, Treasure 0:20:36.359 --> 0:20:39.960 officials wanted to get that glimpse, and they knew that 0:20:40.359 --> 0:20:46.040 SWIFT based in Belgium, part of the EU, and that 0:20:46.119 --> 0:20:51.679 jurisdiction has data within its fortresses. You know, the building 0:20:51.720 --> 0:20:55.159 itself in Lahoopa, Belgium is you know, it looks like 0:20:55.200 --> 0:20:58.800 an actual fortress, but they have the data that shows 0:20:58.880 --> 0:21:02.920 the routing number and the transaction time in real time. 0:21:03.080 --> 0:21:03.280 You know. 0:21:03.520 --> 0:21:06.560 Swift is basically the Gmail of the banking system. 0:21:06.640 --> 0:21:07.720 It is like that. 0:21:08.280 --> 0:21:11.640 Yeah, it's a way for banks to communicate with each other. 0:21:11.680 --> 0:21:13.720 Here's the bank account number, here is the name, here's 0:21:13.880 --> 0:21:16.439 the address and the amount that needs to be moved. 0:21:16.480 --> 0:21:21.639 But it promises privacy. No one will know the nature 0:21:21.640 --> 0:21:25.040 of the transaction, right And a couple of different central 0:21:25.040 --> 0:21:28.800 banks are involved in sort of that network that SWIFT 0:21:28.840 --> 0:21:31.960 has built up, including the Fed, Bank of Japan, Bank 0:21:32.000 --> 0:21:34.400 of England and a couple of others. And so Treasury 0:21:34.400 --> 0:21:37.920 officials got together and they spoke to Swift. The head 0:21:38.400 --> 0:21:40.720 at the time after nine to eleven was Lenny Shrink, 0:21:41.280 --> 0:21:43.399 really really interesting guy that I spoke to for the 0:21:43.440 --> 0:21:47.720 book Colorful Character, and he said, well, they approached me, 0:21:47.800 --> 0:21:50.360 and he said he knew that that call as soon 0:21:50.400 --> 0:21:54.080 as those planes hit the Twin Towers in Manhattan. He 0:21:54.119 --> 0:21:57.240 says he remembers he was in Europe for I think 0:21:57.320 --> 0:22:01.240 Ireland for a meeting with a Swift board member. He 0:22:01.400 --> 0:22:03.679 was biting into a sandwich when he heard that nine 0:22:03.720 --> 0:22:07.480 to eleven happened. He found out exactly the depth of 0:22:07.520 --> 0:22:09.639 the problem and then he knew, right then, I'm going 0:22:09.720 --> 0:22:11.679 to get a call from the Charges Department. They're going 0:22:11.760 --> 0:22:14.439 to want data. They're going to want to know how 0:22:14.560 --> 0:22:18.960 did money that financed that attack move through this system, 0:22:19.080 --> 0:22:21.359 how did we miss it, and how can we catch 0:22:21.520 --> 0:22:25.680 the next one? Because bring yourself back to September twelfth 0:22:25.720 --> 0:22:30.119 and thirteenth, we were terrified. You know, everyone at that 0:22:30.240 --> 0:22:34.040 time internationally said I'm an American today because if someone 0:22:34.040 --> 0:22:37.600 can attack this country, they're attacking everyone. If you remember 0:22:37.720 --> 0:22:40.520 the Queen of England at the time, she sang the 0:22:40.640 --> 0:22:43.719 national anthem, the American national anthem, because she said I 0:22:43.760 --> 0:22:48.040 stand with America. So Lenny Shrink, an American himself, knew 0:22:48.040 --> 0:22:51.919 that that call was coming. So when Treasury finally called 0:22:52.400 --> 0:22:54.280 he had he was ready. You know, it depends on 0:22:54.320 --> 0:22:56.320 who you ask, but it's possible that Treasury might have 0:22:56.320 --> 0:22:58.760 approached Swift a couple of times before then looking for 0:22:58.840 --> 0:23:01.840 some data and they always kind of said no. And 0:23:02.080 --> 0:23:08.760 so they finally got to talking about specifics, and Lenny 0:23:08.760 --> 0:23:11.960 Shrink spoke to a couple of the different central bank 0:23:12.000 --> 0:23:17.240 governors that were involved. According to one source, Alan Greenspan 0:23:17.400 --> 0:23:22.240 at that time was against it, initially against Treasury having 0:23:22.280 --> 0:23:26.880 any insight into Swift data because he said gentlemen shouldn't 0:23:26.920 --> 0:23:30.720 read gentleman's mail, So he didn't like the idea at first. 0:23:30.960 --> 0:23:32.720 First of all, I think you wrote in your book 0:23:32.800 --> 0:23:35.960 that this only came out like in two thousand and six, 0:23:36.119 --> 0:23:39.000 that the that the Treasury had approached Swift about getting 0:23:39.080 --> 0:23:42.080 access to more data, like it was done pretty surreptitiously 0:23:42.160 --> 0:23:43.280 or secretly for a while. 0:23:43.560 --> 0:23:47.439 Yeah, so Swift, okay, Speed, that's what it alludes to. 0:23:47.920 --> 0:23:51.040 Treasury's code name for the whole program was Turtle, the 0:23:51.119 --> 0:23:52.400 opposite Swift. 0:23:52.800 --> 0:23:55.400 I love the Yeah, it's great. 0:23:55.640 --> 0:23:55.880 Yeah. 0:23:55.920 --> 0:23:57.919