Tue, 23 Jun 2020 20:28 UTC
The Fed and the Banks and the Funds… all rolled into One World Company
BlackRock is a global financial giant with customers in 100 countries and its tentacles in major asset classes all over the world; and it now manages the spigots to trillions of bailout dollars from the Federal Reserve. The fate of a large portion of the country’s corporations has been put in the hands of a megalithic private entity with the private capitalist mandate to make as much money as possible for its owners and investors; and that is what it has proceeded to do.
To most people, if they are familiar with it at all, BlackRock is an asset manager that helps pension funds and retirees manage their savings through “passive” investments that track the stock market. But working behind the scenes, it is much more than that. BlackRock has been called “the most powerful institution in the financial system,” “the most powerful company in the world” and the “secret power.” It is the world’s largest asset manager and “shadow bank,” larger than the world’s largest bank (which is in China),with over $7 trillion in assets under direct management and another $20 trillion managed through its Aladdin risk-monitoring software. BlackRock has also been called “the fourth branch of government” and “almost a shadow government“, but no part of it actually belongs to the government. Despite its size and global power, BlackRock is not even regulated as a “Systemically Important Financial Institution” under the Dodd-Frank Act, thanks to pressure from its CEO Larry Fink, who has long had “cozy” relationships with government officials.
BlackRock’s strategic importance and political weight were evident when four BlackRock executives, led by former Swiss National Bank head Philipp Hildebrand, presented a proposal at the annual meeting of central bankers in Jackson Hole, Wyoming, in August 2019for an economic reset that was actually put into effect in March 2020. Acknowledging that central bankers were running out of ammunition for controlling the money supply and the economy, the BlackRock group argued that it was time for the central bank to abandon its long-vaunted independence and join monetary policy (the usual province of the central bank) with fiscal policy (the usual province of the legislature). They proposed that the central bank maintain a “Standing Emergency Fiscal Facility” that would be activated when interest rate manipulation was no longer working to avoid deflation. The Facility would be deployed by an “independent expert” appointed by the central bank.
The COVID-19 crisis presented the perfect opportunity to execute this proposal in the US, with BlackRock itself appointed to administer it. In March 2020, it was awarded a no-bid contract under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to deploy a $454 billion slush fund established by the Treasury in partnership with the Federal Reserve. This fund in turn could be leveraged to provide over $4 trillion in Federal Reserve credit. While the public was distracted with protests, riots and lockdowns, BlackRock suddenly emerged from the shadows to become the “fourth branch of government,” managing the controls to the central bank’s print-on-demand fiat money. How did that happen and what are the implications?
Rising from the Shadows
BlackRock was founded in 1988 in partnership with the Blackstone Group, a multinational private equity management firm that would become notorious after the 2008-09 banking crisis for snatching up foreclosed homes at firesale prices and renting them at inflated prices. BlackRock first grew its balance sheet in the 1990s and 2000s by promoting the mortgage-backed securities (MBS) that brought down the economy in 2008. Knowing the MBS business from the inside, it was then put in charge of the Federal Reserve’s “Maiden Lane” facilities. Called “special purpose vehicles,” these were used to buy “toxic” assets (largely unmarketable MBS) from Bear Stearns and American Insurance Group (AIG), something the Fed was not legally allowed to do itself.
BlackRock really made its fortunes, however, in “exchange traded funds” (ETFs). It gained trillions in investable assets after it acquired the iShares series of ETFs in a takeover of Barclays Global Investors in 2009. By 2020, the wildly successful iShares series included over 800 funds and $1.9 trillion in assets under management.
Exchange traded funds are bought and sold like shares but operate as index-tracking funds, passively following specific indices such as the S&P 500, the benchmark index of America’s largest corporations and the index in which most people invest. Today the fast-growing ETF sector controls nearly half of all investments in US stocks, and it is highly concentrated. The sector is dominated by just three giant American asset managers – BlackRock, Vanguard and State Street, the “Big Three” – with BlackRock the clear global leader. By 2017, the Big Three together had become the largest shareholder in almost 90% of S&P 500 firms, including Apple, Microsoft, ExxonMobil, General Electric and Coca-Cola. BlackRock also owns major interests in nearly every mega-bank and in major media.
In March 2020, based on its expertise with the Maiden Lane facilities and its sophisticated Aladdin risk-monitoring software, BlackRock got the job of dispensing Federal Reserve funds through eleven “special purpose vehicles” authorized under the CARES Act. Like the Maiden Lane facilities, these vehicles were designed to allow the Fed, which is legally limited to purchasing safe federally-guaranteed assets, to finance the purchase of riskier assets in the market.
Blackrock Bails Itself Out
The national lockdown left states, cities and local businesses in desperate need of federal government aid. But according to David Dayen in The American Prospect, as of May 30 (the Fed’s last monthly report), the only purchases made under the Fed’s new BlackRock-administered SPVs were ETFs, mainly owned by BlackRock itself. Between May 14 and May 20, about $1.58 billion in ETFs were bought through the Secondary Market Corporate Credit Facility (SMCCF), of which $746 million or about 47% came from BlackRock ETFs. The Fed continued to buy more ETFs after May 20, and investors piled in behind, resulting in huge inflows into BlackRock’s corporate bond ETFs.
In fact, these ETFs needed a bailout; and BlackRock used its very favorable position with the government to get one. The complicated mechanisms and risks underlying ETFs are explained in an April 3 article by business law professor Ryan Clements, who begins his post:
Exchange-Traded Funds (ETFs) are at the heart of the COVID-19 financial crisis. Over forty percent of the trading volume during the mid-March selloff was in ETFs…
The ETFs were trading well below the value of their underlying bonds, which were dropping like a rock. Some ETFs were failing altogether. The problem was something critics had long warned of: while ETFs are very liquid, trading on demand like stocks, the assets that make up their portfolios are not. When the market drops and investors flee, the ETFs can have trouble coming up with the funds to settle up without trading at a deep discount; and that is what was happening in March.
According to a May 3 article in The National, “The sector was ultimately saved by the US Federal Reserve’s pledge on March 23 to buy investment-grade credit and certain ETFs. This provided the liquidity needed to rescue bonds that had been floundering in a market with no buyers.”
Prof. Clements states that if the Fed had not stepped in, “a ‘doom loop’ could have materialized where continued selling pressure in the ETF market exacerbated a fire-sale in the underlying [bonds], and again vice-versa, in a procyclical pile-on with devastating consequences.” He observes:
There’s an unsettling form of market alchemy that takes place when illiquid, over-the-counter bonds are transformed into instantly liquid ETFs. ETF “liquidity transformation” is now being supported by the government, just like liquidity transformation in mortgage backed securities and shadow banking was supported in 2008.
Working for Whom?
BlackRock got a bailout with no debate in Congress, no “penalty” interest rate of the sort imposed on states and cities borrowing in the Fed’s Municipal Liquidity Facility, no complicated paperwork or waiting in line for scarce Small Business Administration loans, no strings attached. It just quietly bailed itself out.
It might be argued that this bailout was good and necessary, since the market was saved from a disastrous “doom loop,” and so were the pension funds and the savings of millions of investors. Although BlackRock has a controlling interest in all the major corporations in the S&P 500, it professes not to “own” the funds. It just acts as a kind of “custodian” for its investors — or so it claims. But BlackRock and the other Big 3 ETFs vote the corporations’ shares; so from the point of view of management, they are the owners. And as observed in a 2017 article from the University of Amsterdam titled “These Three Firms Own Corporate America,” they vote 90% of the time in favor of management. That means they tend to vote against shareholder initiatives, against labor, and against the public interest. BlackRock is not actually working for us, although we the American people have now become its largest client base.
In a 2018 review titled “Blackrock – The Company That Owns the World“, a multinational research group called Investigate Europe concluded that BlackRock “undermines competition through owning shares in competing companies, blurs boundaries between private capital and government affairs by working closely with regulators, and advocates for privatization of pension schemes in order to channel savings capital into its own funds.”
Daniela Gabor, Professor of Macroeconomics at the University of Western England in Bristol, concluded after following a number of regulatory debates in Brussels that it was no longer the banks that wielded the financial power; it was the asset managers. She said:
We are often told that a manager is there to invest our money for our old age. But it’s much more than that. In my opinion, BlackRock reflects the renunciation of the welfare state. Its rise in power goes hand-in-hand with ongoing structural changes; in finance, but also in the nature of the social contract that unites the citizen and the state.
That these structural changes are planned and deliberate is evident in BlackRock’s August 2019 white paper laying out an economic reset that has now been implemented with BlackRock at the helm.
Public policy is made today in ways that favor the stock market, which is considered the barometer of the economy, although it has little to do with the strength of the real, productive economy. Giant pension and other investment funds largely control the stock market, and the asset managers control the funds. That effectively puts BlackRock, the largest and most influential asset manager, in the driver’s seat in controlling the economy.
As Peter Ewart notes in a May 14 article on BlackRock titled “Foxes in the Henhouse,” today the economic system “is not classical capitalism but rather state monopoly capitalism, where giant enterprises are regularly backstopped with public funds and the boundaries between the state and the financial oligarchy are virtually non-existent.”
If the corporate oligarchs are too big and strategically important to be broken up under the antitrust laws, rather than bailing them out they should be nationalized and put directly into the service of the public. At the very least, BlackRock should be regulated as a too-big-to-fail Systemically Important Financial Institution. Better yet would be to regulate it as a public utility. No private, unelected entity should have the power over the economy that BlackRock has, without a legally enforceable fiduciary duty to wield it in the public interest.
About the author
Ellen Brown is an attorney, chair of the Public Banking Institute, and author of thirteen books including Web of Debt, The Public Bank Solution, and Banking on the People: Democratizing Money in the Digital Age. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.
Comment: More on BlackRock’s maneuver at the start of lockdowns in mid-March by the Martens at Wall Street on Parade:
One of BlackRock’s tentacles revealed itself in France in late December when it emerged that the very govt minister responsible for pushing a plan to ‘reform’ the country’s pension system (i.e., to plunder it) was literally on BlackRock’s payroll while doing it.
Major Mexican Cartels: Drug Wars and Business
A previous report by South Front documented the heavy human, social and material costs of the drug wars in Mexico, which have devastated the country since the mid-2000s. In this report some of the major factors in the rapidly shifting environment of the main cartels over the last ten years, and their frequent formations, disintegrations and reconfigurations, are reviewed.
The markets for drugs: key aspects
Cocaine from Colombia supplies most of the U.S. market, and most of that supply now passes through Mexico, with Mexican drug traffickers the primary wholesalers of cocaine to the United States. According to official estimates, coca cultivation and cocaine production in Colombia have risen or remained constant over the last couple of years, with the U.S. government estimating that Colombia produced a record 921 metric tons of pure cocaine in 2017. For 2018, the U.S. government reported that Colombia’s coca cultivation dropped slightly to 208,000 hectares and its potential cocaine production declined to an estimated 887 metric tons.
In its 2018 National Drug Threat Assessment (NDTA), the Drug Enforcement Administration (DEA) states that Mexican trafficking organizations also dominate heroin and fentanyl exports from the country. Mexico’s heroin traffickers, who traditionally provided black or brown heroin to U.S. cities west of the Mississippi, began in 2012 and 2013 to innovate and changed their opium processing methods to produce white heroin, a purer and more potent product, which they trafficked mainly to the U.S. East Coast and Midwest. DEA seizure data determined in 2017 that 91% of heroin consumed in the United States was sourced to Mexico, and the agency maintains that no other crime groups have a comparable reach to distribute within the United States.
According to the US Office of National Drug Control Policy, Mexico cultivated an estimated 32,000 hectares (ha) of opium poppy in 2016, 44,100 ha in 2017, and 41,800 ha in 2018. The US government estimated that Mexico’s potential production of heroin rose to 106 metric tons in 2018 from 26 metric tons in 2013, suggesting Mexican-sourced heroin is likely to remain dominant in the U.S. market.
Illicit imports of fentanyl from Mexico involve Chinese fentanyl or fentanyl precursors mostly sourced from China. In addition, these traffickers adulterate fentanyl imported from China and smuggle it into the United States.
In 2017, Mexico seized 421 metric tons of marijuana and eradicated more than 4,230 hectares of marijuana, according to the State Department. However, it is likely that there will be a significant decline in US demand for Mexican marijuana as more marijuana is grown legally in several states in the United States and Canada, which have either legalized cannabis or made it legal for medical purposes, thus decreasing its value as part of Mexican trafficking organizations’ profit portfolio.
Mexican-produced methamphetamine has overtaken US sources of the drug and expanded into non-traditional methamphetamine markets inside the United States. According to the State Department, in 2017 Mexico seized 11.3 metric tons of methamphetamine, and as of August 2018, Mexican authorities had seized 130 metric tons of methamphetamine, including the seizure of some 50 metric tons of the drug in Sinaloa. The purity and potency of methamphetamine has driven up overdose deaths in the United States, according to the 2018 NDTA. Most Mexican trafficking organizations include a portion of the methamphetamine business in their trafficking operations and collectively control the wholesale methamphetamine distribution system inside the United States.
In stark contrast to the vicious life and death battle between the drug cartels, other illegal armed groups and organized crime networks, and the law enforcement officers who must risk their lives for an apparently futile cause, producing armed clashes on a daily basis which have claimed many thousands of lives and inflicted enormous carnage and suffering on the people of Mexico, is the serene and generous treatment of the white collar criminals who have benefitted most from the proceeds of the illicit trade in drugs, mostly from the US and Europe.
Major banks, such as HSBC and Wells Fargo, have repeatedly been caught laundering many billions of dollars from the drug cartels in Mexico and getting nothing more than a token slap on the wrist from the financial regulators in the form of a fine.
Core features of the cartels’ evolution and structures
When President Calderón began his term as president in 2006 there were four major cartels: the Tijuana/Arellano Felix organization (AFO), the Sinaloa Cartel, the Juárez/Vicente Carillo Fuentes Organization (CFO), and the Gulf Cartel. Over the following years there were numerous disputes within and between the cartels and a large number of smaller groups were created, many by former members of the large cartels, others forming as smaller and more localised criminal networks grew and consolidated their activities and organization.
The territorial and functional boundaries of the groups, as well as their leadership and membership, are not always clear cut. Moreover, they are constantly changing in accordance with changes in the relations between key figures in each organization as well as relations between groups, which can also change rapidly depending on the area and activity involved. Hence, some analysts suggest that there could be as many as 20 major organizations if emerging factions and largely autonomous localised groups are included. In an analysis that is useful for penetrating the confusing proliferation of groups and activities, and appears to accurately identify some of the constant factors amidst the violence, misinformation and mayhem:
The Stratfor Global Intelligence group contends that the rival crime networks are best understood in regional groupings and that at least three geographic identities emerged by 2015, which essentially endure. Those umbrella groups are Tamaulipas State, Sinaloa State, and Tierra Caliente regional group. This framework also shows several states and regions of Mexico where the activities of these three regional groups mix, as in the eastern state of Veracruz, which is a mix of elements from the Tierra Caliente and the Tamaulipas umbrella groups. LINK
Geographic zones of influence of the main cartels in Mexico.By the end of Calderon’s term the US Drug Enforcement Administration identified seven major criminal organizations: Sinaloa, Los Zetas, Tijuana/AFO, Juárez/CFO, Beltrán Leyva, Gulf, and La Familia Michoacana. Of these groups, the Sinaloa and Gulf cartels in particular remain powerful despite the arrest of some of their leaders and losing some of their influence to other groups. The Cartel Jalisco-Nueva Generacion (CJNG) rose to prominence after 2010, particularly between 2013 and 2015, and is currently deemed by many analysts to be the most dangerous and largest Mexican cartel. CJNG has thrived since the demise of the Knights Templar, which was successfully targeted and largely dismantled by the Mexican authorities following the capture in February 2015 of its leader, Servando “La Tuta” Gomez, a former schoolteacher
In the Pacific Southwest, La Familia Michoacana—originally based in the state of Michoacán and influential in surrounding states—split apart in 2015. Its power steadily declined as a successor group, the Knights Templar, grew in prominence in the region known as the tierra caliente of Michoácan, Guerrero, and in parts of the neighbouring states Colima and Jalisco. As noted above, the Knights Templar group has since declined and has in turn been replaced by other groups in most of its former territories.
La Familia Michoacana and the Knights Templar began as a vigilante groups, claiming to protect the residents of Michoacán from other criminal groups. The Knights Templar was known for the trafficking and manufacture of methamphetamine, but the organization was also involved in the shipment of cocaine and marijuana towards the north. Both groups also preached a version of evangelical Christianity and claimed to be committed to social justice, while others attributed them as being responsible for much of the insecurity in Michoacán and surrounding states.
Up until 2008, the Beltrán Leyva Organization (BLO) was part of the Sinaloa federation and controlled access to the US border in Mexico’s Sonora state. The Beltrán Leyva brothers developed close ties with Sinaloa head Joaquin “El Chapo” Guzmán and his family, along with other Sinaloa-based top leadership. Following the arrest of the group’s leader (Alfredo Beltrán Levya) in 2008 the BLO broke off the alliance with the Sinaloa Cartel. Over the following years it lost much of its leadership in a series of operations by Mexico’s security forces and the group fragmented into a number of smaller groups in 2010.
Several splinter organizations have arisen from the remnants of the BLO since 2010, including the Guerreros Unidos and Los Rojos. Los Rojos operates in Guerrero and is reported to be heavily involved in kidnapping and extortion for revenue as well as trafficking cocaine. The Guerreros Unidos is reported to traffic cocaine as far north as Chicago in the United States and is thought to operate primarily in the central and Pacific states of Guerrero, México, and Morelos. According to Mexican authorities, the Guerreros Unidos were responsible for the execution of 43 Mexican teacher trainees, who were handed over to them by local authorities in Iguala, Guerrero in 2014.
According to the DEA, as of 2018 the BLO comprised a group of factions that work under the umbrella of the BLO name and traffic marijuana, cocaine, heroin, and methamphetamine, with specific subgroups relying on alliances with the CJNG, the Juárez Cartel and elements of Los Zetas to move drugs across the border, while maintaining distribution links in the US cities of Phoenix, Los Angeles, Chicago, and Atlanta. Inside Mexico, the groups are thought to remain influential in the states of Morelos, Guerrero, Nayarit, and Sinaloa.
The Gulf Cartel and Los Zetas
The Gulf Cartel, based in north-eastern Mexico, had a long history of dominance in terms of power and profits, with the height of its power in the early 2000s. However, the Gulf Cartel lost a considerable part of its power and in particular its military capability when its ‘enforcers’ —Los Zetas, who were organized from highly trained former Mexican military personnel (including airborne special forces members) —split to form a separate group and turned against their former employers, engaging in an extremely violent competition for territory and markets. The military training, discipline and weaponry of Los Zetas, combined with their absolute ruthlessness and brutality, brought the cartel violence in Mexico to a new level of destruction, lethality and terror that also had a much more devastating impact on communities where they had a significant presence. According to a report by the US Congressional Research Service:
Image on the right: Logo of the Gulf Cartel
“Most reports indicate that the Zetas were created by a group of 30 lieutenants and sub-lieutenants who deserted from the Mexican military’s Special Mobile Force Group (Grupos Aeromóviles de Fuerzas Especiales, GAFES) to join the Gulf Cartel in the late 1990s.” LINK
Originally based in the border city of Matamoros, Tamaulipas, the Gulf Cartel expanded and eventually controlled operations in other Mexican states along the Gulf of Mexico, becoming a transnational smuggling operation with agents in Central and South America. In the 1980s, its leader, Juan García Abrego, developed ties with Colombia’s Cali Cartel as well as with key personnel within the Mexican federal police. García Abrego was captured in 1996 near Monterrey, Mexico. Nonetheless, the group continued to grow and it was the main competitor challenging the Sinaloa Cartel for trafficking routes in the early 2000s before the violent separation of Los Zetas in 2010 which significantly affected its operations.
Los Zetas established a significant presence in several Mexican states along the Gulf, and extended their reach to Ciudad Juárez (Chihuahua) and several Pacific states, also operating in Central and South America. Unlike many other groups, Los Zetas never attempted to win the support of local populations in the territories where they operated, and they are widely reported to have killed many civilians. They are linked to several particularly gruesome massacres, including the 2011 firebombing of a casino in Monterrey that killed 53 people and the 2011 torture and mass execution of 193 migrants who were traveling through northern Mexico by bus. Los Zetas are reputed to kill those who cannot pay extortion fees or who refuse to work for them, often targeting migrants.
Image below: Logo of the Los Zetas Cartel
Los Zetas lost a succession of their most important leaders in joint police/ military operations during 2012-2013, and in 2015 Mexican authorities claimed that more than 30 of the group’s leaders had been arrested or killed. Nonetheless, at least two factions are still in existence, the ‘Old School Zetas’ (Escuela Vieja, or EV) and the Cartel del Noreste (CDN). It is thought that other local gangs have appropriated the Los Zetas ‘brand’ on occasion in an effort to take advantage of their fierce reputation.
In 2014 Mexican federal police targeted a dozen Gulf and Zeta bosses they believed responsible for the wave of violence in Tamaulipas in 2014, and analysts subsequently reported that the structures of both the Gulf Cartel and Los Zetas were decimated by federal operations as well as by disputes between competing factions. Both groups now operate largely as autonomous fragmented cells that often take on new names to disguise their identity and the full scope of their activities.
From 2014 through 2016, violence continued in the state of Tamaulipas with regular reports of kidnappings, daytime shootings, and burned-down bars and restaurants in towns and cities such as the port city of Tampico. It appears that the remnants of both groups have expanded into other criminal operations, such as fuel theft, kidnapping, human smuggling and widespread extortion. In 2018 the DEA maintained that the Gulf Cartel continued to operate with its main focus on the cocaine and marijuana trade, but also expanding into heroin and methamphetamine, smuggling the majority of its drug shipments into South Texas through the border region between the Rio Grande Valley and South Padre Island.
The Sinaloa Cartel
The Sinaloa Cartel also has a long history, with its traditional base of support in western Mexico. The cartel also has a reputation for brutality and fought a long campaign to establish control over transport and distribution routes through the border states of Chihuahua and Baja California and maintain its status as the dominant cartel in the country.
For many years the group was widely regarded as the most powerful drug trafficking syndicate in the Western Hemisphere; at its peak, the Sinaloa leadership successfully corrupted public officials from the local to the national level both inside Mexico and abroad, and was estimated to have operations in some 50 countries. As one of Mexico’s most prominent and visible (if elusive) criminal organizations, each of its major leaders was designated a ‘kingpin’ by US authorities in the early 2000s. At the top of the hierarchy was Joaquin “El Chapo” Guzmán, listed in 2001, Ismael Zambada Garcia (“El Mayo”), listed in 2002, and Juan Jose “El Azul” Esparragoza Moreno, listed in 2003.
According to official estimates, the Sinaloa Cartel controlled between 40%-60% of Mexico’s drug trade by 2012 and had annual earnings calculated to be around $3 billion, and for many years it was identified by the DEA as being the primary trafficker of drugs to the United States. In 2008, a federation dominated by the Sinaloa Cartel (which included the Beltrán Leyva organization and the Juárez Cartel) disintegrated, leading to a battle among the former partners that sparked one of the most violent periods in recent Mexican history.
The Sinaloa Cartel has adopted a more decentralized structure of loosely linked semi-autonomous organizations, which has made it more susceptible to conflict when factions break away under mid-level commanders. However, the decentralized structure has also enabled it to adapt quickly in the highly competitive and unstable environment and withstand the loss of key personnel following its targeting by Mexican and US authorities.
This was demonstrated in the aftermath of the arrest of the Sinaloa Cartel’s founder Joaquin “El Chapo” Guzmán in 2014, who was extradited to the United States on 19 January 2017. The federal operation to capture and detain Guzmán, allegedly with support from US intelligence, was viewed as a major victory for the government of Peña Nieto. Nonetheless, the arrest did not signify any improvement in either the security situation in the country or in the continued dominance of the major cartels over the illegal economy and territorial and social control in many parts of the country.
Following the arrest of El Chapo and the death of one of his most trusted deputies (“El Azul” Esparragoza Moreno) in 2014, the head of the Sinaloa Cartel was widely assumed to be Guzmán’s partner, Ismael Zambada Garcia, alias “El Mayo”. It is generally thought that he continues in that leadership role, together with at least one of El Chapo’s sons. In accordance with its more decentralized structure, Sinaloa operatives control certain territories through a network of regional bosses who conduct business and violence through alliances with each other and local gangs specializing in specific localities and activities.
Although El Chapo’s detention didn’t result in the demise of the Sinaloa Cartel or reduce violence and corruption, it does however appear to have encouraged violent competition from the Cartel Jalisco-New Generation (CJNG), which was formed when its leaders split from the Sinaloa Cartel in 2010. During 2016 and 2017 CJNG expanded quickly by displacing or liquidating its competitors in many areas.
There was a major scandal in October last year when Ovidio Guzmán López, one of El Chapo’s sons, was briefly detained in the town of Culiacán. Upon his arrest, his associates – widely reported as belonging to the Sinaloa Cartel – effectively took the entire town hostage and threatened to unleash a massacre. Faced with the prospect of an extremely bloody showdown, an emergency meeting of the security cabinet of the national government (headed by the Secretaries of National Defence, the Marines, Public Security and Citizen Protection, and the recently created National Guard) decided to release the captive and the armed bandits melted away, leaving the town with thirteen dead and many more wounded. LINK
The town of Culiacan after it was held siege by the CJNG for several hours.
The incident demonstrated beyond a doubt that, although the cartel may have declined in power relative to its peak, it still remains a very formidable force.
Last week the Mexican President provided more details explaining the reasons for the decision to release Ovidio Guzman:
“The members of the national security cabinet met and closely followed the ongoing developments and made decisions that I completely support because the situation became very difficult. Many citizens, many people, many human beings were at risk and it was decided to protect people’s lives and I agreed because it is not about (creating) massacres.”
He explained that the operation was carried out by the Mexican Army, based on an arrest warrant for a suspected criminal, but “there was a very violent reaction…”
The arrest triggered an immediate general mobilization of crime groups throughout the city of Culiacán and they even took control of the toll booths on the main roads and openly deployed their forces in other municipalities in the state, such as El Fuerte.
Lopez Obrador reaffirmed that his decision was made to protect citizens because “you cannot put out the fire with fire” and reiterated that his government is pursuing a different strategy than that of the previous governments.
“We do not want more dead, we do not want war, it is difficult to understand for some but the strategy that was being applied previously turned the country into a massive cemetery,” he said of the governments of Felipe Calderón (2006-2012) and Enrique Peña Nieto (2012- 2018), which produced more than 250,000 deaths and 40,000 missing (‘forced disappearances’) from the so-called war on drug trafficking.
“It is not easy (fighting crime). It is a process, it is not easy because the problem of violence has become entrenched throughout the country and we have to face two mafias, white collar crime and illegal armed groups, that is what we face.”
The incident in Culiacán has demonstrated the enormous control that the Sinaloa Cartel and its cells still have over the region, which had been relatively calm in the preceding period. LINK
The Cartel Jalisco-Nueva Generacion (CJNG)
As described in a previous report, the CJNG is now widely considered to be the most powerful cartel in Mexico. Also known as the Zeta Killers, the CJNG appeared in 2011 with a roadside display of the bodies of 35 alleged members of Los Zetas. The group is based in Jalisco state with operations in central Mexico, including the states of Colima, Michoacán, Mexico State, Guerrero, and Guanajuato, where it has grown to be a dominant force.
The CJNG reportedly served as an enforcement group for the Sinaloa Cartel until mid-2013, and subsequently entered into fierce competition with its former patrons for territory and markets.
The group appears to have been able to maintain a high level of cohesion amidst the widespread fragmentation, dispersal and mutation of its rivals, and its undisputed leader is Ruben Oseguera Cervantes, alias ‘El Mencho’.
‘El Mencho’, undisputed leasder of the CJNG
In 2015 and 2016 it was described by Mexican and US authorities respectively as one of the world’s most prolific and violent drug trafficking organizations, with operations throughout half of Mexico’s territory, along the East Pacific coast from Chile to Canada, as well as possessing significant networks and operations in Europe and Asia.
According to a 2019 report by the US Congressional Research Service:
CJNG’s efforts to dominate key ports on both the Pacific and Gulf Coasts have allowed it to consolidate important components of the global narcotics supply chain. In particular, CJNG asserts control over the ports of Veracruz, Mazanillo, and Lázaro Cardenas, which has given the group access to precursor chemicals that flow into Mexico from China and other parts of Latin America. As a result, CJNG has been able to pursue an aggressive growth strategy, underwritten by U.S. demand for Mexican methamphetamine, heroin, and fentanyl. LINK
The CJNG recently claimed that there is at least one ‘State Cartel’ operating in Mexico. Although the allegations were extremely vague in many respects, there is no doubt that senior figures in the State have collaborated with one or more cartels, and that this is a common occurrence (as has occurred in Colombia). Indeed, up to 20 former provincial governors are being investigated for varying degrees of cooperation with illegal armed groups; it is certain that a much larger large number of mayors have also been involved in such schemes in some way, given the enormous power of the cartels in many localities – as noted in the previous report by South Front, the 2018 elections in Mexico were the bloodiest on record, with approximately 37 mayors, former mayors or candidates for mayor being assassinated.
The Mexican cartel “Jalisco New Generation” (CJNG) recently released two short videos with denunciations of the San Luis Potosi government. In the videos, they refer to the State’s government as the ‘Ministerial Cartel’, and further claim that the head of the Federal State police, Jose Guadalupe Castillo Celestino, is the head of the State ‘cartel’.
The CJNG also asserted that several recent killings in San Luis Potosi were not a result of its activities. To find the guilty party, according to the video statements, authorities had to investigate Castillo Celestino, who struck deals with the cartels of the Northeast, the Gulf and Los Alemanes, ‘selling’ the criminal organizations the right to operate in specific areas and also arranging for the purchase of real estate with drug money.
The Jalisco cartel also added that it should not be thought that the state governor was not aware of the transactions. The local governments in most of the areas affected are also often either incapable of countering cartel activities, or are on their payroll.
Although the chief of the Federal Police and at least one provincial governor were specifically mentioned in the two videos released by the CJNG, it remains unclear whether the CJNG is alleging that some State officials are collaborating with other cartels, or whether they have established a specific illegal armed group (or groups) throughout the country to take advantage of the breakdown in social order, violence and corruption to take over lucrative illegal markets and, perhaps, terrorize and displace rural and Indigenous communities so that political and economic partners can take over their territories and resources.
Again, any or all of these developments would have precedents and parallels in Colombia, where the Colombian police and US law enforcement and intelligence agencies (primarily the DEA, also probably the CIA) cooperated with the rivals and enemies of the Medellin Cartel, and Pablo Escobar in particular, resulting in the liquidation of the criminal group. However, as with the arrest of El Chapo, the killing of Escobar did absolutely nothing to improve the situation in the country, as the void was rapidly filled by other illegal armed groups. The Colombian military, and to a lesser extent police, have on repeated occasions collaborated with one paramilitary or other illegal armed group in order to take out another group.
Many aspects of these strategies and interactions between Colombian and US State security forces, military contractors and paramilitary groups are examined in the online book, In Search of Colombia: Social and political fragments and perspectives from the past to the present.
Community Self-Defence Organizations
One of the initiatives that has emerged from some of the communities most affected by the violence and predation of the illegal armed groups in rural and remote areas in Michoacán is the creation of community-based self-defence groups. Local business owners, who had grown weary of widespread extortion and violent crime that was ignored by corrupt local and state police, provided seed funding to establish the community-based militias in Michoacán, but authorities were concerned that some of the self-defence groups had extended their search for resources and weapons to competing crime syndicates and might develop more enduring relations with them.
While the concept is not by any means a panacea, and can cause even more problems for local communities as has been proven in the case of Colombia where they usually served as armed militias and death squads for local political and economic elites and landlords to terrorize and forcibly displace rural and remote communities in collaboration with military and police forces, if carefully implemented on a case-by-case basis under the control and with the full participation of the relevant communities it can at least provide the communities with an opportunity to be able to defend themselves until reinforcements can arrive.
In early 2014, the Mexican government began to implement a policy of incorporating members of the self-defence groups into legal law enforcement, giving them the option to disarm or register themselves and their weapons as part of the “Rural Police Force,” despite concerns about competing cartels corrupting these forces or the potential for the groups to morph into predatory paramilitary forces, as occurred in Colombia. The federal police and the Rural Police Force had a brief successful period of cooperation, however this ended with the arrests of the two self-defence force leaders (as well as dozens of members) in spring 2014. The arrests caused tension between the self-defence movement and federal police, and contributed to a renewal of high rates of violence in the area.
The concept has thus far not been incorporated into the new security strategies elaborated by President Andres Manuel Lopez Obrador, who has created a specialized National Guard in an attempt to eradicate the corrupt elements of the police and military and severe the links that have been developed between many of their personnel and the illegal armed groups, however it is not clear that reorganizing the security forces alone will be able to achieve this as they must inevitably be made of the same basic elements in a new uniform. The concept also appears not to be favoured by the leadership of the conventional security forces.
In some areas however the communities themselves have persisted with the initiative after having found themselves confronted by and at the mercy of apparent, and at times obvious, collaboration between illegal armed groups, police (whether federal or municipal) and military personnel (as well as politicians, landlords and corporate developers in more than a few cases). It could be argued that it is the height of cynicism and hypocrisy to deny communities the opportunity to defend themselves with security forces drawn from and selected and overseen by those same communities if they should choose to do so, particularly given the failure of the public security forces to protect them and hunt down and capture the illegal armed groups in their territories. In contrast, moreover, the economically well-off are usually very well attended by the security forces if they request assistance, and generally face very few obstacles to hire as many private security guards as they wish.
Even during the ‘lockdown’ measures implemented since the outbreak of the Coronavirus, in many cases the illegal armed groups have been able to move around freely to undertake their predatory activities and terrorize local communities in rural and remote areas.
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