NY Fed's $40 Billion Iraqi Money Trail - The "Big Short"

Browsing my usual trail on the World Wide Web (WWW) this morning I stumbled on this absolutely bizarre story:  http://news.nationalpost.com/news/canada/the-tale-of-a-mysterious-mound-of-iraqi-cash-seized-at-the-border-and-the-oddball-cast-thats-fighting-for-it

It reads like an aliens just landed in flying saucers report!  After getting into the story I checked the web site address to see if it came from the Onion.  Maybe more like a comedy movie plot involving some hapless idiots and a scheme to get rich.  No, it seems like this really happened.

Still it is unbelievable.  Truth however is stranger than fiction.

Iraqi dinars.  How might that tie into the billions in US $100 dollar bills shipped from the NY Fed to Iraq and then lost!  Interesting to pursue links so I did and linked here on a search: http://www.cnbc.com/id/45031100

It brings me back full circle to the point of departure where I began my journey to find the answer to the question:  What is money?  I began researching many years ago the lost $10 billion in 100 dollar bills shipped to Iraq after our invasion.  It was physical cash.  Pallets and tons of cash.  Each bill was serialized.  The question: What is money?  Is easier to answer when it is in the form of physical cash than when it is a number in an account with no self identifying identity as money other than a number documented by an account number.

I can get my hands on physical uniquely identified and difficult to counterfeit  $100 bills.  It is more difficult to wrap my mind around a conceptual representation of $100 existing in a bank account that has shed its unique serialized physical identity when I handed it to a bank teller and it becomes only a number 100 in my bank account.  Sounds like the story of a handful of magic beans in exchange for a real live pig.  Or should I say pig in a poke. That link tells an old story about how this phrase term originated.

Billions of real $100 dollar bills shipped to Iraq is something I could wrap my hands and mind around.  However, they disappeared!  That is not possible.  There was no knowledge to explain where they were but they did not physically disappear.  There was no big cigar party where they were all used to light cigars.  People do attach value to these bits of serialized paper.  Tons of bucks have great value.  $10 billion, more or less.  They were physically somewhere, perhaps dispersed.  They arrived in pallets.  That is a lot of $100 bills to stick in a pocket.    Somebody (collectively) knew where.  Protected them someplace.  Had some use for them.  Had to physically move them around.  The situation is analogous to drug dealers.  How to manage tons of bucks.  It is not as easy as numbers in accounts.

All the billions in tons of bucks came from the NY Fed.  Each had a serial number.  Physically they were on pallets in serial number sequence from the Bureau of Printing and Engraving  The BEP has a currency serialization scheme for the assignment of a serial number to every bill it produces.  The range of serialized numbers for each denomination of bill produced and when is a matter of public record.

In this prior post I gave BEP serial number ranges and production dates of  100 dollar bills produced for the NY Fed.  Obviously it took almost the entire recent, at that time, production of physical bills on hand at the NY Fed to satisfy demand for 10 billion dollars worth of 100 dollar bills.

Where the "40 billion" in the CNBC link came from is unknown but it is impossible that it was in the form of physical currency.  There was simply not that much on hand at the NY Fed from the BEP serialized 100 dollar bill production report:  http://www.moneyfactory.gov/resources/productionmonthly.html with the NY Fed serial number identifier on them!  That is the convenient feature of physical cash accountability.  Each physical uniquely serialized bill really exits as self evident proof of existence.  Not like money in an account that is like an ephemeral pig in a poke that exists as a numerical abstraction subject to manipulation by definition and form.

$40 Billion?  Show me the Money!  It was never produced by the BEP for the NY Fed to have in that amount bundled up in pallets to ship to Iraq.  $10 billion?  Yes, really was possible.  Every bill could be counted.

Serialized $100 dollar bills are traceable.  When the range of serial numbers is known they can be found.  There is no "follow the money" trail to follow.  However if it took the entire on hand production of $100 bills serialized by the BEP with the unique letter code identifier of the NY Fed in the NY Fed vaults to satisfy the demand for $12 billion in $100 bills to be shipped to Iraq (only $10 was claimed to be "lost" because it could not be accounted for) then by definition any $100 bill found in the world at any given time with as serial number identifier within that range was, by deduction shipped to Iraq.

So, where in the world were they to be found.  I found some in my home  town bank.  More in banks located in Sierra Vista, Arizona.  Fact.  I did and recorded serial numbers.

In aggregate it begs the simple question:  Where ultimately did $10 billion dollars in serialized $100 dollar bills ultimately physically go?  Up in a puff of smoke?  When was the last time you burned a $100 dollar bill?  Anyone burn a $100 dollar bill?  Maybe a billionaire to light a cigar, maybe.  Matches are cheaper.  People can be depended on to do the rational thing.  It is rather irrational to destroy a $100 dollar bill.  There better things to do with it and people can be counted on to act in their own self interest if they have one, or $10 billion dollars worth in their possession.

The only answer to the where did they ultimately go:  Up in smoke.  In reality, disappeared.  After all they were only serialized bits of paper.  Actually the real answer to where most of that paper probably went in the end is the shredder.  Dollar bills are shred when the become worn out.  It takes longer to wear out a $100 dollar bill than a $1 dollar bill.   Depending on the denomination the bill has a documented average life span before shredding by the Federal Bank system.

Some of the bills shipped to Iraq have been shred.  Some are still in circulation.  Anyone having today one of the $100 bills with a serial number shipped to Iraq can spend it, exchange it.  Exchange for less value outside of the United States because older bills are worth less in the currency exchange market.  I do believe, however, that old US currency abroad can be repatriated to the NY Fed for credit to a foreign bank account and then physically destroyed.  I did some research on that once and don't recall the result.  I think I concluded that if this was really the biggest $10 billion dollar heist in history then the money would be quickly laundered into a number in an account when the physical evidence of the theft was destroyed in the shredder.

It remains the biggest "who done it" robbery of physical cash of all time that gets little or no investigation.  There was a bigger robbery of non-physical cash that had no self identifying serial number because it was only numbers in an account that were unaccountable because they had no unique identity serial number. 

The "Big Short" tells that story about money that had no physical identity of a documented unique serial number but nobody went to jail.

This blog entry ends on a "Big Short" of money expressed as numbers in an account rather than physical currency.  It starts with billions of dollars in physical currency that "came up short".  Both disappeared with the crooks that stole it.  In the case of cash from the NY Fed vaults they got it all, at least all of it on hand by factual presumption based on BEP serialized denomination production reports of $100 bills bearing the NY Fed code identifier.  The vault was emptied.

In the case of the Big Short and the financial collapsed cause by Wall Street the crooks got away with as much as they could carry and still have the system create more for them.  They will do it again unless the system is changed. 

That is exactly the systemic system change I propose in the content of this blog.  Give money a conceptual identity that it carries at the unit dollar digital entity level existing forever that is used as a medium of exchange in a blockchain triple entry public ledger accountability system where "money" can never really be made to disappear because it either goes up in smoke or goes out of existence when a debt is repaid to a bank that has the power to create money from nothing by the process of loaning it into existence and extinguish it back to nothing when the loan is repaid.

My proposed digital currency system has specific design and conceptual reasoning presented over the existence of this blog.  Fundamentally it could be expressed as a blockchain third party to the dual accounting balance sheet system.  I saw my system as a positive money system paradigm shift from a debt based to a positive based monetary system.  A debt based system could continue to exist but there must be a blockchain third party accountability scheme introduced to monetary system design that has been made possible by the technology of the Information Age.  An accountability system that will forever in the future answer not only the question: 

Where did the money go?  

But also conclusively and exactly respond to the the accountability demand: 

Show me the money!