The decision by the federal government to bail out the Mafia but allow the Cosa Nostra to go under has left investors bewildered and enraged. Ever since it became apparent last week that neither the Mafia nor the Cosa Nostra could survive without a massive infusion of capital, Americans have waited with baited breath to see if the feds would allow the two venerable organizations to disappear. What no one ever expected was that the government would pony up $135 billion to keep the Mafia going, but would simply allow the Cosa Nostra to implode.
“To save one but walk away from the other is outrageously unfair to investors,” says Larry Triplet, a pension- fund manager who has some $2.6 billion invested in waste-management firms operated by organized crime. “The Cosa Nostra is more than 200 years old; the parvenu Mafia didn’t come into existence until the 1920s. To let an institution so revered, so admired and so much a part of the wool and woof of American life take the pipe simply boggles the mind.”
Why did the government decide to come to the aid of either of these criminal enterprises?
“Moral hazard was clearly an issue here,” says Katherine Hewitt-Smythe of the Catonic Institute, a libertarian think tank. “The government worried that if it bailed out the Mafia and the Cosa Nostra, it would then have to bail out the Black Hand, the Triads, various domestic-based cartels and a host of smaller criminal organizations. The feds wanted to send a message to all these groups that if they were running out of cash and could no longer meet their payrolls, that was their problem. But at the last minute, Bernanke and Paulson blinked.”
The decision to save the Mafia but let the Cosa Nostra disappear was motivated by the belief that while the collateral damage from the collapse of the latter could be contained, the implosion of the Mafia could bring about the overnight collapse of the global financial system.
“The Cosa Nostra has always been more profitable than the Mafia because it does a better job at holding down expenses and never gives out bonuses,” explains Ravi Khalid-Sutra, author of the best-selling book 10 Stocks to Short After Armageddon. “But the Mafia generates a lot more cash flow. The Mafia gets most of its revenues from gambling, which means it is always handing out cash to Mr. John Q. Public. That’s where the problem was. The Mafia took a bath on the World Series last fall, and then when the money moved the wrong way in the Super Bowl it became apparent that the Mafia could not pay off bettors. That’s when the government decided that the reverberations of its collapse could topple the entire financial system.”
Hewitt-Smythe explains why: “If the Mafia can’t pay the bookie, and the bookie can’t pay the stoolie, then the stoolie can’t pay the henchman, the henchman can’t pay the wise guy, and the wise guy can’t pay the Shooter from
One problem is that the federal government has no experience running a criminal organization, so it is by no means certain that the Mafia will be able to function in a stiffer regulatory environment.
“The federal government can’t blow up your car or break your legs if you don’t pay the vig,” explains Khalid-Sutra. “That’s why its failure to save the Cosa Nostra is such a bad decision. If the feds had taken over the Mafia and lent money to the Cosa Nostra to tide them over, they could have hired the Cosa Nostra to collect for the Mafia. Now they’ll have to use the