A very interesting story noticed by Susie. Very, very interesting. Reuters:

United Nations’ crime and drug watchdog has indications that money made in illicit drug trade has been used to keep banks afloat in the global financial crisis, its head was quoted as saying on Sunday.

(Notice the lack of agency in that sentence. “Has been used.” Used by whom? And when?)

Vienna-based UNODC Executive Director Antonio Maria Costa said in an interview released by Austrian weekly Profil that drug money often became the only available capital when the crisis spiralled out of control last year.

“In many instances, drug money is currently the only liquid investment capital,” Costa was quoted as saying by Profil. “In the second half of 2008 [that is, when Pelosi, Obama, Reid, Bush, and Paulson got TARP passed] liquidity was the banking system’s main problem and hence liquid capital became an important factor.”*

The United Nations Office on Drugs and Crime had found evidence that “interbank loans were funded by money that originated from drug trade and other illegal activities,” Costa was quoted as saying. There were “signs that some banks were rescued in that way.”

Profil said Costa declined to identify countries or banks which may have received drug money and gave no indication how much cash might be involved. He only said Austria was not on top of his list, Profil said.

Makes you think, doesn’t it?

Because if hundreds of billions of drug money were used to rescue the banks, that would make the bailout the largest money laundering operation in the history of the world. (Somebody who really knows how this stuff works would have to tell me whether this would be in addition to TARP and the rest of the two trillion, or if the banks got a “short term loan” from the drug lords, later repaid by taxpayer dollars, or what. I guess we have to assume that “financial innovation” is just as prevalent in the drug world as it is in on Wall Street, so for all I know there were tranches, hedges, computer models, and everything else.)

But make the assumption — which seems instantly plausible to me, and I can’t believe I wasn’t cynical enough to think of it — that cash from the drug lords was (and is?) a huge part of the bailout. Here are some of the implications:

1. Shystee’s post, comparing the bailout to a Sopranos-style “bust-out”, was no mere metaphor. Kudos to Shystee.

2. Drug lord involvement would explain Hank Paulson’s kneeling before Pelosi, and his near state of physical collapse during the bailout negotiations. (I can’t find the link, but I have a vivid mental picture of Rahm Emmanuel, of all people, propping him up.) I thought Paulson’s behavior was odd at the time; perhaps it wasn’t mere stress, but mortal fear.

3. Drug money involvement would explain why there’s no transparency on how much, in total, was spent or who got it.

4. Drug money involvement would explain why the bailout had no visible effect — working on the idea that TARP repaid a short term loan. The TARP money went right back into the underground economy

5. Drug money involvement would explain all the sudden issues of trust and confidence. I mean, our own rulerz are crooks and looters and pushers too, just like the drug lords, and this, they already know, but their collection techniques have some finesse. No risk of horse’s heads from Hank Paulson. But suddenly, new possibilities would have to be factored into the risk equations…

6. Drug money involvement would explain why Afghanistan is “the real war” — and why the Afghans are growing as much opium as ever (and that ring road is useful for other commodities than oil, I bet). Yeah! Yeah! Yeah! Whoooooo!

7. And now we know why legalizing marijuana, though passionately, and rightly, advocated by Obama’s base, isn’t on the table, next to the table, in the same room as the table, or in the same hemisphere as the table. I mean, not even a worthless, Beltway-style commission? But drug lords need their cash flow, too — as do we.**

NOTE * More detail from the Google Translation of the interview, some data points:

1. Costa estimates the available cash from drugs at $320 billion U.S. dollars worldwide. Interestingly, that’s about the size of the first TARP tranche.

2. How could the laundering have been accomplished? Again:

COSTA: It looks as though interbank loans by money funds was derived from drug trafficking and other illegal activities are eligible. It is obviously difficult to prove, but there are indications that some banks in this manner have been rescued.

Hmm. Would that be why LIBOR, the privatized and opaque rate for interbank loans, suddenly spiked? Because the risk — to the, er, health of the bankers — really did increase? (And to think I put that down to market manipulation. I guess I’m not cynical enough.)

3. Aghanistan:

COSTA: What the fight against drug cultivation is concerned, NATO is doing nothing at all in Afghanistan.

Laissez les bon temps roulez!

NOTE ** And by we, I mean “we.”