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House of Bush, House of Saud

The Secret Relationship Between the World’s Two Most Powerful Dynasties
by Craig Unger
2004, Scribner Book Company
ISBN 07-4325-339-6
Illustrated, 370 pages.

From the author’s web site:

The Great Escape
House of Bush, House of Saud begins with a single question: How is it that two days after September 11, 2001, even as American air traffic was tightly restricted, a Saudi billionaire socialized in the White House with President George W. Bush as 140 Saudi citizens, many immediate kin to Osama Bin Laden, were permitted to return to their country? A potential treasure trove of intelligence was allowed to flee the country—including an alleged al-Qaeda intermediary who was said to have foreknowledge of the 9/11 attacks. Why did the FBI facilitate this evacuation, and why didn’t the agency question the people on the planes? Why did Saudi Arabia, the birthplace of most of the hijackers, receive exclusive and preferential treatment from the White House even as the World Trade Center continued to burn?

Two Families, Deeply Entwined
The answers to these questions, and ones far more troubling, lie in the largely hidden relationship that began in the mid-1970s, when the oil-rich House of Saud struck out for America in the wake of the OPEC oil embargo and soaring oil prices. Saudi Arabia needed American military protection, access to American political power, and a place to invest its staggering cash flow, which within 5 years reached $16 million an hour. Like wildcatting oil drillers, the Saudis began prospecting among promising American politicians, including the Bush family. And with the Bushes, the Saudis hit a gusher- direct access to Presidents Ronald Reagan, George H. W. Bush, and George W. Bush, as well as to Secretary of State James Baker, Vice-President Dick Cheney, and the entire U.S. intelligence apparatus.

A Dangerous Liaison
What followed was an amazing weave of influence, strategic investment, socializing, and secret policy between the House of Bush and the House of Saud that arcs from the 1980s into the present day. The two parties conferred on war, oil, funding for Osama bin Laden’s Afghan Arabs supporting the mujahideen in the Afghanistan War, illegal arms deals, banking, private matters, and much more. By the time George W. Bush was elected, the House of Saud had transferred an astonishing sum of money to the House of Bush in deals involving dozens of companies. The total? At least $1.4 billion in investments and contracts went to companies in which the Bushes and their allies held prominent positions. But the importance of the relationship goes far beyond money. More than any other country in the world, Saudi Arabia is responsible for the rise of Islamic fundamentalist terrorism that threatens America. Horrifying as it may seem, the secret liaison between these two great families helped trigger the Age of Terror and give rise to the tragedy of 9/11.

THIS BOOK IS IN PRINT
Available commercially. Learn more about Craig Unger and House of Bush, House of Saud.

Discussion

One comment for “House of Bush, House of Saud”

  1. This is kind of an interesting quirk about the US’s relationship with the Saudi Kingdom over the past 40 years: Despite the fact that it was no secret at all that the Saudis were buying large amounts of US treasuries and billions of dollars in in US military aid and hardware as part of the ‘petrodollar recycling’ status quo, special arrangements were still set up to make sure the actual purchases were either a secret entirely or obscured by group the purchases in generic “oil exporter” categories with the US treasury publicly released treasury purchase data. Apparently this was all supposed to be a secret. Shhhh…:

    Bloomberg

    The Untold Story Behind Saudi Arabia’s 41-Year U.S. Debt Secret
    How a legendary bond trader from Salomon Brothers brokered a do-or-die deal that reshaped U.S.-Saudi relations for generations.

    May 30, 2016
    Andrea Wong

    Failure was not an option.

    It was July 1974. A steady predawn drizzle had given way to overcast skies when William Simon, newly appointed U.S. Treasury secretary, and his deputy, Gerry Parsky, stepped onto an 8 a.m. flight from Andrews Air Force Base. On board, the mood was tense. That year, the oil crisis had hit home. An embargo by OPEC’s Arab nations—payback for U.S. military aid to the Israelis during the Yom Kippur War—quadrupled oil prices. Inflation soared, the stock market crashed, and the U.S. economy was in a tailspin.

    Officially, Simon’s two-week trip was billed as a tour of economic diplomacy across Europe and the Middle East, full of the customary meet-and-greets and evening banquets. But the real mission, kept in strict confidence within President Richard Nixon’s inner circle, would take place during a four-day layover in the coastal city of Jeddah, Saudi Arabia.

    The goal: neutralize crude oil as an economic weapon and find a way to persuade a hostile kingdom to finance America’s widening deficit with its newfound petrodollar wealth. And according to Parsky, Nixon made clear there was simply no coming back empty-handed. Failure would not only jeopardize America’s financial health but could also give the Soviet Union an opening to make further inroads into the Arab world.

    It “wasn’t a question of whether it could be done or it couldn’t be done,” said Parsky, 73, one of the few officials with Simon during the Saudi talks.

    At first blush, Simon, who had just done a stint as Nixon’s energy czar, seemed ill-suited for such delicate diplomacy. Before being tapped by Nixon, the chain-smoking New Jersey native ran the vaunted Treasuries desk at Salomon Brothers. To career bureaucrats, the brash Wall Street bond trader—who once compared himself to Genghis Khan—had a temper and an outsize ego that was painfully out of step in Washington. Just a week before setting foot in Saudi Arabia, Simon publicly lambasted the Shah of Iran, a close regional ally at the time, calling him a “nut.”

    But Simon, better than anyone else, understood the appeal of U.S. government debt and how to sell the Saudis on the idea that America was the safest place to park their petrodollars. With that knowledge, the administration hatched an unprecedented do-or-die plan that would come to influence just about every aspect of U.S.-Saudi relations over the next four decades (Simon died in 2000 at the age of 72).

    The basic framework was strikingly simple. The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending.

    It took several discreet follow-up meetings to iron out all the details, Parsky said. But at the end of months of negotiations, there remained one small, yet crucial, catch: King Faisal bin Abdulaziz Al Saud demanded the country’s Treasury purchases stay “strictly secret,” according to a diplomatic cable obtained by Bloomberg from the National Archives database.

    With a handful of Treasury and Federal Reserve officials, the secret was kept for more than four decades—until now. In response to a Freedom-of-Information-Act request submitted by Bloomberg News, the Treasury broke out Saudi Arabia’s holdings for the first time this month after “concluding that it was consistent with transparency and the law to disclose the data,” according to spokeswoman Whitney Smith. The $117 billion trove makes the kingdom one of America’s largest foreign creditors.

    Yet in many ways, the information has raised more questions than it has answered. A former Treasury official, who specialized in central bank reserves and asked not to be identified, says the official figure vastly understates Saudi Arabia’s investments in U.S. government debt, which may be double or more.

    The current tally represents just 20 percent of its $587 billion of foreign reserves, well below the two-thirds that central banks typically keep in dollar assets. Some analysts speculate the kingdom may be masking its U.S. debt holdings by accumulating Treasuries through offshore financial centers, which show up in the data of other countries.

    Exactly how much of America’s debt Saudi Arabia actually owns is something that matters more now than ever before.

    While oil’s collapse has deepened concern that Saudi Arabia will need to liquidate its Treasuries to raise cash, a more troubling worry has also emerged: the specter of the kingdom using its outsize position in the world’s most important debt market as a political weapon, much as it did with oil in the 1970s.

    In April, Saudi Arabia warned it would start selling as much as $750 billion in Treasuries and other assets if Congress passes a bill allowing the kingdom to be held liable in U.S. courts for the Sept. 11 terrorist attacks, according to the New York Times. The threat comes amid a renewed push by presidential candidates and legislators from both the Democratic and Republican parties to declassify a 28-page section of a 2004 U.S. government report that is believed to detail possible Saudi connections to the attacks. The bill, which passed the Senate on May 17, is now in the House of Representatives.

    Saudi Arabia’s Finance Ministry declined to comment on the potential selling of Treasuries in response. The Saudi Arabian Monetary Agency didn’t immediately answer requests for details on the total size of its U.S. government debt holdings.

    “Let’s not assume they’re bluffing” about threatening to retaliate, said Marc Chandler, the global head of currency strategy at Brown Brothers Harriman. “The Saudis are under a lot of pressure. I’d say that we don’t do ourselves justice if we underestimate our liabilities” to big holders.

    Saudi Arabia, which has long provided free health care, gasoline subsidies, and routine pay raises to its citizens with its petroleum wealth, already faces a brutal fiscal crisis.

    In the past year alone, the monetary authority has burned through $111 billion of reserves to plug its biggest budget deficit in a quarter-century, pay for costly wars to defeat the Islamic State, and wage proxy campaigns against Iran. Though oil has stabilized at about $50 a barrel (from less than $30 earlier this year), it’s still far below the heady years of $100-a-barrel crude.

    Saudi Arabia’s situation has become so acute the kingdom is now selling a piece of its crown jewel—state oil company Saudi Aramco.

    What’s more, the commitment to the decades-old policy of “interdependence” between the U.S. and Saudi Arabia, which arose from Simon’s debt deal and ultimately bound together two nations that share few common values, is showing signs of fraying. America has taken tentative steps toward a rapprochement with Iran, highlighted by President Barack Obama’s landmark nuclear deal last year. The U.S. shale boom has also made America far less reliant on Saudi oil.

    “Buying bonds and all that was a strategy to recycle petrodollars back into the U.S.,” said David Ottaway, a Middle East fellow at the Woodrow Wilson International Center in Washington. But politically, “it’s always been an ambiguous, constrained relationship.”

    Yet back in 1974, forging that relationship (and the secrecy that it required) was a no-brainer, according to Parsky, who is now chairman of Aurora Capital Group, a private equity firm in Los Angeles. Many of America’s allies, including the U.K. and Japan, were also deeply dependent on Saudi oil and quietly vying to get the kingdom to reinvest money back into their own economies.

    “Everyone—in the U.S., France, Britain, Japan—was trying to get their fingers in the Saudis’ pockets,” said Gordon S. Brown, an economic officer with the State Department at the U.S. embassy in Riyadh from 1976 to 1978.

    For the Saudis, politics played a big role in their insistence that all Treasury investments remain anonymous.

    Tensions still flared 10 months after the Yom Kippur War, and throughout the Arab world, there was plenty of animosity toward the U.S. for its support of Israel. According to diplomatic cables, King Faisal’s biggest fear was the perception Saudi oil money would, “directly or indirectly,” end up in the hands of its biggest enemy in the form of additional U.S. assistance.

    Treasury officials solved the dilemma by letting the Saudis in through the back door. In the first of many special arrangements, the U.S. allowed Saudi Arabia to bypass the normal competitive bidding process for buying Treasuries by creating “add-ons.” Those sales, which were excluded from the official auction totals, hid all traces of Saudi Arabia’s presence in the U.S. government debt market.

    “When I arrived at the embassy, I was told by people there that this is Treasury’s business,” Brown said. “It was all handled very privately.”

    By 1977, Saudi Arabia had accumulated about 20 percent of all Treasuries held abroad, according to The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets by Columbia University’s David Spiro.

    Another exception was carved out for Saudi Arabia when the Treasury started releasing monthly country-by-country breakdowns of U.S. debt ownership. Instead of disclosing Saudi Arabia’s holdings, the Treasury grouped them with 14 other nations, such as Kuwait, the United Arab Emirates and Nigeria, under the generic heading “oil exporters”—a practice that continued for 41 years.

    The system came with its share of headaches. After the Treasury’s add-on facility was opened to other central banks, erratic and unpublicized foreign demand threatened to push the U.S. over its debt limit on several occasions.

    An internal memo, dated October 1976, detailed how the U.S. inadvertently raised far more than the $800 million it intended to borrow at auction. At the time, two unidentified central banks used add-ons to buy an additional $400 million of Treasuries each. In the end, one bank was awarded its portion a day late to keep the U.S. from exceeding the limit.

    Most of these maneuvers and hiccups were swept under the rug, and top Treasury officials went to great lengths to preserve the status quo and protect their Middle East allies as scrutiny of America’s biggest creditors increased.

    Today, Parsky says the secret arrangement with the Saudis should have been dismantled years ago and was surprised the Treasury kept it in place for so long. But even so, he has no regrets.

    Doing the deal “was a positive for America.”

    “The basic framework was strikingly simple. The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending.

    It took several discreet follow-up meetings to iron out all the details, Parsky said. But at the end of months of negotiations, there remained one small, yet crucial, catch: King Faisal bin Abdulaziz Al Saud demanded the country’s Treasury purchases stay “strictly secret,” according to a diplomatic cable obtained by Bloomberg from the National Archives database.
    Uh oh, the secret is out. So if you happen to have spent the last fewdecades in a coma, now you know.

    Posted by Pterrafractyl | May 31, 2016, 2:36 pm

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