Table of Contents Praise Title Page Dedication Epigraph Introduction CHAPTER ONE - THE WRITING ON THE WALL CHAPTER TWO - A BRIEF HISTORY OF ECONOMIC WARFARE THE BASICS: FROM THE SEVEN YEARS’ WAR TO THE CIVIL WAR THE OLD-FASHIONED BLOCKADE: PEARL HARBOR AND OIL THE SOPHISTICATED GAME: OPERATION BERNHARD THE BIG GAME: THE COLD WAR THE SUEZ CANAL: HOW THE UNITED STATES USED ECONOMIC WARFARE AGAINST OUR ALLIES FULL-SCALE ECONOMIC WARFARE: OPEC IN 1973 GEORGE SOROS: FINANCIAL TERRORIST? CHAPTER THREE - IT GETS PERSONAL GETTING THE BALL ROLLING CHAPTER FOUR - THE MOTIVE TERRORIST GROUPS: “JIHAD WITH MONEY” ISLAMIC STATE SPONSORS OF FINANCIAL TERRORISM: ABOLISHING CAPITALIST “SLAVERY” NON-ISLAMIC STATE SPONSORS OF ECONOMIC TERRORISM: “A NEW WORLD IS BEING BORN” THE PIGGYBACKERS CHAPTER FIVE - THE MEANS OIL MANIPULATION CURRENCY AND DEBT MANIPULATION BEAR RAIDS CREDIT DEFAULT SWAPS NAKED SHORT SELLING DOUBLE- AND TRIPLE-SHORT ETFS SOVEREIGN WEALTH FUNDS DARK MARKETS DARK POOLS AND SPONSORED ACCESS ALGORITHMIC TRADING ROGUE TRADERS ARBOON CHAPTER SIX - THE OPPORTUNITY THE UPTICK RULE THE HOUSING BUBBLE NATIONAL DEBT THE REPEAL OF GLASS-STEAGALL UNREGULATED DERIVATIVES FREEDOM TO GET NAKED THE MADOFF EXEMPTION ACCOUNTING TRICKERY THE NMS REGULATION OPENING THE DOOR TO FINANCIAL JIHAD CHAPTER SEVEN - HOW THEY DID IT PHASE ONE: THE OIL RUN-UP PHASE TWO: THE BEAR RAIDS WHODUNNIT? NOT BUSINESS AS USUAL CHAPTER EIGHT - NO SOLUTION IN SIGHT THE REAL PROBLEM: PHASE THREE THE CONTINUING ISLAMIC THREAT THE BRIC DANGER A FAILURE OF IMAGINATION THE STRUGGLE THE BREAKTHROUGH CHAPTER NINE - THE NEXT ATTACK WOULD CHINA DO IT? THE DRY RUN THE BEGINNING THE EUROPEAN DOMINO THEORY CONCLUSION Acknowledgments NOTES INDEX Copyright Page PRAISE FOR SECRET WEAPON “One man and only one man sounded the alarm trying to warn Congress and the American people about what really happened during the financial collapse of 2008 That man is Kevin Freeman What he has uncovered is chilling—financial terrorism that can happen again and bring this nation’s economy and the world economy to their knees Why did no one listen? Why the media and the Washington powerbrokers choose to ignore Mr Freeman and hope that he will just go away? Well, they are in for a rude awakening, because this book is their worst nightmare and America’s greatest hope.” —Steve Malzberg, national radio talk show host “Our military leaders recognize that military strength is dependent on economic strength Our enemy’s leaders recognize our strength in kinetic warfare and our weakness in economic warfare and financial terrorism As a thought-leader regarding these issues, Kevin Freeman has been persistent in his education efforts at the highest levels in the defense and intelligence establishment His basic thesis—that economic warfare can be as potent as kinetic conflict—is an important truth that needs to be grasped.” —Harry E Soyster, Lt Gen USA (Ret.), former Director of the Defense Intelligence Agency “Kevin Freeman is preeminent among the handful of Americans who appreciate the important nexus between finance and national security His path-breaking research reveals that, unfortunately, our enemies understand this nexus all too well—and are exploiting our national ignorance and vulnerabilities in this arena to inflict grave damage on our economy and the common defense.” —Frank Gaffney Jr., founder and President of the Center for Security Policy “When most of us think of acts of terrorism we imagine car bombs or hijacked airliners Kevin Freeman compels us to think again He explores the dimly understood world of financial terrorism that ultimately underwrites the steady progress of jihad against America and its allies If you want to know what our enemies have already figured out, read this book.” —Fred Grandy, former member of Congress and Senior Fellow at the Center for Security Policy “The complexity of warfare is staggering Attacks against the United States are all too often framed only in terms of a kinetic strike against military forces, infrastructure, or most recently, a cyber-attack Kevin Freeman goes right to the heart of the issue: the strength of the United States lies in the U.S economy, it has been attacked, and such attacks can cripple us Some believe this undoable, unimaginable, or unthinkable Our adversaries are using every tool to defeat us, and we must protect ourselves.” —David G Reist, BGen USMC (Ret.), Vice President of the Potomac Institute for Policy Studies “When nations contend for power, they use all the means at their disposal If they are building weapons and making threats of war, there are likely to be other things going on, too This would include economic things, things designed to upset the wealth and therefore the power of their potential enemies This is an old way of fighting, even if the means of prosecuting it are new Kevin has suggested what some of these new ways are It makes a chilling story.” —Larry P Arnn, President of Hillsdale College “Kevin Freeman’s detailed analysis of the 2008 U.S economic market downturn is the elephant in the room with regards to America’s financial and national security troubles His exposure of the U.S markets’ continuing vulnerabilities to hostile foreign entities is chilling and requires study and due diligence by those charged with defending America’s financial system This book is another major indicator that America’s enemies are fighting a total war and our national security apparatus is asleep at the wheel.” —John Guandolo, Vice President of the Strategic Engagement Group and I Immelt, Jeff Indochina inflation Insana, Ron insider trading Inspire Institute for the Analysis of Global Security (IAGS) Insurance Journal Intel IntercontinentalExchange Inc (ICE) International Monetary Fund International Olympic Committee International Organisation of Securities Commissions investment banks Investment Dealers Association of Canada Investment News investor confidence IOUs Iran 1979 revolution of China and Hugo Chavez and nuclear weapons of oil and OPEC and Russia and SCF and U.S hostage crisis Iraq Iraq Survey Group Iraqi Oil for Food scandal ISE Stock Exchange Islamic Finance Standards Board (IFSB) Islamic University in Medina Islamic-compliant arboons ISN Security Watch J J P Morgan Chase Jakarta Globe Jama’atu Ahlis-Sunna Lidda’awati Wal Jihad Janiczek, Paul Japan 1941 U.S oil embargo against attack on Pearl Harbor Indochina and Jersey, Ira Johnson, Gary Johnson, Jim Jones, Charles M Journal of Peace Research K Kanjorski, Paul Kaufman, Ted Kelly, Megyn Kenya U.S embassy bombing Kerviel, Jérôme Kessler, Andy “Kevin Bacon” game Khan, Muhammad Naeem Noor Khawaja, Monin Khobar Towers bombings Kim family Kim Jong Il, Kimball, E J Kimmitt, Robert King Adulaziz University King Faisal Kingdom Holding Company Knowledge @Wharton Koran Kotz, David Krueger, Alan Krueger, Bernhard Krugman, Paul Kunz, D B L Laffer, Art Lagarde, Christine Langevoort, Donald Lappen, Alyssa Larson, Mike Last Emperor, The Lauricella, Tom Lavrov, Sergei Lear, Robert W Ledzinski, Jerry LeFever, Edwin Lehman Brothers Leman, James Westwater Corp Lenczowski, John Lerner, Stephen leveraged ETFs Levin, Carl Levitt, Arthur Li Daokui Libya Investment Authority Lieberman, Joseph liquidity Litan, Robert Livermore, Jesse Lloyds TSB Bank Lockheed Martin Long-Term Capital Management Loser, Claudio Luft, Gal M M&T Corp Madhavan, Ananth Madoff, Bernie Ponzi scheme of Madoff Exemption Maduro, Nicolas mafia Major, John Mallaby, Sebastian Maloy, Patrick Malzberg, Steve Mao Tse Tung Margolin, Jim mark-to-market accounting market transparency market vulnerability Markopolos, Harry master funds Mastercard Masters, Blythe Masters Capital Management LLC, Masters, Michael Matsumoto, Gary May 2010 “f lash crash,” May, Clifford McCain, John McCarthy, Andrew The Grand Jihad McConnell, Bill McCormick Foundation McDermott, Hugh Meese, Ed Mehta, Nina Merkel, Angela Merrill Lynch MFS Investment Management Microsoft Middle East Milan stock exchange Militares Democraticos Mission Residential Mobil Mohamad, Mahathir Mohammed (prophet) Mohammed, Khalid Sheikh Mondale, Walter money laundering Money Morning Moody, Richard Moody’s Morgan Stanley Morganthau, Robert Morgensen, Gretchen mortgage backed securities (MBSs) MSNBC Mubarak, Hosni mujahideen Mukasey, Michael multiculturalism Munich Re Musharraf, Pervez Muslim Brotherhood Hamas N Najarian, Jon naked short selling fail-to-delivers and naked sponsored access (see also: unfiltered access) NASDAQ Nasser, Gamal Abdel Nat City national debt monetary policy and National Defense University National Market System (NMS) National Public Radio (NPR) National Review National Security Agency (NSA) National Terror Alert NATO Nazerali, Altaf Nazi Germany Nelson, Bill New England Complex Systems Institute New York Institute of Finance New York Mercantile Exchange (NYMEX) New York Stock Exchange New York University Newsmax Newsweek Nixon, Richard Noland, Michael North Africa North Korea Office supernotes Northwest Norway Nyquist, J R O O Kuk-ryol Obama, Barack election of Occupy Wall Street O’Connell, Shawn off-balance sheet assets oil oil price manipulation oil prices paper oil as weapon oil speculation Omega Advisors on-balance sheet assets O’Neill, Jim Operation Bernhard Operation Uptick Organization of the Petroleum Exporting Countries (OPEC) over-the-counter (OTC) markets Overstock P Pace University Palestinian Monetary Authority panic paper oil Parnon Energy Paulson, Henry (“Hank”) On the Brink Pearl Harbor Penson Financial Services, Inc Pentagon People’s Bank of China People’s Daily People’s Liberation Army (PLA) Petroleum Marketers Association Phares, Walid Pillsbury, Michael Pitt, Harvey PLC’s Barclays Global Investors PNC political correctness politically correct policies Popper, Karl Poteshman, Allen Pozen, Robert President’s Foreign Intelligence Advisory Board (PFIAB) PricewaterhouseCoopers private sector debt Project Syndicate proprietary trading Provident Prozac Nation PTI Securities & Futures LP Public Broadcasting Station (PBS) Pulliam, Susan Putin, Vladimir Q Qaddafi, Muammar Qaradawi, Yusuf Qatar Investment Authority Qiao Liang Qiushi Journal Qualified Special Purpose Entities (QSPEs) Qutb, Sayyib R Rachman, Gideon Raytheon Reagan, Ronald “Farewell” program “Red Flags of Market Manipulation Causing a Collapse of the U.S Economy,” Reed, Thomas Refco Regions regulatory oversight Reichsicherheitsdienst Reist, David Reminiscences of a Stock Operator Reserve Primary Fund Reuters Rickards, James (“Jim”) Currency Wars Ritholtz, Barry rogue trading Rolling Stone Roosevelt, Franklin Delano Board of Economic Warfare of Rose, David Rosner, Joshua Roubini, Nouriel Royal Bank of Canada Rubin, Robert Rukeyser, Louis Rumsfeld, Donald Russell 3000, Russia China and George Soros and holdings of U.S debt as member of BRIC as U.S enemy S S&P 500 Sadat, Anwar Samuelson, Robert San Francisco Chronicle Saudi Arabia Sayyaf, Abu Schapiro, Mary L Schumer, Chuck Schwartz, Herman Schwarzman, Stephen Securities Exchange Commission Securities Industry and Financial Markets Association (SIFMA) Securitization securitized assets selective deregulation Senate Banking and Currency Committee Pecora Hearings of September 11, 2001 (see also: 9/11) economic damage of insider trading and lives lost as symbolic attack September 2008 financial attack on America September 2008 market collapse as economic Pearl Harbor phases of predictions of Service Employees International Union (SEIU) Seven Years’ War Rule of the War of 1756 Shahids Sharia compliant finance (SCF) ethical investing sharia law sharia-compliant investors Shariah Capital Shehata, Hussein Sheikh DeLorenzo Sheikh Maktoum Shell corporations Siebert Financial Corporation Siebert, Muriel Silah al Naft Simpson, Robert Singer, Jeffrey Siniscalco, Domenico Sirri, Erik Snowe, Olympia Société Générale Soros, George The Age of Fallibility “One Way to Stop Bear Raids” Quantum Fund short selling of British pound Soros Fund Management Southwest Sovereign Bancorp Sovereign Wealth Fund Institute sovereign wealth funds (SWFs) Soviet Union Soyster, Harry sponsored access St Thomas University Standard Chartered Bank Standard Oil company Standard & Poor’s 2011 downgrading of U.S credit rating Stanford, Allen Stansberry, Porter State Street Stein, Robert Stiglitz, Joseph stock market short selling transparency volatility subprime mortgages Subramanian, Arvind Suez Canal Summers, Larry Suntrust Surowiecki, James Suspicious Activity Reports (SARs) Switzerland T Tabb Group Taibbi, Matt Tanzania, U.S embassy bombing in TASER Taylor, John technology bubble Templeton, John the middle market “Terror Attack on US Financials?” terror financing terrorists demographics of Texaco The Closing Bell The Islamic Solutions Center The Year of Economic Jihad TheStreet.com Thornberry, Mac Times of London Toronto Dominion trade wars Traders magazine Transparency Act Travelers Group Trimbath, Susan Triplett, Bill Troubled Asset Relief Program (TARP) U U.S Airways U.S bond market U.S Department of Commerce U.S Department of Homeland Security U.S dollar U.S Geological Survey U.S Securities and Exchange Commission (SEC) Division of Trading and Markets July 15, 2008 Emergency Order of U.S State Department Illicit Activities Initiative U.S Treasury Department Office of the Comptroller of the Currency UltraShort leveraged ETF unemployment unfiltered access (see also: naked sponsored access) Union for Good United Airlines Flight Flight United States of America economic infrastructure of as paper tiger strength of vulnerability of University of California at San Diego University of Chicago University of Illinois University of Maryland University of Pennsylvania University of Singapore University of Tulsa University of Virginia University of Wisconsin University of Zurich unregulated derivatives Unrestricted Warfare uptick rule Urbanski, Doug Usmani, Imran Ashraf Usmani, Muhammad Taqi USS Cole V Vanity Fair Vargas, Claudia Maria Venezuela Visa Volcker, Paul Volcker Rule W Wachovia Wall Street Wall Street Journal Wall Street Watch Wall Street Week Wallison, Peter Wang Xiangsui Washington Mutual Washington Post Washington Times “weaponized” hedge funds Wedbush Morgan Securities, Inc Weiss Research Wells Fargo Wen Jiabao Wesbury, Brian West Texas Intermediate Crude Wharton Business School Wiggin, Addison Wildgoose, Nick Woolsey, Jim World Bank World Gold Council World Trade Center World War I, World War II, Wray, David Wright, Lawrence The Looming Tower Wunsch, Steve Wurtzel, Elizabeth X Xinhua Y Yarrow, David Yellen, Janet Yergin, Daniel, The Prize Yerushalmi, David Yousef, Ramzi Yuan Z Zakaria, Fareed Zakat Zawahiri, Ayman Zidek, Steve Zoellick, Robert Copyright © 2012 by Kevin Freeman All rights reserved No part of this publication may be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopy, recording, or any information storage and retrieval system now known or to be invented, without permission in writing from the publisher, except by a reviewer who wishes to quote brief passages in connection with a review written for inclusion in a magazine, newspaper, website, or broadcast Cataloging-in-Publication data on file with the Library of Congress eISBN : 978-1-596-98311-3 Published in the United States by Regnery Publishing, Inc One Massachusetts Avenue NW Washington, DC 20001 www.Regnery.com Manufactured in the United States of America Books are available in quantity for promotional or premium use Write to Director of Special Sales, Regnery Publishing, Inc., One Massachusetts Avenue NW, Washington, DC 20001, for information on discounts and terms, or call (202) 216-0600 Distributed to the trade by Perseus Distribution 387 Park Avenue South New York, NY 10016 ... economies The United States is no exception—we engaged in economic warfare against the Soviet Union during the Cold War, against the British during the Suez Canal crisis in 1956, against the Germans and. .. involvement with the issue of economic warfare and financial terrorism, and how I was recruited by the Pentagon to author a report on the possibility of such action being taken against the United States... generations, with no background but the remote past, the Japanese people advanced from the two-handed sword of the Samurai to the ironclad ship, the rifled cannon, the torpedo, and the Maxim gun; and a