Forensic economists examine the effects of CIA-led coups on the stock market. – By Ray Fisman – Slate Magazine
They Made a Killing.
Did people who knew about secret, CIA-led coups use that information to game the stock market?
Posted Tuesday, Oct. 28, 2008.
In 1951, Jacobo Árbenz Gúzman became Guatemala’s second democratically elected president. Árbenz’s authoritarian predecessors had been very sympathetic to American business interests, particularly those of the United Fruit Co. (now Chiquita), which had bought up land titles on the cheap from Guatemala’s corrupt elite for its ever-expanding banana empire. Once in office, Presidente Árbenz sought to take it all back, nationalizing UFC’s Guatemalan assets and redistributing them to the poor.
But UFC had friends in very high places—the assistant secretary of state for inter-American affairs, John Moor Cabot, was the brother of UFC President Thomas Cabot. The secretary of state himself, John Foster Dulles, had done legal work for UFC, and his brother Allen Dulles was director of the CIA and also on UFC’s board. Thanks to the Freedom of Information Act, we now know that the various Cabots and Dulleses had a series of top-secret meetings in which they decided that Árbenz had to go and sponsored a coup that drove Árbenz from office in 1954.
With a U.S. puppet back in the president’s mansion, UFC’s profits were safe. But it appears the company wasn’t the only beneficiary of this Cold War cloak-and-dagger diplomacy: A recent study by economists Arindrajit Dube, Ethan Kaplan, and Suresh Naidu argues that those in on the planning process also profited handsomely. By tracking the stock prices of UFC and other politically vulnerable firms in the months leading up to CIA-staged coups in Guatemala, Chile, Cuba, and Iran, the researchers provide evidence that someone—perhaps one of the Dulleses, Cabots, or others in the know—was trading stocks based on classified information of these coups-in-the-making.
This exposé is a contribution to the rapidly expanding field of “forensic economics,” which tries to understand the who, what, and why of illicit transactions. Since these are activities that take place out of sight (at least when they’re done right), researchers are forced to look for fingerprints left in the data by smugglers, bribe-taking politicians, and other lawbreakers.
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