GM, Welcome Back to the Dead Drop.

A Quick Word: The Dead Drop just passed 5,000 readers, and I need to thank you and tell you what that means to me. In my years as a Special Agent in the U.S. Secret Service, the hardest part wasn't catching the criminals. It was knowing that for every victim I could help, there were thousands more getting hit that I'd never reach. One case at a time. One victim at a time.

It was necessary work, but the scale never matched the problem. Now, through this newsletter, I'm helping protect 5,000 financial livelihoods every week. That's not just a number; it's 5,000 people who understand how these schemes work before they become victims.

If this intelligence has helped you spot a scam, protect a family member, or simply understand why your finances feel increasingly under siege, forward this edition to someone else who needs it. This is how we scale protection. This is how we fight back.

The $12.5 Billion Warning: Why Your Empty Wallet Is a Fraudster's Business Plan

Twenty-two states are already in recession. You just don't know it yet.

That's not hyperbole. That's not doomerism. That's Mark Zandi, chief economist at Moody's Analytics, looking at state-level economic data and telling anyone who'll listen that nearly half of America is already contracting. Meanwhile, the Federal Reserve is preparing to cut interest rates at their October 29th meeting, not because inflation is defeated, but because they're terrified the labor market is about to crater.

The unemployment rate sits at 4.3%, and average monthly job gains have plummeted to just 30,000 during the three months through August 2025, far below the 168,000 average from 2024. To put that in perspective: at that hiring pace, we're adding roughly one new job for every 11,000 Americans in the workforce. That's not growth. That's life support.

Here's what they're not telling you: the only reason the national economy hasn't officially tipped into recession is because California, Texas, and New York, the economic heavyweights, are still in the clear, pushing overall GDP into the green. But if those dominoes fall, we're all going down together.

Some economists aren't waiting for the official declaration. Multiple analysts now openly state they believe we're already in a recession, that the labor market is worse than government reports suggest, and that the data is being massaged to avoid panic. When experts start saying the quiet part out loud, you know the situation is dire.

And while economists debate whether we're technically in a recession, criminals aren't waiting for the National Bureau of Economic Research (NBER) to make it official. They're already feeding.

The Fraud Explosion No One Saw Coming

Americans lost $12.5 billion to fraud in 2024, a staggering 25% increase over 2023. But here's the truly terrifying part: that spike wasn't driven by more fraud reports. The number of people reporting fraud remained stable at 2.6 million. What changed was the success rate. In 2023, 27% of people who reported fraud lost money. In 2024? That jumped to 38%.

Think about that. Scammers aren't working harder. They're working smarter. And they're extracting more money from each victim.

Investment scams alone drained $5.7 billion from Americans in 2024, a 24% increase from the year before. Imposter scams, where criminals pose as government officials or trusted businesses, stole another $2.95 billion. Losses reported by older adults who lost more than $100,000 increased eight-fold between 2020 and 2024, from $55 million to $445 million.

These aren't random numbers. They're symptoms of a predatory ecosystem that thrives when the economy falters.

The Iron Law of Economic Crime

History teaches us an uncomfortable truth: fraud and economic downturns move in lockstep.

Following the 2007-2009 recession, the Association of Certified Fraud Examiners concluded that intense financial pressure during the economic crisis led to a measurable increase in fraud. In 2008, FBI complaints about online fraud jumped from 200,000 to more than 375,000 one year later; an 87.5% surge. When the pandemic recession hit in 2020, online crime complaints exploded to 791,790; a 69.4% increase from 467,361 in 2019.

The pattern is undeniable. When the economy contracts, fraud explodes.

Why? Because the classic "fraud triangle", motivation, opportunity, and rationalization, shifts dramatically during recessions. More than half of fraud examiners surveyed during the 2008-2009 recession reported that fraud had significantly increased, with 49.1% citing increased financial pressure as the primary driver.

Desperate people do desperate things. A laid-off accountant facing foreclosure suddenly rationalizes embezzling from her employer as "temporary borrowing." A small business owner watching his life's work circle the drain convinces himself that inflating a loan application is "just creative accounting." A retiree who can't afford medication tells himself that filing a fraudulent insurance claim is justified because "the system screwed me first."

Meanwhile, on the other side of this equation, organized criminal networks watch unemployment data like sharks circling wounded prey. They know exactly when to strike.

Your Wallet Is Already Empty; You Just Haven't Checked

Let's talk about the economic fundamentals that make 2025 feel like 2008's dress rehearsal.

In September 2025, President Trump posted on social media: "just out, no inflation." The official government data for that same month? 3% inflation. But here's what the numbers don't capture: 75% of Americans report their monthly household expenses have gone up by at least $100 since Trump took office. Forty percent say their expenses have climbed by $500 or more per month.

Zero percent inflation? Tell that to the millions of Americans whose grocery bills, insurance premiums, and utility costs have exploded. The disconnect between official messaging and lived economic reality has never been wider. And that gap, that cognitive dissonance between what you're told and what you experience, creates the perfect psychological environment for fraud to flourish.

Americans are collectively carrying $1.21 trillion in credit card debt, matching last year's all-time high. But the real horror show is in the details. Thirty-two percent of Americans have maxed out their credit cards. Thirty-seven percent use credit cards regularly just to make ends meet. Credit card delinquency rates have climbed to 6.93%, with balances transitioning to delinquency at rates not seen since the 2008 financial crisis.

The delinquency rate in the highest-income 10% of ZIP codes climbed 73% in relative terms, from 4.8% in Q2 2022 to 8.3% in Q1 2025. Let that sink in. Even the wealthy are falling behind on credit card payments.

Of those who've maxed out their cards, 80% would need to rely on credit cards if faced with a financial emergency, and 23% already owe more than $20,000 in credit card debt. These aren't people living beyond their means buying luxury goods. Nearly 25% of Buy Now, Pay Later users in 2025 rely on it for groceries, up from 14% a year earlier. They're financing food.

Consumers are bearing the brunt of higher prices through Q4 2025 and into Q3 2026, with core personal consumption expenditures expected to hit 3.3% in 2026. Meanwhile, wage growth is moderating, eroding purchasing power and forcing consumer spending to slow to 1.4% in 2026, down from 2.1% in 2025.

Translation: Americans are broke, getting broker, and increasingly willing to take risks they wouldn't normally consider.

And if you're one of those people waiting for a housing market crash to buy your first home? Do the math. Foreclosures are ticking up, but they're nowhere near 2008 levels. We're not even at 2005 levels yet. During the last crash, it took five years from 2005 to reach peak foreclosures in 2010. Then another two years for home prices to actually bottom out in 2012. That's seven to nine years of waiting. By that time, even post-crash prices will likely be higher than today's prices thanks to inflation.

Who's going to own homes then? The same institutional investors who are buying them now. BlackRock and similar firms will be happy to rent to you at inflated rates while building their real estate empires on the backs of Americans priced out of ownership. The corporate consolidation of American housing isn't coming; it's already here.

The Perfect Storm for Fraud

This is where it gets ugly.

CoreLogic's Mortgage Application Fraud Risk Index was up 8.3% in 2024, and digital document forgeries were up 244% in 2024, with 512% more paystub templates in circulation. Loan fraud increased up to 75% during 2021 as desperate borrowers provided false information on applications.

But here's the kicker: nearly 60% of fraud examiners whose companies experienced layoffs during the 2008 recession reported that their companies had eliminated some internal controls, while only 3.2% said controls were increased. In other words, companies respond to financial pressure by cutting corners on fraud prevention—exactly when they need it most.

Deloitte projects that a recession could arrive in Q4 2026, with unemployment averaging 5% in 2027, up from 4.2% in 2025. Economists surveyed by Bankrate assess a 39% chance of recession by September 2026, with unemployment expected to climb to 4.6% and job growth averaging just 49,000 jobs per month; less than half the current pace.

Think about what happens when 1.5 million more Americans lose their jobs. Think about what happens when companies start cutting fraud prevention staff to preserve margins. Think about what happens when desperate people meet organized criminal networks armed with AI-powered tools.

The AI Multiplier Effect

Previous recessions saw fraud spikes, but they were limited by technology and scale. A fraudster in 2008 could only call so many victims per day. They could only craft so many convincing phishing emails. They were constrained by human bandwidth.

Not anymore.

Today's criminals deploy large language models to generate thousands of personalized phishing emails simultaneously. They use AI voice cloning to impersonate family members in distress with nothing more than a TikTok video. They create synthetic identities by stitching together fragments of stolen data, then test these fake profiles across thousands of platforms in minutes.

The fraud triangle's three elements, motivation, opportunity, and rationalization, are all intensifying, with AI technology giving fraudsters more opportunity than ever before. The technology that was supposed to democratize opportunity has instead weaponized desperation.

Why This Matters to You (Yes, You)

You might be thinking: "I'm financially stable. I'm not desperate. This doesn't affect me."

Wrong.

Lower- and middle-income households are "hanging on by their fingertips," struggling with debt and slowing wage growth despite steady employment, with everyone outside the top 20% of earners not feeling "very good" about the economy.

Your neighbor who just lost their job? They're now a fraud target. Your elderly parents worried about retirement? They're now vulnerable to imposter scams. Your cousin who maxed out their credit cards trying to stay afloat? They're now desperate enough to fall for investment schemes promising quick returns.

And here's the part nobody talks about: when fraud increases, everyone pays. Analysis shows that US productivity growth would have been 0.4% higher in 2023 without fraud losses, translating to reduced inflationary pressure and slower price growth across the entire economy.

Every dollar stolen by a scammer is a dollar not spent in the legitimate economy. Every business that folds because of fraud is a business that doesn't hire your kid. Every bank that raises fees to cover fraud losses is a cost passed directly to you.

The Fed's Impossible Choice

Despite inflation remaining well above the Federal Reserve's 2% target at 3%, they're moving forward with rate cuts because they believe an interest rate cut is necessary to prevent further weakness in labor markets.

Read between the lines: they're more afraid of unemployment than inflation. They're choosing between letting prices spiral or watching the job market collapse. Neither option is good.

But here's the part most people are missing: the Federal Reserve is about to pivot from quantitative tightening (removing money from the system) to quantitative easing (printing money). JP Morgan originally forecasted this shift would happen in early 2026. They've now moved that prediction up dramatically, suggesting the Fed may end quantitative tightening at this month's October meeting.

Think about what that means. The money printer is about to turn back on. And once it does, massive quantitative easing will likely follow in 2026, flooding the system with newly created dollars to prevent whatever is about to break, whether that's banks, commercial real estate, or the stock market.

And when that happens, here's your brief window of opportunity: mortgage interest rates will drop meaningfully as the Fed slashes rates and pumps money into the system. If you're locked into a 6% or 7% mortgage, you'll have a few months, maybe a quarter or two, to refinance before inflation catches up. Don't dillydally with trying to time the market. Because once inflation starts raging again from all that printed money, mortgage rates will shoot right back up as the 10-year and 30-year Treasury yields spike.

Mark Zandi warned that "the economy is on the precipice of recession," noting that not only is the labor market weakening, but consumer spending is flat while construction and manufacturing are shrinking, and the Federal Reserve will have a hard time reviving growth with inflation still above its target.

The Countdown Has Started

New York and California are the states to watch, according to Zandi: "They're big states, and if they go into the red then that'll probably take the national economy with them into recession."

We're not talking about some distant hypothetical future. We're talking about the next 12 to 18 months.

The unemployment rate is 4.3% today. Even in a recession, it might only hit 5% or 5.5%; we're talking about a percentage point, which is about 1.5 million people. But those 1.5 million newly unemployed people don't just disappear. They become targets. They become desperate. And some of them, not many, but some, become perpetrators.

History is screaming at us. The 2008 recession saw an 87.5% spike in online fraud. The 2020 pandemic recession saw a 69.4% explosion in cybercrime. And both of those happened before AI gave criminals superpowers.

What Comes Next

The Dead Drop will cotinue to dive into the specific fraud schemes exploding right now, the ones targeting your parents, your savings, and your business. We'll show you exactly how these operations work, who's behind them, and how to protect yourself.

But understand this: the economic indicators aren't just predicting a recession. They're predicting a fraud epidemic.

The criminals already know this. The data proves it. Fraud losses jumped 25% in one year, and the percentage of victims losing money increased by double digits. They're not waiting for the NBER to declare a recession. They're not waiting for unemployment to hit 5%. They're striking now, while Americans are stretched thin, while companies are cutting costs, while desperation is spreading like a virus.

Your financial security isn't just threatened by market forces or economic policy. It's threatened by an organized criminal ecosystem that views economic pain as a business opportunity.

And business, my friends, is booming.

The Billion-Dollar Text You Just Deleted: Inside the Chinese SMS Scam Empire

You got the text. Everyone got the text. It looked urgent, maybe even official. An unpaid toll. A missed package. A refund you're owed. Small amounts, a few dollars at most, designed to avoid triggering your skepticism. What you didn't see was the industrial machinery behind that message, or the billion-dollar criminal pipeline that processes what happens when you click.

Chinese organized crime groups have turned SMS phishing into a precision-engineered money laundering operation generating over $1 billion in just three years. And the scale isn't slowing. In 2024 alone, the FBI's Internet Crime Complaint Center received more than 60,000 reports of toll payment scams. On one record-breaking day, 330,000 fraudulent messages hit American phones simultaneously. Toll scam texts have exploded by 350% since January 2024.

This isn't opportunistic fraud. It's an international supply chain with American infrastructure, Chinese logistics, and profit margins that would make legitimate businesses jealous.

The American Infrastructure You're Funding

The operation starts on U.S. soil, often without the knowledge of the people making it possible. SIM farms, racks containing hundreds of mobile SIM cards connected to computers instead of phones, blast out thousands of texts automatically. These farms are predominantly located in the United States, set up by workers who have no idea they're building the infrastructure for an international fraud ring.

The messages themselves are crafted by China-based phishing kit services with names like "Lighthouse" and "Chenlun." These platforms offer plug-and-play modules specifically designed to spoof state toll systems, E-ZPass agencies, postal services, and package delivery companies. They've recently integrated with Apple's iMessage and RCS (the Android equivalent) to improve deliverability and bypass spam filters. Cybersecurity firm Palo Alto Networks identified more than 10,000 domains registered specifically for these scams, operating across at least 10 U.S. states and the Canadian province of Ontario.

The sophistication is staggering. When New York City implemented congestion pricing on January 5, 2025, scam texts about unpaid tolls hit New York drivers within days. When spring break or summer vacation season arrives, the messages surge. The operators monitor trends, adapt to events, and exploit confusion in real time.

The Kill Chain: Text to Cash in Five Steps

Here's how the money flows once you take the bait:

Phase 1: Card Capture
You click the link, enter your payment card information to pay the small toll fee, maybe $3.47 or $5.92. The amount is deliberately small to avoid raising red flags. Some victims are asked for a one-time password sent via SMS or authentication app. Once provided, the criminals now have everything they need to defeat your multi-factor authentication.

Phase 2: The MFA Bypass
Stolen card details are added to Apple Pay or Google Pay wallets in Asia. Banks often trust a device after its first successful authentication and don't require additional verification for subsequent transactions. Your two-factor authentication, the security measure you thought protected you, has been defeated.

Phase 3: Recruiting the Mules
The criminals share wallet access with U.S.-based operatives via Telegram channels. On any given day, scammers employ 400 to 500 of these money mules, paying them approximately 12 cents for every $100 gift card they purchase. These aren't hardened criminals. They're gig workers, often desperate for cash, many unaware of the full scope of what they're participating in.

Phase 4: The Conversion
Money mules use the stolen card credentials to buy high-value goods, especially iPhones, designer clothing, and gift cards. They target states with no sales tax, like New Hampshire, to maximize profit margins. The preference is gift cards because they're instantly liquid, easily transported, and nearly impossible to trace.

Phase 5: International Liquidation
Physical goods get shipped to China, Hong Kong, or Southeast Asia. Gift cards are drained and converted to cash. The proceeds flow back into the criminal network, funding not just more fraud operations but, according to Homeland Security Investigations, other illicit activities including fentanyl production, human trafficking, and illegal migration networks.

Project Red Hook: The Federal Response

Homeland Security Investigations launched Project Red Hook in late 2024 specifically to combat this Chinese organized crime gift card exploitation. The name references both China and the "J-hooks" that hold gift cards in retail displays. About 15 HSI agents now spend most of their time on this operation.

In the past 18 months, law enforcement has arrested approximately 100 people for gift card fraud, with 80 to 90 of them being Chinese nationals or Chinese Americans. The cases reveal the operational structure:

In Alabama, police stopped two suspects with more than 5,000 gift cards in their vehicle. In Florida, a Chinese national was caught with 6,100 unauthorized gift cards in a scheme that defrauded consumers and retailers of $1.9 million. In New Hampshire, three Chinese nationals pleaded guilty to wire fraud conspiracy for their roles in purchasing Apple products with stolen gift card data and shipping them overseas.

ProPublica reported that DHS convened a two-day summit in November 2023 with major retailers and gift card suppliers, pushing the industry to share information and implement anti-fraud measures. Americans are expected to spend over $200 billion on gift cards this year, making this a systemically important target.

The Exploitation Economics

The math tells you everything about desperation. A money mule purchasing gift cards gets 12 cents per $100. That's a 0.12% commission on transactions that destroy victims' financial security. These aren't criminal masterminds. They're economically vulnerable people being exploited by an organization that views them as disposable infrastructure.

And that $1 billion the Chinese organized crime groups have extracted? It comes from small-dollar transactions multiplied across millions of victims. A few dollars here. A few dollars there. SMS phishing rose 22% in the third quarter of 2024 alone, with scammers impersonating entities previously untargeted: gas companies, electric utilities, municipal ticket agencies.

The operation scales because it's industrialized. The technology is sophisticated. The logistics are international. The profits fund activities that threaten national security. And it all starts with a text message you almost believed.

Americans love convenience. Cashless toll systems. One-click payments. Digital wallets. Every innovation that makes legitimate transactions easier creates new attack surfaces for organized crime. The Chinese groups exploiting this aren't breaking new ground. They're just better organized, better funded, and more patient than the fraud rings that came before them.

That text you deleted without thinking? Somebody clicked. And when they did, they funded an empire.