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COMMONWEALTH VS. INDEPENDENT COUNTRIES: HOW DOES PUERTO RICO’S ECONOMY MEASURE UP?
The option of independence as a political-status alternative for Puerto Rico has received very little support or votes since commonwealth began in 1952. Yet, during the latter half of the 20th century, there has been a proliferation of countries worldwide that have become independent nations. Membership to the United Nations more than tripled from 51 in 1945 to 191 in 2002. Many are small nations with economic performances that differ greatly, and few have done well or performed economically better than Puerto Rico has over the past 50 years. The great majority of these newly formed small nations have not done well economically.
Some of the new independent nations benefited from the impressive expansion of the global economy from 1950 to 2000, growing significantly despite their small scale. Nevertheless, others such as Sao Tome & Principe, Comoros, the Solomon Islands, Bhutan, and Equatorial Guinea remain extremely poor, with a GDP per capita ranging from $280 to $700 a year, wrote Richard Cooper of Harvard University in a paper presented at the World Bank’s Annual Bank Conference on Development Economics in May 2004. The economic growth and success that took place during the second half of the 20th century was not evenly distributed. In the 1950s, world per capita income increased by 2.8%; in the 1960s, it grew to 3%; in the 1970s, it declined to 1.9%; and during the 1980s, it dropped even further to 1.3%, then increased slightly to 1.5% in the 1990s. The per capita income in the U.S., however, has increased by an annual average of 2.2% in the past 50 years. During that same period, Western Europe’s growth averaged 2.7%, while Asia’s was somewhat higher at 3.4%. Latin America’s growth was 1.7%, slightly higher than Africa’s 1%.
Puerto Rico’s economic growth during the 1950s and 1960s was not an isolated case. The whole world was growing, although Puerto Rico was doing so at a faster rate -- as a result of industrialization and trade with the U.S. -- according to respected economic historian Angus Maddison.More on this story here.
BEFORE AL QAEDA WAS TAKING FLYING LESSONS. NOW THEY ARE TAKING LESSONS IN HACKING
Jason Laren is a master hacker. He sports the de rigueur black shirt, black slacks, glasses and ponytail. A 31-year-old programmer at the secretive Idaho National Engineering & Environmental Laboratory in Idaho Falls, he obsesses about the ways in which a terrorist intruder might go online and trip circuit breakers on the electrical grid or open valves at chemical storage tanks. “I could easily turn off the power in a couple dozen cities by the end of the day,” says Larsen. He has hacked into the automated control systems at several big utilities -- usually it takes him all of a week.
Experts like Larson make a living by stoking cyberfear in the rest of us. They say that terrorists could shut down chunks of the Internet, the phone system or the electric grid by hacking into computers. We are not spending enough on computer security, they say, and the consequences could be devastating. These experts have an ax to grind. But they might be right. As the Internet spread like a virus in the 1990s, hundreds of utilities, chemical factories, wastewater plants and the like went online to enable remote monitoring and more instant communications. Yet their antiquated control systems lack protection against digital intrusion, providing an easy target.
The most destructive terrorist act in history began with Islamic radicals going to flight school and ended when they turned airliners into flying bombs. As the third anniversary of Sept. 11 passes, the next threat could be a Net threat: Solid evidence shows that al Qaeda agents and other terrorists are trying to attain the online skills needed to wage cyberwar. Terrorists could use the Internet to disrupt the communications systems of the military’s Pacific Command or turn off the lights in Los Angeles or Chicago. They could open the massive floodgates of Arizona’s Roosevelt Dam or disable huge parts of the World Wide Web. Yet in the U.S. no urgent crusade has emerged to fix the flaws.More on this story here.
HONG KONG AWAKENS TO POLITICS
Passions rarely run high in this prosperous port city, where order and stability have been cherished for decades and where risk taking is not a virtue when it comes to politics. But, as Hong Kong prepares to vote Sunday in legislative elections, a new spirit boldly defies that old stereotype. “Everything today is being politicized, not unlike the United States, and you have a divided community,” said Frank Martin, president of the American Chamber of Commerce here. “Previously, there was a fairly high level of political apathy in Hong Kong, and I don’t think that is true today,” he said.
Although political parties have existed in the former British colony for more than a decade, politics and governing interested few in earnest. That changed last year, when the government of the Beijing-appointed chief executive, Tung Chee-hwa, introduced draconian national security legislation targeting treason, sedition and subversion against the Chinese government in Beijing.
Dissatisfaction with Mr. Tung’s policies had been simmering since the territory’s 1997 turnover from Britain. Still, many gave Mr. Tung the benefit of the doubt, especially on the economy, which suffered because of external factors, such as the 1997 Asian financial crisis, the global economic turndown and the outbreak of the deadly severe acute respiratory syndrome (SARS) last year.More on this story here.
AMERICAN EXPAT COMMUNITY IN PANAMA HAS SOME DECISIONS TO MAKE
Many people who are dual citizens do not like to advertise that fact. A lot of times it is a matter of being a person with one foot in each nation, being mistrusted by people in both. But there are a lot of us Panagringo duals here, distributed along a 180° cultural spectrum from purely panameño to purely gringo. Then there are the American expatriates, some of whom live in their insulated social bubbles, some of whom try to blend in with Panamanian society, and most existing in a continuum between these extremes. We have all for various reasons chosen not to live in the United States, but we all bring something of Americana with us. How much? Well, that varies.
Despite our differences there some things we Americans hold in common, and other things about which we ought to reach a consensus. Speaking as a Panamanian now, there are also decisions that Panama needs to make about the gringos. For example, people will congregate where they will, but there are laws against housing discrimination in the USA and we should have them here. Gated residential communities that are only advertised in English, in which people are sold a dream of English-only American suburbia (but with lower food prices and cheap maids) can only stir up resentments against all of us. The days of colonialism are over, and a ghetto scene is not such a hot idea either. These are things that Americans should not want and Panamanians should not tolerate.
That is the easy question about the expat influx. Far more complicated are the subtleties of balancing the economic and social effects in places like Boquete and Bocas del Toro, which in turn are similar to the problems and benefits of gentrification in Colon and the Casco Viejo. How do we arrange things so that the arrival of relatively wealthy newcomers benefits long-time community residents rather than driving them out? The problem for Americans is that even if the socially irresponsible speculators and the politicians they buy have the power to enforce “free market” policies at the expense of community interests, aligning the American community with these elements of Panamanian society is an unpopular and in the long run probably a costly thing to do.More on this story here.
BAHAMAS’ TRUST SETTLOR MADE TO PRODUCE DOCUMENTS BY IRS
A Dallas, Texas court has ordered that the settlor of a Bahamas trust, John Eulich, should pay a fine of $5,000 a day until he complies with a court order to supply trust documents to the IRS. After 30 days, the daily fine will increase to $10,000. When the IRS served a formal request for documents from the trust, Mr. Eulich refused to provide the documents and claimed that he had no control over the trust and had exhausted his powers to try to get the documents. The District Court judge disagreed, holding that the Settlor could still attempt to get the documents from the trust by appointing new administrators and by filing a lawsuit in the Bahamas. At any rate, the Court stated, it was not going to recognize the Settlor’s “impossibility defense” because the impossibility was self-created, i.e., the Settlor’s own drafting caused the impossibility.
The IRS is investigating Eulich and his wife, Virginia, for the tax years of 1995, 1995 and 1997, and as part of its investigation, sought documents relating to the Bahamian trust, the Mona Elizabeth Mallion Settlement Trust No. 16 and to various corporations controlled by the Trust. To that end, the IRS issued formal document requests and summonses seeking the information.More on this story here.
WHY SCHROEDER IS RIGHT TO PRESS FOR REFORMS IN GERMANY
The reaction of Germans to Gerhard Schroeder’s drive for a makeover of the nation’s economy and its hulking welfare state is understandable. After all having been told for decades by successive governments that their pensions were secure and having enjoyed falling working hours combined with one of the world’s best health services and comprehensive welfare benefits, it naturally comes as something of a shock to discover that the social state is in trouble and that hard-fought for work benefits appear to be disappearing by the day. Emboldened by Schroeder’s moves to press forward with tough reforms including unpopular cuts in welfare benefits and increased health service charges, employers have also now joined the drive to reform Europe’s biggest economy.
Besides successfully pushing forward with a campaign to extend the working week, employers have been retreating from strict work contracts and stepping back from the nation’s collective-bargaining system under which pay settlements in one region are adopted on a national industry-wide basis. The scale of the upheaval and the concerns generated by Schroeder’s so-called Agenda 2010 reform plan have plunged many Germans into a state of gloom about their nation’s future with some declaring that the country is now in a state of decline.
This is certainly something of an overreaction to what is essentially a long overdue process that many industrial nations have already been through with a large number of them (such as Britain) in much worse shape than Germany is today. It is worth noting that Germany is now the world’s leading export nation having overtaken the United States last year. This is hardly the sort economic performance that a nation in a state of decline normally turns in.More on this story here.
Europe is reaching a crisis point.
With all eyes fixed on the American presidential elections, the scale of the looming crisis in France and Germany has gone largely unremarked. But it may so change the political geography of Europe that British arguments for and against the EU will be made redundant. A pervasive sense of decline in both countries, only partially justified but none the less virulent, is destabilizing not just the structures of the EU -- but the political systems of France and Germany.
The French economy is mired in low growth and high unemployment. Government spending at 54% of GDP can go no higher. There is universal agreement that France needs decisive action to reverse economic decline. There are rancorous arguments about not just how the economy should be run and society organised but whether the constitution of the Fifth Republic works any more.
In Germany, Gerhard Schröder is presiding over the wreckage of the SPD, once the standard bearer of European social democracy. If he ends up going, an SPD successor would be forced to abandon recasting Germany’s unemployment benefit system so that it stops offering what amounts to a generous pension for life and, instead, becomes a means of moving the unemployed from one job to another. This is a vital prerequisite to restoring German economic health, but it is the direct cause of Schröder’s crisis. His party cannot and will not accept the need for reform, and neither does an important swath of public opinion. Reform of the welfare state is an imperative, but the reform program threatens the cohesion of the state.More on this story here.
THE ORIGIN OF THE U.S. INCOME TAX
“The freedoms won by Americans in 1776 were lost in the revolution of 1913,” wrote Frank Chodorov. Indeed, a man’s home used to be his castle. The income tax, however, gave the government the keys to every door and the sole right to change the locks. Today the American people are no longer the master and the government has ceased to be the servant. How could this be? The Revolution fought in the name of the inherent natural rights to life, liberty and the pursuit of happiness promised to enthrone the gains of individualism. Instead, federal taxation bribes the States and individuals to serve the interests of ever-greater submission to the centralized will.
How did tax slavery come to the land of the free?More on this story here.
RFID TAGS: THE PEOPLE SAY NO
When it comes to radio frequency identification tags for humans, the people have spoken. They hate it. CNET News.com recently ran a report on companies with technologies that involve implanting RFID chips under people’s skin or inside a bracelet. The issue has united people with fairly strong religious beliefs and libertarian privacy advocates. Advocates say the tags could help paramedics deliver medical help to people in the field, reduce prison violence or give police a way to track victims of kidnapping, a major problem in Latin America. Even Steve Wozniak, the lovable lug of technology, is promoting human tracking in technology developed by his start-up.
Nearly every reader who wrote News.com about the story expressed outrage and disdain. The fear that the technology will enable governments to keep tabs on everyone was the concern raised most often. Hypothetically, law enforcement agencies or even private security companies will be able to track where you have been, with whom you associate and what you own with this technology. Imagine a semiretired senior citizen in a rented maroon blazer knowing everything about your day. Worse, that person could begin to bombard you (or at least your cell phone) with ads or messages.
A large number of letters also asserted that human RFID tags are a demonic tool. Several pointed out that in the Bible, Revelations 13:16-17 read, “And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads: And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.” A few anatomical inconsistencies aside, the description is kind of close. To top it off, others noted that even the so-called advantages are minor at best.More on this story here.
MEXICO AND MEXICANS
When I write that I like Mexico, that it enjoys much that we have lost, that Latin societies are more livable if less prosperous than ours, dismissive letters arrive. They amount to the same letter: “If Mexico is so great, how come they all want to come to the United States?” The writers invariably believe that they have made a telling point. Mexico is not so great, of course. It has plenty of problems. But why do Mexicans swim the river? Money. Period. If asked, an immigrant will usually say that he seeks “una vida mejor”, a better life. He means “Money”.
An American explaining the attractiveness of his country will usually say, “I have a big house in the suburbs, three cars, a home theater, and 300 channels on the cable. I can drink the water, and in the mall I can buy anything, absolutely anything.” He may talk of freedom and democracy, often having only the vaguest idea of whether he actually has them or what conditions might be in other countries.
A Mexican is more likely to say, “They are such a cold people. They don’t know their neighbors. They don’t know their children. They have no fiestas. Rules and being on time are more important to them than other people. They have no religion.” (To a robust Catholic, bland agnostic Protestantism is not detectibly a religion.) Democracy means little to an illegal with a second-grade education; in any event, Mexico is probably as democratic as the United States. He knows the government left him alone in Mexico, which is his definition of freedom. And mine.
But money counts when you do not have any. It counts a lot. And so they come whether they like the country or not. Very often they do not. This is going to matter. Now, do the “all Mexicans” of my mail want to emigrate, to attach themselves to the northern nanny’s promiscuous dugs? No. Few do. Who then are the emigrants? Successful Mexicans do not want to go to the United States. Mexicans who are merely comfortable do not want to go to the United States. They like Mexico. The Mexicans who go north are the failures, the barely or non- literate ... those with little to offer.More on this story here.
HOW MUCH TO PUT IN STOCKS? TRY ZERO
When Robert Shiller, a Yale economist and bestselling author, told a crowd of finance professors and economics students last spring that only 10% of his money was invested in stocks, they gasped. Managers might suggest anywhere from 50 to 90%. But 10%? This was heresy.
How about 0 percent? That is the share that investors should plow into domestic stocks, according to Ben Inker, director of asset allocation for Grantham, Mayo, and Van Otterloo & Co. (GMO), a money-management firm with some $85 billion in assets. Welcome to a contrarian view of today’s equity markets. A small but vocal band of heretics is calling into question not only the profit potential of stocks but also the foundation for conventional wisdom about investing. Even for those who disagree with them, their arguments serve as a reality check for the market.
The problem with a “long term” buy-and-hold strategy is that investors sometimes have to be extraordinarily patient for the strategy to pay off. In 1981, for example, the S&P 500 Index stood at the same level it first achieved in 1965. Today, the index is about 30% lower than its peak in 2000. Do investors really have to put up with such long periods of losses? No, say a small contingent of money managers. By avoiding the stock market as their primary engine for profit during the past five years, several of these managers have posted good returns.
Most asset classes -- including bonds, commodities, real estate, and US stocks -- are overpriced or offer little profit potential, Inker says. “This is about as tough an environment to find a place to make money as we’ve seen.”Link here.
STUDY FINDS U.S. COMPANIES SHIFTING PROFITS OVERSEAS
In 2002, American companies took $149 billion of profits in 18 tax-haven countries, up 68% from $88 billion in 1999, according to Tax Notes, which analyzed the most recently available Commerce Department data. This compares with a 23% increase in total offshore profits earned by American multinationals during the same period. According to Commerce Department data not cited in the study, American companies took 17% of worldwide profits in tax havens in 2002, up from 10% in 1999.
Analysis of the data in Tax Notes shows that for each dollar of profit taken in Luxembourg in 1999, American corporations took $4.56 of profit in 2002. The figure for Bermuda was $2.96, for Ireland $2.01, and for Singapore $1.72. These countries are considered tax havens or partial tax havens. For Britain, each dollar of profit taken in 1999 was equal to 67 cents in 2002, and for Germany it was 46 cents. The study was conducted by Martin A. Sullivan, who as a Treasury Department economist specialized in international taxation. Tax Notes is a nonprofit journal that reports on tax systems worldwide.
Mr. Sullivan noted that the sharp rise in profits taken in tax havens like Bermuda had no relationship to economic activity there. American companies took $25.2 billion in profits in Bermuda in 2002, yet total revenues there were only $34.3 billion. Many companies try to lower their taxes by setting up foreign subsidiaries and using internal lending so profits are taken primarily in tax havens and costs are incurred in high-tax countries. 58% of offshore profits are now taken in tax havens, and that is “a seismic shift in international taxation,” Mr. Sullivan said, because “subsidiaries of U.S. corporations now generate profits mainly in tax havens rather than in locations in which they conduct most of their business.”More on this story here.
DOES ONLINE BANKING PUT YOUR MONEY AT RISK?
Legend has it (incorrectly, it seems) that infamous bank robber Willie Sutton, when asked why banks were his favorite target, responded, “Because that’s where the money is.” The modern-day Willie Suttons of the world target bank Web sites for the same reason. With online transactions, money is represented in the form of electronic records of ownership, which means online bank robbers can steal more money, in less time, than by stealing literal currency -- and they do not even need a getaway car. But that does not mean online banking necessarily has to be a riskier proposition.
“Internet banking is terribly secure,” says Brad Adrian, an Internet banking analyst with Gartner Group. “Financial services providers... make their systems as secure as possible.” But, he says, “unscrupulous people using phishing, keystroke collection, or similar activities” to steal your passwords or account numbers are a growing problem.
If your online bank does not offer the ultimate in verification security, there are still steps you can take to protect yourself. Make sure your online banking password is at least six characters long and includes both letters and numbers. Avoid using the same password you use for other sites, and avoid obvious combinations such as your street address or the combination of your first initial and last name. If your institution allows it, create a hard-to-guess user name as well. If you receive an e-mail allegedly from your bank, never click the link in the e-mail message. Instead, type the URL of your bank right into the browser’s Address bar yourself, and forward the e-mail to a known, legitimate bank e-mail address. Chances are excellent that, if you ask the bank if it sent the e-mail you received, you will find out it did not.
If you have an “always on” Internet connection, never store your online banking information on the PC. Adrian, the Gartner analyst, stores his online passwords in an encrypted area of his PDA. He also suggests using many different passwords, and keeping track of them with the PDA. Of course, you then have to worry about battery life, but in the long run that is less important than an unexpected, precipitous drop in your checking account balance. The bottom line is that online banking need be no more risky than its offline counterpart, as long as you take the time to protect yourself.More on this story here.
RAISING TAX REVENUE IN THE BAHAMAS A DRAMA IN MANY ACTS
In the year 2004, The Bahamas is one of the few countries that is still without income tax, but lately, representatives from the entire political spectrum have pointed out that the country needed to expand its revenue base. Governments in need of more money, and budgets showing deficits are by no means a new phenomenon, nor are they a strictly Bahamian one, and governments, often criticized for a lack of imagination, have displayed amazing creativity in tapping into new sources of income.
In 1902, German Emperor Wilhelm II, grandson of Queen Victoria, had ambitious plans to build a navy that could compete with that of Great Britain. To finance this undertaking, he introduced a tax on champagne and other sparkling wines. While the British Royal Navy sank most of the Emperor’s ships in World War I, after which monarchy was abolished in Germany, Germans today are still paying the tax. This should demonstrate how it is easy for governments to introduce new taxes, but near impossible for the public to have taxes, which were designed to be temporarily and meant for a specific purpose, lifted. Neither the imperial government, nor the three following systems of government ever thought of depriving themselves of this convenient source of income; on the contrary, it has been raised some 10 times.
When I read in a book on Bahamian history (Chronological Highlights in the History of The Bahamas: 600 to 1900, by Patrice M. Williams) that The Guardian in 1876 suggested the introduction of income taxes, I was surprised. To find out more about it, I went and did my own research. Reading the articles and editorials of 1876 I was immediately reminded of this year’s budget debate in Parliament.More on this story here.
PANAMA: STILL THE WORLD’S MOST USEFUL ASSET HAVEN
Panama continues as one of the world’s best tax and asset protection havens, and it also offers several options for tax-advantaged residency. In the 1970s, I visited Panama several times. I did not return until 1999 and have been back many times since. The 30-year transition was truly amazing. From a sleepy American colonial town, Panama City has blossomed into a major urban center with a skyline dotted with huge hotels, international banks and countless condominiums. Urban, rural and ocean front real estate investment opportunities abound and retirement possibilities are everywhere.
Panama enjoys an impressive financial infrastructure with over 80 banks, including many local branches of global banks such as HSBC, Barclays and Dresdener. It also has a stable, democratically elected government; established asset protection laws dating back almost a century; legal entities including trusts, international business corporations (IBCs) and family foundations; tax free investment for foreigners—all protected by statutory financial privacy and banking secrecy. And it also offers an attractive pensionado residency plan for foreigners seeking to retire in a tropical climate where living is easy and costs are low.
Most appealing, Panama stands up for its sovereignty. Notwithstanding the 1989 U.S. invasion to oust dictator Manuel Noriega, Panama does not accept dictates from the United States. Nor is it under colonial control from London, as are the British overseas territories, once known as reliable offshore havens. The highly independent Panamanian government, regardless of the party in power, has consistently rebuffed the demands of the OECD and other global busybodies. From the outset of the OECD’s shameful “harmful tax competition” initiative, Panama has made it clear that it will not abolish bank secrecy and begin exchanging information about those who use its financial services with tax authorities in other nations until every other nation agrees to do the same. This “level playing field” scenario is highly unlikely to come to pass, particularly since the world’s largest tax haven, the United States, refuses to abide by it.More on this story here.
Notes on Panamanian Private Interest Foundations.
The “Private Interest Foundation” (“PIF”) was created in Panama by Law No.25 of 1995. Its structure is similar in some aspects to that of the corporation, but may not engage in business. The subscriber in the corporation is the founder in the PIF. The Board of Directors is the Management Council. The PIF requires a founder, who decides which assets are incorporated into the PIF. The founder may be a corporation or a person and its name appears in the Public Registry. The members of the Management Council may be provided by the founder or nominees.
The beneficiaries of the PIF are established in its By-Laws, which are not a matter of public record, but normally are notarized. The beneficiaries do not have control of the PIF and the Founder may change the By-Laws and beneficiaries at any time, and may withdraw any or all the assets from the foundation at any time if the PIF is revocable. The PIF has the advantage that its assets are not subject to liens or attachment, unless it is due to debts of the foundation itself or within three years of the transfer of assets to the PIF, when creditors may prove the transfer was made fraudulently by the Founder to avoid paying its creditors.
It is important to mention that the purpose of the Private Interest Foundation is as its name states, private (for estate planning and asset protection), and although it is a non-for-profit entity this is not a charitable foundation, therefore this type of foundation cannot be used to collect funds from the public. Charitable foundations in Panama have to go through a more rigorous procedure to be established and must be authorized by the Ministry of Government and then filed in the Public Registry.More on this story here.
PRIVACY EXPERTS SHUN BLACK BOXES
Some safety and privacy experts are reacting with apprehension, others with all out condemnation over a recent ruling by the National Transportation Safety Board to require electronic data recorders or “black boxes” in all new cars manufactured in the United States. “I take offense that this personal property of individuals is now being designed by the federal government,” said Jim Harper, privacy attorney and editor of Privacilla.org.
Black boxes, or “EDRs” have been fitted into every General Motors car in its 2004 line and is in a number of Ford models -- about 15% of all vehicles on the road today, according to road safety experts. EDRs are certainly not new. Information gathered on black boxes -- typically everything from speed, brake pressure, seat belt use and air bag deployment -- has already been used in determining guilt in criminal and civil cases across the country. Proponents, including the NTSB and road safety advocates, say the data collected on these black boxes is valuable for studying how accidents happen and how to make roads and cars safer. EDR data has been used for years to fine tune air bag efficiency.
The NTSB recommended in early August that black boxes be mandated, but critics say dealers are not now required to alert car owners that their car has the ability to collect the information. Currently only California has a law requiring car dealers to notify buyers when their cars are outfitted with an EDR. Owners also have no legal protections to keep them from being forced to hand over that information to another party if a court order demanded it. While privacy experts say jokes like “‘big brother’ is riding shotgun” are not funny, the technology already is being used to monitor certain drivers. They warn that once cars are outfitted for the most limited data recording, the government will find a way to argue it is for drivers’ “own good” to collect more.More on this story here.
CORPORATE TAX REFORM: KERRY, BUSH, CONGRESS FALL SHORT
In response to concerns about job outsourcing, Senator John Kerry has proposed changes to the corporate income tax. His plan includes a small cut to the corporate tax rate, but would impose higher taxes on the foreign subsidiaries of U.S. companies. Unfortunately, that would likely kill U.S. jobs, not create them. If taxes on subsidiaries were raised, U.S. firms would lose sales to less-taxed foreign competitors, and would have to cut back on U.S. headquarters jobs in research and other activities.
Nonetheless, Senator Kerry deserves credit for addressing the tax rules on foreign investment, which his campaign notes are “almost completely broken”. President Bush promises to consider tax reform if re-elected, but he does not have a corporate tax plan, and he is letting expire a pro-growth tax provision that allows firms to deduct, or “expense”, half the cost of qualified capital investments. The Bush administration has also shown little leadership on the corporate tax bill being considered in Congress, which would not alter the critical need for fundamental corporate tax changes in any case.
In 64 A.D. Emperor Nero was blamed for doing little as Rome was engulfed in flames. Similarly, federal policymakers have fiddled as U.S. tax competitiveness has gone up in smoke. While the U.S. led the world with a corporate tax rate cut in 1986, today it has the second-highest corporate tax rate in the 30-nation OECD and Development. The U.S. corporate rate is 40%, including the 35% federal rate and the average state rate.More on this story here.
TAX BREAK BRINGING BUSINESSES, AND FRAUD, TO THE U.S. VIRGIN ISLANDS
ST. THOMAS, V.I.: Inside and outside the freshly stuccoed mansions that hug the hillsides here, the gardeners and cleaning women come and go. No one else seems to, though. No one, that is, except the federal agents who have taken to questioning the workers and the neighbors about when the owners last took a dip in their glistening pools and when they might be expected back. The questions are intended to ascertain whether the owners of the candy-colored homes are bona fide residents of the Virgin Islands or instead are pretending to live in these homes to dodge an estimated $400 million in federal income taxes.
Drawn by an economic development program that is blessed by Congress and confers a special tax rate that amounts effectively to just 3.5% of income, well-heeled Americans have migrated in droves to this United States territory in the last few years, kindling its first real economic boom. At least until recently. Last year, IRS agents raided the offices of one of the program’s beneficiaries, and the Justice Department has subpoenaed others in what one government official described as three criminal investigations.
The ensuing confusion about the islands’ economic development program and fears of attracting the scrutiny of tax authorities have already scared away some of the new arrivals, both individuals and companies. And local officials are beginning to fret that people violating the spirit and perhaps the letter of the tax law could derail the program, which is vital to a territory where 30% of the residents were living below the poverty level in 1999. Many here blame the federal government for failing to carefully define what constitutes residency and what income qualifies under the program.More on this story here.
The case for economic incentives, according to a resident Virgin Islander.
I have lived in the US Virgin Islands for more than 16 years, and until a year or two ago these islands were regularly featured in the travel sections of various international publications -- as a world-class destination for visitors of all sorts: honeymooners, divers, sailors, shoppers and sun worshippers. Recently, though, my beloved islands only seem destined for cover slots in the business section of various publications. Snippets supporting and grousing about the territory’s tax incentive program have ended up in publications ranging from the Wall Street Journal to the Sovereign Society’s newsletter.
Yet as I look out my window at a cruise ship in St. Thomas Harbour, and think about the strides that the territory has taken in recent years -- courtesy of the economic development programme -- it is clear to me that there is a story that has not being told about the US Virgin Islands. It is a story of jobs, training, local spending, tax payments, and charitable contributions. It is also the story of how important it is to have clear and workable rules and regulations for any economic development program -- from the start.
Not too long ago, when the cruise ships pulled out, that would have meant that the windows of Charlotte Amalie would be dark and merchants would be looking to the next day’s tourists. But now the computers are humming 24/7 (for better or for worse), the Bloombergs are spitting out data, the Blackberries are ringing, and people are waking up to careers that a decade ago could only be found in New York or Miami. With its diverse population, beautiful terrain, economic diversification and use of carefully crafted incentives to bring non-polluting jobs to the territory, the US Virgin Islands has the potential to be the model 21st Century community.More on this story here.
SWISS BANKING CHIEF HIGHLIGHTS COSTS OF REGULATION
The chief executive of the Swiss Bankers Association says rising regulatory costs represent one of the main strategic challenges to the banking sector. Urs Roth said that regulatory requirements now account for up to ten per cent of the work in Swiss banks -- with smaller institutions particularly hard hit. Roth was speaking after the SBA’s annual media conference, which also saw the publication of a first-ever survey of the short-term prospects for the sector.More on this story here.
CRIMINAL PROSECUTIONS UNDERCUT JUSTICE
John Cassese is fighting for his freedom. His future depends on a deceptively simple question: What is a crime? The very definition of a “crime” hinges on two things: a criminal act and a criminal mind (wrongful intent). The prosecutor’s job is to prove both the wrongful act and the wrongful intent beyond a reasonable doubt. This two-part definition provides a basic -- and critical -- protection of civil liberties. The requirement that there be a criminal act assures that no one goes to jail for a “thought crime”. The intent requirement means people cannot be tossed in the slammer for making a mistake. Bumping into someone, rear-ending a car, forgetting to carry the “1” on your taxes -- if done inadvertently, none of these things is a crime.
For crimes like murder or theft, the intent requirement still rules. But when it comes to “white collar” offenses, lawmakers, prosecutors, and others who want speedier (and easier) convictions are weakening this vital protection. Just ask Cassese, a New Jersey businessman.
The government initially sued Cassese for alleging insider trading in his company’s stock. In civil court, the government can sue even for an accidental violation of securities law -- there is no requirement to show criminal intent. Cassese settled immediately, giving up all his profits plus a large penalty. When asked about the settlement, Cassese said, “I never tried to hide anything. If I made a mistake, I made a mistake.” The matter appeared settled -- until political pressure to throw most any “suit” into the slammer apparently convinced prosecutors that Cassese should pay even larger fines and go to prison, for up to 10 years for each of two criminal charges.
A judge threw out one frivolous charge right away. A jury found Cassese guilty of the second charge, but the judge threw out that conviction, too. There were simply no facts, the judge said, that showed Cassese intended to break any law. It seems a most reasonable ruling, but prosecutors are contesting it in a U.S. Court of Appeals. That is worrisome for Cassese, and dangerous for all of us. We all make mistakes. If prosecutors are given a pass on proving criminal intent, every one of us could be branded a criminal.More on this story here.
U.S. AGRICULTURE CO-OPS FORM OFFSHORE CAPITIVE INSURANCE COMPANY
Twenty-three agriculture co-ops have formed their own offshore-based captive insurance company -- a form of self-insurance -- to better control their liability, auto and property insurance costs. The company, Pillar Insurance Ltd., is believed by industry observers to be the first captive formed by agriculture co-ops nationwide. Pillar’s 23 co-ops are all in southern Minnesota and range in size from $10 million to $200 million in revenue.
A captive insurance company, which shareholder members own and operate, lets shareholders stabilize the cost of insurance, invest their premiums and retain profits. They also assume more risk and must raise startup capital, set aside reserves to cover claims and meet regulatory requirements. The Minnesota co-ops had self-funded their workers’ compensation insurance for about a decade, so they were familiar with the self-insurance idea.
Captives are the fastest-growing part of the U.S. insurance industry. Growth spiked after Sept. 11, 2001, when it became difficult to get certain types of property and liability insurance, said Carl Modecki, president of the Captive Insurance Companies Association in Minneapolis.More on this story here.
As a high school senior in Houston, Zachary Keith Hill killed time by doting on his souped-up Honda Accord, practicing hair-braiding skills and surfing the Net. Hopscotching AOL chat rooms and message boards, he hooked up with “Mike”, a salty 16-year-old from New York City with a penchant for slamming chat room blowhards. Mike helped Hill design a flashy Web site for one of his classes in the winter of 2002, a favor that grew into a friendship and, within months, evolved into a partners-in-crime spree.
That partnership deepened and grew soon after Hill entered his freshman year as a computer engineering student at Texas A&M University that fall. The 20-year-old recalls, “Mike said, ‘Anything you can think of, I can get for free.’ I was, like, ‘Cool.’” Over the next year the duo blitzed what Hill calls “thousands and thousands and thousands” of bogus e-mails supposedly from AOL’s billing center to subscribers, urging them to provide sensitive financial information before their accounts were canceled. A link embedded in the e-mails sent recipients to a stunningly realistic but phony AOL billing page, where they could input their credit card numbers. The data went to an e-mail account opened under Hill’s name. Hill and his accomplice used the pilfered cards to bankroll a $47,000 online shopping spree for videogames, computer equipment and car accessories.
This is the new face of the fastest-growing cybercrime: not an al Qaeda agent, not a hardened criminal, not even a Kevin David Mitnick, the computer genius who hacked his way into the heart of what was then Pacific Bell. These new scammers are average students, bored stay-at-homes and low-end criminals who have discovered how easy it is to pick the locks on the Web. Their specialty is phishing, creating fake sites that sucker people into giving up account numbers and other sensitive information online. (The spelling alludes to the phone “phreaks” of decades past, who pilfered long-distance phone service.) They get technical help from any of 50 or more gangs of professional criminals, operating mostly in Russia and eastern Europe, where legions of unemployed programmers have found steady work as freelance hackers.More on this story here.
UK LAWYERS FACE SHOWDOWN WITH BROWN ON TAX DISCLOSURE
Lawyers set themselves up for a showdown with the Chancellor after rejecting claims that they should reveal clients’ tax plans. In guidance issued to its members, The Law Society said it believed the new tax avoidance disclosure regime should be largely ignored by solicitors. The move undermines Gordon Brown’s attempts to clamp down on tax leakage through imaginative schemes to reduce company and personal tax bills devised by accountants and supported by lawyers. The legislation comes into force at the end of the month.
Janet Paraskeva, Law Society chief executive, said, “Solicitors have a duty to keep their clients’ affairs confidential. It should be made absolutely clear when they have to make a report under the proposed rules.”
Talks between the Revenue and lawyers on the issue of professional privilege have reached a stalemate. The taxman argues the legislation does not prevent lawyers maintaining the balance between confidentiality and disclosure. Observers say that unless there is a last-minute climbdown, the legal profession is on a collision course with Mr. Brown. Accountants, faced with full disclosure about discussions with their clients because they do not enjoy the same professional privileges, are furious at the society’s stand.More on this story here.
U.S. GOVERNMENT ORDERS AIRLINES TO RELEASE FLIERS’ DATA
The federal government said that it will order airlines to turn over millions of passenger records by November so it can begin testing a vast computer program that will hunt for suspected terrorists seeking to board commercial aircraft. The proposed program, known as Secure Flight, is the government’s latest attempt to create an effective computer-assisted passenger screening system. Airlines and privacy advocates fought off previous attempts to develop a system known as CAPPS II, arguing it would violate passengers’ privacy. Privacy advocates said the government’s plans for Secure Flight had not alleviated their concerns.
The data will vary by airline. It will include each passenger’s name, address and telephone number and the flight number. It may also include such information as the names of traveling companions, meal preference, whether the reservation was changed at any point, the method of ticket payment and any comment by airline employees, like whether a passenger was drunk or belligerent in encounters with airline personnel.
In rolling out the test program, the Transportation Security Administration is responding to recommendations from the Sept. 11 Commission. The proposed system aims to compare each passenger’s reservation information with a list of suspected terrorists more extensive than the one currently used by airlines. The TSA will also attempt to verify each person’s identity, so the system will not falsely target travelers who might have similar names to those on the various terrorist “watch lists”.
The TSA said it will use the data to test the system for 30 days, then develop a more specific plan about how the program should move ahead. The TSA said it expects to launch Secure Flight by spring 2005, although officials yesterday said they knew few details of how it will work. A spokesman for the Air Transport Association, the airline industry’s chief lobbying organization, said carriers would review the government’s proposed order. But the airlines have the same concerns about how passengers’ privacy would be protected and how the airlines would regularly share passenger reservation records with the government.More on this story here, here, and here.
THE MONETARY ECONOMICS OF THURSTON HOWELL III
Gilligan’s Island is now out on DVD, reawakening the unanswered questions of childhood: why does the Skipper let Gilligan help with anything when he knows he will just screw it up? Why did the movie star take a day cruise in an evening gown? Why did two of the richest people in the world board a dinky boat with the hoi polloi instead of leasing a private yacht? And why do any of the other stranded castaways treat the millionaire’s government money as valuable while stuck on an island where no such government can enforce its value? Because it is just a dumb TV show.
But that last question stuck with me. Would fiat dollars be treated as valuable without the government around to enforce its fiat? In Episode 9, “The Big Gold Strike”, Gilligan and Mr. Howell find a gold mine on the island, which Howell convinces Gilligan to keep secret from the others. By the time everyone learns about the mine, Howell has already taken the lion’s share of the most easily accessible gold. He would like to hoard it for himself, but the other castaways begin charging him for their goods and services. Soon everyone has a small fortune in gold, which they all try to smuggle aboard a tiny escape raft. Their collected wealth, of course, ends up at the bottom of the lagoon. In later episodes, monetary exchange takes place in US paper currency. Was it impossible to recover the gold from the lagoon?
We might dismiss this as economic naiveté on the part of the writers, but recent history provides evidence that fiat paper can, in fact, outlive its government. Not only that, but post-fiat money -- dead government currency -- can out-compete American greenbacks! After the invasion of Iraq, there was no more central bank printing dinars and no more Iraqi government to put the fiat behind its fiat currency. The American military started handing out US$20 bills and expected the Dinar to fade from existence. Instead, to the chagrin of the occupation force, the Dinar’s value doubled against the Dollar in two weeks. Some saw this as patriotism: a silent protest by the occupied population against the invading force. But we need only look further north, to the Kurd-controlled areas, to find a more economic explanation.
After the first Gulf War, Iraq changed its currency from the so-called Swiss Dinar to the more recent Saddam Dinar. When a government changes its fiat currency, it announces a transition period during which the old bills can be brought in and exchanged for the new. After the window closes, the old notes are declared worthless. To no one’s surprise, the rebel Kurds did not visit the Iraqi government to make such an exchange. They just kept using the old money. It was familiar, hard to counterfeit, and in its post-fiat status, it was no longer inflationary: that is to say, the relatively fixed supply of notes made the currency a better store of value than the new Saddam dinars being printed (and printed and printed) further south. The Swiss Dinar may have been the first successful post-fiat money.
For a brief period after the invasion -- the time it took the Occupation Authority to reestablish an Iraqi central bank and start printing new dinars -- the old Saddam dinars joined the older Swiss dinars in their post-fiat status. And lo and behold, Saddam’s dead dinars rose in value compared to the inflationary dollars of the occupation force. By the end of the year, however, the occupation government was printing new dinars, at first with Saddam still on them (for familiarity), then transitioning into something that resembled the Swiss Dinar (to promote confidence). The brief, unplanned experiment in post-fiat monetary theory was over, but the results were unambiguous: a stable money, even a completely unbacked currency, beats out inflationary government paper in both value and marketability.
While it may seem that Gilligan’s fellow castaways would reject Howell’s dollars as worthless, the case of the Saddam Dinar (and the Swiss Dinar before it) offers evidence in favor of “worthless paper”. If Robinson Crusoe had been shipwrecked with a chest full of British banknotes, they would not have done him any good. Friday would be more likely to trade for shells or gold than he would for the strange paper. But on Gilligan’s Island (and in the Kurdish rebel territories, and briefly in Baghdad), people who are already used to making their exchanges in slips of unbacked paper can continue to do so profitably without the hand of government. The invisible hand of the market serves them better -- even when dealing in government paper.More on this story here.
THE CONSENT OF THE GOVERNED
Do you believe “Governments are instituted among Men, deriving their just Powers from the Consent of the Governed?” It is not just the overwhelming majority of Americans who believe in this statement from the Declaration of Independence, but as evidenced by the global rise in democracy, a majority of the world’s population now subscribe to this statement. According to Freedom House, 65 percent of the world’s people now live in at least limited democracies, where they are free or partially free, and their laws and rules are established by consent of the governed. Yet, at the same time, international organizations have arisen, which increasingly establish rules and regulations not consented to by the governed.
According to Freedom House, 65% of the world’s people now live in at least limited democracies, where they are free or partially free, and their laws and rules are established by consent of the governed. Yet, at the same time, international organizations have arisen, which increasingly establish rules and regulations not consented to by the governed. Just in tax and financial regulation, the organizations include entities such as the UN, IMF, World Bank, OECD, and the FATF. In addition, national governments, such as the US government, and governmental federations, such as the EU, increasingly assert they have tax and financial regulatory powers over individuals and institutions that are neither their citizens nor residents.
All these organizations have gone well beyond their original mandates and exercise or try to exercise powers over institutions or individuals who neither directly nor indirectly voted to be so regulated. What the world faces is the danger U.S. Founding Father and President James Madison warned of two centuries ago. Madison opposed French philosopher Jean Jacques Rousseau’s proposal for a supranational political council empowered to prevent war. Madison argued such a council would become a despotic superstate, cutting off the last hope of the oppressed.More on this story here.
A DIVIDED EUROPEAN UNION
For many centuries Europe was the world’s most powerful, prosperous and technologically advanced continent. That period of European cultural and political dominance came to a definitive end with the second world war. In 1945 Germany was defeated and in ruins, France was half-starved and humiliated, Britain was bankrupt and on the point of losing its empire, Spain was a backward and isolated dictatorship, and the countries of central and eastern Europe had been absorbed into a Soviet empire. Nobody would have guessed that Europe was at the beginning of a new golden age.
In 2004, a continent that had been wracked by war for centuries can look back on almost 60 years spent largely at peace. A continent that lay in economic ruins in 1945 is now prosperous as never before. A continent that in 1942 could list only four proper democracies is almost entirely democratic. A continent that was divided by the iron curtain until 1989 now enjoys free movement of people and common political institutions for 25 countries, stretching from the Atlantic coast of Portugal to the borders of Russia.
This new period of peace and prosperity has coincided with the rise of a new form of political and economic organization. The EU’s founding fathers were determined to build a new union in Europe that would banish conflict for good. The people who run the European Commission in Brussels like to believe that this golden age of peace and prosperity is directly linked to the rise of the EU. Yet this view is often contested. Indeed, say critics of the EU, far from promoting peace, prosperity and freedom, it now threatens all of these achievements -- and indeed the European project looks increasingly troubled. This survey will argue that many of the EU’s current difficulties stem from its past successes, and will conclude that the EU may indeed split, but that a split need not be a disaster.More on this story here.
When Malaysian Prime Minister Abdullah Ahmad Badawi took over from Mahathir Mohamed last October, he quickly defied the skeptics who said he would do little to alter the legacy of his predecessor’s 22-year rule. Badawi mothballed questionable government megaprojects and clamped down on corruption. Perhaps most important, he promoted transparency in a bid to break the cozy ties between government and selected businessmen that typified Malaysia Inc.
However, even the most sanguine about Badawi’s ability to chart his own course were amazed when on Sept. 2, the federal court overturned the sodomy conviction of former Deputy Prime Minister Anwar Ibrahim. Anwar was Malaysia’s most famous prisoner, whose arrest and conviction were widely believed to be politically motivated and driven by Mahathir, who says he still believes Anwar is guilty. The consensus view is that Badawi did not interfere with the courts. The reversal is certainly a triumph for the rule of law. But less than two weeks later, an appeal to overturn a conviction (for which Anwar had already served his sentence) on corruption charges failed. He is thus barred from holding any political office until 2008. Keeping Anwar on the sidelines may turn out to be a good thing for Malaysia: he can speak out against injustice and corruption in a way that no political insider would dare do.
Meanwhile, Badawi has just come out with his first budget, and it signals an end to the aggressive pump priming that characterized post-financial crisis Malaysia. Badawi’s initiatives to divest some of the government’s holdings in private companies are also winning kudos. The Badawi government also seems intent on turning state investment arm Khazanah Nasional into a more independent, fiscally responsible body. People outside of Malaysia like what they are seeing. The country is undoubtedly on a roll. The trick will be maintaining the momentum.More on this story here.
THE SEC DOES NOT WANT THE TRUTH TO GET OUT
Created in 1934, the Securities and Exchange Commission is the mother of all securities regulators. It has an annual budget of more than $700 million and more than 3,100 employees, including 1,150 attorneys on the enforcement staff. Securities regulation only came later to Canada. The Ontario Securities Commission was created in 1945, and its Quebec equivalent in 1955. Between 1945 (the earliest date for CANSIM data on the Montreal Stock Exchange) and 1955, the value of shares traded increased 308% at the MSE, compared with 134% on all U.S. exchanges. Not bad for a market without a government regulator!
U.S. financial markets do not owe their supremacy to the SEC. As noted by Paul Mahoney of the University of Virginia Law School, “[a]fter World War I and well before the federal legislation of the 1930s, New York assumed leadership of the world’s capital markets.” Through civil suits and administrative proceedings and orders, the SEC mandates securities registration, regulates brokerage, trading and disclosure, and helps enforce the prohibition of insider trading. It is now suing Martha Stewart and her stockbroker in civil courts. It scares large companies into settling suits without trial. The SEC regulates stock exchanges, which were historically private organizations. The SEC is starting to regulate hedge funds, which, by virtue of their well-known risk and sophisticated clienteles, had thus far avoided its regulation.
Theory and evidence point to the conclusion that state regulation of financial information is economically inefficient. The prohibition of insider trading, the regulation of disclosure and the concentration of information in government-determined channels reduce the flow of information to the market. Far from improving market integrity, these regulations have generated an artificial and misleading sense of confidence. More than protecting investors against fraud, the SEC is in the business of protecting the state and the establishment against financial freedom, entrepreneurship and freedom of information. And now they want to enforce their conception of ethics!More on this story here.
HOW TO MIMIC THE WEALTHY WHILE SAVING ON COSTS
Maybe you can live -- and die -- without them. Wealthy Americans often use a fistful of trusts to slash estate taxes, avoid probate and control how their money is divvied up. But if your worldly assets are shy of seven figures -- meaning you are unlikely to get hit with estate taxes -- you may want to consider some cut-rate alternatives. To be sure, sometimes a trust really is your only option, especially if you are leaving money to young children or you are trying to provide for a second spouse while ensuring your assets eventually go to your kids. In other cases, however, you may be able to mimic the estate planning of the rich without incurring all the costs associated with setting up and running a trust. Intrigued? Here is how.More on this story here.
WHAT THE INTERNET BUBBLE GOT RIGHT
I had a front row seat for the Internet Bubble, because I worked at Yahoo during 1998 and 1999. One day, when the stock was trading around $200, I sat down and calculated what I thought the price should be. The answer I got was $12. I went to the next cubicle and told my friend Trevor. “Twelve!” he said. He tried to sound indignant, but he did not quite manage it. He knew as well as I did that our valuation was crazy.
Yahoo was a special case. It was not just our price to earnings ratio that was bogus. Half our earnings were too. Not in the Enron way, of course. The finance guys seemed scrupulous about reporting earnings. What made our earnings bogus was that Yahoo was, in effect, the center of a pyramid scheme. Investors looked at Yahoo’s earnings and said to themselves, here is proof that Internet companies can make money. So they invested in new startups that promised to be the next Yahoo. And as soon as these startups got the money, what did they do with it? Buy millions of dollars worth of advertising on Yahoo to promote their brand. What made it not a pyramid scheme was that it was unintentional. At least, I think it was.
A year later the game was up. Starting in January 2000, Yahoo’s stock price began to crash, ultimately losing 95% of its value. Notice, though, that even with all the fat trimmed off its market cap, Yahoo was still worth a lot. The fact is, despite all the nonsense we heard during the Bubble about the “new economy”, there was a core of truth. You need that to get a really big bubble: you need to have something solid at the center, so that even smart people are sucked in. (Isaac Newton and Jonathan Swift both lost money in the South Sea Bubble of 1720.)
Now the pendulum has swung the other way. Now anything that became fashionable during the Bubble is ipso facto unfashionable. But that is a mistake -- an even bigger mistake than believing what everyone was saying in 1999. Over the long term, what the Bubble got right will be more important than what it got wrong.Link here.
NOBEL PRIZE-WINNING ECONOMIST JOHN NASH SAYS SWISS ECONOMY “GETS IT RIGHT”
The economic debate in Switzerland tends to be dominated by negative headlines about stagnant growth, spiralling health costs and lack of competition. But in an interview, Nobel laureate John Nash says Switzerland is the country whose economic policy “comes closest to getting it right”. Professor Nash, best known as the pioneer of game theory, made the comment in response to a recent survey carried out by The Wall Street Journal. Other Nobel laureates plumped for countries ranging from Norway to the United States and China.
Asked what he thought the Swiss do right, Mr. Nash replied that, “Quite simply, I think they don’t do ‘wrong’ things that others do, which are supposed to enhance the strength of an economy, but fail to be beneficial in the longer term. I think Switzerland has benefited enormously from having a currency of comparatively superior quality. This in turn has favored the local climate for enterprises such as those in the insurance or investment banking sectors. It is no coincidence that the financial services sector is so important in the Swiss economy -- it is not just cheese and chocolate that you export.”
Asked what the “wrong” things that the Swiss avoid, he replied that, “Some people might suggest that economic policy should aim to decrease the value of the Swiss franc, to help stimulate exports. Of course, there is some truth in this, but it ignores a very important factor, which is the reputation of a currency. For instance, the dollar is becoming gradually less respectable than it used to be ... Arguably, the Swiss franc is at the best level of all, and that is very important. In Switzerland, people are probably not thinking all the time that they would do better by putting their money in dollars in a foreign account.”More on this story here.
KEY PART OF PATRIOT ACT RULED UNCONSTITUTIONAL
A federal judge in New York ruled that a key component of the USA Patriot Act is unconstitutional because it allows the FBI to demand information from Internet service providers without judicial oversight or public review. In a sharply worded 120-page ruling, U.S. District Judge Victor Marrero found in favor of the ACLU, which filed a lawsuit on behalf of an unidentified Internet service provider challenging the FBI’s use of a type of administrative subpoena known as a national security letter. Such letters do not require court approval and prohibit targeted companies from revealing that the demands were ever made.
Marrero ruled that the provision in the Patriot Act allowing such letters “effectively bars or substantially deters any judicial challenge” and violates free-speech rights by imposing permanent silence on targeted companies. Writing that “democracy abhors undue secrecy,” Marrero ruled that “an unlimited government warrant to conceal ... has no place in our open society.”
“Under the mantle of secrecy, the self-preservation that ordinarily impels our government to censorship and secrecy may potentially be turned on ourselves as a weapon of self-destruction,” Marrero wrote. “... At that point, secrecy’s protective shield may serve not as much to secure a safe country as simply to save face.” The judge ordered the Justice Department to halt the use of the letters but delayed the injunction by 90 days to allow for an appeal. The government is reviewing its options, a Justice Department spokesman said.
The ultimate impact of the order is unclear. In addition to having time to pursue an appeal, the government will view the ruling as applying only to New York’s Southern District in Manhattan, legal experts said. A Clinton administration Justice Department official said Marrero’s order is unlikely to have any effect until an appellate court rules. But the ACLU argues that Marrero’s ruling is a warning to the government about some of its tactics in the war on terrorism.More on this story here.
Federal judges remain our last-ditch defense against being pushed around.
Snooping and secrecy can help the government catch terrorists. But they also can also let government employees sniff around your private life without your even knowing about it. At least one federal judge thinks the snooping and secrecy allowed by the laughably named “Patriot Act” go too far. Let us hope other judges agree with Victor Marrero, and that Big Brother will at least have to get a court order before he secretly investigates your e-mails and Internet use.
Judge Marrero ruled in New York Wednesday that it was unconstitutional for government agents to snoop in personal computer records without being able to prove to a judge that such an extraordinary invasion of personal privacy was justified. He also noted that by barring an Internet provider from telling a customer that the FBI had been poking around, the law violates those companies’ rights of free speech. As if to prove the judge right in this very case, the “Patriot Act” required that even the filing of the suit against it be kept secret.
The Bush administration may well appeal this decision. If it does, our traditional rights, and the rights of our descendants, will be riding on the common sense and courage of other judges. Despite their failings and the failings of the system that puts them on the bench, federal judges remain our last-ditch defense against the natural tendency of politicians and bureaucrats to push us around -- for their benefit, rarely ours.More on this story here.
USE OF TAX HAVENS IS LABELED “THE GLOBALIZATION OF THEFT”
You can run a business in one country, or even run a highly profitable multi-national business, but if you register your company in an offshore tax haven, you do not have to pay any national taxes. This method of tax evasion [sic] has grown so extensively over the last three decades, that it has now become a serious threat to development, and yet another burden on the already bent backs of the world’s working poor.
This month, the Tax Justice Department, formed by tax experts, and economists worried about the trend, and its devastating effect on the world’s economy, launched an international secretariat in London, that will work with the UN, and other international bodies to reverse the practice of hiding money from governments worldwide. John Christensen, co-ordinator of the secretariat says, “The remedies have to be global, and the UN is the only body able to do it, the WTO has failed.”
The Economist estimated that in 1999, African leaders had $20 billion in secret bank accounts, twice the amount the whole of Sub-Saharan Africa spends on servicing its international debts. Tax havens are distorting the world economy, assisting corrupt politicians in stealing public funds, and have accelerated the process whereby millions of pounds are being removed from the very countries that need them most.More on this story here.
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