Offshore News Digest for Week of January 23, 2006

GLOBAL LIVING & BUSINESS

REAL ESTATE IN COSTA RICA’S NEW PROMISED LAND

Everyone interested in “escaping” overseas has by now heard the hype about Costa Rica. What many people do not know is that different areas of Costa Rica have very different ex-pat cultures. The Southern Nicoya Peninsula is the area known not only as a haven and hangout for some of the world’s most creative people, but also as the most beautiful environment to live in. Within a 30 minute drive of the center of the area, you can find a full-sized flying trapeze with occasional shows and classes, at least two recording studios, an organic food market, some of the best scuba diving on the Pacific coast of Costa Rica, unbelievable sport fishing, three dance studios, two acupuncturists, a chiropractor, five or six yoga studios, four wildlife conservation projects, and some of the world’s best surfing in year-round eighty degree water. The food is a variety of world cuisine including five or six real Italian pizzerias, fresh bakeries, a few sushi places, Indian and Middle Eastern food, several vegetarian restaurants, plus dozens of local seafood restaurants.

What you will not find here are McDonalds or any other famous brand restaurants and stores, casinos or brothels, traffic, shopping malls, or towering condominium complexes and mega-hotels. The air and water are incredibly clean because there is no industry within two or three hours drive. Jaguars and five other types of wild cats still live in the area, as well as several types of parrots and toucans, dolphins and whales, two types of monkeys, anteaters, and many other mammals, and birds. The sky is often so clear that on a cloudless night, one can see the Milky Way as if from a boat in the middle of the ocean.

The area is in a tropical transition zone between the too-dry-and-over-developed north, and the too-humid-and-buggy south. Because it is more remote than the coastal areas farther north in Costa Rica, the area has lagged in development and pricing, and the community that lives here likes it that way. Prices have been rapidly escalating, but compared to land in California or Hawaii it still seems like a bargain. The general consensus is that the area is going to become sort of a luxury artist eco-community. Until then, everyone considers it to be like Maui 20 years ago.

So many people want to move to Costa Rica right now that there are several good books written about the subject, and countless websites with the details, so we do not need to list all the specifics again here. Suffice to say that both the Costa Rican government and the people are generally very friendly towards foreigners moving here. The hospitals are as good as in the U.S. The dentistry is great. It is gourmet all the way here in this part of the rainforest, so buying property here does not mean you have to live like Tarzan (although some do.)

The property pricing is all over the place, mostly depending on how close to the beach a property is, or how spectacular the ocean view. Prices range from $300 and up per square meter, to less than $1 per square meter for larger fincas and farms 15-20 minutes inland. Many people move to Costa Rica wanting to be on the beach, but then find it is more comfortable and peaceful a a bit inland, where it is cooler and less humid. Unless you plan to surf or swim every single day, the extra comfort and tranquility are worth the short drive to the waves. While it is possible for a family to live in Costa Rica like Adam and Eve, living on your own fruit and fishing in your own personal Garden of Eden (and some do), more likely you are going to want to have a car, some travel expenses, etc. It is reasonable to think that a family of four can live well here for around $1200-$2500 per month.

Real estate in Costa Rica: the greater fool phenomena.

Authors Update: Back in 1995 when I wrote the following article the cold war had just ended, an event which essentially opening up half of the world to expat relocation. Prague and a number of other East European nations had bargain real estate, exciting business opportunities and were excellent destinations for expatriates seeking a home away from home. I wrote about this in a book entitled Escape From America, from which this two page article was excerpted and placed on the EscapeArtist.com website in 1997. What annoyed me back then about Costa Rica was that it was being promoted as an expatriate destination for reasons I deemed questionable, while at the very same time dozens of other nations were not even being considered. I will go so far as to say that in my opinion it was being over-promoted, in a concerted and suspicious manner – for reasons that I explain in this article.

It is clear that anyone moving to Costa Rica from someplace like Detroit or Kansas City is going to be fairly sure that they have arrived in heaven. I had friends who used to purse seine salmon off the Alaska coast in the 1960’s and spend their winters in Costa Rica. They knew it was paradise. The prices were cheap, they did not have to work all night in the freezing cold and the women were pertty. I was in Puerto Vallarta in 1961 when you could buy a beach front shack in Yelapa for $2,000, and a few months later I was in Guanajuato where you could still buy old colonial buildings for $12,000 and fix them up into something fabulous. Now those places are overrun with expatriates and the prices if not on a par with Beverly Hills are damn close. Astronomical … almost shameful prices.

When I wrote the above mentioned book I was a true believer in the concept of the book, enough so as to want to give straight advice without pulling punches. I did so on Costa Rica, assuming that the place was then filled with a certain class of American expatriate whose deepest desire was (and is) the lust to turn a foreign nation into a clone of the one they left behind. I saw it as my duty to find and write about bargains, hidden enclaves, new havens, the Costa Rica’s of tomorrow. But the world has changed, and people like crowds, even when they pretend to be fleeing them. I still think that it is better to tell you about those hidden places that very few people know about.

My perception in 1995 was that Costa Rica was overbought, today I consider it as passé as investing in the Bahamas. Yes, prices will go up. But the bargains are elsewhere, off the beaten track. I viewed those foreigners who were moving to Costa Rica as sophomoric lemmings, much as one might view those starry-eyed muppets who go to Paris to live the life of an artist. Costa Rica is exceedingly beautiful with a variety of climatic conditions, and it is still possible to find good real estate prices in Costa Rica, especially compared to the prices in Europe and Canada. If you have your heart set on Costa Rica, then move to Costa Rica.

Detailed analysis of the real estate market in Costa Rica.

In reference to Roger Gallo’s article “Real Estate in Costa Rica – The Greater Fool Phenomena”, I offer this lengthy and thorough rebuttal to support my love of living and doing business here. This was the first article of this E-zine I had ever read but upon my research of other articles on this site I find it quite evident that there is a clear bias against Costa Rica (CR). Please note that I shared this offensive piece as well as my rebuttal of such with over 20 people comprising of both Expats and Nacionals all that have lived in CR for a combined total of about 250 years. All have had the opportunity to verify, correct or edit the following statements so now it is for you to judge who is most credit worthy a group that actually lives here or he who on a rare occasion passes through the airport then sits in an easy chair far away out of reach bashing away at will.

I live in Costa Rica and have done so for four years after moving here from Canada. I have also traveled the country extensively always with a very keen interest to the Real Estate and Development market here. The comments I am about to make are not based on being retired and sitting on my front porch. I have had my ear very close to the ground and have taken my sweet time to build a team and to know the local market, the system, the people, the country and the mind of the investor coming here. With this experience in hand and the fact that I am building a project (so that makes me guilty of being biased and let that be known by all right up front) that will earn investors 15% a year I am fully qualified to be one of the greater “FOOLS” that Gallo refers to. I will gladly hold what we are able to do here up against any other real estate investment anywhere. What would Gallo put up to guarantee the truthfulness of his facts presented in his article?

This fool (hereinafter when I refer to fool it is me) thinks that if one chooses to relegate the CR market to a chain letter then so it goes what would one use in reference to the entire coastal market of the U.S., Vegas etc. etc. In the reality of greater fools the biggest problem we have in CR is fools coming from these markets and paying more than they need to for land here simply because they think it is so dirt cheap in comparison to the ridiculous values where they come from.

THE SUNSETS IN NICARAGUA ARE STILL FREE … BUT EVERYTHING ELSE HAS DOUBLED

When we last visited Nicaragua’s Rancho Santana, in December 2002, the locals did not own surfboards, the maids did not own portable CD players, and the domestic beers did not cost $1.20 apiece at the local market. Of course, back then, there was no local market, nor any Internet access, nor 300 uniformed employees. For better or worse, the infrastructure and amenities at this Pacific Coast paradise continue to improve … as the prices of everything continue to mount.

But we still adore the place. It remains every bit as inviting and intoxicating as it did three years ago. Perhaps it is even more intoxicating than before, thanks to the completion of a new open-air bar that overlooks the beach. Despite the arrival of modest modern amenities, a visitor to Rancho Santana would never confuse the place with Miami Beach. When gazing in any direction from any promontory on the property, one rarely observes any item that God did not place there himself. On several occasions, we found ourselves utterly alone on vast expanses of white sand beach.Occasionally, one of the locals might amble past us, on the way to nowhere in particular, it seemed. Neither time nor humanity move very swiftly at Rancho Santana – except for the local surfers.

We arrived at Rancho Santana with the mindset of a somewhat stressed-out New Yorker, but departed with the mindset of a somewhat stressed-out Nicaraguan. We might have ended our stay in an even more relaxed state of mind, were it not for the Rancho’s spiffy wireless Internet connection. This dubious enhancement obligated all members of our party that write for a living to continue writing for a living throughout their stay. Thus, the writers among us spent the afternoons pecking on laptops in the “corner office” – a breezy corner of the beachfront clubhouse.

Rancho Santana no longer offers bargain-basement property prices, but it does still offer a spectacularly beautiful and well appointed Pacific coast retreat. The “casitas” (two-bedroom bungalows) that sold for $89,000 “pre-construction” three years ago are now on the market for $200,000. Perhaps Rancho Santana is hosting its own little housing bubble. After all most of the buyers are Americans – so a change of venue does not necessarily imply a change of behavior. Furthermore, many other resorts are cropping up along the Nicaraguan coast. So if the supply of appealing beachfront developments increases, maybe prices will dip just for a while …

REAL ESTATE IN BUENOS AIRES – FROM BUST TO BOOM IN THREE YEARS

If you had come to Buenos Aires like I did three years ago you would have found a country on its knees, a country that had just become the biggest debt defaulter ever. A country that not only could not pay its debts to the IMF, but could not even pay its own municipal workers. The country was in chaos and the people were demotivated – it was in short a truly miserable time for Argentina. The banks had put steel shutters up on their ground floors and moved upstairs for the safety of the first or even second floors. They did this to escape the protesters who were (quite rightly in many people opinions) forcefully demanding their money back which they maintained had been stolen due to the devaluation – known here as Pesification. The “saucepan protests” in these times were legendary, entering the Guinness Book of records for noise. But then certainly Argentina needed to do something drastic to get itself out of trouble bought on by the Menem government – and it seems to have worked because Argentina is now making a different type of noise – the noise of success.

When I first walked the streets here in BA in April 2003, being a property person, I naturally looked in estates agents windows and I could not believe what I saw. The prices were so low as to make you think “what’s the catch”. There was no catch. People were just desperate to sell their property and salvage what money they could. Before the crises one peso was equal to one dollar. After the currency was overnight devalued (Jan 2003) those that had their mortgages in dollars now had to pay 3 pesos for every dollar borrowed. On top of that their savings were now worth two thirds less – it was indeed a crisis.

As you can imagine the housing market went into free fall. People just wanted out. It was a blood bath – no one wanted to buy and many had to sell or go bankrupt. Prices tumbled as people lowered their prices to find a buyer so they could get into cash. At the same time there was a run on the banks of Uruguay (a refuge for many Argentineans money) which forced the Uruguayan Government to seek help from the IMF and America to bail it out – even Brazil got in on the act and devalued. It looked like there would be no good times for decades for these countries.

Fast forward three years and what a difference 36 months has made to Argentina. Property prices are up by as much as 34% in some areas. In some locations prices are higher than they were before the crisis! Construction is nearly at an all time high and property transactions have set a new record in November 2005. The economy is growing by 8% a year and tourism is booming and so is the property market. All the signs are that the market is set for another good year particularly in the top tourist areas such as Recoleta, Barrio Norte, Palermo and St Telmo. There is no doubt that BA offers a great place to invest in property. Rental yields are still great although it could be that since property prices having risen so quickly that they will need a little breathing space to catch up on last years yields. Certainly you can still expect to buy an apartment here and get 7-8% but it may be a little harder to achieve the 10% that was being realized last year if you are new buyer. However all the signs are those rentals yields will increase again due to shortage of supply as the tourist market grows as experts are predicting.

There are of course other reasons to buy here aside from the rental yields. It is worth remembering that there is no capital gains tax here when you decide to sell. Also apart from being a city to make money in, BA is, in many peoples opinion, one of best kept secrets in the world. After having lived here for nearly there years (I come from London) I can say with some authority that it is indeed the city with everything. No matter how much someone tells me that Bulgaria is a great place to invest in I am pretty sure that it cannot offer what Argentina can offer me and I would never fall in love with the place like I have here. And where in the world can you buy a one bedroom apartment in a beautiful capital city like BA (in the Mayfair of BA) for $60,000?.

PANAMA INVESTOR’S GUIDE SAYS PANAMA IS EXPLODING WITH INVESTMENT

World investment news announces the publication of their Panama Investor’s Guide – “The Opening of a New Era”. The $199 guide consists on 150 pages on industry and tourism, a contacts database, useful Websites and other critical information on how to do business in Panama.

A small country of only 3 million people at the crossroads of Central and South America, Panama has been for years one of the best kept secret for international investment and tourism in the Americas. However, for different reasons, the past three years have changed the face of the country and transformed it into one of the fastest growing economies of the region. Investors from all over the world are coming to Panama to buy anything from land to houses, from islands to haciendas, investing in logistics, trade or telecommunications, a sector with enormous potential as five underwater fiber optics cables pass across the country.

Panama, a small country of only 3 million people at the crossroads of Central and South America, has been for years one of the best kept secret for international investment and tourism in the Americas. However, for different reasons, the past three years have changed the face of the country and transformed it into one of the fastest growing economies of the region. Investors from all over the world are coming to Panama to buy anything from land to houses, from islands to haciendas, investing in logistics, trade or telecommunications, a sector with enormous potential as five underwater fiber optics cables pass across the country.

IRELAND’S 2006 GDP GROWTH PREDICTED AT MORE THAN DOUBLE EUROZONE AVERAGE

According to PricewaterhouseCoopers’s latest economic analysis, Ireland’s GDP growth rate for this year is expected to be around 4.75%, more than double the predicted eurozone average of 2%. The accounting firm went on to suggest that the Republic is set to outperform the other members of the eurozone in 2007 as well, with predicted GDP growth of 5%, compared with a 2% average elsewhere in Europe.

Domestic demand and strong employment growth are expected to be key factors in the country’s impressive economic growth. Although investment in housing is likely to decline over the period in question, business investment is expected to strengthen, according to PwC. Factors which could threaten the RoI’s GDP growth rate included an increase in the strength of the euro against the dollar, a drastic slowdown in the UK’s economy, and a quicker or more dramatic downturn in the domestic housing market than expected, the analysis revealed.

American Chamber of Commerce Ireland highlights cost threat to Irish competitiveness.

In a recent survey of members of AmCham Ireland, more than three-quarters of the 86 respondents were confident that the Irish economy will continue to grow strongly in the coming year, and more than two-thirds expect to hire new employees in the same period. However, according to the newly-appointed President of the American Chamber of Commerce Ireland, Dr. Fraser Logue, while business confidence among chamber members is high, that confidence is tempered by continuing concerns over the growth in Ireland’s cost base.

“An overwhelming 76% of respondents to our survey do not believe the recent budget has done anything to reduce our cost base, and we are aware of investment which has been lost to Ireland because of the cost of doing business here,” he observed. Nonetheless, Dr. Logue believes that Ireland can continue to attract foreign investment by playing to its strengths, namely, its 12.5% corporation tax and economic stability. “A low corporation tax rate is just one of any number of reasons why U.S. multinationals chose to locate here, but it is a very important one,” he noted. “Critics of the corporation tax rate should look carefully at what it has achieved before moving to change it.” More than €2.5 billion was paid by foreign companies in corporation tax during 2005, while over €17 billion is paid in wages and services annually by U.S. companies alone. In addition, it is estimated that a further 225,000 jobs in Irish industry are directly supported by the U.S. companies based there, while total U.S. investment in Ireland has surpassed $73 billion

The AmCham chief also urged Ireland to continue resisting the call for the harmonization of company taxes across the EU, an idea which is supported by a number of governments such as Germany and France. “The high tax economic model followed by some European countries simply is not working today,” he stated. “They need to think again about their own policies rather than attempting to influence those of others,” he added.

Amgen’s $1 billion Irish investment highlights Swiss competitiveness issues.

The decision by California-based Amgen, the world’s largest biotechnology company, to locate a new production facility in Ireland rather than Switzerland has rekindled the debate over the complexity of Swiss bureaucracy, which some claim is deterring foreign companies from investing there. Amgen had been considering building its new plant on a greenfield site in Galmiz, western Switzerland, but chose instead to invest more than $1 billion in a new process development, bulk manufacturing and fill and finish facility in Cork, Ireland. By 2010, Amgen expects to employ more than 1,100 people at the new Irish facility, which will produce products for the growing number of patients that the company serves in Europe. It expects to begin operating in Cork in 2009.

MINORITY CONSERVATIVE GOVERNMENT ELECTED IN CANADA, PLEDGES REDUCED TAXES

The Conservative Party leader Stephen Harper is set to become Canada’s new Prime Minister after his party ousted the ruling Liberal government in Monday’s tightly contested federal elections. Mr. Harper, a 46-year-old economist, has pledged that upon assuming the reins of government he will seek to bring about a reduction in taxation within the confines of the budget, starting with an immediate cut in Goods and Services tax. “We will reduce your tax burden, starting by cutting the GST from seven to six percent immediately and to five percent over our mandate,” Mr. Harper told supporters in Calgary.

According to the Conservatives, the amount of GST taken from Canadians has doubled, from C$15.9 billion (US$13.7 billion) to C$31.8 billion while the Liberal government has been in power, exceeding inflation and outstripping growth in earnings. The Conservatives claim that the GST cut will save ordinary taxpayers C$4.5 billion, with more savings to come. However, Mr. Harper faces an uphill battle in attempting to get his policies onto the statute book, and finds himself in a similar situation as the Liberal leader, Paul Martin, who led a minority government for 17 months and was forced to call an election late last year when his support in the parliament disintegrated.

The Conservatives won 124 of parliament’s 308 seats in Monday’s poll – well short of the 155 seats needed for control of the Commons. The Liberal Party, whose reputation had been damaged in recent months by political scandal, won just 103 seats, polling 30.2% – their second worst showing since Canada’s independence in 1867. The separatist Bloc Quebecois won 51 seats, while the left of center New Democratic Party won 29 seats, a gain of 11 seats.

TURKEY PUTS FORWARD NEW PROPOSALS ON CYPRUS

Turkey’s new proposals regarding the possibility of a solution to the Cyprus issue have been met with little enthusiasm by the Greek and Greek Cypriot governments. The Turkish authorities have offered to open the country’s ports and airports to Cyprus in return for restrictions being lifted on the Turkish-occupied north. They have also called for high-level talks on uniting the Island to begin again later this year. Although the Greek government has promised to study the proposals carefully, Cypriot Foreign Minister, George Iacovou has dismissed them as “reheated food”.

GERMAN CHANCELLOR PLEDGES TO REDUCE EU BUREAUCRACY

Speaking at the opening of the World Economic Forum’s annual meeting in Davos this week, Angela Merkel called for “international rules to frame global competition.” Suggesting that increased cooperation between countries, with the oversight of international bodies such as the WTO and the IMF would help to foster innovation, Ms. Merkel stated that such a drive could – paradoxically – go hand-in-hand with a reduction in bureaucracy, particularly in the EU.

“We must get away from the idea that a directive is in place for all time and can never be reconsidered,” she said, announcing that during Germany’s term at the head of the EU next year there will be a clamp-down on red tape, with obsolete legislation removed and expiry dates included in new legislation. “Between 4 and 6 percent of all costs for small and mid-size companies in Germany goes into red tape. We must learn to measure the cost of bureaucracy.”

THE PROBLEM WITH “FREEDOM INDEXES”

The problem with the “freedom indexes” (the 2006 edition of the one done by the Heritage Foundation and The Wall Street Journal has just been published; another one is due to the Fraser and Cato institutes), is not that they are done by bad analysts (quite the contrary, and we have friends among them) nor that none of the underlying data is not potentially interesting to economists or investors. The problem is that it is not clear what they measure.

If “economic freedom” is defined in the most general sense of the liberty to do anything peaceful one wants to do with one’s own property, and to enter into any contractual relation one wants (except to commit violent crimes), then obviously this is not what the indexes measure. The HF/WSJ index ties economic freedom to “the production, distribution, or consumption of goods and services,” but this will only do if, by “goods and services”, we understand those allowed by the state to enter legal markets. If “economic freedom” is inseparable from the rest of human liberty in a social context – using one’s property to express dissenting opinions, travel, have sex, grow marijuana, store one’s firearms, raise funds from “public” investors, etc. – the freedom indexes are off the mark.

This explains why some countries ruled by hard tyrannies, as opposed to the soft, Tocquevillian brand we know in the West, where nobody in his right mind would want live except to make a buck as a privileged foreigner or a member the local nomenklatura, make it to the top of the list. Who would want to live in Hong Kong (ranked 1st of 151 countries in the HF/WSJ index), that is, under one of the worst tyrannies on earth, and so much so for its very efficiency? Who would want to be a peasant under other Asian tyrannies like Singapore (ranked 2nd)?

The selective definition of economic freedom also explains why the indexes show growing economic freedom while everybody who lives in the real world must know that the 20th century, rightly described by Mussolini as “the century of the state”, is continuing in the 21st with a vengeance. Thus, the “economic freedom” that is being measured is a rather special animal: it is the freedom to do what is narrowly defined as freedom in the statistics underlying the index. I am not saying that such indexes are totally useless. They do regroup variables that are correlated with GDP per capita and its growth, but keep in mind that GDP is a very unreliable construct that reveals basically nothing about the general welfare, and is based on arbitrary value judgments. But the freedom indexes have little to do with “economic freedom” as we use the term in politics, economics and philosophy.

TAXES

AN ALL SEASONS TAX TIP – FOREIGN CURRENCY “TAX SWAPS”

How can you take advantage of the U.S. dollar’s short-term strength while holding onto your medium-to long-term foreign currency positions? In many cases, tax swaps are the answer. Let us say you are holding Swiss francs whose market value has decreased since time of purchase. Further, you view the franc’s fundamentals as strong with the potential for an increase in future value from present value. Simply sell the Swiss francs and immediately repurchase them. That captures a capital loss, which can be used to offset capital gains elsewhere in your portfolio. Additionally, you still own the same asset with an expectation of future gains. Commodities such as precious metals and foreign currencies are not governed by the “wash sale” rule for securities contained in the U.S. Tax Code (IRC § 1091). Therefore, you can sell foreign currencies and immediately repurchase them at current market prices.

Normal spreads, commissions and transfer fees could make this transaction cost prohibitive, with commissions, spreads and fees of 4%-6% or even more. However, by working with a company that offers preferential commissions of 2% or less for foreign currency tax swap transactions, this technique rapidly changes from cost prohibitive to cost effective. The timing to maximize your tax loss is when the markets are at the low end of their trading ranges, not the end of the tax year. Technically and seasonally, the time is now to consider a foreign currency tax swap. Even if you do not need this tax-saving capital loss in the current tax year, you are permitted to use $3,000 per year (to offset ordinary income) and roll the remainder forward to the next year.

U.S. ALTERNATIVE MINIMUM TAX STOCK OPTION VICTIMS HOPE FOR REDRESS

The President’s Tax Panel has recommended abolishing the AMT. But there is no guarantee of action this year, and 20 million taxpayers may be affected in 2006, some of them facing savage tax bills on unrealized stock option gains. Both of the Tax Panel’s recommended options for reform include axing the AMT, and there is an AMT patch for 2006 in legislation currently before Congress. But it is far from certain that Congress will enact even the short term AMT patch this year given budget pressures and the President’s political difficulties.

Meanwhile, more and more U.S. taxpayers are falling foul of a provision in AMT legislation that applies income tax to gains on exercise of Incentive Stock Options – and the tax remains due whatever the eventual value of the exercised options. Many people received and exercised options during the high-tech boom before 2001, and are now being pursued by the IRS for taxes even though the underlying shares may have lost all or most of their value. Horror stories abound of families being forced into bankruptcy as a result.

THE RISING COST OF COMPLYING WITH THE FEDERAL INCOME TAX

In 2005, taxpayers will pay roughly $1.2 trillion in federal income taxes. But America’s tax burden is more than just the amount of tax paid. It also includes the cost of complying with federal taxes, including tax planning, paperwork and other hassles caused by tax complexity. In the last century the cost of tax compliance has grown tremendously. This is due partly to the inherent difficulty of taxing income, but also because of growing non-economic demands lawmakers place on the tax code. As Congress debates the tax reform recommendations of the President’s Advisory Panel on Federal Tax Reform, Members should address this growing compliance burden, and work to reduce it through tax simplification and reform.

In 2005 individuals, businesses and nonprofits will spend an estimated 6 billion hours complying with the federal income tax code, with an estimated compliance cost of over $265.1 billion. This amounts to imposing a 22-cent tax compliance surcharge for every dollar the income tax system collects. Projections show that by 2015 the compliance cost will grow to $482.7 billion. Businesses will bear 56% of total compliance costs, individuals 42%, and non-profits will bear 2.5% of the total. When examined by income level, compliance cost is found to be highly regressive, taking a larger toll on low-income taxpayers as a percentage of income than high-income taxpayers.

STATES ARE AWASH IN TAX CASH, SAYS CATO REPORT

It seems just yesterday that the individual states of the US were complaining about shrinking tax revenues and an upcoming fiscal crisis. A new report from the Cato Institute shows a diametrically opposite picture. Chris Edwards, Director of Tax Policy Studies at the Cato Institute says that the nation’s strong economic growth is creating a revenue boom for state and local governments. State and local tax revenues soared 8.1% in 2004 and an estimated 7.6% in 2005, based on data for the first three quarters of the year. Both state and local governments are enjoying the surge in revenues.

Local taxes have been rising rapidly for years, says the report, because soaring property values have inflated the take from property taxes, which provide about 75% of cities’ and towns’ tax revenues. Noting that by 2005 tax revenues for the 50 states were up 18% over the pre-recession peak of 2001, Mr. Edwards calls for the states to reduce taxation and not to use their sudden wealth to up spending. The 50 states enacted net tax increases of $24 billion during the past five years, but now they can reverse course and provide major tax relief in 2006, urges the report. Unfortunately, says Mr. Edwards, some states are using the revenue boom to expand their budgets beyond sustainable levels, as many states did during the 1990s.

States that combine high income tax rates with high overall tax burdens include California, Louisiana, Maine, Minnesota, Nebraska, New Jersey, New Mexico, New York, Ohio, Rhode Island, Vermont, West Virginia, and Wisconsin. All those jurisdictions are ripe candidates for tax relief in 2006, says the report.

PINOCHET FAMILY MEMBERS ARRESTED ON CHARGES OF TAX EVASION

Former Chilean dictator Augusto Pinochet’s wife and four grown children were arrested and indicted earlier this week for tax evasion in connection with millions of dollars which the Chilean authorities believes to be held in secret foreign bank accounts. The case involves about $27 million in foreign bank accounts that have been tied to Pinochet, the former army general who seized power in a coup d’etat in 1973 and ruled Chile until 1990. Pinochet is said to have evaded taxes by hiding money in various foreign banks accounts, including in the Bahamas, the Cayman Islands, Columbia, Germany, Panama, Spain, the U.K. and the U.S.

He has also been accused of using false passports to open bank accounts, submitting a fake government document to a foreign bank and filing a false report on the size of his assets. Pinochet’s defence team argued that the former leader had earned the money legitimately, and had chosen not to report the foreign accounts to avoid political persecution. However, a U.S. Senate investigators’ report had found that shell companies had been used by the former Riggs Bank in Washington help Pinochet hide millions in assets from prosecutors while he was under house arrest in Britain on human rights charges.

I.R.S. ABUSIVE TAX SHELTER INQUIRY EXPANDS BEYOND KPMG TO ENABLING LAW FIRM

Federal prosecutors are investigating three lawyers at a prominent Dallas law firm, Jenkens & Gilchrist, in a widening of an investigation into questionable shelters that shielded billions of dollars from taxes, according to people briefed on the inquiry. The criminal investigation of the lawyers, now being heard by a grand jury in Manhattan, is a clear sign that the government is extending the investigation of tax shelters that it considers abusive beyond the case involving the accounting firm KPMG. There is no indication that Jenkens & Gilchrist itself is a target of the investigation. Petri Darby, a spokesman for Jenkens & Gilchrist, said yesterday, “We are cooperating fully with the investigation.”

Instead, the investigation is focused on three current and former tax lawyers based in the firm’s Chicago office, the heart of its tax practice. They are Paul M. Daugerdas, Erwin Mayer and Donna M. Guerin, according to the people who have been briefed on the investigation. The three lawyers wrote hundreds of legal opinion letters in recent years blessing aggressive tax shelters sold by accounting firms and, in some cases, by the law firm itself, that did not pass muster with the I.R.S., according to separate civil litigation against the firm. Investors used those legal opinion letters, often costing $75,000 or more each, as a form of protection that they thought guaranteed their tax shelters were legitimate.

Mr. Daugerdas in particular became among the richest of those who participated in the tax shelter business, according to court papers in the separate civil proceedings. In the civil litigation, Jenkens & Gilchrist has argued that what it did was proper at the time, and the firm has generally sought to settle cases or have them dismissed. In the KPMG case, the firm agreed to pay a $456 million penalty, accept an independent monitor of its operations and acknowledge wrongdoing to avoid an indictment. Seventeen former KPMG tax professionals, an outside lawyer and an investment adviser have been indicted on charges of defrauding the I.R.S. through the creation and sale of four shelters. All 19 are fighting the charges.

Jenkens & Gilchrist, with about 270 lawyers, has been struggling in recent years as it defends itself in more than a dozen lawsuits over its work on tax shelters. Partners and clients have left the firm. An $82 million settlement between Jenkens & Gilchrist and about 1,100 wealthy investors who bought invalid tax shelters using its opinion letters is still awaiting court approval. In December, Jenkens & Gilchrist did not renew the contracts of Mr. Daugerdas and Mr. Mayer. It had previously stripped both men of their stakes in the firm. Ms. Guerin is still employed by the firm, but she is no longer an equity partner sharing in profits. Lawyers for the three Jenkens & Gilchrist lawyers are expected to argue that the amount of money that Mr. Daugerdas was earning for himself and the firm through his tax shelter work was well known to the firm’s top leadership. The opinion letters written by all three lawyers typically bore the co-signatures of tax partners in the Dallas office of Jenkens & Gilchrist, according to a person who has seen the letters.

COURT RULES DOW CHEMICAL TAX SCHEME HAD NO ECONOMIC SUBSTANCE, SUSTAINS IRS REFUND DENIAL

The IRS received a boost in its ongoing campaign to stamp out abusive corporate tax shelters, after an Appeal Court ruled that Dow Chemical Co. is not entitled to a $22.2 million refund in back taxes paid by the firm after the IRS disallowed deductions for insurance policies taken out on behalf of thousands of its employees. A U.S. Court of Appeals decided that Dow Chemical had used the “janitors insurance” scheme with the sole intent of reducing its tax bill and that the “sham” policies had no economic substance.

Under the janitors insurance scheme, so-called because the company takes out life-insurance policies on its employees ranging from janitors up to executives – often without their knowledge – the firm seeks to deduct interest payments on loans taken out against the insurance policies, while letting the policy appreciate in value tax-free. Dow bought the policies in 1988 and 1991 and paid premiums using loans from the insurers. The company then claimed deductions of more than $33 million for interest it paid on the loans. Arguing that the policies had no purpose other than to offset taxes, the IRS disallowed the deduction. The courts have sided with the IRS on a number of previous rulings in similar cases.

ASSET PROTECTION / LEGAL STRUCTURES

HOMELAND SECURITY TO CONFISCATE BANK SAFE DEPOSIT BOX CONTENTS IN EMERGENCY

A family member from Irvine, California – a branch manager at Bank of America – told us two weeks ago that her bank held a “workshop” where the last two days were dedicated to discussing their bank’s new security measures. During these last two days, the workshop included members from the Homeland Security Office who instructed them on how to field calls from customers and what they are to tell them in the event of a national disaster. She said they were told how only agents from Homeland Security (during such an event) would be in charge of opening safe deposit boxes and determining what items would be given to bank customers.

At this point they were told that no weapons, cash, gold, or silver will be allowed to leave the bank – only various paperwork will be given to its owners. After discussing the matter with them at length, she and the other employees were then told not to discuss the subject with anyone. The family member has since given her notice to quit the bank.

I found the news alarming and decided to find out more myself. On a trip to my bank here in Houston, I remarked to a young new bank employee, “well I guess you’ve been told all that stuff by the manager and the Homeland Security about what to tell your customers” – and to my amazement, the young woman came right out and said yes she had been through all that, then whispered to me across the counter, “but we’re not supposed to talk about – I could lose my job.”

What should you do with this information? I am not trying to “scare” anyone – just providing some news I think is relevant to Americans. Each must find his way through this dark forest – you will do with this information what best suits you and your loved ones – me personally, I see this as another indicator of how the criminals in charge over our lives intend to fleece U.S. citizens completely then dispose of them as only refuse. Be prepared.

[Ed note: The laws and procedures ostensibly permitting such actions by the Feds have probably been in place for ages. E.g., after the laws outlawing gold ownership by U.S. citizens were enacted in 1933, bank safe deposit boxes were searched for the presence of gold. Whether this alleged recent reminder to the banks has any particular significance is for the reader to decide.]

419ERS OFFER PIECE OF RUSSIAN OIL FORTUNE

Advance-fee fraudsters are attempting to dupe computer users into thinking they are in line to receive money from a jailed Russian oil tycoon via an aggressive new spam campaign. The spam email poses as a message from the personal secretary of billionaire Mikhail Khodorkovsky and offers recipients a cool $8 million providing they will “help transfer” around $40 million of Khodorkovsky’s fortune. Khodorkovsky, the former CEO of Russian oil firm Yukos, is serving an 8-year jail sentence for tax and fraud offences. UK-based security firm Sophos warns that the scam emails might be used as a ploy to entice users into handing over details of their bank accounts as a prelude to possible identity fraud, as well as stringing people along in a attempt to get get to hand over bogus advance fees for money that never materializes.

The email con-trick is the latest of many 419 scams. While such frauds remain common, let us not forget less elaborate frauds are also in circulation. Last week pond-dwelling scumbags crafted a scam that exploited sympathy over the recent mining accident in Sago, West Virginia to bilk sympathetic marks for money. These centered on fraudulent emails purporting to be from a doctor treating Randal McCloy, the sole survivor of the incident. The message reads in part, “We need your generous financial assistance to our beloved citizen, brother and friend Mr. Randal McCloy to enable him to undergo all the surgical operations and medical treatments that will cost several millions of dollars in saving his life and bringing him to his normal state of life.” Once again, where tragedy strikes, scammers and virus writers are not far behind. Previous email scams have been themed around the Tsunami disaster in Asia of December 2004 and, more recently, Hurricane Katrina and terrorist bombings in London.

THOUSANDS OF U.K. OFFSHORE FINANCIAL ACCOUNT HOLDERS COULD BE FORCED TO OWN UP

A landmark ruling in favor of the U.K. revenue could force offshore banks to reveal the account information of their U.K. customers. The ruling was made against a leading financial institution last week at a special commissioners hearing after an appeal by HM Revenue and Customs Special Civil Investigations Offshore Fraud Projects Group, based in Liverpool. A report into the hearing suggests that thousands of offshore account holders will now be asked to own up to HM Revenue and Customs about their deposits, under section 20 of the Taxes Management Act 1970. The investigation will focus on the holders of credit cards linked to accounts in offshore centers such as the Isle of Man.

The report states, “Some of the credit cards issued by the financial institution in the UK, have a sort code associating them with a bank account outside the UK. The largest number of cards associated to offshore accounts relate to accounts in the Channel Islands and the Isle of Man. Credit cards associated with offshore accounts can be used either to draw money in the UK from ATMs, or sums charged to the card in the UK, can be paid from the offshore account. The revenue consider that this presents a significant risk to the proper collection of UK tax.”

The report contains information about the unnamed institution’s customers. It reveals that only 19% of all its customers with UK addresses and cards associated with offshore accounts, made tax returns. Only 18% declared any foreign income. The special commissioners were given examples of 21 cases being investigated, where the estimated average tax settlement was £164,000 per case. Special Civil Investigations told the hearing that around 75,000 cases would be investigated, with around 20% of those expected to reveal additional tax due – a potential yield of some £347 million. Leading tax specialists have raised concerns about the effect this will have on deposit levels in the Isle of Man.

BRITISH VIRGIN ISLANDS CONTINUES TO TOP IBC REGISTRATION STAKES

Figures released by the BVI International Finance Center revealed that some 57,000 new IBCs registered in the BVI in 2005, more than any other offshore jurisdiction and the third highest number of new incorporations in the BVI in 20 years. The bumper year of company registrations takes the total number of BVI IBCs to almost 700,000 since their introduction in 1984.

The jurisdiction also witnessed significant growth in the registration of BVI Business Companies since the enactment of the BVI Business Companies Act (BVI BCA) in January 2005. The BVI BCA provides for the incorporation of both internationally operating companies and companies doing business in the BVI under one statute. Over 1,100 companies were registered under the new Act in 2005. As of January 2006, all new companies incorporated in the BVI will be registered under the new statute.

THEFTS VIRTUAL, MONEY REAL

“Some will rob you with a six-gun, And some with a fountain pen” – Woody Guthrie, lyrics from Pretty Boy Floyd. Cybercrooks have caught up with street thugs. About one of every 16 U.S. adults reported being the victim of a “virtual” crime in 2005, according to a new study by IBM. That puts cybercrime on an almost equal footing with traditional crime. About one of every 14 persons reported being a victim of a physical crime last year. But hold on to your keyboard – the worst may be yet to come.

While the FBI reports that computer viruses and spyware cost U.S. businesses and consumers more than $67 billion last year, the world’s largest information technology company believes we have not seen anything yet. IBM’s 2005 Global Business Security Index reports that computer crime is evolving. Kiddie hacking and viruses designed to wreak havoc on the Internet are mostly last year’s news. According to the report, such attacks were down in 2005. “When you look at the attacks that are occurring, it’s no longer just for kicks,” said Stuart McIrvine, director of corporate security strategy for IBM. “They now use the Internet for financial gain.”

IBM, using information gathered by the company’s 3,000 security personnel, along with information from networks monitored by the company, is projecting that 2006 will see a sharp increase in pinpoint attacks to steal information from specific individuals and businesses. “IBM believes that the environment has shifted – with increased security protection on most systems and stiffer penalties, we are seeing smart, organized profiteers enter this space,” said Cal Slemp, vice president of IBM’s security and privacy services. “This means that attacks will be more targeted and potentially damaging.” The recently completed 2005 FBI Computer Crime Survey, based on a poll of 2,066 organizations, sounded similar warnings.

IBM’s McIrvine said new organized criminal groups steal personal and financial data and sell that information to brokers, who pay for each credit card, Social Security or bank account number. Much of that information in the past was gathered by so-called phishing – sending out mass emails asking for consumers to “update” their financial records. The emails, and the Web sites those emails directed consumers to, are similar to those of a financial institution. Phishing represented an average of one in every 304 e-mails in 2005, up substantially from one in every 943 in 2004. “Spear phishing”, in which criminals aim at businesses with email designed to trick corporate employees into giving up information, also was up significantly, according to the IBM study. IBM is projecting that even the phishing business is morphing. Now, hackers may also attempt to get information from disgruntled or newly fired workers.

PRIVACY

ARE YOU READY TO BE BUGGED AND TORTURED BY GEORGE W. BUSH?

It is not really terrorists George W. Bush wants to bug and torture. It is YOU. It is not really terrorism he wants to fight. It is opposition from people he cannot control. It is not really U.S. security he wants to protect. It is the power of his regime. The Constitutional debate about whether these executive privileges are allowable in war is a smoke screen.

This is not about war. It is about dictatorship. It is about making power permanent by using private information against you, and by terrifying you with torture. Team Bush believes it rules by Divine right. It has already redefined “terrorist” to mean anyone who questions its power. It will use “anti-terrorist” wiretapping as a tool against anyone who dares oppose it. All serious indicators show that “information” extracted by torture is virtually worthless in fighting terrorism. So is the information taken from wiretapping huge numbers of people, which Bush has been doing since before 9-11.

So ask yourself: if granted the power to torture, do you trust the Bush Administration – or any regime – to refrain from torturing its political opponents? If granted the power to record private phone conversations, do you trust Karl Rove to not use this material against his political opponents? Who will Bush go after first? Al Queda or the Quakers? Bin Laden or Cindy Sheehan? Those who support giving Bush these powers are undoubtedly ready and willing to be tortured and bugged themselves. As for the rest of us, there can be no compromise with tyranny.

NEVER WRITE WHEN YOU CAN TALK. NEVER TALK WHEN YOU CAN NOD. AND NEVER PUT ANYTHING IN AN EMAIL

The UK’s privacy chief issued guidance recently that, between the lines, revealed a strange quirk of data protection law: if you do not want an employee to see what you have told another boss about him, send the reference by post, not email. The Information Commissioner’s Office issued its latest Good Practice Note in the spirit of improving transparency, not secrecy. It acknowledged that you do not need to pass on a confidential reference that you wrote about your own employee if asked to do so by that person. But if you hold a confidential reference that you received from someone else, you generally do need to disclose it upon request.

This carve-out is significant. Many people think that they can ask an organisation to reveal every piece of personal data they hold that relates to them. Not so. They are obliged to reveal personal data only where it is covered by the Act – and some of it will not be. Electronically stored data generally will be covered. But as Michael Durant learned from the Court of Appeal in his landmark privacy fight, paper documents escape such “subject access” requests unless they form part of a “highly structured manual filing system.” The Court of Appeal seemed to think that averagely-structured manual filing systems do not count. Want to hide something? Shove it in a drawer.

The golden rule in all of this is summarized by someone who has used the disclosure of smoking gun emails in crusades against corporate scandal. New York Attorney General Eliot Spitzer said recently, “Never write when you can talk. Never talk when you can nod. And never put anything in an email.”

LAW

MONEY MANAGER CHARGED WITH LAUNDERING $1 BILLION THROUGH BAHAMAS INVESTMENT FIRM

Law enforcement agencies in the U.S. have announced the arrest of the head of a Bahamas-based investment management company, who has been accused of laundering more than $1 billion in funds derived from tax evasion, drug trafficking, securities fraud and bank fraud. Martin Tremblay, President and Manager of Dominion Investments, a Bahamas-based investment services provider and financial advisor, was arrested Monday by the Organized Crime Drug Enforcement Task Force’s Strike Force. An indictment unsealed in Manhattan federal court charges Tremblay with conspiring with a number of other defendants to launder $1 billion in illegal proceeds for numerous Dominion Investments clients, all in exchange for a substantial commission, in a long-term money laundering scheme.

According to the indictment, Dominion Investments is an investment services provider and financial advisor incorporated in the Bahamas in 1994, licensed by the Securities Commission of the Bahamas, and a member of the Bahamas Financial Services Board. Dominion Investments’ website states that the company is a “leader in the offshore financial services” market, offering its clients “the knowledge and expertise they need to effectively use international tax planning, asset protection, and other wealth preservation techniques”.

The indictment charges that from approximately 1998 through December 2005, Tremblay used Dominion Investment accounts to receive hundreds of millions of dollars in proceeds from international narcotics trafficking, securities fraud scams, income tax evasion, mail and wire fraud schemes, and bank fraud, among other crimes. Tremblay was then said to have laundered the illicit funds by transferring them into U.S. bank accounts and offshore bank accounts in Canada, the Bahamas, and elsewhere around the world. To further conceal the source and nature of these funds, Tremblay and his co-conspirators are said to have created shell companies and fictitious entities, using the same false nominees, addresses, and telephone numbers, to launder the illegal proceeds.

The indictment alleges that $50 million in proceeds from tax evasion was laundered through Dominion Investments, along with a further $3 million in the proceeds from the sale of GHB kits, more commonly known as the “date-rape drug”, and millions of dollars derived from cocaine trafficking and numerous stock fraud schemes. Tremblay was captured as a result of an undercover sting operation conducted by the Strike Force in 2005, during which he was videotaped agreeing to launder large amounts of money earned from narcotics sales. Approximately $220,000 was eventually transferred by wire to Dominion Investments-related accounts.

WHY DID IT TAKE SO LONG?

It was not surprising to discover that George W. Bush chose to illegally spy on American citizens.

I only have one question: Why did it take so long? In previous Pravda.Ru articles, I warned of the clear and present danger the Bush dictatorship represents to America’s form of government, to the Constitution, to the check-and-balance system, and to freedom and democracy itself. I discussed the signs that more Americans should have seen – signs which indicated that Bush and those in his dictatorship were (and are) depraved megalomaniacs so enamored with power that they were willing to defy the will of the American people by stealing not one, but two elections; that Bush himself was/is a sadist who reveled in executing people while governor of Texas, yet had the audacity to call himself “pro-life”; that Bush, Cheney and other fascists in their dictatorship were/are cowards who bluster with bellicosity while America’s young die in an illegal war, yet who used their families’ wealth, power and influence to avoid serving in combat themselves; and, finally, that Bush and/or those in his dictatorship were mass-murderers and traitors for orchestrating, through act or omission, the attacks of September 11, 2001, and then exploiting the fear these attacks generated to destroy the Bill of Rights and undermine the basic freedoms Americans had once taken for granted.

I also stated in past articles that American history is actually a pendulum of overreaction and regret. The Alien and Sedition Acts endorsed by America’s second President John Adams, the Alien and Espionage Acts abused by President Woodrow Wilson during and shortly after World War One, the internment of Japanese-Americans during World War Two, the excesses and paranoia of McCarthyism in the early 1950s, the illegal COINTELPRO operation of the late ‘50s and early ‘60s, the alliance of the CIA with organized crime figures in attempts to assassinate Fidel Castro, and J. Edgar Hoover’s disgusting attempts to encourage Dr. Martin Luther King Jr. to commit suicide, chillingly illustrate how zealously those in the American government, particularly its executive branch and/or unelected officials, will violate the Constitution and ignore the very essence of justice, freedom and democracy when it interferes with their self-serving agendas.

Because of this cyclical pattern of American history, it was not surprising to discover that George W. Bush, not satiated by the destruction of civil liberties he accomplished through the innocuously sounding “Patriot Act”, chose to illegally spy on American citizens. One lesson of COINTELPRO affirms that whenever courts rule that those in government cannot engage in an activity legally, they will simply engage in such activity illegally. Therefore I was pleasantly surprised when, on the holiday celebrating the birth of Dr. King, former Presidential Candidate Al Gore forcefully and courageously denounced the evils of the Bush dictatorship. Gore stressed that while overreactions to real or perceived national emergencies in the past were eventually countered by the realization that the “cure” was actually more dangerous to democracy than the “disease”, he also warned that there may come a time when the pendulum stops swinging. If this happens, governmental abuses and contempt for fundamental rights and freedoms will become a permanent part of the American landscape.

Shortly after Gore’s speech, Senator Hillary Clinton said that the years of the Bush dictatorship will be remembered as one of the darkest periods in America. The veracity of her statement has been consistently confirmed by history. Tragically, tyrants often get to enjoy undeserved prestige and power during their lifetimes. But history, albeit belatedly, does seem to eventually recognize their evil. But, as Gore said, we cannot wait for history to pass judgment. It is not an exaggeration to declare that the very essence of America’s government is at stake. It is time for the American people to demand impeachment proceedings, so criminals will no longer occupy the White House, but the jail cells where they belong.

MICROSOFT, AOL AND YAHOO! CAVED TO FEDS’ FISHING EXPEDITION

The U.S. Justice Department confirmed that Microsoft, Yahoo! and AOL have complied with its request to hand over the details of queries submitted to the search engine. The DoJ wants the information, not for a criminal prosecution, but as background materia to bolster its attempt to revive a Clinton-era anti-pornography law. Google is the only one of the four major search engines to balk at the request, a stance which has won the company a lot of goodwill. But on closer examination, Google’s reasons for fighting the subpoena are less altruistic and more to do with its familiar refrain, of protecting “commercially sensitive information”. And as a justification, that is almost as redundant as the DoJ’s fishing expedition itself, when we remember that AOL uses Google search technology. The Feds already have what they want.

No discussion of this case is fair without two important pieces of context. Under the PATRIOT Act, law enforcement can demand information from ISPs and search engines without notification. We can assume such requests, which reveal personally identifiable information, are not uncommon. Secondly the Bush Administration has insisted on its right to use wiretaps and other surveillance methods without judicial approval. Gonzalez vs. Google is not exactly a skirmish that is defining the frontiers of internet privacy – that is taking place in the air war, far overhead. Now let us see what Microsoft, Yahoo! and AOL gave the government, and what it wants from Google …

An American Hitler and his Gestapo.

The U.S. Department of Justice, led by Alberto “The Constitution is an outdated document” Gonzales, wants to know if you have been looking at any racy material on the Internet. Yahoo and MSN have already complied with subpoenas from Gonzales’ storm troopers demanding records on who is using their search services to look at porno sites on the Internet. Google, to their credit, said no and is now caught in a tough legal fight against the George Bush’s Gestapo.

Ohmigod! Did he say Gestapo? Damn right I did. If you do not think the rights-robbing, privacy-invading, Constitution ignoring administration of George W. Bush is anything less than a Hitler-style Gestapo then you have got your head stuffed so far up your a** that all that brown stuff is blinding you. America, once hailed as the land of the free, has – under the tyranny of King George – become Amerika, reviled as a global thug that does not give a damn about anyone’s rights, especially those of its own citizens.

Protest if you want. Spout the Republican Party line is you can without gagging. If you believe George W. Bush is anything less than an American Hitler then you are too dumb and stupid to argue with anyway. Bush is an evil man, a power-grapping despot who believes in absolute rule, a madman so wrapped up in his perceived role as “a wartime President” and “Commander in Chief” that he believes no law applies to him or his rotting, corrupt, administration. The Constitution? Why it is just “a goddamned piece of paper” to this insane megalomaniac.

Legal scholars agree that Bush blatantly broke the law by ordering the National Security Agency to spy on Americans without warrants or court review. The only cretins who support this dictator are the brain-dead Republicans who put power above the law and party loyalty above their country. Bush is a traitor to his country. As a traitor, he should be led from the White House in chains and tried as one. Since he insists he is a “wartime President,” then let us try him as a wartime traitor, a Benedict Arnold who turned on his country and gave aid and comfort to its enemies.

LIBERALS AND CONSERVATIVES WANT ACTION ON SURVEILLANCE CONTROVERSY

Pressure is mounting on all fronts for some kind of investigation into President Bush’s secret electronic eavesdropping program. Even conservatives are getting into the act. A year-old group called Patriots to Restore Checks and Balances urged Congress to hold “open, substantive oversight hearings” examining the president’s authorization of the National Security Agency to “violate domestic surveillance requirements outlined in the Federal Intelligence Surveillance Act.”

Former U.S. Rep. Bob Barr, the Republican chairman of Patriots to Restore Checks and Balances, was joined by fellow conservatives Grover Norquist, president of Americans for Tax Reform; David Keene, chairman of the American Conservative Union; Paul Weyrich, chairman and CEO of the Free Congress Foundation and Alan Gottlieb, founder of the Second Amendment Foundation, in urging lawmakers to use the NSA hearings to restore “much needed constitutional checks and balances to intelligence law.”

“When the Patriot Act was passed shortly after 9-11, the federal government was granted expanded access to Americans’ private information,” Barr said in a press release. “However, federal law still clearly states that intelligence agents must have a court order to conduct electronic surveillance of Americans on these shores. Yet the federal government overstepped the protections of the Constitution and the plain language of FISA to eavesdrop on Americans’ private communication without any judicial checks and without proof that they are involved in terrorism.”

David Keene, chairman of the American Conservative Union, said, “No one would deny the government the power it needs to protect us all, but when that power poses a threat to the basic rights that make our nation unique, its exercise must be carefully monitored by Congress and the courts.” Keene said this is not a partisan issue – rather, it involves “safeguarding the fundamental freedoms of all Americans so that future administrations do not interpret our laws in ways that pose constitutional concerns.”

OPINION & ANALYSIS

2006 IS A DANGEROUS YEAR FOR AMERICANS

The Bill of Rights and Americans’ civil liberties are being sacrificed on the altar of unaccountable executive power, as is the separation of powers, the foundation of our constitutional system. The Supreme Court is being packed with a majority that favors more expansive executive rule. The economy is in danger as the real estate boom unwinds and reduces the asset base of consumer demand. Political money scandals and evidence of Republican vote fraud in the 2004 presidential election threaten to undermine confidence in American democracy, which President Bush is committed to export by force of arms to the world. The Republican plan for amnesty for millions of illegal aliens looms as the final blow to U.S. borders and the concept of U.S. citizenship. Perhaps the greatest threat of all is Israel’s determination to attack Iran, either directly or indirectly through its surrogate, the Bush administration.

We are witnessing the same drumbeat against Iranian WMD as we witnessed in the run-up to the invasion of Iraq. The New York Times prostituted itself by permitting Judith Miller to use the newspaper as a tool for neoconservative war propaganda against Iraq. The Times prostituted itself a second time by withholding for an entire year the information that President Bush was illegally spying on Americans, and a third time by not reporting Al Gore’s challenge to the Bush administration’s criminal behavior. Now the Times is prostituting itself a fourth time in serving as a Bush administration propaganda organ against Iran.

Israel and its neocon allies in the Bush administration claim without any evidence that Iran is making a bomb. Since Iran refuses to give up its treaty rights to develop nuclear energy, Israel and the neocons maintain that Iran’s facilities must be bombed and destroyed. Americans will pay a heavy price for Israeli paranoia. The entire world knows that Israel cannot bomb Iran without U.S. weapons and cooperation. U.S. attack on Iran would be another instance of naked American aggression against a Muslim country. Such an attack would further isolate the U.S. as a rogue country.

If tactical nuclear weapons are used in the bombing of Iran, as the neoconservatives advocate, America will be reviled throughout the world. Americans will never recover from the burden of shame and war crimes inflicted upon them by the Bush administration. An attack on Iran could be the death knell for our troops in Iraq and for our puppets in Egypt, Jordan, Pakistan and Saudi Arabia. The best way to ensure U.S. defeat in Iraq is to attack Iran. Would Bush and the neocons accept embarrassing defeat or would they escalate the conflict? Would a sane government pursue a policy that has no favorable outcome?

The American people need to understand that with its massive budget and trade deficits, the U.S. is able to go to war only because the Chinese, Japanese, Europeans, and oil producing countries finance Bush’s war by purchasing US debt and holding dollar denominated assets. Once Bush has the U.S. over-extended, it will be the end of the American superpower if one of our bankers decides to rein in the rogue American state by dumping dollar holdings. Does it not make more sense to mend our ill-considered ways than to go to war against Afghanistan, Iraq, Iran, Syria, and who else? Is there no one in the Republican or Democratic parties who is capable of intelligent leadership? How many more Americans and Muslims are going to pay for Bush’s insane policy with their lives, arms, legs, and eyes?

How stupid are the American people?

INTERNATIONAL TERRORISM DOES NOT EXIST, SAYS RUSSIAN GENERAL

General Leonid Ivashov was the Chief of Staff of the Russian armed forces when the September 11, 2001, attacks took place. This military man, who lived the events from the inside, offers an analysis which is very different to that of his American colleagues. As he did during the Axis for Peace 2005 conference, he now explains that international terrorism does not exist and that the September 11 attacks were the result of a set-up. What we are seeing is a manipulation by the big powers. This terrorism would not exist without them. He affirms that, instead of faking a “world war on terror”, the best way to reduce that kind of attacks is through respect for international law and peaceful cooperation among countries and their citizens.

As the current international situation shows, terrorism emerges where contradictions aggravate, where there is a change of social relations or a change of regime, where there is political, economic or social instability, where there is moral decadence, where cynicism and nihilism triumph, where vice is legalized and where crime spreads. It is globalization what creates the conditions for the emergence of these extremely dangerous phenomena. It is in this context that the new world geo-strategic map is being designed, that the resources of the planet are being re-distributed, that borders are disappearing, that international law is being torn into pieces, that cultural identities are being erased, that spiritual life becomes impoverished …

The analysis of the essence of the globalization process, the military and political doctrines of the U.S. and other countries, shows that terrorism contributes to a world dominance and the submissiveness of states to a global oligarchy. This means that terrorism is not something independent of world politics but simply an instrument, a means to install a unipolar world with a sole world headquarters, a pretext to erase national borders and to establish the rule of a new world elite. It is precisely this elite that constitutes the key element of world terrorism, its ideologist and its “godfather”. The main target of the world elite is the historical, cultural, traditional and natural reality; the existing system of relations among states; the world national and state order of human civilization and national identity.

Terrorism is the weapon used in a new type of war. At the same time, international terrorism, in complicity with the media, becomes the manager of global processes. It is precisely the symbiosis between media and terror, which allows modifying international politics and the exiting reality. In this context, if we analyze what happened on September 11, 2001 we can arrive at the following conclusions: 1.) The organizers of those attacks were the political and business circles interested in destabilizing the world order and who had the means necessary to finance the operation. 2.) Only secret services and their current chiefs – or those retired but still having influence inside the state organizations – have the ability to plan, organize and conduct an operation of such magnitude. 3.) Osama bin Laden and “Al Qaeda” cannot be the organizers nor the performers of the September 11 attacks. They do not have the necessary organization, resources or leaders.

The September 11 operation modified the course of events in the world in the direction chosen by transnational mafias and international oligarchs – that is, those who hope to control the planet’s natural resources, the world information network and the financial flows. This operation also favored the US economic and political elite that also seeks world dominance.

CUSTODIANS OF CHAOS

In his forthcoming memoirs, Kurt Vonnegut is horrified by the hypocrisy in contemporary U.S. politics.

“Do unto others what you would have them do unto you.” A lot of people think Jesus said that, because it is so much the sort of thing Jesus liked to say. But it was actually said by Confucius, a Chinese philosopher, five hundred years before there was that greatest and most humane of human beings, named Jesus Christ. The Chinese also gave us, via Marco Polo, pasta and the formula for gunpowder. The Chinese were so dumb they only used gunpowder for fireworks. And everybody was so dumb back then that nobody in either hemisphere even knew that there was another one. We have sure come a long way since then. Sometimes I wish we had not. I hate H-bombs and the “Jerry Springer Show”.

How about Jesus’s Sermon on the Mount, the Beatitudes? Blessed are the meek, for they shall inherit the Earth. Blessed are the merciful, for they shall obtain mercy. Blessed are the peacemakers, for they shall be called the children of God. And so on. Not exactly planks in a Republican platform. Not exactly George W Bush, Dick Cheney, or Donald Rumsfeld stuff. For some reason, the most vocal Christians among us never mention the Beatitudes. But, often with tears in their eyes, they demand that the Ten Commandments be posted in public buildings. And of course that is Moses, not Jesus. I have not heard one of them demand that the Sermon on the Mount, the Beatitudes, be posted anywhere. “Blessed are the merciful” in a courtroom? “Blessed are the peacemakers” in the Pentagon? Give me a break!

It so happens that idealism enough for anyone is not made of perfumed pink clouds. It is the law! It is the U.S. Constitution. But I myself feel that our country, for whose Constitution I fought in a just war, might as well have been invaded by Martians and body snatchers. Sometimes I wish it had been. What has happened instead is that it was taken over by means of the sleaziest, low-comedy, Keystone Cops-style coup d’état imaginable. I was once asked if I had any ideas for a really scary reality TV show. I have one reality show that would really make your hair stand on end: “C-Students from Yale”.

George W. Bush has gathered around him upper-crust C-students who know no history or geography, plus not-so-closeted white supremacists, aka Christians, and plus, most frighteningly, psychopathic personalities, or PPs, the medical term for smart, personable people who have no consciences. To say somebody is a PP is to make a perfectly respectable diagnosis, like saying he or she has appendicitis or athlete’s foot. The classic medical text on PPs is The Mask of Sanity by Dr. Hervey Cleckley, a clinical professor of psychiatry at the Medical College of Georgia, published in 1941. Read it!

Some people are born deaf, some are born blind or whatever, and this book is about congenitally defective human beings of a sort that is making this whole country and many other parts of the planet go completely haywire nowadays. These were people born without consciences, and suddenly they are taking charge of everything. PPs are presentable, they know full well the suffering their actions may cause others, but they do not care. They cannot care because they are nuts. They have a screw loose!

And what syndrome better describes so many executives at Enron and WorldCom and on and on, who have enriched themselves while ruining their employees and investors and country and who still feel as pure as the driven snow, no matter what anybody may say to or about them? And they are waging a war that is making billionaires out of millionaires, and trillionaires out of billionaires, and they own television, and they bankroll George Bush, and not because he is against gay marriage. So many of these heartless PPs now hold big jobs in our federal government, as though they were leaders instead of sick. They have taken charge. They have taken charge of communications and the schools, so we might as well be Poland under occupation.

They might have felt that taking our country into an endless war was simply something decisive to do. What has allowed so many PPs to rise so high in corporations, and now in government, is that they are so decisive. They are going to do something every f**king day and they are not afraid. Unlike normal people, they are never filled with doubts, for the simple reason that they do not give a f**k what happens next. Simply cannot. Do this! Do that! Mobilize the reserves! Tap everybody’s telephone! Cut taxes on the rich! Build a trillion-dollar missile shield! F**k habeas corpus and the Sierra Club and In These Times, and kiss my ass! There is a tragic flaw in our precious Constitution, and I do not know what can be done to fix it. This is it: only nut cases want to be president. This was true even in high school. Only clearly disturbed people ran for class president.

The title of Michael Moore’s “Fahrenheit 9/11” is a parody of the title of Ray Bradbury’s great science-fiction novel Fahrenheit 451. The hero of Bradbury’s novel is a municipal worker whose job is burning books. While on the subject of burning books, I want to congratulate librarians, not famous for their physical strength, who, all over this country, have staunchly resisted anti-democratic bullies who have tried to remove certain books from their shelves, and destroyed records rather than have to reveal to thought police the names of persons who have checked out those titles. So the America I loved still exists, if not in the White House, the Supreme Court, the Senate, the House of Representatives, or the media. The America I loved still exists at the front desks of our public libraries.

And still on the subject of books: our daily news sources, newspapers and TV, are now so craven, so unvigilant on behalf of the American people, so uninformative, that only in books do we learn what is really going on. I will cite an example: House of Bush, House of Saud by Craig Unger, published in early 2004, that humiliating, shameful, blood-soaked year. In case you have not noticed, as the result of a shamelessly rigged election in Florida, we now present ourselves to the rest of the world as proud, grinning, jut-jawed, pitiless war-lovers with appallingly powerful weaponry – who stand unopposed. In case you have not noticed, we are now as feared and hated all over the world as Nazis once were. And with good reason.

So I am a man without a country, except for the librarians and a Chicago paper called In These Times. Before we attacked Iraq, the majestic New York Times guaranteed there were weapons of mass destruction there. Albert Einstein and Mark Twain gave up on the human race at the end of their lives, even though Twain had not even seen the first world war. War is now a form of TV entertainment, and what made the first world war so particularly entertaining were two American inventions, barbed wire and the machine gun. Like my distinct betters Einstein and Twain, I now give up on people, too. I am a veteran of the second world war and I have to say this is not the first time I have surrendered to a pitiless war machine.

My last words? “Life is no way to treat an animal, not even a mouse.” Napalm came from Harvard. Veritas.

THE FEDERAL GOVERNMENT HAS DAMAGED OUR COUNTRY

As the situation in Iraq continues to deteriorate, an increasing number of Americans are now questioning the wisdom of President Bush’s decision to invade. While the primary reason for people’s increased level of dissatisfaction is the number of U.S. troops killed and wounded, there are many other important reasons that Americans should be questioning not only the U.S. invasion but also U.S. foreign policy in general. With its foreign policy and its invasion of Iraq, the federal government has wreaked great damage and brought great shame on our country. Prior to the invasion of Iraq, President Bush suggested various rationales for the invasion. All of them revolved around the fact that Saddam Hussein, the unelected ruler of Iraq, was a tyrannical and dangerous dictator, one who possibly possessed WMDs.

Yet, in dealing with Saddam Hussein, Bush himself assumed dictatorial powers, thereby signaling to the world that there’s nothing wrong with a political ruler in a democracy who exercises dictatorial powers in order to oust a foreign dictator from power. For example, early on Bush announced that he had the omnipotent power to send the entire nation into war without a congressional declaration of war. Throughout the entire process, the Congress lay silent and supine, explicitly or implicitly supporting the president’s exercise of such dictatorial power. Reflect on what the federal government has told the world that America stands for in terms of freedom versus dictatorship, limited government versus omnipotent government, and the “rule of law” versus the “rule of men.” Once the U.S. government conquered Iraq and removed Saddam Hussein from power, it made matters worse by bringing great shame on our nation.

The Iraqi military adventure may be teaching Americans a very valuable lesson about the founding principles of their country and about the principles that guided the formation of the Constitution – and that those principles are more important than ever. Contrary to popular opinion, the Constitution is not the source of people’s rights – is a limit on power because the Framers knew what kinds of people would inevitably be attracted to governmental power. The reason that the Constitution is still relevant is that, without it, U.S. officials, even assuming the best of intentions, would be running the U.S. as they are running Iraq. The only thing standing in their way is the wisdom and foresight of the Framers and those who enacted the Bill of Rights, along with a federal judicial branch to enforce the Constitution.

As the situation in Iraq continues to spiral downward, there are increasing calls for a withdrawal of U.S. troops. Let us hope that the American people do not settle for that as their long-term goal but instead use the Iraq military adventure to totally reevaluate U.S. foreign policy. Let us hope that they ultimately reject the paradigm of empire, militarism, and war that has held our nation in its grip for decades and that they embrace instead the paradigm of liberty, republic, and peace that guided our forefathers. The time has come for the American people to restore our country’s moral standing in the world. The federal government has damaged and shamed our nation long enough.

THE ROADS TO SERFDOM

People in Britain who lived through World War II do not remember it with anything like the horror one might have expected. In fact, they often remember it as the best time of their lives. Even allowing for the tendency of time to burnish unpleasant memories with a patina of romance, this is extraordinary. The war, after all, was a time of material shortage, terror, and loss. What could possibly have been good about it? The answer, of course, is that it provided a powerful existential meaning and purpose. The population suffered at the hands of an easily identifiable external enemy, whose evil intentions it became the overriding purpose of the whole nation to thwart. A unified and preeminent national goal provided respite from the peacetime cacophony of complaint, bickering, and social division. And privation for a purpose brings its own content.

The war having instantaneously created a nostalgia for the sense of unity and transcendent purpose that prevailed in those years, the population naturally enough asked why such a mood could not persist into the peace that followed. Why could the dedication of millions, centrally coordinated by the government – a coordinated dedication that had produced unprecedented quantities of aircraft and munitions – not be adapted to defeat what London School of Economics head Sir William Beveridge, in his wartime report on social services that was to usher in the full-scale welfare state in Britain, called the “five giants on the road to reconstruction”: Want, Disease, Ignorance, Squalor, and Idleness?

By the time Beveridge published his report in 1942, most of the intellectuals of the day assumed that the government, and only the government, could accomplish these desirable goals. Indeed, it all seemed so simple a matter that only the cupidity and stupidity of the rich could have prevented these ends from already having been achieved. The Beveridge Report states, for example, that want “could have been abolished in Britain before the present war” and that “the income available to the British people was ample for such a purpose.” It was just a matter of dividing the national income cake into more equal slices by means of redistributive taxation. If the political will was there, the way was there. There was no need to worry about effects on wealth creation or any other adverse effects.

The growing spirit of collectivism in Britain during the war provoked an Austrian economist who had taken refuge there, F. A. von Hayek, to write a polemical counterblast to the trend, The Road to Serfdom, published in 1944. It went through six printings in its first year, but its effect on majority opinion was, for many years to come, negligible. Hayek believed that while intellectuals in modern liberal democracies – those to whom he somewhat contemptuously referred as the professional secondhand dealers in ideas – did not usually have direct access to power, the theories that they diffused among the population ultimately had a profound, even determining, influence upon their society. Intellectuals are of far greater importance than appears at first sight.

Hayek was therefore alarmed at the general acceptance of collectivist arguments – or worse still, assumptions – by British intellectuals of all classes. He had seen the process – or thought he had seen it – before, in the German-speaking world from which he came, and he feared that Britain would likewise slide down the totalitarian path. Against the collectivists, Hayek brought powerful – and to my mind obvious – arguments, that, however, were scarcely new or original. Nevertheless, it is often, perhaps usually, more important to remind people of old truths than to introduce them to new ones. Collectivist thinking arose, according to Hayek, from impatience, a lack of historical perspective, and an arrogant belief that, because we have made so much technological progress, everything must be susceptible to human control. If we live entirely in the moment, as if the world were created exactly as we now find it, we are almost bound to propose solutions that bring even worse problems in their wake.

The Beveridge Report suggested that it was government’s function to maximize security of income and employment. This proposition was bound to appeal strongly to people who remembered mass unemployment and collapsing wages. But however high-minded and generous it might have sounded, it was wrong. No amount of planning would ever make Beveridge’s goals possible, however desirable they might be in the abstract. But just because a goal is logically impossible to achieve does not mean that it must be without effect on human affairs. As the history of the twentieth century demonstrates perhaps better than any other, impossible goals have had at least as great an effect on human existence as more limited and possible ones.

The most interesting aspect of Hayek’s book, however, is not his refutation of collectivist ideas. Rather, it is his observations of the moral and psychological effects of the collectivist ideal that, 60 years later, capture the imagination. Hayek thought he had observed an important change in the character of the British people, as a result both of their collectivist aspirations and of such collectivist measures as had already been legislated. He noted, for example, a shift in the locus of people’s moral concern. Increasingly, it was the state of society or the world as a whole that engaged their moral passion, not their own conduct. “It may even be … that the passion for collective action is a way in which we now without compunction collectively indulge in that selfishness which as individuals we had learnt a little to restrain,” he observed.

Hayek – with the perspective of a foreigner who had adopted England as his home – could perceive a further tendency that has become much more pronounced since then: “It is that the virtues which are held less and less in esteem and which consequently become rarer are precisely those on which the British people justly prided themselves and in which they were generally agreed to excel. The virtues possessed by the British people in a higher degree than most other people … were independence and self-reliance, individual initiative and local responsibility … non-interference with one’s neighbour and tolerance of the different and queer, respect for custom and tradition, and a healthy suspicion of power and authority.” He might have added the sense of irony, and therefore of the inherent limitations of human existence, that was once so prevalent, and that once protected the British population from infatuation with utopian dreams and unrealistic expectations.

The British are sadly changed from Hayek’s description of them. A sense of irony is the first victim of utopian dreams. The British tolerance of eccentricity has also evaporated. A dispiriting uniformity of character, deeply shallow, has settled over a land once richer in eccentrics than any other. The British are no longer sturdily independent as individuals, either, and now feel no shame or even unease, as not long ago they would have felt, at accepting government handouts. Indeed, 40% of them now receive such handouts. Those who, though able-bodied and perfectly able to work, are completely dependent on the state for their income, they unashamedly call the day when their welfare checks arrive “payday”. Oddly, Hayek saw no danger in this and even endorsed the idea. He did not see that to guarantee a decent minimum standard of life would demoralize not only those who accepted it, but those who worked in the more menial occupations, and whose wages would almost inevitably give them a standard of living scarcely higher than that of the decent minimum provided merely for drawing breath.

In any case, Hayek did not quite understand the source of the collectivist rot in Britain. It is true, of course, that an individualist society needs a free, or at least a free-ish, market. But a necessary condition is not a sufficient one. After the war, not only did the Labour government nationalize health care, but also coal mining, electricity and gas supply, the railways and public transportation (including the airlines), telecommunications, and even most of the car industry. Yet at no time could it remotely be said that Britain was slipping down the totalitarian path.

The real danger was far more insidious, and Hayek incompletely understood it. The destruction of the British character did not come from Nazi- or Soviet-style nationalization or centralized planning, as Hayek believed it would. For collectivism proved to be not nearly as incompatible with, or diametrically opposed to, a free, or free-ish, market as he had supposed. The state action that was supposed to lead to the elimination of Beveridge’s five giants of Want, Disease, Ignorance, Squalor, and Idleness has left many people in contemporary Britain with very little of importance to decide for themselves, even in their own private spheres. Their choices concern only sex and shopping. No wonder that the British have changed in character, their sturdy independence replaced with passivity, querulousness, or even, at the lower reaches of society, a sullen resentment that not enough has been or is being done for them. Such people come to live in a limbo, in which there is nothing much to hope or strive for and nothing much to fear or lose. For most of the British population today, the notion that people could solve many of the problems of society without governmental Gleichschaltung, the Nazi term for overall coordination, is completely alien.

Of course, the majority of Britons are still not direct dependents of the state. “Only” about a third of them are. But the state looms large in all our lives, not only in its intrusions, but in our thoughts: for so thoroughly have we drunk at the wells of collectivism that we see the state always as the solution to any problem, never as an obstacle to be overcome. One can gauge how completely collectivism has entered our soul by a strange but characteristic British locution. When, on the rare occasions that our Chancellor of the Exchequer reduces a tax, he is said to have “given money away”. In other words, all money is his, and whatever we have in our pockets is what he, by grace and favor, has allowed us. Our Father, which art in Downing Street. …