Wealth International, Limited

Offshore News Digest for Week of October 1, 2007

Note:  This week’s Finance Digest may be found here.


Next year will mark the 35th anniversary of the publication of Harry Browne’s self-help classic, How I Found Freedom in an Unfree World. While I do not agree with everything in the book, I regard it as the best book I have ever read, and I have read it and reread it so many times that I literally almost have it memorized. It is one of those books that had such a profound effect on my thinking that I felt like a completely different (and much improved) person after reading it. Except for the Bible, never have I read something that is so full of wisdom and so clear about life, people, and how the world really works.

Harry wrote the book to explain how most of life’s restrictions and problems are self-imposed, and to shake people awake from the unquestioned assumptions that they make in life that cause them to blindly follow what others expect of them, rather than realizing that their lives are theirs to do with whatever they want. In most cases, other people are in no position to force their demands on them.

Harry calls these unquestioned assumptions “Rraps”, and they are the core of the book’s three sections. The first section identifies the 14 basic Traps that Harry saw people falling into, although he acknowledges that life has many other Traps. The second section contains his advice for freeing yourself from these Traps. And the third section contains his instructions for implementing his advice. Let us look at Harry’s 14 Traps.

Identity, Intellectual and Emotional, and Morality Traps

The first is the Identity Trap, which is pretending to be something you are not or expecting others to be like you. Both Traps have severe consequences. If you pretend to be something you are not, it is impossible to experience one of the greatest joys life has to offer, which is to be liked, and even loved, for who and what you really are. That is an integral part of the bond of genuine intimacy. Expecting others to act as you would is a common trap that everyone has been guilty of at times. Harry advises accepting people as they are and focusing on what you control, which is your response to how others treat you. This attitude is one of the marks of a mature person, and adopting it not just intellectually, but emotionally, will save you a lot of grief in life.

Harry Browne’s next two traps are the Intellectual and Emotional Traps, the Intellectual being the expectation that your emotions should conform to what your intellect knows, and the Emotional being the belief that it is okay to make a decision – especially an important one – when your emotions are dominating your mind and you cannot see all of the consequences clearly. The Intellectual Trap is to deny your emotions, which are the clearest indications of pleasure or pain in your life. However, accepting your emotions rarely means that it is a good idea to act on them in an emotional state, instead of first planning your response calmly and rationally, after the emotions have passed. To do so is to fall into the Emotional Trap. In my view, this is one of the most important lessons to learn in life.

The next trap is the Morality Trap, which is living by a moral code dictated by someone else. Harry posited three types of morality: (1) Personal Morality, which is a code of conduct you devise yourself, only for yourself, based on the consequences of your actions to you. (2) Universal Morality, which is a code of conduct that will bring happiness to anyone who follows it. And (3) Absolute Morality, which is a moral code dictated from someone wiser or better than you, such as God or a human guru. Harry did not believe that Universal Morality exists, because people are too different to all receive happiness from the same code of conduct. And he believed the weakness in Absolute Morality is that it requires total obedience, even if you believe that certain required conduct would bring you unhappiness. So he advocates following a Personal Morality, which he defines as a code of conduct created by you, based only on the consequences of your actions to you.

In my view, this definition of Personal Morality is one of the weaknesses of the book, and it seems to be something he did not think completely through. A more complete starting point for defining personal morality would be to incorporate the libertarian non-aggression axiom, and forbid yourself from doing anything that you believe would bring bad consequences to you or that would violate anyone else’s body or property. The bigger lesson to take from this chapter is that, if you choose to follow a moral code derived from someone or something else, you are still the one who made the decision to follow it. You are deciding for yourself even when you try not to decide.

Unselfishness and Group Traps

The Unselfishness Trap is the belief that you should put others’ interests ahead of your own. His point is that different things motivate different people, and no one does anything unless they believe that they will either gain from it or prevent some kind of loss. That was as true for Mother Theresa as it was for Hitler. The gain may just be a warm feeling for doing something nice for someone else or believing you are storing riches for the afterlife. But altruism is, at its core, really selfishness. No one would engage in altruism if they literally saw no benefit whatsoever for themselves in doing so.

The Group Trap is the belief that you can accomplish more by acting in groups than you can by acting on your own. There is nothing inherently wrong with participating in groups. You may enjoy the social aspect or something else about it. But you should be consciously aware that, if you just want to accomplish something, it s actually easier to act on your own.

The heart of this Trap is what Harry states is one of the most important keys to finding freedom in life, which is understanding the difference between what he called Direct and Indirect Alternatives. An Indirect Alternative is one that requires you to go through others to get what you want. A Direct Alternative involves you acting by yourself to get what you want, without having to convince anyone else that you are right. There is not necessarily anything wrong with trying to improve the world or with wanting to be apart of a movement that is bigger than yourself. But you should be consciously aware that you do not have to do that to get what you want out of life – if you do it anyway, it should be for other reasons. There are easier, more direct ways to keep an issue from adversely affecting you, whichever side you are on, than spending your life fighting for or against something that is never going away.

Government Traps

Government Traps are the beliefs that governments perform socially useful functions that you should support, that you have a duty to obey laws, and that government can be counted on to enact a social reform you favor. Not much more has to be said about these points to libertarians.

The belief that you have a duty to obey laws is legal positivism, the belief that the law should always be obeyed, regardless of its morality. Nothing more has to be said about this to anyone with a pulse, except that Harry is not necessarily advising you to break the law. He is advising that your concern should be the consequences to you – not to an amorphous, ill-defined “society”. Moreover, there are now so many laws in the U.S. that it is literally impossible to just go about your life, minding your own business, without constantly breaking laws.

Harry elaborated on the idea of looking to government to enact your social reforms in his 1996 campaign book, Why Government Doesn’t Work. There he defined it as “The Dictator Syndrome”, which is the idea that something you want the government to do will be enacted and applied exactly as you envision it. This mentality reflects an incredibly naïve, unrealistic view of the world and of government. Even if you believe in the idea of government, it is the least efficient way possible to get what you want.

He discusses numerous sensible alternatives for doing what you want without running afoul of the law, and the biggest point here is that, contrary to how it is often portrayed, governments are not omniscient. In fact, what little they accomplish is usually done via the voluntary cooperation of their citizens. Just do not flaunt what you are doing and you probably have little to worry about.

Despair, Rights, Utopia, and Burning-Issue Traps

The Despair Trap is the belief that others can stop you from being free or from having the kind of life you want. Harry advises that there is a way out of almost any situation, no matter how bleak it seems, if you use your imagination.

The Rights Trap is expecting your rights to make you free. No sensible person would rely on their rights to get what they want or protect them from harm, no matter how strongly they believe in rights in theory.

You probably believe that you have a right to keep your property and that no one else has a right to steal it. But you do not leave your front door hanging open when you go out and expect those rights to protect you. You recognize the world for how it really is, regardless of how you think it “should” be, and you concentrate on what you control, such as locking your doors and windows. And if you suffer a theft anyway and you are an extraordinarily mature person, you ask yourself if there is a lesson you can learn from it for the future. If there is, you apply it. If there is not and you took every precaution and it happened anyway, you calmly accept the fact that the odds finally went against you, pay the damages and move on to better things.

As another example, the government probably taxes you more than you think it has a right to, depriving you of property you believe you have a right to keep. It probably abuses you in other ways that you feel violate your theoretical rights. But that does not stop it, does it?

The Utopia Trap is the belief that you must create a better world as a precondition to having the life you want. The essence is the idea of Direct vs. Indirect Alternatives that we have already discussed. The Burning-Issue Trap is the belief that there are compelling social or political issues that require your support, and that it is more important to join such causes than to make the most of your own life. We have already covered the essence of this too.

The Previous-Investment Trap

The Previous-Investment Trap is the belief that any resource spent in the past must be considered when making a decision in the present. This is a Trap that has affected everyone, and it can be subtle.

For example, an investor holds onto a stock that is in a loss position because he feels he has to at least break even – and he probably loses more by holding onto it. Or a doctor finds that he hates medicine, but will not quit because he does not want to “throw away” the years he spent in medical school. As Ron Paul often says about Iraq, it makes no sense to attempt to justify past mistakes by perpetuating them. Whether resources spent in the past were spent wisely or not is irrelevant, because they are gone forever. What matters is what you have left in the present that can be applied to improving your future.

As Harry writes at the end of the chapter, “There is a bright, glorious, free future ahead – if you keep looking forward.”

Box and Certainty Traps

The next Trap is the Box Trap. Harry defines a “box” as any uncomfortable situation, and the Trap as the belief that the cost of getting out is too horrible to even consider. A box can be big, like an unhappy marriage, or small, like a boring dinner every Sunday with your relatives. The principle of this chapter is to avoid getting stuck in a rut simply because you cannot think of anything better to do, or because you think the price of getting out is too fearful to even consider. He advises examining your life, making a note of everything you are unhappy with, and to getting tough with yourself and figuring out why you are letting any uncomfortable situations continue. You may decide that the price required to get out of a situation really is worse than staying in. But at least then you will have made a conscious decision to tolerate it.

The final trap is the Certainty Trap, which Harry describes as being so certain that what you know is true that it causes you to take unnecessary, foolish risks because it never even occurs to you that you might be wrong. It is impossible to accomplish anything significant in life without taking risks. But you should never lose sight of the fact that your information is inherently uncertain, and that there may be factors you cannot see now. So take risks with that in mind, and be prepared for the fact that you might be wrong – and, if you are, that the consequences may be different, or even worse, than what you imagined.

The Uncertainty Trap

The corollary to the previous Trap, which Harry left out of the book, is what could be called the Uncertainty Trap, which is the state of being so consciously aware that what you know is uncertain that it makes you afraid to do anything. The fear of failure is a perfect example of this trap. You have to take risks in life. But do not take stupid risks without considering the consequences or the idea that you might be wrong, but also do not let the knowledge that you cannot know for certain beforehand how something will work out cause you to be too afraid to do anything.

So there are Harry’s 14 Traps, plus one of mine as a bonus. If you would like to read about the Traps in more detail, as well as Harry’s thorough advice for how to free yourself from them, and how he ties all of this together to explain how he found freedom in an unfree world – and how you can too, the book is well, well worth your time and money, and it would be a bargain even for $500. Hard copies can be found online in the usual places, like Amazon, eBay and Bookfinder.com, but they have become rare and fairly expensive.

However, a downloadable e-book is available at HarryBrowne.org for $9.75, and Harry’s widow, Pamela, intends to have it republished as a hardcopy someday. I have given away numerous copies over the years, recently to two friends for their wedding. As Richard Bach, author of Jonathan Livingston Seagull, states on the back cover of Harry’s book, How I Found Freedom in an Unfree World is “a gift of power and of joy for whoever yearns to be free.”

Link here.


For those who have been playing in the fields of finance over the past 30 years, Alan Greenspan’s newly-released book, The Age of Turbulence, is a memoir of captivating intensity. It is also a reminder that the current subprime mortgage troubles are just surface symptoms of profound stress in the world financial system.

Last week, just as the stress was threatening to start a domino effect in the financial markets, Mr. Bernanke came to the rescue by cutting the Fed Funds rate half a percentage point. The Fed’s action was expected and the market response was euphoric. It has happened so consistently that most investors conclude that the Fed’s loyalty is to the stock market, and that it will always be ready with a safety net if Wall Street gets in trouble. After all, the central bank bailed out investors in the wake of the October 1987 crash, then again after the dot-com bubble burst in 2000. However, as Martin Wolf of London’s Financial Times put it, “... saving Wall Street from its follies is not the Fed’s objective. It is an (unfortunate) by-product of the attempt to do its job.”

Those who gamble and lose should be the ones punished for their folly, so they should not be saved at the expense of either taxpayers or dollar holders. But in order to keep the broad economy from being sucked down the vortex of an uncontrollable collapse, most observers, including Wolf, believe the Fed must come to the rescue. The common opinion is the Fed should always bail everyone out even if the speculators who caused the problem escape their well-deserved fate. Rescuing Wall Street is merely an unfortunate by-product when the Fed attempts to do its job.

What is the Fed’s job? Beneath its image as a “savior”, every central bank’s real mission is not to save the world. It is to keep the banking system solvent and prosperous. The Federal Reserve System is owned by its member banks, and controlled by those same bankers. Bankers borrow money from depositors and lend to borrowers. When borrowers default, banks cannot repay depositors, and the banks are threatened. Northern Rock, Britain’s fifth-biggest mortgage lender, ran into trouble because of the current credit squeeze. This trouble ignited a panic that led to thousands of customers lining up to withdraw their deposits. Of course, the Bank of England rode to the rescue with an infusion of freshly printed cash.

It is an oft-repeated story. “The late 1980s was [the banks] worst period since the Depression; hundreds of small and medium-size banks failed,” writes Greenspan, “and giants like Citibank and Chase Manhattan were in distress. Their problem, as with the S&Ls, was too much speculative lending: in the early eighties, the major banks had gambled on Latin American debt, and then, as those loans went bad, like amateur gamblers trying to get square, they’d bet even more by leading the whole industry into a binge of commercial real estate lending.”

Once again, speculative lending spawns the crisis, and once again the central bank rides to the rescue. But should central bankers be applauded? Without the continued expansion of bank reserves by these central bankers, credit would never have been available to the speculators in the first place.

The Age of Turbulence provides a gripping exposé of the inner workings of the Fed, and it should be a wake-up call for all of us. Greenspan clearly shows just how close the world came to economic collapse over each of the past crises. He outlines the stock market crash of October 1987 that came within a whisker’s width of bringing on a depression equal to the 1930s. He details the narrow escape during the S&L industry collapse just a few years later, and then again after the Russian default that led to the demise of Long-Term Capital Management in 1998. In all cases, the world was closer to the cliff than we (outside the inner sanctum of the central banks) ever realized.

What of the future? The current real estate bubble is far from deflated. The sea of fiat currency sloshing around the world has not come to rest. Just as the easing by the Fed after the East Asian and Russian crises of 1997 and 1998 fueled the subsequent stock market bubble, pouring more fiat money into the banks to solve the sub-prime mess has already fueled the next one. Will Mr. Bernanke and his central bank counterparts be lucky enough to successfully resolve the next crisis by another infusion of dollars? Don’t bet your future on it.

As Greenspan notes, “... containing inflation through higher interest rates will be as unpopular in the future as it was when Paul Volker did it more than twenty-five years ago. ... to keep the inflation rate down to a gold standard level ... the Fed would have to constrain monetary expansion so drastically that it could temporarily drive up interest rates into the double-digit range not seen since the days of Paul Volker.”

And many around the world know this. While the stock market rebounded after the current cash infusion, the U.S. dollar continued its slide against other currencies, and gold, the ultimate inflation hedge, climbed steadily. Many dollar holders see the future – the dollar is no longer the safe haven it once appeared to be. It will fall much further against both stronger currencies and against gold.

Link here.


I often define a “tax haven” as a country that welcomes foreign capital and imposes low or no taxes on the foreigners who invest there. When I ask people if they know where the leading tax havens are located in the world, they usually guess Switzerland, the Channel Islands, the Isle of Man, Monaco, Andorra, Liechtenstein, Bermuda or Panama. For those not “in the know,” they are usually surprised when I explain that the world’s two largest tax havens are ... the United States and the United Kingdom.

Both of these nations have hypocritical governments which continually criticize tax havens. The U.S. and the U.K. like to vilify the many small jurisdictions that are proud to be tax havens. Ironically, the U.S. and the U.K. are tax havens only for foreigners – they offer no comparable tax relief for their own highly taxed citizens.

The U.S. gives virtually tax-free treatment to many hundreds of thousands of foreigners. Uncle Sam likes to reward these foreigners who invest billions annually in American stocks, bonds, real estate and especially U.S. Treasury bonds. Deficit-spending politicians from both parties desperately need the foreign cash float these tax-free investors so generously provide. In 2005, foreign direct investment in the U.S. exceeded $1.5 trillion – equal to 10% of the total market value of all publicly traded American firms. That huge number has grown since.

The U.S. government deliberately adopted this generous American tax haven policy in the 1980’s. At the time, many leading U.S. financial institutions verged on bankruptcy. The combination of uncollectible bank loans to the Third World, rampant inflation, savings and loan scandals and a 20%+ prime interest rate had put billion dollar holes in banks’ and insurance companies’ balance sheets. The political solution was simple and effective – drop taxes on international capital and watch the money flow in.

Foreigners (nonresident aliens, as the U.S. government calls them), and foreign corporations these foreigners control are exempt from most U.S. taxes. They are exempt from taxes on certain kinds of interest and on capital gains from owning most types of U.S. securities, bonds or debt obligations. U.S. corporate dividends paid to foreign persons are subject to withholding taxes. But the tax rate may be low or zero under a treaty between the U.S. and the foreigner’s home country. If a non-U.S. person controls an offshore corporation that invests in the U.S., then he or she is not required to file returns with the IRS, unless it does business within the U.S. The IRS likes to insist that offshore investing is laced with tax evasion. But the IRS and American tax laws welcome the trillions in foreign investment in tax haven USA. They do not seem concerned about the possible tax evasion by foreigners.

The UK is also a major tax haven, but with a different twist – the U.K. gives major tax breaks to wealthy foreigners who actually live there. Under British tax law, anyone living in Britain and not born there can choose what is known as “non-domiciled” tax status. That means scores of billionaires who live there only pay tax on the relatively small amount of money they bring into the U.K. each year. They do not pay U.K. taxes on their much larger worldwide earnings.

This law has made London a tax haven for everyone from Russian oil tycoons to thousands of international investment bankers. The country now has 68 billionaires – three times as many as four years ago. Only three of its 10 richest people were born in Britain. That special U.K. tax law is always under attack. It continually presents a political problem for Prime Minister Gordon Brown. For 10 years, Brown regularly promised reform on the “non-dom” tax issue as Chancellor of the Exchequer. But in the end, he did nothing.

There is no denying the impact the rule has had. According to British Treasury figures, about 112,000 people claimed non-domiciled status in 2005. They reported a total of £9.8 billion ($19.9 billion), in earnings. But their wealth from overseas income would be much more and they spend a lot of cash in London. Based on past performance and the politics involved, I predict this U.K. non-dom tax loophole will survive. If I am wrong, there will be a lot of rich people fleeing London for other, more secure tax havens.

The next time you catch some London or Washington political foghorn blasting those terrible tax havens on TV, send them an email and tell them to look in the mirror. Or tell them to go get lost in the 25,000 pages of the U.S. or U.K. tax code. They might just learn something.

Link here.

Where 55,000 offshore investments are hiding.

Offshore mutual funds can be quite lucrative. But you need to know exactly how to invest so you can profit from them as an American. Over 55,000 offshore mutual funds are available worldwide. Luxembourg is the world’s second-largest mutual fund domicile, after the U.S. This country offers tax-free funds called Sicavs.

Unlike North American mutual funds, offshore funds sold primarily in Europe (Luxembourg, Ireland, Switzerland, Scandinavia) are available in euros, sterling, Swiss francs, and Norwegian krone, as well as the U.S. dollar. Plus, retail investors can access a whole range of traditional and non-traditional funds like hedge funds, private equity funds, British investment trusts and managed futures funds without being accredited or forking over a few hundred thousand dollars. Offshore funds offer multiple asset classes to retail clients.

In the U.S. and Canada, you have to be a high net-worth investor to buy alternative investment products. Some smaller investors can access these products through structured vehicles offered by some of the big banks, but the fees are colossal and performance is not worth the effort. So to participate in some of the best hedge funds, you need millions.

That is not the case overseas. One of the world’s largest multi-manager hedge fund companies since 1983 continues to offer a terrific selection of top-flight money-managers from their Irish umbrella. And they start at just $25,000. The same complex also offers products denominated in dollars, euro, sterling and Swiss francs.

Going offshore certainly has its benefits from an investment perspective. But investors must avoid offshore taxation pitfalls to invest successfully for long-term profits.

Link here (scroll down).


Bermuda Premier afraid to admit his nation is a (horrors!) “tax haven”.

About 30 years ago, a new phrase intruded its ugly presence into the national consciousness – “PC” or “politically correct”. The American Heritage Dictionary defines this phrase as “Of, relating to, or supporting broad social, political and educational change, especially to redress historical injustices in matters such as race, class, gender, and sexual orientation.”

In more recent times “political correctness” does not just mean excluding supposedly unacceptable words. It means placing a negative connotation on formerly acceptable words to describe selective bogeymen. The famously politically incorrect George Orwell once said, “Political language ... is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind. One cannot change this all in a moment, but one can at least change one’s own habits, and from time to time one can even, if one jeers loudly enough, send some worn out and useless phrase into the dustbin, where it belongs.”

I raise this question because in the last few days, I noticed some blatant examples of abusing and/or distorting the phrase “tax haven”. E.g., speaking to a group of U.S. congresspersons (PC) and foreign leaders from Caribbean tax haven nations, the Premier of Bermuda, Dr. E.F. Brown MP, said that his government monitors “legislation and congressional musings on what some of your colleagues refer to as ‘offshore tax havens’ with great interest and we respect your legislature’s aims in protecting revenue for American taxpayers.”

No doubt he was referring to the blatantly anti-tax haven bills introduced by U.S. Senators Levin, Dorgan and Obama. These ugly legislative attacks on Americans’ right to invest and do business freely in other nations include the creation of blacklists of many leading nations simply because they honor financial privacy and refuse to share private information with the IRS. Dr. Brown then baldly added, “Our position when lobbying on Capital Hill is frank and forthright. We are not a tax haven and not an environment of corporate inversions designed to allow any evasion of taxes. Ours is an Island of sound, AA-rated practices and we deliver a product attractive to companies who otherwise would have significant liabilities were they elsewhere.”

He then went on to note that since Hurricane Katrina and the 9-11 terror attacks “... almost $25 billion in claims have been delivered from Bermuda to American policy holders. Perhaps even more impressive, $100 billion dollars of U.S. capital is invested in Bermuda; the overwhelming majority of that money is a result of the insurance and reinsurance industry.”

Who does the Premier think he is kidding? The only reason all those billion dollar insurance and reinsurance companies are clustered on the pink sands of Bermuda is that the island is indeed a major tax haven, imposing little or no taxes on foreign owned companies. Apparently the Premier is afraid to speak the truth with words that are not PC.

Link here (scroll down).


We recommend Panama as one of the world’s leading asset protection and tax havens. It is an inviting menu for offshore investors featuring trusts, exempt corporations, world-class banking and even family foundations to manage wealth.

Unlike too many other jurisdictions, Panama stands by its iron-clad financial privacy laws. Panama only waives these privileges for probable cause of criminal activity. Panama has no tax treaties with any other nation and it does not tax foreigners who live there or base their offshore businesses there. Add to all that special residential and citizenship laws designed to attract foreigners, and you have some mighty inviting choices.

But whenever I recite this impressive litany, invariable I am asked, usually by an American, “How do you know that all this will not change? What if Panama sells out?” Of course nothing in life is certain, except eventual death. Not even taxes. And certainly not real estate prices, (more below). But the peculiar history of this tiny nation, with asset protections laws dating back to the 1920s, makes it a wary friend of the U.S. government.

A century ago, America helped create Panama for Washington’s geopolitical convenience. But the U.S. colonial control ended on January 1, 2000. The U.S. left behind a healthy Panamanian skepticism towards Uncle Sam, the Colossus of the North. Both that closeness and distance works to maintain Panama as an ideal tax haven that is not under the thumb of any nation. Compare that to the hapless British overseas territories whose offshore financial attractions have been curbed by the Labour government in London.

The big downer in Panama at the moment is the upward spiral of real estate prices, mainly in condo-saturated Panama City. The great appeal to foreigners used to be the ability to buy a 3-bedroom, 2-bath condo with ocean view, a golf course town home, or a beach front cottage, for a third or half of what it cost in south Florida or California. With Panama City area prices now almost paralleling those in the U.S., practical foreigners eyeing residential Panama are less than impressed. (There are still many good bargains in beachfront and mountain properties away from the city, but you have to be careful and do your shopping.)

Understand that the unfortunate change I have described is economic and confined to real estate prices. The real estate bubble does not have a major impact on Panama as a tax haven, a financial privacy haven, an offshore banking center or as a place to base your global business. Its infrastructure is first-world and many of its offshore professionals are excellent.

Panama has not “sold out.” Yes, its real estate moguls and condo flippers have oversold themselves right out of the market. But just because the hot air is slowly leaking out of the Panama real estate bubble – as it has with a vengeance in the U.S. – does not mean Panama’s other important attributes have disappeared. As a world-class tax haven Panama still ranks at the top. It is a nice place to have your cash and assets, even if, at the moment, you might not want to live there.

Link here (scroll down).


At the conference I am attending near Paris, the participants have gathered from far and wide, including many Europeans from Spain, Germany, France, Ireland and the U.K. And one of the main questions on everyone’s mind is, just how much will the U.S. housing recession and sub-prime mess impact the European economy and housing markets? They should also be considering the possibility of a housing slump and credit crunch closer to home.

Europe has been enjoying a resurgence in economic growth over the past few years. Industrial production is expanding nicely. Exports are booming, and housing prices inflating. Most European countries – particularly the U.K. and Spain – have enjoyed booming property markets. It has been similar to the housing bull market in the U.S. – up until recently. The nagging question on the minds of many European’s is, are home values in Europe destined to begin a downward spiral similar to what America is experiencing now?

According to several of the people I talked to, housing affordability is at or near record lows in both Spain and the U.K., not to mention other EU member states (except Germany). Rising home values in most EU countries and in the U.K., combined with slowly growing wages have conspired to price many first-time European home buyers out of the market.

In Spain, housing prices have inflated at an average rate of 15% per year since 2002. In France, home price appreciation has averaged nearly 14% annually over the same period. Many faster growing EU nations like Greece and Ireland have seen similar or bigger increases in property values. By many accounts, home prices in the U.K., especially in and around London, have jumped even faster in recent years.

The Eurozone economy is performing well right now, with growth in 2007 expected to be near 3%. But economists here are worried about two things. They are concerned about spillover effects from slowing growth in the U.S., and slowing export growth due to the appreciating Euro, which is trading at all-time highs against the U.S. dollar. The British pound has likewise been strong. One of the reasons is that both the EU and Bank of England have been raising interest rates in recent years.

Now comes the credit-crunch. Everyone is wondering if the perfect storm may be brewing, whereby market rates such as LIBOR remain elevated or move even higher. Since many business loans, mortgage loans and other consumer debts are indexed to LIBOR, higher rates would almost certainly result in reduced business and consumer spending. That is even as central banks in Europe attempt to prop up the economy by injecting “liquidity”.

Then there is housing. In Spain, the economy is expanding at a robust clip of 4% this year, while bank credit is growing more than 23% year over year. But with so much speculation in real estate in recent years (sound familiar?), Spaniards are understandably worried about their home values.

According to a recent article in the Financial Times, a Madrid-based economist estimates that half a million families in Spain will have difficulty paying their mortgages if euro interest rates rise much further. This sounds eerily similar to the subprime/housing decline script in America. Could Europeans soon be facing a home-grown housing crisis of their own?

Link here (scoll down).


Living in Dubai is not wonderful and glamorous, as many would have you believe. Forget about what you have read, seen, and heard. Those shiny buildings and manmade islands are all just smoke and mirrors. There are so many things wrong with this place that I have decided to compile a list, a must read if you are considering a potential move to Dubai.

3.) It is really hot outside. Not Florida in July hot. Hot as if you were locked in a car in Florida in July with sufficient humidity to make it feel as though you are drowning. Hot as in 120° with nearly 100% humidity. Do not look to the wind for relief. This is the equivalent of pointing a hairdryer on full blast directly at your face. Pour fine moon dust-like sand over your head as you do this and you get the picture.

4.) There are too few trees, plants, and grass – or living things aside from us crazy humans, for that matter. Ever see a bird pant? I have. In my opinion, human beings were not meant to live in such a place. The only greenery around is the roadside gardens planted by the government, who waters the hell out of them in the middle of the day. Thanks a lot! Did you not say we should cut down on our water consumption because you are unable to keep up with the demand? I have an idea. Let’s all move someplace where it is not 120° outside.

6.) This country encourages businesses to hire people from other poor countries to come here and work. They have them sign contracts that are a decade long and then take their passports. Even though taking passports is supposedly illegal, the government knows it happens and does nothing to enforce the law. These poor people are promised a certain pay, but the companies neglect to tell them they will be deducting their cost of living from their paychecks, leaving them virtually penniless – that is, if they choose to pay them. Companies hold back paychecks for months at a time. When the workers strike as a result, they are jailed. Protesting is illegal, you see (apparently this law is enforced).

20.) Dubai is far from environmentally friendly. Ever wonder how much damage those manmade islands are doing to the delicate ocean ecosystem? Coral reefs, sea grasses, and oyster beds that were once part of protected marine lands lie choked under a barrage of dredged up sea sand. Consider the waste that occurs from erecting buildings on top of these sand monsters and from the people that occupy them coupled with the lack of an effective recycling program and you have an environmental disaster on your hands. Add to this more gas guzzling SUVs than fuel-efficient cars on the road and the need for 24-hour powerful air-conditioning and its evident that the environment is not high on the priority list of the UAE.

So while I am sure there are benefits to living in Dubai, tax breaks, multi-cultural environments, and beautiful buildings aside, reconsider your plans to move here if any of the above mentioned reasons strikes a chord within you. Dubai is a city caught in an identity crisis. Struggling somewhere between its desire to be a playground for the rich and its adherence to traditional Islamic roots, rests a city that lacks sufficient infrastructure to support its delusions of grandeur. Visit if you must, but leave quickly before you are sucked into its calamitous void.

Link here.


Hong Kong continues to be one of the most preferred locations for overseas firms managing their operations in the Asia Pacific rgion, thanks in part to its low and simple taxes, and proximity to mainland China. New figures have shown that 60.4% of the 6,440 Hong Kong firms representing overseas parent companies are regional offices or headquarters – an all time high according to Mike Rowse, Director-General of Investment Promotion at Invest Hong Kong, the government’s investment promotion agency.

“For us at Invest Hong Kong, there is no better advertisement for our city than companies which do their due diligence and select Hong Kong as their primary office in the region,” he commented. “Since the handover in 1997, the number of regional headquarters and regional offices has increased 55%. It has certainly silenced a lot of the critics who predicted the demise of Hong Kong a decade ago.”

The survey found that there were several key favorable factors affecting the choice of Hong Kong as a location for regional headquarters and local offices, including, (1) a low and simple tax system, (2) free flow of information, (3) absence of exchange controls, (4) corruption-free government, (5) good communication, transport and other infrastructure, (6) free port status, (7) geographical location, (8) availability of business services and professional support services, (9) rule of law and independent judiciary, and (10) political stability and security. Unfavorable factors for Hong Kong included the cost and lack of availability of residential and business accommodation. The survey also revealed that headquarters, regional and local offices together employ almost 346,000 people in Hong Kong, accounting for around 10% of the working population.

At the start of June, there were 1,246 regional headquarters, 2,644 regional offices and 2,550 local offices in Hong Kong representing their overseas parent companies. The U.S. topped the list with regional headquarters (298), followed by Japan (232) and the UK (124). The major lines of business of regional headquarters were wholesale, retail and import/export trades; business services excluding information technology, and transport and related services. The Mainland topped the list with local offices (480), followed by Japan (431) and the U.S. (394). The major line of business of local offices were wholesale, retail and import/export trades, finance and banking, and business services excluding information technology. Meanwhile, the inflow of foreign direct investment into Hong Kong also soared more than 30% on a year earlier, to US$27.1 billion for the first half of this year.

Link here.


For the first time since 1976, the Canadian dollar is now trading at par-value versus the U.S. dollar. In 1976, the secessionist Parti Quebecois was elected in Quebec and commodities prices were in the midst of a secular bull market.

The news media in Canada has taken the loonie’s new flight by storm. A newfound pride has erupted across a country which has been almost perpetually saddled with a weaker currency against its much larger American brother. Since hitting a 125-year low in February 2002, the loonie has surged a cumulative 62% versus the sagging greenback. Meanwhile, the greenback is now in its 6th year of a secular bear market versus most foreign currencies and gold.

Since discovering bitumen or tar sands in Northern Alberta, Canada has become the world’s 2nd-largest source of untapped oil reserves after Saudi Arabia. It is no surprise the Canadian dollar shadows the price of spot crude. On any given trading day, the loonie tracks the performance of West Texas intermediate crude oil.

Canada’s energy exports have skyrocketed this decade amid declining global reserves and China’s appetite for refined Canadian energy products and raw materials. Canada’s trade balance has been in a secular uptrend since 2002 while its fiscal performance has been the envy of international markets as tax receipts surge. Despite the country’s enviable twin surpluses, both Liberal and Conservative governments have refused to meaningfully reduce the country’s stifling tax burden, further inflating Canada’s budget surpluses.

Since 2002, I have repeatedly predicted a par-value currency relationship between the world’s two largest trading partners. Well, it is finally here. The Canadian dollar has appreciated mainly because of a healthy balance sheet and booming commodities prices. But part of that currency gain can also be attributed to protracted U.S. dollar weakness. The American dollar has been in a virtual freefall over the last five years and has declined versus almost every currency in the world since 2002.

America’s fiscal burden continues to drag down growth as a host of bearish developments encourages dollar-based selling. Canada, on the other hand, has dramatically reduced its foreign debt over the last decade and continues to record trade surpluses almost every quarter. But be careful. The soaring value of the Canadian dollar will exact a toll on Canada’s economy – eventually.

A strong currency inhibits manufacturing exports as cheaper currencies in foreign markets compete to sell similar goods and services. The country’s non-commodity exports, including forestry, continue to bleed a slow death in 2007. The strong loonie is resulting in mounting manufacturing job losses, rising labor discontent and seriously damaging the country’s export platforms in Ontario and Quebec. While Western Canada, loaded with natural resources, continues to benefit from the commodity bull market, the rest of the nation climbs deeper into a hole. Business leaders have increased the call to lower interest rates this year to suppress the loonie’s value and alleviate manufacturing losses.

The Canuck buck is up 17% versus the U.S. dollar so far this year, and has even risen 8% vw. the almighty euro. But at some point over the next several months, I expect the loonie to finally head back to earth. I see a U.S. economic slowdown and easier Bank of Canada monetary policy clipping the loonie’s wings. Never in Canada’s history has it managed to defy a U.S. economic slowdown or recession. 12 months from now, I will bet the Canadian dollar will buy less, not more, American dollars.

Link here.


The U.S. Treasury Department and the Board of Governors of the Federal Reserve System announced the release of a joint proposed rule to implement legislation banning internet gambling in the U.S. The Unlawful Internet Gambling Enforcement Act (UIGEA), approved by Congress in 2006, prohibits gambling businesses from accepting payments in connection with unlawful internet gambling, including payments made through credit cards, electronic funds transfers, and checks. But the legislation, which has yet to be fully implemented, is facing challenges to its legality.

Under the proposed rule, U.S. financial firms that participate in designated payment systems will be required to “have policies and procedures that are reasonably designed to prevent payments being made to gambling businesses in connection with unlawful internet gambling,” the agencies explained in a statement. The statement went on to confirm that unlawful internet gambling generally would cover the making of a bet or wager that involves use of the internet and that is unlawful under any applicable federal or state law in the jurisdiction where the bet or wager is made.

The implementation of the legislation is intended to clarify the legal situation surrounding internet gambling in the U.S., in the light of a court challenge by the Interactive Media Entertainment and Gaming Association, which filed a suit in June challenging the law’s constitutionality. The U.S. government is also facing mounting pressure for compensation from some of its trading partners, including the EU, after abrogating one of its WTO treaty commitments to sidestep a ruling by a WTO dispute panel in favor of Antigua & Barbuda, which has challenged U.S. efforts to ban internet gambling.

Link here.


A rejection of the Central American Free Trade Agreement (CAFTA-DR) by Costa Rican voters in an upcoming referendum casts an uncertain cloud over the preferential treatment of Costa Rican goods entering the U.S. under the Caribbean Basin Initiative (CBI), part of which is due to expire next year.

Costa Rica, which has signed up to CAFTA-DR, remains the only country not to have ratified the deal, and has remained bitterly divided over its participation since the agreement was sealed in 2004. On Sunday, September 30, more than 100,000 demonstrators took to the streets in San Jose for an anti-CAFTA rally – a huge protest in a country of just 4 million people – which highlighted the level of feeling against the proposed move to open up the country to free trade with the U.S., as unions fear mass job losses.

The issue will be settled in a referendum on October 7, but the weight of opinion is seemingly against ratification. The government of President Oscar Arias supports CAFTA-DR. Costa Rican farmers could see high levels of tariffs imposed on their products entering the U.S. when CAFTA-DR is supposed to replace certain CBI provisions in 2008. According to U.S. Deputy Trade Representative John Veroneau, this presents a dilemma for the U.S. Congress, which would have to decide whether to retain these trade benefits for Costa Rica alone.

“Some have suggested with certainty that these benefits would not be extended in the face of a rejection of CAFTA,” Veroneau noted in a statement. “Others have suggested with equal certainty that these benefits would be extended. The truth is that no one can say for sure what the impact would be since Congress has never been asked to extend preferential benefits to a country that has rejected a bilateral trade agreement. Hopefully, the referendum will be decided on the merits of the agreement itself.”

Under the CBI, which has been in effect since 1984, food and agriculture products are exported duty-free to the U.S. market. However, when some provisions of the CBI lapse in 2008, certain goods imported into the U.S. could be subject to 35% tariffs. CAFTA would immediately eliminate duties on more than half the value of U.S. farm exports to the region, expand intellectual property protections, and open telecommunications and other markets. It would also eliminate tariffs on 80% of U.S. imports of consumer and industrial goods from signatory countries, with the remaining tariffs phased out over 10 years.

Link here.


Singapore and Hong Kong refuse to adopt EU’s savings directive.

Singapore’s refusal to soften its strict bank secrecy laws could scupper talks with Europe about a trade agreement, a European politician said. The EU and the 10-member Association of South East Asian Nations (ASEAN) are negotiating partnership and cooperation agreements, which are a prerequisite for a fully fledged free trade deal. However, for such agreements to come into force, the EU wants ASEAN countries to help it make European tax evaders pay tax to their home countries on interest earned offshore.

“Is this a dealbreaker? Potentially yes,” Glyn Ford, a Member of the European Parliament, told journalists during a visit by the parliament’s International Trade Committee. The EU adopted the savings directive in 2005 but efforts to force Hong Kong and Singapore to join have been unsuccessful. European banking havens Switzerland and Liechtenstein have agreed to apply a so-called withholding tax.

“We say that we don’t think there’s money laundering going on here, but clearly people engaged in money laundering are looking for places like Singapore with low levels of transparency to actually engage in money laundering,” Ford said. “If I was looking for somewhere to do my money laundering, Singapore would be getting towards the top of my list these days.”

Singapore has been promoting itself as a financial hub in Asia in recent years, attracting a number of large European and U.S. banks that have set up private banking offices to manage money for local and foreign clients. Ignasi Guardans-Cambo, another member of the European Parliament’s trade committee, said Singapore needed to step up transparency of its financial sector to avoid the possibility of attracting organized crime given that it was due to open the first of two multi-billion dollar casinos in late 2009.

Link here.


Life insurance enjoys very unique preferential treatment under U.S. tax law. For example:

Only life insurance can claim these five advantages. Essentially, by using life insurance, you avoid the impact of tax on your portfolio income and transactions (depending on portfolio turnover, anywhere from 20% to 50% of the annual pre-tax returns). You receive these legal tax benefits in exchange for the cost of insurance, which is approximately 1-3% per year.

The most flexible policies are variable universal life (VUL) insurance policies. Instead of a cash value guaranteed by the insurance company, there is a separate account that may consist of a securities portfolio. The value of your account is determined by how your investments perform within it. VUL policies are available in the U.S. However, VUL policies written by non-U.S. companies offer a number of advantages in comparison with U.S. companies:

The most innovative offshore life insurance products are known as “private placement variable universal life” (PPVUL) policies. Along with putting a portion of the account in foreign securities, the investment manager of the PPVUL policy may also be able to put a portion of the account in a foreign corporation or other entity that operates an ongoing international business, with all profits accumulating tax-free.

Offshore PPVUL policies are worth considering if you are seeking a flexible, tax-advantaged and comprehensive estate plan. This particular estate plan also provides tax efficiency and access to a wide selection of international asset management options. If yours requires expert tax advice to set up properly, and requires ongoing maintenance to insure tax compliance, it is most cost effective if you can invest $1 million or more in the policy.

Link here (scroll down).


At least that is how Yogi Berra might describe it. On September 25 William R. Berkley, chairman and CEO of the company of the same name, gave a detailed indictment before the Senate Finance Committee of the iniquities visited upon U.S. taxpayers by “Foreign-Owned Insurers”. The last time this question surfaced in Congress was in 2000, when legislation was proposed aimed at ending “favorable tax treatment” for foreign based insurers, principally those located in Bermuda. The main backers then were Chubb and Hartford, which are also members of the current “Coalition for A Domestic Insurance Industry”, on whose behalf Berkley testified. The Bill was reintroduced in 2001, but failed to get approval.

It should perhaps also be noted – not just coincidentally – that in 2000 the industry was entering one of its “soft market” cycles, just as it seems to be doing now. The complaint was pretty much the same as well. Congresswoman Nancy Johnson, R-Connecticut, said that the current tax law “not only deprives our country of tax revenues, but it gives foreign companies an unfair advantage over U.S. owned companies and their workers.”

The phrase “foreign-owned insurers” conjures up visions of stealthy Swiss bankers and bowler hatted Englishmen poaching America’s righteous worth. One blogger on this web site accused them of “eating our lunch.” A closer examination of Bermuda-based companies, however, reveals that most of them are not so foreign after all. ACE Limited and XL have strong ties to and a large presence in the U.S. market. The newer Bermuda specialty companies, mainly formed after the September 11 attacks, do, as well. It would seem that “foreign-owned” in this context should be understood to mean simply “offshore”.

Nonetheless Berkley and the coalition do raise a valid point, as do those who oppose amending the current laws. A report for the hearings, prepared by the Senate Staff – “Present Law and Analysis Relating to Selected International Tax Issues” (PDF file) – describes the opposing points of view.

Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers summarized the points his organization focuses on: (1) Bermuda’s substantial economic contribution to the United States. (2) Bermuda’s insurers’ role in filling U.S. insurance market needs. (3) Explaining that U.S. insurers do substantial affiliated reinsurance transactions for the same business reasons (risk transfer, avoiding trapped capital, diversification) that Bermuda reinsurers do the. (4) Bermuda insurers are primarily in Bermuda for ease of entry into insurance markets and that Bermuda regulation affords insurers an opportunity to quickly form an insurer and start writing business in time to take advantage of new market opportunities.

Donald Kramer, chairman and CEO of Bermuda-based Ariel Reinsurance Co., provided the official response. He expanded on Kading’s summary, in a written statement presented to the Senate Finance Committee. Kramer pointed out that “a substantial percentage of U.S. insurance companies cede more that half of the gross premiums they write to reinsurers. Affiliate reinsurance is used routinely with the U.S.-based insurance company groups, for valid non-tax reasons.” The practice enables related groups of companies to “pool risks and mange them more efficiently,” he added.

Kramer also said it is “simply incorrect” that Bermuda companies are located on the island “to avoid U.S. taxation.” He pointed out that a reinsurance transaction, even among affiliates, “involves the true transfer of risk.” In addition “regulation requires the price in a reinsurance transaction to be an arm’s length price, he continued. “Therefore these transactions must be respected for tax purposes.”

Attached to Kramer’s statement were letters from Risk and Insurance Management Society President Michael Liebowitz and Bill Newton, executive director of the Florida Consumer Action Network. “RIMS has a history of opposing any legislation that encumbers free market movement and the transfer of risk that is vital to a sound global insurance and reinsurance community,” wrote Liebowitz.

“We urge you [the Senate Finance Committee] to be on the lookout for amendments proposed this summer and fall that offer hundreds of millions in additional revenue that in the end will be paid for by Florida consumers!” Nelson wrote. “It’s not a good deal and these amendments should be exposed as protectionist measures by U.S. insurers seeking to grab more business for themselves by increasing the taxes on their non-U.S. competitors – taxes ultimately paid by Florida consumers.”

The debate will no doubt continue. Ultimately, however, Nelson’s observation carries the ring of ultimate truth. If additional taxes are imposed, in the end it will be the consumers who foot the bill. Déjà vu, anybody?

Link here.

U.S. Senators question tax privileges granted to offshore hedge funds.

The Senate’s top tax writer has complained that income deferrals enjoyed by managers of offshore hedge funds are too generous. “It is a matter of fairness,” U.S. Senate Finance Committee Chairman Max Baucus said during a hearing examining hedge funds and insurance companies operating in the Cayman Islands and other offshore locales. “Tax deferred, in a certain sense, is tax not paid.”

The Montana Democrat took issue with the way U.S. managers running offshore hedge funds can defer all of their income for an indefinite period, while everyday wage earners do not have that option. “Deferring income means that you pay taxes later, which is the same as a significant tax savings,” he said. Baucus stopped short of threatening new legislation, however.

Managers of offshore hedge funds in places like the Cayman Islands and Bahamas must stipulate in advance what percentage of their income they want to defer in the upcoming year. According to Daniel Shapiro, partner at Schulte Roth & Zabel LLP in London, these managers never defer their income indefinitely. Instead, they defer a certain portion for up to 10 years, Shapiro testified at the hearing. “They say in advance of their payment that ‘I would like to receive only 50% of what I am entitled to at the end of year, and I would like to defer [the rest] for five years,’” Shapiro said.

Ending these deferrals, Shapiro warned, would help drive hedge funds to other countries. “If the U.S. wants to preserve this very robust and important industry, it should be careful about changing the rules of the game so drastically,” Shapiro said. “U.S. managers are already putting people in other jurisdictions such as London, Switzerland, Monaco, Hong Kong, Singapore, because of tax issues, time zones and other attractive features.”

Sen. Byron Dorgan (D-North Dakota), testified on behalf of his bill, S.396, which focuses on profits corporations shelter in low-tax jurisdictions in the Cayman Islands and other offshore jurisdictions. Dorgan’s bill would eliminate deferrals for subsidiaries of U.S. companies located in certain jurisdictions if they cannot demonstrate that they have real operations in those locations. “They have to have a real active business in that area to avoid U.S. taxation,” Dorgan said. “We have a war but there is a thriving industry finding ways to help corporations avoid paying taxes.”

Link here.


Switzerland and the European Union have agreed to resume negotiations on the contentious subject of the Swiss corporate tax system, despite the ongoing impasse between the two sides on the issue. While both sides have acknowledged their deep divisions on the issue of taxation, following a series of meetings between the Swiss government and senior European Commission figures, they have agreed to resume “technical” discussions next month.

The EC complains that it is unfair Switzerland uses its many corporate tax breaks and “privileged” access to the EU single market to encourage the establishment of holding companies by EU-based firms which then pay Swiss taxes and avoid EU taxes. In February 2007, the EC informed Switzerland that it considers certain tax schemes applied by Swiss cantons to be state aid which distorts competition and impairs trade in a manner not compatible with the 1972 Free Trade Agreement.

In response to the Commission’s claims, Switzerland argues that no contractual regulations exist between Switzerland and the EU on the harmonization of company taxation, and that consequently, it is not possible for there to be an infringement of any agreement. “This applies in particular to the Free Trade Agreement,” Berne stated in February, arguing that this agreement only covers trade in certain goods, and does not provide a sufficient basis for judging company taxation, in particular concerning distortion of competition.

Moreover, the Swiss government emphasised the fact that it is not part of the Single European Market, so neither the rules on competition in the EC Treaty – among others the rules on state aid – nor the code of conduct on company taxation agreed among EU member states, are applicable to Switzerland.

Link here.


On Wednesday, September 19 the U.S. Senate fell four votes short of restoring habeas corpus, the fundamental constitutional right of individuals to challenge government detention, which the Republican Congress revoked in last year’s Military Commissions Act. 56 senators supported a procedural move to tie the habeas provision to legislation authorizing defense spending – a step that requires 60 votes.

The amendment was sponsored by Judiciary Chairman Patrick Leahy, Senator Arlen Specter, who voted for the legislation that the amendment attempts to reverse, and Senator Chris Dodd, who blasted today’s vote. “Each of us in the Senate faced a decision either to cast a vote in favor of helping to restore America’s reputation in the world, or to help dig deeper the hole of utter disrespect for the rule of law that the Bush Administration has created. Unfortunately, too many of my colleagues chose the latter,” he said.

Backers of the amendment and human rights organizers say they will continue to press for habeas restoration. Leah Adler, an organizer with Working Assets, wrote that activists should focus on the U.S. House, which will “likely consider legislation to restore habeas corpus in the next few weeks.”

The vote suggests a new Senate majority for habeas corpus. Last Congress, a similar amendment did not even break 50 votes. And yes, it is a sad sign that we are reduced to counting votes for which members of Congress are upholding their oath to support the Constitution.

Link here.


For years, I have warned about the dangers of civil forfeiture laws. These dangerous laws allow police to seize your property, without accusing you of any crime. The legal theory behind civil forfeiture is that your property is somehow “guilty” of a crime. Prosecutors accuse your property, not you, of that crime. And, if they find your property was somehow involved in or facilitated a crime, you lose it.

Civil forfeiture is a civil procedure, so you do not receive the same protections as a criminal defendant. Essentially, your property is “presumed guilty”. If you cannot prove that it is “innocent”, you can lose it. In the U.S., civil forfeiture is a gravy train for local police and the federal government. Each year, billions of dollars of assets are confiscated from owners who in many cases are never charged with any crime.

If your property is seized, the proceeds do not necessarily go to the alleged “victims” of the crime your property supposedly facilitated. Instead, police get to keep it. This practice has created an insidious bounty hunter mentality. Instead of focusing on preventing crime, law enforcement agencies focus on seizing the richest, legally undefended assets they can find. The attractions of a legal procedure like civil forfeiture to law enforcement agencies are obvious. And because of the “success” of civil forfeiture laws in the U.S., other countries are bringing them into effect.

For example, Canada. In Ontario, a civil forfeiture law enacted in 2001 to be used against “organized crime” permits the province to seize assets if it can show on the balance of probabilities the assets were acquired directly or indirectly “in whole or in part” as a result of any illegal activity. Now that the law has been upheld by the Ontario Court of Appeal, the attorney general of Ontario predicts “exponential growth” in the use of the seizure powers.

Except the law is not being used against organized crime. It has mostly been used to confiscate “grow houses” where marijuana is cultivated. In numerous cases, the owner of the house has claimed not to be aware of the illegal activity. But innocence is no defense in a civil forfeiture, as the Court of Appeal decision held that the Canadian Charter of Rights – which guarantees that a person is innocent until proven guilty – does not protect property rights.

A recent report from the Ontario attorney general’s office states that C$3.6 million in property has been seized in the past four years in 170 proceedings. Nearly C$1 million of these funds have been transferred to municipal police forces. Lawmakers in five other provinces have introduced similar legislation.

If you live or do business in Canada – particularly if you own rental property – you cannot afford to ignore these civil forfeiture laws. Policing for profit is a burgeoning enterprise in Ontario, and may soon be a reality in most other provinces as well.

How can you protect yourself? The easiest strategy is simply to keep your property heavily mortgaged. If there is little or no equity in the property, police have very little incentive to seize it. It is also a good idea to periodically inspect your property to make sure your tenants are not using it illegally. Ontario law is typical in this regard. You may enter a leased residence you own if you give your tenant 24 hours written notice of entry.

Link here.


CHAPTER 1: Tracking Everything Everywhere

RFID will have a pervasive impact on every aspect of civilization, much the same way the printing press, the industrial revolution and the Internet and personal computers have transformed society ... RFID is a big deal. Its impact will be pervasive, personal and profound. It will be the biggest deal since Edison gave us the light bulb.” ~~ Rick Duris, Frontline Solutions Magazine, December 2003

Technology ... is a queer thing. It brings you great gifts with one hand, and it stabs you in the back with the other.” ~~ C.P. Snow, New York Times, 1971

Imagine a world of no more privacy.

Where your every purchase is monitored and recorded in a database, and your every belonging is numbered. Where someone many states away or perhaps in another country has a record of everything you have ever bought, of everything you have ever owned, of every item of clothing in your closet – every pair of shoes. What is more, these items can even be tracked remotely.

Once your every possession is recorded in a database and can be tracked, you can also be tracked and monitored remotely through the things you wear, carry and interact with every day.

We may be standing on the brink of that terrifying world if global corporations and government agencies have their way. It is the world that Wal-Mart, Target, Gillette, Procter & Gamble, Kraft, IBM, and even the United States Postal Service want to usher in within the next ten years.

It is the world of radio frequency identification.

Radio frequency identification, RFID for short, is a technology that uses tiny computer chips – some smaller than a grain of sand—to track items at distance. If the master planners have their way, every object – from shoes to cars – will carry one of these tiny computer chips that can be used to spy on you without your knowledge or consent. We have nicknamed these tiny devices “spychips” because of their surveillance potential.

If you have been staying in touch with the news about RFID, you may already know who we are and something of the public battles we have fought to try to keep this technology off of consumer products and out of our homes. In case you do not know who we are and why we can make such claims with conviction, an introduction is in order.

We are Katherine Albrecht, founder and director of CASPIAN (Consumers Against Supermarket Privacy Invasion and Numbering), and Liz McIntyre, the organization’s communications director. CASPIAN is a grass-roots organization that has been tackling consumer privacy issues since 1999. In the pages that follow, we will give you a ringside seat to some of the battles we have fought with companies like Benetton, Gillette, and retail giant Tesco. You will see why Advertising Age says our presence has been felt from Berlin to Bentonville (corporate home of Wal-Mart), and you will also learn how we uncovered plans by companies to track consumers around stores, use RFID to spam consumers with personalized advertising, and even monitor what people do in their own homes.

We are also suburban moms who have taken on some of the largest corporations in the world because we care about the future our children will inherit if this dangerous technology is unopposed. We believe consumers should know what is in store so we can work together to protect our privacy and civil liberties before it is too late.

We know that a Big Brother vision of the future sounds farfetched. We did not believe it ourselves until we saw with our own eyes and heard with our own ears companies detailing their mind-boggling plans. We assure you that this seemingly impossible future is on the drawing board, and we promise that by the time you finish this book, you will be convinced, too.

For nearly three years, we have devoted ourselves fulltime to combing every article, reading every white paper, pursuing every insider tip, and scanning through thousands of patent documents to piece together a picture of this planned RFID future. We have attended trade shows, sat in on top level meetings, and had long talks with the people implementing these plans.

What we learned will shock you.

If anything you read in the following pages strikes you as improbable, please refer to the endnotes at the back of the book. We have included plenty of references to original source materials that should satisfy even the most skeptical reader.

In a future world laced with RFID spychips, cards in your wallet could “squeal” on you as you enter malls, retail outlets, and grocery stores, announcing your presence and value to businesses. Reader devices hidden in the doors, walls, displays, and floors could frisk the RFID chips in your clothes and other items on your person to determine your age, sex, and preferences. Since spychip information travels through clothing, they could even get a peek at the color and size of your underwear.

We are not joking. ...

RFID could also be used to infringe upon civil liberties. The technology could give government officials the ability to electronically frisk citizens without their knowledge and set up invisible checkpoints on roads and in pedestrian zones to monitor their movements.

While RFID proponents claim they would never use RFID to track people, we will prove they are not only considering it, they have done it. The U.S. government has already controlled people with RFID-laced bracelets – and not just criminals. And now they are planning to embed spychips in U.S. passports so citizens can be tracked as they move about airport terminals and cross international borders.

Hitting the open road will no longer be the “get away from it all” experience many of us crave. You may already be under surveillance, courtesy of your RFID-enabled highway toll transponder. Some highways, like those in the Houston area, have set up readers that probe the tag’s information every few miles. But that is child’s play compared to what they have got planned. The Federal Highway Administration is joining with states and vehicle manufacturers to promote “intelligent vehicles” that can be monitored and tracked through built-in RFID devices (Minority Report-style).

RFID spychips in your shoes and car tires will make it possible for strangers to track you as you walk and drive through public and private spaces, betraying your habits and the deepest secrets even your own mother has no right knowing. Pair RFID devices with global positioning (GPS) technology, and you could literally be pinpointed on the globe in real time, creating a borderless tracking system that already has law enforcement, governments, stalkers, and voyeurs salivating.

There will be no more secret love letters in the RFID world, either – not if the U.S. Postal Service has its way. They would like to embed every postage stamp with an RFID chip that would enable point-to-point tracking. Even more disturbingly, RFID could remove the anonymity of cash. Already, the European Union has discussed chipping Euro banknotes, and the Bank of Japan is contemplating a similar program for high-value currency. Your every purchase could be under the microscope.

So could your trash. In the RFID world, garbage will become a snoop’s and criminal’s best friend. Today, it is a dirty job sifting through diapers and table scraps to get at tell-tale signs of a household’s market value, habits, and purchases. In the RFID world, scanning trash could be a simple as driving down the street with a car-mounted reader on trash day.


We have read every pro-RFID argument the industry can make, and we will be the first to admit the technology could make things more convenient. RFID-enabled refrigerators really could keep track of containers of food, warn about expired milk, and generate weekly shopping lists. High-tech washing machines really could automatically choose appropriate water temperatures based on instructions encoded in RFID-enabled clothing labels. RFID really could help families recover lost pets – and stolen possessions, too.

But when we look at that future, we do not see a twenty-first century Mayberry minus a few entry-level cashiering jobs. The seamy details we have discovered make the spychipped future look more like the ending scene of a gut-wrenching Outer Limits episode. The RFID vision that technology companies are selling looks too good to be true – and it is.

Buckle up, readers. We are going to take you on a high-speed, high-tech tour of the past, present, and future of RFID, with plenty of stops along the way at the dirty little secrets they do not want you to know.

Link here.


Hasan Elahi is an art professor at Rutgers University. Along with more than 700,000 people, he is on the U.S. government’s terrorist watch list. The Bangladeshi-born U.S. citizen has been repeatedly searched, questioned, investigated, and even endured a lie detector test courtesy of the FBI.

Once you are on the terrorist watch list, of course, it is hard to get off – very hard. Even dying will not get you removed from it. Several of the 9-11 suicide bombers were still on the watch list as of late 2006.

Elahi’s life began to unravel in 2002. At the time, FBI agents began investigating him on suspicion of stockpiling explosives in a Florida storage unit. Elahi was able to convince the FBI that he did not possess explosives and was not planning to blow anything up. But still every time he traveled, he faced delays, questioning and suspicion. He began thinking that if the feds really thought he was a terrorist, they might eventually ship him off to the notorious detention center in Guantanamo Bay, Cuba.

Elahi’s solution? Document his life, 24 hours a day, on the Internet. He takes hundreds of photos a day of himself in class, in coffee shops, at home, in art galleries, etc. Each one is instantly uploaded to his website.

This way, Elahi reasons, the government cannot get it wrong. There is no doubt whatsoever where he is or what he is doing, any time, day or night. There is also a market phenomenon at work. No FBI agent is going to get a promotion for uncovering a terrorist plot by watching an art professor eat a Big Mac. “It’s economics,” he says. “I flood the market.”

It is working. Elahi has not been detained at the airport since he began documenting his whereabouts online. But just to be sure, he always calls the FBI a few days in advance every time he plans to take a trip via commercial airline. His lack of privacy, he believes, is a small price to pay in exchange for being able to travel freely. And, as he says, “It sure beats Guantanamo.”

Link here (scroll down).


What is the best desktop Linux? For me, it is SimplyMEPIS 6.5, soon to be replaced by 7.0. But this is both a dumb question and a dumb answer. The real question is: What is the best desktop operating system for you?

If I told you the best 2007 car is a Mazda MX-5 Miata, I would also be right, according to Consumer Reports. But what is right for me, a middle-aged gent with a lovely wife and no kids at home, is not what is right for a family of four. For them, a Honda Accord or a Toyota Sienna makes more sense. It is the exact same thing with desktop operating systems. With that idea firmly in mind, I have started looking at Linux desktops not for me but for particular groups of users.

For my tests, I am going to use my Insignia 300a, an older, Best Buy house-brand desktop PC with a 2.8GHz Pentium IV CPU, 1GB of RAM and an Ultra ATA/100 60GB hard drive. In short, it is a decent, but in no way cutting-edge system.

I am going to be starting my “best Linux desktop” series with a review of the best Linux for a Windows user who is willing to install his or her own distribution. My pick for this user, Xandros’s Xandros Desktop Professional 4.1, could be installed by anyone who has ever used a computer, but some people get twitchy at the very idea of touching an operating system. For those users, there is another story, but that is a tale for another day.

Starting with the basics, why is Xandros a good Linux for Windows users? Well, for starters, you can use it as a drop-in replacement for most Windows XP uses. This really is a Linux distribution that a Windows user can use without tears. To quote Kim Brebach, from his recent overview of Linux desktops, “Xandros did exactly what it claimed: open an easy passage for Windows users through the mountains of Linux.”

Exactly. That is why, for me, Xandros is the Linux for Windows users who have grown sick and tired of Windows’ endless security holes and the occasional crash. Xandros just works, and it works enough like Windows XP that even the most Linux-phobic user will be able to appreciate it.

Link here.


An entry the other day from the frequently insightful Scott Horton at Harper’s provides me an opportunity to amplify certain themes. I have discussed these issues before, but further commentary is required so as to dispel common confusions that can arise. The particular confusions involved are of some moment. In “Cheney’s New War Plans”, Horton writes:

A thoroughly moderate, wonky international relations expert I know who spends much of his energy evaluating the efficacy of U.S. counterterrorism efforts in Afghanistan and Pakistan recently offered this summary of the Bush-Cheney Administration’s efforts:
The Bush-Cheney administration has surrendered much of Afghanistan to the Taliban and much of Pakistan to al-Qaida. They have turned most of Iraq over to Iran, creating the very danger over which they now threaten another disastrous war; they have strained the U.S. Armed Forces to the point of exhaustion, turned the Defense Department over to private contractors, the Justice Department over to the Republican National Committee, and the national debt over to foreign creditors, while leading a party whose single most basic belief is supposed to be that individuals must take personal responsibility for their actions. And they dare to lecture us on national security?
Indeed, the guiding star of the Administration appears to be Monumental Stupidity. Presented with two choices, they can be counted upon to pick the wrong one. Which is why the latest chapter in Cheney’s maneuverings to launch the next war can come as no surprise. It’s par for the course.

Consider the nature of some of the purported “miscalculations” or “stupidities” listed by these two writers. The Bush administration has drastically destabilized the Middle East, setting the stage for a wider war. The next target is unquestionably Iran – which had been the primary target from the beginning. They want destabilization of the region, and they want a wider war – for it is by these means that they seek to consolidate U.S. dominance of the Middle East, guaranteeing our control of the region’s resources (among other factors).

The Bush administration has “turned the Defense Department over to private contractors” – thus enriching certain huge and hugely influential nominally private companies in amounts of many billions of dollars. Not so coincidentally, the same private companies have numerous and intricate connections to many of those in government. The privatization of national defense also means that certain individuals in government have the ability to deploy not just one private army, but an entire series of private armies, to do their bidding, as may be required and for purposes those individuals will determine.

Turning our national debt over to foreign creditors may indeed be a cause for grave concern and an indicator of possible future economic collapse. But such eventualities hopefully lie some years in the future. Carpe diem, and all that. In the meantime, the top one or two percent of Americans – including many of these same governmental players and their fellow gang members – are amassing wealth in colossal amounts. All the rest of America, together with large parts of the world, may be going to hell. What is that to them?

In brief, the major actors in the Bush administration are achieving exactly what they want. They may well be about to launch the start of World War III, which will further enrich their corporate friends by many additional billions of dollars. As the favored few continue to amass vast wealth, the government continues to consolidate political power to an extent that makes a future dictatorship fully realizable. They are well on the road to the achievement of wealth and power on a scale rarely if ever equaled in the history of civilization.

To describe such an achievement as the result of “Monumental Stupidity” is, well, stupid. The problem is one of analysis and method, and it is very widespread. Most major commentators fall into the same error. The aims I have noted – the amassing of wealth and power, and the drive to regional (and worldwide) hegemony – are nothing remotely akin to a conspiracy, unless you view aims stated openly and repeatedly, and pursued over a period of decades in front of the entire world, as a “conspiracy”.

The key to the nature of the error lies in this phrase, “while leading a party whose single most basic belief is supposed to be that individuals must take personal responsibility for their actions.” Both commentators appear to have taken Republican marketing slogans seriously in the precise manner the Republicans hoped they would. And even though these commentators now view the slogans with suspicion and cynicism, it seems the dynamics involved – and the vast gulf between marketing techniques and the reality of what is transpiring – still escape them.

There are no persistent “failed” policies.

I return once again to these critically important observations from Robert Higgs: “As a general rule for understanding public policies, I insist that there are no persistent ‘failed’ policies. Policies that do not achieve their desired outcomes for the actual powers-that-be are quickly changed. If you want to know why the U.S. policies have been what they have been for the past sixty years, you need only comply with that invaluable rule of inquiry in politics: follow the money.”

Almost all of our public debate is conducted on the first level of analysis, what various political leaders say their goals and objectives are. In terms of those stated goals, their decisions in foreign policy are uniformly calamitous, and they lead to results that are the opposite of what they claim they hope to achieve. No public figure will admit the truth of the second level of analysis, and most Americans are not the least bit interested in hearing such unpleasant truths – that a huge swath of our economy is now devoted to preparing for war, making war, and cleaning up after war. To one degree or another, most members of Congress are beholden to the economic powers that drive the obsessive concern with war, and its cornucopia of economic opportunity. Both parties are enmeshed in the War State, and the current corporatist warmaking apparatus devours almost all those who go into public service. Until this intricate and complex system is altered, nothing else will change, except in comparatively superficial ways.

So our leaders talk of “national interests”, which can mean anything imaginable that serves the needs of the moment, and of spreading “democracy”. To credit such claims requires as astounding degree of ignorance. Ask the slaughtered Filipinos, Vietnamese, or Latin Americans, or the victims of the genocide that continues in Iraq, about “democracy”. To believe our government’s aims are in fact what our politicians claim them to be is no longer an honest error, not if one watches only 15 minutes of news every few days, even as presented by our wonderful TV personalities.

Ever since the end of World War II (and going back to the Spanish-American War and the occupation of the Philippines), the goal of our foreign policy has been world hegemony – and this is the goal shared and advanced by both the Democratic and Republican parties. It may not serve the purposes of “ordinary” Americans or of foreigners numbering in the millions – and God knows, it has murdered enough of them – but it certainly serves the interests of the ruling elites.

As it goes abroad, so it goes at home. Our bloated, corporatist, increasingly authoritarian government similarly serves the interests of the ruling elites, as the lives of more and more Americans become exercises in mindless stupor. Our government has murdered more than a million innocent people in Iraq. Hey, man, who are you rooting for on American Idol? Our politicians will not tell us or themselves the truth. What murderer willingly admits he is a vicious sadist, undeterred by the screams of his victims as he counts his money? Nor do most Americans wish to acknowledge what their country has become, or the nature of its actions. So it is all about self-delusion and marketing.

Left and right wings on the same bird of prey.

On the domestic front, because the Democrats and Republicans both want and enjoy the fruits of the corporatist, authoritarian state but still vie with each other for control over the mechanisms of power, the two parties have a problem. In terms of basic principles and the interests they serve, they are indistinguishable. The Republicans are primarily financed by and do the bidding of hugely wealthy corporate powers. So are the Democrats. The Republicans have numerous and intricate ties to the defense industry, which makes incalculable amounts of money from our perpetual war economy. The same is true for Democrats. The Republicans want an increasingly repressive surveillance state to ensure their rule and their own lives of comfort and privilege. So do the Democrats.

So why should any voter support one party over the other? This is not to say there are no differences at all between the parties. But when we consider the deeper level of analysis, we see that the problem is not one of fundamental political principles, since neither party is about to change those. We come back to marketing.

If you consider only what our politicians say with regard to their intentions and goals, mysteries abound. If in fact they are in pursuit of peace and democracy, why have we been engaged in endless war, and why are we still? Why have we left nothing but widespread death and destruction in our wake, while our policies remain unchanged in even the smallest degree? But if you look beneath the rhetoric, a task which our politicians and the major media resolutely refuse to undertake, the mysteries vanish. The actual powers-that-be are achieving exactly what they want – chaos, war, murder and destruction. The same dynamic is found in the realm of domestic politics. The Democrats insist they oppose the Bush administration’s authoritarianism, but they do nothing to stop the FISA legislation, even though they certainly could have.

If you believe the Democrats actually mean what they say, and if you further believe that the Democrats themselves believe it, you will be unable to make sense of what they do. But again, if you look underneath the surface, the mystery and the contradictions disappear. They are achieving exactly what they want. Now, some Democrat genuinely believes he or she is opposed to authoritarian government or to genocidal war. But the point is that when it matters, they do not act as if such convictions matter to them – and they do not vote that way. Nonetheless, the Democrats forever contend that those convictions do matter to them. As one result, they end up looking as if they are cowards, and looking as if they are betraying their true convictions. But they are cowards only if you believe the marketing. If you look to the underlying analysis, you will see that they act in accordance with their actual goals. They cop to cowardice to cover up complicity.

The fact that one mafia boss gives groceries to Grandma while another one steals her blind and leaves her out on the street does not change the fact that both bosses are part of the same criminal system, operating on the same principles of violence, extortion, arbitrary rule and lawlessness.

Link here.

Adam Smith and the village’s amusement at war.

Barack Obama delivered a speech which echoed many of the most common critiques made by bloggers of the political establishment. In particular, Obama emphasized that the fault for the Iraq War does not lie exclusively with George Bush and Dick Cheney, but rather with the Washington establishment as a whole. And particularly as the war has dragged on with no end in sight, the culpability of the Beltway Establishment generally has grown and become much more dispersed. Obama proceeded to identify virtually every other Beltway branch that bears responsibility for what has become of our country.

One of the most destructive diseases of our Beltway Village is how insulated they are from the consequences of the wars they unleash. A remarkably prescient warning of precisely this disease came from Adam Smith in his 1776 An Inquiry into the Nature And Causes of the Wealth of Nations. It really is striking how perfectly Smith described our Beltway establishment:

In great empires the people who live in the capital, and in the provinces remote from the scene of action, feel, many of them, scarce any inconveniency from the war; but enjoy, at their ease, the amusement of reading in the newspapers the exploits of their own fleets and armies. To them this amusement compensates the small difference between the taxes which they pay on account of the war, and those which they had been accustomed to pay in time of peace. They are commonly dissatisfied with the return of peace, which puts an end to their amusement, and to a thousand visionary hopes of conquest and national glory from a longer continuance of the war.

Our Beltway establishment today is even worse than the sickly culture about which Smith warns, since they will not even tolerate mild increases in taxes to fund their war amusements. This is a critical disease in our political culture. All appendages of our political class (other than the military itself) bear no sacrifice whatsoever for the wars they cheer on, and hence, are “dissatisfied with the return of peace ...”

Nothing meaningful can be done about any of that except with the recognition that the fault lies not with any isolated political figure or party but with the entire Beltway edifice as a whole. Preventing any fundamental examination of America’s role in the world – questioning why we invade and bomb and occupy and interfere in the governance other countries more than anyone else by far – is one of the top objectives of Beltway orthodoxy. Obama has been flirting with challenging these orthodoxies, but given how entrenched they are, flirtation is not nearly enough.

Link here.
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