Wealth International, Limited

Offshore News Digest for Week of October 22, 2007

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


Huge financial losses in the U.S. spark fears in Europe. A credit crisis ensues. Soon the fear spreads to Wall Street, where the biggest banks fight off rumors of insolvency amid a broader economic panic, and Washington is forced to step in. The market swoons. If this sounds familiar, it should. Except we are not talking about the subprime mortgage crisis, or the deal brokered by the Treasury Department last week with three American banking giants to cough up $75 billion for a fund aimed at stabilizing the global credit market, or this past Friday’s 366-point drop in the stock market.

It is a brief history of the Panic of 1907, which culminated exactly 100 years ago. Back then, losses stemming from the San Francisco earthquake the year before hammered British insurers and eventually forced government officials on this side of the Atlantic and none other than J. P. Morgan himself to come to the rescue. On the night of October 21, 1907, the legendary tycoon summoned the country’s leading financiers to his Murray Hill mansion to help finance a bailout. “This is where the trouble stops,” Mr. Morgan famously declared. He succeeded. By early 1908, the panic had passed.

Today, it is J. P. Morgan again – the firm, not the man – along with Citigroup and Bank of America that are trying to fix things, with prodding from Henry M. Paulson Jr., the secretary of the Treasury, and, as the former head of Goldman Sachs, something of a latter-day tycoon. Given the historical echo – as well as the 20th anniversary of the crash of October 19, 1987 – it is appropriate that the plan to ease the credit crunch is high on the agenda as the finance ministers of the Group of 7 leading industrial countries confer in Washington.

But this time around, it may take much longer to repair the damage and restore confidence than it did a century ago. It is not only that the sums are larger now, even adjusting for a century of inflation. Losses from the San Francisco earthquake totaled only about $18 billion in today’s dollars, according to Marc Weidenmier, an associate professor of economics at Claremont McKenna College, compared with the likely loss of hundreds of billions dollars related to subprime mortgages.

It is also that the breadth and complexity of today’s global markets create risks so great that no group of business leaders – or even a single country – can control them. When it comes to the valuing of the mortgage-backed securities that are at the heart of the subprime meltdown, no less an expert that Ben Bernanke, the chairman of the Federal Reserve, admits he is at a loss. “I’d like to know what those damn things are worth,” Mr. Bernanke said during the question-and-answer period after a speech in New York.

So would many ordinary homeowners who normally do not concern themselves with the inner workings of the Fed. Unlike past panics, or even the crash of 1987, the current credit turmoil has affected ordinary consumers who merely want to secure a mortgage or refinance a loan. Rates have spiked for even the best-qualified borrowers, and home buyers with less than stellar credit histories now find themselves locked out.

This phenomenon goes both ways. Not only are people without a dime in stocks affected by market gyrations, but in an era when United States mortgage defaults can move markets from London to Mumbai to Shanghai, it seems as if bad decisions by a lender in Cleveland or a borrower in Miami can have worldwide implications. On a trip last week to New Zealand to meet with investors, Byron R. Wien, chief investment strategist of Pequot Capital and a 40-year Wall Street veteran, noted, “Every place I go they ask about subprime and climate change — those are the two big issues.”

It was not supposed to work this way. Interconnected global markets should make the world economy more stable, according to traditional economic theory, with risk spread more widely and strength in one region offsetting weakness in another. “In practice, we are not seeing that happening,” says Richard Bookstaber, a veteran hedge fund manager and author of a new book, A Demon of Our Own Design: Markets, Hedge Funds and the Perils of Financial Innovation.

Although international financial links are nothing new, as the Panic of 1907 shows, what is different now is how closely international markets are correlated with one another. “Everybody tends to invest in the same assets and employ the same strategies,” Mr. Bookstaber says, noting how just as Citigroup and Merrill Lynch suffered billions in losses from subprime loans, so did banks in France, Germany and Britain.

The trend extends into stock exchanges in Asia, where shares in India and China are experiencing a parabolic rise. “You have speculative American money invested in India, just as you have speculative Indian money invested in India,” he says. “As markets become more linked, diversification does not work as well.” As a result, Mr. Bookstaber argues that today’s global financial markets may actually be more risky than in the past. The same types of investors are taking on the risky bets and then simultaneously heading for the exits when trouble comes, even if they’re on opposite sides of the world.

Historically, adds Mr. Bookstaber, there are two characteristics that precipitate financial crises – complexity and leverage. And the current subprime mess, in which risky mortgages were bundled together by Wall Street and then sold to investors who borrowed heavily to buy them and who may not have understood exactly what they were getting, pretty much fits this pattern.

This, too, has implications for ordinary consumers as well as the Masters of the Universe. Homeowners having trouble coming up with their mortgage payment can no longer call their local bank to renegotiate because their mortgage is being held by an investor thousands of miles away. At the same time, foreigners seem to be emulating the American appetite for risk-taking and speculation, rather than learning from its dangers.

“We’re still the big spenders, but there’s evidence that’s starting to change,” says Mr. Weidenmier, citing China as one example. Not only is consumer spending there booming, but local investors have bid up shares on the Shanghai Stock Exchange by 432% over the last two years – many going into debt to get a piece of the action.

Now, just as problems in the U.S. have caused ripples in Europe, there are fears that a bursting of the Asian bubble could soon be felt in New York. A brief sell-off in Shanghai prompted a 400-point decline in the Dow last February, but both markets quickly bounced back. A prolonged plunge now in Chinese stocks might not be so easy to shake off, especially given the turmoil in credit markets in the United States and Europe, says David Malpass, chief economist at Bear Stearns.

Of course, taking risks, even speculative ones, has always been a driving force behind economic growth and the dynamism of the capitalist system. John Maynard Keynes called these urges “animal spirits”, and experts like Mr. Wien disagree with the notion that globalization has made things more risky. He argues that the newly rich in places like the Middle East can actually smooth things out by having the money to buy when everyone else is selling.

Link here.

Subprime collapse unlikely in Hong Kong, London, chief of British financial district maintains.

The subprime mortgage crisis in the U.S. that sparked a global credit crunch would be unlikely in London or Hong Kong because of their strong risk-based, regulatory frameworks, a senior British official claimed. Banks in the U.S. did not adequately assess the risks they were taking when providing mortgages to some of the poorest people in the community, often those with no income or assets, Alderman John Stuttard, Lord Mayor of the City of London – Britain’s financial center– said.

“If you are lending to some one with no job or no income and no assets that’s what I would consider high risk,” he said. “And yet this was not being properly controlled.”

In London and Hong Kong, the regulatory system focuses on ensuring financial institutions assets and price risks accordingly, he told journalists in Hong Kong, where he was meeting with top financial officials to discuss a global regulatory system.

“If we can work together to try and find the right regulatory framework, then the global finance houses around the world will succeed and there will not be systemic risk. Because what happens in one country has a very dramatic effect on another.”

The collapse of the U.S. subprime mortgage market has had worldwide ramifications. Banks and other financial institutions have declared bankruptcy, credit has tightened and world economic growth slowed. Stuttard is on an tour of Asia with a business delegation. He has said he will press authorities to ease a restriction on Chinese companies listing overseas. He also reaffirmed a belief that Hong Kong still has the edge on Shanghai as a key financial market due to its strong rule of law, pool of professional talent and open market access.

Link here.


The semiannual meetings of the world’s top finance and banking officials are predictable in one sense: Europeans and Americans often use them to lecture leaders of poor countries about the need to modernize their capital markets, promote transparency and adhere to sound investment standards. What a difference a subprime mortgage crisis can make. Now developing countries are lecturing the West.

With hundreds of officials and experts convening over the weekend in Washington, D.C., the theme this year was not fear of protesters, but of the global impact of the troubles in the American housing sector, with many delegates faulting lax regulations and sleepy overseers in Europe and the U.S. “Allow me to point out the irony of this situation,” Guido Mantega, the Brazilian finance minister, told reporters, “countries that were references of good governance, of standards and codes for the financial systems” were now the same countries where financial problems were threatening to wreck global prosperity.

In an interview, Trevor A. Manuel, the finance minister of South Africa, said, “If one looks at the impact of the subprime crisis in the U.S., the losers are poor citizens who tend to be black and Hispanic. But it is also the large banks with an international profile in Europe and the United States that have taken a beating. ... It is clear that there was regulatory and supervisory failure.”

The finance ministers and central bank governors from around the world spent the weekend discussing the market turbulence brought on by the credit crisis, declaring in a statement that they would continue to “analyze the nature of the disturbances and consider lessons to be learned and actions needed.”

But for many, the lessons were already clear. They said that Western regulators had ignored warning signs, Western banks had used exotic off-the-books “conduits” to buy and sell dubious mortgage products, Western rating agencies had gone along for the ride – and now the whole world was suffering from Western excesses.

Usually these meetings echo the old debates of what used to be called the North-South dialogue, in which the prosperous countries come to the rescue of the struggling poor countries. A few hundred protesters in Washington this weekend shouted slogans about exploitation by the wealthy. Along with protesters were the usual closed streets, police barricades and limousines idling at many downtown hotels.

There was also new finger-pointing, and perhaps schadenfreude, discernible in the statement of the G-24 group of poor countries led by finance ministers of Argentina, Syria and Congo, who noted that “developing countries are a new driving force as well as a stabilizing factor in the world economy.” Like the other ministers from what used to be called the Third World, they cited the advanced countries’ regulations and lack of transparency as causes for the mess. These countries are united in demanding more weight for themselves on the board of directors of the I.M.F. and the World Bank.

In response to all this lecturing, the U.S. Treasury secretary, Henry M. Paulson Jr., and his top aides fanned out at meeting after meeting to assure the finance ministers that although the impact of the market turmoil has yet to be fully understood or felt, there was no need to panic because the fundamentals of the American economy are sound. “We want to make sure that there isn’t a rush to judgment,” said Clay Lowery, an assistant Treasury secretary for international affairs.

Robert K. Steel, a Treasury under secretary for domestic finance, told audiences how Treasury had worked with banks to create a new superfund aimed at loosening the credit markets. “The technical organization of this solution is complex,” he told the Institute for International Finance, a global association of banks, insurance companies and other institutions. “Initial progress is being made by the lead banks and participation is expected to broaden in the weeks ahead.”

But many listeners were doubtful. Mr. Manuel, the South African finance minister, noted that the new fund had already gotten a skeptical response in speeches this weekend by Alan Greenspan, the former Federal Reserve chairman, and Michel Camdessus, former head of the I.M.F. Josef Ackermann, chairman of Deutsche Bank, also expressed skepticism in an interview. “It would be premature to make a firm judgment, as not all details have been made known to us,” he said, speaking for the board of the Institute for International Finance.

Link here.


Worldwide FDI continues to soar.

Hong Kong has retained its position behind China as Asia’s second largest destination for foreign direct investment, according to the U.N. Conference on Trade and Development’s World Investment Report 2007. The report once again highlighted Hong Kong as a “front-runner” economy, following high rankings in both its Inward FDI Potential and Performance Indexes.

Hong Kong attracted FDI valued at US$42.9 billion last year, up 28% on 2005, and the second highest amount it has ever recorded. Together with Mainland China, which was the largest FDI recipient, the two economies accounted for over half of FDI inflows into the region last year. Mainland China attracted FDI worth US$69.5 billion, a 4% fall vs. 2005, the first drop in seven years.

Director-General of Investment Promotion, Mike Rowse, said that the report confirms Hong Kong’s position as a highly attractive market for FDI. To be 2nd in Asia and 7th in the world is an impressive feat for a city economy of 7 million people, he added. “These results confirm Hong Kong’s status as an international location in Asia for foreign companies and capital. Equally, the report shows that Hong Kong continues to act as a two-way springboard for overseas companies and capital into Mainland China, and for Mainland companies expanding into international markets,” Rowse stated. “Beyond the numbers, this investment also brings new skills, products, services and job opportunities that contribute substantially to our economic development and competitiveness.”

First-half 2007 FDI inflow into Hong Kong soared more than 30% vs. a year earlier, to US$27.1 billion. However, Rowse cautioned that Hong Kong could not rest on its laurels, as the city is at the heart of a competitive, high-growth region, and investors have more and more choices. “Looking ahead, Hong Kong has three key challenges. We need to focus on the high cost of office premises, on improving our air quality and on increasing the number of international school places. The Government is aware of these issues and is working to address them,” he added.

According to the report, the next largest FDI recipients among Hong Kong’s neighboring economies were Singapore ($24.2 billion), India ($17 billion), Thailand ($9.8 billion) and Taiwan ($7.4 billion). Hong Kong was ranked 2nd globally in both the Inward and Outward FDI Performance Indexes.

For the third consecutive year, global FDI inflows rose substantially. Total FDI flows reached $1.306 trillion, up 38% from 2005, and approaching the peak of $1.411 trillion reached in 2000. The rise was driven by increasing corporate profits worldwide and buoyant stock markets, which raised the value of cross-border mergers and acquisitions. The report predicted that FDI flows would continue to rise this year, although at a slower pace.

Link here.


Europe’s most overheated economy plunges into political crisis.

Latvia, Europe’s most overheated economy, has plunged into political crisis, making it even more vulnerable to fragile global financial sentiment. Aigars Kalvitis, the prime minister, survived a vote of no-confidence but his unpopular government is expected only to stagger on until parliament approves a belt tightening budget.

Mr. Kalvitis – a former dairy manager who after just three years in office has become the country’s longest-serving premier – has lost the confidence of party bosses after bungling the dismissal of Aleksejs Loskutovs, the country’s top anti-corruption investigator. He last week had to fly back early from the EU summit in Lisbon after the largest demonstration since the country’s independence in 1991 forced two rebel ministers from his People’s party to leave the cabinet.

Ironically, the political turbulence has struck just as leading economic indicators have begun to improve and the government appears to be finally getting serious about tackling macro­economic imbalances. Latvia, which suffered a domestic run on the currency, the lat, in February, is considered one of the economies in Europe most vulnerable to worsening global credit conditions. Few lat-denominated assets are held by foreigners, making a speculative attack difficult but the size of the economic imbalances has forced the authorities to deny rumours that an adjustment of the exchange rate peg is imminent.

A consumer boom financed by foreign banks has built up a gross external debt that reached 117% of GDP at the end of 2006 and a current account deficit that hit 11% of GDP in the second quarter. Following an anti-inflation package in March and slower bank lending growth, the economy appears to be cooling rapidly. Property prices have been falling for half a year, while retail sales, new car registrations and monthly current account deficit figures have recently begun declining.

“The adjustment started to happen later than it should have, therefore it will probably be more compressed and harsh than we would like to see,” says Erkki Raasuke, chief executive of Hansabank, the Swedbank subsidiary that is Latvia’s largest bank. “Nevertheless, we are still seeing a good orderly adjustment going on. We expect a fairly quick recovery and then fairly sound growth over the coming years, though not at the rates of previous years.”

Mr. Kalvitis has belatedly thrown his weight behind the anti-inflation drive by speaking out against excessive private consumption and wage demands, and moving to tighten fiscal policy. Government working groups also aim to produce a battery of supply-side proposals at the end of the year, focused on improving export competitiveness, productivity and labor supply. “They have done enough,” says Kenneth Orchard of Moody’s rating agency, which changed its outlook to stable from positive in September but retains an A2 rating two notches above its peers. “For many years it was all talk and no action. Finally they are doing something.”

However, further reform is now in doubt because of the political turbulence, which will damage domestic and foreign confidence. Mr. Kalvitis demanded the dismissal of Mr. Loskutovs because of minor financial irregularities at the anti-corruption office. However, most observers believe the real reason was due to the office’s threat to impose a large fine on the People’s party for rampant over-spending in last year’s general election campaign.

The anti-corruption office has also worried politicians by pursuing investigations into the powerful mayor of Ventspils, as well as a digital television scandal, in which a former People’s party premier is a witness. The fallout from these two affairs could have wide repercussions. After last week’s rally, parliament looks unlikely to approve Mr. Loskutovs’s dismissal, sealing Mr. Kalvitis’s fate. The coalition will probably try to nominate a new premier once the budget is passed next month, though there is no obvious candidate. Any successor may find staying in power as daunting a challenge as Latvia’s economic woes.

Link here.


The government of Mauritius is to be awarded the “Doing Business 2008: Highest Ranked country in Africa” award, after topping the rankings of the World Bank/IFC’s African ease of doing business index. Four other countries will also receive awards – Mozambique, Kenya, Ghana and Burkina Faso.

The government of Mauritius is currently instituting a major tax reform program to simplify the system for businesses and investors. This 3-year program will ultimately result in a flat corporate tax rate of 15% in 2009. The reforms will also dispense with many tax credits and deductions that have tended to complicate the system, and will reduce the property registration fee to 5% of the property value.

Mauritius was ranked 27th in the global Doing Business Index, ahead of South Africa (35), Namibia (43), Botswana (51) and Kenya (72) in the sub-Saharan region. Doing Business 2008 ranks 178 economies on the ease of doing business based on 10 indicators of business registration. Since the first report in 2003, Doing Business has inspired or informed more than 113 reforms worldwide.

Link here.

Mauritius aims to become regional information and communications technology hub.

Mauritius wants to turn its economy into a regional ICT hub in the next few years, according to an official national strategic plan. Targets in the 2007-2011 plan include a 7% contribution to Mauritius’s GDP from offshore ICT export services. The plan, posted on the government Web site, did not say how much the sector contributes at present to the Indian Ocean island’s roughly $6.7 billion economy.

With the traditionally important sugar and textile sectors threatened by the liberalization of global trade, the nation of 1.3 million people is developing alternatives such as tourism and financial services. Other targets in the plan include doubling the number of foreign investors in ICT and developing at least 29,000 jobs in the sector. But with a workforce of less than 600,000, a restricted supply of quality ICT workers could prove a constraint, the paper added.

Rated by the World Bank as the best African country for doing business, the paper said Mauritian strengths were its historical and cultural relations with Europe and Asia, the ability to speak English and French, and political stability.

Link here.


The GIPC is in the process of setting up a financial services committee to assess how best to tap huge foreign investment into the country. The move would aim at enhancing the investment image of the country. Following an oversubscription of the nation’s sovereign bonds on the international market and the setting up of an offshore banking destination in Ghana, analysts say the investment drive in the country can go higher.

Last month, Ghana embarked on a road show in Europe and the U.S. to sell $750 million in sovereign bonds to finance various projects in the country. Chief Executive of the GIPC, Robert Ahomka-Lindsay said that the role of the financial services committee will be to go out onto the international scene to bring in huge investments running into millions of dollars to boost the country’s already thriving economy. According to him, GIPC’s responsibility is to bring in investments. “We want to establish our image on the international scene when it comes to attractive destinations to do business,” he said.

Link here.


Report confirms importances of smaller offshore jurisdictions.

A report ranking the world’s top financial centers shows the Cayman Islands slipping in international rankings, down eight spots to 24. The repor, the Global Financial Centres Index (GFCI), produced by the City of London, aims to give an indicative rating of the competitiveness of each major financial center in the world and to identify the changing priorities and concerns of finance professionals. It considers external benchmarking data and five areas of competitiveness, including people, business environment, market access, infrastructure and general competitiveness.

The report shows Cayman’s rating down 40 points to a score of 564 out of a maximum 1,000 points. According to the report, a movement of between 25 and 50 points signifies that the competitiveness of a financial center needs to be watched. Cayman’s slide seems to have been partly influenced by the polarized responses the jurisdiction evoked from financial professionals that were surveyed for the report. Apparently, many financial professionals have a love it or hate it relationship with the Cayman Islands.

Ted Bravakis, public relations officer with the Portfolio of Finance and Economics, said this is nothing new. “We are constantly talking to our clients and what we find is that those that know us, really like us. ... Those that don’t know us, however, may be reverting to old stigmas and stereotypes about offshore centers and the Cayman Islands,” he said. With the city of London report crowning itself #1, Mr. Bravakis said some caution is necessary.

Cayman Islands Monetary Authority Chairman Timothy Ridley described the report as well researched and valued. “The message that comes across loud and clear is that we need to do better at providing consistent, high quality service at a competitive price,” he said. Both the Government and the private sector need to promote what they do and provide in more meaningful and effective ways, he added.

Cayman was not the only offshore jurisdiction to receive a lower ranking than in the first GFCI. Bermuda also slipped eight positions to #25, while the Channel Islands slipped three spots to 23. Dubai climbed three spots to 22 while the Isle of Man – which did not even feature in the last GFCI report in March – leapfrogged all the OFCs to claim the top offshore ranking and #21 position.

After the first GFCI report, some observers expressed surprise that tiny offshore jurisdictions like Cayman had even made it into the top 50 list of GFCs. “Some see offshore centres as a weak link in the financial services industry but there is no denying their importance,” the report’s authors wrote. “Offshore holdings are estimated at between $5 trillion and $7 trillion – five times as much as 20 years ago and representing up to eight per cent of total global wealth. ... The Cayman Islands alone are home to $1.4 trillion in assets. Financial services have served these centres well and Gross Domestic Product per person in these islands is very high.”

Mr. Bravakis said it is important to recognize the distinction between financial centres and financial services centres. First and foremost, Cayman should be seen as a financial services centre, he argued. “The industry talks of the Cayman Islands as a financial center and in many ways we do compete with these other jurisdictions, like London and New York,” he said. “At the same time, we recognize we are not a center for capital markets – we are a financial services center. We enable financial transactions to happen. We help the flow of capital. We make markets efficient but we are not a place to go to raise capital.

“So in that light [the ranking is] a validation of our position and in some ways we are punching above our weight.”

Link here.


Minister of Industry, Commerce and Consumer Affairs Dr. Timothy Harris said the World Bank Doing Business Report for 2008 indicates that the Federation of St. Kitts & Nevis’s standing, as a place to do business, has improved regionally.

Last year, reports covering the period July 2005 to June 2006, ranked St. Kitts & Nevis 85th globally and 6th in the OECS. For the period benchmarked to June 2007, St. Kitts & Nevis ranked 64th on the ease of doing business composite index which surveyed 178 economies. The Federation was ranked 4th in the OECS and 5th in Caricom ahead of Trinidad & Tobago, Grenada, Dominica, Guyana, Suriname and Haiti.

Minister Harris said the rankings on the ease of doing business were the average of the country rankings on the 10 topics – starting a business, dealing with licences, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. The Federation achieved its best global rankings on dealing with licences, protecting investors and trading across borders.

According to the minister, if relevant reforms were undertaken, the federation can become a regional standard bearer on ease of doing business. The areas which the government needs to pay attention to are the policies, regulations, procedures and the time taken to start a business, registering property, paying taxes and closing a business. “It is my expectation that the relevant line ministries (Ministries of Finance and Legal Affairs) will move without delay to enact these reforms,” Minister Harris said.

The World Bank claims that since its start in October 2003, the Doing Business Project has inspired or informed 113 reforms around the world.

Link here.


“Gongs are not what we aspire to.”

Grouped together as the Channel Islands in the City of London’s rankings, Guernsey and Jersey have dropped out of the top 20 and now stand at 23. The Isle of Man has been recognized as the leading offshore center, ranked 21st, ahead of other competitors the Cayman Islands and Bermuda.

The second GFCI report ranks them based on external benchmarking data and current views of competitiveness. Factors are grouped into five key areas – people, the business environment, market access, infrastructure and general competitiveness.

Peter Niven, chief executive of GuernseyFinance – the promotional agency for the island’s finance industry – said it was strange to see Guernsey and Jersey grouped together, but he was not overly concerned with a drop in ranking for an index only in its second year.

“When you speak to people, they usually have an individual view on each island in one way or another but they seem to like us together, as they did in the first year,” he said. “It’s the first time the Isle of Man has been included and they have gone ahead of us, but it’s not apparent who they have asked, so it’s difficult to make a judgement. But gongs are not what we aspire to. We look to attract and find new business for the island and that’s what we are doing. We have more business now than we ever had before.”

Link here.


Never forget that quality is paramount.

On the October 21 edition of the CBS news show, Sunday Morning, there was a segment on the history of the Maytag washing machine company. The company began producing washers in 1907 in Newton, Iowa. This week, the last floor employee at the nearly deserted Newton facility will be permanently laid off. Newton and Maytag have divorced. Reconciliation is unlikely due to irreconcilable differences. The brand will bump along for a while longer. It may even recover its lost profitability. But it is now owned by Whirlpool, which bought the Maytag company in 2006 for $1.7 billion.

The show interviewed workers who had been with the company their entire adult lives. Their careers are over. They will soon be facing the harsh realities of a retirement based on fixed incomes and rising prices. What I found of much greater interest was this testimony from a more recent employee:

“When I started working at the company 15 years ago, it was really hustling and bustling,” David Daehler said. “We was working 24/7 at the first plant I worked in. And we couldn’t put out enough product. Life was good. Four or five years ago things were really good with the company. And when things started going down, they really spiraled.”

Here is a company that truly had things together for almost 100 years. Yet in five years, it self-destructed. How? By cutting corners. Of all American companies, Maytag’s management should never have cut corners.

“From the beginning, F.L. Maytag understood that delivering on the promise, putting his mouth where his money was, was really critical and he did that,” said Nancy Koehn, a brand historian at Harvard Business School. “There really isn’t another appliance that has that special place, that real estate if you will, in customers’ hearts and heads like Maytag.”

In just five years, Maytag’s senior managers squandered the company’s reputation. There is a lesson here.

My wife bought a used Maytag in 1976 for (I recall) $125. That was $460 in today’s money. We moved that machine from Northern Virginia to North Carolina in 1977. We moved with it to Texas in 1980. We still had that machine when we moved to Arkansas in 1998. It needed just three repairs in those 21 years, all minor. The paint had eroded off the settings dial, but the machine still worked fine. We left it behind when we moved to Arkansas in 2005. It still worked fine. We brought our back-up Maytag with us, bought used in 1998 for $200. It also works fine.

That was Maytag’s reputation. It was reinforced by one of the most effective ad campaigns in television history, the lonely Maytag repairman. The famous Maytag repairman was veteran character actor Jesse White. He held the position from 1967 to 1988. He was not the first Maytag repairman, but he is the one my generation remembers – and the generation that followed. Then, sometime around 2000, things began to slide. The Web spread the word: Maytag’s Neptune front-loading washer was a stinker – literally. The short-sighted managers who ran the company thought that a bland public relations statement on its Website, which affirmed the good old days, would overcome the company’s well-publicized collapsing product quality. A year later, the company was bought out.

Here is a classic case of a deliberate violation of a USP – unique selling proposition. If a USP can be encapsulated in a slogan, it becomes a cash cow. A famous USP is “Melts in your mouth, not in your hand.” I do not have to identify the product, do I?

Maytag’s USP was reliability. It built its TV campaign around this theme from 1967 to 2007. But senior management decided to cut corners to save a few bucks. They allowed units to leave the factory that had major problems. They did this in the era of the Web. They did not perceive that disappointed buyers now had a way to get out the message. The message was clear – Maytag had abandoned reliability, its unique selling proposition. The speed of consumer retaliation was very fast. In a very brief period, the company became unprofitable. Whirlpool moved in to take advantage of the crisis.

Whirlpool’s management believes that the Maytag brand can be restored. This is a huge gamble. Once lost, a USP is very difficult to restore. The idea that a great ad campaign can create a silk purse out of a sow’s ear is quite popular in tenured, market-immune academia, but sellers know better. Maytag’s ads proclaimed the same old story after 2000, but consumers were not fooled. They walked away from the brand by the millions. Another classic case of consumers’ absolute control over the profitability of a company is Schlitz beer.

If there is a rule that must not be violated it is quality control. It is better to hike the price than reduce quality. Why? Because of brand loyalty. The secret of success is repeat sales. This of course is far more true of beer than washing machines. Repeat business is everything. The existing client base must be courted. Word of mouth starts with this base. Put the consumers’ loyalty to the test for the sake of a few percentage points’ profit, and you risk the survival of the company. The loyal brand users return because the product meets their tastes and is predictable. Call into question this predictability, and you risk everything.

The great temptation of recessions is to cut costs by cutting quality. Profits fall, sales fall, and advertising does not compensate for the decline. Word goes down the chain of command: “Cut costs!” The command is obeyed. Schlitz took the plunge with a new formula in 1974, just as a recession was beginning. Managers refused to understand that the immediate fall in sales and profits was due mainly to the shift in brand loyalty. They thought it was due to the recession. By the time the recession ended in 1976, the damage had been done.

The same thing happened to Maytag. It cut quality just as the recession began or immediately before. The fall in profits could be blamed on the recession of 2001. By the time the recession ended and the economy clearly was reviving, the company had established its new reputation. Poor quality. Its USP was finished.

This practice is common. In January 2003, I wrote an article about the lost vision at Dell Computer. I related the story of my experience with tech support, which Dell had moved to India. It was not a pleasant experience. The following November, Dell canceled its contract with its Indian tech support firm. This got a lot of bad publicity. But Dell did not move customer support out of India. It just switched companies in India. The complaints are still coming from disgruntled buyers.

Dell’s share price is a bit less than half of what it was at the peak of the dot-com bubble in March 2000. The company is unlikely ever to shake off its reputation for poor service. It gained this reputation years ago. Management seems to have factored consumer dissatisfaction into its business model. The company made its decision to shift its customer support center to India in October 2000, a few months before the 2001 recession began. Its share price by then had collapsed by 2/3. Management was pressured by this to find ways to restore the company’s fortunes. The move to India came just as the 2001 recession hit. Cost-cutting was on the front burner. The result has been what seems to be a permanent set-back for the company.

The time to make gains in market share is during a recession. The competition is scared. Revenue is falling. Plans are being re-thought. The advertising budgets are cut because increases in the budget do not gain increases in profitability. When the competition moves into self-defense mode, an innovative firm with cash reserves can use advertising to increase its market share. This produces initial losses. But buyers will be attracted to the brand when they see the ads.

In recessions, people keep buying. They just do not buy the same things as in booms. There is a shift from products that are desired when income is high to staples. Discretionary income shrinks. In the shift from confident spending to cautious spending, the entrepreneur can make his move. He can secure a new customer at the expense of a competitor who did not see the signs of the recession.

When central bank monetary expansion ends, followed by slower growth in the monetary base, the economy slows. This is Ludwig von Mises’s insight in his theory of debased money. I have written a chapter on his theory of the boom-bust cycle. We are now well into the disinflation stage on the cycle. Corporate managers who understand Mises should by now have moved from aggressive marketing to capital accumulation. Now is a good time to build cash, whether you are a corporate manager or an individual. The goal here is to have reserves when the fire sales begin. This will not take long. The setback has hit residential real estate. This has only just begun. If your employer has been in cash-building mode for the last six months, this is a good sign. You would be wise to take the signs of recession seriously.

There are no free lunches. There are no free booms. Booms are followed by busts. In good times, prepare for bad times. Lay up reserves. In bad times, the grasshoppers who sang “The world owes me a living” all summer start selling their banjos for food. If you are in the banjo business, you will get some great deals on inventory.

Link here.


A legal appeal against an interpretation of the 91-day tax residence test by the UK tax authorities got underway in London last week, in a case that is being keenly watched by wealthy British expats and their advisors.

The case in question involves businessman Robert Gaines-Cooper, a British-born multi-millionaire businessman based in the Seychelles, who has claimed not to be resident in the UK for tax purposes, but who HM Revenue and Customs believes maintains strong ties in the UK, and therefore remains effectively tax resident there. Under UK tax law, a person is treated as non-resident for tax purposes provided that they spend no more than 90 days in the country. This allows wealthy business owners to live in low-tax jurisdictions such as Monaco and Switzerland, but jet into the UK for one day per week to do business.

However, in the eyes of HMRC, despite the fact that Gaines-Cooper said he spent less than 90 days in the UK, he could not be considered non-domiciled because he maintained strong links with the UK, for example, by schooling his son in the country, and by pursuing many other interests there. “He never did wholly reject England nor, indeed, that small part of it located in Berkshire and Oxfordshire, where he had so many ties and connections. On the contrary, he felt its pull upon his affections and interests all his days,” the Commissioners ruled in a tax dispute panel last year.

This ruling caught many expats and tax advisors by surprise, and led to the belief that the residence test had been reinterpreted because HMRC had included days of arrival and departure in the total time spent by Gaines-Cooper in the UK. But subsequent guidance by HMRC said that the decision had not changed the way it looks at tax residence because certain facts were unique to the case, for instance the number of times Mr. Gaines-Cooper used London to change plane on his travels.

HMRC explained at the time that, “Individuals who have left the UK will continue to be regarded as UK-resident if their visits to the UK average 91 days or more a tax year, taken over a maximum of up to 4 tax years. HMRC’s normal practice is to disregard days of arrival and departure in calculating days under the ‘91-day test’. [However,] in looking at these patterns, it would be misleading to wholly disregard days of arrival and departure.”

Nonetheless, tax experts have warned that if upheld, the ruling could have consequences for many more so-called ‘Monaco millionaires’ who use the 90-day rule to avoid UK tax residency.

Link here.


Those who liquidated retirement accounts in a panic can roll their plans over.

Economic Secretary to the UK Treasury, Kitty Ussher, has announced that the Government will allow people who during the recent financial market disruption withdrew cash from Individual Savings Accounts (ISAs) held at Northern Rock – and in the process lost their tax advantages – to redeposit that money into a cash ISA with Northern Rock or any other provider, restoring their tax advantages.

Ms. Ussher explained, “To ensure that Northern Rock ISA savers are not penalized by the financial instability in the market. I can announce today that in these exceptional circumstances, the Government will allow the people affected to reinvest their money into any cash ISA, including Northern Rock’s, and thereby restore their tax advantages.”

Savers wishing to restore their lost tax advantage must by 5 April 2008 either, (a) return their funds to a Northern Rock ISA, or (b) obtain from Northern Rock a certificate for the amount of cash ISA savings withdrawn between September 13 and 19, and present this to a new cash ISA provider when depositing the money.

Link here.


The average tax burden in the 30 OECD countries, measured as the ratio of tax to GDP, is back up to the same levels as in 2000 after a brief reduction between 2001 and 2004, according to figures in the latest edition of the OECD’s annual Revenue Statistics publication.

According to the report, in 2006, tax burdens as a proportion of GDP rose in 14 of the 26 countries for which provisional figures are available, by comparison with 2005, and fell in 11, indicating that there is likely to have been little year-on-year change in the average tax burden for the 30 OECD countries. The average tax burden in the 30 OECD countries reached 36.2% of GDP in 2005, the latest year for which complete figures are available, up from 35.5% in 2004, and level with the historical high of 36.2% recorded in 2000.

Three countries (Italy, Ireland and Korea) saw their tax burdens rise by more than one percentage point between 2005 and 2006, while another three (Luxembourg, New Zealand and the Slovak Republic) experienced reductions of more than one percentage point. From 1995 to 2005, only 6 of the 30 OECD members saw their tax to GDP ratio fall, the largest being in the Slovak Republic and Hungary, by 5% and 4% respectively. Smaller decreases occurred in the Netherlands, Germany, Canada, Poland, Finland, Ireland and the United States. Iceland and Turkey saw their tax to GDP ratios increase by about 10% over this period, and Korea saw an increase of 6%.

The latest figures showed a slight increase in the proportion of revenue collected through general consumption taxes, which take the form of value added taxes throughout the OECD (except in the U.S. and some Canadian provinces). These averaged out at the equivalent of 6.9% of GDP in OECD countries in 2005, up from 6.8% in 2004 and 6.7% in 2000. However, over a 40 year time span, the OECD said that its figures show no widespread shift in the tax burden from direct to indirect taxes, contrary to some public perceptions, because growth in VAT revenues has been mirrored by an even greater reduction in specific consumption taxes, mainly excise duties.

Link here.


Wait ‘til next year.

A recent OECD report on the tax burdens of its member countries saw New Zealand slip to the 13th most-taxed economy of the 30 members. But in a statement released to counter claims that New Zealand’s tax burden has increased under the present Labour government, Cullen argued that the OECD figures have failed to take into account billions of dollars in tax relief. “Half of the apparent increase in the 2005 ratio has been created by a one-off accounting change,” he stated. “Without the change, New Zealand would be roughly in line with the OECD average.”

Cullen claimed that the accounting change related to the time at which provisional tax is recognized as revenue. This change resulted in a NZ$1.8 billion (US$1.36 billion) increase in provisional tax revenue in 2005-06, as revenue in the transition year captured more than just the normal 12 months of provisional tax, he explained.

“The initial evidence for 2006 shows a reduction in New Zealand’s ratio of more than one full percentage point, reflecting again the impact of the one-off accounting change. The figures used in the report also include local government revenue, accounting for around two percentage points of the total,” the NZ Finance Minister said. “We also know that the report does not take into account the billions of dollars of tax relief that are being delivered through the Working for Families program.”

“I have been clear that personal tax issues are being considered in the context of the 2008 Budget. As this discussion continues, New Zealanders need to consider whether or not revenue reductions should unduly benefit those on higher incomes at the expense of working families and if they want tax cuts implemented in a way that leads to higher inflation. The Labour-led government thinks the answer to both questions is ‘no’,” Cullen concluded.

Link here.


The second round of consultation on the revamp of New Zealand’s international tax rules has begun with the release of an issues paper detailing the proposed tax exemption for active income from the offshore operations of New Zealand businesses. “We are looking at a fundamental reform that will remove tax impediments to New Zealand businesses expanding overseas and help them to compete internationally,” Finance Minister Michael Cullen and Revenue Minister Peter Dunne jointly announced. “That change will put New Zealand businesses on a better footing internationally by freeing them from a tax cost that the controlled foreign companies of other countries do not face.”

The ministers explained that the central change in the reform, is to exempt the active income of New Zealand’s controlled foreign companies from domestic income tax, which will bring New Zealand into line with the practice of other countries.

Cullen and Dunne continued, “The issues paper released today gives detailed suggestions for the design of the active income exemption and seeks the views of businesses with offshore operations on how the changes will affect them. The goal is to design a system that is both simple for New Zealand businesses to work with and preserves the integrity of the taxation of New Zealand income.”

The ministers concluded, “This issues paper builds on the results of earlier consultation and brings the reform a step closer. We encourage all businesses that have offshore operations, or that are considering expanding overseas, to examine the details of the proposed changes and let their views be known. Other aspects of the reform will be covered in a second paper to be released later this year, and the tax treatment of non-portfolio foreign investment funds that have branches will be the subject of further discussions and consultation next year.”

Link here.


U.S. Senator John Kerry (D-Massachusetts) and U.S. Representative Rahm Emanuel (D-Illinois) have introduced legislation that aims to curb the ability of high-income taxpayers to defer unlimited amounts of offshore compensation. The legislation would create a new section in the Internal Revenue Code that eliminates the ability of U.S. taxpayers to defer nonqualified compensation in offshore jurisdictions. Offshore nonqualified deferred compensation paid by a foreign corporation will be taxable income when there is no substantial risk of forfeiture to the compensation.

According to the lawmakers, such legislation would restore “fairness” to the U.S. tax code, while leveling the playing field for U.S. taxpayers. “I’ve been focused for a long time on the ‘separate and unequal’ system in America, where those at the very top get all the benefits and loopholes to avoid paying their fair share of taxes, and working families get stuck with the bill,” announced Kerry. “I’m working with Rahm Emanuel to fix the tax code to help more families save for college and retirement, not help millionaires hide their money offshore.”

Most Americans can defer income through a qualified retirement plan (e.g., a 401k) and an Individual Retirement Account (IRA). In 2007, an individual can defer up to $15,500 in income into a 401(k), or similar account, and an additional $4,000 in an IRA. But, citing press reports, Emmanuel and Kerry said that by contrast, U.S.-based hedge fund managers who operate offshore investment funds can defer unlimited amounts of their compensation. While the deferrals technically comply with current law, they argued that there is a clear inequity between the amounts that middle-class Americans can defer through mainstream tax incentives for retirement, and what high-income taxpayers can defer through offshore corporations.

According to an annual ranking of the top 25 hedge fund earners by Institutional Investor’s Alpha magazine in 2006, the average amount earned was $570 million. In total the top 25 earned a combined $14 billion, equivalent to the GDP of Jordan or Uruguay.

Link here.


Faced with two conflicting priorities – the need to elect a Democrat president and the impossibility of agreeing a long-term fix to the Alternative Minimum Tax with Republicans – the Democrat leadership in the shape of Charles Rangel has now given in and will agree to a short-term fix. 20 million voting families, i.e., 50 million voters, will be clobbered by the AMT this tax year if nothing is done about it. So Rep. Rangel, (D-New York), Chairman of the tax-writing Ways and Means Commmittee, announced that he would support a 1-year patch of the AMT. He admitted that there was no immediate prospect of bringing a comprehensive fix to the House this year.

Curbing the AMT would require massive tax increases in other directions. There is no chance that Democrats will close the gap with spending cuts, something that might bring the Republicans on board, so a permanent fix will fail to secure a super majority in the Senate unless it amounts to a tax reduction.

When the House held hearings on “tax fairness” in September, Rangel said that reforming the AMT is central to efforts at making the U.S. tax code more equitable, but he also said that Congress must examine the tax cuts passed during the George W. Bush administrations as part of this process. Previously he had said that he would work with the Republicans on tax issues in a spirit of bi-partisanship. Rangel’s hopes have proven illusory, withered by the fierce glare of electoral reality. And even a short-term fix of the AMT is going to leave a lot of blood on the carpet.

Link here.
Top Democrat pushes tax reform on 21st anniversary of Reagan tax cut – link.


Personal exemptions and standard deductions will rise, tax brackets will widen and workers will be able to save more for retirement in 2008, thanks to inflation adjustments announced by the IRS. The dollar amounts for a variety of tax provisions must be revised each year to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2008. Key changes affecting 2008 returns, filed by most taxpayers in early 2009, include the following:

Link here.


Although I am not yet eligible for Social Security, I am writing to thank you for your latest Cost of Living Adjustment (COLA) for recipients. I would never have believed you possessed the courage to bump the oldsters’ monthly payments by a paltry 2.3% – the smallest increase since 2004. You rock! Thanks to you, the typical retiree’s monthly payment will increase by just $24. If they don’t blow that on higher ticket prices in Branson, they will spend it on the gas to get there.

Which reminds me: Your timing was astonishing! You made this announcement just as oil prices were approaching $90 a barrel. A bold move! And get this: that same day, heating oil hit a record $2.75 in Massachusetts. That means aging Red Sox fans will be paying 17% more to keep their New England cottages cozy this winter. You really are the best.

And speaking of cottages, what do retirees most often complain about besides poorly lit parking? I will tell you what – property taxes. According to the Tax Foundation, median property taxes jumped almost 8% last year. Oh sure, the lucky ones live in areas that freeze property tax rates for seniors. But should they have to move – Gotcha! They have to pay taxes on their home’s current market value. Just another reason that your 2.3% COLA is 100% chutzpah.

And then there is the irony. You, a humongous government agency running a government program designed to help retirees, announce a 2.3% COLA. And then Medicare, another humongous government agency designed to help retirees, announces the very same month that it is charging 3.1% more for insurance premiums. Ouch! The hike reminds older folks that their inflation rate is much higher than the CPI that purports to measure inflation generally. And guess what? You do not care. Awesome!

Speaking of “awesome”, I have to congratulate you on how cleverly you play the COLA game. You get them from the Bureau of Labor Statistics. The BLS has rooms full of math whizzes working hard to come up with the COLAs for you. No matter how ridiculous the CPI sounds, no matter how much they jack with “hedonics” or mess around with the housing component, it is not your problem. Even that whole “steak prices are up so we are buying chicken” angle is not your doing – even if the next month’s calculation throws out the chicken component and substitutes cat food. You just implement whatever the number crunchers say and move on. Love it!

And the way you and the BLS are keeping the inflation rate for the elderly under your hats – remarkable! Oh yes, I know about the CPI-E, but I do not know much – as you intended! From their website, I can see that the BLS has estimated seniors’ cost of living increases over certain periods. But there does not seem to be any current data. For example, I cannot find a CPI-E number comparable to the 2.3% figure you used to adjust the COLA. Coincidence? Ha ha ha ha!

And I am not the only one who knows that COLAs are not keeping up with retirees’ living expenses. I mean there is a whole organization called the Senior Citizens League that has been shouting from the rooftops this very disconnect. They will tell you that people over 65 have lost 40% of their purchasing power since 2000. And they will remind you that Medicare Part B premiums will be up 93% vs. a COLA adjustment of 19% between 2001 and 2008.

OK, I know this letter is a bit confusing. Who after all, could favor short-changing the most vulnerable among us? Baby Boomers, that’s who! Listen, we want our Social Security too. And if you start taking care of the current generation now, taxpayers will get sick, sick, sick of rising FICA taxes by the time the biggest chunk of the Boomers switch from pay-inners to take-outers.

Now there is no hurry to do anything right away. Sure, I have a Very Big birthday in a couple of months, and then 10 minutes later I will find an invitation from the AARP in the mail. But it will be another 15 years before I am eligible for cheap movie tickets. For now, like my fellow Boomers, I have got more pressing problems, like where to shop for a flat screen HD television. So it is OK that you have been able to ignore the Senior Citizen League.

But we Boomers will not go so quietly. Can you even imagine what we Boomers will do if you toss us a 2.3% COLA with gasoline prices rising 9% a year? We won’t just sit around complaining at Luby’s! There will be emails. There will be letters. There will be aging rock stars on late night talk shows. Ribbons on bumpers. Marches on Washington. Heck, if you mess with us we will have a Yoga-thon on the Capitol Steps! Do you want to look out your window at 30,000 70-year olds in the downward dog pose? I did not think so.

So, you folks at the Social Security Administration, keep up the good work. And enjoy it while it lasts.

Link here.


For those worried about the effects of unearned wealth on would-be beneficiaries.

Maritime International Ltd. has designed a new Trust product for those who wish to pass on their values and not just their assets. This trust structure allows clients to specify the distribution of trust assets to children and others, on the basis of meeting specified criteria.

As the lifespan of the global population continues to increase and many parents are having children much later in life, this new Legacy Trust is designed for clients who wish to provide parental guidance to their children, even after death. Parents can now have the final word, “My Legacy, My Way”. According to Laura Mouck, Maritime International’s Director of Wealth Management, “Sometimes the free and unfettered acquisition of wealth by children upon the demise of their parents, can have disastrous results. The newspapers are full of such examples.”

Specific incentives, however, can be included in the wealth distribution process, to increase the likelihood of children achieving goals and showing initiative, teaching them that hard work and personal achievement are the standards you want them to have. The new “My Legacy, My Way” trust structure does not, for example, simply provide funds for the children’s education. Instead, on the client’s instructions, it provides distributions depending upon the level of the children’s achievement in higher education, plus other criteria, in order to give them the incentive to excel.

In other cases, a client may wish to encourage hard work and entrepreneurial skills. They could then include an annual distribution from the trust equal to or double that of his or her earned income for the previous year. If encouraging philanthropy and generosity to others is important to a client, each child could receive an annual distribution equal to or double the charitable contributions reported on their tax returns for the previous year. Other like provisions can be added to the client’s Letter Of Wishes, as limited only by the imagination of the individual and how he or she wants his or her legacy to live on.

Clients might also wish to restrict payments for what might be considered frivolous items, e.g., expensive sports cars, parties, or a ski chalet in the Alps. Ms. Mouck advises, “We have found that many clients do not wish their hard earned money frittered away, unnecessarily, in only one generation.”

Malcolm Nickerson, Managing Director of Maritime, says, “It sounds complicated, but it is not. ... It is just as crucial for people to determine what to do with their wealth, as it was deciding to save, accumulate and invest it. They can leave a real, lasting and useful legacy to their heirs. The choice is theirs. Even if parents are no longer physically there, they can still help shape the future of their children and instill the values that will ultimately guide them to becoming self sufficient independent individuals who can find their own successful path in life.”

Link here.


Bound by debt and obligation, the serf of old eked out his living, toiling long and hard for the basic necessities of life, having little to show for his work beyond making it through another day, another week, another month. In the medieval era, his debt and obligation were inherited by the next generation, who would also toil in serfdom.

Today, too, in the 21st century, many are mired in debt – mortgages, credit card debt, consumer debt, etc. However, it is not only their own debt that they have to contend with. The lords of our manor, the president and congress, have run up and foisted upon us a debt so vast that it will be inherited not only by our children, but also our children’s children. Welcome to 21st century serfdom.

The burden of debt that all too many are staggering beneath today is a multi-faceted problem that goes far beyond simple debt management. The financial decisions that have helped to create the degree of personal debt that many struggle with today have been influenced by the shift in the economy as a whole, as well as by the societal and cultural changes that accompanied that shift.

The foundation upon which personal finance decisions are made has changed for many people. With the rise of a consumerism-based economy, came significant changes in the perception of what is essential, as well as a marked movement away from traditional ideas concerning what is worth going into debt over.

“Mass production required mass consumption, and at the turn of the twentieth century most Americans considered it both unnatural and unwise to buy things they didn’t actually need,” wrote John Taylor Gatto. By the turn of the 21st century, with the help of skilled mass-marketing and substandard public education infused with social engineering seemingly designed to create “not only a harmless electorate and a servile labor force but also a virtual herd of mindless consumers,” concepts of productive debt and consumptive debt faded away, along with the line that separates needs from wants, to be replaced with an “I’m worth it”, instant gratification, buy now-pay later sort of hyper-consumerism.

Even such fundamental purchases as the family home have been affected by this shift in perception. The size of new homes built since the 1900’s has increased, expanding right along with people’s perceptions of what they need, while family size has decreased. In the past it would have been viewed as financially wiser to take a mortgage for a home that meets the needs, while saving to purchase the home that meets the wants. The wisdom of that is made clear by the current mortgage and lending meltdown and the foreclosure crisis.

The results of such changes have not been good for many. Personal savings rates are low, and have been for quite some time now, dipping into negative numbers for periods of time that have not been seen since the Great Depression.

With the struggle to pay day-to-day living expenses, the mortgage, and debt, many work long hours and have nothing to show for it beyond making through another pay period. Many work daily at jobs they hate, but cannot leave, because they cannot afford a cut in pay or benefits. Still others are trapped in a region that has a depressed job market, but cannot strike out for greener pastures, as they have a house that cannot be sold for what they still owe on it, and cannot afford to take the loss. Many people today are living lives that do not differ that much from the conditions that defined the lives of serfs.

In addition to personal debt, there is the national debt, which currently stands at more than $9 trillion and continues to rise. Right now, each citizen’s share of the national debt is just under $30,000. The government makes the debt, often with little regard for what the citizenry think about what the money is being spent on, and takes the money to pay that debt from the citizen. It is a fine thing to be lord of the manor or a vassal. The president and congress have the best of everything. Like state and local representatives, they have quality health care, while the citizens struggle to find the money for health insurance. They have great retirement plans, funded by citizens who will be counting pennies and choosing between medicine and food during their senior years.

Like the serfs centuries ago, our future generations will come into this world with debt imposed upon them, and will be obliged to pay a significant portion of the monies they eventually derive from their labor to the lord of the manor and his numerous vassals. Our children will be born owing money, as responsibility for the $9 trillion debt – growing with no end in sight – is shifted to them.

While there is not much the average person can do about the national debt, it is possible to rise above serf-like conditions by reverting to the sort of fiscal perspective that will help achieve freedom from debt. Recognize the difference between wants and needs, between consumptive debt and productive debt, and be disciplined about paying down old debt and setting aside a portion of income for savings. Making smart money choices can fund freedom, allowing the individual to do more than just barely make it from paycheck to paycheck.

Link here.


Prosecutor wants them jailed and to seize their assets.

A 51-year-old man from Latvia and his 48-year-old wife may be sent to jail for over seven years for forgery and money laundering. The prosecutor considered it proven that they had laundered at least $11 million, he said during their trial.

Prosecutor Maarten Hemelaar further stated that a separate financial investigation had been launched to seize the suspects’ assets, because these could have been obtained through criminal activities. He requested the judge to confiscate $6.6 million, real estate, three cars – including a Hummer and a BMW, a $500,000 boat, and jewelry.

The couple, who were convicted in Canada of using false passports in 2000 and flown in from Curaçao where they had been detained, were charged with five crimes: the use of false documents, possession of false passports, forgery, money laundering and the possession of firearms. They came to St. Maarten in November 2001. They obtained a temporary residence permit while allegedly making use of false (travel) documents and false identities, the prosecutor stated. “They tried to start a new life here under a false name,” Hemelaar said.

He also accused them of having used forged certificates of deposit, bank statements, letters and other documents of three Canadian banks. These documents were used between January 2002 and June 2007 to launder large sums of money, $6,660,600 and €1,374,722. This was a smooth operation of an “incredible dimension,” the prosecutor said. “The money came in and the documents went out, and vice versa.” Both suspects were also found in the possession of firearms with ammunition.

The prosecutor sought to support his case with evidence that had been compiled through wiretapped telephone conversations, e-mail messages and confiscated documents. The Latvians maintained their innocence, stating they had not made the travel documents themselves, but had obtained them through an agency.

Judge Rick Smid, who presided over the case, questioned this statement, because to his knowledge passports could only be obtained legally via the civil registry, an embassy or the courts, “but not on the streets.” He further found it remarkable that in the suspects’ house were found not only false passports, but also stamps that were used to print false entry stamps in the travel documents.

The defense attorney, Eldon Sulvaran, stated that forgery and money laundering could not be proven. “This case is based on assumptions,” he said, contending that not even the Canadian banks had filed complaints against his clients. He further stated that the Prosecutor’s Office had violated the law in 11 aspects in its case against his clients. Their detention and treatment were “illegitimate and inhumane,” Sulvaran said. According to him, this could only lead to the court declaring the prosecutor’s case against his clients inadmissible. Sulvaran further indicated that the financial claim against his clients was too high, telling the court that his clients had already been wealthy when they arrived on the island and he therefore requested limiting the amount of seized assets to $4 million. The judge will give his decision on November 7.

Link here.


Americans had best rethink the “war on terror” while they still have the liberty to do so.

For all of President Bush’s blah-blah talk about bringing democracy to the world, the Bush administration has proved that it is no friend of liberty at home. The Bush administration has violated constitutional principles, U.S. law, and the Geneva Conventions as no previous administration has done. Here is a short list of the Bush administration’s crimes:

The Bush administration has even conducted Stalinist show trials against innocent Muslim charities as part of its propaganda to make the American people fearful that they are surrounded by hostile terrorists. While committing these unprecedented crimes, President Bush has claimed the moral high ground despite having lied to the American people and despite devastating two countries in the name of “making the world safe from terrorists.” When people in Iraq and Afghanistan are asked who are the terrorists, they answer that it is the Americans.

The Bush administration has not been held accountable for any of its crimes. By failing to hold government accountable to law, the Constitution, and the American people, the opposition party and the corporate media have abandoned their responsibility to protect freedom and democracy in the U.S. There can be no democracy where there is no government accountability, and there is no government accountability in the U.S. – except, of course, to the Israel Lobby.

Now the Bush administration wants to take away the American people’s freedom to travel within their own country by airplane. Not content with an 80,000 “no-fly” list, a subset of a 500–750,000 “watch list”, the TSA has proposed new rules that will require Americans to get government permission 72 hours in advance prior to being allowed to board a domestic flight. The TSA justifies this extraordinary violation of our constitutional rights on the grounds that 90% to 93% of all travel reservations are final by then.

So what?! And what of the 7-10% of flights that the TSA estimates are not on the books 72 hours in advance? These are family emergencies and critical business deals. What does the TSA care if a member of your family dies while you await the government’s permission to fly? Any agency of the government that can propose such a tyrannical regulation should be abolished. The TSA’s mentality shows it to be a far greater threat to Americans than are terrorists.

Even without the “permission to fly” rule, the TSA’s practices are ridiculous and unjustified. The confiscation of toothpaste and unopened bottles of perfume, the harassment of U.S. military officers in uniform, the harassment of old people struggling with their walkers, of mothers struggling with small children – none of this makes any sense except in terms of getting Americans accustomed to harassment as a citizen’s duty to government and to train a cadre to conduct warrantless searches of fellow citizens.

The no-fly list itself is absurd. If a known terrorist were to show up at an airport, he would be arrested, not refused permission to fly. Anyone else who can clear security like other passengers has every right to fly. Set aside the violation of the Constitution and the Soviet-style tyranny of the loss of the freedom to travel and consider merely the practical aspect of the proposal. What American wants his travel plans dependent on a government bureaucracy capable of putting U.S. Senator Ted Kennedy on the “no-fly” list and capable of issuing U.S. visas to two of the alleged 9-11 hijackers six months after they allegedly died in the 9/11 events?

If we believe the official story, 9-11 itself reveals a government totally devoid of any competence whatsoever. The “war on terror” is fraudulent. The cruel war and the deceptive vocabulary that protects it are a cover for expanding U.S. and Israeli hegemony in the Middle East and for constructing a functioning police state at home. A country in which people cannot make airline reservations without the government’s permission is not a free country.

Link here.


It would politically inconvenience too many stakeholders.

The daily page of the Liestoppers blog says it all. The time it has taken Roy Cooper to start a criminal investigation: 124 Days, 19 Hours, 28 Minutes, 49 Seconds and counting. The clock ticks continuously, and by the time readers see this, more time will elapse. In fact, the clock might as well tick forever, for there will not be any criminal investigation at all, not from the State of North Carolina, and certainly not from the federal government. None.

The irony, of course, is that a year ago, the State of North Carolina was sparing no expense to prosecute rape, kidnapping, and sexual assault charges against Reade Seligmann, Collin Finnerty, and David Evans, despite the fact that everyone involved in the case, from police to prosecutors to attorneys knew beyond a doubt that the charges were bogus. The CBS show 60 Minutes already had eviscerated the charges in a broadcast, bloggers like K.C. Johnson were shredding the credibility of Nifong and his Duke University and Durham supporters, and Nifong already had lied to judges about evidence that would be exposed at the December 15, 2006, hearing. Charges from the state bar would soon follow, and Nifong finally would be disbarred in June 2007.

Attorneys for the players, and bloggers and journalists covering the case already have exposed a number of crimes and outright lies committed by police and prosecutors. For those few who still might have doubts about the open and unabashed lawbreaking that occurred, the civil suit (PDF) that the three families have filed against Durham and Nifong is an eye-opener. In short, if ever there were a dishonest and malicious prosecution, this is it.

Yet, despite the fact that much criminal behavior already has been exposed, and the lawsuit is likely to expose even more of the same, the criminal authorities are not interested. The reason is not that authorities would have a difficult case. Indeed, all that has been uncovered in official venues alone is enough to establish a massive criminal conspiracy.

The reason is simple – the politics of race. ... I doubt seriously that there will be criminal cases of any kind in the Duke case. If there is to be legal relief, it will be in the civil arena, and those who committed crimes will be permitted to go on as though nothing ever happened. In the end, the police state triumphs – again.

Link here.


A couple of years ago, the Linux desktop was a pimply adolescent with half-baked ideas. Today we see a handsome, well-dressed grown-up who handles a range of tasks with confidence and even performs fancy tricks. No longer need we make allowances for his dress sense or his strange habits.

The timing could not be better. Vista is a Wagner Opera that is usually late to start, takes too long to finish, and is spoilt by floorboards creaking under the weight of the cast. Mac OS X Leopard, meanwhile, is the late show in an exclusive nightclub where the drinks are always too expensive. In contrast, the Linux desktop is the free show in the park across the street – it imposes some discomforts on the audience, but provides plenty of entertainment.

The first challenge is getting hold of tickets, since you cannot just choose your new PC and then tick the Linux box in the list of software options. The good news is that installing Linux is no longer a challenge that rivals splitting the atom. With a handful of mature distributions designed for simple users, the benefits Linux offers are much easier to verify. And there are plenty:

  1. Cost – Linux is free, and that includes all the apps. Vista Home Premium and Ultimate cost hundreds of dollars, even when upgrading from Windows XP. Moving up to Office 2007 involves handing over another bundle of dollars.
  2. Resources – Even the most lavishly equipped Linux distros demand no more resources than Windows XP. A single-user PC operating system needs 2GB of RAM to run Vista at an acceptable speed, and 15GB of hard disk space. This is grossly obese.
  3. Performance – Linux worked faster on my Dell Inspiron Core Duo than XP, at least the way XP worked out of the box. After cleaning out the bloatware and trading McAfee’s Abrams Tank for the lightweight NOD32, XP and Linux (with Guarddog and Clam-AV) perform at similar speed.
  4. No bloatware – Linux is free from adware, trialware, shovelware, and bloatware.
  5. Security – Last year, 48,000 new virus signatures were documented for Windows, compared to 40 for Linux. Still, most distros come with (free) firewalls and antivirus (AV) software.
  6. Dual booting – The best Linux distros make dual booting a simple affair, along with the required disk partitioning software. Windows on my Dell laptop is still intact after installing and uninstalling a dozen distros.
  7. Installation – Installing Windows from scratch takes hours or even days by the time you get all your apps up and running. With Linux, it can take as little as half an hour to install the OS, utilities, and a full set of applications. No registration or activation is required, no paperwork, and no excruciating pack drill.
  8. Reinstalling the OS – You cannot just download an updated version of Windows. You have to use the CD that came with your PC and download all the patches Microsoft has issued since the CD was made. With Linux, you simply download the latest version of your distro (no questions asked) and, assuming your data files live in a separate disk partition, there is no need to reinstall them. You only need to re-install the extra programs you added to the ones that came with the distro.
  9. Keeping track of software – Like most Windows users, I have a shelf full of software CDs and keep a little book with serial numbers under my bed in case I have to reinstall the lot. With Linux, there are no serial numbers or passwords to lose or worry about.
  10. Updating software – Linux updates all the software on your system whenever updates are available online, including all applications programs. Microsoft does that for Windows software but you have to update each program you have added from other sources. Linux does not ask you to reboot after updates. XP nags you every 10 minutes until you curse and reboot your machine.
  11. More security – These days, operating systems are less vulnerable than the applications that run on them. Therefore a vital aspect of PC security is keeping your apps up-to-date with the latest security patches. That is hard manual labor in Windows. With Linux it is automatic.
  12. No need to defrag disks – Linux uses different file systems that do not need defragging. NTFS was going to be replaced in Vista. Instead, Vista does scheduled disk defragging by default, but the defrag utility is a sad affair.
  13. A wealth of built-in utilities – The utilities supplied with Windows are pretty ordinary on the whole. That is why so many small software firms have made a nice living writing better ones. Linux programs are comparable with the best Windows freeware, from CD burners to photo managers, memory monitors and disk utilities.

Of the distros designed for users who are not up to command line acrobatics, SimplyMepis impressed me the most. It crept up on me over time. The install is swift and well-done, the partitioning as clear as a spring day, and hardware recognition automatic. The apps are a well-judged collection, and everything else is where you would expect to find it.

Most Linux distros are assembled from the same pool of raw materials, and the differences are either cosmetic or found in the choice of programs. Some of the software that comes with Mepis is not the latest but it will be the most stable version. That will not appeal to the geeks dying to savor the latest creations from the Linux kitchen, but Mepis is not for thrill-seekers. It is made for workers, and everything here works like the gearwheels in a Swiss chronometer. The road from Windows to Linux is now mostly sealed, with only a few rough patches left. You can see your Windows partition in Home > Storage Media, open Windows files, and even write back to them.

For most users, OpenOffice is compatible enough with Word, Excel, and Powerpoint. The font set in the Writer is pretty mean but can be made more generous by installing MS core fonts with Synaptic. Still, fonts are the elephant in the Linux room, admittedly. More work needs to be done here. With Desktop Publishing, Scribus cannot open Publisher files. Other than that, Scribus will do most of the things Publisher does, Evolution is more than a match for Outlook, and Firefox makes Internet Explorer 7 look stale. ShowFoto is as slick as any photo editor I have used on XP, digikam is a great photo organizer, and the Linux multi-media apps lack nothing.

If you prefer Opera to Firefox, or XnView for working with photos, you just tick the box in Synaptic and it will provide. More specialized apps like Inkscape or Blender are just a few Synaptic clicks away. The Gimp is already installed; it has a reputation for being hard to use but who would argue that Adobe Photoshop is not? There are 15,000 apps that run on Linux. That they are generally free does not mean they are not up-to-scratch, but, like the thousands of apps available for Windows, the quality varies.

SimplyMepis makes it easy to travel through this unfamiliar terrain. Mepis does no single thing better than the other Linux distros designed for simple users, yet it does not lack anything in comparison, either. What won me over to Mepis was the whole experience, from the seamless way everything fits together to the astute selection of apps and dozens of nifty utilities, supported by rock solid performance. It is the kind of performance that would easily win more PC users over to Linux ... if only they knew.

By the time Vista’s Service pack 1 is released late this year, version 7 of SimplyMepis will be ready. I know that the new operating system will take about as long to install as the set of fixes supplied by Microsoft to make Vista behave. It is that good, and it is that simple.

Link here.


As the author of the recent publication, “Emerging Clinical Applications for Cannabis and Cannabinoids: A Review of the Scientific Literature”, I take umbrage with those politicians and law enforcement officials who argue, “Smoked marijuana is not medicine.” This allegation – most recently asserted on the DEA’s new website – is false, plain and simple.

While writing my publication, I reviewed over 150 clinical and preclinical studies assessing the therapeutic value of cannabis and its active compounds to treat symptoms – and in some cases moderate disease progression – in a variety of illness, including multiple sclerosis, Alzheimer’s, osteoporosis, diabetes, and Lou Gehrig’s disease. Nearly all of the studies cited in my work were published within the past six years. Additional scientific studies are being published in peer-reviewed journals every day.

Can the DEA please name another plant with the power to achieve all that has been demonstrated? Finally, unlike most politicians and law enforcement officials, I frequently interact with medical marijuana patients. Many of them write to me daily, as do their physicians. Often they tell me stories like this:

“I was recently diagnosed with a malignant brain tumor inside the left temporal lobe of my brain. I had surgery, and I’ve just started chemotherapy and radiation. The surgeon actually apologized for the fact that he could not write me a prescription for marijuana, but he told me it was safe to smoke. My prescriptions make me very dizzy and nauseous and I have ever-present headaches that top any of the worst hangover headaches anyone could possibly have. My brain is still so badly swollen. The swelling has actually gotten worse and is exacerbated by the radiation. Marijuana is saving my life right now; it has helped to kill my seizures, nausea, dizziness, and calm my headaches. If marijuana can help me with all my other problems in addition to possibly reducing the size of my tumor and extending my life, then why on earth would our government not allow me to have it?”

Why indeed? Perhaps it is time for the DEA to “just think twice.”

Link here.
The drug czar is required by law to lie – link.
Legalize all drugs, says U.K. chief constable – link.

Opposition to war on drugs goes mainstream.

There is an old saying: nothing is certain in life but death, taxes, and the war on drugs. Okay, I added that last bit, but the drug war sure does seem to have become a permanent fixture in our lives – a war that is never won, but never abandoned either. Still, as the drug war rages on in spite of its dismal failures, there are some hopeful signs that opposition to prohibition is gaining traction. It may have been a long time coming, but opposition to the drug war is finally going mainstream.

What we supporters of legalization might not realize – and will be pleased to learn – is that U.S. hegemony in drug control is being challenged. All over the world, apparently, governments are becoming more and more reluctant to toe the American drug-war line. The EU, Latin America, China and Southeast Asia are all increasingly following their own, less prohibitionist paths. Even in Iran, Ethan Nadelmann writes in Foreign Policy, the ayatollah in charge of the Ministry of Justice has declared that methadone maintenance and syringe-exchange programs are compatible with sharia law. Nadelmann then quips, “One only wishes his American counterpart were comparably enlightened.”

Supporters of prohibition sometimes claim that drug users help support terrorism. Nadelmann explains that, on the contrary, by driving out legitimate businessmen and driving up prices, it is prohibition that helps criminals, terrorists, and corrupt government officials. Who, he asks, would benefit if the U.S. and NATO were somehow to succeed in their Quixotic quest to eliminate opium production in Afghanistan. “Only the Taliban, warlords, and other black-market entrepreneurs whose stockpiles of opium would skyrocket in value.”

Link here.


As the quid pro quo for allowing the U.S. to keep using an air base on Ecuador’s Pacific coast.

Ecuador’s leftist President Rafael Correa said Washington must let him open a military base in Miami if the U.S. wants to keep using an air base on Ecuador’s Pacific coast. Correa has refused to renew Washington’s lease on the Manta air base, set to expire in 2009. U.S. officials say it is vital for counter-narcotics surveillance operations on Pacific drug-running routes.

“We’ll renew the base on one condition: that they let us put a base in Miami – an Ecuadorean base,” Correa said in an interview during a trip to Italy. “If there’s no problem having foreign soldiers on a country’s soil, surely they’ll let us have an Ecuadorean base in the United States.”

The U.S. embassy to Ecuador says on its Web site that anti-narcotics flights from Manta gathered information behind more than 60% of illegal drug seizures on the high seas of the Eastern Pacific last year. Correa, a popular leftist economist, had promised to cut off his arm before extending the lease that ends in 2009 and has called U.S. President George W. Bush a “dimwit”. But Correa, an ally of Venezuelan President Hugo Chavez, said he believed relations with the United States were “excellent” despite the base closing.

Link here.
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