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Why would anyone want to move to an obscure place like Belize? In this article I hope to introduce the reader to Belize and will outline why we find it to be one of the most enchanting, inexpensive, and unique places to live. We moved to Belize from Southern California in the late 1980s.
Belize is a Central America nation, nestled right below the Yucatan, Mexico – its border to the north. On the south and west, it is bordered by Guatemala. The Caribbean Sea is to its east, giving Belize 174 miles of coastline. Belize is about 250 miles south of Cancun, Mexico. About the size of the state of Massachusetts, it has a land mass of 8,866 square miles of territory, including 266 square miles of islands.
Belize was a British colony known as British Honduras for more than a century. It became a self-governing colony in January 1964 and it was renamed Belize on June 1, 1973. It became fully independent in 1981. Belize considers itself to be culturally both Caribbean and Central American. Belize has a parliamentary form of government, like England, with a prime minister at the helm and it operates under the English common law legal system.
Belize is much like a Central American Switzerland. It does not go to war and does not get involved with the problems its neighbors have suffered over the years. There has never been a war in Belize. While civil wars raged in Guatemala, El Salvador and Nicaragua, Belize remained untouched. With a population of about 300,000, Belize has the lowest population density in the Central American region, and one of the lowest in the world.
According to the most recent vegetation surveys, about 60% of Belize’s land mass is forested, with only about 20% subject to human uses. Savannas, scrublands and wetlands constitute extensive parts of the nation’s land cover. As a result, Belize’s biodiversity, both marine and terrestrial, is rich with a host of flora and fauna.
About 37% of Belize’s land territory falls under some form of official protected status. As such, conservation activities remain an important priority in government policy. Belize is best known for its marine environment, in particular, for having the longest living barrier reef in the western hemisphere and the second longest contiguous reef in the world, after Australia. As a consequence of its medley of cultural attractions, unique marine and terrestrial biodiversity, and conservation efforts, Belize is fast becoming a hotspot for travelers seeking ecotourism and adventure vacation experiences.
Agriculture and tourism are the backbone of Belize’s economy. Sugar cane exported to the U.S. is the biggest crop, with bananas to the UK a close second and citrus following that. Seafood is also a big export. The 2006 GDP of Belize was US$2.3 billion. The Belize dollar is pegged to the U.S. dollar at BZ$2=US$1. The currency has never been devalued.
Public education in Belize is compulsory to age 14. Schools in Belize are more strict than the U.S. Students adhere to a dress and grooming code and wear uniforms daily. Most of the public schools in Belize have a religious affiliation and charge a monthly fee of around $15. Some private schools are also available at varying costs. A number of ex-pat families home school their children. The University of Belize has satellite campuses around the country and offers various 4 year degree programs.
There are several major international airlines serving Belize. These airlines operate to and from several U.S. gateways in Dallas, Houston, Miami, Charlotte and Atlanta. Flights are nonstop and take under 3 hours. For the more adventurous, Belize is accessible by road and is approximately 1,350 miles from Brownsville, Texas.
Belize is the only English speaking country in Central America, due to its history as a British colony. So all the schools teach in English, the banks use English, all government forms, as well as road signs are in English. Spanish, Garifuna and Maya are secondary languages spoken in various parts of the country, as well as Low German which is spoken in the Mennonite communities. Many Belizeans are multilingual, but all speak English. You can get along just fine with English alone, but you will have opportunity to learn another language if you want to.
Belize’s legal system is based on English Common Law, not the Napoleonic Code like Mexico and other Latin American and European countries. Belize is still measuring in pounds, ounces and miles rather than liters, grams and kilometers. All of these factors help to make Belize seem not so foreign and certainly make it easier to adapt to as a second or new home.
In Belize things are laid back – way back. It is a fabulous place to just relax. No one is in a hurry to do anything – ever. It is called “Belize Time” and everything in the country runs on it. Many find that the slow pace in Belize is just their speed. They, possibly for the first time in their lives, completely unwind and enjoy life.
The average year round temperature in Belize is a balmy 79 degrees. Homes in Belize do not have insulation or heating systems, because it never gets cold. The sun shines virtually everyday of the year. On the other hand, there is really no need to cool your home with air-conditioning either, for if your house is built right, the breeze coming off the Caribbean will do that for you.
Apart from having unbelievably clean air and water, it is very easy to have a healthy lifestyle in Belize. Increased exercise and activity come naturally when one walks or rides a bicycle to most of the places they need to go. Year-round ocean swimming will be such a pleasure you will not think of it as a prescription from the doctor. Simpler, healthier, unprocessed foods, such as fresh fish and tropical fruits, are abundant in Belize. We have seen many a gringo drop 30 pounds quite effortlessly after moving to Belize.
In Belize, all medical and dental treatment is first world, highly affordable and always accessible. Even free medical care is available to you as a foreigner through Belize’s socialized medicine system. Medical insurance is available and very reasonably priced.
A very inexpensive place to live.
It is generally said that Belize has the lowest cost of living in the Caribbean. You can enjoy a high standard of living on a small amount of money. A couple can still get by living on $1000 a month in Belize. That is for the basics. You will enjoy the same sea and sun on any amount.
Prices in Belize are very stable. In recent years, the annual rate of inflation has been around 2.8%. Many prices on goods and services have stayed the same and some are even going down. Living on or very near the ocean does not have to be expensive in Belize. Likewise with having a maid or a gardener. Insurance of all types and taxes are very low. U.S. cable TV, up to 85 channels, is about $15-$20 a month in Belize. Some foods considered high priced gourmet items back in the State are inexpensive in Belize.
Belize has an excellent telephone system. It is a state-of-the-art fiber-optic network that was a going away present from England when Belize got independence. You can call Belize from anywhere in the world and vice versa and have an excellent connection. And, you can get high speed internet in Belize.
Belize has an excellent postal service, based on the English postal system. There are daily mail shipments between Belize and Miami. You can usually expect to get mail from the U.S. about a week to a week and a half after it is mailed. This is phenomenal considering the track record of Latin America countries on a whole, where sending and receiving mail is akin to dropping it into an intergalactic black hole.
True personal freedom.
In Belize you can enjoy true personal freedom. ... The kind that is evaporating back “home”. In a time when many living in developed countries feel they are losing freedoms and rights, a country like Belize may be just what they are looking for. There are no bans on smoking (which may or may not appeal to you), there are no restrictions on what you can or cannot build, and you only need a permit to build if you are within city limits, and then the permit is free. You do not need a fishing license, unless you plan to fish commercially. You can light a bonfire anytime you like. You can also buy medication without a prescription. Gringos living in Belize feel a sense of freedom they did not have back home, and describe the government as unobtrusive.
Belize offers Permanent Residency status to foreigners from almost any country. The cost is $1,200 for a couple and it takes just one year of living in Belize to qualify. One can live in Belize full or part time without giving up their present citizenship. With Belizean Permanent Residency you have all the rights of a Belizean citizen, except the right to vote or serve in the military. After 5 years of being a Permanent resident you have the right to become a citizen of Belize, and get a second passport, should you desire to, at a cost of only $150.
Unlike Mexico and several other countries, as a foreigner in Belize, you can buy land and, yes, you can own it outright with fully marketable title! It is in your name. You can pass it on to your heirs. Also, the government of Belize will give you land practically free! Once you receive Permanant Residency, you can apply for a piece of land from the government for as little as $17.50 (not a typo!) a year.
Taxes are low, and in some cases non-existent, in Belize. As a foreigner, you will be exempt from paying income tax in Belize on your income from abroad, regardless of its source. Within Belize there is no inheritance tax and no capital gains tax. Property taxes are low at 1% of the value of the undeveloped property.
Belize has been called an entrepreneur’s paradise. There are very few restrictions on what you can do and how or where you can do it. Starting a business can be very simple and inexpensive in Belize. There is a sense of freedom in Belize not found many places nowadays, where red tape can choke off your dreams. While either permanent residency status or a work permit is required to work in Belize, both are far simpler and less expensive to get in Belize than many other places. Depending on what type of work you do, a work permit can cost from $25-$500 a year.
Living in Belize is not only inexpensive, it is exciting and interesting. There are thousands of reasons, most centering on Belize’s rich, natural wonderland, replete with unspoiled scenery and an endless variety of fauna and flora, its numerous archeological sites, its lush rainforest, the world’s second longest barrier reef, and its thousand foot waterfalls.
Belize is a society based on relationships, where everyone knows their neighbors and it seems like everyone is each other’s friend. After living in Belize, we became aware of how insolated people are in other parts of the world, which sadly makes for a very lonely existence. Not so in Belize, people are for the most part friendly and open, and you will have as many friends as you want.
Belize is definitely a “no shirt, no shoes, no problem” kind of place. gone is the obsession with physical appearance, fashion and weight. Most women in Belize wear little or no makeup and laugh at the thought of cosmetic surgery. Belizeans accept everyone as is, warts and all, and everyone is accorded the personal dignity they deserve irrespective of shape, size or color.
This list is by no means complete but it gives you an idea of why we love living in Belize. Life in Belize is not perfect, by any means, but it does offer more of the values and aspects of life that we and many others consider to be important ... things that are sadly vanishing from many places. Yes, sometimes it takes longer than we would like to get things done, and sometimes it is frustrating not to be able to get exactly what you want at the moment you want it, but we will gladly accept those inconveniences in exchange to living anywhere else.
(Article writers Bill and Claire Gray are the authors of Belize Retirement Guide: How to Live in a Tropical Paradise on $450 a Month as well as numerous special reports and articles on Belize. More information and contact points are available here.)Link here.
IMF concludes Article IV Consultation with Belize.
An IMF mission headed by Przemek Gajdeczka, Advisor in the IMF’s Western Hemisphere Department, issued a statement, following the conclusion of discussions in Belize City.
“Economic growth was boosted in 2006 by new oil discoveries and strong exports and, following a debt restructuring of early 2007, near-term macroeconomic prospects are broadly favorable,” the statement said. “The economy is projected to grow by 2 1/4 percent in 2007, and inflation is expected at 3 percent. For 2008, real GDP growth is projected at about 3 percent, and inflation is expected to ease to 2 1/2 percent.
“The successful implementation of the General Sales Tax boosted government revenue, although the fiscal deficit in the fiscal year ending March 2008 is projected to be somewhat larger than originally targeted. International reserves have remained broadly unchanged since last year.”
The statement continued, “The discussions centered on macroeconomic policies needed to reduce fiscal and external vulnerabilities. It was recognized that, although the debt agreement of early 2007 had provided substantial liquidity relief, Belize’s high debt, vulnerable budget position and low reserves could affect financial stability and growth. ...
“The IMF team supported the recent measures by the Central Bank of Belize to control domestic liquidity, and encouraged early introduction of market-based instruments of monetary management. These reforms combined with tight financial policies would support a gradual build-up of international reserves, which remain low by international standards.”Link here.
AN INTRODUCTION TO “CO-RELO” OR CORPORATE RELOCATION
For most avid observers, the news that many corporations are relocating some or all of their operations out of North America is hardly earthshaking. After all, who could forget Haliburton’s overnight announcement last March that it was moving its headquarter out of Houston. Or 3M’s mid-June announcement that it, too, was heading offshore. Or Pfizer’s recent announcement that it was closing plants onshore and doubling its offshore presence?
But those were just the harbinger of things to come. Top business analysts are now predicting that within the next few years, that co-relo trickle could quickly become a torrent. “Near-sourcing” in the Caribbean Basin has become a major growth industry. Caribbean Property Magazine intends to keep you informed as the story unfolds.
Offshore Times recently reported, “Call centers – the best-tracked segment of the outsourcing industry – have grown an average of 54% a year in the Caribbean since 2002 ... And near-sourcing proponents see the offshore movement getting a large boost with the implementation of CAFTA, a landmark trade treaty designed to lift business restrictions among the United States, Central America, and the Dominican Republic.”
What is the attraction? That is easy. As the accompanying articles disclose, virtually every country in the Caribbean now has unprecedented “Free Trade Zones” (all of Honduras is a FTZ). And the benefits are literally out of this world for companies currently operating north of the Rio Grande, including:
No wonder the list of companies moving all or part of their operations to the Caribbean Basin is growing exponentially. They are joining such well-established offshore manufacturers as Motorola, Panasonic, Levi Strauss, Hanes, Rawlings, Siemans, Hitachi, GTE Sylvania, and Intel. The trickle is, indeed, becoming a torrent.
The relocation revolution provides win-win opportunities for everyone involved. As both real and “virtual citizens” of the Caribbean, we are always concerned about the residents of the countries we write and read about. For the peoples of Honduras, Costa Rica, Dominican Republic, Panama, Trinidad & Tobago, and elsewhere, corporate relocation means higher wages, better working conditions, and a chance to learn new and marketable skills. For the companies relocating, the move means more competitive pricing, new markets, and the chance to reinvest profits in corporate growth and innovation.
As one Maryland furniture maker recently explained, “With the escalating wages, red tape, and onerous regulations here, I simply have to look elsewhere. It is either that, or shut down completely. Now, I have a choice.”
For you, co-relo means renewed opportunities to look to the Caribbean not only for a better lifestyle at lower prices – but also for high-level management or consulting positions with the plethora of new companies now setting up shop. We will keep you abreast of the breaking developments that will help you keep your options open.Link here.
EMERGING MARKET STOCKS THE NEXT BUBBLE?
Where to find the next market meltdown? Perhaps half a world away. Some fund managers believe that emerging market stocks, which have provided great returns (39.5% annually since 2002), are perilously overvalued.
No question, countries like China, India, Brazil and Russia are growing much faster than the developed world and are likely to do so for a while. But there are worrisome signs that the run-up is fueled, in part, by just the sort of speculative money that typically presages a collapse. Foreign direct investment is still cascading into these countries – $213 billion this year by one estimate. Total assets under management for emerging markets hedge funds jumped 8-fold in the four years through September to $269.5 billion, Lipper estimates. Even that lowballs the true amount by $50 billion or so, reckons Lipper senior analyst Ferenc Sanderson, given that global and other hedge funds are also dumping money into these regions.
Mutual fund firms, never ones to pass up an investing frenzy, have been diving in as well. Five years ago there was but one fund newly set up to target the sector. This year there are 16, says Morningstar. Individuals doubled their mutual fund bets in emerging markets last year to $11 billion, says AMG Data Services.
“This is strongly reminiscent of the flows into technology in late 1999 and early 2000,” worries Robert Adler, AMG’s president. Of concern, too, is how much of the recent years’ stellar returns have been the result of the expansion of price multiples rather than of earnings. Since bottoming out six years ago, the price/earnings ratio of Morgan Stanley’s emerging market stock index has climbed 70% to 18.5, just ahead of the S&P 500’s multiple.
But look a little closer. The price/sales ratio in emerging market stocks is roughly 120% higher than the same measure in developed economies. That means, if P/Es are about the same, profit margins in emerging markets are twice again as high as in developed ones. The obvious risk here is that profit margins in emerging markets will decline to global average levels as new competition surfaces, says Robert Arnott, chairman of fund manager Research Affiliates. “These stocks have soared beyond reason,” he says. Among the most vulnerable are stocks in China, the Czech Republic, Colombia and Morocco.
What could trigger a collapse? A market bust and recession in the U.S., which together were enough to trip up emerging markets six years ago. Or credit tightening in China, political instability in Turkey or inflation in Brazil. Any of these might prompt Western investors to repatriate their cash. There is nothing like an overseas crisis to make a little turmoil at home seem rather tame.Link here.
To global mutual fund managers, boring Switzerland is in and exciting China is out.
Old Europe? Japan? Canada? These are not the sexy places nowadays for international investors. But Clyde McGregor and Robert Taylor, deft managers of overseas plays, tilt their holdings toward boring developed nations.
Since its 1999 inception, their $3.1 billion Oakmark Global Fund has outperformed the benchmark tracking these old, un-sexy, standbys, MSCI EAFE, 18% to 8% annually. What is more, they have bested the MSCI World index (up 6% annually in the period), which ropes in every square inch on earth.
McGregor and Taylor find a lot of value in large corporations in well-settled nations (see table). They are put off by what they see in emerging markets like India with its high tariffs and China with its overbearing governmental control – to say nothing of insane stock prices in those places.
They do careful, old-fashioned analytic work, often calculating separate values for parts of a big company. They insist that they are not wedded to their large-company weighting forever. “If we all of a sudden thought Brazil had 100 great ideas, we would find some room for them in the portfolio,” says McGregor.
A year ago they developed a fondness for Daimler, while it still owned Chrysler. By their reckoning the sickly U.S. auto business accounted for only 8% of the company’s total value. The Mercedes operations were strong, despite recalls and cost overruns that had led to temporary losses in that division. Quality automakers normally enjoy a profit margin (before interest and taxes) of 6% to 8%, says Taylor. Since Mercedes sells the same volume as rival luxury automaker BMW, they figured that Mercedes would see profits similar to BMW’s in the next year. Plus, they were impressed by Chief Dieter Zetsche’s turnaround plan. McGregor and Taylor picked up shares in DaimlerChrysler at $50. Today, with Chrysler disposed of, shares of Daimler are at $103. McGregor and Taylor say that they paid for only the Mercedes assets and the cash ($6.8 billion) on the balance sheet, while picking up the rest of the company for nothing.
In Europe the two like big banks such as UBS and Julius Baer. These institutions charge fees up to 1.2% of the assets managed on behalf of wealthy clients – those with $10 million or more parked at the banks, a well-heeled cadre Taylor expects to expand. He acknowledges short-term concerns about writedowns of subprime mortgages, but Taylor says that UBS’s strong balance sheet should be able to absorb the impact.
They are wary of many Japanese companies, which are too often still beset by a sclerotic system of cozy relationships that thwart good investment opportunities. But Japanese semiconductor maker Rohm is a dynamic, high-margin enterprise that focuses on perfecting older chip designs. It does not have to spend vast amounts of money on research and development.
In Canada the pair like MDs, a medical research company that does work for biotechs and pharmas. When McGregor first came across MDs in February, it was in a slump following a poor review by the U.S. F.D.A. of its pharmaceutical services division. New management, he says, shook it back to life. The company shed a 50% stake in a lab products distributor and is buying back stock. MDs, by their estimate, will earn the equivalent of $1 U.S. a share next year and is trading at 20 times that sum.Link here.
China steps harder on monetary brakes in order to cool economy.
China ordered banks to increase reserves again to try to prevent the world’s fastest-growing major economy from overheating. Lenders must put aside 14.5% of deposits as reserves, starting December 25, up from the previous 13.5%, the People’s Bank of China said on its Web site. The ratio is the highest since at least 1987 when the data began.Link here.
NEW PRIVATE BANKING MONEY SETTLES IN SINGAPORE
The country is now the #2 private banking center in world, behind Switzerland.
For much of November, it was almost impossible to get a first- or business-class seat from Singapore to top-end regional resorts such as Bali. The passengers were not early-season holidaymakers. The private banking business in Asia is so good these days that banks are flying aircraft-loads of customers for weekends away just to say thank you – whereas in the past they might have sent a year-end gift basket.
Banking for high net worth clients is one of the fastest growing segments of Asia’s financial services industry. Private wealth in Asia grew 10.5% last year to $8,400 billion, according to consultancy Capgemini. The number of Asians with liquid assets worth more than $1 million grew 8.3% to 2.6 million last year. Asian private banking is growing fast because more of the region’s millionaires are using private banking channels rather than tying up most of their wealth in property.
The private banking business in Singapore is forecast to grow by more than 30% this year and by 25-30% over the next three years. Singapore is now the world’s #2 private banking center, albeit well behind Switzerland. The industry estimates that close to $300 billion – or about 5% of the world total – of private-banking assets are managed in Singapore, compared with Switzerland’s $1,700 billion.
Singapore has transformed from a minnow to a private-banking giant in less than a decade. Six years ago, Singapore took steps to build a critical mass in wealth management and put itself far ahead of competitors such as Hong Kong. It beefed up account secrecy protection, changed its trust laws, and allowed foreigners who meet minimum wealth requirements to purchase land and become permanent residents.
In 2000, Singapore strengthened its banking secrecy laws, now considered stricter than even Swiss laws. Indeed, banks in Singapore have had to move data centers that handle private banking transactions from Bangalore, India to Singapore just as commercial banks were moving their own back office functions to cities in India.
Another big new attraction is Singapore’s new trust laws. Some European countries have laws that supersede wills and trusts. In late 2004, Singapore exempted foreigners who set up local trusts from these limitations. The new trust laws also attract clients from the Middle East, where shariah courts often pass over wives and children in favor of a deceased’s father or brother. Assets placed in trusts in Singapore have grown to nearly $100 billion from just under $25 billion five years ago, say industry insiders.
The number of private banks in Singapore has increased from just 20 in 2000 to 42, while private banking assets have grown from about $50 billion in 1998 to over $300 billion. Many newcomers are returnees. The UK’s Standard Chartered Bank, which last year re-entered private banking after a hiatus of more than a decade, made Singapore its global headquarters for private banking. Others, such as Bank Julius Baer that left Asia in the aftermath of the Asian financial crisis, have returned because they see a larger pool of assets, a more sustained pace of growth, better infrastructure and a friendlier regulatory environment.
Until recently, Europe was the main driver of Singapore’s private banking growth. Banks with huge European client bases have promoted Singapore – which imposes no tax on capital gains, interest income or overseas income – as a way around new taxes in Switzerland, where authorities three years ago imposed a withholding tax on some accounts held by EU citizens.
Wealthy Indians are a new growth driver, and have been big forces in up-market residential property transactions across Asia in recent months, particularly Singapore. The boom in Indian stock market and asset prices has created a breed of millionaires eager to park assets outside India. One private banker says money from India this year has tripled, even quadrupled for his bank. “European business was a big growth driver between 2004 and earlier this year,” says another private banker in Singapore. “Now it is all of Asia. Mostly India, China and Indonesia.”
After five years of heady growth, some private bankers in Singapore are trying to slow down. “Our biggest challenge is people,” says Marcel Kreis, who heads Credit Suisse’s private banking operations for Southeast Asia and the Pacific. Singapore has more than 1,000 unfilled private banking positions, says a partner at an executive search firm. Rival banks are pinching staff from each other, often doubling salaries and offering huge joining bonuses.
To tackle the growing skills shortage, Singapore two years ago set up a Wealth Management Institute, which offers graduate and diploma courses. Banks such as UBS are setting up their own training facilities to prepare a generation of private bankers.Link here.
GNOMES OF ZURICH CLOCK CALAMITY IN THE MAKING
Alleged money masters got caught in subprime mess like everyone else.
Over the course of several centuries, Switzerland’s banks have become used to foreigners turning up with bags of loot. Not all arrive in Zurich to buy chocolates and cuckoo clocks. As a haven of choice for “nervous money,” Swiss deposit-takers have welcomed customers who, with good reason, disliked scrutiny. In no particular order of shame, they included the Nazis, Ferdinand Marcos, Haiti’s appalling Duvalier family, Joseph Mobutu, who plundered Zaire, Nigerian dictator Sani Abacha and the Argentine military junta.
Of course, not all Swiss banks are tainted by a history of dodgy dealings. And, to be fair, some have tried hard to make amends for past associations with ill-gotten gains. In 2000, UBS and Credit Suisse reached a $1.3 billion out-of-court settlement with Holocaust survivors.
No amount of post hoc cleaning, however, can hide the fact that Switzerland’s self-proclaimed reputation for being “the safest, most professional and prestigious banking place in the world,” was built in part on the back of a willingness to regard cash as having no smell. When super-rich foreigners had “a problem,” the Gnomes of Zurich (as Harold Wilson called them in 1964) were more than willing to lend a hand.
Now, in a delicious reversal of fortune, it is Swiss banking that is desperate for help. The cash crunch, precipitated by America’s mortgage crisis, has blown a hole in some hitherto rock-solid balance sheets. As a result, the Gnomes (who in folklore live underground and guard treasure) have been forced to shove their wheelbarrows round the world’s financial centres in the hope that kindly investors will chuck in some dollars.
Mighty UBS – formerly the Union Bank of Switzerland – has turned to the government of Singapore for a recapitalization, after losing $13.5 billion in the U.S. sub-prime market. The Singaporeans have injected nearly $10 billion into the bank, with an extra $1.7 billion coming from the Middle East (probably Oman).
It is another example of the extraordinary recalibration of power between Old World financial empires and state funds from emerging nations. Singapore’s move comes shortly after the Chinese bought a stake in Barclays, and Abu Dhabi shored up Citigroup.
The first-aid package will be a huge blow to Switzerland’s self-esteem, not least because UBS is paying 9% interest for up to two years. This is close to a junk-bond rate. Not what you would expect from a blue-chip bank. Switzerland cannot afford any lasting damage to its financial services industry, which represents more than 15% of the country’s output and about 200,000 jobs.
In uncertain times, Switzerland’s sales message has been, “We understand money, so let us look after yours.” It worked. Almost 1/3 of the world’s private banking market is thought to be controlled by Swiss institutions. As with their watches, the Swiss like us to believe that their banking businesses perform with unrivaled precision. But how many of those professionals who have recently poured fortunes into UBS would have done so had they known their cash was being punted on trailers in Palookaville?
Indeed, how many UBS directors really understood what the bank was buying when it waded into low-grade American mortgages? The same question might be asked of Credit Suisse, which lost $1 billion on sub-prime assets.
I do not imagine for a moment a run on a Swiss bank to match the unraveling of Northern Rock, but the job of the sales team at UBS’s wealth management division has just become a little more difficult. That said, with Merrill Lynch, Morgan Stanley, HSBC, Bear Stearns, Deutsche Bank, Bank of America, Royal Bank of Scotland and Barclays all admitting to heavy subprime losses, it is getting harder for the risk-averse depositor to find a home.
The speed with which the turmoil in America has shaken foundations in Europe has stunned seasoned observers. Only two years ago, the BBC business website reported, “Banking boom boosts Swiss banks,” after Credit Suisse had announced a 42% jump in profits and UBS a 71% increase. Had you told shareholders then that UBS would wipe out an entire year’s profits on collateralized debt obligations (CDOs), not only would most not have believed it, they would not have recognized the term.
Under fire from press and investors, UBS’s chairman Marcel Ospel insisted that he is keeping his job in order to be “part of the solution.” For those who find his adamance surprising, there is a clue to how Swiss bankers think in an anagram of “Gnomes of Zurich”: “Rich Sum Fog Zone”.Link here.
ANALYSTS LATE TO THE ALARM ON UNFOLDING CREDIT CRISIS
Throughout 2006, T. Rowe Price analyst Susan Troll watched in horror as one risky mortgage deal after another hit the market. She became alarmed by a widening trend – mortgage lenders issuing home loans of poor quality that were then packaged and sold by Wall Street investment banks to investors worldwide. Finally, she could stand it no longer. In e-mails and meetings with money managers, Troll urged T. Rowe Price to sell its portfolio of subprime mortgage securities.
“I just was amazed at how quickly these deals were getting done when you see constant deterioration in credit quality,” she said. “I just said, ‘It can’t keep going up at this rate.’ It just didn’t make sense.”
T. Rowe sold some of its subprime assets in December 2006 and cleared its books of them by early February – well before the summer’s credit crisis erased the market for these types of securities. Troll’s warnings won kudos from James Kennedy, chief executive of the Baltimore firm, which has been posting impressive quarterly results.
Troll’s actions were hardly the norm. Plenty of analysts did not sound the alarm on the subprime mess. The ensuing turmoil in the financial system has wiped out billions of dollars of shareholder equity at banks, investment firms, mortgage lenders and bond insurance companies. Five years after high-profile Wall Street analysts were accused of pocketing millions for promoting shoddy companies, analysts are once again in the spotlight for their conduct. Should analysts have seen the meltdown coming? Why didn’t they? Did conflict of interest play a role?
There has been much finger-pointing, but no conclusions. One main issue, experts note, is that the complex alphabet soup of debt securities that have experienced explosive growth in recent years and are at the heart of the credit crunch are extremely hard to evaluate. That was the case, they say, even for some credit analysts whose job is to make calls on debt instruments – not to mention for equity analysts who typically look at a company’s earnings relative to stock price, cash flow and other factors.Link here.
THE NEW NEW YORK
Dubai could be another bubble. But it could also be another Hong Kong or Singapore in the making.
This city will soon be home to the world’s tallest building, the largest shopping mall and the largest fleet of jumbo airplanes. There is a $4.3 billion World Trade Center in the works, as well as a $10 billion theme park and an $11 billion festival city. A signature hotel bills itself as the world’s only 7-star hotel. And Giorgio Armani, building a new hotel here, calls it “the new New York.” By some estimates, 1/3 of all construction cranes in the world are there. What city am I talking about?
It is not in America, and it is not in China. It is – of all places – in the Middle East. It is south of Iran, across the Persian Gulf, along the southeastern tip of the Arabian Peninsula. This city is nestled in the tiny United Arab Emirates, whose capital is Abu Dhabi, traditionally its richest emirate.
But some would argue for Dubai as the richest of the emirates – and that is the answer to the riddle. What is happening in Dubai is emblematic of the expanding table of global finance, a banquet at which more and more nations come to dine. There is growing competition for the spoils of international trade. A while back, I wrote about Hong Kong as a bustling hub of financial activity in the East and as a rising competitor to New York for global capital. Dubai is no Hong Kong, but it is an emerging capital market of great importance to the region and to the world at large.
Perhaps Dubai’s rise is not so surprising. We are in an energy boom, and the price of oil is at a lofty level. Is this not a simple replay of Saudi Arabia in the 1970s, when the last energy crisis made billionaires of sheiks?
Other countries too, typically poor, have enjoyed “oil booms”, only to come crashing down later when the oil boom ended – leaving in its wake white elephant projects, debts and boulevards of broken dreams.
The easy flow of petrodollars is like an addictive drug. These economies grow dependent on the oil money. Oil revenue often flows to governments in these countries, where it is then wasted – lining the pockets of corrupt government officials or lost on poor investments.
Plus, the sudden infusion of wealth can be a bewildering experience for those who had practically nothing before. Few places on Earth changed as quickly as the Arab world, especially Saudi Arabia. As recently as the 1930s, they were small cultivators, shepherds and village craftsman. They rode camels and lived in mud-walled houses. Before 1962, slavery was still legal. Yet by the 1970s, the nation of goat herders had become a nation of billionaire oil barons.
But the boom in Dubai has a different feel. Dubai itself does not have much oil, though it is a conduit for Arab wealth. Indeed, Dubai may escape the oil curse. One reason is that it is becoming a tourist hotspot. A second is Dubai’s emergence as a major international capital market.
Dubai has opened up its economy. The crown prince of Dubai has, for example, finally allowed 100% freehold interests in certain properties there. The government has also created free-trade zones, where there are exemptions on import/export duties, no personal income taxes, no restrictions on the repatriation of profits and 50-year exemptions on corporate taxes. In essence, it has created a sort of free market oasis. These efforts are paying off.
Late last year, at a lavish party celebrating the Dubai International Financial Center’s anniversary, its director, Omar bin Sulaiman, declared that the Middle East’s time in the “financial wilderness” was over. Looking at Dubai, it is hard to argue with him.
Numerous financial services companies and banks are opening offices here. Morgan Stanley, HSBC, Credit Suisse and others are planning, or have already opened, full-service operations in Dubai.
The domestic stock markets are hopping. Over $3 billion has been raised in Middle Eastern IPOs in 2005. Bond issuances have tripled in two years. Further evidence that Dubai is attracting global wealth is that of the nearly one million residents in Dubai, about 80% of them are expatriates.
Oil still accounts for about 1/3 of the economy in the UAE, but travel and tourism contributed 11% in 2005, and that number is growing rapidly. International tourism to Dubai went up 9% in 2005, to 5.5 million tourists, and is expected to triple by 2010. Dubai has a good infrastructure, including a world-class airport that is one of the busiest in the world.
The construction projects in the pipeline are staggering. There are more than $30 billion worth, nearly all of them in the next five years. These projects include a mix of business and leisure properties, as well as infrastructure projects.
Foreigners are the main feeder for the Dubai hotel market, particularly Europeans. But the Arab world figures prominently, too. Arabs make up nearly 40% of the total demand for hotels.
The fact that Arab wealth is heavily involved in Dubai is particularly important. To say the Arab world is not known for its stability would be an understatement. As David Ignatius wrote recently in The Daily Star, “Every Arab investor in Saudi Arabia, Kuwait and Qatar has to worry that Islamic fundamentalists will someday upset the money machine – and in anticipation of that disaster, they all want somewhere to run.” Dubai is their chosen safe haven, “the Arab world’s ultimate gated community.” Far from a target, the powers that be will protect Dubai, because it is where they park at least some of their own wealth.
But as the wise old sages advises, never trust prosperity. Just when you think things are going swimmingly, along comes fate to put the kibosh on things.
Is Dubai just another bubble? It could be. But it could also be another Hong Kong or Singapore in the making. Given the wealth in the region, and the increasing hostility of large governments (including the U.S.) toward business, such safe havens will be more important than ever. At least for the next several years, Dubai looks pretty good to me.Links here and here.
CAYMAN FINANCIAL SERVICES REGULATION PRAISED BY U.K. PARLIAMENT
Cayman leader of government explains jurisdiction’s success.
The Cayman Islands has received high praise from the Foreign Affairs Committee (FAC) of the UK’s Parliament for its financial sector legal and regulatory regime. In June, the committee announced an enquiry into the Foreign and Commonwealth Office’s exercise of its responsibilities and its achievements in relation to the Overseas Territories, and scheduled meetings with heads of these territories.
When asked by panel member and Conservative MP Michael Moss why a recent report by the UK National Audit Office found the regulations of the British Virgin Islands and Cayman Islands financial industries “were superior to others in your general region,” Cayman Leader of Government, Kurt Tibbetts, responded by explaining that Cayman’s financial industry in particular has a culture of compliance supported by legislation.
“We have an environment which accords with international best practice and this encourages business to be done in the Islands because businesses want to conduct their affairs in a jurisdiction which [complies with] such best practices,” he told the panel.
Tibbetts explained that the Cayman Islands attracts quality service providers such as lawyers, accountants, auditors, company managers and fund administrators, who complement the strong legislation. “And of course all of those things combined are essential to ensuring that our financial service industry is a successful one. To add to that, we are very stable politically and this is ... underpinned by the constitutional relationship which we have with the United Kingdom.”
The Cayman leader listed a number of supporting features for the industry that make the Islands attractive – good international air links, an independent regulatory body in the Cayman Islands Monetary Authority, and a strong legal judicial framework, independent of the executive arm of government, which gives confidence to business.
“It means that disputes between parties can be dealt with by a very competent judiciary,” Tibbetts explained. “The Islands also have a very efficient, competent and independent civil service that is able to implement [the executive arm’s] policies which are designed to create a business environment in which international financial services can flourish.”Link here.
BANKS INCREASINGLY RESISTING HM REVENUE & CUSTOMS CALLS FOR OFFSHORE ACCOUNT DETAILS
Banks and building societies are becoming increasingly restive at the U.K. taxman’s attempts to extract confidential information about clients with offshore bank accounts. “The banking and building society industry believes a balance must be found between maintaining appropriate customer confidentiality and tracking down people who fail to pay their taxes,” says a statement from the British Bankers Association (BBA). “The industry does not wish to shield those avoiding their legal obligations, but needs to protect its long-standing reputation for care and concern for the customer.”
Her Majesty’s Revenue & Customs is trying to coerce the banks and building societies into voluntarily providing information on clients without having to take them to court, by getting the institutions to fill in a questionnaire. Last week accountants KPMG effectively told their banking clients not to comply with the taxman’s fishing expedition for client information. “We do not believe that a questionnaire assures banks and building societies that HMRC has sufficient evidence to satisfy the necessary legal criteria,” says the statement from the BBA.
In 2006 HMRC won a case against Barclays Bank, forcing it to reveal the names of all its clients with offshore bank accounts. In June of this year the taxman issued an amnesty to those with undeclared offshore income but of the estimated 400,000 or more liable to tax in the UK, only 25,000 voluntarily disclosed income from offshore sources by the 7 July deadline. The taxman is now pursuing the rest.
“Customer confidentiality and confidence are at the heart of the success of personal banking in the UK,” said BBA chief executive Angela Knight. “The relationship between customer and banker is very precious and, while we support efforts by the government to ensure arrangements are in place so people pay the tax they owe, this needs to be balanced by regard for the law and personal privacy.”
She went on to comment on the recent loss by HMRC of discs containing confidential information of parents with children who receive Child Benefit. “Banks comply with the law and have no desire to shield people who fail to pay their taxes. However, at a time when people naturally question the ability of the authorities to take proper care of personal data, we think it would be premature to provide more information on offshore account holders to Revenue & Customs.”
Adrian Coles, director general of the Building Societies Association, added, “We are concerned that HMRC’s plans to short-circuit the legal process could endanger customer confidentiality and the security of customer information. We have no wish to stop HMRC collecting unpaid tax but we do want due process to be clearly followed. Building societies and their banking colleagues are happy to work with HMRC to that end.”
John Treadwell, managing director of the Association of Foreign Banks, also joined the chorus of complaint against HMRC’s back-door attempts to obtain confidential information. “When considering HMRC’s proposals, foreign banks must take into account both the requirements of the UK government and the legal obligations of foreign jurisdictions concerning banking secrecy and data protection. Just as HMRC must work within the legal framework set down by UK law, so foreign banks must work within the legal frameworks of all the jurisdictions in which they operate. Foreign banks wish to behave responsibly and with due regard to all applicable laws,” Treadwell said.Link here.
U.K. ACCOUNTING FIRM WARNS OF “BACK DOOR TAX ATTACK” ON BUY-TO-LET PARTNERSHIPS
Legislation designed to curb “income-shifting” could have unexpectedly long reach.
Accounting firm, PKF has warned that couples who rent property could fall foul of new “income-shifting” tax legislation aimed at family businesses – even if they are not set up as a company.
PKF Tax Partner Peter Penneycard pointed out that, as currently drafted, an individual who transfers ownership of half of a property and the rent generated to a spouse or partner will be subject to the income-shifting provisions. In such circumstances, for tax purposes, all the rent will be taxed to the first individual. The marital status of the couple is immaterial.
Following its loss of the Jones v. Garnett case on the settlements legislation, the Government recently announced the ways in which it plans to address income-splitting or shifting between married couples and family members. However, the draft legislation published does not restrict the rules to trading or professional income. It simply refers to “distributions of a company, or profits of a partnership.”
Mr. Penneycard observed, “Neither the draft legislation nor the draft guidance from HMRC state that buy-to-let partnerships are excluded from the new rules. Although all of the examples given refer to ‘businesses’, with rental income increasingly taxed on a business footing there is a danger that the Government see these changes as an opportunity to raise extra tax from the property market.”
“Of course,” he added, “this could simply be a drafting mistake and, if it is, HMRC owe it to the taxpayer to make the point clear. However, I’m not so sure. The trend in recent anti-avoidance legislation has been to catch as much as possible and then for HMRC to issue guidelines, which have no weight in law, on what the rules are targeting. If the current draft legislation goes through un-altered, we are going to see a few interesting court cases on what constitutes a ‘partnership’ caught by the new rules. ... If the Government intends to catch what is a fairly common practice among couples letting properties, it will justifiably be accused of introducing another stealth tax.”Link here.
U.K. AND BERMUDA SIGN TAX INFORMATION EXCHANGE ARRANGEMENT
A new tax information exchange arrangement between the U.K. and Bermuda was signed on 4 December 2007. Financial secretary to the Treasury Jane Kennedy said that these new arrangements represent a significant step in our efforts to counter and prevent tax evasion and avoidance.
“I commend the Government of Bermuda for its willingness to implement the high standards of transparency and exchange of information to which it is committed and for its continuing leadership in this important global tax policy area,” she said.
The arrangement will enter into force in 12 months time, provided both countries have completed their legislative procedures to give effect to the arrangement. TIEAs allow governments to enforce their domestic tax laws by exchanging, on request, information relevant to a tax matter covered by the arrangements. This is the first comprehensive TIEA signed by the UK and covers both direct and indirect tax matters.
Previously, the UK has concluded limited agreements providing for the exchange of information in relation to the taxation of income from savings with Jersey, Guernsey, the Isle of Man, Gibraltar, the Cayman Islands, the British Virgin Islands, Anguilla, the Turks & Caicos Islands, Montserrat, the Netherlands Antilles and Aruba. Bermuda already has TIEAs in force with the U.S. and Australia.Link here.
EU CALLS FOR UNITED FRONT AGAINST TAX EVASION
The European Commission is asking member states to carry out a general review of their anti-abuse rules in the direct tax area, in the light of decisions handed down by the European Court of Justice, and to explore possible coordinated solutions.
In order to prevent tax abuse, member states have implemented anti-abuse rules with the aim of preventing economic operators from eroding the tax base in their territory by diverting their income to other countries. However, member states’ existing anti-abuse rules often do not properly take into consideration the freedoms of the European Treaty, and are therefore increasingly challenged.
In the framework of an EU-coordinated approach to direct taxation, the EC announced that it is willing to assist member states in bringing their anti-abuse rules in line with EC law requirements, and to explore the scope for coordinated responses to the challenges faced by EU governments.
Commenting on the initiative, Laszlo Kovacs, Commissioner responsible for Taxation and Customs Union stated, “The recent rulings by the European Court of Justice in this field clearly show that Member States need to urgently carry out a critical review of their existing anti-abuse rules. I understand that Member States need to ensure that their tax bases are not unduly eroded because of abusive and overtly aggressive tax planning schemes but we cannot tolerate disproportionate obstacles to cross-border activity within the EU. I invite Member States, in order to strike the proper balance, together to explore the potential and scope for possible coordinated solutions.”
The EC argues that the catalyst for the need to address issues related to the application of anti-abuse rules lies with the development of the European tax law. Over the past few years, the ECoJ has handed down a number of important rulings in this area, such as the Cadbury-Schweppes decision, and the thin capitalization group litigation order, in which it clarified the limitations on the lawful use of anti-avoidance rules. The EC says that these must not be framed too broadly, but must be targeted at wholly artificial arrangements, i.e., situations where there is no genuine establishment or more generally where there is a lack of commercial substance. The rulings, the EC noted, have a significant impact on the existing rules, which had not been formulated with the Community constraints in mind.Link here.
AMERICAN E-TAILERS VOW TO FIGHT STREAMLINED SALES TAX PROJECT
The U.S. Electronic Retailing Association (ERA), has announced that it is “strongly against” taxation of internet transactions, and that it intends to fight the Streamlined Sales Tax Project (SSTP).
According to the ERA, the only trade association that exclusively represents electronic retailers, the SSTP would impede the development of e-commerce and impose substantial added costs and compliance burdens on electronic retailers. As an urgent industry and legislative concern, the groups says that the collection of taxes on internet transactions is an issue that must be dealt with “thoroughly and fairly.”
“In a very short amount of time, the internet has become an unprecedented marketplace where the playing field is level for retailers both large and small,” Barbara Tulipane, ERA President and CEO, noted in a statement. “The Streamlined Sales Tax Project and its provisions would create a cost-prohibitive barrier for smaller retailers who are the lifeblood of our economy.”
Under the Streamlined Sales Tax Project (SSTP), states are required to establish uniform definitions for taxable goods and services, and maintain a single statewide tax rate for each type of product. The project also seeks to simplify tax reporting requirements for online sellers. But while some retailers support the SSTP, businesses in general are lukewarm or hostile to the plan, which they say will impose burdensome new recording and reporting requirements. The SSTA now permits each state to adopt an additional rate, and with 7,500 sales tax jurisdictions in the U.S., the ERA claims that there could be as many as 15,000 tax rates to administer.
The ERA thinks that the SSTA would unfairly discriminate against remote sellers in four ways: (1) The burdens are much greater for remote sellers who must compute, collect and remit tax for thousands of jurisdictions, as compared to an in-state retailer who collects at just one tax rate. (2) A direct marketer must “eat” the difference if a customer fails to remit the correct tax when paying by check – a problem that traditional retailers do not confront. (3) In-state retailers benefit from a wide variety of state and local government services and programs (including tax incentives) that are not available to out-of-state merchants. (4) Delivery charges on internet and catalog purchases usually exceed the amount of sales tax on those same goods – so the remote seller has no price advantage.
To date, only a handful of states have fully adopted the SST Agreement. Five other states have said they will adopt the agreement by 2008. But the ERA says that the SSTA states are pressing Congress to require sellers in every state – even in states without a sales tax – to collect sales taxes for member states.
The ERA wants electronic retailers and consumers to fairly receive benefits from the taxes they remit. Furthermore, placing the responsibility on electronic retailers to collect and remit taxes creates a huge financial burden and is logistically cumbersome, it points out.Link here.
LOW-TAX COUNTRIES ARE GENEROUS WITH UNEMPLOYED
OECD report compares unemployment benefits and programs across member countries.
Switzerland, Ireland and Luxembourg are in the group of OECD countries with the highest unemployment benefits – more than 70% of average earnings. And in Switzerland and Ireland low-paid people lose money by going back to work.
So says a new OECD report, “Benefits and Wages”, which provides a guide to how governments are tackling the twin challenges of supporting unemployed people while helping them back into work by tracking net benefit levels in individual countries. A decade ago, says the OECD, countries were making it increasingly difficult to claim benefits. Today many are actually cutting the level of benefits. Faced with labor shortages and pressures on pension funding due to aging populations, one in three OECD countries has cut unemployment benefits in the last six years with a view to encouraging unemployed people to find jobs.
A single long-term unemployed person in Germany receives about €4000 per year less in benefits than they would have in 2001, and while in the Slovak Republic they get €2200 less. By contrast, there have been increases in benefit levels in Belgium and Ireland (€1300 and €1600) over the same period.
“Benefits and Wages” also compares the level of benefits which unemployed people typically receive with average after-tax earnings, taking into account different family types and unemployment durations. Across most OECD countries the level fell to 55% in 2005, from 59% in 2001. The Nordic countries are the most generous, with levels above 70%. In the U.S., Greece, Turkey and Italy, where benefits for the long-term unemployed are very low or non-existent, the index of generosity is below 30%.
Unemployment benefits are only one of many factors which make people decide whether or not to look for a job. “Benefits and Wages” cites other barriers – high tax rates and low wages. When unemployed people start to work, on average they lose 66 cents in increased taxation and lost benefits for every $1 they earn. And a lone parent, working full time but earning the minimum wage, would still be below the poverty threshold in most countries.
The report also notes the role of high-quality affordable childcare, which allows parents to reap financial advantage from working outside the home. Childcare costs typically consume more than 1/3 of family’s incomes in Canada, Ireland, New Zealand, Switzerland, the U.K. and the U.S. In one third of OECD countries – Canada, the Czech Republic, Denmark, France, Iceland, Ireland, Korea, New Zealand, the Slovak Republic, Switzerland and the U.K. – lone parents may see no financial gain from low-wage employment.Link here.
CZECH REPUBLIC APPROVES MONEY LAUNDERING LAW IN ADVANCE OF ADOPTION OF THE EURO
Banks may require documents from their clients conducting any transaction over €1000.
The Czech government approved a law against money laundering under which banks may require documents from their clients conducting transactions over Eur1000 euros ($1477). If passed by the legislature, the law is to take effect from mid-2008 onwards. According to the existing legislation, banks must only ask for the documents if the sum in question exceeds 100,000 crowns ($5591).
The new law widens the duties for banks and further financial institutions to supervise and control the transactions of their clients who must prove the purpose of a transaction over €15,000 euros ($22,155) and the origin of the funds.
“According to official statistics, the damage from the crime has so far amounted to approximately 50 billion crowns ($2.8 billion),” said Simona Cigankova, spokeswoman for Cyril Svoboda, head of the government legislative team. However, unofficial estimates put the damage about four times higher.
Economists said part of the dirty money is in cash and its owners will try to legalize it before the euro is adopted in the Czech Republic. The bill also widens the control over suspicious transactions among “politically sensitive persons” living abroad.
The financial analytical department of the Finance Ministry registers some 3,000 petitions about dubious transactions each year, mostly from the banking sector. Civil servants file some 100-150 criminal lawsuits every year. Experts said that tax evasion, insider dealing and bribes are the most frequent sources of dirty money in the country.Link here.
TIME TO RETIRE BASIC UNENCRYPTED WEB PROTOCOL, AND IMLEMENT ENCRYPTED SOLUTION
http: must die! Hello https:
Sometimes you just have to bite the bullet when it comes to significant technological changes, and I believe that such a time has come for the basic http: unencrypted Web protocol.
When we first started discussing Network Neutrality some years ago, we mostly talked in terms of trying to make sure that data streams would be handled in a fair and nondiscriminatory manner. Then with the Comcast BitTorrent case, it became clearer that it was appropriate to worry about whether underlying protocols might be manipulated by ISPs, resulting in delays or outright blocking.
But now it is increasingly obvious that we are dealing with a triple-whammy, with ISPs apparently gearing up to treat our data like a 1960s draft board physical. That is (to quote Arlo Guthrie’s Alice’s Restaurant), “... injected, inspected, detected, infected, neglected and selected.”
More specifically, as noted in Google Hijacked – Major ISP to Intercept and Modify Web Pages and ISPs Spying On and Modifying Web Traffic, ISPs are increasingly taking the stance that our data is subject to ISP-based manipulation of all sorts.
We are not talking about just traffic shaping, although that is problematic enough in many cases. We are now looking at outright alteration of traffic contents – the very payload of our Internet communications.
ISPs have argued that such techniques allow for transparent removal of viruses, pop-ups, and so on. But now, feeling empowered by the capabilities of new TCP/IP mangling machines, the situation seems poised for consumers and businesses – except perhaps those able to pay significant premiums – to be relegated to serf (no pun intended) status in the ISP kingdoms.
While public policy and legislative changes may eventually address some of these issues, there is something that we can do right now to start assuring that we can control our own Internet communications. That first, key action is to begin phasing out, as rapidly as possible and in as many application contexts as practicable, the use of unencrypted http: Web communications, and move rapidly to the routine use of TLS/https: whenever possible.
This is of course but an initial step in a rather long path toward pervasive Internet encryption, but it would be an immensely important one. TLS is not a total panacea by any means. In the absence of prearranged user security certificates, TLS is still vulnerable to man-in-the-middle attacks, but any entity attempting to exploit that approach would likely find themselves in significant legal difficulty in short order.
Also, while TLS/https: would normally deprive ISPs, or other intermediaries along the communications path, of the ability to observe or modify data traffic contents, various transactional information, such as which Web sites subscribers were visiting (or at least which IP addresses), would still be available to ISPs (in the absence of encrypted proxy systems).
Another potential issue is the additional computational cost associated with setting up and maintaining TLS communication paths, which could become significant for busy server sites. However, thanks to system speed improvements and a choice of encryption algorithms, the additional overhead, while not trivial, is likely to at least be manageable.
The associated security and privacy benefits make this transition essentially a no-brainer – at least if we are really concerned about maintaining the integrity of the carefully crafted Web experience that we present to users.
We have gotten a good run from http:, but all good things come to an end. A graceful retirement for virtually all unencrypted Web communications is both honorable and justified. And practical now.Link here.
COMPUTER PIECES SHREDDED STASI FILES BACK TOGETHER
Humpty Dumpty reconstructed, as software helps solve 600 million piece jigsaw puzzle.
East German historians have employed the help of a computer program to reconstruct 16,000 sacks of shredded paper that once documented the snooping of the Stasi police. The job was previously done by hand, with a team of 30 workers piecing together 350 sacks of shreds since 1991. The team estimated that at that rate it would take 400 to 800 years to finish the job.
E-Puzzler, a software program designed by Berlin’s Fraunhofer Institute, was employed to reconstruct what remained of the 600 million shreds from 45 million documents, which recorded the lives of 6 million people watched by the Stasi.
It reconstructed the originals by examining the type of paper as well as the nature of the script. The program had already been used to help reconstruct broken figures from China’s Terracotta Army and “hundreds of thousands of bank notes shredded by a mother in an attempt to block her estranged daughter from her inheritance.”
Other countries that had suffered under military dictatorship and the tyranny of secret police had apparently approached the institute to help reconstruct their shreds of history as well. Stasi boss Erich Mielke apparently ordered the files to be shredded and burned after the fall of the Berlin wall in 1989. But the shredders were in such a hurry to get away they left the sacks in the basement of their Berlin headquarters.
The operation was proposed by Fraunhofer in 2003.Link here.
UK INFORMATION CHIEF CALLS FOR DATA SAFEGUARDS IN WAKE OF HMRC DEBACLE
Organizations and individuals must step up the fight against identity fraud, the Information Commissioner’s Office is prepared to announce. The ICO will say the data security problems at HM Revenue and Customs were a watershed and call for organizations to implement new safeguards to help protect individuals’ privacy. The ICO will also encourage people to take more control over their personal information to help them guard against the risks of identity fraud.
The UK’s first privacy impact assessment handbook will be launched at the conference, aimed at helping help organisations address the risks to personal privacy before implementing new initiatives and technologies. Research commissioned by ICO shows that 60% of people believe they have lost control over the way their personal information is handled.
Deputy information commissioner David Smith said, “Each time someone gives away their personal information they leave electronic footprints which build up a picture of every aspect of their daily lives. It is essential that before introducing new systems and technologies, which could accelerate the growth of a surveillance society, full consideration is given to the impact on individuals and that safeguards are in place to minimize intrusion.”
The conference will also highlight the use of privacy enhancing technologies to help protect people’s personal information. According to the ICO, these technologies can help to minimize the information collected about members of the public and ensure that privacy safeguards are built into systems.Link here.
UK government loses driver information.
Unencrypted computer discs containing the names and addresses of 6,000 Northern Ireland motorists has gone missing in the post. The material, which was sent from Northern Ireland Driver and Vehicle Agency to the UK’s main Driver and Vehicle Licensing Agency in Swansea, is reckoned to gave gone astray in a sorting center in Coventry. The agency has written to drivers involved apologizing for the slip-up.
The data was sent in requests from vehicle manufacturers, who needed to send drivers information about potential faults with various vehicle models. Information held on the two missing CDs included the registration number, chassis number, make and color of 7,685 vehicles as well as the names and addresses of more than 6,000 registered owners. No financial data was included on the discs, the BBC reports.
News of the data loss at the DVLA comes shortly after the far larger Child Benefit data leak at HM Revenue & Customs that has left the government hunting for discs containing data of 25 million people. The latest incident provides evidence that using CDs to distribute unencrypted data about citizens was, if not standard government practice, then a common insecure method used across multiple government agencies.
The wider problem of the exposure of confidential data is far from confined to government departments, nor indeed to lost CDs. Leeds Building Society warned its workforce of 1,000 that it had mislaid copies of their personal details during the process of moving its HR department during a building refurbishment project.
There is no evidence of fraud involving the data losses at either the DVLA or Leeds Building Society. The lost information is probably stuck behind a filing cabinet or sorting machine rather than in the hands of cybercrooks.
Other data loss incidents – of which there have been many in recent months on both sides of the Atlantic – have involved stolen laptops and suspected hacking attacks.Link here.
CONRAD BLACK GETS 6 1/2 YEARS FOR ROLE IN LOOTING MEDIA CONGLOMERATE
Also has to forfeit $6.1 million in gains. His Florida home and other assets escape forfeiture.
U.S. District Judge Amy St. Eve sentenced Black to 6 1/2 years in prison, rejecting a government bid for a stiffer sentence of about 20 years, which would have had the practical effect of sending the 63-year-old to prison for the remainder of his life. Black also was fined $125,000 and has to forfeit $6.1 million in ill-gotten gains, but not his home in Palm Beach, Florida, and other assets prosecutors had requested.
When it came time to make his comments, Black was uncharacteristically brief and at times even contrite – in his own way. Black expressed “profound regret” for the huge financial losses that shareholders of Chicago-based Hollinger International suffered after he left the company in 2004. He also apologized for the medical problems that have beset him, his family and his co-defendants since the corporate saga began four years ago.
While he refrained from asserting his innocence, he concluded, to no one’s surprise, without apologizing for his actions that led to the conviction or admitting criminal wrongdoing. It was up to the judge to have the last word, making a personal observation that both Black’s supporters and detractors have asked themselves as well. “I frankly cannot understand how somebody of your stature, on top of the media empire you were on top of, can engage in the conduct you did and put everything at risk, including your reputation and integrity,” St. Eve said.
The former chairman and chief executive of Hollinger, once one of the largest newspaper companies in the world, is going to prison for stealing $6.1 million from shareholders and obstructing justice by removing 13 boxes of documents from his Toronto office after he was warned not to do so.
The amount of the theft is a fraction of Black’s wealth at his peak about a decade ago when he was a globe-trotting media baron leading a life of luxury among the upper echelons of society, spending time in the company of such people as Henry Kissinger and Elton John and taking on the British title Lord Black of Crossharbour.
All that is now left of that empire, which once included holdings in the U.S., Canada, Great Britain and Israel, is the Chicago Sun-Times and a group of suburban papers. The stock of the company, now known as the Sun-Times Media Group Inc., trades at about $1, down from a high of $20.35 in 2004, weighed down by a circulation scandal under Black’s watch and nearly $200 million in legal fees it spent defending Black and other former Hollinger executives.
Black, a native of Canada who gave up his citizenship when he became a British lord, was forced to resign from the company he built and controlled. Since his indictment in 2005, Black has heaped scorn on the government, calling the evidence “flimsy” and even referring to the team of federal prosecutors as “Nazis”. He has maintained his innocence since his conviction in July, saying he was acquitted of nine of the 13 charges against him. He recently told one British interviewer that he has done “absolutely nothing wrong.”
St. Eve apparently was unfazed by Black’s lack of remorse. She made several favorable rulings on his behalf before deciding on a 78-month term. She took a conservative estimate of the damage from Black’s fraud, deciding he was responsible for $6.1 million in losses and not $32 million as the prosecutors had suggested.
St. Eve also based her decision on more lenient sentencing guidelines in effect when the fraud occurred, instead of the rules in place now. Finally, the judge said there should not be a big discrepancy between Black’s sentence and the 29 months his deputy, F. David Radler, is expected to receive when he is sentenced on December 17. She described Black and Radler equally culpable. Radler pleaded guilty to one count of fraud before the trial and testified against Black in court.
The judge gave Black three months to get his affairs in order before he must report to prison on March 3. A jury also had found Black’s co-defendants, Peter Atkinson, John Boultbee and Mark Kipnis, guilty of three counts of fraud.Link here.
U.S. HOUSE VOTE ON “ILLEGAL IMAGES” SWEEPS WI-FI, WEB SITES INTO ENFORCEMENT NET
The U.S. House of Representatives overwhelmingly approved a bill saying that anyone offering an open Wi-Fi connection to the public must report illegal images including “obscene” cartoons and drawings – or face fines of up to $300,000.
That broad definition would cover individuals, coffee shops, libraries, hotels, and even some government agencies that provide Wi-Fi. It also sweeps in social-networking sites, domain name registrars, internet service providers, and e-mail service providers such as Hotmail and Gmail, and it may require that the complete contents of the user’s account be retained for subsequent police inspection.
Before the House vote, which was a lopsided 409 to 2, Rep. Nick Lampson (D-Texas) held a press conference on Capitol Hill with John Walsh, the host of America’s Most Wanted and Ernie Allen, head of the National Center for Missing and Exploited Children. Allen said the legislation – called the Securing Adolescents From Exploitation-Online Act, or SAFE Act – will “ensure better reporting, investigation, and prosecution of those who use the Internet to distribute images of illegal child pornography.”
The SAFE Act represents the latest in Congress’s efforts – some of which have raised free speech and privacy concerns – to crack down on sex offenders and Internet predators. One bill introduced a year ago was even broader and would have forced Web sites and blogs to report illegal images. Another would require sex offenders to supply e-mail addresses and instant messaging user names.
The vote caught Internet companies by surprise. The Democratic leadership rushed the SAFE Act to the floor under a procedure that is supposed to be reserved for noncontroversial legislation. It was introduced October 10, but has never received even one hearing or committee vote. In addition, the legislation approved has changed substantially since the earlier version and was not available for public review.
Not one Democrat opposed the SAFE Act. Two Republicans did: Rep. Ron Paul, the libertarian-leaning presidential candidate from Texas, and Rep. Paul Broun from Georgia.
The definition of which images qualify as illegal is expansive. It includes obvious child pornography, meaning photographs and videos of children being molested. But it also includes photographs of fully clothed minors in overly “lascivious” poses, and certain obscene visual depictions including a “drawing, cartoon, sculpture, or painting.” (Yes, that covers the subset of anime called hentai.)
Someone providing a Wi-Fi connection probably will not have to worry about the SAFE Act’s additional requirement of retaining all the suspect’s personal files if the illegal images are “commingled or interspersed” with other data. But that retention requirement does concern ISPs, which would be in a position to comply. So would e-mail service providers, including both Web-based ones and companies that offer POP or IMAP services.
Failure to comply with the SAFE Act would result in an initial fine of up to $150,000, and fines of up to $300,000 for subsequent offenses. That is the stick. There is also a carrot. Anyone who does comply is immune from civil lawsuits and criminal prosecutions.
The vote on the SAFE Act seems unusually rushed. It is not entirely clear that the House Democratic leadership really meant this legislation to slap new restrictions on hundreds of thousands of Americans and small businesses who offer public wireless connections. But they will nevertheless have to abide by the new rules if senators go along with this idea (and it has been a popular one in the Senate). Moreover, ISPs already are required by another federal law to report child pornography sightings to the National Center for Missing and Exploited Children, which is in turn charged with forwarding that report to the appropriate police agency. So there is hardly an emergency, which makes the Democrats’ rush for a vote more inexplicable than usual.Link here.
U.S. GOVERNMENT ALTERS IRAQ INVASION WIKIPEDIA ENTRY
The gospel of truth according to Wikipedia has been edited by a Bush-friendly member of the U.S. House of Representatives. Apparently the person was so concerned that people no longer bought the story about weapons of mass destruction in Iraq that he or she took to tampering with the Wikipedia entry.
The entry was edited by someone with a House of Representatives IP address to make the bizarre claim that there was a link between the terrorist organization al Qaeda and the Iraq government. The fact that no link has ever been found, other on Whackypedia, has been a source of embarrassment for the Bush administration. Parts of the article which show proof that there were no links have been watered down by the use of the words “it is claimed.” Thus a statement like “the sky is blue,” has become the “sky is blue it is claimed.”
There are also comments justifying Mr. Bush’s actions which at the time were made on the fiction that Iraq had weapons of mass destruction. The revision was made in 2005 but has only come to light now that software can tell who has been attempting to mess with your mind on Wackypedia.
One has to wonder how reliable an encyclopedia is when it peddles government propaganda in an almost Orwellian manner and forces people who disagree with it to “disappear” from history.Link here.
U.S. SENATE BILL 1959 TO CRIMINALIZE THOUGHTS, BLOGS, BOOKS AND FREE SPEECH
A new law called the Violent Radicalization and Homegrown Terrorism Prevention Act is worded in a clever way that could allow the U.S. government to arrest and incarcerate any individual who speaks out against the Bush Administration, the war on Iraq, the Department of Homeland Security or any government agency (including the FDA). The law has already passed the House on a traitorous vote of 405 to 6, and it is now being considered in the Senate where a vote is imminent. All over the internet, intelligent people who care about freedom are speaking out against this extremely dangerous law, including Philip Giraldi at the Huffington Post, Declan McCullagh at CNET’s News.com, Kathryn Smith at OpEdNews.com, and of course Alex Jones at PrisonPlanet.com.
This bill is the beginning of the end of Free Speech in America. If it passes, all the information sources you know and trust could be shut down and their authors imprisoned. NewsTarget could be taken offline and I could be arrested as a “terrorist”. Jeff Rense at Rense.com could be labeled a “terrorist” and arrested. Byron Richards, Len Horowitz, Paul Craig Roberts, Greg Palast, Ron Paul and even Al Gore could all be arrested, silenced and incarcerated. This is not an exaggeration. It is a literal reading of the law, which you can check yourself here. The bill states:
“... ideologically based violence” means the use, planned use, or threatened use of force or violence by a group or individual to promote the group or individual’s political, religious, or social beliefs ...
Note that this means the “planned use of force to promote a political or social belief” would be considered an act of terrorism. This all hinges on the definition of “force”, of course. Based on the loose use of logic in Washington these days, and the slippery interpretation of the meaning of words, “force” could mean:
You get the idea. “Force” could be defined as practically anything. And since the “planned use of force” would be considered a criminal act of terrorism, anyone who simply thinks about a grassroots action campaign would be engaged in terrorist acts. If you stopped someone on the street and handed them a Bible, for example, this could be considered an act of terrorism (“... use of force to promote the individual’s religious beliefs ...”).
If you sent a barrage of angry letters to Washington about global warming and the destruction of the environment by the U.S. military, this could also be considered an act of terrorism. If you believe in same-sex marriage and you wrote a letter threatning a sit-in protest in front of your state’s capitol building, this could also be considered an act of terrorism, even if you never carried it out! (“... planned use of force to promote a social belief ...”)
The United States is on the fast track to fascism, and the Congress is working right alongside this nation’s traitorous leaders to criminalize any thoughts, words or speeches that disagree with current government policies regarding war, terrorism, domestic surveillance and civil liberties. Simply speaking out against the war on Iraq could soon be labeled a crime. Merely thinking thoughts against the war on Iraq could be considered a criminal act.
This S.1959 legislation, the Violent Radicalization and Homegrown Terrorism Prevention Act, represents one of the ten steps to achieve a fascist state covered by Naomi Wolf in her book, The End of America. It is designed to squash all opposition to the State’s ongoing march towards blatant fascism, where secret police and secret prisons dominate the law enforcement landscape, stripping U.S. citizens of all civil liberties and Constitutional protections. Thoughtcrimes are about to become a reality in the U.S.A., and Congress is pushing this through as quickly as possible so that each individual member of Congress can claim that he or she is “against terrorism”. But this bill does not merely target terrorism. It targets anyone who speaks or even thinks thoughts against the U.S. federal government.
With this bill, the U.S. government is officially labeling the People of the United States as criminals. It is drawing a line in the sand and stating that from now on, it is the Government vs. the People. If we do not stop this bill from becoming law, we are lost as a nation. There is no turning back from tyranny once the government turns its own citizens into criminals, enforcing only the thoughts, ideas, words and speeches that it approves or tolerates. Everything is at stake here!
If you live in the U.S., it is urgent that you call your senators right now and voice your strong opposition against this extremely dangerous law. [Ed: For details of how to do this, see article.]
Stopping this bill from becoming law is the single most important thing all Americans can do right now. If this becomes law, all free speech about health freedom, the crimes of the FDA, the crimes of the Bush Administration, America’s role in global warming and any other topics could all be criminalized. YOU could be labeled a terrorist, kidnapped by government thugs, taken from your home, thrown in a secret prison, denied access to legal representation, denied due process and essentially “disappeared” into a system of such corruption and evil that it now begins to blatantly mirror Nazi Germany.
Think it could not happen here? It is happening right now! This is exactly how it happened in Nazi Germany. First, burn the Reichstag and blame it on the “enemy”. Pass new police state laws. Disarm the people. Spread fear. Erect secret prisons and secret police. Call anyone who disagrees with you a “traitor”. Control the mainstream media. Sound familiar? This is all happening right now in the U.S., and if we do not work to stop it, this nation will rapidly devolve into a fascist police state where no one is truly free.
We are but a few small steps away from it right now. All it would take is one dirty bomb in a major U.S. city. Bush would declare martial law and take over the National Guard. Troops on the streets. Anyone who writes a blog against the government would be arrested. Authors of “alternative” books would be kidnapped and have their books burned on the street. It could all happen at the stroke of a pen. The infrastructure for tyranny is in place right now, just waiting to be invoked.
How can we fight back against this onslaught of tyranny? We must use what remaining free speech freedoms we have right now to alert our fellow citizens to what is happening. We must rise up and tell the truth while urging our representatives in Washington to resist the temptation to vote for more “anti-terrorism” legislation that only works to enslave the American people.
We must use our phones, faxes, emails and blogs to rally our friends, family members and anyone who will listen to oppose these police state laws, and we must organize mass (peaceful) protests against this government that is attempting to marginalize the rights and freedoms of our People.
We must not be lulled into a sense of false security by the purveyors of hatred and fear – the Sean Hannitys, Rush Limbaughs and Bill O’Reillys of the world. Instead, we must listen to the voices of freedom. In terms of the upcoming election for U.S. President, there is only one candidate that actually believes in freedom. Ron Paul. He needs your support to win. All the other candidates are nothing more than tyrants of different political affiliations.
Can you imagine what Hillary Clinton would do with the police state powers that Bush has now created? The danger of all laws that centralize power in Washington is that it is not necessarily what today’s President will do with them, but what some future President will do with them. That is why it is never good enough to say, “Well, we intend to only apply these laws to terrorists and not to U.S. citizens at home.” That may be the intention right NOW, but virtually all such laws creep into areas of enforcement for which they were never intended.
Just look at the application of RICO laws which were originally designed to fight organized crime operations but are now applied to virtually anyone. All these anti-terrorism laws run the danger of expanding in enforcement to the point where they are applied against the People of this country. At first, it is only illegal for “terrorists” to think thought crimes, but before long, it is illegal for anyone to think those same thoughts. That is when the domestic arrests of authors, journalists, bloggers and thought leaders will kick off, and the country will plunge itself into outright tyrannical fascism.
Again, we are on the track right now. This is happening, folks. You are LIVING through an amazing chapter of history right now. You are actually witnessing the downfall of a free nation and the rise of a superpower fascist state. You are actually part of it.
When it is all over, will you look back and realize you did nothing? Or will you now take a stand against tyranny and oppose these dangerous laws and lawmakers who threaten the Constitutional freedoms of you and your children?Link here.
DECOUPLING DIES AS HALF THE GLOBE HITS CRUNCH
The rising economies of Asia are too small and deformed to rescue world growth as America, Britain, Australia, and Club Med face their day of debt reckoning. China may make matters worse, not better.
The seven pillars of global demand over the last year – measured by current account deficits – have been the U.S. ($793 billion), Spain ($126 billion), Britain ($87 billion), Australia, ($50 billion), Italy ($48 billion), Greece ($42 billion), and Turkey ($34 billion). Most are facing a housing bust. All are in trouble.
China cannot possibly step into the breach. Jahangir Aziz and Xiangming Li argue in a new IMF paper that China’s economy is now so geared to the U.S. and EU markets that a 1% fall in external demand will lead to a 4.5% slide in exports and 0.75% fall in GDP. Assumptions that it will weather a global shock are “likely to be wrong, perhaps dramatically.” China is indeed gobbling up iron ore, soybeans, and crude oil, but it still makes up less than 4% of global consumption and is no longer adding to total demand. Imports have been more or less flat since April. China is boosting GDP at the world’s expense, by snatching markets with a cheap yuan. It is beggar-thy-neighbor growth.
Goldman Sachs, Morgan Stanley, and Lehman Brothers, have all begun to tear up the “decoupling” manual – the pre-crunch script assuring us that the world could get along fine as the U.S. buckled. “What began as a U.S.-specific shock is morphing into a global shock,” said Peter Berezin, a Goldman Sachs strategist. “There is a clear risk that some of the hot housing markets in Europe and some emerging markets will cool dramatically.” The bank has begun shorting the Chilean peso. Is the metals boom over?
In Europe, not a single junk bond has been issued since August. Spreads on Euribor – the rate used to price mortgages in Spain, France, Italy, and Ireland – reached 93 basis points last week, a new record. This is tantamount to four rate rises for homeowners.
Thomas Mayer, Europe economist for Deutsche Bank, said the European Central Bank must cut rates immediately, regardless of the lingering inflation threat. “This could go beyond just a normal recession. It could turn into a real economy-wide crunch that we cannot stop,” he said. Four months after the global credit system suffered its August heart attack, nothing has been resolved.
For now, consensus has settled on the view that subprime mortgage-related losses will total $500 billion, and crimp lending by $2 trillion as bank multiples kick into reverse. This assumes there are no more shoes to drop. Yet shoes are dangling precariously across the global credit system. We may soon have to add the terms HELOCs and “monoline insurers” to our crunch lexicon.
HELOCs are home equity loans, the money extracted from houses to pay bills and keep shopping. Moody’s says 16.5% of these loans are in arrears beyond 60 days. The HELOC market is roughly $600 billion, so add another $100 billion to the funeral pyre.
Monoliners are specialist insurers who earn fees by lending their AAA ratings to U.S. states, counties, and cities for bond issues - the safest corner of the credit industry. The nasty twist is that most have ventured into mortgage debt to spice returns. They now face enough losses to threaten their AAA standing. The insurers would then have a month to raise capital, no easy task after a 70% crash in share prices.
U.S. Treasury Secretary Hank Paulson confronts the very real danger of a credit implosion spiralling into a full-blown depression. Given the risks, he can be forgiven for pushing through a rescue plan last week that amounts to a flagrant abuse of contract law and capitalist principles. His subprime rate freeze is undoubtedly a stinker. The reckless are bailed-out. Those who scrimped to amass a little equity get stiffed. Moral hazard runs amok. But bankruptcy settlements are always ugly. This differs only in scale.
Mr. Paulson’s New Deal may at least reduce systemic risk. Frozen rates concentrate losses in the lower tiers of mortgage debt, but rescue the upper tiers, which is where the threat lies for the financial system.
The root cause of this staggering debacle lies in errors made long ago by the Federal Reserve and fellow sinners. It was they who inflated the credit bubble by holding interest rates too low for too long. It was they who lulled their nations into suicidal levels of debt. The strategic failure of a whole generation of economists, bankers, and policy-makers has been so enormous that it may now take a strong draught of socialism to save the Western democracies.Link here.
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