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JAPAN IS THE NEXT SUBPRIME FLASHPOINT
Japan is by far the world's largest creditor and the world's second largest economy. Where does it invest its funds? Ambrose Evans-Pritchard of London's Telegraph says it joined the rest of the world and allocated a hefty chuck of assets to subprime mortgage-backed securities. The Japanese fear of losing face results in bad news getting leaked out only a little at a time. While American and European banks have been reporting large subprime-related losses, their Japanese couterparts have copped only to smaller losses so far. Whether they formally admit the extent of their losses or not, analysts are saying Japan's losses are substantial -- potentially huge, in fact.
Is this not just a Japanese problem, who once again were played as suckers by Americans after buying overpriced office towers in the late 1980s? If you "follow the money", per the advice of "Deep Throat" in All The President's Men, you will find that a lot of liquidity, going back decades now, has originated in Japan. In an effort to avoid dreaded deflation and get the economy going again (After 18 years of trying with no success, one would think they might try some new approaches.), the Bank of Japan has been allowing Japanese banks to borrow money from the central bank at zero or close to it. Those banks in turn have been lending the money to all comers, including hedge funds and their ilk, who then use the cheap money to buy other assets. This has supplied an indeterminate but huge amount of fuel to the long running global asset boom. It has been "perhaps the biggest liquidity pump of them all," writes Evans-Pritchard.
What happens to this source of liquidity if the Japanese banks start having the write down the value of their subprime-related assets? Presumably they have to raise equity or lower assets to bring their capital/assets ratios up to international standards. At the very least they have to reign in asset, i.e., loan growth. Apparently this has been happening.
Just as battered investors had begun to glimpse signs of recovery in America, the next shoe has dropped with an almighty thud in Japan. Echoes are rumbling across the Far East. The Tokyo bourse has crumbled, suffering the worst start to the year since the Second World War. The Nikkei index is down 17% since Christmas, and the shares of Japanese banks are leading the slide. Mizuho Financial, Mitsubishi UFJ and Sumitomo Mitsui have all been punished as hard or even harder than those U.S. banks at the epicenter of the sub-prime debacle.
The nagging fear is that Japan's lenders -- the conduit for the world's greatest stash of savings -- have taken on a far bigger chunk of mortgage securities, collateralized loans obligations, and other exotica from America's structured credit boom than they have yet revealed.
Americans and Europeans have so far confessed to $130 billion of the estimated $400-500 billion of wealth that has vanished into the subprime hole. Somebody, somewhere, must be sitting on a vast nexus of undisclosed losses. We may find out soon enough whether the hold-outs are in Japan. The banks have to come clean under the country's strict new audit codes by the end of the tax year in March.
"We think this is where the next big problem is going to pop up," said Hans Redeker, currency chief at BNP Paribas. "We know from Bank of Japan's lending survey that the banks are already tightening hard, so something is brewing. Right now, we are in the lull before the second storm in global markets, and Asia is going to be the source of the nasty surprises." ...
Japan's economy -- still the second biggest in the world by far -- has fallen over a cliff since October. It remains joined to America's hip after all. The decoupling theory has failed its first test. ... "Recession is a clear and present danger in Japan," said Tetsufumi Yamakawa, chief Japan economist for Goldman Sachs. "The leading indicators are deteriorating very sharply. Inventory is piling up at a rapid pace. There are clear signs of deceleration in exports of steel and semi-conductors to China."
Yes, China. It turns out that the intra-Asia trade that was supposed to immunize the region against a slump is a disguised supply-chain ending up in the U.S. market. American shoppers still make 30% of global demand, just as it did a decade ago. Nothing has really changed.
"We think the Bank of Japan may have to start easing by the middle of the year," said Yamakawa. There is not much monetary ammo left. Interest rates are 0.5%. So it is back to zero, and helicopters of central bank cash ("quantitative easing"), those peculiar hallmarks of Japan's past battle with deflation. The brief attempt to "normalize" Japan Inc. has already failed.
We tend to forget that Japan remains the world's top creditor nation by far, the shy master of fate. The country's net foreign assets of $3 trillion roughly match the net debts of the U.S. The yen "carry trade" -- borrowing cheap in Tokyo to chase yields from New Zealand, to Brazil, Iceland, and above all Britain -- has juiced the global asset boom this decade by $1 trillion. It is perhaps the biggest liquidity pump of them all, yet it stopped pumping in August. Indeed, it is sucking the money back out again. The yen is soaring.
Where have the Japanese recycled the $250 billion they earn each year from their surplus? Official data shows that their holdings in U.S. Treasury bonds have not risen. The Swiss offer us a clue, says Redeker. They are Europe's Japanese, champion savers looking for returns abroad. They devoured U.S. subprime debt on a much bigger scale per capita than the Americans. Hence the $24 billion in write-downs by UBS.
So far, Japan's biggest three banks have admitted to just $4.7 billion in total losses between them. The figure is rising. Mitsubishi, the biggest, has just raised its tally to 12 times the sum admitted in November. This looks like a replay of the early 1990s when fear of losing face delayed the awful news.
Hong Liang, Beijing economist for Goldman Sachs, is not much more hopeful about China's prospects this year. "The combination of a U.S. slowdown and monetary tightening in China is never welcome, but the accumulated problems have to be resolved this year," she said. Inflation at 6.9% is getting out of hand. The root cause of overheating is the weak yuan. The central bank has piled up $1.5 trillion of foreign reserves trying to stop it rising. The longer this goes on, the more inflationary it becomes. So Beijing has begun to step up the pace of revaluation, letting the yuan rise at an annual rate of 20% in January. There will be casualties. Large chunks of China's manufacturing export industry have wafer-thin margins. A rising yuan tips them into the red.
China's mercantilist drive for export share is a double-edged strategy. The trade surplus has risen at $80 billion a year, increasing 10-fold since 2002 while the economy has merely doubled. The result is that China is as dependent on the U.S. economy as Mexico. So the storm spreads East. Haruhiko Kuroda, head of the Asian Development Bank, warned that the region would catch a cold after all as the U.S. sniffles and sneezes. "Asian economies are not totally immune. A significant slowdown in the U.S. economy will most certainly affect the region's growth," he said.
The global watchdogs are scrambling to rewrite the script. The World Bank has cut its China growth forecast from 10.8% to 9.6% in 2008. Private banks are slashing deeper. Once the striptease starts on the onset of a global downturn, it usually has a long way to run.
Sometimes you wonder just what it takes to disprove a theory.
An professor of ours, back in the 1970s, was discussing some published summaries of attempts to empirically verify just how well a certain hallowed academic financial markets model fit with the real world. At one point he stopped and remarked, "Sometimes you wonder just what it takes to disprove a theory." That pithily sums up a certain propensity in academic social sciences: It acts like the man searching for his keys under a street lamp because that is where the light is, even though he lost them in an alley a block away.
Persistant divergence from reality does not prevent academics from getting published and then tenured, and generally hustling up a career out of the whole flimflam. You only need a presentment that persuades others playing the same game to admit you to the club. Indeed, if reality intruded too harshly, academe it would lose some of its considerable charms. But when academics actually believe their theories and are given the opportunity to apply them, and force them down the throat of a reluctant world if necessary ... then the troubles begin.
If acedemia is related to, and funded, in a like manner to opera its capacity for mischief is circumscribed. No one expects it to turn a profit. We just ask that it not drain too much of the treasury while generally contributing to "culture" -- which we are told, and in our heart of hearts believe, is good for us, and are willing to countenance as long as we are not forced to directly participate in it more often than biennially.
But imagine that Eisenstein, the Svengali-lite masked costume ball host in the comic operetta Die Fledermaus, gets to force everyone to attend his event. And then forces his guests to play out prearranged roles for his amusement (like vigorously insulting the local constable dressed as a vampire). And then when that causes problems, gets to dust off his hands with a perfunctory "I'll have to try this again, because the people did not end up all happy like they were supposed to." Then the farce stops being so funny. This is a frequent outcome when academics and the state feed off each other.
"This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer," said Will Rogers. One would think we could all rest a little easier when the hammer is passed into the hands of a rigorously trained economist. But, it seems often not. An elegant but wrong-headed theory can be a dangerous thing. It acts like a hallucinogen that simultaneously begets blindness and lead-foot in motor vehicle drivers.
One of those wrong-headed but persistant theories loved by economists is that a weaker dollar will help reduce the U.S. trade deficit. There is absolutely no empirical validation of this theory. None. Yet, today we hear the latest verse, same as the first, that if only China would allow the yuan to appreciate vs. the dollar that would help reduce ... need we go on?
Forbes columnist Steve H. Hanke is a professor of economics at Johns Hopkins and a senior fellow at the Cato Institute, the "libertarian" think tank based in Washington, D.C. (certain senior spokespeople of which have been harshly critical of Ron Paul, but not Hanke to our knowledge). He has been a long-standing critic of the weak dollar advocates, and once more explains why the whole idea is "bunk". A noble mission, but you may as well be explaining to Ben Bernanke that trying to inflate your way out of an economic downturn is a bad idea. Or to a child that he or she should refrain from consuming candy because it can rot your teeth.
The Federal Reserve dramatically slashed both the federal funds target rate and discount rate twice in little more than a week, confirming that the central bank has thrown inflation fighting to the winds. The interest rate reductions also confirm the Bush Administration's (and the Fed's) cheap-dollar policy.
While this is bad news for inflation hawks, it is a delightful development for people who think the government should manage international trade. They believe that the U.S. trade and broader current account deficits reflect America's lack of competitiveness and are inherently bad. According to this thinking, a dollar devaluation is virtuous because it makes U.S. goods more attractive. Such thinking is common, even among some economists. It is bunk.
Just consider the most recent bout of dollar weakness. The trade-weighted value of the greenback has fallen 21% since 2001. So did this weakness in the currency create prosperity or even shrink the trade deficit? No. Since 2001 exports increased 78%, but imports increased even more, 85%. This left the trade deficit twice as large in the third quarter of 2007 as it was in the last quarter of 2001.
To appreciate just how ingrained the devaluationist bunk is, go back to 1971. That year Richard Nixon abandoned the Bretton Woods system of fixed exchange rates. He closed the gold window, imposed a surcharge on manufactured imports and demanded that other big industrial countries allow their currencies to appreciate against the dollar before he would remove the surcharge. They all did, leaving a foreign exchange system of 22 years' duration in tatters and giving the cheap-dollar mantra a comfortable home in Washington, D.C.
Did the Nixon cheap-dollar policy make exports grow faster than imports? Scarcely. The U.S. trade deficit has been in negative territory every year since 1975.
Nothing better demonstrates the impotency of devaluations in creating a trade surplus than the U.S.-Japan story. Starting with the Nixon Administration, the U.S. has pursued a two-pronged strategy: protectionist threats coupled with demands for a yen appreciation (that is to say, a cheaper dollar). Amid this madness there have been some intervals of lucidity. The first Reagan Administration (1981-84) and the Clinton Administration (after April 1995) embraced a strong-dollar policy. The trend, though, is in line with the mercantilist view that dollar weakness is something to be sought after. Since 1971 the yen has appreciated 240% from its Bretton Woods value (360 to the dollar) to its value today (106 to the dollar).
According to the devaluationists, that cheapening of the dollar against the yen should have worked wonders on the U.S. trade deficit and in particular on the two-way trade deficit with Japan. That did not happen. The U.S. trade deficit not only kept growing, but Japan's contribution to it ballooned from 26% in 1977 to 58% in 1991. (In 2000 China overtook Japan as the largest contributor to the deficit. Now Japan accounts for only 11%.)
With the U.S. trade deficit continuing to pose a "problem," both the Bush Administration and the Fed turned to that old discredited antidote, a cheap dollar. The main thing that has changed since the early 1990s is that the U.S. trade deficit has become bigger in absolute and relative terms, and China has replaced Japan as the target of protectionist wrath. Will the current cheap-dollar ploy change the U.S. trade and current account picture? No.
Truths in economics boil down to accounting principles, as immutable as the laws of physics. Our current account deficit is equal to the sum of two quantities: the excess of private investment over savings and the government deficit. The last 10 years can be divided into three periods. In the late 1990s the public sector was in surplus, and the current account deficit was the result of an investment boom coupled with a savings drought.
With the end of the dot-com surge in 2000, the private sector's contribution to the current account deficit shrank. But the slack was more than made up by the government's spendthrift habits. By late 2003 the real estate boom had kicked in, and both the private investment-savings gaps and government shortfalls were contributing mightily to current account deficits.
Trade imbalances are all about net-savings propensities, not changes in exchange rates. As the coming recession gathers force, the private investment rate will slow and the savings rate will increase, closing the investment-savings gap. At the same time, government deficits will probably creep up. On balance the current account deficit may well ease a bit. Unfortunately, however, this development will not stop the irrational agitation for a cheap dollar.
SWITZERLAND FEARS DOWNTURN
Switzerland's big banks may have been sucked into participating in the great American credit bubble swindle, but the rest of the economy has hardly missed a beat -- yet. Now that may be changing.
Switzerland is bucking the gloomy European trend, with a new report showing a strong year-on-year improvement in retail trade and consumer confidence. But the prospect of a slowdown in the EU and the U.S. has spooked Swiss exporters, who predict stagnant order intakes after four straight years of growth.
Currently there seems to be no let-up in foreign demand for Switzerland's world-famous retail brands, from candy-maker Nestle to luxury goods firm Richemont, owner of Cartier and Mont Blanc. Swiss watch exports rose 13.5% year-on-year in December, according to the Swiss Watch Industry Federation, while exports of java coffee more than doubled in 2007. But the latest survey from the KOF Swiss Economic Institute ... forecast a slowdown across all export categories in 2008, as well as a worse outlook for export-oriented companies. ...
The report added that consumer demand in Switzerland was booming, thanks to wage and employment growth. This may be a positive development relative to the rest of Western Europe, which is suffering a crisis in consumer confidence, but a slowdown in foreign demand for Swiss goods could be a significant headache for the Swiss economy. ... "The Swiss economy is a small economy," said Dr. Patrick Muhl, senior economist with Credit Suisse. "The export contribution to growth is nearly 45%."
Muhl listed pharmaceuticals, medical instruments and luxury consumer goods as prime Swiss exports that could be affected by a slowdown in demand. But he said the retail sector was quite sturdy in Switzerland, with a lot of the pain likely to be felt by industrial exporters. ...
Regarding wider monetary policy, there does not seem to be any need for drastic action just yet, according to the Swiss Economic Institute. Its report predicted that inflation rates would ease from 2% to 1% by the end of 2008, largely thanks to easing commodity prices, slowing house prices and an appreciating Swiss franc relative to major currencies. ... But although consumption may not overheat, Swiss exporters are clearly worried that a wider financial downturn will still lead to a new period of stagnation.
ISLAMIC BANKS SHIELDED FROM SUBPRIME CRISIS
In what has to be considered a somewhat incongruous, if not ironic, development, the Islamic prohibition against interest-based lending has by default forced Islamic banks to engage in fairly conservative and sound investment practices. Which turned out to be a good idea in an era of historic credit excesses. Islamic banks were not entirely immune from the worldwide real estate bubble virus, but their ability to leverage their exposure -- especially via the alphabet soup of securities backed by mortgage loans -- was limited by their requirement to comply with Islamic law (sharia).
"Give a man enough rope and he will hang himself," goes an American proverb. It certainly seems to have applied in spades to American banks, and, really, the whole American financial system. Given that this outcome derives from human nature more than anything unique to the American psyche, it is hard to believe the Islamic financial players would not have accomplished similar feats of self-immolation if given more time. But at this point in history, by virtue of their plodding towards the cliff at a tortoise-like pace, because they had just barely learned to walk, while everyone else had been running towards it like mad hares, the Islamic banks are able to pull up short when they see everyone else disappearing into the abyss.
Islamic banks have been largely shielded from the U.S. mortgage crisis, which may even open doors for expansion beyond traditional strongholds in Arab and Asian markets, Bahrain's central bank governor said. Islamic banks should have shunned collateralized debt obligations linked to subprime, or high risk, mortgages because such complex instruments do not comply with Muslim law, [said] Rasheed al-Maraj ...
Islam bans lending on interest and trading of debt. Scholars vet every stage of a transaction to ensure compliance with sharia, or Islamic law, making it unlikely that risks were lurking in the balance sheets of unsuspecting lenders, he said. "In Islamic banking, there is no black box that needs a genius to unwind it," Maraj said. "Many of these conventional products that have been under stress lately are very complex and need special risk management tools. In Islamic banking you will not have this kind of thing. Some of these products would not be sharia accepted."
Global conventional banks from Citigroup to UBS have written down more than $80 billion in credit market losses since October as defaults on subprime mortgages triggered a credit crisis that threatens to tip the U.S. economy into recession. By contrast lenders in the Gulf and Malaysia, the global hubs of Islamic finance, have barely reported any subprime related losses. ...
"This does not mean that Islamic finance is risk free. We still have some concern about the concentration of risk ... There is a lot of focus on real estate," Maraj said, adding that tools to allow Islamic lenders to hedge risk should be developed.
The subprime crisis could provide the Islamic banking industry with greater opportunity for growth, both from conventional retail customers looking for an alternative, and also from the collapse of Western asset prices. "Maybe Islamic banking will be a safe bet for them," he said. "I think opportunities exist in the United States and Europe as a result of this financial distress. The high valuation of the assets will come down."
Spoken like a seasoned vulture investor, Mr. Maraj seems to understand the idea better than most Western bankers that asset price deflations follow a credit-based inflation.
MAURITIUS IS CARVING A NICHE AS AN INTERNATIONAL FINANCIAL CENTER OF SUBSTANCE
Mauritius has been the subject of a couple of journal entries over the past two weeks (here and here). Heretofore the small Indian Ocean island nation has usually been mentioned in the offshore financial press in the context of its tax treaty and negotiations with India. This year we notice that Mauritius is starting to be mentioned as a serious general offshore financial jurisdiction. This article is evidently a promotional piece, but nevertheless offers background information of some substance.
Strategically located in the Indian Ocean at the crossroad of international investments, Mauritius has throughout the last decade forged a strong reputation as a premier international financial center. [IFC] The Mauritian authorities have been extremely prudent in adopting world class law and regulations with a touch of innovation and this has resulted in a financial services industry that has quickly matured and embraced the highest standards of international practice. Additionally, the center benefits from low taxation, an extensive tax treaty network, market access, innovative financial products and a pool of skilled professionals. It is not surprising, therefore, why Financial Services is the sector which has enjoyed the highest growth rate over the last years and currently is the main pillar of the Mauritian economy contributing around 11% to the GDP.
The Global Business Platform
The Mauritius IFC offers quality services through its modern and innovative legal framework. ... Global Business Companies (GBCs) benefit from low to nil taxation. GBCs can be organized as protected cell companies, private trust companies, trusts, and societies (partnerships) among others. An entity holding GBC category 1 licence can benefit from the 33 Double Tax Avoidance treaties that Mauritius has ratified with other countries. There are presently around 33,000 entities engaged in Global Business in Mauritius and 460 funds licenced by the Financial Services Commission with a net asset value of $35.9 billion (as of December 2006).
Provision Of Financial Services
The business architecture of Mauritius has been thoroughly redesigned to offer investors a hassle free business environment to start and operate an economic activity. The corporate tax rate for business operating in the domestic sector is now at the attractive rate of 15%. Since October 1, 2006 foreigners can obtain an occupation permit to work and reside in Mauritius within three working days.
The success of Mauritius as a center for the provision of financial services depends upon the maintenance of its reputation of [integrity]. Mauritius prides itself in having a robust regulatory framework within a business friendly environment. Mauritius fully supports international initiatives (FATF, Basel, IOSCO, IAIS) aimed at preventing the jurisdiction from being used for money laundering and terrorist financing. It is worth noting that Mauritius has never been blacklisted. ...
Other Salient Features
Mauritius is a worldwide reference for political stability. Its constitution is modeled on the British parliamentary system with the highest court of appeal being the Privy Council of the United Kingdom. Mauritius offers a diligent, educated, multilingual and experienced professional labour force. The literacy rate is currently at 86%. Mauritius benefits from a low cost of operations and offers a series of attractive fiscal incentives such as no tax on dividends, no withholding tax on interest, royalties and dividends, no estate duty, inheritance, wealth or gift taxes, no stamp duties, registration duties and levies.
It is accepted that in this era of global competition, Mauritius needs to constantly innovate and sophisticate to keep pace and maintain its competitive edge. And thus the government has recently come up with a set of new laws and regulations to expand the scope and depth of services that may be offered:
- A new Financial Services Act has been enacted which aims at streamlining and consolidating the whole licensing framework for various non-bank financial institutions and financial service providers. The new Framework sets in a new conceptual approach to global business and provides that global business entities may conduct any financial or non-financial service activity, provided that the ultimate purpose of the business is to provide service outside of Mauritius.
- A new Securities framework is being implemented which is intended to broaden and deepen the securities industry in Mauritius. ...
- Concurrently, a new Insurance Act aiming at improving the soundness of the insurance market in Mauritius by enhancing the regulatory and supervisory framework for the insurance industry and providing greater protection to policyholders and other beneficiaries has been instituted. ...
- Government has recently announced that further legislation would be forthcoming to introduce more innovative products within the Financial Services Landscape. Accordingly, the appropriate banking legislation will be amended to allow for the development of Alternative Financial Services such as Islamic Financial Services which is a fast-growing new activity with big export potential. Legislation will also be introduced to allow the setting up of private foundations and Real Estate Investment Trusts (REITs). The legal profession is also being liberalized to allow foreign law firms to set-up in Mauritius.
Initiatives on the regulatory front, coupled with the measures and policies implemented by the government and continued innovation have contributed in making Mauritius a financial platform that cannot be overlooked by investors. The country provides exciting opportunities to do business in a friendly and safe environment and should certainly be considered by entrepreneurs looking at doing business in the Mauritius International Financial Center. Facilitation assistance can be sought from the Board of Investment, Mauritius by visiting our website.
World Bank Opens Office in Mauritius
The establishment of a World Bank office in Mauritius is being seen by the jurisdiction's government as a major plus, as it oversees a transition in the local economy towards open and globalized competition ... in addition to facing significant economic and social challenges. The World Bank is also providing support to the country in terms of bringing international best practices to the attention of local policy makers, and providing technical assistance where needed.
"Best practices" like reporting everything to OECD Command Central.
According to [Mauritius] Prime Minister Ramgoolam, the event is a major milestone in the World Bank's development partnership with the government and people of Mauritius, and he believes that the office will help to foster dialogue on development issues and other areas of cooperation. It will also give the World Bank a great opportunity to have a first-hand and close understanding of the realities and complexities of the Mauritian economy and society, thus enhancing the process of constructive dialogue that the government has already engaged in with the World Bank on a wide range of policy issues, he observed.
We are sure that once the World Bank understands better "the realities and complexities of the Mauritian economy and society" that they will be of great assistance. Hopefully, the Mauritians will not come to regret that the Bank's observations were not happening from a slightly less intimate distance.
U.S. TAX PLAN COULD DRIVE CAPTIVE INSURERS OFFSHORE
Following up a journal entry from last week, another article looks at the likely effects of an IRS proposal that would allow captive insurance companies deductions only for actual losses, as opposed to for additions to reserves for future losses like a standard insurance company. Suffice it to say that the Cayman Islands and Bermuda are salivating at the prospect.
A proposed tax change by the U.S. IRS could drive more captive insurers offshore, benefiting the Cayman Islands and Bermuda and hurting Vermont and other U.S. states that have sought to snare a piece of the action, industry officials say.
If approved, the proposal would eliminate the ability of U.S. based captive insurers -- firms that insure their parent companies -- to claim tax deductions for money set aside in reserves to pay for future claims and losses. Instead, these deductions would only be allowed at the time the actual claims are paid out, potentially leading to millions of dollars in taxes being collected up front.
"Companies wanting to set up captives are holding off to see what happens," said Dan MacLean, president of the Insurance Managers Association of Cayman (IMAC) and managing director of Aon Insurance Managers (Cayman), part of Aon Corp. "Right now, Cayman and Bermuda are watching from the sidelines." Other emerging captives markets, such as Ireland, Switzerland and Luxembourg, could also benefit if the IRS proposals took effect, industry experts believe.
Captives, which insure part or all of their parents, were once considered a fringe product to traditional insurance. But companies, especially in the U.S., have found they can make significant savings on premiums by forming captives rather than through buying traditional insurance. There are now more than 4,000 captives worldwide, writing more than $20 billion in premiums, according to the captive information Web site captive.com.
Why these "significant savings" exist and persist is not explained. One would think insurance companies would observe this lost business and adjust their premiums downward to recapture it. Perhaps a company has more specific knowledge of the risks of its own business than an outsider can ever have, and thus can avoid paying a risk premium to compensate the outsider for the uncertainty. Maybe companies can adminstrate their specific risks more cost efficiently that a third party that insures a wider array of risks. The most interesting possibility is that self-insuring substantially reduces "moral hazzard", where the very fact of being insured induces the insured to engage in riskier behavior than otherwise. Insurance companies offer incentives such as loss experience-based rebates to overcome the phenomenon, but one can imagine that overtly self-insuring steps up the level of awareness.
To date, Bermuda, a mid-Atlantic British territory, leads the captive market with about 870 registered companies, followed by the Cayman Islands, a British dependency in the Caribbean, at 756. Vermont has been the only real onshore U.S. competitor for Bermuda and Cayman, with 562 listed captives. In recent years, however, a number of other U.S. states have brought in legislation to get a piece of the lucrative pie.
MacLean said he believes the states with the best chances of grabbing a significant market share include Hawaii, South Carolina, Arizona, Nevada, the District of Columbia, and New York. "Since 9/11, there has been more of a patriotic push to keep business onshore. Beyond these states, it is unlikely that other states can effectively build the momentum needed in the industry," he said. ...
"There has not been anything as serious on the regulatory front like this for at least 10 years," said Dennis Harwick, chairman of the Coalition for Fairness to Captive Insurers, a group established by 46 industry associations, captives and U.S. states, including Vermont.
The IRS has set a hearing for February 29 to listen to the coalition's arguments. "I don't think the IRS understood that they are stepping on the states' toes. One of the assumptions that people at the IRS had made was that they did not think that captives were real insurance companies," Harwick said.
It might have occurred to the people at the IRS to check out and test their assumption before pressing ahead.
NEW YORK U.S. DISTRICT ATTORNEY GENERAL SEIZES RECORD $1.1 BILLION IN 2007
The Asset Forfeiture Unit of the United States Attorney's Office for the Southern District of New York has forfeited or reached agreements to forfeit more than $1.1 billion in calendar year 2007. The forfeitures stem from a variety of cases prosecuted by the Office, from corporate fraud cases to cases concerning public corruption, fraud in the United Nations Oil-for-Food program, international narcotics trafficking, art and antiquities thefts, and internet gambling.
Forfeiture laws, broadly speaking, are those laws that enable and facilitate the seizure of property without charging the property owner with a crime. The legal "reasoning" is that the property committed the crime -- we kid you not -- and unlike people, property is not entitled to due process and thus can be summarily deprived of its liberty, so to speak. Note that this is different from freezing an asset (i.e., preventing its ownership from being transferred) pending the outcome of a civil or criminal judicial proceeding. It is an outright taking without compensation. Redress is available to the original property owner, but it is fair to say that the procedures are not designed with the successful return of the property to him or her in mind. For one, the property is presumed guilty until proven innocent. Examples abound where people carrying large amounts of cash for entirely legitimate reasons have their cash seized, and are then told to prove it was all legitimately obtained if they want to back. Not necessarily easy.
The Department of Justice uses the fiscal year to track forfeitures, and the Office's forfeitures also exceeded $1.1 billion for the 2007 fiscal year ("FY07"), which runs from October 1, 2006, to October 1, 2007. The Office collected approximately $717.8 million and reached agreements to forfeit an additional $450 million, bringing the Office's forfeiture total in FY 2007 to over $1.1 billion.
For the third consecutive fiscal year, the U.S. Attorney's Office for the Southern District of New York has led the nation in deposits to the Government's various Asset Forfeiture Funds. In FY07, the nationwide total of deposits into the Asset Forfeiture Funds was approximately $1.3 billion, with the forfeited assets collected by the United States Attorney's Office for the Southern District of New York -- $717.8 million -- comprising 55% of the national total. The top districts and totals are as follows:
Top Districts for Asset Forfeiture in FY07 Amounts Deposited into the Asset Forfeiture Funds Southern District of New York $717.8 million Western District of Virginia $183.6 million Eastern District of New York $ 49.2 million Southern District of Florida $ 37.5 million Southern District of Texas $ 29.2 million District of Connecticut $ 19.7 million District of New Jersey $ 17.5 million District of Maryland $ 15.8 million Southern District of California $ 15.6 million Central District of California $ 15.3 million
Recent highlights of the Office's asset forfeiture program [include:]
Corporate Fraud Cases
Together, the Office's Securities and Commodities Fraud Unit and the Asset Forfeiture Unit have advanced the innovative use of forfeiture laws to locate, seize, and forfeit crime proceeds in order to restore them to victims.
This was done in several high-profile corporate fraud cases, including the Adelphia, Refco, and Bayou prosecutions. In those cases, this Office obtained three of the largest forfeitures in Department of Justice history, totaling in excess of $1.3 billion to date, with the goal of using the forfeited funds to provide restitution to victims. Each case required the resolution of complex issues arising from third-party claims to the properties and from competing parallel proceedings, including bankruptcies, class actions and creditor lawsuits. As a result of the Office's work on these cases, Assistant U.S. Attorneys ("AUSAs") from this Office received the Attorney General's John Marshall Award for Outstanding Legal Achievement for Asset Forfeiture at the Attorney General's Award ceremony on October 2, 2007. AUSAs in the Southern District of New York have received the award a record six out of the last seven years. ...
It is unclear why forfeiture laws were used or needed in these cases. In the high profile cases cited one would think that standard tort and fraud statutes would be sufficient, if restitution to the victims was the primary priority. Exactly what the resolution of the "complex issues" entailed is a question that deserves answers. It would also be interesting to know what percentage of the forfeited funds went to actual victims of fraud vs., e.g., class action lawyers and U.S. Attorney General budgets.
The irony -- wholely unintentional, we are sure -- in naming the award for "Outstanding Legal Achievement for Asset Forfeiture" after John Marshall cannot be overlooked. Just last week we noted in a book review of The Politically Incorrect Guide to the Constitution that Marshall played a major and vital role, similar to the boosters on the Space Shuttle, in transmogrifying the Constitution from a document describing a small, limited federal government to one that apparently gives the federal government carte blanche for anything and everything. Having his name attached to "achievements" in asset forfeiture is preternaturally, and mordantly, fitting.
In 2007, NETeller PLC -- an internet payment business based in the Isle of Man and traded on the Alternative Investment Market of the London Stock Exchange -- admitted to criminal wrongdoing, and agreed to forfeit $136 million in proceeds as part of an agreement to defer prosecution of the company for gambling violations. In addition, the founder and former President of NETeller both pleaded guilty in 2007, to charges that they conspired to promote illegal internet gambling by providing payment services in the United States to offshore internet gambling businesses, and agreed to jointly forfeit an additional $100 million in proceeds.
Here the crime consisted solely of supplying the means for gamblers in the U.S. to get a better deal, by their own estimations, than they were obtaining from the protected onshore alternatives. NETeller's chief officers were sufficiently incautious in their travels that they found themselves arrested (more like kidnapped) by the U.S. feds. The forfeited proceeds were ransom in everything but name.
The Asset Forfeiture Unit works closely with the Public Corruption Unit to ensure that state, municipal and public officials who commit crimes are forced to disgorge their illgotten gains and compensate victims for their losses by forfeiting their money and property. ...
The Office has brought several cases relating to corruption in the United Nations' Oil-for-food program. The program was designed to permit oil revenues to be used for humanitarian purposes to benefit the Iraqi people, notwithstanding international sanctions against Saddam Hussein's regime, but the regime, through a secretly implemented system of "surcharges" that had to be paid to the regime in exchange for oil allocations, instead enriched itself. In 2007, this Office forfeited or reached agreements to forfeit approximately $47 million related to Oil-for-food cases, and is seeking to have the forfeited funds be provided to the Development fund for Iraq, as representative of the Iraqi people. International Narcotics Trafficking AUSAs in the Asset Forfeiture Unit have worked closely with the Office's International Narcotics Trafficking Unit to seize and forfeit millions of dollars in drug proceeds as part of the Office's effort to dismantle international narcotics and money-laundering organizations. ...
Art and Antiquities Cases
In addition to the Office's use of the forfeiture laws to recover money, the Office has made pioneering use of federal forfeiture laws to recover and return stolen art and cultural heritage property. (The value of such recoveries is not included in the $1.1 billion totals described above.) The Office has handled a number of noteworthy art and antiquities forfeitures, including the 2007 forfeiture of an Egyptian Alabaster Offering Vessel which dated to the Old Kingdom, Dynasty IV-VIII, 2575-2134 B.C. which had been stolen from Egypt and smuggled into the United States; arrangements are being made to return the vessel to Egypt.
Other notable examples from past years include: a painting by Lavinia Fontana and another by Anton Graff, returned to Switzerland; a stolen Etruscan bronze statue, dated circa 490 B.C., returned to Switzerland; an antique gold platter (phiale) dated circa 450 B.C., returned to Italy; a rare manuscript, returned to Mexico; and a medieval carved wood panel, originally inside the historic Great Mosque in Dvrigi, returned to Turkey. In an ongoing case that has garnered international attention, this Office has used forfeiture laws to uphold the rights of Jewish victims to reclaim art stolen during the Holocaust era. The pending civil forfeiture action, United States v. Portrait of Wally, involves a renowned painting by Austrian impressionist Egon Schiele currently valued at $20 million. The lawsuit alleges that the painting was stolen by the Nazis from a Viennese Jewish woman, Leah Bondi Jaray, and was acquired by an Austrian collector, who knew it was stolen, in 1950.
In 1997, the painting was imported into the United States for exhibition at the Museum of Modern Art, and this Office thereafter initiated a civil forfeiture action with a view towards returning the painting to the heirs of Mrs. Jaray. The case has been in litigation since 1999.
Following the institution of the case, the Austrian government enacted legislation which opened government archives so Holocaust victims could gather information on their property, as well as legislation which allowed numerous Holocaust victims to recover their stolen property.
Most would agree that in many of the cases referenced the victims of the crimes -- where there are actual victims -- may have been well-served by the aggressive use of forfeiture laws. That does not mean the laws' existence and application is a good idea. Short-circuiting long-standing legal traditions via forfeiture pseudo-laws results in offsetting, and then some, injustices in too many other cases. To paraphrase Ben Franklin: Those who would sacrifice a little justice for promote their interests, will end up with neither justice not their interests being promoted.
LOOK HOMEWARD, AMERICA: IN SEARCH OF REACTIONARY RADICALS AND FRONT-PORCH ANARCHISTS REVIEWED
A stand against empire.
One of the more inspired and inspiring books we have had the recent pleasure to read is Look Homeward, America: In Search of Reactionary Radicals and Front-Porch Anarchists, by upstate New York (a whole other planet from the city) resident Bill Kauffman. One of the reviewers on the Amazon.com page for the book aptly summarizes the book as part rhapsodic panegyric, part unmitigated venting of spleen, exploring everything Kauffman loves and loathes about America: chain restaurants, shopping malls, big box stores, fake breasts, and smart bombs and the not-yet-dead alternative America rooted in the love of place and communitarian values.
A Web site called 2Blowhards contains a 5-part 2006 interview (Introduction, Part 1, Part 2, Part 3, Part 4, Part 5) of Kauffman. The interviewer notes that "encountering [Kauffman's] work isn't just to be swept away by energy, talent, and brains, it's also to discover a fresh, unexpected, and fully-developed vision. ... His version of American history is the -- to me very convincing -- story of the Empire (and its supporters and propagandists) vs. Us Human-Scale Creatures."
Kauffman's harshest rants and insults are earmarked for politicians -- the Kennedys and Clintons, and Bushes; Johnson, Nixon, Reagan, Woodrow Wilson, interventionists, central planners, and busybodies. His vitriol is dished out equally along the standard and misleading "left/right", or "liberal/conservative", political spectrum. He targets warmongers, poseurs, power-hungry centralizers, destroyers of community and rootedness, anyone who would intrude on members of the confederacy of eccentric "leave me the hell alone" cranks. In short, he targets hatchet men for and embodiers of, as John McClaughry, writing in AnarchistNews.org describes it, the "intrusive forces of bigness, modernity, homogenization, and imperialism." (Kauffman is a proven master of the epithet. He has called Ronald Reagan "that Bel Air Cold War liberal who bankrupted the country.") From McClaughry's review:
From [his] intellectual odyssey Kauffman has accumulated a long list of dislikes, some of them intense. A sampler: wars, empires, television, consolidated schools, homeland security, the metric system, interstate highways, collectivism, day care centers, Wal-Mart, wage labor, gun control, urban renewal, trade agreements, the PATRIOT Act, National Review, Ayn Rand, Henry Kissinger, Nelson Rockefeller, and Hillary Clinton. Among his least-favorite initials are FDR, JFK, LBJ, NYC, IRS, and CNN. What this seemingly diverse list has in common, to Kauffman, is that each entry is destructive of the values he holds dear: the richness, faith, and compassion of a small community, built upon a network of self-reliant but mutually supportive families, rooted in a sense of place, cherishing the memories and traditions of generations past.
Reviewer Robert C. Cheeks, in California Literary Review, writes:
Elba, New York writer, Bill Kauffman, is not likely to find himself comfortably couched beside the doyenne of daytime book reviews, the lovely Miss Oprah, nor is he likely to preside over a wine and cheese party sponsored by the east coast literati anytime soon. Such are the vicissitudes of a provincial placist who has rejected the [largess] of the "post-war corporatist-collectivist consensus" and spent his career, or most it, in search of those venerable American intellectuals who "have sought to tear down what is artificial, factitious, imposed by remote and often coercive forces and instead cultivate what is local, organic, natural, and family-centered."
It is a lofty goal Kauffman has set for himself. The truth of the matter is that the genre of people he seeks to learn and write about is not exactly on the cutting edge of "what's happening now." Thus, Kauffman is in danger of losing the American "everyman" -- he who subscribes to People, religiously tunes into the "Nightly News", and patiently waits for the latest rerun of Seinfeld, that T.V. show about nothing, which turned out to be an amazingly accurate portrayal of modernity.
However, what saves it all for Kauffman is the fact that he is a supremely gifted writer who with a facile ebullience conjures up some of the funniest and erudite copy on either side of the Atlantic. An apropos example, and one that sets the tone of his book, is his final sentence in the introduction to, Look Homeward, America: "Until Americans take the [author Carolyn] Chute route of rejecting the remote and pestilential institutions that mean us harm, and of choosing the free, the local, the life-giving anarchic, the Columbuses will rot into Columbines." Now that is a sentence!
He is not much impressed with modernity, rejecting with certitude McDonald's transfatty fries, the interstate highway system, television, the decline of literature, and a pernicious militarism that has sponsored the "great American diaspora." He notes with a trenchant passion the lot of the great American unwashed: "Yet we are the America that suffers in wartime: we do the dying, the paying of taxes, we supply the million unfortunate sons (and now daughters) who are sent hither and yon in what amounts to a vast government uprooting of the populace." This is not the stuff upon which the neoconservative junta will heap approbation, but then you are not likely to find many of their sons and daughters serving in Fallujah.
Kauffman is H.L. Mencken in high dudgeon, Samuel Clemens in wry observation, Will Rodgers in celebration of the American condition, and Michael O'Brien in emotive prayer. He is the Oakeshottian thinker who eschews a debilitating and corruptive rationalism, quite content in the knowledge that happiness is an unscheduled accident.
The reviewer seems to have absorbed some of the author's Oxford English Dictionary-level vocabulary. If we have one complaint about the book, it would be Kauffman's penchant for substituting obscure synonyms for perfectly erudite but more common words. For example, with words like "encomiast" used in place of "extoller" or "lauder", or even "laudator", one needs to read with a dictionary close at hand. Why "manumit" instead of "emancipate"? Give us a break for a page or two, Bill. This is mostly good. It is just the relative frequency that could have withstood some economizing.
In Look Homeward, America, Kauffman tackles the challenges of an interviewer, memoirist, and historian with the panache and elan of an Alan Tate in high literary criticism. Some of the people he has chosen to portray are, in many ways, his teachers, and he has gleaned from them those rare and elusive golden nuggets of truth upon which a man can hang his hat. He labored, with disquietude, in the vineyard of Pat Moynihan, admired the politics and stoicism of Eugene "Clean Gene" McCarthy, and found a sustaining peace in the Christ-like example of Dorothy Day -- "in the face of Empire, The Way of Love."
In his chapter on regionalist artist, Grant Woods, Kauffman offers a comparison pregnant with possibility. "You can believe in the American Empire, with its smart bombs and dumb presidents, or you can believe in the American Main Street, where Sinclair Lewis and Grant Wood lived. You can believe in Clear Channel or you can believe in Clear Lake [Iowa, where Buddy Holly died]."
My favorite essay is Wendell Berry on War and Peace. Kauffman adroitly sets the tone with a quote from G.K. Chesterton. "I think the first thing that made me dislike imperialism was the statement that the sun never set on the British Empire. What good is a country with no sunset?" Thus, setting in motion a penetrating critique of the pernicious effects of the American war machine and Berry's efforts, in essay and novel, to detail the horrendous and oft times uncounted consequences of war.
One of Berry's characters, Virgil Feltner, and indeed his entire family, have been favorites of mine since I started reading about the Port William membership many years ago. Kauffman's reminder that Virgil died in the "Bulge" set me back. You see, my father fought in the "Bulge". He was a platoon sergeant in the 305th Combat Engineers attached to the 80th Division, the old Blue Ridge, and he was lucky or blessed to get out alive and unscathed. The Feltner's were not as fortunate as our family and I have grieved for these old friends as if they drew breath, such is the power of Berry's writing.
What powers Kauffman's lucid prose is his encyclopedic knowledge of American history, evidenced in his monthly column published in the pages of The American Enterprise. He has applied this knowledge, centered on many of the radicals and beloved reactionaries, in Look Homeward, America and the result is a delightful, erudite examination of brilliant and brave American stalwarts who have questioned the government's proclivity toward militarism and the inimical effects of modernity upon our culture and people. From Carolyn Chute to Dorothy Day, from Wendell Berry to Millard Fillmore, from Frank Capra to Karl Hess, Kauffman celebrates a band of citizens who have, in their own way, rejected the "collectivist-corporatist consensus" and chose to make their stand in small town America, among the poor and broken, on a farm nestled among the hills that crown the glorious valley of the Ohio. "The best radicals," Kauffman writes, "are reactionaries at heart."
Further apropos these radical reactionaries of the book's subtitle, from the chapter that heavily features The Beans of Egypt, Maine author and 2nd Maine Militia ("love militia") co-founder Carolyn Chute:
“Caroly Chute views daycare, compulsory education, ‘establishment feminism,’ and most of the bedrock of the modern American professional's existence as inimical to healthy family and community life. In this she is like her antecedent, the labor radical and anti-feminist Mother Jones, a classic reactionary radical who was, to use Norman Mailer's [refined] self-description, to the left of the liberals and to the right of the conservatives. ... The real Mother Jones – Irish-born Mary Harris Jones (1830-1930), the coal miners' angel and raiser of holy hell who said ‘I would fight God Almighty himself if he didn't play square with me’ – was to her namesake magazine as Thomas Jefferson is to The Jeffersons.” [p. 124]
Besides Frank Capra, who voted against FDR four times, and the others listed above, the book includes in its embrace gonzo anarchist writer Bob Black; Jimmy Webb, songwriter of the poignant anti-war ditty Galveston; and Ray Bradbury's wonderful pean to small town summers of yesteryear, Dandelion Wine. Those who have read Black, particularly his classic from the annals of anarchist literature, The Abolition Of Work, will not be surprised by his appearance in Look Homeward, America (on p. 131) when he finally shows up.
Bill Kauffman is a chronicler, historian, and social critic. He possesses an equanimity and discernment that provides a unique perspective that deserves our attention. He is a Jeffersonian decentralist, thought criminal, word tossing anarchist, and champion of America's gutted, Walmartized small towns. "Mine is a Middle America," Kauffman writes, "profoundly un-imperial patriotism based in love of American music, poetry, places, quirks and commonalities, historical crotchets, holy fools and eminent Kansans."
Perhaps, John Prine had it right all along. Go ahead and "blow up your T.V. [... throw away the paper, and try and find Jesus on your own.]" then read Look Homeward, America. In fact you might want to read all of Bill Kauffman's books!
Kauffman's sign-off chapter, "Why I am Not Ashamed to Be an American", includes this parting blast (which, it turns out, is included in this online article):
“There are two Americas: the televised America, known and hated by the world, and the rest of us. The former is a fractious creation whose strange gods include HBO, accentless TV anchorpeople, Dick Cheney, reruns of Friends, and the National Endowment for Democracy. It is real enough -- cross it and you'll learn more than you want to know about weapons of mass destruction -- but it has no heart, no soul, no connection to the thousand and one real Americas that produced Zora Neale Hurston and Jack Kerouac and Saint Dorothy Day and the Mighty Casey who has struck out.
“I am of the other America, the unseen America, the America undreamt of by the foreigners who hate my country without knowing a single thing about it. Ours is a land of volunteer fire departments, of baseball played without payment or sanction, of uncut maples and unpasteurized cider.
“So no, I do not feel "ashamed" of my country, for America, as [rock band Creedence Clearwater Revival leading light] John Fogerty understood, is not George W. Bush or Hillary Clinton but my friends, my neighbors, and yes, the Grand Canyon, too. Even better, it is the little canyon and the rude stream and Tom Sawyer's cave and all those places with names we know, whose myths we have memorized, and whose existence remains quite beyond the compass of ABC-TV.”
A welcome call to hearts and minds for those despairing of the lost U.S.A., for sure. And for those contemplating leaving it and expatriating -- which Kauffman gives no indication of doing -- a useful pointer for what to incorporate into one's search criteria. Sure, nice climate, a less intrusive government, access to healthcare and other other amenities are important. But keep a sensitive antenna up for a place where true community exists. That is a reliable, and possibly the only, source of fulfillment in life.
HERE COME THE BROWNSHIRTS, AGAIN
Does the Republican Party have aces up its sleeves?
Paul Craig Roberts was Assistant Secretary of the Treasury during Reagan's first term, Associate Editor of the Wall Street Journal, and has held numerous academic and think tank appointments. After having been pickled in the brine of these high status uber-establishment positions surrounded by neoconservatives for so long, one would expect him to now be a vocal apologist for ruling class interests and empire. Gratifyingly, he has instead become a major and courageous defender of civil liberties, and harsh critic of the neoconservatives and other foes of freedom.
Here Roberts brings up the enigma of the Republican Party's apparently suicidal nomination John McCain for president. Americans are sick of the Iraq war, yet the Republicans nominate a visible and unapologetic warmonger. Polls and the 2006 election results show that most Americans are sick of Bush, yet the Republicans nominate someone who basically promises more of the same. What gives?
Roberts writes: "What the American people and the Democrats have not understood is that a party with an agenda could care less for the facts. ... [T]he Brownshirt Party is fueled by the neocon ideology of American (and Israeli) supremacy." Agenda or not, how do they intend to implement their agenda if they are apparently destined for massive electoral repudiation? Mr. Roberts has a few ideas.
The Brownshirt Party has chosen John "hundred year war" McCain as its presidential candidate. Except for Cheney, Norman Podhoretz, and Billy Kristol, McCain is America's greatest warmonger.
In a McCain Regime, Cheney will be back in office with another stint as Secretary of War. Norman "Bomb-bomb-bomb-Iran" Podhoretz will be Undersecretary for Nuclear War with General John "Nuke them" Shalikashvili as his deputy. Rudy Giuliani will be the Minister of Interior in charge of Halliburton's detention centers into which will be herded all critics of war and the police state. Billy kristol will be chief White House spokesliar. The whole gang will be back -- Wolfowitz, Perle, Wurmster, Feith, Libby, Bolton. America will have a second chance to bomb the world into submission.
With the majority of voters sick of war, sick of lies, sick of fraud from the Federal Reserve and Wall Street, and sick of stagnant and falling incomes, McCain is poised to capture 20% of the vote -- the Christian Zionists, the rapture evangelicals, and the diehard macho flag-waving thugs who believe America is done for unless "Islamofacists" are exterminated.
The accumulated lies, deceptions, war crimes, the shame of Abu Ghraib and Guantanamo prisons, Bush's police state assault on civil liberty, countless numbers of Iraqi and Afghan men, women, and children murdered for the sake of American and Israeli hegemony, and the collapsing U.S. economy indicate a political wipeout for the Brownshirt Party. In a country with an informed and humane population, the Republican Party would be reduced to such a small minority that it could never recover.
What will happen in America? Polls show that Americans have had it with Bush, and the 2006 congressional election showed that the voters have had it with Republicans. But the Republicans have seen the message and ignored it, and the people and the Democrats have continued to tolerate and to enable that which they claim to oppose.
Meanwhile Bush holds on to his determination to find a way to bomb Iran, dismissing along with the neocons the unanimous National Intelligence Estimate that there is no Iranian weapons program, just as Bush and the neocons dismissed the Iraq weapons inspectors who reported truthfully that Saddam Hussein had no weapons of mass destruction. What the American people and the Democrats have not understood is that a party with an agenda could care less for the facts.
The Democrats are far from pure, but they lack the fervor and determination that only ideology can provide. The Democrats might have issue-specific ideologies, but they lack an over-arching ideology that makes it imperative for them, and only them, to be in power.
In contrast, the Brownshirt Party is fueled by the neocon ideology of American (and Israeli) supremacy. The neocon ideology of supremacy is more far-reaching than Hitler's. Hitler merely aimed for sway over Europe and Russia. The neocons have targeted the entire world.
Neocons have prepared plans for war against China. They are ringing Russia with military facilities and paying millions of dollars to leaders of former constituent parts of the Soviet Union to sign up with NATO, which the neocons have turned into a mechanism for drafting Europeans to serve American Empire.
All this work, the neocon Project for a New American Century, the costly wars in Iraq and Afghanistan, the demonization of Iran, Hezbollah, and Hamas, the ghettoization of the West Bank and Gaza, the police state measures that Bush has succeeded in putting on the books, the concentration of power in the executive branch, these are successes from which the Brownshirts will not walk away.
Possibly the neocons and their Brownshirt followers are so delusional that they do not realize that their glorious aims are not shared. Maybe they are no different from Americans, maxed out on credit and unable to make mortgage payments, who believe that next week they will win the lotto. On the other hand maybe the Brownshirts have a plan. What could the plan be?
They can steal the election with the Diebold electronic voting machines and proprietary software that no one is allowed to check. There are now enough elections on record with significant divergences between exit polls and vote tallies that a stolen election can be explained away. The Democrats have been house trained to acquiesce to stolen elections. The voters, whose votes are stolen, dismiss the evidence as "conspiracy theories."
Or what about a well-timed orchestrated "terrorist attack" to drive fearful Americans to the war candidate. False flag events are stock-in-trade. Hitler used the Reichstag fire to turn German democracy into a dictatorship overnight.
And what about the widespread spying on Americans? The Bush regime's explanation for its violation of the Foreign Intelligence Surveillance Act makes no sense. Bush's violation of the law is clearly a felony, grounds for impeachment, arrest, indictment, and a prison sentence. Moreover, no intelligence purpose was achieved by Bush's illegal acts. The FISA law only requires the executive branch to come to a secret court to explain its purpose and obtain a warrant. The law even allows the executive branch to spy first and obtain the warrant afterward. The purpose of the warrant is to prevent an administration from spying for political purposes. The only reason for Bush to refuse to obtain warrants is that he had no valid reason for the spying.
Does this mean that during the presidential campaign we will hear from Attorney General Michael Mukasey that candidate Hillary is under investigation for a Whitewater-related offense, or that candidate Obama is linked to an alleged crime figure or Islamist?
The neocons control most of the print and TV media, and the right-wing radio talk hosts are no friends of Democrats. As Americans have fallen for every other fraud perpetrated upon them, they are likely to be suckers as well for "investigations" or rumors of investigations of the Democratic candidate. Hillary is widely disliked and easy to distrust. Obama is a new face with which voters have little experience. He is partly black and has a funny name.
John McCain is a graduate of the U.S. Naval Academy. His father and grandfather were admirals. On his 23rd bombing mission over North Vietnam in one of America's orchestrated wars, he was shot down and injured. He was a POW for 5.5 years, and tortured by the North Vietnamese.
McCain has been in Congress and thus in the public eye since 1983. The only scandal with which he is associated is that he was one of "the Keating five," one of five senators associated through campaign contributions with S&L owner and real estate investor Charles Keating and alleged interveners in his behalf. Keating was entraped by prosecutors, but was later exonerated by a federal judge.
Adolf Hitler never had the support of a majority of the German electorate. In the November 1932 election, he received 33.1% of the vote. His peak was March 6, 1933, with 43.9% following the Reichstag fire a few days before on February 27, blamed on the communists. Hitler's minority support in a democracy did not prevent him from becoming dictator of Germany.
Barbados Takes Note of Jamaica Financial Market
Barbados plans to warn its citizens about what sound like HYIP-like schemes originating from Jamaica, in advance of the financial market deregulation required to live up to its Caribbean Single Market and Economy agreement obligations.
The recent proliferation of Jamaica's financial landscape by unregulated investment schemes is being closely watched by Barbados as the island moves towards the liberalization of foreign exchange controls. Central Bank Governor, Dr. Marion Williams said that educational programs planned to sensitize Barbadians about the liberalization exercise would be expanded to cover the risks associated with certain kinds of investments.
"Hopefully we should be able to pre-empt some of those kinds of entities from rising up here," Williams said. ... Researchers in Jamaica have found that approximately J$200 billion (US$2.8 billion) have been invested by Jamaicans in informal investment schemes. "What is happening in Jamaica is in fact a worry for Jamaica. I think a lot of it has to do with people's desire to maximize returns and in some cases, people who might not be fully conversant with the risks that they are taking. I think we have to do some education work as part of the liberalisations exercise ... it will include educating people about the foreign exchange and interest rate risks which can be attendant on doing business in other regional currencies."
A policy decision to liberalize exchange controls was taken by the previous administration of former Prime Minister Owen Arthur and was due to take effect on January 31, 2007. "The liberalization plans were in train, we had everything organized and ready to go but we didn't get the green light come December 31 ... so we have to wait now for another green light," Dr. Williams said. ... "We are not promising to do a total liberalization, we were proposing to do liberalization with respect to the CSME (Caribbean Single Market and Economy) ..."
Vietnam Proposes Corporate Tax Cut
Vietnamese authorities are considering reducing the corporate tax rate from 28% to 25% from January 2008. The proposals were reportedly put forward ... in addition to plans to simplify the country's priority tax forms, and to increase tax benefits for businesses in sectors including high tech, education, health care, and the environment.
Changes to the VAT regime currently in place are also being considered. In addition, the Finance Ministry is said to be pushing for overseas fund management firms to be permitted to establish branches or 100% foreign-owned ventures in Vietnam.
Amazon.com Opposing New York Online Sales Tax
Online retail giant Amazon, has expressed its opposition to a proposal by New York Governor Eliot Spitzer to force out-of-state companies to collect sales tax on items sold over the internet to New York residents. Under the terms of the provision, included in Spitzer's budget, all electronic retailers with annual sales of $10,000 or more in New York would have to collect the state's minimum sales tax, regardless of whether they had a "bricks and mortar" presence in New York.
The decision, expected to raise $47 million, was initially left out of Spizer's budget, but, facing a slowdown in tax revenues as global financial turmoil continues to affect Wall Street -- a major source of state revenues -- the Governor has quietly reinstated it. While other states have talked about implementing similar measures, New York would be the first state to enforce it, and Amazon has indicated that it intends to fight the proposal.
"This would be a radical departure from anything that's being done anywhere in the country," Paul Misener, Amazon's vice president of global public policy, told the Associated Press. Misener pointed out that about half a dozen other states, including California, Michigan, North Carolina and Texas, had considered, but abandoned, such plans. Misener's widely reported comments have once again highlighted the hugely controversial issue of how state sales taxation affects interstate commerce, particularly goods and services sold over the internet.
Many online or mail order companies already impose sales tax on out-of-state (the retailer's state) purchases, apparently voluntarily. Interesting how Wall Street turmoil enters into the equation.
Cyprus Introduces Bill to Get Off Russia Tax Blacklist
This follows up an entry of about a month ago.
The [Cypress] Finance Ministry has prepared a bill allowing the state to lift banking secrecy for foreigners in an effort to get Cyprus off a Russian tax blacklist. Analysts have warned that failure to get off the list could harm the island's flourishing financial services sector.
Last year, Russia passed a bill exempting subsidiary companies based abroad from paying taxes on dividends sent back to the parent company in Russia. However, if the subsidiary was in a country placed on a blacklist, then the exemption did not apply. Around 60 countries, including Cyprus and its competitors for foreign investment, were originally on the list. While its competitors eventually got off the list, Cyprus remained there.
Since January 1, 2008, the Russian law has come into effect, exposing Cyprus-based subsidiaries to the tax. Although, there are more parent companies investing in Russia than subsidiaries, financial analysts argue Cyprus could soon lose its competitive edge over other countries if it stays on the list, which would have a knock-on effect on our service-based economy.
In the first nine months of last year alone, Cyprus-based companies invested $12 billion in Russia, contributing in the process to the Cypriot economy through the financial, legal and auditing services offered.
In an effort to rectify the problem, the Finance Ministry proposed a legal bill that would allow the authorities to look at bank accounts of foreigners suspected of illegal activities. The bill only applies to foreign residents who pay taxes abroad, and in countries that Cyprus has a double-taxation agreement with.
One ministry official explained that the bill gives the Russians the chance to ask Cypriot officials to investigate the accounts of Russian citizens suspected of various financial crimes.
EU Adopts New Rules for VAT on Services
The European Council ... adopted a package of measures on value-added tax (VAT), which includes a change in the rules on the place of supply of services, in order to ensure that most types of services are taxed in the member state of consumption. At the same time, the package introduces the possibility for taxpayers who perform certain services to fulfil their EU-wide VAT reporting obligations in one single member state (using a "mini one-stop shop") and thus reduce their compliance costs.
The package, which includes two draft directives and a draft regulation, also provides for improved mechanisms for cooperation between member states, in order to prevent unauthorized tax avoidance under the new system. Adoption of the package by the Council follows political agreement reached during the Portuguese EU presidency, at a meeting on December 4th, 2007.
Singapore Budget Enhances Company and Wealth Management Incentives
Singapore's Minister for Finance, Tharman Shanmugaratnam ... announced a number of new tax initiatives to improve the city-state's business and wealth management regimes in his Budget Statement for 2008, but left the main rates of income on hold for another year.
"With our 18% Corporate Tax rate and the enhancements we have made to our Partial Tax Exemption scheme last year, our corporate tax regime is competitive," Tharman told Parliament, going on to announce improved tax breaks for research and development, start-up companies and SMEs, and the investment sector including Islamic finance. ...
To promote the city as a center for wealth management, Tharman announced the introduction of a new tax incentive that grants tax exemption on locally-sourced investment income and foreign-sourced income received by qualifying family-owned investment holding companies, to the extent that such tax exemption mirrors the tax exemption on qualifying locally-sourced investment and foreign-sourced income exemptions granted to individuals. ...
Tharman also announced the removal of Estate Duty from Singapore's tax regime, a move that he argued would enhance Singapore's attractiveness as a place for wealth to be invested and built up. This measure is effective as of 15 February 2008. He urged individuals who had accumulated wealth to contribute to society, and take advantage of the enhanced philanthropy incentives introduced last year.
"If we make Singapore an attractive place for wealth to be invested and built up, whether by Singaporeans or foreigners who bring their assets here, it will benefit our whole economy and society, not just the individuals who build up their wealth. It is not a zero sum game," he observed.
Singapore continues to fiddle around the edges with its tax regime, as it has for years. It is hard to argue with its success, but the competition is getting stiffer as well.
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