Wealth International, Limited (trustprofessionals.com) : Where Thereís W.I.L., Thereís A Way

W.I.L. Offshore News Digest for Week of April 7, 2008

This Week’s Entries : This week’s W.I.L. Finance Digest is here.


Peter Schiff, author of Crash Proof: How to Profit from the Coming Economic Collapse, debunks the anti-free market rhetoric used by those trying to deflect the blame for the recent financial "meltdown" away from themselves. In politics, it is always someone else's fault, or, better still, "the market's." The government is always seeking an excuse to arrogate more power to itself, so it is most convenient that it can use the results of its own failures as an excuse to do so.

Those blindsided by the recent financial meltdown are now loudly blaming the free market for its failure to police its own excesses, and are calling for greater regulation to prevent future disasters. But for those who clearly observed the problems developing (in high definition slow motion) the blame can be directed squarely at the policies of the Greenspan/Bernanke Federal Reserve. As has been the case countless times in history, the free market will now pay the price for government incompetence.

In Senate hearings [last] week, all parties involved completely ignored the Fed's own culpability in igniting the speculative fever. It is as if a senior prom had turned into a wild bacchanalia, and angry parents now question why the chaperones failed to notice the disrobing or why the DJ played provocative music, all the while ignoring the bearded gentleman pouring grain alcohol into the punch bowl.

A perfect illustration of the Fed's failure to take responsibility can be found in Bernanke's explanations regarding inflation, which he solely attributes to the effects of the rapid increase in global commodity prices. He failed to mention that commodity prices are rising as a direct consequence of his monetary policy, which is debasing not just the U.S. dollar, but currencies around the world. Rather than accepting the blame for creating inflation, Bernanke is shifting the blame to the free market. The Senators are happy to let him get away with it as it provides more evidence to support the "need" for more government to save the economy from the disastrous effects of unbridled capitalism.

When asked how we got into this mess, Bernanke replied that our problems resulted from an excessive credit bubble characterized by aggressive leverage, reckless lending, and extreme risk taking. Absent from his explanation was the Fed's role in irresponsibly setting interest rates below market levels, which mispriced risk, got the party started and kept it raging into the wee hours of the morning. The expressed goal of the Fed for much of this decade was, and is, to encourage and facilitate borrowing and lending.

During his testimony, Bernanke continued to claim that Bear Steams was not bailed out as shareholders only received about $10 per share. Of course, $10 is better than zero, which is what they surely would have received if the Fed had not thrown taxpayer money around. What about Bear's creditors though? Although the collapse of Bear Stearns would have cost bond holders dearly, the bailout essentially makes them whole. Here again, the Fed creates even greater moral hazards by encouraging excessive risk taking. By bailing out lenders who extend excessive credit, the Fed simply invites more of that behavior. The free market must be allowed to properly price risk. Lenders need to know that when they lend money, whether to highly leveraged investment banks and hedge funds, or to over-stretched homebuyers or credit card users, they risk not getting paid back. By interfering with this process the Fed simply guarantees more losses and even bigger bailouts in the future.

Also, leveraged speculators need to know that it is not "heads they win, tails the taxpayers lose". Wall Street executives amassed fortunes by making extremely risky bets. Now that those bets have soured, why is it taxpayers that have to swallow the losses? Wall Street billionaires earn their bucks on the backs of the middle class, who made little on the way up, but foot the entire bill on the way down.

While Bernanke talked about the underlying strength of our economy, he claimed necessity in saving Bear Stearns from bankruptcy as it would have brought down our entire financial system. How sound can our economy be if the failure of one investment bank could topple it? Does this now mean that no more major banks or brokerage firms will be allowed to fail? Since we routinely accused Japan of practicing "crony capitalism" what do you suppose we should call our version?

Not to be outdone in rewarding reckless behavior, earlier in the week Congress passed $15 billion in tax breaks for homebuilders, who had made their fortunes overbuilding during the bubble and unloading their shares to a gullible public. By threatening to hold back on their political contributions, these same homebuilders are awarded still more billions. The last ones we should be subsidizing are homebuilders. After all, the last thing we need right now is more homes.

The legislation also contained a provision that offers generous tax credits to individuals who buy homes out of foreclosure. While this is billed as a benefit to homebuyers, it is just another hand out to lenders, as those qualifying for the tax breaks will simply pay more at auctions as the tax breaks subsidize higher bids. The real winners are the creditors who get more in foreclosure than would have been the case had buyers not had their bids subsidized by the government.

Of course, for all the talk about taxpayer bailouts, none of the senators bothered to mention that, for the moment, no tax increases are actually on the table. Instead, the bailouts are being financed by savers, pensioners, wage earners, investors and the elderly on fixed incomes, who all suffer staggering increases in their costs of living, as the Fed uses inflation to rob Main Street to pay off Wall Street.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book Crash Proof: How to Profit from the Coming Economic Collapse.


This New York Times article starts with an important observation, namely that since 2000, through a recession hardly worthy of the name to boom/bubble to incipient recession, the median U.S. family has seen no real (inflation-adjusted) increase in income. The writer then goes on to append typical nonsensical NYT-style commentary and ideas, which are nonetheless illuminating in what they reveal regarding establishment thinking and willingness to question their old ideas. In short, they have no clue.

How has the United States economy gotten to this point? It is not just the apparent recession. Recessions happen. If you tried to build an economy immune to the human emotions that produce boom and bust, you would end up with something that looked like East Germany.

The bigger problem is that the now-finished boom was, for most Americans, nothing of the sort. In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau's inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less -- about $60,500.

Pre- or after-tax? Are the value of government benefits propertly accounted for? More detail is called for. But we do not doubt that there has been little real real growth in median income, although with all the running down of savings and borrowing there was undoubtedly growth in median consumption. The increase in average income would also be helpful to know, as it would give an indication of how well the high income families have done during the financial bubble.

This has never happened before, at least not for as long as the government has been keeping records. In every other expansion since World War II, the buying power of most American families grew while the economy did. You can think of this as the most basic test of an economy's health: Does it produce ever-rising living standards for its citizens?

In the second half of the 20th century, the U.S. passed the test in a way that arguably no other country ever has. It became, as the cliche goes, the richest country on earth. Now, though, most families are not getting any richer. ... More than anything else -- more than even the war in Iraq -- the stagnation of the great American middle-class machine explains the glum national mood today. ...

The causes of the wage slowdown have been building for a long time. They have relatively little to do with President Bush or any other individual politician (though it is true that the Bush administration has shown scant interest in addressing the problem).

The slowdown began in the 1970s, with an oil shock that raised the cost of everyday living. The technological revolution and the rise of global trade followed, reducing the bargaining power of a large section of the work force. In recent years, the cost of health care has aggravated the problem, by taking a huge bite out of most workers' paychecks.

Note that the initial oil shock in the 1970s was essentially a delayed response to the inflation of the 1960s and early 1970s. The health care inflation beyond the general rate of increase is, in our opinion, almost exclusively due to massive government interference in the market from top to bottom (AMA, FDA, Medicare, Medicade, HMO-enabling legislation, etc.).

Real median family income more than doubled from the late 1940s to the late 1970s. It has risen less than 25% in the three decades since. Statistics like these are now so familiar as to be almost numbing. But the larger point is still crucial: The modern American economy distributes the fruits of its growth to a relatively narrow slice of the population. We do not need another decade of evidence to feel confident about that conclusion.

Any ideas about why this might be? How about that when the institutions of credit inflation go to work, the expanded money and credit supply consitutes a tax on the general public which goes to the relatively narrow set of beneficiaries of the process. It is as if Ben Bernanke's heliocopters dumped the new money on a select subset of the country's population. Who would that be? That is a book in itself, but it starts with Wall Street and those intimately connected to it.

Anxiety about the income slowdown has flared at various times over the past three decades. It seemed to crescendo in the first half of the 1990s, when voters first threw George H. W. Bush out of office, then, two years later, did the same to the Democratic leaders of Congress. Pat Buchanan went around preaching a kind of pitchfork populism during the 1996 New Hampshire Republican primary -- and he won it.

Then came a technology bubble that made everything seem better, for a time. Record-low oil prices in the 1990s helped, too. So did the recent housing bubble, allowing families to supplement their incomes by taking equity out of their homes.

In effect a modern-day version of bread and circuses. As long as people were being fed money, whatever the machinations involved, they were bought off for the moment.

Now, though, we appear to be out of bubbles. It is hard to see how the economy will get back on track without some fundamental changes. This, I think, can fairly be considered the #1 economic project awaiting the next president.

Fortunately, there is an obvious model waiting to be dusted off. The income gains of the postwar period did not just happen. They were the product of a deliberate program to build up the middle class, through the Interstate highway system, the G. I. Bill and other measures.

It is easy enough to imagine a new version of that program, with job-creating investments in biomedical research, alternative energy, roads, railroads and education. On the campaign trail, Hillary Clinton, John McCain and Barack Obama all mention ideas like these.

This is the kind of unimaginative claptrap you expect from the New York Times: Have that known bastion of efficiency and competence, the U.S. federal government, implement yet another massive program. A surefire formula for success if ever there was one. How about balance the federal budget by reducing it massively, institute a sound money regime, get rid of all the tax code distortions that discourage investment in the capital stock, and reduce the mass of regulations that serve as a drag on productivity for starters? Has anyone at the NYT even considered that approach? Doubtful.

But there is still a lack of strategic seriousness to the discussion, as Bruce Katz of the Brookings Institution notes. After all, the United States spends a lot of money on education already but has still lost its standing as the country with the highest college graduation rate in the world. (South Korea and a couple of other countries have passed us, while Japan, Britain and Canada are close behind.)

College education is another area that has seen cost increases far beyond the general inflation rate due to federal meddling -- beginning when college education loans started getting subsidized. It was as if that was a signal for a portion of the helicopter money to start being allocated to the higher education industry and its employees. Naturally prices and salaries in the sector were driven up.

The same goes for public works. Spending on physical infrastructure is at a 20-year high as a share of gross domestic product, but too much of the money is spent on the inefficient pet programs championed by individual members of Congress. Pork barrel spending does not add up to a national economic strategy.

Pork barrel spending, i.e., bribing voters and campaign contributors is what politicians do. The underinvestment in physical infrastructure is a visible manifestation of too little capital investment in the economy in general, and too much spending on consumption and nonproductive government projects -- like manufacturing and blowing up ordnance in the create more enemies "project".

Health care and taxes will have to be part of the discussion, too. Dr. Ezekiel Emanuel of the National Institutes of Health pointed out to me that a serious effort to curtail wasteful medical spending would directly help workers. It would spare them from paying the insurance premiums and taxes that now cover that care.

The tax code, meanwhile, has become far more favorable to high-income workers at the same time that they -- and they alone -- have received large pretax raises. That does not make much sense, does it?

Gratitous populism, really. The rich can afford to pay lobbyists to write the tax code to help them avoid getting hit too hard. This is a fact of life, and politicians like it just fine. How about simplifying the code and reducing its maximum rate as so many countries have already done, to their great benefit? What if the maximum rate was reduced to say, 25%, to be applied after a standard deduction with almost no other deductions? We are talking out of our hat here, but we believe this would raise more tax revenue, free up vast resources that go into nonproductive investments due to distorted incentives, and free up vast amounts of talent now wasted gaming the tax code. It would significantly reduce Congresspersons' leverage over their favor-seeking supplicants, which is why it is does not just happen. But you would hope, forlornly, that a business reporter of a (still, unfortunately) major newspaper might come up with something along these lines.

It is a pretty big to-do list. But it is a pretty big problem. Since the economy now seems to be in recession, and since recessions inevitably bring their own pay cuts, my guess is that the problem will look even bigger by the time the next president takes office.

We are not holding our breath. The phenomenon observed is a major symptom of a very big problem. But do not expect the parasite class responsible for it to go suggesting fundamental solutions.


Last week we posted an item concerning Liechtenstein's cooperation with Spanish authorities in tracking down suspicions transactions linked with the Basque separatist group Eta. The Spanish judge at the center of the request for cooperation "believed" that Liechtenstein has become the principal destination for proceeds gained from extortion rackets operated by Eta. In fact, "no accounts were blocked or assets seized," reported Liechtenstein's Office of the Public Prosecutor. The "belief", held in good faith or not, was in error, and publishing it without qualification constituted a hearsay smear of Liechtenstein. We cannot say we are somehow surprised.

The Liechtenstein authorities have clarified that, while suspicious payments linked to the Spanish terrorist group Eta have been uncovered, there is no evidence to suggest that the organization held assets directly in Liechtenstein accounts.

Last month, Spanish daily El Pais claimed that Liechtenstein had become the principal destination for proceeds gained from extortion rackets operated by Eta, and that the jurisdiction's anti-money laundering authorities had agreed to a request from Spanish "super-judge" Baltasar Garzon to block bank accounts opened there by suspected members of the group.

However, in a statement issued in response to recent media reports on the subject, Liechtenstein's Office of the Public Prosecutor, revealed that no such accounts or assets had been found in Liechtenstein, and that "accordingly, no accounts were blocked or assets seized." The statement explained that:

"Liechtenstein's reporting office for money laundering, the Financial Intelligence Unit (FIU), forwarded a suspicious activity report by a Liechtenstein trust company to the Office of the Public Prosecutor on 3 August 2006. The Office of the Prosecutor applied for a judicial investigation of a Spanish citizen on suspicion of money laundering under the Liechtenstein Criminal Code (StGB).

"The Spaniard was the primary beneficiary of a Liechtenstein foundation, which the trust company had established in March 1999 on application of a Swiss bank. Suspicious payments were carried out via the Swiss account of this foundation.

"When the trust company learned in summer 2006 of the arrest of the primary beneficiary of the foundation in Spain on suspicion of participating in extortionate activities by ETA, it immediately submitted a suspicious activity report and participated in clarification of the case."
According to the prosecutor's office, the judicial investigation in Liechtenstein was concluded at the end of 2006, and in January 2007, the Spanish authorities were requested to take over prosecution of the suspect. In the meantime, the Liechtenstein criminal proceedings have been suspended until conclusion of the Spanish proceedings.

The statement ended by revealing that the Liechtenstein authorities notified the Spanish authorities of the case in August 2006, and that Spanish Attorney General Candido Conde-Pumpido Touron had "thanked Liechtenstein Chief Public Prosecutor Robert Wallner for the excellent cooperation on this case" at a personal meeting in October 2007.


More fallout from Liechtenstein bank data theft.

The UK has turned certain Liechtenstein bank client data it purchased from the ex-employee who stole the data over to Italy. The UK also turned over to France data found applying to French persons. Among the Italians in the client list were "a few politicians, industrialists and entertainers."

The industrialists and entertainers we are in full sympathy with for having had their privacy rights violated. The politicians, however, are a different matter. The assets secreted (until now) by them were proceeds from inherently criminal activity. Standard inquiries to Liechtenstein should have been sufficient to obtain the data, without all the cloak and dagger histrionics.

Italian authorities are investigating 390 holders of accounts in Liechtenstein banks on suspicion of tax evasion and are preparing to ask Liechtenstein for documentation ... Initial investigations had determined that the account holders, including two trusts, had not made correct tax returns at the time, the sources told the Financial Times. Only two appeared to have declared a transfer of funds to Liechtenstein, they said.

But they stressed that the information, provided by UK tax authorities, dated from 2002 and it was not yet clear whether some of the holders had benefited from later tax amnesties and repatriated their funds. 20 of the individuals had not been identified so far. The largest account held €400 million, and the smallest about €200,000.

Names of some two dozen alleged account holders started leaking to the Italian media last week, containing a few politicians, industrialists and entertainers. Several were quoted as saying the accounts were lawful or funds had since been moved back to Italy under tax amnesties passed by the previous government of Silvio Berlusconi.

Separate investigations are starting into whether the funds contained laundered money. Ansa news agency ... reported from Naples that Vito Bonsignore, an MEP, was under investigation for alleged money laundering. Mr. Bonsignore was quoted last week as saying his account was lawful. Rome investigators have forwarded the relevant names to prosecutors of the regions where the 390 account holders live. ...

The center-left government of Romano Prodi has made a crackdown on tax evasion a high priority, recouping more than €20 billion in two years. But in the case of Liechtenstein investigators are racing against time as the statute of limitations, in this case 7 1/2 years, will expire in the next year or so.

Meanwhile, France said ... it would investigate 20 people -- or groups of people -- who have transferred money to Liechtenstein on suspicion of tax evasion and fraud, Eric Woerth, the French budget minister, said. "The tax department will launch in-depth fiscal investigations in the coming days concerning 20 groups or individuals," he told the Senate finance committee. The probe would focus on income tax, wealth tax and real estate purchase tax.

Mr. Woerth did not disclose the amount at stake or the potential loss of tax revenue but did say that 200 French people were known to have deposited €1 billion in accounts in Liechtenstein. No details were given regarding the identity of the 20 individuals or groups of people nor the form the investigation would take. The 20 were on a list of 200 ... supplied by the UK to the French government in January, Mr. Woerth said.


Australia, Canada, China, France, Germany, India, Israel, Italy, Japan, Russia, the U.K. and the U.S. also fingered.

No matter what efforts the Cayman Islands expend on cleaning up their offshore financial sector, it seems they will never fully live down the reputation they acquired from the John Grisham potboiler The Firm, especially after the movie adaptation came out. A new U.S. government report has identified the Caymans, along with a whole host of other countries -- virtually the whole U.N. roster, it seems -- as major money laundering countries. Naturally the Caymans are a little touchy on the subject.

A major U.S. government report has included the Cayman Islands in a worldwide list of major money laundering countries. The report, prepared by the U.S. Department of State Bureau for International Narcotics and Law Enforcement Affairs and entitled "International Narcotics Control Strategy Report", concedes that the Cayman Islands have made serious inroads into the threat of their offshore status being used for laundering drug money but warns that "The complex nature of money laundering transactions today makes it difficult in many cases to distinguish the proceeds of narcotics trafficking from the proceeds of other serious crime. Moreover, financial institutions engaging in transactions involving significant amounts of proceeds of other serious crime are vulnerable to narcotics-related money laundering."

Proceeds from narcotics and "other serious crime [sic]" both sound like funds that criminals would want to be laudering, so the reason for the distinction escapes us. No matter. The larger point is that it is easy to cast aspersions on just about any money center for the criminal proceeds passing through their financial accounts -- which this report does. Not having seen the report itself, we cannot comment on the nuances. For example, do the Caymans come in for special attention?

One should look at the organization behind the report as well. Do they have any incentive to report that major inroads against money laundering have been achieved by the various anti-money laundering initiatives of the past decade? Are you kidding? Put themselves out of a job? That would result in their expulsion from the Federation of Useless but Perpetual Government Organizations (FUPGO). Like the wars on terrorism, drugs, poverty, smoking, and sidewalk spitting, the war on money laudering will never end. If victory is ever in sight the criteria for resolution will be rejiggered. Yes, more work remains to be done folks. No amount of your money is too great a sacrifice for us to finish the job.

The report includes the legal definition of a major money laundering country as one "whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking." The 2008 list of major money laundering countries includes all countries and other jurisdictions whose financial institutions engage in transactions involving significant amounts of proceeds from all serious crime. ... [Outside the Caribbean], major countries like Australia, Canada, China, France, Germany, India, Israel, Italy, Japan, Russia, the United Kingdom and the United States all find themselves listed.

Listing the countries individually, the report notes that "The Cayman Islands, a United Kingdom (UK) Caribbean overseas territory, continues to make strides in strengthening its anti-money laundering and counter-terrorist financing regime.

"However, the islands remain vulnerable to money laundering due to their significant offshore sector. Most money laundering that occurs in the Cayman Islands is primarily related to fraud (particularly securities fraud), drug trafficking, and tax evasion."

The U.S., U.K., Germany, and Japan, e.g., have "significant" offshore sectors as well. They are just not such a large piece of the pie, but one might think that it would then be easier to slip under the radar in those larger centers, although that is just a pure guess. Anyway, the Caribbean is hardly the destination of choice for making a pile of currency disappear into the banking system these days. So we are not sure what point the report is trying to make, if not to continue the general smear campaign against the Caymans and similar offshore havens.

The report identifies the Cayman Islands as home to a well-developed offshore financial center that provides a wide range of services, including banking, structured finance, investment funds, various types of trusts, and company formation and management. It says there are approximately 450 banks and trust companies, 8,600 funds, 740 captive insurance companies, and 62,572 exempt companies licensed or registered in the Cayman Islands.

The report continues by dealing with restrictions, confirming that "Shell banks are prohibited, as are anonymous accounts. Bearer shares can only be issued by exempt companies and must be immobilized. Gambling is illegal; and the Cayman Islands does not permit the registration of offshore gaming entities" and making reference to recent revisions in the Proceeds of Criminal Conduct Law (PCCL).

After listing in detail the role of Cayman Islands Monetary Authority (CIMA) in fulfilling the islands' anti-money laundering and counter-terrorist financing (AML/CTF) obligations, the report deals with levels of suspect activity.

In the 2006/7 financial year, 219 Suspicious Activity Reports (SAR) were filed and, as of August 2007, nine requests for information from outside the Cayman Islands had been dealt with and seven disclosures to foreign law enforcement organisations had been prepared. The report also states that there have been five money-laundering convictions in the Cayman Islands since 2003 and over $120 million in assets has been frozen or confiscated in the same period.

Dealing specifically with terrorism, the report acknowledges that the Cayman Islands is subject to the United Kingdom Terrorism (United Nations Measure) (Overseas Territories) Order 2001 but goes on to point out that the U.K. has yet to extend the application of the International Convention for the Suppression of the Financing of Terrorism to the Cayman Islands.

It continues, "The Cayman Islands criminalised terrorist financing through the passage of the Terrorism Bill 2003, which extends criminal liability to the use of money or property for the purposes of terrorism. It also contains a specific provision on money laundering related to terrorist financing." But [it] then reports that "There have been no terrorist financing investigations or prosecutions to date in the Cayman Islands."

Again, the report's point is ... what, exactly? Are the Caymans being paranoid and over-interpreting in the dry reporting of facts a finger pointed in their direction? Maybe, but understandably if so.

Quite what impact the report, which was made public on 29 February, will have is unclear, at the time of going to press it had proved impossible to get an official response to the contents. However, the Cayman Islands Financial Services Association (CIFSA) recently expressed its concern that, despite the efforts of Cayman's service providers and that of the Regulatory Authority, there remains the failure of certain international financial centers to recognize the Cayman Islands' Anti-Money Laundering (AML) regime.

"This situation is difficult to understand given that Cayman's AML framework is among the strongest in the world and is more robust than many onshore countries. When the AML regulations were introduced internationally they were universally to be applied retroactively," said Eduardo Silva, Chairman of CIFSA.

The U.S. is never going to be satisfied. It would rather that all offshore havens just disappeared. That is a fact of life. The Caymans and their ilk should get over it. And be prepared to respond.


Interesting little result from Forbes magazine's annual "Tax Misery" survey.

[Forbes's] annual country-by-country survey of tax burdens has produced a new low-tax winner: Qatar. The Persian Gulf state is planning a big reduction in its only significant levy, on corporate income. That leapfrogs Qatar above nearby Dubai as an enticing spot for entrepreneurial wealth creation. Both will now best longtime low-tax champion Hong Kong -- despite that territory's tax reductions in its latest budget.

The Forbes Misery & Reform Index sums up the top rates faced by a successful entrepreneur not enjoying special tax favors. We think it is the most relevant among several useful ways of analyzing an investing climate. The 2008 index highlights the stable taxes of Asia while noting the flat tax revolutions of central Europe, the Balkans and Russia. For more countries, go here.


With April 15 approaching one expects, with 100% certainly, a step-up in publicity by the IRS and federal government against tax "cheats", "schemes", "protestors", etc. Tax "defier" is apparently the new favored government term of disapprobation for someone who "seeks to deny and defy the fundamental validity of the tax laws."

If you think paying taxes is unfair, illegal or unconstitutional, then watch out -- the Justice Department is after you. Just as the I.R.S. is getting into its perennial tax-season tough talk, Justice Department officials weighed in ... with a vow to ramp up efforts against "tax defiers".

A tax defier is not a wealthy individual who buys a sophisticated tax shelter in a fraudulent effort to shield legitimate income from taxes. Nor is a defier a taxpayer who has a difference of opinion with the I.R.S. over deductions, or one who challenges specific tax policies enacted by Congress. A tax defier, according to a Justice Department statement, is someone who "seeks to deny and defy the fundamental validity of the tax laws."

"The tax defier is someone who rejects the legal foundation of the tax system, despite decades of legal precedent upholding the system's constitutional and statutory validity, and who takes specific and concrete action to violate the law," the department's statement said.

Such people were once more commonly known as tax protesters. A spokesman for Justice said ... that the department official who announced the new program, Nathan J. Hochman, the assistant attorney general for the tax division, "is calling them defiers because he feels 'protesters' implies constitutionally protected rights."

The term does admit to some ambiguity. E.g., some Vietnam war tax "protesters" put a note on their returns to the effect that they were withholding paying the part of their taxes that they thought went to paying for the war. This is rather different than those who "protest" that the tax is being illegally enforced.

Prominent among them is the actor Wesley Snipes, who was convicted in February by a federal jury on several tax-related charges but was acquitted of more serious tax charges. Mr. Snipes was found to have failed to file returns or pay taxes from 1999 through 2001, but was acquitted of charges that he failed to do the same from 2002 through 2004, after he said he learned that he was the target of a criminal tax investigation.

The name of the new program -- the National Tax Defier Initiative, or TaxDef -- was a source of some amusement ... among tax policy specialists. But one such specialist, the financial consultant J J MacNab, said TaxDef would make "what is going on in a hodgepodge way into a national program."

Since 2001, the Justice Department has won more than 300 civil injunctions against tax promoters and preparers, a third of which involved tax-defier activity. The efforts brought in $600 million in unpaid taxes, it said.


The U.S. government is trying to obtain an injuction against an organization called Pinnacle Quest International (PQI), which the government claims is promoting a "tax-fraud scheme" involving heavy use of "tax defier" (see post immediately above) techniques as well as the use of offshore legal entities. Let us take a look ...

The U.S. has filed civil injunction complaints in three federal courts on the east and west coasts, seeking to bar promotions of alleged tax-fraud schemes ... The government complaints and other court papers allege that a multi-level marketing organization called Pinnacle Quest International (PQI) and a number of individuals and organizations currently or formerly affiliated with it are promoting a variety of fraudulent tax defier schemes.

The feds must be as tired of repeatedly picking off "protestors" and "patriots" who keep using the same deficient legal arguments to defend themselves as we are of reading about the cases. The IRS would rather people just shut up and pay up, and spare them any extra effort at this point. Trying to nip the pernicious ideas in the bud by obtaining an injunction against promoting the alleged scheme is a logical but inherently futile action, given how the internet makes the diffusion of all ideas and schemes so uncostly.

It is not hard to see how someone could stare into the morass that is the Internal Revenue Code, get exposed to some superficially plausible "untax" theory, and emerge thinking that something odd is going on. Trouble comes when people come up with some grand theory of the income tax universe, have a "red pill" experience and decide the theory is The Truth, and then go seeking "proof". Like the Talmud, the IRC is big and opaque enough that you can almost always find something that appears to support one's position.

One would be well-advised to cultivate a deep humility, including about one's understanding of the income tax code, and to remember the admonition to never attribute to malice that which is adequately explained by stupidity. The IRS is a big, corrupt, inefficient government bureaucracy. Most of its employees do not understand the tax code either. It is like a big dinosaur with a small brain. Explaining its behavioral patterns based on some model of a wise central guiding intelligence is a non-starter. Notwithstanding this, it is foolhardy to challenge a dinosaur to a fight, no matter how clever you think you are by comparison -- especially if you think you are clever by comparison.

The complaint filed against PQI alleges that the organization has 830 salespeople, thousands of customers, and gross sales from 2002 through 2006 of approximately $54 millions. During the same period, PQI's leaders allegedly received commissions from sales of PQI products of approximately $8.8 million.

The complaint alleges that one PQI promoter on the Galaxy cruise was Sherry Peel Jackson, a former IRS revenue agent turned promoter of frivolous tax theories. Jackson allegedly earned some $138,000 in commissions on sales of PQI products from 2002 to 2006. She was indicted by a federal court in Atlanta shortly before the cruise and was convicted of tax crimes last year by a federal jury. In February of this year Jackson was sentenced to four years in prison for those crimes. ...

The suits allege that PQI, based in Ft. Walton Beach, Florida, is a successor to Institute of Global Prosperity, a business that sold tax-fraud schemes until law-enforcement actions caused it to shut down. Daniel Andersen, a co-founder of Global Prosperity, pleaded guilty in 2004 to a federal felony tax charge. Last November another Global Prosperity co-founder, David Alan Struckman, was found guilty of tax evasion and conspiracy in a federal court in Seattle. According to the PQI injunction complaint, PQI took up where Global Prosperity left off, and has been promoting tax-fraud schemes similar to those that Global Prosperity formerly promoted.

The suit against PQI was filed ... in U.S. District Court for the Northern District of Florida, in Pensacola. Named as defendants in addition to PQI are Claudia Hirmer of Niceville, Florida, alleged to be the de facto leader of PQI's "Executive Council", and other individuals alleged to be members of PQI's Executive Council. The other two suits were filed in Portland, Oregon, and Tacoma, Washington, in the U.S. District Courts for the District of Oregon and the Western District of Washington.

The Washington suit names Sharon Kukhahn of Tacoma, who allegedly sells a scheme that falsely purports to "decode" IRS computer transcripts of customers' taxpayer accounts to show that the customers are not liable for federal income tax. Kukhahn allegedly falsely advises customers that the IRS, in order to subject people to federal taxes, fraudulently misidentifies citizens as residents of a U.S. territory such as the U.S. Virgin Islands, or misidentifies them as operating an enterprise subject to federal excise tax, such as firearms manufacturing. According to the complaint, Kukhahn charges single taxpayers between $1,750 and $1,900 and charges married taxpayers between $2,450 and $3,195 for her bogus "decoding" service.

The Oregon suit names Eugene "Gino" Casternovia of Ashland, Oregon, and three other individuals. According to the Oregon complaint the defendants operate two businesses ... that work with PQI to promote tax scams involving the use of sham entities to help customers conceal their assets. The defendants also allegedly promote a "disenfranchisement" scam, falsely telling customers that the federal income tax system is voluntary and that customers can opt out of their federal income tax obligations by revoking their Social Security numbers.

We are unaware of any evidence that could be interpreted as supportive of this "untax" theory, even by a rabid believer. Your parents give you an SSN at birth and that makes you liable for life? Certainly it makes you easier to track for life. The SSN comes with undesirable baggage, and we can see the attraction of "revoking" it. But that is a distinct issue from the creation of a tax liability. If PQI's principals were promoting that line of reasoning, it would mark them as both careless and reckless.

"The size and sheer brazenness of the tax defier activities alleged in these complaints are staggering," said Nathan J. Hochman, Assistant Attorney General for the Justice Department's Tax Division. "Tax defiers sometimes claim to be 'patriots,' but those who push bogus tax schemes are nothing more than con artists, and those who pay for these schemes are buying nothing but trouble.

"Tax scheme promoters should be aware that we will continue to work closely with the Justice Department to shut them down," said IRS Commissioner Doug Shulman. "Taxpayers should carefully review any questionable advice because they are responsible for what goes on their tax returns."

... The complaint in the PQI case notes that the IRS investigated the case with assistance from the Joint International Tax Shelter Information Center -- known as JITSIC -- which helps tax administrations from five nations identify and curb abusive tax schemes and transactions.

Since 2001, the Justice Department's Tax Division has obtained injunctions against more than 320 tax-fraud promoters and unscrupulous tax preparers. Information about these cases is available on the Justice Department website, as is information about the Justice Departmentís Tax Division.


You invested in a company that cooked its books and went bankrupt. The IRS is less than sympathetic.

Net investment losses that can be written off against ordinary income to the tune of $3,000 each year. Losses due to theft have no such limitation. So what about investment losses due to illegal activity on the part of management, as opposed to normal management failures and market vicissitudes? The IRS says no, those are capital losses. Not theft losses. Nice try, though.

It is bad enough that you may have lost big bucks with the stock of subprime mortgage lenders such as New Century Financial Corp., which went bust last year. But now the IRS is saying you cannot benefit on your taxes even if books were cooked -- as a recent report suggested might have happened at New Century.

The issue involves what is known as theft losses, which come up any time investors take a bath under questionable circumstances -- Enron being a prime example. Theft losses from investments or business activities can be used to wipe out all your taxable income, can be carried back to claim refunds for two prior years and can be carried forward to offset income for up to 20 years. Moreover, they are not snatched away by the Alternative Minimum Tax, notes Pasadena, California CPA Andy A. Torosyan. All that easily beats what you can claim for stock losses due to corporate ineptitude rather than larceny. Net capital losses can be used to offset just $3,000 in ordinary income a year.

The IRS Office of Chief Counsel has just released a memo detailing how hard it is for an investor to claim a theft loss. Buyers of securities on the open market cannot claim a theft loss "even if the market values of the securities were inflated by insiders' fraud," it flatly asserts. Turns out that the perp has to sell you the securities directly. So unless you bought securities directly from the company, or your broker was in on something shady, you are out of luck.

That was the case with an example that sparked the IRS memo. Taxpayers had bought high-yield notes from a subsidiary of an unnamed subprime lender -- clearly Carolina Investors and its parent HomeGold Financial, which went bankrupt in 2003, owing 8,000 South Carolinians $275 million. Some investors, the IRS concludes, might be able to claim theft losses, since Carolina sold its notes directly at outlets that "resembled banks" and continued to peddle them after its net worth turned negative and execs were fudging its condition. (So far, five execs have been convicted in the case.)

Meanwhile -- perhaps preparing for a rash of bankruptcies -- the IRS last month issued a final rule squelching another ploy that Wall Street tax consultant Robert Willens says had been widely used by those in the know: "abandoning" securities and claiming an ordinary loss, deductible against ordinary income. It worked, Willens says, because without a sale, there was no capital loss. The IRS plugged that loophole by declaring that abandoned stocks or bonds will be deemed "worthless." The tax code explicitly states that a worthless security produces a capital loss, even without a sale.


Writer Thomas Olson has a novel plan by which the U.S. states can avoid implementing the REAL-ID act, which effectively implements a national ID card via the states' driver's licences. They can get out of the driver's license business! Not likely -- due to unwillingness to give up the revenue stream from licensing and tickets, and believing their own press clippings about how they need to keep protecting the public safety. But the reasoning is sound.

As of this writing, only a handful of states have formally resisted implementation of the draconian REAL-ID act, where the Feds create a de facto national ID card by hijacking the driver licensing agencies of all 50 states. Despite the chilling "papers, please!" overtones to this, some states are falling into line like so many obedient sheep, while the majority have resorted to sending the Department of Homeland Security a letter of intent to comply, which extends them another year or so of lead time before the mandate finally kicks in. Of course that path only legitimizes the law, as opposed to standing up to the Feds and declaring the law the unconstitutional usurpation that it is.

DHS head Michael "Skeletor" Chertoff has made it clear that starting next year the residents of Montana, Maine, et al will find it impossible to board an aircraft or enter a Federal building unless their state legislatures and governors cave in to his demands.

There is a third way, however. It is simple, doable, and one that is guaranteed to stop REAL-ID in its tracks. Every state can do it. Its only drawback is that state governments will have to give up certain entrenched powers that they have arrogated to themselves for decades. To stop REAL-ID, the states only have to get completely out of the drivers license business -- by June of 2009.

Libertarians have long lobbied for an end to state-mandated driver licensing. Here is a new opportunity to put that idea back on the table. After all, which is more important, rigid control over driver licensing, or the imposition of a biometric police-state national identity card? State legislatures, even those who are already on record opposing REAL-ID, could simply slip out from under the law's requirements by closing their licensing agencies for good, and either farming out certain functions to private-sector contractors, or eliminating them entirely.

States could take the lead in redefining what it means to have an "ID" in their state, as well as finding better solutions to controlling "problem" drivers (the primary reason mandatory licensing was started to begin with). Who knows what sorts of creative solutions may manifest when private citizens and entrepreneurs get in on the act?

Meantime, any U.S. citizen can certainly apply for a passport if they wish, and use that to board aircraft or enter government buildings. Of course, the passport agency has been so overburdened with new applications since January 1st, with the Federal government's insistence that passports are now required to enter Canada and Mexico, it is hard to say how much farther they will fall behind in processing a new and even larger flood of applications in the wake of such state actions. So it may be that they will have no choice but to allow people with more "creative" state IDs to fly until that long backlog can be handled -- which could take years.

But any temporary inconvenience would be worth it to see the look on old "Skeletor's" face if every state told him: "Sorry Mike, but we no longer license drivers in our state, hence it is impossible for us to comply with the provisions of the REAL-ID Act."

Even the majority of states who may loathe the Act but do not have the guts to confront the Feds directly could, in this passive-aggressive manner, express their independence and gut-level unwillingness to take part in the Bush administration's schemes to track us all, cradle to grave.

States may not like giving up that kind of power, but there is a long-term plus in that they will save a lot of taxpayer money, money that can either be used elsewhere, or simply given back.


Regular LewRockwell.com contributor Butler Shaffer allows that the 2008 election has become "a plebiscite on political correctness," while noting it will have nothing to do with how the government will operate -- which was decided long ago "by the corporate owners of the Establishment." C. Northcote Parkinson is most famous for his "law": Work expands so as to fill the time available for its completion. Another of his quotes is relevant here (as is his law, come to think of it): "The man who is denied the opportunity of taking decisions of importance begins to regard as important the decisions he is allowed to take."

Those who have yet to understand the vacuous nature of electoral politics need only pay attention to the current presidential circus. I do not know what additional evidence would need to be presented to demonstrate how elections serve but one purpose: to reinforce the delusion that members of the public have anything to say about the nature of the government that rules them. Anything disruptive of the placid mindset upon which the Establishment has grounded its domination of others must be eliminated. This is why Ron Paul has been dealt with as he has by the lapdog media.

There was a time -- even during my adult years -- when genuine issues were discussed. But no more. Issues are divisive, weakening of the importance of "bipartisanship" (i.e., the one-party, Republocratic commitment to Establishment interests). One saw the early stages of the collapse of issues two decades ago, when presidential campaigns focused on such weighty matters as the parole of Willie Horton, or the importance of the "pledge of allegiance." There was even a time -- 1964 -- when the fear that Barry Goldwater might use nuclear weapons in Vietnam helped to decide an election. In 2008, the fear that a candidate might NOT want to use nuclear weapons (e.g., on Iran) may decide the presidential election.

If issues are to be avoided, what, then, of questions regarding the character or beliefs of the candidates? Oh, that amounts to "mudslinging" and "smearing" and is to be condemned.

This leaves us with what the 2008 presidential election has become: a plebiscite on political correctness. Are we to elect a "woman" or a "black" as president, or are we to continue electing "old, white men" to this office? Minds that have been conditioned by government schools and television to awaken or go to sleep on cue, will be asked to stumble into voting booths to select the image -- not principles -- that best suits them. Keep in mind that this process will have absolutely nothing to do with how the government will operate. That decision was made a long time ago by the corporate owners of the Establishment. The election will be as relevant to your life as the outcome of an American Idol contest. The upcoming "debates" will be as empty-headed as the inquiries made of beauty contestants: "If you had but one wish, ..."

In our Marshall McLuhan universe, public opinion polls have become substitutes for critical thinking. This election will amount to little more than a popular referendum on whether people prefer the mindset of Oprah Winfrey or Bill O'Reilly.

Next Chapter: Ron Paul Revolution

Andrew Malcolm, reporter for mainstream media member in good standing Chicago Tribune, continues to cover the Ron Paul "Revolution" even after the Republican presidential candidacy has been officially decided -- to Malcolm's credit. He may well be giving Paul more coverage than lots of the MSM gave him while the candidacy was still up for grabs.

The normal pattern of presidential political campaigns is that right at the start the candidates publish a book about their lives and thoughts, which may not be worth $28.95 and likely was not really written by the candidate anyway. But it gives them an excuse to travel the country seemingly free of overt politics to talk to virtually anyone anywhere about their book and plans for their candidacy.

It is a great tool. Book signings draw TV cameras, and fans in the autograph line can be interviewed as if they were at a "Star Wars" convention: "I can't wait to meet him!"

Not surprisingly, Texas Rep. Ron Paul, the Republican with the libertarian streak and the only one to oppose the Iraq war, is doing things a little differently this year. Now that his chances of snatching the Republican nomination away from Arizona Sen. John McCain are nil, and the Republican campaigns are basically overshadowed by the ongoing bitter dispute on the Democratic side, Paul is publishing a book, on April 30. But you can probably buy the book now on Amazon.

Regular readers of these items on the Ron Paul revolution will not be shocked that the book is titled, The Revolution: A Manifesto, and it is a collection of his thoughts and writings from the campaign trail that cost on the order of $29 million. ...

Paul and his loyal Paulunteers -- more than 800,000 voted for him this election season -- were an intriguing phenomenon this year for their passion and dedication (that group is probably still out on the windy interstate bridge waving "Ron Paul 2008" signs at cars passing underneath). Their generosity and determination made him the most successful Republican fundraiser in the fourth quarter. He has still got about $5 million cash in hand and no debt. What a conservative!

He beat Rudy Giuliani and Fred Thompson at various times and intends to wander the countryside as long as the money keeps coming in, like some kind of political Johnny Appleseed, sowing the seeds of a return to strict constitutionalism that he hopes will flower some years down the road, since not much happened in terms of convention delegates this time. Much the way Goldwater gang planted the seeds of the conservative revolution in 1964 that led to Ronald Reagan's ascension to the presidency 16 years later.

It will probably be a long road for Paul and there are no guarantees, except that Paul will talk to virtually anyone anywhere during the weeks leading up to the GOP convention -- in (of all places) St. Paul. Only one thing seems certain: Paul and his Paul pals have no intention of voting for McCain.


Reflections on “the daily panorama of private and communal folly.”

Justin Raimondo comments on the follies of the day. Did you know that Democrats rake in more defense industry contributions per politician than Republicans? Thought not.

I have to laugh -- otherwise, I will never stop crying. In perusing the headlines this morning, trying to decide which fresh disaster to focus on, I am reminded of what H. L. Mencken had to say about America in the third volume of his Prejudices:
“Here, more than anywhere else I know of or have heard of, the daily panorama of human existence, of private and communal folly -- the unending procession of governmental extortions and chicaneries, of commercial brigandages and throat-slittings, of theological buffooneries, of aesthetic ribaldries, of legal swindles and harlotries, of miscellaneous rogueries, villainies, imbecilities, grotesqueries and extravagances -- is so inordinately gross and preposterous, so perfectly brought up to the highest conceivable amperage, so steadily enriched with an almost fabulous daring and originality, that only the man who was born with a petrified diaphragm can fail to laugh himself to sleep every night, and to awake every morning with all the eager, unflagging expectation of a Sunday-school superintendent touring the Paris peep-shows.”
Speaking of "governmental extortions and chicaneries," the Center for Responsive Politics has calculated that our congressional solons, collectively, have invested some $196 million in the military-industrial complex, i.e., in companies doing significant business with the Defense Department. Conflict of interest, anyone?

This actually goes way beyond being a mere conflict of interest: It is more of a titanic collision. Yet we do not usually hear much about it, even when the talk turns to mention of the military industrial complex. This is, perhaps, why the original phrase, as first written by Dwight Eisenhower's speechwriters, was military-industrial-congressional complex. Ike edited it down to military-industrial for fear of offending Congress.

Yes, it took a Republican to warn us of the impending danger, although he waited until his farewell address to do it. Taking this partisan theme a bit further, it seems the "antiwar" Democrats are in deeper than the Republicans. As one news report puts it:

“The study found that more Republicans than Democrats hold stock in defense companies, but that the Democrats who are invested had significantly more money at stake. In 2006, for example, Democrats held at least $3.7 million in military-related investments, compared to Republican investments of $577,500.”

If you wondered why the Democrats keep voting to fund a war they ostensibly oppose -- well, now you know at least part of the reason.

The biggest congressional war profiteers are Joe Lieberman (no surprise there!), John Kerry (he was against it before he looked at his bank balance), and House Republican whip Roy Blunt (no surprise there, either). According to the study, "forty-seven current members of Congress (or 9 percent of all members of the House and Senate) were invested in 2006 in companies that are primarily in the defense sector, for a total investment of between $4.2 million and $8 million. The average share price of these corporations today is nearly twice what it was in 2004."

Yes, the Republicans are raking in the cash, but at least we know where they stand, because they do not make any bones about it. On the other hand, the Democrats are even more heavily invested in the "defense" sector: they are raking in more cash, per politico, including in the form of campaign contributions, as well as votes from grateful defense workers who get to keep their jobs while others are laid off. When Bush comes to Congress, hand outstretched, the Dems make a pro forma attempt to attach "conditions," the President threatens a veto, they cave -- and why shouldn't they? "Antiwar" Senator John Kerry -- with $38,209,020 in defense-related investments -- is laughing all the way to the bank.

As Barrett Strong and Norman Whitfield, Hall of Fame writers of such classics as "I Heard It Through the Grapevine", "Papa Was a Rolling Stone", "Ball of Confusion", and "War", wrote in "Smiling Faces, Sometimes":

“Your enemy won't do you no harm
  Cause you'll know where he's coming from
  Don't let the handshake and the smile fool ya
  Take my advice I'm only try' to school ya.”

This should be illegal. Instead, it is routine. Just another indication that we have slipped into a Bizarro World alternate universe, where laws and morals are inverted and the sacred is regularly profaned. Members of Congress are not even required to report their specific holdings: instead, we are informed, they must merely indicate "the general range of their holdings." So we do not know who owns how much of what. Which means members of Congress are no doubt enriching themselves and their friends, at taxpayers' expense, while the rest of us face foreclosure and the worst economic climate since the last Great Depression.

If you are Bear-Stearns, you are home-free. If you are you, or me -- forget it, pal. Just shut up, bend over, and kiss your ass goodbye. ...

Recording and commenting on "the daily panorama of human existence, of private and communal folly," as Mencken put it, is journalism, but these days it seems more like the stuff of novels -- bad novels, to be sure. The sort where the villains are a bit too villainous, and there are no heroes, only shades of evil, gray to pitch black.


Judge Andrew Napolitano’s A Nation of Sheep reviewed.

Economics and legal writer William Anderson reviews Judge Andrew Napolitano's important book A Nation of Sheep, and brings his own valuable economics perspective to the judge's legal one.

As I write this review of Judge Andrew Napolitano's A Nation of Sheep, I am about 37,000 feet above the ground in a Southwest Airlines Boeing 737. That means that I dutifully took off my shoes, belt and whatever else I had on my being that was metallic and went sheep-like through the infamous Transportation Security Administration gauntlet.

On my trip to the airport, I made sure I did not violate speed limits -- or at least drive fast enough to be conspicuous on the highway -- and at the rest stops, I did not park in the spaces that were reserved for Pennsylvania state troopers. Once on the plane, I did not violate FAA regulations or do anything that would call unwanted attention to me. When we land in Las Vegas, I will make sure that I do exactly what the authorities tell me, and when I fly back home in four days, you can bet I will not place my flying "privileges" in jeopardy.

To most Americans, obeying the authorities at all times, especially in the post-9/11 age, seems like the thing to do. I recall a conversation with a prominent conservative evangelical who works in Washington, D.C., barking the following words to me: "Are you telling me that our government is tyrannical?" The tone of his voice, and the things he said afterward clearly indicated that the U.S. Government, and especially government under the Republican Party, displays no telltale signs of tyranny.

After all, he reasoned, tyranny is carried out by people with "SS" on their collars, who wear leather boots, goose step, give stiff-armed salutes, and speak in a foreign language. Tyranny is Hitler, or Stalin, or Pol Pot, or Bill and Hillary Clinton.

Judge Napolitano is not buying any of this sophistry, and in A Nation of Sheep, he explains unequivocally that my Republican operative friend is wrong. Whatever belief that Americans hold in regard to their rights as guaranteed by the Constitution of the United States, reality is much different. The U.S.A. no longer is the Land of the Free, no matter how many times that line is belted out when people sing the "Star-Spangled Banner". Napolitano wastes no time in laying out the grim picture that is the wreckage of long-held American freedoms:
Picture this: The Attorney General of the United States testifies under oath that the president is not ordering federal agents to read the mail, listen to the telephone calls, and monitor the computer keystrokes of ordinary Americans, without a warrant to do so from a judge. That would be criminal. But six months later, the president admits that he has done so.

Picture this: The Constitution prohibits Congress from abridging free speech. But suddenly, Congress made it a crime to talk about receiving self-written warrants from an FBI agent.
Such things, Napolitano notes, are not imaginary, but are the present state of U.S. policy. These things are done in the name of "protecting the homeland," but the good judge is not buying that line, nor does he agree with the premise that in order to "preserve freedom," the state needs to take away "some" of those very freedoms it supposedly protects. Napolitano asks the simple question: "How can the government possibly preserve freedom by taking it away?"

After his introduction, in which Napolitano clearly lays out his thesis, he then explains the natural rights origin of freedom, and how many of the founders of the United States held to a natural rights position. Law, in their view, existed to protect individual liberties from those who would deny them. Today, the deniers of liberty are those legally entrusted to protect it.

Napolitano quotes Benjamin Franklin, who certainly knew something about a natural rights origin of law: "Those who give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety." The judge explains that people who are willing to give up liberty are giving power to a government that will take away the rest of their liberties, and make the people even more unsafe, as a predatory government never brings safety.

In his first chapter, Napolitano takes issue with legal positivists, who seem to dot the political landscape these days. I remember speaking to a True Believing socialist who held a high place in President Jimmy Carter's government, as he told me, "The Constitution is whatever the Supreme Court says it is."

Certainly, it seems that legal positivism holds sway. From the writings of Judge Richard Posner to the Federalist Society to the New York Times to the leaders of both major political parties (or the "Republicrats or Democans"), the idea of natural rights and natural liberty seem not only passe, but also downright subversive to Good Government. Even though politicians will make passing remarks about individual rights and Constitutional government, nonetheless they govern as legal positivists who do what they want whenever they have enough weapons to back up their positions.

In Chapter Two, Napolitano asks the simple question: "Are you a sheep or a wolf?" Sheep, he writes, "stay with their herd and follow their shepherd without questioning where he is leading them. Sheep trust that the shepherd looks out for their safety."

While most Americans would not like being called sheep, nonetheless the conversation in the TSA lines generally moves along a "it is inconvenient, but I am willing to put up with it because it makes us safer" line. Americans dutifully accept the tickets police officers give them for slight infractions of the speed limit, and if anyone resists in the slightest, Americans will give unqualified support to the police when they tase or even shoot that person who really posed no danger to anyone.

From there the Good Judge goes through a litany of sins committed by the state, from the self-written warrants that federal officers now may write to the destruction of habeas corpus. Government at all levels is destroying rights and most Americans seem not to care, or will make excuses for the state.

Yet, the first aim that Napolitano takes is not at the authorities, as critical as he is of them. Rather, he writes that Americans have become sheep, and the state is the Bad Shepherd. Perhaps the greatest irony comes with the annual July 4 celebrations in which Americans now hold to be a day to give homage and honor to their government. That July 4 marks the signing of a document that declared the British state to have an illegitimate claim upon the lives of the signers and American colonials is lost completely in the mix of parades and fireworks (which are set off by state-approved entities -- for public safety, of course).

That the present U.S. Government makes King George's "tyrannical" rule look to be downright benign libertarianism does not seem to faze Americans at all. If one were to challenge the state (as opposed to telling a bunch of Democrats, heads nodding all, that George W. Bush is a Really Bad Guy), one is seen as challenging freedom. Indeed, we have gone from a view of the state being an entity that was supposed to protect liberty to an entity that protects us by taking away liberty.

The reasons for this decline are many, and they have been discussed in other articles and papers. I would like to present a different view, one that has the economist's explanation. It goes back to my dutifully and quietly standing in the TSA line.

Yes, I knew that the TSA is a terrible organization that has no place in a free society. ... But, I just wanted to get on the plane. Any resistance on my part would mean I would have to pay my university hundreds of dollars for the air fare, lodging, my advance for meals, and the like, since I would not be permitted to fly that day. Moreover, any resistance on my part would have meant I could be charged with "interfering with the duties of a federal officer," which carries 20 years in prison.

Resistance would have meant I would be out of work and in prison, and my family would be on the streets. Resistance would have been something for which I would have had to pay the price -- alone. ...

In economics, we would say simply that the marginal costs I would have incurred for resistance would have outweighed any benefits on the margin that I would have gained from standing up to the TSA. Not only would my life and the lives of my wife and children be destroyed, but nothing good would come of it. The TSA would be given even more power, and my life would be over and government would have grown even more.

Robert Higgs has pointed out that governments grow because they promote and exploit fear. ... However, there is another aspect of the state and fear, and that is the fear that all of us have of the state and the individuals who work for it. On the local level, there are police, tax collectors, social workers, and others who are given the power to destroy our lives -- and not pay a price, themselves. On the state and federal level, it is even worse. Resistance really can be dangerous.

The problem is that people -- liberals and conservatives -- believe that those who resist are the bad guys. Government cannot be the "bad guys," no matter what happens. Yes, in conversations with Democrats where I work, they are all-too-happy to pin the label of "tyrant" on George W. Bush. But, when I bring up the abuses of the Clinton Administration, from the massacre at Waco to the vicious bombing of Serbia, they suddenly become Defenders of State Supremacy. It is not that these people are against misuse of government power. They just want their people to be able to wield the batons and shoot the guns.

Governments grow because the benefits are concentrated and the costs are diffused. Yet, they also grow because the penalties for resisting injustice are draconian and are felt by that relatively small number of people who resist. At the same time, there is little sympathy for the resisters, but much sympathy and support for the abusers.

There seems to be an inevitability regarding the nature of the growth of government and the subsequent cowing of the people. Yes, as the Good Judge says, we truly have become a nation of sheep. The shame is that we have a heritage of freedom, but have thrown it away with both hands. However, they still let us get on the planes.

Although I might seem to be pessimistic, in truth, freedom and liberty always have been on the defensive throughout human history. We are given thousands of excuses for giving up our freedom, or not resisting the authorities when they try to deprive us of our God-given liberties.

The importance of this book is that it provides the framework for which we can -- and should -- hold government accountable for violating our rights. Furthermore, in those brief, shining moments when freedom has been the polestar of a society, the very principles that Napolitano lays out are the principles that have guided those who led the way. For that, alone, this book is worth reading, and one hopes that people will understand the judge's message to all of us to hold fast to our liberties, as well as the very ideal of liberty.


OpenOffice.org Writer is the major free alternative to Microsoft Word, but OO.o is undeniably huge and resource use-intensive. AbiWord is a cross-platform word processor that, by contrast, is lightweight and nimble. However, up until the recent release of version 2.6 AbiWord had limitations in its ability to handle complex documents. With 2.6 now out however, it sounds like a viable alternative to Writer and Word. (Our specific experience is still limited.)

In this age of multi-core processors and 3-D desktops, some people still get work done on old resource-strapped single-core machines, thanks to programs like the AbiWord word processor. The latest stable AbiWord 2.6.0 release was unveiled last month, two years after the software's last stable release. Feature-wise, the little cross-platform word processor has closed the gap with heavyweight OpenOffice.org Writer, but it suffers from the oldest Linux ill of all -- it is a pain to install. ... By contrast, Windows users only need to double-click two executables -- one to install AbiWord and another to handle the plugins. But once you get AbiWord 2.6 running, it will be worth the effort.

Lightweight and peppy yet loaded to the core, AbiWord 2.6 is as good as they come. With the latest release, you get a few templates to create documents from, and the program spell-checks text as you type. AbiWord is multilingual and lets you input text in various languages, including English, French, German, Finnish, and several Indian languages. You can configure the editor to autosave documents after specific time intervals and maintain document history. You can also compare two documents currently open in AbiWord and find similarities in content, format, and styles. ...

The new version can track document revisions from multiple sources as well as show a document before and after applying the suggested revisions. There is also a find feature to move to the next or previous revision, which can either be accepted, rejected, or purged. AbiWord allows you to add a comment for a particular revision, but I could not figure out how to read that comment afterward.

AbiWord 2.6, like previous releases, has a lot of plugins with varying degrees of usability and compatibility. Some of the plugins I tried included the Wikipedia and Google lookup plugins, using which you can look up selected words in AbiWord documents on those sites. If you dabble in images, you will also like the GIMP plugin, with which you can edit any inserted image in the document with the GIMP image editor. Speaking of images, AbiWord 2.6 has a limited but diverse clipart gallery. You can also drag and drop images into AbiWord documents, or drag images from AbiWord documents and drop them on your hard disk.

I could not get the Open Document Format (ODF) and the experimental Office Open XML (OOXML) plugins to work on the Linux installation. All I got was a simple "could not activate/load plugin" error, which did not help resolve the issue. The plugins worked on the Windows installation though. With the ODF plugin you can both import and export a simple ODF file. The experimental OOXML plugin only lets you open a file in the newly standardized document specification. In addition to these two formats, AbiWord can natively open and save documents in a variety of formats, including plain vanilla text, rich text format, and Microsoft Word. You can also save documents as PDF files.

AbiWord handles documents of all formats well. Apart from a little loss in formatting in .doc documents (especially ones with comments), there was not any loss in formatting, or more importantly text, in any type of document. ...

Using AbiWord as a lightweight .doc format file reader one of its very useful functions.

Versus OpenOffice.org Writer 2.4

It is probably a little unfair to compare AbiWord with the more full-featured OpenOffice.org Writer, but AbiWord is the only real word processor that fills the void between vanilla text editors and OOo Writer. OpenOffice.org 2.4 was also released in the last week of March and has lots of new features. We recently reviewed OpenOffice.org in its run-up to OpenOffice.org 3.0.

Thanks to having a more limited set of features than OpenOffice.org, AbiWord scores over its full-featured rival in the areas of speed and easy-to-navigate interface. Irrespective of the computer I run it on, AbiWord pops open with a blank document in a second or two. OpenOffice.org Writer 2.4 takes about 15 seconds on a dual-core box with 1GB RAM, which is a step up from earlier lethargic OpenOffice.org launch times. It is also much easier to locate a particular option or setting in AbiWord, thanks to limited feature set.

But there are a couple of things that AbiWord can learn from OpenOffice.org. If AbiWord would allow adding comments in a document, it would be more useful on an editor's desk. And it would be great if users could embed audio and video objects in their documents and not just images.

Some people criticize AbiWord because it lacks the ability to create charts, but if you run AbiWord on [Linux desktop environment] GNOME, you will benefit from the GNOME-Office integration and will be able to create and import [spreadsheet program] Gnumeric charts into AbiWord documents. The GNOME-Office package works well on lightweight [Linux] desktops like Xfce.

AbiWord is a great word processor and totally rocks on lower-end machines. AbiWord 2.6 has further bridged the gap to full-featured apps like OpenOffice.org Writer, and the new release has enough features to satisfy a fair proportion of the word processing population. Some tools, such as the collaboration plugin and the OOXML/ODF file import/export plugin, need some work before they can fully interoperate with other word processors that produce documents in these formats. The project's participation in Google's Summer of Code program should help to this end. New Linux users would not mind an easy-to-use installer as well, like the one their Windows cousins get, and some updated online documentation would help too.

But make no mistake about it, AbiWord 2.6 is a hallmark AbiWord release -- cholesterol-free, fast, and with a couple of jaw-dropping features that you will not find in any other word processor.

For those looking for a lightweight spreadsheet program alternative to Excel and OpenOffice.org Calc, we recommend trying out Spread32.