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HOUSE OF CARDS
“I do not see any basis for economic analysis that would not throw up really alarming signals.”
Lord William Rees-Mogg wonders whether a repeat of the 1930s is in the offing.
Economic theory tries to deal with a limited number of factors and the mechanisms by which they interact. The main factors are population, food, energy, property, and manufactures, all of which are physical realities capable of being counted. They are the beans that bean counters count with. There are four mechanisms of exchange: money, barter, markets, and allocation. These are the mechanisms by which the beans are exchanged.
Different economists have put emphasis on different factors. David Ricardo, the classical economist of the 19th century, was a banker who gave special attention to money. Thomas Malthus, another founder of 19th-century theoretical economics, paid particular attention to population. Indeed, he is the founder of population studies.
Karl Marx, the founder of socialist theory, paid attention to manufactures, and to population, seen particularly as labor. The leading 20th-century economists, such as Maynard Keynes, Irving Fisher and Milton Friedman, have been derivatives of the Ricardian or monetarist school, though Keynes was a rebel against classical Ricardian orthodoxy.
Unfortunately, it is impossible to think of all these factors simultaneously. Perhaps there will be a time in the future when some supercomputer will be able to calculate the interreaction of the global economy holistically. We are still far away from that day.
At present, the limitation of the human intelligence means that we can concentrate effectively on only one of these factors at a time. The selection of any one of these factors or interreactions for study draws attention away from other, equally important factors. One can be both a Ricardian or a Malthusian, but one cannot concentrate on both aspects of economic analysis simultaneously without a loss of focus.
However, one can simplify economics by using the different physical factors as a checklist to detect signs of difficulty. That does make economics the gloomy science. At present, the world is suffering from a crisis of overpopulation, with the human population stretching the food supply beyond its limits. Population is continuing to grow, although there is already an inadequate food supply for 6 billion people and famine is growing in Africa. It is possible that the 21st century will replace the 19th as the century of famine.
Food is very closely linked to energy. Food production is dependent on the oil industry, in cultivation, in transport, and in protection against pests. The food price has followed the oil price, to the point at which millions of people cannot afford a minimum food supply. That is already a catastrophe, and the trends are unfavorable. There is also a significant shortage of water.
Markets have flagged food and energy as danger areas for the world economy, by raising their prices. Property and manufactures are secondary to food and energy, in that their prices can change without immediately affecting the price of food and energy. In fact, there has been a worldwide fall in housing prices, particularly notable in Britain and the United States, at a time of steep increases in food and oil prices. The price of manufactures has been held down by the growth of low-cost Asian manufactures.
There is much discussion of the scale of the global economic crisis. Some people expect it to cause a crisis comparable to the Great Depression, a wiping out of capital values, a liquidation of global debt. We cannot yet be sure, but we can see that the main factors of global economic development are all in difficulty. On the one hand, there is oil at $130 per barrel -- on the other, there are banks writing off billions of dollars of assets.
I do not see any basis for economic analysis that would not throw up really alarming signals. These adjustments of the fundamental factors in any analysis put huge pressures on every government. In the 1930s, most governments were destroyed by the slump. In Britain, Labor lost office in 1931. In Germany, Hitler came to power in 1933, as did Franklin Roosevelt in the U.S. I fear that process will be repeated, even if only by democratic defeats. The storm of the world is still rising.
EUROPE STUNNED BY IRISH REJECTION OF TREATY
Lots of reactions to the Irish voters' rejection of the proposed EU Lisbon treaty, which allegedly left Europe "reeling". We do not pretend to know the treaty's details sufficiently well to have an intelligent comment on the matter right now, but all the wailing and gnashing of teeth from the politicians instinctively tells us that the Irish smelled a rat and voted accordingly.
Europe was left reeling ... by Irish voters' rejection of an EU reform treaty, even as French and German leaders argued it could be kept alive if other members pushed on with ratification.
The result of the Irish referendum was a major blow, with Czech President Vaclav Klaus insisting that the Lisbon Treaty was now "finished" and Luxembourg Prime Minister Jean-Claude Juncker conceding it would at least miss its January 1 target for coming into effect.
Austria said the Irish "no" vote was an unmitigated "failure" for Europe. "You cannot dress it up any other way," said Austrian Foreign Minister Ursula Plassnik, while her Spanish counterpart Miguel Angel Moratinos acknowledged it was "not good news."
Other leaders and senior EU officials refused to sound the death-knell for the treaty, which aimed to create a full-time EU president and foreign policy chief and streamline the workings of the 27-member bloc.
Sounds like a major effort to create the "United States of Europe". Perhaps the Irish voters got a case of "been there, done that," if only vicariously.
"We take note of the democratic decision of the Irish citizens with all due respect, even though we regret it," French President Nicolas Sarkozy and German Chancellor Angela Merkel said in a joint statement. Noting that the Lisbon Treaty has already been ratified by 18 EU countries, they said they hoped other member states would "continue the process" -- a call echoed by European Commission chief Jose Manuel Barroso. ...
Britain was among those who quickly pledged to move ahead and adopt the treaty. "It's right that we continue with our own process," said Foreign Secretary David Miliband, shortly after Irish Prime Minister Brian Cowen said there was no "quick fix" following his country's "no" vote.
Gordon Brown's government had come under strong pressure to offer British voters a referendum on the treaty, but the Lisbon Treaty will proceed towards its third reading in its parliament's upper House of Lords [this week]. ...
The Netherlands, whose voters helped plunge the bloc into one of its worst crises three years ago by rejecting the treaty's predecessor, the draft constitution, also vowed that it would ratify the text. But Czech President Klaus argued that it was "no longer possible" to carry on as before. The Czech Republic, which will take over the presidency of the EU in January, is among those that has yet to ratify the treaty.
The current holder of the EU presidency, Slovenia, said the treaty remained a key building block in efforts to make Europe "more efficient, more democratic and transparent."
While most countries said they accepted Ireland's verdict, their disappointment at the result was palpable. "By voting no, the Irish people have put the brakes on the development of the EU. The Irish "no" will affect us all. The EU's competitiveness is going to suffer," said Estonian President Toomas Hendrik Ilves. "The "no' to the Lisbon Treaty in Ireland, one of the EU member states that has most enjoyed the benefits of the EU, is very regrettable."
Portugal, whose capital gave its name to the treaty, was optimistic that the way ahead would become clearer after a crisis summit in Brussels yesterday and that Europe still had the desire to overcome this major hurdle. ...
Poland's Prime Minister Donald Tusk said it was important to avoid a "two-speed" European structure, adding that Europe must find "solutions which take into account the fears of the Irish, without throwing into question the treaty's reforms. ... The European Union has overcome difficult moments and each time it has come out of the crisis stronger, ready for new endeavours and challenges. I am sure that this time things will be the same."
Poland's eurosceptic President Lech Kaczynski has so far failed to sign the treaty which was approved by his country's parliament in April. Tusk said Kaczynski could sign the treaty shortly.
Ireland: Know Your Place, You Ungrateful Wretch
The bile-filled assault on Irish voters who are thinking of rejecting the Lisbon Treaty shows just how corrupt and undemocratic is the EU.
This article was written before the Irish vote on the EU Lisbon treaty -- as the ultimately victorious "no" vote was ascendant but its success not assured. Ireland was been a substantial net recipient of EU subsidies, so those pushing for the treaty's passage were wondering how Ireland would resist passing it.
How can the Irish be so ungrateful? That is the question being asked by EU officials (in private) and by EU supporters (in public) as the Irish go to the polls this [last] Thursday to vote on whether to accept the Lisbon Treaty on the expansion of European Union institutions. The fact that the "no" lobby seems to be gaining ground -- in a country that has benefited enormously from EU subsidies! -- has led to an orgy of bile-ridden attacks on truculent, thick and thankless Irish voters.
The message is clear: the Irish should know their place in the European set-up and slavishly bow and scrape before their paymasters in Brussels. Anything else would be "extraordinarily ungrateful", according to one commentator. Welcome to the "democratic" EU -- where most countries are bypassing their electorates and simply ratifying the Lisbon Treaty, and where the one country that is holding a referendum -- Ireland -- has been subjected to the kind of financial, political and emotional blackmail that would make even Imelda Marcos squirm.
In order for the Lisbon Treaty on EU enlargement to come into effect on 1 January 2009, all 27 member states must ratify it. So far, 15 countries have forced it through their parliaments, and another 11 are in the process of doing so. But Ireland -- population: 4.3 million -- is the only EU member state constitutionally bound to hold a referendum and put the Treaty to the will of the people. EU officials and supporters are sweating and fretting over the possibility that Irish voters -- "any clown with a pen", as one writer charmingly referred to them -- will torpedo the Treaty.
According to recent opinion polls, the "No" lobby is gaining ground -- even though Ireland's three main political parties, big newspapers and business world are calling for a "Yes" vote. Apparently, 40% of voters are planning to say "Yes" and 39% "No"; the "No" side has gained six points in the past two weeks, while the "Yes" side has remained steady.
European officials and commentators cannot believe that so many Irish voters would dare to be so ungracious to their financiers in the EU. "It seems extraordinary that the Irish could be so apparently ungrateful", thunders the Financial Times, pointing out that the Irish Republic has "reaped greater benefits from its 35 years of EU participation than any other member state". Ireland has received £40 billion in subsidies from Brussels and yet its electorate might say "No" to Lisbon, probably because "they do not understand the Treaty", sniffs the FT. They are ungrateful and stupid.
"Gratitude, it would appear, is in short supply", says another commentator. He argues that, never mind the possibility of a "no" victory on Thursday, even the fact that "the Irish vote might be close is hard to fathom from a historical perspective"; after all, membership of the EU has given Ireland "a chance to diversify its economy". The Irish should be "thankful, indeed overflowing with appreciation" -- instead they seem to be "out of their collective minds". Ireland will be seen as "the truculent and ungrateful child of Europe" if its voters reject Lisbon, says one report.
The presumptuousness of the wording of the insults directed at the Irish comes is staggering. Calling all pols: A little introspection, anyone?
This echoes the attacks on Irish voters when they rejected the EU's Nice Treaty in a referendum in June 2001. Back then, 54% of voters said "No thanks". "The best pupils of the European class have spat in the soup", spat the French newspaper Liberation in 2001: "The blow is all the more treacherous in that it comes from a country that owes its new wealth to Europe."
"Those ungrateful Irish", said a headline in The Economist, reminding truculent anti-Nice voters that "when Ireland joined the European Economic Community in 1973, the country's income per head was about 60 per cent of the community's average; it is now around 120 per cent".
In 2002, under extreme pressure from the EU, the Irish state found a neat way to get around the inconvenient fact of a "No" vote to the Nice Treaty -- it simply held a second referendum (in a shameless act of political Double Jeopardy) and devoted its not-inconsiderable political and media machinery to demanding that voters make the "right decision" this time. Pro-Nice posters reminded the ungrateful Irish about everything they had received from the EU. "Thirty billion Euros since 1973", the posters said, while Irish ministers warned ominously that a second rejection of Nice could "return Ireland to poverty". This time, the "Yes" lobby won: in October 2002, 62.89% of voters supported Nice.
The attacks on Irish voters for being "extraordinarily ungrateful" -- both for initially rejecting Nice in 2001 and for even thinking about saying "no" to Lisbon this week -- reveal a great deal about "democracy" in the EU. The EU's bureaucrats and backers seem dumbfounded that they cannot buy Irish people's support; they find it "hard to fathom" that a people who have received subsidies worth billions of Euros are not falling in line behind their rulers. It is the mark of corrupt, degenerate and anti-democratic elitism to believe that you can buy people's votes. Indeed, in many civilized, democratic countries it is illegal for political parties to offer voters financial reward for their ballots. Yet, Mafioso-style, EU backers are telling the Irish: "You have received your monies -- now do as we say."
It is not surprising to think you can bribe the voters, as that is basically what modern democracy is all about. So we understand the EU's befuddlement, insofar as they have not thought any more deeply about the situation and figured that just maybe some mice are smart enough to pass up the cheese in the trap.
The assaults on Irish voters also show what it means to be a "democratic citizen" in the EU: that is, someone who is financially cared for by caring-but-faceless bureaucrats in Brussels, and who should be "overflowing with appreciation" for the EU elite's grace and favor. This is the very opposite of political citizenship; it is a distortion of the traditional relationship between citizens and their governing bodies. In place of free and open debate, in which citizens are treated as adults who can have political views independent of any welfare they might receive from the authorities, we have a situation where those who dare to criticize or complain or say "no" are denounced as "extraordinarily ungrateful" and even "treacherous". This is the kind of relationship a child has with his guardian, or a mentally ill person with his carer -- it has nothing whatever to do with democracy.
Indeed, the use of that T-word -- treacherous -- to describe Irish voters who have rejected EU treaties tells you everything you need to know about the EU elite's view of the European masses. According to the Oxford English Dictionary, to be treacherous is to "commit treason against a sovereign, lord or master"; it is to be "deceiving, perfidious, false, disloyal, traitorous". The EU clearly considers itself lord of all Europe, and the people its nodding serfs. That it can be described as "treachery" to make a certain political choice inside the ballot booth shows the extent to which Lisbon, like Nice before it, is an already agreed document that parliaments and the people are merely expected to rubber-stamp. How dare the ungrateful, wretched, deceitful Irish jeopardize the EU elite's already agreed-upon and carefully thought-through plans?
The expectation that the Irish should say "Yes" to Lisbon gives the lie to the idea of equality in the EU. In Brussels and across the pro-EU commentariat it is assumed that poorer countries in particular -- Ireland, and also southern states such as Spain and Portugal, and the new Eastern European entries -- should behave like "the best pupils of the European class" because they receive generous subsidies from their masters. When the awarding of financial support becomes a key determinant in how states should relate to Brussels, then any notion of sovereign equality goes out the window. Richer states such as Britain, Germany and France can afford a more robust relationship with Brussels, whereas poorer states are told to be grateful, gracious, obedient and unquestioning. In the creaking, oligarchical bureaucracy that is the EU, the citizens of poorer member states are effectively disenfranchised, or certainly are "less equal" than citizens in states that are not so reliant on EU subsidies.
The lesson that many are drawing from Ireland's referendum on Lisbon is that democracy is a bad idea. "Putting the Treaty to such a plebiscite is absurd", says the FT, since many Irish voters "will vote 'no' simply because they do not understand the Treaty [and] others want to register a protest against the political establishment that is all on the 'Yes' side". Surveying the various groups that make up the "no" lobby in Ireland, Andrew Duff, Liberal Democrat MEP for the East of England, declared: "When there is popular consultation, you get populism, nationalism, xenophobia, all sorts of lies." Similar insults were made against French and Dutch voters when they rejected the European Constitution in 2005. The masses, it seems, are not to be trusted -- they are lying, conniving foreigner-bashers. Far better to leave European decision-making in the hands of an educated and cosmopolitan elite.
The Irish referendum has struck the fear of God into the EU and its supporters -- and with good reason. The fact that the "no" vote is gaining ground shows that, even in nations that have for the past 35 years effectively been bribed with subsidies by EU officials, the EU has not been able to win any sense of affinity and loyalty. It is still seen by large sections of the European people as an aloof, distant and authoritarian institution to which we should say "no", "non", "nein"; the EU has come to embody people's bigger sense of dislocation from political institutions today. The Irish referendum is exposing the thin veneer of the EU's legitimacy and stripping away its democratic masquerade, leaving it exposed as shrill, undemocratic, unequal and corrupt. Who would not want to say "no" to that?
The Return of Political Debate
Something unusual is happening in Ireland: the referendum on the Lisbon Treaty has prompted an unprecedented national debate. Everyone wants to have their say. But the powers-that-be are not happy about it.
The three largest parties -- Fianna Fail, Fine Gael and Labour -- are strongly in favour of the Treaty, as are the major newspapers and farming unions. Yet opinion polls suggest that a lot of Irish people are refusing to follow their leaders and are thinking of voting "No" to Lisbon. The political establishment is horrified.
The elite's sense of panic over a possible "No" victory is palpable. Academics and commentators are filling the pages of quality newspapers with expressions of thinly-veiled contempt for the parochial, ignorant, conservative, selfish electorate. ...
The reasons why some are thinking of voting "No" are as diverse as the groups that make up the "No" lobby. It is true that there are some reactionary politics in the "No" camp. Yet the display of so many different arguments is also quite gratifying in an age when politics is so often managed, controlled and dull. EU-related issues are being debated in bars, workplaces, on radio phone-ins. There has even been a return of "soapbox politics", with heated local meetings taking place in town centers. In an effort to keep up, the new Irish Prime Minister -- Brian Cowen -- has taken to the campaign trail; every day he can be seen on farms, high streets and going door-to-door asking people to vote "Yes".
There is little anti-Europeanism in Ireland. ... Very few people are hostile to Europe itself. However, opinion polls show that there is a growing suspicion of the aloof technocrats of the European Union, who presume to know what is best for people without engaging them.
In essence, the referendum has provided an opportunity for the Irish people to express their exasperation with their political leaders (both domestic and European) and remind them that they cannot take people's votes for granted. The Irish Times is outraged about this, arguing that "it surely says something about the dysfunctional state of Irish democracy that a majority of voters do not appear to be willing to trust the people they elected to govern them on a fundamental issue of national importance for this and future generations." Yet it is in the nature of democracy for people to think about things, discuss them, to hold their leaders to account and to high standards.
It is still possible that the "yes" vote will win. But the debate about Lisbon in Ireland has already delivered a serious blow to the technocratic managerialism of the EU. Many Irish people have re-engaged with political debate through the Lisbon issue, and are exercising their democratic right to disagree with their leaders.
TAX “TOP OF EU’S IRISH AGENDA”
Government officials warn finance minister Brian Lenihan that Brussels could end Ireland’s tax breaks.
This article also came out before the Irish popular vote on the Lisbon treaty. It sounds like it provided some useful fodder for the "no" side of the debate. The EU wants Ireland's low corporate tax rate (now 12.5%) to rise to closer to the average EU rate. Irish voters can be forgiven if they conclude that such pressure might have a little more bite under the terms of the treaty.
Finance minister Brian Lenihan has been told by senior civil servants that proposals for a common corporation tax base and the removal of the zero VAT rate on children's clothes and shoes "dominate our EU agenda."
While a proposed change in the method of calculating business tax has been hotly debated in recent weeks, there were no indications that Ireland's zero-rate of VAT might also be under threat from the European Union. Department of Finance officials have signaled to the European Commission the "political sensitivities and consequences of interfering with existing zero-rate" arrangements. ...
In addition to fears about corporation tax and VAT, the briefing memo outlines other pressing issues. These include falling tax revenues and "emerging spending pressures" in the areas of health, education and welfare.
Sections of the briefing relating to corporation tax have been blacked out under a Freedom of Information Act exemption, but the note reveals that officials expect the EC to make a proposal on the issue later this year when France takes over the European Council presidency. The note says Ireland is "also under pressure to change various elements of our tax code in relation to which they argue we are infringing either treaty or directive provisions."
Ireland's corporation tax of 12.5% has been cited as the main reason why so many multinationals have been attracted here, but other governments believe the rate distorts the EU market. In April, Micheal Martin, now minister for foreign affairs, said plans for a common corporation tax had not surfaced "at any political level." The briefing for Lenihan, however, takes a different line. "It is anticipated that the commission will bring forward a proposal for a common corporation tax base in the second half of 2008, during the French EU presidency," it states. ...
The low Irish rate does "distort" the EU market in that it makes corporations more likely to locate in Ireland than would be the case if rates were "harmonized" across EU countries. But that is kind of the point. Of course, no one is preventing the other countries from lower their rates to match Ireland's. But no participant in a competitive market would mind a little monopoly power if they could get it for free.
Campaigners for a "no" vote in this week's referendum claim the Lisbon treaty increases the likelihood of Ireland losing control of its taxation policies. "Yes" vote campaigners say that because Ireland has retained its veto on direct taxation, the treaty will not affect its control over taxation rates.
A department analysis says the EC's proposal is to assess multinational companies' tax bills on three grounds: assets, number of employees and sales by destination. "While France supports the concept they are aware that a number of member states have reservations about the project," said the briefing.
Regardless of Ireland's veto on tax rates, specialists in EU law say that countries in favour of the project could still make the proposal a reality through the "enhanced co-operation" route. ("Enhanced co-operation" means countries can go ahead and set their own VAT rate together, but they cannot force countries which do not want to -- like Ireland -- to do so. So, they really CANNOT make "the proposal a reality" for Ireland, or the UK, or any other country that does not want to)
The briefing for Lenihan also outlines government opposition to an EU review of VAT which is designed to streamline the system throughout member states. The material states: "The question of reduced VAT rates and any potential restructuring of the existing system is politically a very sensitive area for Ireland. ...
Ireland does not have a veto on VAT, an indirect tax, and would be powerless to prevent any changes in this area without support from other countries. Clothes and shoes not deemed by the Revenue Commissioners to fall into the exempt category are subject to a VAT rate of 21%.
Laszlo Kovacs, the EU commissioner for tax, has been at the forefront of the move to harmonize VAT rates. Yesterday his office denied there was any plan to abolish reduced-VAT rates, despite the fears expressed by the Department of Finance.
UBS TO GIVE SOME NAMES IN U.S. TAX PROBE
Swiss bank UBS plans to name names in an ongoing tax evasion probe, but only where it does not conflict with Swiss secrecy laws. This should be interesting.
UBS AG plans to give some customers' names to the U.S. Justice Department to end an inquiry into whether it helped clients evade U.S. taxes, [Swiss newspaper] SonntagsZeitung said, citing a "high-ranking employee" it did not identify by name.
UBS will only give names of customers when it does not contravene Swiss banking secrecy laws, the newspaper said, citing the U.S.-based employee. That would cover only "a few" clients, the employee told the newspaper. UBS said June 6 it is treating the case seriously. ...
This is a notable distinction being made by UBS about who it will and will not out. Some of the accused actually filed false forms and set up sham entities, so our guess is that UBS will have no compunction about turning over the names of those involved with those misdeeds. Whether UBS will be able to hold the line over Swiss laws certainly will bear watching.
The New York Times reported June 6 that UBS is considering whether to disclose the names of 20,000 U.S. customers. U.S. authorities are investigating whether some clients may have used offshore accounts at UBS to hide as much as $20 billion in assets from the IRS and dodge at least $300 million in taxes, the New York Times said.ddd The number of clients and the sum of money is correct, although the allegation that most of the money is illicit is "nonsense," an unidentified Zurich-based UBS employee told SonntagsZeitung.
It undoubtedly is nonsense. The IRS and its allies like to trot out gross numbers, e.g., total U.S. client assets held by UBS, and then imply that it is all questionable, when the reality is that only a small percentage is. Thus the "as much as" weasel words.
Former UBS AG private banker Bradley Birkenfeld has agreed to plead guilty in a tax-evasion probe in federal court in Fort Lauderdale, Florida. Birkenfeld and Mario Staggl, a Liechtenstein banker, were indicted for helping wealthy Americans evade taxes by setting up sham corporations
Birkenfeld, 43, has been cooperating in the probe of Zurich-based UBS for more than a year, U.S. prosecutors said at a hearing on May 13. Birkenfeld and Staggl marketed Swiss and Liechtenstein bank accounts to Americans who wanted to evade U.S. taxes, telling them that "Swiss and Liechtenstein bank secrecy was impenetrable," according to the indictment.
WE ARE NO TAX HAVEN, BERMUDA REPEATS IN THE WAKE OF REVELATIONS
Bank of Bermuda employees offered to help a South African tycoon either evade or avoid taxes. It is not clear to us exactly what was going through the employees' heads, but clearly they got close to the line between evasion and avoidance. The fact that they also helped the tycoon hide his transactions did not look too good once those transactions were detected and claimed to be illegal on a variety of charges. The assets involved have now been frozen.
So do the actions of the South African tycoon and Bank of Bermuda employees taint all of Bermuda's financial sector? In today's world it is certainly more useful ammunition for those on the warpath against "tax havens." Which is why the Bermuda government is mounting a preemptive counterattack by claiming it is not a "tax haven." It sounds like they have learned some lessons from the U.S., among others. No matter what the facts are (and they are hardly conclusive one way or the other here), assert yourself loudly and repeatedly. Create your own reality. We will see how well it works.
The Minister of Finance has restated that Bermuda is not a tax haven but declined to comment directly on the Bank of Bermuda's alleged facilitation of tax evasion for a South African tycoon. Documents revealed in a South African tax case suggest the Bank of Bermuda offered tailored advice to a billionaire David King on how to create a "blind alley" and "stop the South African taxman in his tracks."
A series of emails and memos which circulated between three Bank employees in 2000 suggest that the Bank looked for ways to restructure Mr. King's finances to ensure he did not have to pay a hefty bill to the state. In one of the emails employees are encouraged to be "creative" in helping Mr. King. In total Mr. King is facing 322 counts of tax fraud, racketeering and foreign exchange control contraventions and his assets have been frozen, the Mail & Guardian in South Africa reported. The story has gained international attention.
The Minister of Finance Paula Cox, who is also the Deputy Premier, was asked if she was concerned about the allegations being made and if Bermuda was a tax haven whose banks assist people looking to hide their money from foreign tax officials.
Minister Cox replied: "The Ministry of Finance in conjunction with our regulatory authorities and stakeholder agencies spend a great deal of time and resources constructing and passing legislation aimed at better positioning Bermuda as a premier international financial sector.
"In this particular case the BMA did its due diligence to ensure that the proper protocols and guidelines were followed with regard to the setting up of these company entities. Furthermore, it is a well established fact that the authorities in Bermuda do not condone inappropriate behavior and deal with it as swiftly as it arises."
Meanwhile, Minister Cox assured the public, its partners and stakeholders in the industry that Bermuda will continue to protect the Island's reputation and defend criticisms that Bermuda is considered a tax haven.
She said: "All authorities are determined not to allow the jurisdiction to be used by those who could damage our reputation. So, whenever and wherever issues are raised that cast a cloud over Bermuda and her market participants it causes us concern.
"We are living in a globally competitive environment and we are continually told by those who seek Bermuda as their domicile of choice that it is our reputation that distinguishes us from others. So if this is undermined we will take the necessary steps to vigorously defend and mitigate any ill-effects to Bermuda.
"One of the most effective measures Bermuda has taken to underpin we are not a tax haven is our commitment to [the] OECD in 2000. And at that time, I committed that I would share information with foreign tax authorities to expose inappropriate behavior." The Minister did not comment on the Bank of Bermuda's alleged involvement in offering tailored services to assist Mr. King in dodging the taxman.
The Bank of Bermuda, which was not owned by HSBC at the time of the alleged activity, has declined to comment.
If all the relevant information was forked over to South Africa (or whoever), and the country claims it is fully cooperation with OECD tax authorities, one would think that for practical purposes Bermuda is not a good venue for maintaining privacy.
AUSTRALIAN COPS ANGER VANUATU CHIEFS
The lead representative of 25 indigenous leaders in Vanuatu has protested what he regards as heavy-handed tactics by Australian police working in the country to uncover tax evaders and other criminals. His main complaint seems to be that the police are paying rather less attention to due process than they would be required to in their home country. Incidentally, unlike Bermuda above, Vanuatu does not deny that it is a "tax haven." It does claims that it is not a haven for criminals.
Traditional chiefs in Vanuatu have accused Australian police working in the country of overstepping their authority and failing to show proper respect to community leaders. "They don't have any regard for the chiefs. They disregard everyone here, including the government and the people of Vanuatu," Chief Daniel Molisa told AAP.
Molisa, who leads Vanuatu's Community Chiefs' Committee and represents 25 indigenous leaders from six provinces, said he was trying to organize a protest against the Australian Federal Police (AFP).
The AFP has transnational crime units in a number of Pacific countries, including about a dozen officers in Vanuatu. The AFP also provides mentoring and assistance to local law enforcement agencies. An agreement with Vanuatu allows the AFP to assist locals in the country at the request of the nation's police commissioner or attorney-general.
Although Vanuatu's government recently denied Molisa's group a permit to stage the protest, he said action was pending in the country's Supreme Court to overturn that decision. He hopes up to 6,000 people will join him in a march to the Australian High Commission in Port Vila in coming weeks.
Molisa said he was unhappy at recent raids undertaken in a joint Vanuatu Police-AFP operation as part of investigations into an alleged $A100 million money-laundering scheme. During that incident, four premises in Vanuatu were raided as part of Operation Wickenby. Vanuatu's Foreign Affairs Minister George Wells later said he had not been briefed on the stakes of the operation before the raids occurred.
AFP Commander Warren Gray said chiefs had no need to feel disrespected by the organization's work in Vanuatu, which helped both nations. "If they are feeling like that, I hadn not heard that before and I am quite willing to see if we can address that," Gray said. "I do not want to obviously say anything contrary to the chiefs, except to say that they are sadly misinformed about the situation regarding the people who are operating out of Vanuatu, and they are obviously misinformed about our intentions and our operations there in Vanuatu."
Gray said he thought most people in Vanuatu supported the AFP's work but a small group within the expatriate community were unhappy. "We are interested in some criminal elements operating out of Vanuatu, and primarily they are expat Australians, and obviously those people would have an interest in not entirely telling the truth about the situation," he said.
But Molisa said the AFP had powers that Vanuatu police would be denied in Australia. "It is very simple. We do not believe the police in Vanuatu can go and raid Canberra or Sydney. Our police force cannot do that," Molisa said. "We believe what they have done to the financial services of Vanuatu is just a slap to our tax haven system," he said, referring to the Wickenby raids.
Vanuatu Prime Minister Ham Lini recently admitted the AFP's presence in Vanuatu had upset many locals. "It is an issue for us and the Australian government. But again, it is something that the law has allowed us to do," Lini said, according to local media reports.
Vanuatu's Internal Affairs Minister Joe Natuman told AAP his country could not hide behind its tax laws to allow crimes to occur. "Vanuatu is a tax haven, but it is not a haven for criminals to hide away here. We are part of the globalized world and we must cooperate," he said.
IRS ISSUES SCAM WARNING
The "Economic Stimulus Refunds" being mailed out to most taxpayers by the IRS are providing more fodder for the identity theft scam artists, who are sending out emails with a spiel about what one needs to do to get the refund check. What one needs to do is actually nothing. Opening the email alone could cause some trouble, as this article explains. Actually responding to the email and handing out personal information could bring one more trouble still. Just delete the email without opening it.
The IRS wants you to know there may be a scam waiting in your e-mail inbox that looks very official but is dangerous to you and your computer. "We're getting reports of people receiving an e-mail that appears to come from the IRS and tells recipients to respond to get their 2008 Economic Stimulus Refund," said Jodie Reynolds, IRS spokesperson for Indiana and Kentucky. Reynolds says there are three things the IRS needs people to remember:
According to Reynolds, if you have accessed a link or attachment in a scam e-mail, you may have allowed the scammer to download malicious software to your computer and you should immediately scan for viruses and spyware, plus be alert for suspicious activity on your financial accounts.
- The IRS never sends unsolicited e-mails about your taxes.
- If you get a scam e-mail, do not access any links or attachments.
- If you have filed a 2007 federal tax return with the IRS, you do not need to do anything else to get a stimulus payment. The IRS will take care of the rest.
"If you have actually responded to a scam e-mail by giving out your private information," Reynolds said, "you should immediately take steps to prevent identity theft. You may now be a prime target. ... Taxpayers can help the IRS stop scammers by sending the original scam e-mail to the IRS at email@example.com. The e-mail must be forwarded using special instructions at IRS.gov or it loses the encoding needed to track it to its source."
The IRS has received about 33,000 forwarded scam e-mails, reflecting more than a thousand different incidents. Investigations by the Treasury Inspector General for Tax Administration have identified host sites in numerous countries, including Argentina, Aruba, Australia, Austria, Canada, Chile, China, England, Germany, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, Poland, Singapore and Slovakia, as well as the United States.
Reynolds also cautioned that scammers make contacts in various ways. "While the IRS never sends unsolicited e-mails or text messages," she said, "we do frequently use the U.S. Mail and may even use a phone call or a visit to make contact with taxpayers. Scammers know this and may also use one of these methods to contact people."
The IRS usually already has information that includes your Social Security number, so it would be unusual for an IRS employee to ask for that. And if the person is asking for credit card, bank account or PIN numbers, that is a big red flag that it is not really the IRS contacting you.
If you have any doubt as to whether the person contacting you is really from the IRS, decline giving out any information until you have contacted the IRS toll-free at 1-800-829-1040 to confirm that it is a legitimate contact.
For more information about tax scams, visit www.irs.gov and check out the "Dirty Dozen", a list of tax scams updated each year by the IRS. The IRS also provides information on its Web site to help taxpayers protect their personal and financial information. Just type Identity Theft in the key word search feature for additional information.
THIS IS NOT A MISTAKE (OR A SCAM): THE IRS SAYS TAX SHELTER PENALTIES ARE TOO TOUGH
Sometimes even the IRS has pangs of conscience.
In October 2004 Congress mandated big penalties for taxpayers who use a gambit on the IRS's list of "Abusive Tax Shelters and Transactions," then fail to flag it on their tax returns. And you cannot wiggle out of the fines -- $100,000 per individual and $200,000 per corporate return -- on the ground that your CPA gave you bum advice, or that you did not know your deal was on the offenders list.
The IRS must love this, right? Nope. IRS Chief Counsel Donald Korb says the penalty is so draconian he is loath to add new ploys to the list of abusive shelters. Instead, he has adopted a new category of iffy shelters, delicately called "transactions of interest," which must be reported. The penalty for not reporting is a fraction that of not reporting an abusive shelter, and the IRS can waive it. "You just can't have a system where there is no discretion," Korb says.
The IRS's end run does not please Senator Charles Grassley (R-Iowa), the senior Republican on the Finance Committee and a big proponent of the 2004 crackdown. "The IRS doesn't get to pick and choose which laws to enforce," he says.
As if it does not already. The quote tells you a lot about Grassley's desire to wield power rather than see justice done.
Still, Korb has a point. The 2004 penalties are now starting to be assessed, with some extreme results. Example: On the advice of a lawyer/CPA/promoter, one small businessman made $300,000 in improper contributions in 2001 and 2002 to what the IRS listed in 2003 as an "Abusive Roth IRA." In addition to other taxes and penalties, he is been fined $1.4 million for not attaching forms disclosing the earlier Roth contributions to his 2005 and 2006 tax returns, as required under the new law. So says his current lawyer, Ian Comisky of Blank Rome in Philadelphia. "You can overpenalize people when they stack one penalty on top of another," says Korb. He argues it is time for Congress to take a fresh look to make sure "the penalty fits the crime."
IRS REMINDS TAXPAYERS TO REPORT CERTAIN FOREIGN BANK AND FINANCIAL ACCOUNTS BY JUNE 30
The deadline for U.S. persons reporting their foreign bank and financial accounts is June 30. The reporting trigger is that the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. The IRS has issued a friendly reminder about this.
The IRS ... reminded U.S. persons who have bank and other financial accounts in a foreign country that they may be required to report those accounts to the U.S. Department of Treasury by the June 30 deadline.
With globalization, more people in the U.S. have foreign financial accounts. There is nothing improper about setting up or maintaining such accounts. Still, IRS officials are concerned that U.S. persons may overlook that their accounts are large enough to trigger reporting obligations.
"There are responsibilities that go along with owning such foreign bank and financial accounts," said IRS Commissioner Doug Shulman. "Foreign account owners must remember that they may have to report their accounts to the government, even if the accounts do not generate any taxable income."
Since 2000, the number of Report of Foreign Bank and Financial Accounts (FBAR) forms received by the Treasury has increased by nearly 85%, from 174,528 in 2000 to 322,414 in 2007. Despite this significant increase in filings, concern remains about the degree of reporting compliance for those who are required to file.
U.S. persons are required to file a Report of Foreign Bank and Financial Accounts (FBAR), Form TD F 90-22.1, each year if they have a financial interest in or signature authority or other authority over any financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year.
Note the "aggregate value" wording. So you cannot avoid the reporting requirement by spreading your funds over multiple accounts.
The 2007 FBAR form is due June 30, 2008. The FBAR is not an income tax return and should not be mailed with any income tax returns. The FBAR must be filed on or before June 30 of the following year to: U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621.
Unlike with federal income tax returns, requests for an extension of time to file an FBAR are not granted.
Civil and criminal penalties for non-compliance with the FBAR filing requirements are severe. Civil penalties for a non-willful violation can range up to $10,000 per violation. Civil penalties for a willful violation can range up to the greater of $100,000 or 50% of the amount in the account at the time of the violation. Criminal penalties for violating the FBAR requirements while also violating certain other laws can range up to a $500,000 fine or 10 years imprisonment or both. Civil and criminal penalties may be imposed together.
If a holder of a foreign account was required to file FBARs for earlier years, however, he or she should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be assessed if IRS determines that the late filings were due to reasonable cause. The account holder should keep copies of their statement for his or her own record. ...
The FBAR form is not available for electronic filing, but many income tax software packages can prepare a printed copy. FBAR forms and instructions are also available on this Web site or the FinCen Web site, and by calling 1-800-829-3676.
THE LAW GOES OPEN SOURCE
A new breed of online services is putting the law within the reach of everybody.
Technology is starting to work its way into that vast, amorphous blob that is the set of all court rulings out there. It turns out that that blob has some crucial similarities to the World Wide Web itself, so tools created by the likes of Google will apply usefully to the challenge of cataloging and cross-linking legal cases. The wheels are in motion to ultimately either put a lot of law researchers out of business, or at least reduce their hourly rates for tasks that can be largely accomplished via computer searches.
Philip Rosenthal and Edward Walters were young lawyers at Covington & Burling, a prestigious Washington firm, when they got an unusual request from a large corporate client to start looking up legal case histories on the Internet. The client was fed up with paying the firm's stiff bills for legal research.
At first they were shocked. Rosenthal and Walters were used to racking up hours on the online research services lawyers snidely call Wexis, after Westlaw, a unit of Canada's Thomson Reuters, and LexisNexis, owned by Anglo-Dutch publishing conglomerate Reed Elsevier. Big law firms pay as much as $4 million a year for access to Westlaw and Lexis.
This was in 1999. When the two lawyers started trolling for cases on the Web, they noticed courts around the country were beginning to post filings online. Why pay Westlaw and LexisNexis so much for documents that were already in the public domain?
“The courts produce this stuff at taxpayer expense, it gets shipped to these foreign companies for free and then they charge us to read it,” says Rosenthal, a Caltech-educated physicist who graduated from Harvard Law School.
“I thought, 'This is completely stupid. I have got half a mind to start the alternative to Lexis/Westlaw,'” adds Walters, who attended law school at the University of Chicago and was once a speechwriter for George H.W. Bush.
Eight years and $7 million later Rosenthal and Walters have their alternative, an online legal-research service called Fastcase. It uses computer algorithms to perform all the case indexing now done by the thousands of human editors at Westlaw and Lexis. Operating out of a slightly seedy Washington office building, Fastcase brings in less than $10 million a year in revenue, hardly a threat to the Wexis duopoly, which last year roughly split a combined $1.6 billion in pretax profit on sales of $6.5 billion.
Disruption is in the air, however. Fastcase sells bulk memberships to state bar associations for as little as $2 per member per year, a compelling reason for law firms to at least try it out. Just as cheap personal computers undermined the mainframe business in the 1980s and open-source programs like Linux and MySQL are challenging Microsoft and Oracle today, outfits like Fastcase are attacking Wexis' stranglehold on legal research from the bottom up.
A mix of for-profit and not-for-profit firms have missions similar to Fastcase's, including PreCydent, Public.Resource.org and Collexis Holdings' Casemaker division. They are assembling a digital version of the collections that fill miles of shelves at law libraries across the country.
What people will do with it is anybody's guess. Public.Resource.Org is the brainchild of Carl Malamud, a data-access advocate who in the mid-1990s started putting filings from the Securities & Exchange Commission online for free. The SEC later took up his idea and created the Edgar online service for accessing filings. Malamud prodded the U.S. Patent & Trademark Office to do the same with patents in 1998.
With the help of influential backers like eBay founder Pierre Omidyar's foundation, Malamud's Public.Resource.Org is filling up a 24-terabyte Sun Microsystems server with case law going back to 1754. (That is a lot of bytes, enough to type out 12 million novels.) Malamud bought some data from Fastcase while building his service, which is available for free on the Web. "If we do it and do it right, there are 100 other people who will copy our data and use it in interesting ways," Malamud says.
Bigger law firms will continue to use Westlaw and Lexis for a long time. The established vendors have the most current and comprehensive databases, and, says Thomas Fleming, lawyers know them best. Fleming oversees the research department at 150-attorney Jeffer Mangels Butler & Marmaro in Los Angeles. His firm uses Fastcase for quick searches and to cross-check citations, but he says it has a "phenomenal niche" serving smaller firms that cannot afford Wexis.
Those who would unseat Wexis have the arduous task ahead of digitizing all of the court records still in books. Optical scanning systems have a 98% accuracy rate, which means an unacceptable 40 errors per page. So Fastcase and others are paying Indian data-entry firms 40 to 60 cents per 1,000 characters to "triple-key" the books into digital form, with three typists entering the text and a computer picking the version at least two agree upon. Malamud estimates it will cost $6 million to digitize all 10,000 books covering the entire history of district, appellate, Supreme Court and bankruptcy law. The Indian typists have to leave out the editors' notes in the Westlaw or risk copyright infringement.
Another tricky task will be training computers to determine whether a holding in a case has been overruled or altered by a subsequent decision. The army of lawyers and editors at Westlaw and Lexis do this now, coding cases with helpful symbols like red flags to warn lawyers that a particular section of a case is no longer valid. "In the free-case world, it is all probably there, but is there a way to relate one case to another?" asks Richard King, chief operating officer of Thomson Reuters's West division
Working in the open-sourcers' favor is the fact that what lawyers do for a living is quite similar to what Google's software algorithms do with Web sites. Lawyers prepare cases by looking through old court decisions to find arguments that will help their cause. Then they rank those cases according to a well-established hierarchy. Decisions that have been cited frequently by other judges are considered more reliable than ones that nobody cites. Appeals courts rank higher than trial courts. Recent decisions trump old, stale ones. Google's servers use similar logic, ranking Web sites according to how many other sites link to them and how lofty the referring sites are in the ranking.
The similarity struck Thomas Smith, a professor at the University of San Diego School of Law, a few years ago. Thomas got LexisNexis to share data on millions of court citations, and with the help of mathematician Antonio Tomarchio, he showed that citations display a highly skewed distribution, similar to that of links among Web sites or the likelihood that top movie stars will appear in a film together. Out of 4 million cases he studied, 400,000 were not cited at all, and 773,000 were cited only once. Only 0.3% had been cited more than 500 times.
Smith and Tomarchio used this knowledge to develop a free search engine called PreCydent. In recent tests Smith and others have shown that PreCydent turns up those cases legal experts consider the most authoritative more reliably than any of the existing legal-research services.
"These little guys [Fastcase and PreCydent] are throwing a lot of Internet technology at the problem, and they may be getting close to replicating human analysis," says David Curle, an analyst at Outsell, a market research firm that tracks the legal information business.
Fastcase, with seven full-time programmers, is working on new ways to display data, including a four-dimensional chart that sorts cases by relevance and time (see chart). Type in "abortion" and "privacy," for example, and Fastcase displays a field of circles, with the largest at 1973: Roe v. Wade, the U.S. Supreme Court decision that legalized abortion. Click on the circle and the case is displayed, with hypertext links to other cases cited within it.
This is a fundamental break from the way legal research has been performed since the mid-1700s, when Sir William Blackstone revolutionized the practice of law by putting English common-law cases into categories. A century later Westlaw founder John West began collecting U.S. court decisions as they were issued and compiling them in volumes he called "reporters," so lawyers could keep track of the law as it evolved. Many courts still require lawyers to use the West volume and page numbers in their citations.
The Ohio Bar Association built the first large-scale computer legal research system in the late 1960s, using technology developed for the U.S. Air Force. That system later became LexisNexis. Both Westlaw and LexisNexis still index cases according to preset legal topics, lumping them into categories in much the same way as Blackstone did. "I think of it as pre-computer technology," says Fastcase's Walters. "Pull a book off the shelf and see how your point of law fits into their outline."
Tradition may be an obstacle now, but never underestimate what smart programmers and a lot of cheap processing power can do.
SECRET SPY COURT REPEATEDLY QUESTIONS FBI WIRETAP NETWORK
When even the Foreign Intelligence Surveillance Court, which basically rubber stamps all requests for warrants that are alleged to have to do with terrorism (including after-the-fact warrants), is concerned about the FBI's surveillance operations, then you know things have gotten out of hand. Details follow.
Does the FBI track cellphone users' physical movements without a warrant? Does the Bureau store recordings of innocent Americans caught up in wiretaps in a searchable database? Does the FBI's wiretap equipment store information like voicemail passwords and bank account numbers without legal authorization to do so?
That is what the nation's Foreign Intelligence Surveillance Court [FISC] wanted to know, in a series of secret inquiries in 2005 and 2006 into the FBI's counterterrorism electronic surveillance efforts, revealed for the first time in newly declassified documents.
The inquires are the first publicly known questioning of the FBI's post-9/11 surveillance activities by the secret court, which has historically approved nearly every wiretap application submitted to it. The court handles surveillance requests in counterterrorism and foreign espionage investigations. The inquiries add to questions surrounding how the FBI has used the broad powers handed to it by Congress in the 2001 USA Patriot Act, including the FBI's admitted abuse of so-called National Security Letters to get stored telephone and financial records.
Among other things, the declassified documents reveal that lawyers in the FBI's Office of General Counsel and the Justice Department's Office of Intelligence Policy Review queried FBI technology officials in late July 2006 about cellphone tracking. The attorneys asked whether the FBI was obtaining and storing real-time cellphone-location data from carriers under a "pen register" court order that is normally limited to records of who a person called or was called by.
The internal inquiry seems to have preceded, and was likely prompted by, a secret court hearing on the matter days later. Kevin Bankston, a lawyer with Electronic Frontier Foundation [EFF], says the documents suggest that the nation's spy court shares the reluctance of federal criminal courts to turn everyday cellphones into tracking devices, in the absence of evidence that the target has done something wrong.
"I hope that this signals that the FISC, like many magistrate judges that handle law enforcement surveillance requests, is growing skeptical of the government's authority to conduct real-time cellphone tracking without probable cause," says Bankston.
In criminal cases, the government's attempts to get cellphone-tracking data without probable cause to believe the target has committed a crime were denied several times in 2005 by federal judges in New York and Texas.
According to the documents, which the EFF obtained in a Freedom of Information Act lawsuit, an FBI general counsel lawyer asked on July 21, 2006: "Can we at the collection end tell the equipment NOT to receive the cell site location information?" The lawyer added a note of concern that phone companies might be sending along cell-site data even when they are not asked for it. "Do we get it all or can we, when required, tell the equipment to not collect the cell-site location data?," the lawyer asked.
Separately, the secret court questioned if the FBI was using pen register orders to collect digits dialed after a call is made, potentially including voicemail passwords and account numbers entered into bank-by-phone applications.
Using a pen register order, the FBI can force a phone company to turn over records of who a person calls, or is called by, simply by asserting the information would be relevant to an investigation. But existing case law holds that those so-called "post-cut-through dialed digits" count as the content of a communication, and thus to collect that information, the FBI would need to get a full-blown wiretapping warrant based on probable cause.
On August 7 2006, Foreign Intelligence Surveillance Court judge Colleen Kollar-Kotelly took the extraordinary step of ordering the FBI to report (PDF) on how its sophisticated phone wiretapping system, known as Digital Collection System, handled those extra digits and whether it stored them in a centralized data-mining depository known as Telephone Application.
The documents (PDF) show that the majority of FBI offices surveyed internally were collecting that information without full-blown wiretap orders, especially in classified investigations. The documents also indicate that the information was being uploaded to the FBI's central repository for wiretap recordings and phone records, where analysts can data-mine the records for decades. EFF's Bankston says it is clear that FBI offices had configured their digit-recording software, DCS 3000, to collect more than the law allows.
"The FBI's configuration of DCS 3000 to collect post-cut-through dialed digits when conducting pen-register surveillance is flatly illegal under statute and raises serious Fourth Amendment questions, based on the unanimous decisions of two district court judges and three federal magistrate judges holding that such interceptions require a wiretap order based on probable cause," Bankston said.
The documents also reveal that the inquiry on dialed-digits collection was not the first time the secret court had queried the FBI regarding its use and storage of information from wiretaps. In October 2005, the court also asked the FBI to explain how it stored "raw" foreign-intelligence wiretap content and information about Americans collected during those wiretaps.
The government is supposed to "minimize" -- that is anonymize or destroy -- information gathered on Americans who are not the targets of a wiretap, unless that information is crucial to an investigation. The court wanted the FBI to explain what databases stored raw wiretaps (PDF), how those recordings could be accessed, and by whom, as well as how minimization standards were implemented.
The documents do not reveal the answer to that question. The FBI did not respond to a request for comment by press time. For more on the FBI's sophisticated wiretapping technology and how it links in with the nation's phone and internet infrastructure, see "Point, Click, Eavesdrop".
HOW FACEBOOK SPELLS THE END OF PRIVACY
Privacy is changing rapidly and in ways we can barely comprehend.
"All of your private life will be assimilated; resistance is futile," is the message of this article by Harry Lewis, author of Blown to Bits: Your Life, Liberty, and Happiness After the Digital Explosion.
Whoever the vice presidential contenders may be, one thing is for sure: Their pastors, contributors, and fund-raisers are being checked out. So are their friends and their friends' friends. Senator John McCain is using Google, but there are better tools. And in the next campaign, the checking is going to be more automated, for better or worse.
That helps explain why Facebook, founded less than five years ago, may be worth $15 billion. The value of Facebook is not only in its software, its patents, and its smart people. Facebook has an enormous database of who knows whom, an electronic catalog of the interconnections and interests of its members. The daily updates of my friends' new friends and what groups they have joined are like tiny, atomized birth announcements, inviting me to contribute my own updates. And a single corporation holds all this information. Indeed, Facebook might be remembering whose friendship invitations I refused.
Facebook's vast social network would be invaluable for checking reputations. The same data can help sell stuff -- though earlier this year, Facebook found that telling members what their friends had bought was going too far even for the always-connected generation. Other sites help make business connections -- LinkedIn.com's motto is "Relationships matter," and jigsaw.com encourages everyone to submit others' contact information so clients can "bypass gatekeepers" and "go straight to decision-makers."
We can hope for common sense about information privacy, but technology keeps changing the norms. A few years ago, a public catalog of all the nation's swimming-pool owners would have been shocking, but today anyone can use Google Maps to look down into people's back yards. Our friendship circles are likewise going to be more public in the future.
Staying off Facebook will not keep your social Web private. There are many public sources from which social network information can be culled. This is high school graduation season -- and the class lists are all online. Newspapers and blogs are online -- and computers can connect people simply on the basis of whether they are mentioned in the same article. Go to fundrace.huffingtonpost.com to see a map of political contributions, with red and blue dots marking your neighbors' houses.
Technological convergences create creepier opportunities for cataloging who knows whom. Millions have contributed their family photos to online album sites such as Flickr. Polar Rose can identify the faces of thousands of people. Put the two together and you could construct a vast network of who appears with whom in the same publicly posted photograph.
That would include the photo of you in Aruba, where you just happened to be in the background while I was snapping a picture of my family at the next table. All of a sudden you are part of my implied social network -- complete with the date and location of your dinner.
Here we see things going wrong, but how to fix them? You should be able to go to Aruba without the whole world finding out, and I should be able to post my vacation snapshots without your permission.
All this information -- from Facebook "friends" to neighboring diners -- lacks context. Links established by computers may not be real social connections. Subtleties debated in the presidential campaign - are Barack Obama's relations to the Rev. Wright like McCain's to the John Rev. Hagee? -- will probably be lost when linkages are collected by such driftnet fishing. Already, Facebook says that it supplements the information you provide about yourself with material you can't control, drawn from "newspapers, blogs, instant messaging services, and ... photo tags."
Privacy is changing rapidly and in ways we can barely comprehend. Will we live our lives differently, fearing that our everyday social contacts are going to wind up in some great database? How will the world change when group photos snapped at parties all turn into misleading edges in that permanent, all-encompassing social graph? Can society limit the abuse of personal information without resorting to Internet censorship that would violate the First Amendment?
Harry Lewis is professor of computer science at Harvard and Fellow of the Berkman Center for Internet and Society. His new book with Hal Abelson and Ken Ledeen, Blown to Bits: Your Life, Liberty, and Happiness After the Digital Explosion, has its own Facebook group.
A recent 5-4 Supreme Court decision in Boumediene v. Bush, affirmed that Guantanamo Bay prisoners designated as enemy combatants have a right to the habeas corpus petition in domestic civil courts, and that the Military Commissions Act was an unconstitutional suspension of that right.
The dissenters were the usual "conservative" suspects -- Scalia, Roberts, Alito, and Thomas -- who seem to deify executive power. Scalia's dissent was particularly disturbing, and revealing: As long as the U.S. is "at war" -- and he dates the beginning of the "war on terror" to the bombing of the Marine barracks in Lebanon in 1983 -- then enemy combatants may be held indefinitely. No one should challenge this designation, because the President and his agents know best. Move along folks ... nothing to see here that you would understand.
This week's Supreme Court decision, affirming that Guantanamo prisoners have habeas corpus access in domestic civil courts, raises vital questions on the judiciary's role in checking executive power.
The writ of habeas corpus, a process to scrutinize detentions, is an ancient issue, seven centuries old. Members of the 17th-century English Parliament resented the King's circumvention of the writ's reach by sending prisoners to remote lands. The Supreme Court has now sided with those who long ago opposed such dirty executive tricks. In late 2001, the administration set up the prison camp in Cuba. The idea was to have executive control but not be subject to U.S. judicial checks. Since the prison is on Cuban "sovereign territory," American courts supposedly have no right to intervene.
But the U.S. has had "complete and uninterrupted control of the bay for over 100 years," Justice Kennedy wrote for the Court. "In every practical sense Guantanamo is not abroad; it is within the constant jurisdiction of the United States."
In 2004 the Court affirmed the right of "enemy combatants" to challenge their detention. In response, Congress and the president established Combatant Status Review Tribunals to test whether a detainee's "enemy combatant" designation is proper. The 2006 Military Commissions Act reasserted that habeas does not reach to the Bay. The Court has now overruled this part of the law.
Kennedy says the CSRTs are inadequate. They allow hearsay evidence and deny the right to council. The executive has control and habeas is supposed to provide independent scrutiny. The question of where habeas applies "must not be subject to manipulation by those whose power it is designed to restrain."
Kennedy notes that unlike the "enemy combatant" tribunals on the battlegrounds of past foreign wars, Guantanamo is "a secure prison facility located on an isolated and heavily fortified military base" and its cases "involve individuals detained by executive order for the duration of a conflict that, if measured from September 11, 2001, to the present, is already among the longest wars in American history."
The four conservative justices dissented, including Justice Roberts, who argued that the current federal court CSRT review process is not much different from the majority's somewhat vague idea of habeas corpus review.
But Justice Scalia thinks it changes everything. "Today, for the first time in our Nation's history," he dissented, "the Court confers a constitutional right to habeas corpus on alien enemies detained abroad by our military forces in the course of an ongoing war."
Scalia warned of the "disastrous consequences" of the decision, given the "war with radical Islamists." Indeed, "it will almost certainly cause more Americans to be killed."
"Most tragically," Scalia concluded, "it sets our military commanders the impossible task of proving to a civilian court ... that evidence supports the confinement of each and every enemy prisoner."
Scalia as well as Roberts accuses the Court of butting into foreign policy, yet his own reasoning is informed by definite opinions on foreign affairs, including a careless deference to executive power. Bush appreciated such deference, saying the dissent "was based upon ... serious concerns about U.S. national security."
Scalia refers to the president as "the Nation's Commander in Chief." This is wrong. Under the Constitution the president is only the "Commander in Chief of the Army and ... and of the Militia ... when called into the actual Service" of the U.S. The president does not command the whole country, and it is frightening that a Justice would say he does.
Why such blind trust for the governmental branch that insisted after 9/11 that all the Guantanamo prisoners were the "worst of the worst" and has in six years since released hundreds and convicted only one of terrorism -- a man who served nine months and is now free in Australia?
And which is it? Is the decision perilously revolutionary, as Scalia insists, or vulgarly frivolous, as Roberts maintains? If frivolous, why is Bush now considering "additional legislation," seemingly to get around the new ruling?
One certainty: While excessive judicial activism is dangerous, without any such activism, habeas corpus would have never been created, turned against the King, and developed into a core principle of our legal tradition. It would have never reached those who helped slaves escape or those unjustly sentenced to death. Scalia might side with the King and with Bush, but if the terrorists really hate our freedom, they must be irked by this decision, however symbolic, which Scalia warns "the Nation will live to regret."
A TALE OF TWO COUNTRIES
From the introduction to the article by Whiskey and Gunpowder's editor:
The global economy we live in can be very complicated sometimes. We hear about convoluted issues like trade deficits, subsidies, and exports. Maybe these concepts would be a little easier to understand if we simply broke them down. Chris Hancock gives us two hypothetical countries and how they manage their complicated economies in a simple and easy to understand way. Hopefully you will see these issues a little clearer from now on.
Either Bernanke, Bush, et al do not understand this analysis, or they ignore it. But there is no need for you to ignore it, and it is not that hard to understand. The benefit to understanding it is the ability to cut through all the conventional political and economic misinformation and see the essence of what is going on.
The world of Round Hill consists of two distinct countries with two distinct economies separated by one gigantic ocean. The sun rises on the Independent Republic of Hamlin in the east and sets on the Democratic Nation of Stuart in the west. For more than 200 years, free trade, low taxes, open markets, stable currencies and minimal government intervention benefited all. The citizens of Stuart and Hamlin prospered.
One day, a fertile iron mine in the heart of Stuart runs out of ore. So Hancock Steel, the nation's largest integrated steel producer, must turn to other sources. Unfortunately, the next great domestic iron deposit rests 2,000 miles away. Transcontinental rail freights are not cheap. Hancock's production costs rise. To stay profitable, management pushes these costs to the end-user. Steel prices double.
The Garland Motor Co. depends on Hancock's refined cold-rolled products to produce lightweight body panels for its automotive fleet. Steel prices dramatically affect the auto industry's bottom line. Higher domestic prices force Garland to import less expensive steel from Hamlin producers.
Hancock's sales plummet. Layoffs ensue. Steel workers with mouths to feed form a union. They lobby their national politician. The politician needs their vote. He asks for a few favors. Within days, the Democratic Nation of Stuart slaps a tariff on Hamlin steel. Garland Motor reverts back to Hancock. The steel union celebrates.
The SUVs rolling off Garland's assembly lines now cost more to produce. Car prices double. Unfortunately, most consumers cannot absorb the price hike. They turn to cheaper imports from Hamlin. Garland's sales drop. The company cuts costs. Once again, layoffs ensue.
Unemployed autoworkers quickly lobby political support. Their politician acquiesced on the steel pact. Now he demands mutual legislative support. Stuart slaps Hamlin with another tariff.
Now the good citizens of Hamlin get testy. For years, trade between the two countries prospered. But Stuart's protectionist ways inflame national pride. The citizens of Hamlin demand retaliation.
You see, for years, Hamlin has reaped the benefits of Stuart's abundant forests, forsaking local producers. But no more ... The Independent Republic of Hamlin retaliates with a massive tariff on imported timber. Hamlin's high-cost producers rejoice.
Unfortunately, construction costs rise nationwide. New home sales fall. Layoffs now engulf mortgage brokers and construction workers. The entire Hamlin economy slows.
Meanwhile, Stuart's logging industry contracts. The cycle continues. Prices on all economic goods and services (steel cans, cars, houses, etc.) continue rising the world over. Both economies contract. Unemployment rates rise. A global recession results.
Once again, the world turns to politicians for a solution. Elected officials in both countries reach for the quick fix. They appease the unemployed via subsidies (taxpayer money).
Unfortunately, there's no such thing as a free lunch. For the sake of maintaining a balanced budget, subsidies require more government revenue. More revenue means more taxes. Higher taxes inhibit domestic growth. Less growth means fewer jobs. Unemployment rates keep rising. The citizens of Stuart and Hamlin find themselves back at square one.
However, a Stuart-educated economist -- let's call him Cain -- steps up to save Round Hill from total economic meltdown. He suggests that massive deficit spending (on public works) will increase aggregate demand. Laid-off workers from the mills, factories and forests will build roads, bridges, schools and dams. The unemployed will effectively be hired in service to the state. They will use their wages to buy houses and cars. In turn, these industries will demand more iron, steel and lumber. The whole economy prospers. The recession ends. The government effectively solves the paradox of full employment.
It is simple, Cain explains. Think of deficit financing as using a credit card to get you through a rough month.
Stuart's legislative body takes the bait. Stuart's treasury revs up the printing press. Within weeks, the government awards contracts to engineering firms nationwide. With the push of a button, corporate bank accounts are overflowing. The construction industry takes off. Everyone in Stuart receives a paycheck. Cash seemingly falls from the sky.
The first two years are bliss. But eventually, the 1-1 gold parity of Stuart's currency (the bandit) feels the heat. The printing press has injected too much paper money. M3, Stuart's fullest measure of the base money supply, keeps growing at a 12% per year clip. The market now requires two bandits for a single ounce of gold -- effectively lowering the bandit's value by 50%. Prices for milk, bread and eggs start rising. In fact, they begin rising faster than domestic wages. Inflation fears start to percolate.
But currency devaluation brought some unanticipated benefits. Stuart's export industry re-emerges. The cheap bandit means cheap exports sail from Stuart ports. More exports create more jobs. More jobs mean more votes. Political pressure to keep the money flowing keeps rising like the waters that carried Noah.
Stuart's president, Robert Chatham, faces a dilemma. On one hand, unemployment rates have reached historic lows. The economy keeps humming. On the other, inflation fears keep mounting. Saving the bandit will ensure the emergence of inflation's ugly cousin: deflation (the opposite of inflation, promising a decrease in the general price level). Recession will surely follow. Chatham's dream of a second term falls like a dead leaf in a dry wind.
Meanwhile, across the sea, cheap imports from Stuart cripple Hamlin's industrial base. As Stuart's economy takes off, Hamlin's unemployment rate soars to record highs. Hamlin's politicians have no choice. They quickly follow Stuart's lead. Seemingly overnight, Hamlin precipitates currency devaluation. Depreciation ensures currency parity once again. Imports from Stuart subside.
In a perfect world, the two countries would save their respective currencies. But they live in an imperfect world. As do we.
SECRETS OF A POWERFUL FAMILY
A new book by Jeff Sharlet, The Family, provides a lot of fodder for both conspiracy theorists and those suspicious and fearful of the influence of the "Christian Right" on American politics. "The Family" is secretive, in stark distinction to televangelists and other figure heads popular with the working class and poor. It has been organizing Washington politicians into "prayer cells" for 70 years.
The Family's goal is to maintain the status quo, making sure that those who have, keep it -- even if that means supporting extremely unsavory characters. The convenient guiding philosophy is that God is more interested in the wealthy, the powerful, those with status, the Sermon on the Mount be, well, damned. Using its influence, "It has actively narrowed debate, limiting what change might be possible." Certainly sounds consistent with what we observe.
From Barack Obama's incendiary pastor, to Mitt Romney's Mormonism, to Mike Huckabee's southern Baptist roots, religion is the constant in America's choosing of a president. Racism, sexism, health policy, the economy and Iraq have had their moments, but religion renews itself with every fresh controversy. Even John McCain, relatively secure as presumed Republican candidate, has jettisoned a preacher whose endorsement became politically untenable.
Yet the most influential and enduring religious force in the country -- elitist Christian fundamentalism -- is mostly unsighted and rarely remarked upon, according to writer Jeff Sharlet. Overt fundamentalists, the Bible-thumping televangelist populists, are the antithesis of the secretive network he has identified and that is known variously as The Fellowship and The Family.
The Family organizes Washington politicians into intimate "prayer cells", influences foreign policy, inspired the creation of the president's Annual Prayer Breakfast in 1953 and sponsored President George Bush's faith-based policy of transferring social welfare responsibilities to religious groups in 2001. It has actively narrowed debate, limiting what change might be possible.
"The Family is an international network of evangelical elites, in government, military and business, dating back 70 years, organized around this one central idea, which was that Christianity for 2000 years got it wrong," Sharlet says.
"Christianity, in theory anyway, was about the poor, the weak, the suffering, the down-and-out, and the idea of the founder of this network was that God was more interested in those whom he called the up-and-out: the wealthy, the powerful, those with status. (They rely) on this very literal reading of a verse from Paul's letter to the Romans: 'The powers that be are ordained of God.' They take that very literally. If you have power that is because God wants you to have power."
It is essentially a conservative concept, defensive of the status quo and a marked contrast with another American contribution to Christian thought, black liberation theology. The Family worships a "manly Jesus" for whom the compassion of the Sermon on the Mount was an aberration.
It might be tempting to dismiss The Family as just another product of the home of conspiracy theories had not the man at the head of the network, Doug Coe, been attested to by presidents such as George Bush, Bill Clinton and George Bush Sr., and the group referred to guardedly by Ronald Reagan: "It is working precisely because it is private."
Sharlet offers a roll-call of, mostly Republican, senators who have been or are members, and notes that while Hillary Clinton is not a member, she has prayed with Coe and is considered a "friend" of The Family. The bigger problem, however, is that The Family is so deeply embedded in Washington that Clinton is not unusual in holding even her casual link to the group, he says.
When a Time magazine reporter who was researching the most influential religious figures in the country approached Sharlet for his opinion, Sharlet suggested the reporter ask around Congress about Coe. The reporter, who had not previously heard of Coe, learned enough to label him "The Stealth Persuader".
Sharlet, a contributing editor for Harper's and Rolling Stone magazines, encountered the group by accident seven years ago when he was reporting on fringe religious groups and was invited to one of its residential centers, called Ivanwald, in Virginia.
Those with whom he stayed at Ivanwald were caretakers of The Family headquarters known as The Cedars, where meetings of congressmen, businessmen, ambassadors and foreign leaders were held. While he was there, Sharlet was told that Megawati Sukarnoputri visited The Cedars in her time as Indonesian president. He later discovered a cache of documents, more than 600 boxes of papers archived and forgotten, which unlocked the network's history.
His work has resulted in his book The Family. Its central finding is that American fundamentalism has two movements, and that the most influential is the least visible. There is the public face, the popular image of sweating, impassioned televangelists, and there is the private one comprising the exclusive world of The Family.
"There's sort of a trickle-down fundamentalism that begins with the elites and winds up in the mass movements," he says. "Ever since the Scopes Monkey Trial of 1925, the media has been declaring Christian fundamentalism dead every few years, and it just keeps coming back. The press can see religion when it is working class and poor. It has a much harder time seeing it when it is infused at the top levels."
Sharlet says The Family facilitated aid and links to U.S. industry for dictators such as Papa Doc of Haiti, Siad Barre of Somalia and Indonesia's Suharto. It finds "friends" in Congress for powerful foreigners and influences foreign policy. Coe annually subverts normal vetting procedures for foreign leaders by arranging for them to meet the President at the annual prayer breakfast, Sharlet says. In short, The Family is a secretive, undemocratic organization that is prepared to aid and abet dictators.
Since it works on the inside, there is no need for fulminating at the pulpit. Sharlet quotes Coe as saying in a rare interview: "We work with power where we can, build new power where we can't."
Sharlet says the push for a "government led by God" is done through secret alliances and in defiance of democratic processes.
"I think it is dangerous. In some ways I resist calling it a left-right issue -- although they do tend to be right-wingers -- so much as an issue of open democracy, of transparency. They use this pretentious phrase of bringing politicians together to make decisions 'beyond the din of the vox populi', the voice of the people. At its worst it is cynical cronyism. What The Family does when it says it is going to get beyond politics is try to shut down the debate."
Coe preaches submission, and approvingly cites Hitler and Mao. "There is this constant thread and reverence for what essentially is an authoritarian concept of God, that what matters most in one's concept of God is obedience," Sharlet says. "When I was living with those guys in Ivanwald, you literally turn over decision-making in every aspect of your life. Not just these grand issues of what am I going to do with my life, but should I date this woman?"
It was The Family's conceit that it thought it could recruit Sharlet, half-Jewish and a leftish journalist, to its distinctive ways. A bit like Groucho Marx -- who did not want to join any club that would have him as a member -- Sharlet was amazed to find himself in their company at Ivanwald, where he lived for a month in an all-male, no-drinking, no swearing, arm-wrestling dormitory.
Had they only Googled me, he says, they would have realized what an unpromising prospect they had. In his background, however, were hints of fertile ground for The Family. ... "I think the Family liked the fact I was Jewish. Having a Jew pray to Jesus shows the power of Jesus. They liked the fact I was a journalist and they liked the fact my father was a consultant to the CIA," Sharlet says.
An uncle, also Jeff Sharlet, served in Vietnam as a translator and intelligence officer in 1962-63 and became a critic of the war. He died of cancer, aged 27, having been exposed to a precursor of Agent Orange. He has inspired Sharlet's next major book, covering GI anti-war movements. It is a joint project with his father, who has done much of the research tracking down veterans.
But first, Sharlet, 36, has another job, having been commissioned to write the story of the evolution, or devolution, of Pete Seeger's song "If I Had a Hammer".
"It is telling the decline of the American left through the story of that song. When it was first performed there was a huge anti-communist riot in response to it," Sharlet says. Recorded by Peter, Paul and Mary, it became a civil-rights anthem. "Today, it is a kids' song and there is a hokey-pokey dance you do to it. It is a completely depoliticized song now. The original was not so. Pete Seeger was not just a communist, he was a Stalinist."
Sharlet lives in New York, a place of infinite wickedness to The Family, a fact that may also have enhanced his appeal to them as a reform project. Despite Hillary Clinton's involvement with The Family, Sharlet says he voted for her.
"Her involvement is not huge, but that it is there at all is tremendously significant for the relationship of religion and politics in America. The idea that a group with ideas this eccentric and explicitly anti-democratic (exists) suggests something about the unwillingness of politicians who ought to know better to even challenge that establishment," he says.
He hopes one of the results of the book's publication is that newly elected members of Congress will not be blind to the network they are asked to join when invited to one of Coe's prayer cells.
But ... on the eve of the book's launch, he was not expecting a big splash. The Family will try to roll with the punch. They are in power, but they are soft-spoken. And unique to religion in America, invisible by design.
The article concludes with a discussion of an Australian association with The Family.
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