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

W.I.L. Offshore News Digest for Week of August 4, 2008

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


Malta is a popular retirement destination and is often plugged as worthy of a would-be expat's consideration. This very interesting article honestly recounts the author's firsthand experience with the small Mediterranean island. It is a good piece to take in no matter what country one is considering moving to, as the issues that arise with regard to changes in culture, climate, and geography are universal.

A near-perfect climate, easy and affordable living, hospitable locals, no property taxes, free education, excellent health care and everybody speaks English. And the Maltese drive on the left, like the British, but a little more recklessly.

These qualities used to describe living in Malta by travel and offshore living web magazines helped convince me to give Malta a serious look as a retirement destination. Since my wife was born in Malta prior to emigrating to Canada in the mid 1950's we pursued the idea of returning to the island one day to retire.

This idea originally germinated by subscribing to the Web magazines Escape from America and International Living. I had been reading these magazines for the last few years as I was looking to get some ideas for preparing for my eventual escape from the insanity of big city living. As we were both fed up with our high pressure jobs, endless hours of commuting and struggling to keep financially ahead even though we were both working we started to question how long we could continue before our health failed.

I was employed in the construction industry and was under immense pressure trying to do 3 jobs at once. My wife was employed at one of Canada's biggest banks and was downsized after working for them for many years. Many of our workmates quit or changed companies due to the pressure which made things more difficult for those remaining. There were no "Good Days" at my company and by the end of the week I felt like I just wanted to curl up in the fetal position and suck on my thumb. Climbing up the corporate ladder for a souless corporation was like climbing on a stair master set at steep incline. In other words there was no other option for us but to find a way out ... and quickly.

After receiving a glowing report from my wife's brother who visited Malta in the summer of 2006 we started to do some serious research that culminated in my visitation to the island in January, 2007 on a two week fact finding expedition.

Upon landing in Malta I was overwhelmed by the cultural and geographical differences between Malta and Vancouver, British Columbia. At just under 400,000 people on an island half the size the city of Vancouver I quickly set to work exploring the island and to meet my wife's many cousins and relatives.

Along with my eldest son we kept accurate records on the cost of living, transportation and real estate/rental costs and availability. With information in hand we returned to Vancouver to analyze what we had learned and ultimately decided that we would proceed with our application to emigrate to Malta.

Although we had a successful trip and thoroughly enjoyed ourselves I was to learn that researching and visiting a country on a holiday and emigrating to it are two very, very different things. Although the Maltese Immigration Department made every effort to help returning citizens, the bureaucracy and cultural differences we faced since initiating the process in November, 2006 makes me wonder how we survived the ordeal and did we make the right decision.

After many e-mails, letters, legal documents and phone calls we received my wife's citizenship papers stating she had never lost her Maltese citizenship. This document was the foundation stone for the rest of us. After completing the required documents she then received her Maltese Passport which was followed by my 18 year old's citizenship papers and his Maltese birth certificate -- even though he was born in Canada -- and his Maltese passport. Then after selling our condo, cars, furniture, paying off all our debts and dumping all that we did not want we set out with my wife's 77-year-old Maltese mother in tow, for Malta in July 2007 to begin a new life.

Sell! Sell!

Although I have glossed over the details of selling most of our possessions from cars to furniture it was a very difficult time for us. It is amazing what you collect over the years and the sentimental attachments you have with the most useless things. I realized as we were going through our possessions that we were caught up in the buy, buy, buy syndrome of modern city living. We were like crows that liked everything bright and shiny and we were armed and dangerous with credit cards and cash.

One would think -- how anyone could unload 2 condominiums (ours and the mother's), 2 cars, furniture and anything else that we did not want in such a short period of time? It was easy because we were living in Vancouver which was experiencing a hot real estate market. Not only did we sell the condos within 3 days of listing them, the purchasers bought our furniture as well. The cars were sold or given to family members. All that was left to do was make flight arrangements and arrange for temporary living quarters in Malta. ...

After the downsizing was complete all that was left was to give my resignation at work and say our goodbyes to friends and relatives. I am not ashamed to say that as the plane started to take off I was struggling to keep my emotions in check. I was leaving behind British Columbia, a place that I loved, my aging parents, my eldest son, a brother, sister and many friends. What was I doing? Whose idiotic idea is this anyway? Knowing the accusing finger was pointed at me the only thing that settled me was the thought that I could always come back if I had to. I was liquid and soluble. I could do anything I wanted. I could even go back to my old horrifying job if I wanted to.

After a long flight from Vancouver, a week in Toronto visiting relatives and then continuing on to Rome we arrived in Malta on a very hot July day. The only incident in the trip was when my wife asked for an ice cube in her wine on the Alitalia flight. I thought the flight attendant was going to have her arrested.

Upon arrival we were greeted at the airport by a large crowd of people that were relatives of my wife's. I kept asking, "Who are those guys and why are they so short?"

The next few days were a "Gong Show". Our most important issue was to find a more permanent place preferably a flat for ourselves and one for the mother-in-law. We met up with a real estate agent we spoke to prior to leaving Canada. She was a British ex-pat that lived and worked in Malta. She showed up at the pre-arranged time with a small car to show us a few places she had selected. A small car the size of an Austin Mini for 5 people I might add.

We packed ourselves into the glorified sardine can for our two dollar tour without any chance of doing up our seat belts. Not that there were any to do up anyway. "Not to worry Luv" the real estate lady told me. "The law says you do not have to do up seat belts if you are in the backseat." Uh? The insanity started from this point. I had no idea what was in store for me.

A country hick from Lower Podunct captured by aliens and taken to the dark side of the moon would not have experienced what I was about to discover.

It was a hard day and after looking at a few places we realized that the mother-in-law was in no condition to be living on her own. At 77 she was failing and it was decided that we would have to get a larger house and share the costs. This presented a problem as you can well imagine. The main one being two queens in the kitchen; but we had no choice and decided to rent a large bungalow just outside the town of Mosta.

“The Maltese Way”

Once we moved into the house we had an address for the things we were shipping from Canada. We also could start my citizenship/passport applications and try to get my son's schooling arranged. The problem any traveler is faced with in a foreign land is finding his way around. We were no different. Since we were without a car we had to rely on buses or walking to get around. We were soon official members of the "Groundpounders" and the "Red Rocket Society." I am also 15 pounds lighter than when I arrived. No more sitting in a car for 3-4 hours a day commuting to work or visiting customers breathing in noxious car exhaust fumes. I have gone Green. Now I breathe them in while I am walking or riding a bus.

The good thing about bus fares in Malta is it is only about C$0.66 per ride. The downside is most of the buses were built in the early 1950's and the roads are full of potholes. It is brutal. No wonder everyone here has a car. As a matter of fact. This whole island is a giant parking lot. At approximately 17 x 12 miles in size the island is one big construction site and it is hard to tell when one town ends and another starts.

As I previously stated the way of doing things over here are a tad different from the way things are done in North America. It is a challenge to rationalize things at first but you have to learn to accept things as they are and not be too critical of the way the Maltese do things. If you view the Mediterranean as a big pond then Malta is a Lily Pad that has evolved over time to survive in its competitive environment. It is different but somehow it works. So when I see something that make me shake my head, I just shrug my shoulders and try to be philosophical about it and say "it's the Maltese way."

A good example of a strange experience is what they keep in their garages. Aside from cars and boats they also keep horses, goats and maybe their in-laws. They also may run a small business out of their garages. One has to be wary when looking for a place to rent or buy as one may find oneself living above a woodwork or automotive repair shop with all the accompanying noises and smells. ...

When you try to understand a country that is different from yours you must look at the country's history. Malta is located in the center of the Mediterranean just south of Sicily and to the north of the African continent and was a stopover point for early human migration and commerce. Malta's history is based upon human migration, war and slavery. There are ancient ruins on Malta that pre-date Christianity by 4000 years. Malta was also always under control of some invading army on their way to plunder other nations. Romans, Phoenicians, Turks, European. "Let's do Malta" was the quote of the day one would think. Malta was also a rich source for Corsair raiding parties looking for slaves.

In 1565 the Turks fed up with the Knights of St. John invaded Malta with over 40,000 men to take on the knights and their 9000 supporters. The defenders held off the Turks who eventually withdrew with only 10,000 survivors. In the 19th century Malta was under control of another invading force that was commanded by Napoleon. It was not until the United Kingdom removed Malta from Napoleon's possession that peace and prosperity came the island of Malta.

That all ended in 1940 when Fascist Italy pulled Malta into World War 2 by attacking the island and starting the 2nd siege of Malta. ... Mussolini ... wanted to impress his Nazi partners, and decided to attacked Malta in a surprise bombing raid. This caused great hilarity among the Germans as they were fighting the combined might of the Allied forces while Italy took on little Malta.

As it was a British base strategically located in the Mediterranean, Malta was almost bombed into oblivion by the Axis powers replaying the earlier 1565 Turkish siege. The results were the same however, as the Axis powers failed in their attempt to invade Malta. Forged in the fire of war, the relationship between Malta and the United Kingdom flourished. The British had a profound influence on the culture and attitudes of the Maltese and now the English language stands alongside Malti as one of the two Official languages. Malta has now gained independence from Great Britain and is a Republic and a new member of the European Economic Union. So now if I have a problem with the way things are done over here I just blame the British!

School is in and the Mother is out.

As July turned into August I was becoming frantic with the lack of response I was getting from the Maltese Education Evaluation Board. ... As hard as I tried and with intervention on our behalf by Maltese relatives we did not receive their assessment as August came to an end.

As my son's schooling was one of the main reasons for us relocating to Malta and education is free to Maltese citizens I was beginning to think that I had left Vancouver too late in the year. I decided to forget standard procedures, protocol and all the rest of the bureaucracy and search out the head mucky-mucks in the Evaluation Board. ...

Eventually I found the Evaluation Board department and politely settled my issues with them. Within a week I received my son's approval letter and met with the art college administrators. Although we were too late for our choice of art course there was one opening available in a lower level art course which we gratefully accepted. We acknowledged the fact that it would be better to aim low the first year and acclimatize to the school system here before applying for the upper level courses.

One of Malta's advertised high points is its free medical care for its citizens. It also has a private health care system for those that wish to bypass lining up at the local clinic to see a doctor. Well aware of the "free" medical system in Canada -- with its waiting times, lack of doctors and extra charges the clinics hit you with when you go for any doctor prescribed tests -- we thought we would deal with the private option in Malta.

This decision has proved to be trouble free and inexpensive so far. A doctor's office visit was only about C$24.00 and as a bonus the doctor makes house calls for the same price. You could also play both fields if you chose to do so. The government doctors moonlight as private doctors after hours. Dental care is cheap as well. The removal of an abscessed tooth set me back C$30.00 complete with check-up and X-ray. No filing out medical forms and paying the difference (more than $30.00) under your company coverage. As easy as the private system appeared, we have had major problems with the government medical system, to the point that it has resulted in my mother-in-law's decision to return home to Canada. ...

So where are we now seven months after emigrating to Malta you might ask? We have successfully negotiated the immigration and citizenship process. We are proud holders of an EU Passport and citizenship papers with all the benefits these documents offers. My son is in school and hopes to stay here for another 2-3 years and complete the MCAST Higher National Diploma program. We have doctors and dentists but I cannot find a Tim Hortens or an A&W [Canadian restaurant chains].

On the downside, although my wife and I like it here, we do not feel that we could live here all year round. It is too hot in the summer and too damp in the winter. We are also not impressed with the Maltese attitude towards trash. It can be a very dirty place at times. The buildings are also unheated and damp. You feel like you are living in a cave.

I also miss the mountains and lakes of British Columbia. When I try to explain these feelings to Maltese people they just look at me with an uncomprehending look. They have no idea what I am talking about. Fly fishing? Coyotes howl? The cry of a loon? Moose and bears?

In a nutshell my biggest problem with the Maltese people -- as much as I love them -- is lack of communication and understanding. Other than the weather and football (soccer) we have nothing in common and nothing to say. Remember that lily pad in the Mediterranean I spoke of earlier? Let us just say I am a very lonely wayward dragonfly from an ecosystem far, far away.

You may already know how this will end.

My gut feeling when I made the decision to come to Malta was that I could live here part of the year but not all year round. So far I have not changed my feelings. As far as my son goes he also likes it here but, like most students here, he will have to leave Malta to find opportunities elsewhere. Even though he may do this he will always be a dual-citizen and have the option to return in his later years.

Malta's greatest export to the world has been its people. They are a hardworking lot with "jack of all trades" skills. They also speak English very well. All college, private schools and University courses are taught in English. This is to their benefit when they emigrate to another country. The problem is jobs are few here in Malta and there is a dog for every bone. You have to have an edge over your competitor so everyone has some type of scam going on. It is the opposite to Vancouver where there is a serious labour shortage due to retiring baby boomers.

Although the cost of living is cheaper here by North American standards wages are very low. Low cost of living and wages go hand in hand. An average wage in Malta is about C$300.00 a week before taxes. There is also age discrimination in Malta. Job postings advertise for people between 20 to 30 years of age. You do not want to be over 50 and unemployed in Malta. If you come to Malta you should not expect to work unless you start your own business. Let me repeat that for the slightly dense out there. "DON’T EXPECT TO FIND WORK IN MALTA!!!"

The real estate is another issue to deal with. Do you buy or rent? As rental prices are reasonable in Malta I do not think I would ever buy a place of my own. The property here is way overpriced and is not based upon the usual supply and demand rule laws one might find elsewhere in the world. There is something hinkey about real estate dealings over here. With over 50,000 vacant suites, unfinished buildings, no property taxes and offshore "grey" money the last thing you want (in my opinion) to do is get involved in buying real estate in Malta. With other European countries like Bulgaria and Croatia getting into the investment real estate game and with the collapse of the Spanish resort real estate market, Malta is heading towards a real estate meltdown and it is going to be ugly.

Well I guess I've said all that I can say to date. This June we should see how things will go with our son's schooling as this will determine our length of stay in Malta. At this time we will also have to evaluate how we feel about living here, working and can we afford to stay long term or just part of the year.

I realize after reading about my experiences you may be critical about the way things were done but do not judge me too harshly. There is no book or night school class on immigrating to Malta to my knowledge. All I had was the internet, e-magazines, books, relatives and television programs to provide me with base line knowledge. Useful but all fluff and no grit. The important information can only come from living in that country as a resident and not as a tourist. All one can do is complete as much research as possible, hold your breath and take that big scary leap into the unknown.

In summary Malta has sublimely stolen my heart with its Mediterranean scenery, life style and its people. I have even started to talk loudly while flailing my hands. I do, however, feel a bit of loneliness in my heart at times and I suspect it is because I am a country boy at heart, trapped in a big city. I also feel that I have unfinished business to deal with back home with regards to my parents and eldest son. So with the words, "You can never go home again" echoing in my ear, I suspect, from what I have written, you may already know how this will end.

Differences between Canada and Malta:

Vancouver -- Once a week shopping at Cosco or SuperValu.You go to the store to shop.
Malta -- Shopping at 3 different stores everyday or fruit, fish and vegetable trucks come to your door in the morning and evening with horns blaring.

Vancouver -- Taxes, taxes and more taxes.
Malta -- No strata fees, Municipal taxes.

Vancouver -- You go to a liquor store for booze.
Malta -- Small corner stores sell beer and hard liquor. Will deliver if requested.

Vancouver -- Booze in public, day in slammer.
Malta -- Booze all day everywhere no problem.

Vancouver -- Racial tension, fights, gangs. Malta -- I have not even seen a panhandler or scrap no matter how drunk they are.

Vancouver -- A rule and regulation for everything.
Malta -- Rules are only meant to be a guideline. "What stop sign?"

Vancouver -- Try seeing a doctor without a death certificate.
Malta -- Doctor's come to your house for C$15.00 and you get to give blood in the privacy of your own kitchen.

Vancouver -- Fireworks once a year in English Bay complete with riots.
Malta -- Fireworks from 8 a.m. to midnight 7 days a week during festival time with no violence.

Vancouver -- Sensible drivers to a point.
Malta -- The insanity. If you do not like their driving stay off the sidewalks.


Peronism redux: Latin America’s most vulnerable economy faces restive farmers, skyrocketing inflation, and mounting debt. And it still needs to strike a deal with creditors it disappointed in 2001

Argentina came out of World War II with the second highest per capita income in the world -- of course after everyone formerly between it and the U.S. had immolated themselves. It has been downhill since, thanks to the usual culprit: persistant spending in excess of income, as practiced by Juan Peron and successors. (And this was accomplished without a major war to boot.)

The boom in agricultural products this decade provided a chance to pay off some past debts but, alas, the Argentine government has upped spending to match the revenue windfall. Debt and inflation are rising, just like the bad old days, and farmers are up in arms over the burden imposed on them to finance the payouts to the unions and other government enablers. Politics has certainly enacted a devastating toll upon that resource-rich country.

A day's drive south of Buenos Aires in a town called Coronel Suarez, Facundo Gallardo grows corn and soybeans on land his family has tilled for half a century. With the high prices of global commodities, this should be the best of times in the world's biggest supplier of soy oil, second-largest producer of corn, and third-biggest shipper of soybeans. "Business would be great if I was anywhere but Argentina," Gallardo, 47, fumes. "Margins are shrinking all the time."

Fertilizer prices have more than doubled over the past year and the price of diesel, while relatively cheap at 97˘ a gallon, has zoomed up by 30% to 50%. Worse, the President and her husband "hate us," Gallardo laments. President Cristina Fernandez de Kirchner, whose husband Nestor Kirchner ran the nation between 2003 and 2007, in March jacked up crop export taxes to raise government revenue and keep food prices down at home. The tax burden on farmers today exceeds 55%.

The battle between the Fernandez de Kirchner administration and the farmers is only one reason why economists consider Argentina to be the most vulnerable economy in Latin America today. Concerns are rising that as the nation's economy slows, if Kirchner does not deal with mounting debt, rising inflation, sagging investment, and limited resources to pay for subsidies, then Argentina may be on the way to an economic crisis and debt default.

Independent economists say annual inflation is 25% -- not the 9.3% the government claims. That would place Argentina just behind Venezuela in the region, with its 32% inflation rate. Economic growth is expected to slow to 6.5% this year and to just 2.5% in 2009.

If Argentina is to have any hope of rolling over its debt or borrowing fresh money, it will have to reach some sort of agreement with creditors still demanding payment for around $20 billion in paper from a $93 billion sovereign debt default in 2001, the biggest in world history.

The Kirchners -- Nestor is head of the ruling Peronist party -- touted the agriculture tax policy as key for assuring local food supplies, fighting inflation, and helping the poor. Fernandez de Kirchner is heavily reliant on farm tax revenue to finance surging government spending as labor unions -- a key base of her political support -- demand higher wages, and as energy shortages force her to import more diesel and natural gas. The latest tax increase -- to nearly 50% from 35% on soybeans, the country's biggest crop -- would have raised an additional $1.2 billion a year, which the President said would be used to build hospitals and schools.

Enraged, farmers took to the streets. For more than four months they blocked highways, drove tractors through cities, withheld exports, and banged pots and pans to demand a reversal. It was the loudest -- and longest -- rebellion by Argentine farmers, a traditionally nonpolitical group whose predecessors helped make Argentina as prosperous as the U.S. in the late 1800s and early 1900s. The former President called them "coup mongers" and deployed Peronist sympathizers to break up demonstrations.

After three months of failing to negotiate an end of hostilities, Fernandez de Kirchner asked congress to officially approve the taxes she had imposed by decree. On July 17, the senate voted no, with Vice-President Julio Cobos breaking a tie by voting against his boss.

It was an unexpected defeat for the President and has raised questions about her leadership and the financial health of the country. In an apparent effort to improve her battered image, the President held her first-ever news conference on August 2 and defiantly insisted that taxing farm exports at a time of high world food prices is a legitimate "instrument of economic policy."

The administration needed the export-tax revenue to cover rising debt costs and subsidies. "This is a government that does not stop spending and this is putting in danger its capacity to pay debt," says Francisco Mezzadri, an independent economist in Buenos Aires.

The defeat came after five years of swelling popularity for the Kirchners. Law school sweethearts, they have followed a largely populist agenda of price controls, subsidies, and wage hikes, and tax cuts focused on the working class. This helped kick-start the economy after the 2001-02 economic crisis and 65% currency devaluation, with the country posting growth of more than 8% a year since 2003.

Officials bragged of Chinese growth rates that helped poverty levels shrink from 50% of the population to just 20%. Booming agricultural exports helped fiscal and trade accounts swing to surpluses, and international reserves bulged to $50 billion.

Yet holes began to appear in the model, from energy scarcities to declining investment. The government fiddled with inflation statistics and relied heavily on price controls and subsidies to try to keep a lid on escalating prices. The fiscal and trade surpluses are narrowing on rising energy imports. Subsidies are expected to nearly double this year, to $6 billion. ...

Another problem plaguing Argentina's economic advance is the hangover still remaining from the 2001 default, which cut the country's access to international financial markets. The Paris Club, a group of the world's 19 richest nations, is seeking repayment of $6.3 billion. And holders of more than $20 billion of bonds, who refused to accept a 70% haircut in a 2005 restructuring of part of the defaulted debt, are suing for full repayment.

The President has "let a golden opportunity slip by" by failing to sort out the delinquent debt, says Robert Shapiro, co-chairman of Washington (D.C.)-based lobbying group American Task Force Argentina, which represents 39 debtors with defaulted bonds. "It would have been easier to resolve this when times were good."

Argentina can only raise capital domestically and from Venezuela, which charges interest rates of up to 13%. At first, this was not a problem. Revenue was spilling in from export duties as commodities prices surged, limiting the need for short-term financing.

But the overturn of the higher export taxes means less revenue will flow in even as government spending and debt levels are rising -- debt is now at 56% of GDP, or 67% including the debt owed to the haircut holdouts, compared with 54% in 2001.

Most independent economists do not foresee debt payment problems this year or next. But to cover the defaulted debt—the President has hinted she is willing to resolve the Paris Club debt -- the government would have to tap central bank reserves, as it did when it paid off its $9.5 billion debt with the IMF in 2005.

With Kirchner's popularity and political support waning, that may be difficult. "It will require real character and leadership," says Shapiro.

If it does repay its remaining creditors, Argentina could slowly rebuild credibility, helping reduce capital flight and encourage investors to return to the country. In May, the central bank sold nearly $3 billion in dollars to discourage savers from dumping pesos during the farm conflict. "This is not rocket science. It is basic economics," Shapiro says.

But the defaulted debt is not going to go away and this is worrying, he says. If Argentina falls into another crisis, a default on current debt on top of the outstanding problems will bring "serious consequences."


Half-built subdivisions are lonesome places; “There’s just no noise.”

With the housing/credit bubble now gone bust we are discovering that not only had housing gotten way overpriced in many areas of the U.S., but that some houses built simply have no potential occupants, as the whole bubble economy deflates along with housing. Ghost towns are appearing, reminiscent of those abandoned after mines stopped producing or when Dust Bowl residents simply picked up stakes and left for California.

Given that the real estate mania was a worldwide one, it seems fair to warn those considering moving to a new country to make sure they do not buy into a development that is only fractionally occupied -- similar to those described here. Many relocation advisors recommending renting in a new area for a year or so before buying anyway, and now that would go doubly when the risk of real estate overdevelopment is present.

BENTONVILLE, Arkansas -- Dennis Pflueger and his wife won a rent-free year in a nice new house in an expensive subdivision not far from the headquarters of Wal-Mart Stores Inc. As part of the prize, they then have the option to buy the four-bedroom home for $452,000

Mr. Pflueger, a telephone-cable installer who describes himself as an "old redneck," is in the middle of his free year. But the Pfluegers are a bit lonely. Just one other family lives in any of the 28 new or unfinished houses on Foxboro Court. Up the street, a sign announcing "Elegant Homes" sits on a lot choked with weeds. The block is as quiet as an old ghost town.

Since real-estate tanked, many new planned communities across the country are half-empty, with for-sale signs outnumbering residents by a large margin. Some of the projects abandoned by bankrupt developers are in places that were hotbeds of new housing construction: Southern California, Atlanta, Las Vegas, Phoenix. As of July, the percentage of vacant housing stock available for sale or rent stood at 4.8% nationally, the highest figure in at least 33 years, according to Zelman & Associates, a real-estate research firm.

Daily life in these developments seems a bit post-cataclysmic. Children play on elaborate but empty playgrounds. They walk their dogs past rows of shiny houses that have never been lived in. Voices echo up and down the block. Unfinished houses and vacant lots strewn with construction debris clutter the horizon.

Robert Waltenspiel lives with his wife and two daughters in a unfinished subdivision in Auburn Hills, Michigan. Standing in front of his house, he can see more than 30 weed-choked lots where new houses were supposed to go. The developer halted construction more than two years ago.

"As far as working on my yard and saying, 'Hey, neighbor, want a beer?,' that's not going to happen," says Mr. Waltenspiel, an account manager for Hewlett-Packard Co.

The hot tub at the community center does not work. The communal fountains are dry. Mr. Waltenspiel's kids have no one in the subdivision to play with, so he has to take them to a nearby park for social interaction. His 4-year-old "will walk up to strange girls in the park and say, 'Hey, will you be my friend?'" he says. "A, it's adorable. B, it's sad."

In the past year, roughly 15% to 20% of residential developers have gone out of business, suspended operations or changed their line of work, according to an estimate by the National Association of Home Builders.

The people who bought into these subdivisions encounter all sorts of other unexpected problems, including burglars looking to steal toilets, appliances and copper wiring. And blight. Krista Anderson, an administrative assistant, lives in a subdivision outside Phoenix where the developer suddenly halted construction last fall, leaving behind not just unfinished houses but also scaffolding, piles of cement and construction material that "is turning yellow and looks bad."

Many residents are not sure exactly who is in charge of mowing the weeds, maintaining the street lights, cleaning up when someone uses open space as a dump.

Some residents form especially tight bonds with neighbors 10 or 20 doors down the street. Others relish the peace and quiet. "With my art and my books, I don't need to go outside," says Miriam Ramirez, who lives with her husband, a retired doctor, in a stalled subdivision in suburban Atlanta. "But not everybody is like that."

Her subdivision, Woodbridge Crossing in Smyrna, 15 miles from downtown Atlanta, was supposed to consist of several hundred garden-style houses. Instead, she lives on a street where most of the roughly 30 units have never been lived in. It is the only inhabited street. Paved roads surround acres of empty lots. At night, she says, Woodbridge Crossing can feel a bit like "a cemetery." One plus: She usually has the community swimming pool to herself.

In overdeveloped Northwest Arkansas, real-estate officials estimate that property values have been steadily declining since 2007. Early in the decade, the region saw a population explosion as more than 1,000 people a month moved to Bentonville, Rogers, and several nearby communities to work for Wal-Mart or one of its 1,250 locally based suppliers. Developers began building new houses at a frantic pace, carving up sprawling farmland into fancy developments with names like Stone Meadow and Kensington Hills.

Then the housing market collapsed. Soon developers were defaulting on their loans and declaring bankruptcy. In May, federal regulators seized one Northwest Arkansas lender, ANB Financial, whose portfolio was overloaded with bad construction loans.

Now, many of the region's new subdivisions, with houses that cannot be rented, much less sold, are forlorn monuments to disastrous real-estate forecasting. A subdivision called Tuscany, five miles west of Bentonville, was envisioned as an enclave of luxury homes with landscaping meant to evoke an old-world Italian village. Developers installed an enormous hand-built stone wall surrounding several hundred acres of what had been cow pasture. So far, only five houses have been built, and just two sold.

Carol Trees, who paid $570,000 for a 4,800-square-foot house six months ago, admits the solitude is a bit disconcerting. The good news is that her three children have the run of a pasture longer than several football fields. "We love it right now," says Mrs. Trees, a nurse practitioner. "We sit on our back porch and fantasize that we own all this land."

Then there's Quail Ridge, the temporary home of Mr. Pflueger, his wife, Joyce, and their 11-year-old chihuahua, Peaches. Real Estate Company of Arkansas, a local outfit, had been so eager to sell units that it raffled off a year's free rent for one house. On a cold weekend afternoon last December, more than 1,000 people showed up at the subdivision in hopes of winning the prize.

As a marketing effort, the event was a total bust. "We didn't sell one house," real-estate agent Michael McKinnon says. "We didn't get diddly."

But for the Pfluegers, who won, the outcome appeared to be nothing short of divine intervention. Mr. Pflueger had been out of work for eight weeks. Unable to afford the rent for their $475-a-month apartment, the couple was planning to move into a trailer in their daughter's back yard.

Suddenly they were moving into a new 3,400-square-foot house with an entertainment center, an outdoor hot tub, stainless-steel appliances and more than enough room to store the 61-year-old Mr. Pflueger's collection of guns and antique fishing reels.

The last seven months have been an odd existence. Chickens wander by from a nearby farm, poking around in the brush. Not long ago, someone broke into one of the unoccupied houses around the corner. Now the Pfluegers say they pay close attention to passing traffic, but hardly anybody passes by. "There's just no noise," Mrs. Pflueger said.

When their 12 months end, the Pfluegers will move on too -- perhaps to that trailer on their daughter's property. Mr. Pflueger recently found a job but still cannot afford to buy the house. "That's way out of my league," Mr. Pflueger says. Unless someone else moves in, only one family will be left in the 28 houses on Foxboro Court.


Appeasers prevail.

Vanuatu has decided to conduct a big experiment with its continuing viability as an offshore financial center. Its has decided to allow evidence from Vanuatu financial institutions gathered during a Australian tax evasion investigation to be sent to Australia.

As this article puts it, "The issue has caused divisions in the Vanuatu government." That is probably no exageration. Those with Vanuatu who are oh so tired of being tarred with epithets like "secretive", "tax haven", "offshore whatever", etc. are all for turning the data over. The opposing side reasonable warns that such an action will effectively end Vanuatu's status as an offshore haven and be a "huge blow" to its economy. Since the data are being released, we will see soon enough.

An attempt to stop evidence gathered in a tax evasion investigation being sent back to the authorities in Australia has been thwarted by the Court of Appeal in Vanuatu. The evidence was gathered by officers of the Australian Federal Police during raids on financial institutions, as part of a wider crackdown by Australia against offshore tax evasion under the banner of Project Wickenby. ... The Australian Taxation Office (ATO) is also conducting 80 audits examining allegedly false tax deductions exceeding A$90 million (US$84 million) in connection with the Vanuatu probe.

Earlier in the year, Australian and international agencies conducted operations across three countries to attack abusive tax evasion schemes linked to Vanuatu, and Australian Tax Commissioner Michael D'Ascenzo issued a warning that people who use offshore structures to generate false deductions "or to deliberately hide assets or income in tax havens like Vanuatu can face serious penalties including criminal prosecutions."

The issue has caused divisions in the Vanuatu government. The Financial Services Authority (FSA), has been keen to cooperate with the Australian and other international agencies in the investigation, and supports proposals to overhaul financial services legislation by the end of the year to make the jurisdiction less "secretive." Certain ministers such as Finance Minister Wille Jimmy, on the other hand, are aghast at the government's appeasement of the onshore authorities, and have warned that the changes will spell the end of Vanuatu as an offshore financial center, which has come to play an increasingly important role in the Pacific nation's economy.

In a statement issued at the time of the Australian raids, Mr. Jimmy said that this course of action would constitute a "huge blow" to Vanuatu's economy, and would effectively end its status as a "tax haven."

George Andrews, head of the Vanuatu FSC, has countered, however, that it is no longer desirable for Vanuatu to remained labeled as a "tax haven," telling the Australian newspaper that the jurisdiction has "been associated with this stigma for a long time."


Low or zero consumption tax rates on specific items consumed by the less well-off are commonplace, but disliked by economists. The lower taxes rain on the rich and unrich alike, and price distortions that muck up the sacrosanct market price mechanism are introduced. Better, the fiscal policy talking-heads say, to have a uniform tax rate and subsidize the less well-off directly.

From a narrow -- "partial equilibrium" -- perspective this is perfectly correct. Almost always, such analysis overlooks or ignores certain real world complexities. With the low sales tax, the government never touches the revenues. With high sales tax rates plus subsidies the revenue passes through all manner of beauocratic fingers on the way to the designated beneficiaries, assuming it does arrive there.

A study of the U.K. VAT system chaired by a Nobel prize-winning economist suggests that eliminating the zero/reduced rates on certain items would raise enough revenue to make poorer families better off while: (1) reducing compliance and administration costs, (2) enabling a £11 billion cut in other taxes, while (3) interfering less with people's spending decisions. Sounds good in theory. We just wonder whether the proposed tax cut would actually be enacted, among other things.

Abolishing zero and reduced rates of VAT would cut compliance and administration costs for business and government, interfere less with people's spending decisions, and raise enough revenue both to improve the living standards of poorer families and to cut other taxes by £11 billion, according to a study commissioned by the Mirrlees Review of the UK tax system, which is being chaired by Nobel prize-winner Professor Sir James Mirrlees for the Institute for Fiscal Studies.

The current 17.5% standard rate of VAT is around the average for industrial countries, but the UK applies zero rates more extensively than most other countries, the study ... has suggested. Children's clothing, most foodstuffs and residential housing are among the items zero-rated, while a reduced rate of 5% applies to domestic energy and other items such as contraceptives, children's car seats and some energy saving products.

Comparing the revenue currently raised from VAT with the amount that which would be raised if the standard rate were applied to all consumer spending, the UK has a relatively narrow VAT base by industrial country standards, the report suggested. New Zealand comes closest to applying a uniform rate to all consumption.

The report's authors argued that applying zero or reduced rates of VAT to items on which poorer households spend a relatively large proportion of their budgets is a blunt instrument with which to help the less well-off, as richer households typically gain more in cash terms from these tax breaks than poorer ones.


Little-known move uses tax break meant for rank and file, potentially draining assets from pension plans and making them more likely to fail.

This article concerns an obscure tactic used to take advantage of an arcane corner of the U.S. corporate income tax code. Corporations get a current tax deduction for setting aside assets that will be used to pay pensions and other deferred future obligations. One can easily see why corporations would like this, and highly paid executives in general like the idea of deferring income, in order that it get taxed at a lower rate when they are earning less in future years. But if upper managements' deferred benefits are "disproportionately large" relative to the rest of the people in the company, there is no current tax benefit to the company for funding that part of the deferred compensation that exceeds that "disproportionately large" threshold -- whatever it may be.

Enter the consultants, who help companies figure out just why they can get a larger current tax deduction than before, mostly by probing the edges of the formulae that determine just what is "disproportionate." As explained in the article, the machinations sometimes involve some questionable ethics. What we also see is: (a) How much talent is diverted into figuring out tax angles -- talent that would otherwise go to producing something actually useful. (b) An envy-driven populist rule which is designed to punish the rich -- the rule which denies tax breaks to companies funding deemed-excessive deferred obligations -- actually hurts everyone, due to point (a) and by inducing companies to play fast and loose with assets securing the well-being of the less rich.

At a time when scores of companies are freezing pensions for their workers, some are quietly converting their pension plans into resources to finance their executives' retirement benefits and pay.

In recent years, companies from Intel Corp. to CenturyTel Inc. collectively have moved hundreds of millions of dollars of obligations for executive benefits into rank-and-file pension plans. This lets companies capture tax breaks intended for pensions of regular workers and use them to pay for executives' supplemental benefits and compensation.

The practice has drawn scant notice. A close examination by The Wall Street Journal shows how it works and reveals that the maneuver, besides being a dubious use of tax law, risks harming regular workers. It can drain assets from pension plans and make them more likely to fail. Now, with the current bear market in stocks weakening many pension plans, this practice could put more in jeopardy.

How many is impossible to tell. Neither the IRS nor other agencies track this maneuver. Employers generally reveal little about it. Some benefits consultants have warned them not to, in order to forestall a backlash by regulators and lower-level workers.

The background: Federal law encourages employers to offer pensions by giving companies a tax deduction when they contribute cash to a pension plan, and by letting the money in the plan grow tax free. Executives, like anyone else, can participate in these plans.

But their benefits cannot be disproportionately large. IRS rules say pension plans must not "discriminate in favor of highly compensated employees." If a company wants to give its executives larger pensions -- as most do -- it must provide "supplemental" executive pensions, which do not carry any tax advantages.

The trick is to find a way to move some of the obligations for supplemental pensions into the plan that qualifies for tax breaks. Benefits consultants market sophisticated techniques to help companies do just that, without running afoul of IRS rules against favoring the highly paid.

Intel's case shows how lucrative such a move can be. It involves Intel's obligation to pay deferred compensation to executives when they retire or leave. In 2005, the chip maker moved more than $200 million of its deferred-comp IOUs into its pension plan. Then it contributed at least $187 million of cash to the plan. Now, when the executives get ready to collect their deferred salaries, Intel will not have to pay them out of cash; the pension plan will pay them.

Normally, companies can deduct the cost of deferred comp only when they actually pay it, often many years after the obligation is incurred. But Intel's contribution to the pension plan was deductible immediately. Its tax saving: $65 million in the first year. ... Meanwhile, the move is enabling Intel to book as much as an extra $136 million of profit over the 10 years that began in 2005. That reflects the investment return Intel assumes on the $187 million.

Fred Thiele, Intel's global retirement manager, said the benefit was probably somewhat lower, because if Intel had not contributed this $187 million to the pension plan, it would have invested the cash or used it in some other productive way.

The company said the move aided shareholders and did not hurt lower-paid employees because most do not benefit from Intel's pension plan. Instead, they receive their retirement benefits mainly from a profit-sharing plan, with the pension plan serving as a backup in case profit-sharing falls short.

The result, though, is that a majority of the tax-advantaged assets in Intel's pension plan are dedicated not to providing pensions for the rank and file but to paying deferred compensation of the company's most highly paid employees, roughly 4% of the work force. ... Intel believes that its practices "feel consistent" with both the spirit and letter of the law that gives tax benefits for providing pensions.

Intel may be a model for what is to come. Many companies are phasing out their pension plans, typically by "freezing" them, i.e., ending workers' buildup of new benefits. This leaves more pension assets available to cover executives' compensation and supplemental benefits. A number of companies have shifted executive benefits into frozen pension plans.

Technically, a company makes this move by increasing an executive's benefit in the regular pension plan by X dollars and canceling X dollars of the executive's deferred comp or supplemental pension.

CenturyTel, for instance, in 2005 moved its IOU for the supplemental pensions of 18 top employees into its regular pension plan. Chief Executive Glen Post's benefits in the regular pension plan jumped to $110,000 a year from $12,000. A spokesman for the Monroe, Louisiana, company, which made more such transfers in 2006, was frank about its motive: to take advantage of tax breaks by paying executive benefits out of a tax-advantaged pension plan.

So how can companies boost regular pension benefits for select executives while still passing the IRS's nondiscrimination tests? Benefits consultants help them figure out how.

To prove they do not discriminate, companies are supposed to compare what low-paid and high-paid employees receive from the pension plan. They do not have to compare actual individuals. They can compare ratios of the benefits received by groups of highly paid vs. groups of lower-paid employees. Such a measure creates the potential for gerrymandering -- carefully moving employees about, in various theoretical groupings, to achieve a desired outcome.

Another technique: Count Social Security as part of the pension. This effectively raises low-paid employees' overall retirement benefits by a greater percentage than it raises those of the highly paid -- enabling companies to then increase the pensions of higher-paid people.

Indeed, "it is actually these discrimination tests that give rise to 'Qserp' in the first place!" said materials from one consulting firm, Watson Wyatt Worldwide. "Qserp" means "qualified supplemental executive retirement plan" -- an industry term for a supplemental executive pension that "qualifies" for tax breaks.

Watson Wyatt senior consultant Alan Glickstein said the firm's calculations tell employers exactly how much disparity they can achieve between the pensions of highly paid people and others. "At the end, when the game is over, when the computer is cooling off, you know whether you passed [the IRS nondiscrimination tests] or not," he said. At that point, companies can retrofit the benefits of select executives, feeding some into the pension plan.

They can do this even if they freeze the pension plan, because executives' supplemental benefits and deferred comp are not based on the frozen pension formula.

Generally, only the executives are aware this is being done. Benefits consultants have advised companies to keep quiet to avoid an employee backlash. In material prepared for employers, Robert Schmidt, a consulting actuary with Milliman Inc., said that to "minimize this problem" of employee relations, companies should draw up a memo describing the transfer of supplemental executive benefits to the pension plan and give it "only to employees who are eligible."

The IRS was also a concern for Mr. Schmidt. He advised employers that in "dealing with the IRS," they should ask it for an approval letter, because if the agency later cracks down, its restrictions probably will not be retroactive. "At some point in the future, the IRS may well take the position" that supplemental executive pensions moved into a regular pension plan "violate the 'spirit' of the nondiscrimination rules," Mr. Schmidt wrote. In an interview, he confirmed his written comments.

Companies do not explicitly tell the IRS that an amendment is intended to shift supplements executive benefits obligations into the regular pension plan. "They hide it," a Treasury official said. "They include the amendment with other amendments, and do not make it obvious."

With too little staffing to check the dozens of pages of actuaries' calculations, the IRS generally accepts the companies' assurances that their pension plans pass the discrimination tests, the official said.

"Under existing rules, there is little we can do anyway. If Congress does not like it, it can change the rules." To halt the practice, Congress would have to end the flexibility that companies now have in meeting the IRS nondiscrimination tests. A spokesman for the IRS said it has no idea how many such pension amendments it has approved or how much money is involved.

Sometimes, the only tipoff that a firm is moving executive benefits into the regular pension is that it provides small increases to some lower-paid groups in the plan, in order to pass the nondiscrimination tests.

Royal & SunAlliance, an insurer, sold a division and laid off its 228 employees in 1999. Just before doing so, it amended the division's pension plan to award larger benefits to eight departing officers and directors. One human resources executive got an additional $5,270 a month for life.

But to do this and still pass the IRS's nondiscrimination tests, the company needed to give tiny pension increases to 100 lower-level workers, said the company's benefits consultant, PricewaterhouseCoopers. One got an increase of $1.92 a month.

Joseph Gromala, a middle manager who stood to get $8.87 more a month at age 65, wrote to the company seeking details about higher sums other people were receiving. A lawyer wrote back saying the company did not have to show him the relevant pension-plan amendment.

Mr. Gromala then sued in federal court, claiming that administrators of the pension plan were breaching their duty to operate it in participants' best interests. The company replied that its move was a business decision, not a pension decision, so the fiduciary issue was moot. The Sixth U.S. Circuit Court of Appeals agreed. ...

Pension-plan amendments like the documents Mr. Gromala sought must be filed with the IRS, but the agency normally will not disclose specifics such as who benefits. The IRS says it cannot release details of the amendments because they reflect individuals' benefits.

Not So Safe

Employers sometimes tell executives that moving their supplemental pensions or deferred comp into the company pension plan will make them more secure. Normally, supplemental pensions or deferred comp are just unsecured promises. Companies do not set aside cash for supplemental executive pensions and deferred comp because there is no tax break for doing so. But the promises will be backed by assets if the company can squeeze them into a tax-advantaged pension plan.

This supposed security can prove illusory, as executives at Consolidated Freightways found out. The trucking firm moved most of its retirement IOUs for eight top officers into its pension plan in late 2001. It said this would protect most or all of their promised benefits, which ranged up to $139,000 a year.

This came as relief to Tom Paulsen, then chief operating officer, who says he knew the Vancouver, Washington, trucking company was on "thin ice." But the pension plan was underfunded. And Consolidated did not add more assets to it when the company gave the plan new obligations. Adding the executive IOUs thus made the plan weaker. It went from having about 96% of the assets needed to pay promised benefits to having just 79%.

Consolidated later filed for bankruptcy and handed its pension plan over to a government insurer, the Pension Benefit Guaranty Corp. The PBGC commits to paying pensions only up to certain limits. Mr. Paulsen said he and other executives have been told they will not get their supplemental pensions.

Some lower-level people will lose benefits, too. Chester Madison, a middle manager who retired in 2002 after 33 years, saw his pension fall to $20,400 a year from $49,200. Mr. Madison, 62, has taken a job selling flooring in Sacramento, California. He faults those who made the pension decisions. "I look at it as greed and taking care of the top echelons," he says.

It is impossible to know how much the addition of executive pensions to the pension plan contributed to the plan's failure. But in this as in similar companies where a plan saddled with executive benefits failed -- such as at kitchenware maker Oneida Ltd. in upstate New York -- it is clear the move weakened the plans by adding liabilities but no assets. ...

Mr. Madison and five other ex-employees sued Towers Perrin, a consulting firm that had advised Consolidated on structuring its benefits. The suit, alleging professional negligence over this and other issues, was dismissed in late 2006 by a federal court in the Northern District of California. Towers Perrin declined to comment.

Some companies, after moving executives' supplemental benefits into a pension plan, now take steps to protect them. When Hartmarx Corp. added executive obligations to its pension plan last year, it set up a trust that automatically would be funded if the plan failed. Glenn Morgan, the clothier's chief financial officer, said the trust benefits nine or 10 people. "The purpose is to pay them the benefit they have earned," he said.


Related party transactions, ownership arrangements, profit allocation formulas will now be reported in more depth.

The partnership and corporation income tax forms are being updated, with the effect that henceforth a lot of the arrangements among entity parties will be conveyed to the IRS in more detail than previously, and thus will be "more transparent." The Commissioner of the IRS's Large and Mid-Size Business Division helpfully explained, "This will enable [the] IRS to better assess compliance risk."

Doubtlessly the IRS is hoping that this will put a stop to practices that tread a little too close to the tax avoidance/evasion boundary. But perhaps it will cause some business people to throw up their hands and move out of the country entirely.

The IRS has released for public comment draft revisions to Form 1065, U.S. Return of Partnership Income, Form 1120, U.S. Corporation Income Tax Return, and certain related schedule. Included in the release are new Schedule B for Form 1120 and Schedule C for Form 1065. These forms will be for use for tax years ending on or after December 31, 2008. ...

"The draft revisions and new forms will increase transparency about the ownership and relationships between entities that make up complex enterprise business structures," explained Frank Y. Ng, Commissioner of the Large and Mid-Size Business Division of IRS, adding: "This will enable IRS to better assess compliance risk."

The major change to Form 1120 is to Schedule K and involves reporting direct and indirect ownership. When ownership meets certain percentage thresholds, it must be reported on Schedule K. Certain questions on Schedule K have been revised for this reporting.

The new Schedule B (Form 1120) is required of corporations that file Form 1120 Schedule M-3. Schedule B (Form 1120) will provide IRS information about allocations, transfers of interest, cost sharing arrangements, and changes in methods of accounting.

The major changes to the Form 1065 also involve ownership issues. When ownership meets certain percentage thresholds, it must be reported on Schedule B (Form 1065). The revised Schedule B (Form 1065) will also be used to provide information about canceled debt, and like-kind exchanges that the partnership may have participated in at any time during the tax year.

For small partnerships, the asset threshold for filing Schedules L, M-1 and M-2 with Form 1065 has been increased from $600,000 to $1 million.

The new Schedule C (Form 1065) will be required of Form 1065 filers that file Schedule M-3. Schedule C (Form 1065) will be used to report information about related party transactions, allocations, transfers of interest, cost sharing arrangements and changes in methods of accounting.

New instructions for Item J of Schedule K-1 (Form 1065) clarify how partnerships determine partners' percentage share in the profit, loss, and capital at beginning and end of the partnership's tax year.


No suspicion required under Department of Homeland Security policies.

It has long been the case that U.S. Constitutional standards for searches and seizures are essentially non-existent at the border. Of course they de facto no longer exist within the country's borders either today, but Customs never had any real restraints in the first place.

The DHS has now "disclosed" (allegedly because of public interest) that they may impound laptops, cellphones, flash drives, iPods, books, back-of-the-envelope doodling and other such "pocket litter," and anything else "capable of storing information in digital or analog form" without so much as having to invent some facsimile of probably cause. Saves them paperwork, we guess. Perhaps they can detain people with complex tattoos? Nothing really new here, but a valuable reminder to those planning to cross the border with information they consider at all sensitive.

Federal agents may take a traveler's laptop or other electronic device to an off-site location for an unspecified period of time without any suspicion of wrongdoing, as part of border search policies the DHS recently disclosed.

Also, officials may share copies of the laptop's contents with other agencies and private entities for language translation, data decryption or other reasons, according to the policies, dated July 16 and issued by two DHS agencies, U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement.

"The policies ... are truly alarming," said Sen. Russell Feingold (D-Wisconsin), who is probing the government's border search practices. He said he intends to introduce legislation soon that would require reasonable suspicion for border searches, as well as prohibit profiling on race, religion or national origin.

DHS officials said that the newly disclosed policies -- which apply to anyone entering the country, including U.S. citizens -- are reasonable and necessary to prevent terrorism. Officials said such procedures have long been in place but were disclosed last month because of public interest in the matter.

Civil liberties and business travel groups have pressed the government to disclose its procedures as an increasing number of international travelers have reported that their laptops, cellphones and other digital devices have been taken -- for months, in at least one case -- and their contents examined.

The policies state that officers may "detain" laptops "for a reasonable period of time" to "review and analyze information." This may take place "absent individualized suspicion." The policies cover "any device capable of storing information in digital or analog form," including hard drives, flash drives, cell phones, iPods, pagers, beepers, and video and audio tapes. They also cover "all papers and other written documentation," including books, pamphlets and "written materials commonly referred to as 'pocket trash' or 'pocket litter.'"

Reasonable measures must be taken to protect business information and attorney-client privileged material, the policies say, but there is no specific mention of the handling of personal data such as medical and financial records.

When a review is completed and no probable cause exists to keep the information, any copies of the data must be destroyed. Copies sent to non-federal entities must be returned to DHS. But the documents specify that there is no limitation on authorities keeping written notes or reports about the materials.

"They are saying they can rifle through all the information in a traveler's laptop without having a smidgen of evidence that the traveler is breaking the law," said Greg Nojeim, senior counsel at the Center for Democracy and Technology. Notably, he said, the policies "do not establish any criteria for whose computer can be searched."

Customs Deputy Commissioner Jayson P. Ahern said the efforts "do not infringe on Americans' privacy." In a statement submitted to Feingold for a June hearing on the issue, he noted that the executive branch has long had "plenary authority to conduct routine searches and seizures at the border without probable cause or a warrant" to prevent drugs and other contraband from entering the country.

Homeland Security Secretary Michael Chertoff wrote in an opinion piece published last month in USA Today that "the most dangerous contraband is often contained in laptop computers or other electronic devices." Searches have uncovered "violent jihadist materials" as well as images of child pornography, he wrote.

With about 400 million travelers entering the country each year, "as a practical matter, travelers only go to secondary [for a more thorough examination] when there is some level of suspicion," Chertoff wrote. "Yet legislation locking in a particular standard for searches would have a dangerous, chilling effect as officers' often split-second assessments are second-guessed."

In April, the Ninth Circuit U.S. Court of Appeals in San Francisco upheld the government's power to conduct searches of an international traveler's laptop without suspicion of wrongdoing. The Customs policy can be viewed here (PDF).

Crossing Borders with Laptops and PDAs

Security expert Bruce Schneier, who frequently writes on security matters for Wired, explains how take a "better safe than sorry" course of action with your sensitive data. The advice is nominally for when you are crossing international borders, but it applies equally well if there is any risk of your electronic device being lost, stolen, or taken into protective custody.

Last month a U.S. court ruled that border agents can search your laptop, or any other electronic device, when you are entering the country. They can take your computer and download its entire contents, or keep it for several days. Customs and Border Patrol has not published any rules regarding this practice, and I and others have written a letter to Congress urging it to investigate and regulate this practice.

But the U.S. is not alone. British customs agents search laptops for pornography. And there are reports on the internet of this sort of thing happening at other borders, too. You might not like it, but it is a fact. So how do you protect yourself?

Encrypting your entire hard drive, something you should certainly do for security in case your computer is lost or stolen, will not work here. The border agent is likely to start this whole process with a "please type in your password". Of course you can refuse, but the agent can search you further, detain you longer, refuse you entry into the country and otherwise ruin your day.

You are going to have to hide your data. Set a portion of your hard drive to be encrypted with a different key -- even if you also encrypt your entire hard drive -- and keep your sensitive data there. Lots of programs allow you to do this. I use PGP Disk (from pgp.com). TrueCrypt is also good, and free.

While customs agents might poke around on your laptop, they are unlikely to find the encrypted partition. (You can make the icon invisible, for some added protection.) And if they download the contents of your hard drive to examine later, you will not care.

Be sure to choose a strong encryption password. Details are too complicated for a quick tip, but basically anything easy to remember is easy to guess. (My advice is here.) Unfortunately, this is not a perfect solution. Your computer might have left a copy of the password on the disk somewhere, and (as I also describe at the above link) smart forensic software will find it.

So your best defence is to clean up your laptop. A customs agent cannot read what you do not have. You do not need five years' worth of email and client data. You do not need your old love letters and those photos (you know the ones I am talking about). Delete everything you do not absolutely need. And use a secure file erasure program to do it. While you are at it, delete your browser's cookies, cache and browsing history. It is nobody's business what websites you have visited. And turn your computer off -- do not just put it to sleep -- before you go through customs; that deletes other things. Think of all this as the last thing to do before you stow your electronic devices for landing. Some companies now give their employees forensically clean laptops for travel, and have them download any sensitive data over a virtual private network once they have entered the country. They send any work back the same way, and delete everything again before crossing the border to go home. This is a good idea if you can do it.

If you cannot, consider putting your sensitive data on a USB drive or even a camera memory card: even 16GB cards are reasonably priced these days. Encrypt it, of course, because it is easy to lose something that small. Slip it in your pocket, and it is likely to remain unnoticed even if the customs agent pokes through your laptop. If someone does discover it, you can try saying: "I don't know what is on there. My boss told me to give it to the head of the New York office." If you have chosen a strong encryption password, you will not care if he confiscates it.

Lastly, do not forget your phone and PDA. Customs agents can search those too: emails, your phone book, your calendar. Unfortunately, there is nothing you can do here except delete things.

I know this all sounds like work, and that it is easier to just ignore everything here and hope you do not get searched. Today, the odds are in your favor. But new forensic tools are making automatic searches easier and easier, and the recent U.S. court ruling is likely to embolden other countries. It is better to be safe than sorry.


Another hard-hitting piece from the pen of Paul Craig Roberts. He warns that the sum of actions from Bush & Co. -- the phony "war on terror", the PATRIOT Act, the ultra-politicized Justice (sic) Department, the Iraq invasion etc. -- can all be viewed as deriving from a single goal: acquiring power via the destruction of the U.S. Constitution and what is left of liberty as we know it.

Roberts could just as well have quoted the line from the Declaration of Independence: "... when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism ..." And the carrot that complements the Administration's large set of sticks? "The promised land of safety."

In last weekend's edition of CounterPunch, Alexander Cockburn updates the ongoing persecution of Sami Al-Arian by federal prosecutors. Al-Arian was a Florida university professor of computer science who was ensnared by the Bush Regime's need to produce "terrorists" in order to keep Americans fearful and, thereby, amenable to the Bush Regime's assault on U.S. civil liberties.

The charges against Al-Arian were rejected by a jury, but the Bush Regime could not accept the obvious defeat. If Al-Arian was not a terrorist, then other of the Bush Regime's fabricated cases might fall apart, too.

In open view, the U.S. Department of Justice (sic) proceeded to trash every known ethical rule of prosecution. I do not need to repeat the facts, as they are covered by Cockburn's articles and in The Tyranny of Good Intentions.

Instead, I want to point out another meaning of the Al-Arian case. The Justice (sic) Department itself knows that it is persecuting a totally innocent person for reasons of a political agenda -- the need to convince gullible Americans of an ongoing terrorist threat. The existence of this threat is used to justify the Bush Regime's adoption of police state measures, such as spying on Americans without warrants, arresting them without charges, and refusing to let go of them when they are cleared by juries.

Sami Al-Arian is a fabricated terrorist created by federal prosecutors and judges in behalf of an undeclared agenda. The Al-Arian case proves that terrorists are in short supply and that the Bush Regime has had to create them out of total innocents. The "War on Terror" is a hoax used to justify war crimes and the overthrow of America's civil liberties.

The anthrax scare is one more example of the Bush Regime's use of disinformation to advance an undeclared political agenda. As Glenn Greenwald reminded us last week in Salon, the Bush Regime used Brian Ross at ABC News to spread the lie far and wide that U.S. government tests proved that the anthrax mailed to various Americans, including prominent U.S. Senators, was made in Iraq by Saddam Hussein. This lie was essential for scaring Congress into passing the Bush Regime's Gestapo laws, such as the PATRIOT Act, and for overcoming opposition to invading Iraq.

When it leaked out that the anthrax actually came from a U.S. government lab, the Bush Regime tried to frame a U.S. scientist, Steven J. Hatfill, but failed. On June 28th, the Los Angeles Times reported that Hatfill, "The former Army scientist who was the prime suspect in the deadly 2001 anthrax mailings agreed Friday to take $5.82 million from the government to settle his claim that the Justice Department and the FBI invaded his privacy and ruined his career." Indeed, U.S. District Court Judge Reggie B. Walton allowed Hatfill's attorneys two years to review all news reports and FBI evidence. Judge Walton stated: "there is not a scintilla of evidence that would indicate that Dr. Hatfill had anything to do with this." [U.S. settles with anthrax mailings subject Steven Hatfill for $5.82 million]

The anthrax matter was again news last week when another U.S. government scientist, Bruce E. Ivins, "committed suicide." Instantly, the deceased Ivins was fingered as the culprit. Overnight a man, liked and respected by his colleagues, who had worked on American biological warfare weapons for years, became a deranged homicidal maniac who decided to murder Americans at random in the immediate aftermath of 9-11 by sending them letters containing anthrax.

I do not believe a word of it. But assume that it is true. Blaming the anthrax letters on Ivins does not resolve the issue of why the Bush Regime lied to Brian Ross and used ABC to put the blame on Saddam Hussein in order to invade an innocent country. Would a government that would lie about something this serious not lie about other serious matters?

The Bush Regime stands against the truth. That is why it pretends to have the power to prevent executive branch officials wanted for questioning by Congress from appearing before the people's representatives. Nothing could make clearer the contempt that the Bush Regime has for the American people and their elected representatives than its arrogant claim that it is unanswerable to them.

Obviously, neither the President nor the Vice President respect their oaths of office. If they will betray such a serious oath, will they not lie about everything, even 9-11 itself?

According to the discredited 9/11 Commission Report, a few Muslims hatched a multi-year plot that went undetected by the vast security agencies of the U.S. and its allies, and within one hour on one morning at four different locations defeated airport security, NORAD, the U.S. Air Force, Vice President Cheney, Secretary of Defense Rumsfeld, the Pentagon's defenses and crashed three hijacked airliners into the World Trade Center towers and the heart of the U.S. military. Muslims were able to achieve this fantastic feat operating out of caves in Afghanistan.

We now know for a fact that the "terrorist anthrax attack" had nothing whatsoever to do with Muslim terrorists. Even the U.S. Government now blames white American citizens, employees of the federal government, for the anthrax letters that, at the time, were blamed on the "Osama bin Laden al Qaeda plot against America."

We now know for a fact that this was intentional disinformation planted by the Bush Regime on a gullible and incompetent ABC News reporter, who is a disgrace to journalism. No one denies this.

We also know for a fact that ABC News will not say who planted on ABC the lies that committed the United States to the dishonor of an illegal invasion, war crimes, and executive branch attack on the U.S. Constitution. How can anyone anywhere in the world rely on ABC News when it serves as a disinformation agency for a criminal regime?

One logical conclusion is that the anthrax attack was part of the same false flag operation that pulled off 9-11. The anthrax letters made the "terrorist attack" seem wider and more general. This increased the sense of peril and Americans' fear and anger, thereby opening wider the door for the Bush Regime's attack on Iraq and U.S. civil liberty.

Now that the dead Ivins can be conveniently blamed for the anthrax mailings, the Bush Regime can declare the case closed, thus protecting the false flag operation from further risk of exposure.

Many Americans lack the mental and emotional strength to confront the facts. The facts are too unsettling and many are relieved when the "mainstream media" spins the facts away. Many Americans find it too appalling that any part of "their" government, even a rogue operation, could possibly have been involved in any way in the 9-11 or anthrax attacks. No evidence -- not even full confessions -- could convince them otherwise. Many Americans have welcomed their brainwashing by the neoconservatives: America is pure; her shining virtue causes evil men to attack her; they hate us because we are good and they are evil.

For the sake of argument, let us accept this make-believe. It does not explain why, in order to protect us from evil men, the U.S. Constitution needs to be dismantled and civil liberties set aside. Our Founding Fathers said that dismantling the Constitution and setting aside civil liberties are precisely what would make us unsafe in the extreme. The Bush Regime has never explained how the civil liberties guaranteed by the Constitution interfere with any legitimate response to terrorism.

The fact still remains that the Bush Regime responded to 9-11 and anthrax letters with a comprehensive assault on U.S. civil liberty. The Bush Regime's assault on America has been much more successful than its assault on "terrorism." Who remembers the promise of a "six weeks war"? Americans have been mired for 6 years in two wars without end which the neoconned Bush Regime, in alliance with Israeli Zionists, seeks to expand to Iran, Pakistan, Syria, and Lebanon. The Republican candidate for president has given his commitment to a 100-year "war against terrorism." Many Americans will vote for this candidate who wants to fight against a hoax for 100 years.

In The Twilight of Democracy: The Bush Plan for America, Jennifer Van Bergen explains the constitutional and legal principles on which American liberty is based and the Bush Regime's intense assault on these principles. Part I of her book sets out the Constitutional principles that are under attack. Part II details the systematic attack on the U.S. Constitution that is the heart and soul of the Republican neoconservative Bush Regime -- and a Regime it is as it asserts that it is above the law and unanswerable to law, Congress, the federal courts, and the Constitution that it is sworn to uphold.

Jennifer Van Bergen likens Bush and his brownshirt supporters to Julius Caesar in motives, though not in courage. She cites the poet Lucan who in his work Pharsalia described Caesar as he flouted the law of the Roman Republic and crossed the Rubicon with his army:
“When Caesar crossed and trod beneath his feet
  The soil of Italy’s forbidden fields,
  ‘Here,’ spake he, ‘peace, here broken laws be left;
  Farewell to treaties. Fortune, lead me on;
  War is our judge.’”
Anyone who believes that the Bush Regime's "war on terror" is about terrorism, oil, getting even with those who attacked us, bringing freedom and democracy to Muslims -- whatever rationale makes the gratuitous war crimes committed by the Bush Regime acceptable to gullible Americans -- needs to read Jennifer Van Bergen's Bush Plan for America. Nothing less than American liberty is at stake.

The hour is late. Gullible Americans are being marched off into tyranny as the promised land of safety.


Last week we featured an article from Lifehack titled "How to Make the Right Decision in Any Situation." We bring them back for this piece on general skills, i.e., those not specific to any one occupation, that are invaluable aids to succeeding in life. As noted, it is not enough to just possess the skills. You have to actively use them as well.

What does it take to succeed? A positive attitude? Well, sure, but that is hardly enough. The Law of Attraction? The Secret? These ideas might act as spurs to action, but without the action itself, they do not do much.

Success, however it is defined, takes action, and taking good and appropriate action takes skills. Some of these skills (not enough, though) are taught in school (not well enough, either), others are taught on the job, and still others we learn from general life experience.

Below is a list of general skills that will help anyone get ahead in practically any field, from running a company to running a gardening club. Of course, there are skills specific to each field as well -- but my concern here is with the skills that translate across disciplines, the ones that can be learned by anyone in any position.

1. Public Speaking

The ability to speak clearly, persuasively, and forcefully in front of an audience -- whether an audience of 1 or of thousands -- is one of the most important skills anyone can develop. People who are effective speakers come across as more comfortable with themselves, more confident, and more attractive to be around. Being able to speak effectively means you can sell anything -- products, of course, but also ideas, ideologies, worldviews. And yourself -- which means more opportunities for career advancement, bigger clients, or business funding.

2. Writing

Writing well offers many of the same advantages that speaking well offers: good writers are better at selling products, ideas, and themselves than poor writers. Learning to write well involves not just mastery of grammar but the development of the ability to organize one's thoughts into a coherent form and target it to an audience in the most effective way possible. Given the huge amount of text generated by almost every transaction -- from court briefs and legislation running into the thousands of pages to those foot-long receipts you get when you buy gum these days -- a person who is a master of the written word can expect doors to open in just about every field.

3. Self-Management

If success depends of effective action, effective action depends on the ability to focus your attention where it is needed most, when it is needed most. Strong organizational skills, effective productivity habits, and a strong sense of discipline are needed to keep yourself on track.

4. Networking

Networking is not only for finding jobs or clients. In an economy dominated by ideas and innovation, networking creates the channel through which ideas flow and in which new ideas are created. A large network, carefully cultivated, ties one into not just a body of people but a body of relationships, and those relationships are more than just the sum of their parts. The interactions those relationships make possible give rise to innovation and creativity -- and provide the support to nurture new ideas until they can be realized.

5. Critical Thinking

We are exposed to hundreds, if not thousands, of times more information on a daily basis than our great-grandparents were. Being able to evaluate that information, sort the potentially valuable from the trivial, analyze its relevance and meaning, and relate it to other information is crucial -- and woefully under-taught. Good critical thinking skills immediately distinguish you from the mass of people these days.

6. Decision-Making

The bridge that leads from analysis to action is effective decision-making -- knowing what to do based on the information available. While not being critical can be dangerous, so too can over-analyzing, or waiting for more information before making a decision. Being able to take in the scene and respond quickly and effectively is what separates the doers from the wannabes.

7. Math

You do not have to be able to integrate polynomials to be successful. However, the ability to quickly work with figures in your head, to make rough but fairly accurate estimates, and to understand things like compound interest and basic statistics gives you a big lead on most people. All of these skills will help you to analyze data more effectively -- and more quickly -- and to make better decisions based on it.

8. Research

Nobody can be expected to know everything, or even a tiny fraction of everything. Even within your field, chances are there is far more that you do not know than you do know. You do not have to know everything -- but you should be able to quickly and painlessly find out what you need to know. That means learning to use the Internet effectively, learning to use a library, learning to read productively, and learning how to leverage your network of contacts -- and what kinds of research are going to work best in any given situation.

9. Relaxation

Stress will not only kill you, it leads to poor decision-making, poor thinking, and poor socialization. So be failing to relax, you knock out at least three of the skills in this list -- and really more. Plus, working yourself to death in order to keep up, and not having any time to enjoy the fruits of your work, is not really "success". It is obsession. Being able to face even the most pressing crises with your wits about you and in the most productive way is possibly the most important thing on this list.

10. Basic Accounting

It is a simple fact in our society that money is necessary. Even the simple pleasures in life, like hugging your child, ultimately need money -- or you are not going to survive to hug for very long. Knowing how to track and record your expenses and income is important just to survive, let alone to thrive. But more than that, the principles of accounting apply more widely to things like tracking the time you spend on a project or determining whether the value of an action outweighs the costs in money, time, and effort. It is a shame that basic accounting is not a required part of the core K-12 curriculum.

What Else?

Surely there are more important skills I am not thinking of (which is probably why I am not telling Bill Gates what to do!) -- what are they? What have I missed? What lessons have you learned that were key to your successes -- and what have you ignored to your peril?


U.S. Businesses Owe the IRS $58 billion in Withheld Payroll Taxes

Businesses acting as withholding agents for the IRS deduct from their employees' gross paychecks various payments that are supposed to then be forwarded to the IRS, e.g., for income taxes and Social Security. The business may then decide to use those withholdings as a source of interest-free funding and later be unable to pay the IRS what was owed -- obviously a precarious way to fund operations, but we can guess that most businesses which do this are on the edge already.

The Government Accountability Office has estimated that as of last September such owed but not paid withholdings add up to $58 billion. Not huge in the overall scheme of things, e.g., this is about 1% of the likely cost of the Fannie Mae/Freddie Mac bailout, but still substantial.

The IRS has lost out on up to $58 billion worth of taxes because of businesses who have failed to forward payments withheld from the wages of their employees to the government over the past ten years, congressional investigators have revealed this week.

The Government Accountability Office ... revealed that more than one and a half million businesses owed the supposedly withheld income, Social Security and Medicare taxes as at the end of September last year. ... The GAO report argued that the IRS had relied too much on voluntary compliance.

According to the Washington Post, Senator Norm Coleman (Minnesota), the ranking Republican on the Senate Homeland Security and Governmental Affairs Committee's Permanent Subcommittee on Investigations, which requested the report, called on the IRS "to take off the kid gloves" when dealing with such businesses, with Senator Carl M. Levin, subcommittee chairman, agreeing: "At a time when our nation is drowning in debt, it is appalling that delinquent businesses have cheated Uncle Sam," Levin observed.

Shire Has No Plans for Return to UK

That nasty "tax competition" caused drug company Shire to leave Britain for the friendlier tax climate of Ireland. Needless to say, having done so it will take a many more breaks to lure them back than it would have taken to keep them from leaving.

The chief executive of FTSE 100 pharmaceutical company Shire has revealed that the company is satisfied with the results of its relocation for tax purposes from the UK to Ireland and suggested that it would take a more than a substantial tax cut to lure the company back.

Commenting on the company's semi-annual results, which beat market expectations, Shire chief Angus Russell said that the company is "very happy" with its recent decision to shift its corporate HQ to Ireland and indicated that there was little that the UK government could do to improve its current tax position. "If you want to drop the tax rate to 5% we might be interested," he was quoted by the Daily Telegraph as saying.

According to a report in the Financial Times last month, one of the benefits of re-domiciling the company for tax purposes in Ireland is that it will avoid paying tax on its £260 million acquisition of German biotech company Jerini, which it would have done under new rules introduced in the UK in 2008.

Shire plc, one of the UK's largest drug makers, announced its plans to "protect the group's taxation position" by establishing a holding company in Jersey and moving the company's tax residence to Ireland in April, and was followed by a flurry of other major UK multinationals who announced similar plans in the following weeks.