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 18, 2008

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


In a perhaps inevitable "after the horse has escaped the barn" move: Subsequent to the theft of client data from a Liechtenstein bank, followed by the turning over of that data to German and other tax authorities, Liechtenstein clients worrying about being similarly outed are transferring their money to Singapore and other perceived safer havens. Given how vigilant the other Liechtenstein banks must now be against similar breaches, it is not clear how much sense this tactic makes. Perhaps the customers are worried that international pressure will lead to more voluntary disclosures by Liechtenstein banks, protestations to the contrary notwithstanding.

Tax dodgers are transferring money from Liechtenstein to Panama, Singapore and other secretive offshore centers, intelligence from foreign tax authorities shows. One official said the switch had been prompted by the greater focus on evasion after the theft of client details from LGT and Liechtensteinische Landesbank.

The banks themselves have said little about the extent of outflows from the principality. LGT revealed earlier this year it had suffered only limited damage. However, updated information when the two banking groups report first-half results later this month should show accelerated withdrawals, according to some local financiers.

One beneficiary could be Panama. The Sovereign Society, a U.S. publisher specializing in offshore planning, says the country has "iron-clad financial privacy laws" and describes it as "an ideal 21st century offshore haven in a world where few remain."

But Panama has constraints for Europeans, being less accessible than favored havens such as Switzerland and Liechtenstein. Sue Holmes, a specialist in investigations at Smith & Williamson, a professional services firm involved in several cases involving Liechtenstein, said Panama was perceived as less secure. "It is a fairly risky place."

Singapore, the world's fastest-growing private banking center, expected to gain from Liechtenstein's troubles, Daniel Truchi, global head of Société Générale's private banking business, told the Financial Times in March. "Because of what happened in Liechtenstein, we will see a higher flow of funds into Singapore. The momentum is accelerating."

Singapore and Hong Kong benefited from a 2005 clampdown on European tax secrecy, says the Institute for Fiscal Studies, the independent think-tank. "In 2003 Hong Kong and Singapore experienced a massive influx of capital, apparently from European sources, as the adoption of the savings tax directive began to seem a realistic possibility."

Tax experts say evaders can reduce, but not eliminate, the risk of detection by transferring money from one haven to another.

"Families with undeclared money can run, but they cannot hide," says Philip Marcovici, a private banking specialist at Baker & McKenzie in Zurich. Ms. Holmes says many people wrongly think they will not face detection. "My recommendation is to come clean. Tax havens are pretty vulnerable to attack."

In a speech in June, Jeffrey Owens, director of the tax policy center at the OECD, condemned at least 10 countries for failing to recognize that secrecy is a "relic of the past."

Panama was dropped from the OECD's list of "uncooperative tax havens" -- which now features only Monaco, Liechtenstein and Andorra. But there is widespread frustration among OECD members that Panama has not improved transparency. Panama has responded angrily. Along with other small financial centers, it has told the OECD it will increase transparency only if there is a "level playing field" created by member states meeting the same standards.

Interpol Seeks Liechtenstein Tax Mole

In addition to being wanted by everyone he exposed, some undoubtedly with mayhem on their minds, Liechtenstein bank data thief Heinrich Kieber is now wanted for the crime that the theft was, in addition to some other crimes that preceded his employment at the bank. It will be interesting to see whether any of the governments who bought the data intervene on Kieber's behalf to stifle the Interpol investigation (assuming that is real). We doubt it. Kieber's utility to them is done with, so why bother?

A former Liechtenstein bank worker who sparked an international tax evasion probe after allegedly handing over stolen information on ex-clients is now wanted by Interpol himself.

Heinrich Kieber, a former data entry clerk at LGT Group, the Liechtenstein bank owned by the principality's royal family, is wanted by the international police agency for alleged theft, computer security crimes and counterfeiting and forgery.

Mr. Keiber, 43, took information from the bank that he then went on to sell to tax authorities in a number of countries, including the UK, the U.S. and Germany. The data contained on the computer discs he sold is understood to reveal tax evasion by some 1,400 clients of LGT, totaling billions of dollars.

The information forms the centerpiece of tax evasion investigations in 12 countries in total, and played a key role in U.S. Senator Carl Levin's recent report into the subject, which suggested that the U.S. is losing $100 billion a year through evasion.

Mr. Kieber is on Interpol's wanted list because he allegedly stole the discs from his employers, and also because it is suspected that he knows more than he is letting on.

"He's hunted, he's wanted -- this is not what I would call living the good life," Jack Blum, Mr. Kieber's lawyer, told The New York Times, adding that he had "no idea" where his client is.

The Interpol website lists Mr Keiber as being able to speak English, German and Castillian Spanish. It urges anyone with any information to contact either local police or Interpol's general secretariat in Lyon, France.


Among the characters outed by the Liechtenstein stolen client data affair is a British tycoon who made a killing when his company went public. The company later folded owing HMRC about £30 million. Now he has disappeared.

In further news, apparently Germany has purchased another set of data listing the names of 1,850 more people with bank accounts in Liechtenstein. We await further news on that, although given the troubles the first purveyor is now facing (see below and posting immediately above), perhaps governments will take pains to hide details in the interest of not discouraging would-be sellers of stolen data.

The first of hundreds of rich Britons being investigated over secret Liechtenstein bank accounts has been identified as a property magnate thought to have fled to South America. Michael Miskin, 65, is among 300 British people named in stolen bank documents that were sold to the tax authorities by a whistleblower who worked at LGT, one of the principality's biggest banks.

Tax authorities across the world are now using the data to investigate people suspected of hiding their assets in the tax haven. Miskin, once an active Freemason, amassed a fortune during the 1980s through Waterglade International, a property firm that specialized in building shopping arcades. When the company floated in London in 1987, he became a multi-millionaire and soon afterwards left the company. Waterglade went into receivership in 1994 owing almost £30 million, including an estimated £800,000 in VAT.

LGT documents made public in a U.S. Senate investigation into tax havens show that Miskin used the bank to hide assets from his wife Stephanie during divorce proceedings five years ago. At one stage Miskin had $6 million in LGT bank accounts. The retired businessman still owes his ex-wife a divorce settlement of £3 million.

The whereabouts of Miskin are unknown, but he has recently claimed in documents still to be a British citizen. Over the past 15 years he has lived in California and Mexico and, according to some sources, may be living in Costa Rica.

One former friend said: "It is as if he has disappeared off the face of the earth. It was extraordinary -- one day he just got up and left his wife after 38 years. He still owes her a fortune from the divorce settlement."

The American tax authorities are also investigating claims that Miskin should have paid tax while he lived in California. At the time he had claimed to be resident in Bermuda for tax purposes.

Miskin is just the first of hundreds of Britons who could be prosecuted using the data bought from Heinrich Kieber, 43, the Liechtenstein informant. HM Revenue & Customs (HMRC) believes that it will collect £300 million of unpaid tax by investigating those identified. It is also pursuing another Liechtenstein bank, understood to have hundreds of other British clients.

Dave Hartnett, acting chairman of HMRC, has said there are "paragons of virtue that will fall from grace" as a result of data obtained from Kieber. They are understood to include celebrities and peers. He is optimistic that prosecutions will begin within months. Anyone found guilty of evading tax could be jailed for up to six years. Hartnett has said that he will "push for sentences."

Kieber, meanwhile, fears for his life. A website is offering $10 million for his whereabouts. Drug barons and other criminals may be named in the documents he has sold.

Kieber should have figured out that this might be the case before he sold the data.

Rumours are also sweeping Europe that even more data on rich investors from Liechtenstein may be bought up by tax authorities. Germany's government last week [early August] bought another set of data listing the names of 1,850 more people with bank accounts in the principality.

It is not said from who or where this data was purchased.

The recent U.S. Senate investigation estimated that Liechtenstein bank accounts are used to avoid £1 billion of tax a year.

A partner at one the world's biggest accountancy firms said: "By buying stolen data, tax authorities have encouraged anyone in a bank in Liechtenstein, Monaco or any other tax haven to sell private banking records for cash. Ethically and legally that is surely a highly questionable way to proceed."

This threat has always been there, and rumors have floated for years that the IRS freely bribed Caribbean bank employees in order to facilitate their investigations. At long last perhaps banks will be careful about how obtains access to these databases.


Canadian expat Rebecca Tyre, who lives in Panama and who wrote an entry we flagged last week, writes about the challenges of dealing with bad news from the home country when living abroad, such as the death of friends and loved ones. Do you fly home and lend comfort, or pursue an alternative course? Best to plan ahead about how to deal with such situations.

Moving to a country far from your roots presents many challenges. There will no doubt be cultural differences, language barriers and the occasional bout of homesickness. No matter how much you enjoy your adopted country, these issues are sometimes unavoidable.

This weekend I had to deal with what is probably the worst part of living away from home. I received a phone call from my best friend telling me the father of a very good friend of ours just had a massive heart attack and passed away. These are the kinds of phone calls everyone dreads no matter where you live, but it makes it that much harder when you are living in a country thousands of kilometers away.

I know a number of expats living in Panama that have had to deal with the death of a loved one back home. It is terrible to get sad news no matter where you live, but being so far away makes one feel totally helpless. Do you get on the next plane home? Do you send your condolences from afar? It is a terrible situation to be in, but if you are living in a foreign country it is something you have to consider.

If you already live in Panama, or are considering moving here, it may be worth it to have a game plan in place should the terrible happen. Planning for the worst ahead of time may make such situations a little easier to deal with should the unfortunate happen. Know ahead of time which situation necessitates a trip home. Have someone in place in Panama that can look after your affairs for you should you have to leave on a moments notice.

No one wants to have to think of the worst happening, but having a plan in case of the worst, can make the situation a little bit easier. The death of my friend's father was a total shock to me and his entire family. This was a healthy, very active, nonsmoker who could still knock out opponents half his age on the tennis court, but I guess sometimes there is no rhyme or reason.

This guy taught me how to drive standard, he improved my tennis swing and he challenged my political views on a daily basis since high school. I will miss him terribly, but after debating with myself endlessly, I have decided not to go home for the funeral. I have already sent my condolences and will be donating to the charity of the family's choice in lieu of flowers.

This is now the second death I have dealt with since living in Panama. This situation is certainly something I never anticipated when I decided to move thousands of kilometers away, but stuff happens. Always have a plan in place, should the worst happen.

On the flip side, do you and your family have a plan in place should something happen to you while living in Panama? It is another situation no one wants to think about, but you never know when the worst will happen.


The great offshore riddle: keeping the taxman at bay.

The UK's Times Online has helpfully provided and quick and dirty "safe" offshore investing guide for UK taxpayers. The financial products mentioned are UK-specific, but it also provides some more generally useful information on various offshore havens.

[U.K.] Offshore account-holders are under attack from HM Revenue & Customs, which is now hoping to flush out Britons with billions of pounds hidden overseas. Here is our guide to the safe way to save offshore.

What is the taxman doing? The Revenue has been clamping down on British citizens and residents who use tax havens to hide income from offshore savings and investments. The Revenue will offer account-holders a second chance to disclose their offshore arrangements in return for leniency. It will publish details about the scheme in the coming months.

Where are the tax havens? Jersey, Guernsey, the Isle of Man, the Cayman Islands, Monaco and the Bahamas are attractive places to keep money because taxes are lower, or non-existent. For example, Monaco does not levy personal income tax, the Cayman Islands has no capital gains tax (CGT), and the Bahamas does not levy CGT or income and inheritance tax. On the Isle of Man no CGT or inheritance tax needs to be paid. Personal income tax is levied at just 10% on the first £10,500 and then 18%.

Is it legal to hold money offshore? Yes -- however you must pay tax on income or gains. UK citizens and residents are required to pay 20% or 40% income tax for a lower or higher rate taxpayer respectively. They must also pay 18% on capital gains.

Non-doms in Britain who do have a strong connection to another country are exempt from paying tax on income from assets held offshore. However, since April, non-doms who have been resident in Britain for more than seven out of the past 10 tax years have the option of paying £30,000 a year to remain exempt from UK tax.

What offshore investment products are allowed? You can cut your tax burden by using legitimate offshore savings and investment products. Offshore bonds, available from UK insurers, provide some tax perks. For example, up to 5% of the capital invested in the bond can be withdrawn with no tax to pay until the entire bond is cashed.

This is helpful for those who expect to move from a higher-rate tax band to a lower one or plan to retire to a low-tax country. Your returns are likely to be higher with an offshore bond because they can grow tax free. If you invested £50,000 in an onshore bond, you would have a lump sum of £72,294 after 10 years with growth of 7% a year. Fees attached to offshore bonds can be expensive.

What about offshore funds? Offshore cash funds are another legitimate product. They are set up to distribute dividends, not interest, and are subject to tax at 32.5% for a higher rate taxpayer or 10% at the basic rate.

Following changes unveiled in the budget, dividend income sourced overseas also became eligible for a tax credit worth 10%, taking the tax rate for a UK resident higher-rate taxpayer to 22.5% or 0% for a lower-rate taxpayer.

Are there places where the Revenue cannot get my details? The European Savings Directive requires EU members to disclose details about known foreign nationals who have offshore bank accounts, or deduct a minimal rate of tax.

The Channel Islands have so far opted to pay tax rather than disclose details -- however they will be required to begin sharing information from 2011. Liechtenstein and Switzerland do not share information. Dubai, Hong Kong and Singapore have not signed on to the directive.


The U.S. Government Accountability Office has issued a research report, "Tax Administration: Comparison of the Reported Tax Liabilities of Foreign- and U.S.-Controlled Corporations, 1998-2005," which attempts to get a handle on "transfer pricing abuse." Since it is universally available and tempting for all companies doing cross-border business, and is hard to detect, we do not see how the practice can be substantially curbed. The best the government can hope to do is learn to detect the most egregious instances more easily.

Concerns about transfer pricing abuse have led researchers to compare the tax liabilities of foreign- and U.S.-controlled corporations. (Transfer prices are the prices related companies charge on intercompany transactions.) However, such comparisons are complicated because other factors may explain the differences in reported tax liabilities. In three prior reports, GAO found differences in the percentages of foreign-controlled and U.S.-controlled corporations reporting no tax liability.

GAO was asked to update the previous reports by comparing: (1) the tax liabilities of foreign-controlled domestic corporations (FCDC) and U.S.-controlled corporations (USCC)-including those reporting zero tax liabilities for 1998 through 2005 (the latest available data) and (2) characteristics of FCDCs and USCCs such as age, size, and industry. GAO analyzed data from the IRS's Statistics of Income samples of corporate tax returns. GAO does not make any recommendations in this report. In commenting on a draft of this report, IRS provided comments on technical issues, which we incorporated into this report where appropriate.

FCDCs reported lower tax liabilities than USCCs by most measures shown in this report. A greater percentage of large FCDCs reported no tax liability in a given year from 1998 through 2005. For all corporations, a higher percentage of FCDCs reported no tax liabilities than USCCs through 2001 but differences after 2001 were not statistically significant. Most large FCDCs and USCCs that reported no tax liability in 2005 also reported that they had no current-year income. A smaller proportion of these corporations had losses from prior years and tax credits that eliminated any tax liability.

By another measure, large FCDCs were more likely to report no tax liability over multiple years than large USCCs. In 2005, comparisons of FCDCs and USCCs based on ratios of reported tax liabilities to gross receipts or total assets showed that FCDCs reported less tax than USCCs. FCDCs and USCCs differed in age, size, and industry. FCDCs were younger than USCCs in that a greater percentage had been incorporated for 3 years or less from 1998 through 2005. In 2005, FCDCs were larger on average than USCCs in that they reported higher average gross receipts and assets than USCCs. A comparison by industry in 2005 showed that large FCDCs were relatively more concentrated in manufacturing and wholesale trade, while large USCCs were more evenly distributed across industries. GAO did not attempt to determine the extent to which these factors and others, such as transfer pricing abuse, explain differences in tax liabilities.


Recurring rumors and claims that Jamaica plans to enter the offshore financial arena continue to show evidence of substance. The catchup plans include some niche targeting such as "sports and entertainment/copyright financing." We shall see.

Plans for Jamaica to establish an International Financial Services Center (IFSC) are well under way, according to Senator Don Wehby, Minister without Portfolio in the Ministry of Finance and the Public Service.

In October last year, Minister Wehby established a Special Advisory Committee to explore the development of an International Financial Services Centre (IFSC) in Jamaica, with a deadline to submit a report on the way forward of July 14, 2008. The mandate of the Committee was to determine the IFSC services that Jamaica could offer on a competitive basis, identify those critical factors that would needed to be addressed for Jamaica to enter the market, and outline an appropriate implementation strategy. To inform their recommendations, the committee, through JTI, commissioned an assessment of the global IFSC market and the legislative and regulatory requirements for a successful IFSC.

[In mid-July], the minister received the committee's final draft report, outlining a proposed strategy for Jamaica to establish an IFSC. The report provides an overview of critical legislative and regulatory implications, and was informed by a detailed study by KPMG Advisory Services, hereafter called the KPMG Study, from whom a final draft report was also received by the minister last week.

The committee was chaired by Eric Crawford of PriceWaterhouseCoopers (PWC), and comprised 12 representatives from the public and private sectors, all supported by Jamaica Trade and Invest (JTI), which served as its secretariat.

Remarking on the make-up of the committee, the minister noted that : "One of the key strengths of the committee was the wide cross section of stakeholders that were represented, including representatives from the private sector, the Bank of Jamaica and other public sector entities."

One of the recommendations of the committee report is that once Jamaica establishes special investment vehicles such as Trusts and International Business Companies, niche markets such as sports and entertainment/copyright financing (suggested by Dr. Trevor Thomas in his book Offshore Jamaica: The Path Ahead), stock exchange products, as well as other electronic financial products, can be targeted.

The minister has already had discussions with several potential investors, who have submitted concept papers, including concrete marketing strategies for the IFSC, and who have demonstrated willingness to enter public/private partnerships with the government to help fund the project. He notes particularly that "Montego Bay private sector interests have made an interesting presentation on how to market the center that has some amount of merit."

Minister Wehby has indicated that the next steps include recruiting a Chief Implementation Officer (CIO) and appointing an Implementation Committee for the implementation phase of the IFSC strategy. In addition, the relevant regulatory agencies will submit detailed proposals on the suggested legislative changes, and a team of drafting specialists will be hired to fast-track the legislative process so that Jamaica can take advantage of opportunities currently existing in the market.

A sensitization seminar for domestic stakeholders is planned for the September quarter this year. Minister Wehby is also exploring possible synergies between Jamaica and other IFSCs in the Caribbean.

In a recent conference call at the Ministry of Finance, an American regulator advised that as a late entrant to the market, Jamaica has to be "bigger and better" than other jurisdictions and offer innovative products that exploit current weaknesses and are targeted to meet the demand of investors. The regulator's remark about "bigger and better" relates directly to the strength of the regulatory system.

Minister Wehby is clearly very aware of this necessity, noting that "The regulation of the offshore center is going to be of extreme importance. Every entity seeking to do business in the center will need to be registered and appropriately regulated."


The Belize branch of FirstCaribbean International Bank, which is over 90% owned by Canadian Imperial Bank of Commerce, has been indicted on on allegations of failing to report suspicious money transactions between 2001 and 2005 as required by Belize's anti-money laundering laws. The charges were later suddenly dropped, as is covered next week.

A court hearing in which FirstCaribbean International Bank (FCIB) in Belize is facing more than 100 charges has been set for September 4 by that country's Chief Magistrate Margaret McKenzie. The bank has been indicted on allegations of failing to report suspicious money transactions between 2001 and 2005.

FCIB country manager, Glen Smith, appeared in court ... in Belmopan to answer the 113 charges that were laid against the bank earlier [in July], following an investigation by Belize's Financial Intelligence Unit (FIU).

The FIU said that FCIB had contravened the Money Laundering Act. It said that between January and August 2005, the bank failed to disclose that it had facilitated the conversion of large sums of money to United States currency.

A report from the unit disclosed that as much as US$8.5 million could have been withdrawn from the bank, in single transactions of up to US$1 million by the Belize Telecommunications Limited (BTL), a company that has since been dissolved.

The investigation also found that FirstCaribbean had not kept copies of the processed cheques and facilitated the transactions through two BTL employees who purchased U.S. dollars from money traders on the parallel market.

Smith said that he had no comment to make on the legal matter. "It is sufficient to say that the bank will vigorously defend its good name and its brand," he said. "We are very confident in the justice system of Belize that we will be vindicated."

The chief magistrate has ordered disclosure of evidence to be presented by September 4. Belize is one of 17 markets in which the regional banking powerhouse operates. The banking group, which is headquartered in Barbados, is the region's third largest with assets of US$12.3 billion and 100 branch operations that service some 800,000 accounts.

FCIB is more than 90% owned by Canadian Imperial Bank of Commerce.


The key to capitalism is competition and the potential for failure.

Steve Greenhut muses over the latest chapter in the decline and fall of the Detroit auto makers, which stretches back for almost 40 years now. The first shot across the bow came when Japanese auto companies provided higher quality and greater fuel efficiency for a lower price. Detroit made a lot of progress on the quality front over the years, but anyone who watched the SUV, Hummer, pickup truck, maxi-minivan boom this decade was left wondering whether the American companies had forgotten the lessons from the 1970s. It turns out the answer was yes.

I love cars, but I also love it when the market weeds out the lousy carmakers.

Being a libertarian, I am often accused of being pro-business, which is absurd. I am a believer in free markets, and an essential tenet of free-market thinking is that businesses must be free to fail if they are insufficiently responsive to the needs of the consumer. I love it when lousy businesses fail. Unfortunately, politicians from both parties often try to use taxpayer subsidies and government-enforced protections to help out their favorite businesses or to keep them from falling into the "wrong" hands.

For instance, Missouri's Democratic senator and Republican governor both recently tried, unsuccessfully, to use their influence to stop the sale of St. Louis-based Anheuser-Busch to Belgian-based booze giant InBev. Anyone who has ever tasted the flavorless pale-yellow concoctions sold by the company known for its Clydesdale horses would be shocked that anyone would want to buy the firm responsible for them, rather than tar-and-feather those who ran it.

I am interested in beer, but passionate about automobiles. Yet even when it comes to cars, I would in no way want the government to interfere in the market process. Instead of worrying about the ongoing plight of the Big Three American automobile manufacturers, I celebrate it. Companies that have operated more like regulated utilities than entrepreneurial organizations deserve to have tough times. Companies that prefer bean-counters to creative managers and that mortgage their future to give in to absurd union demands deserve to lose market share and to face sinking stock values. Companies that care about other things more than they care about the consumer deserve to fail. Good riddance to them. Better companies will rise up to fill the void, even if they are based in India or China.

"Who shot General Motors?" asked author Roger Lowenstein in a July 10 column in The New York Times. His answer: "The immediate cause of GM's distress, of course, is the surging price of oil, which has put a chill on the sale of gas-guzzling sport utility vehicles and trucks. The company's failure to invest early enough in hybrids is another culprit. Years of poor car design is another. But none of GM's management miscues was so damaging to its long-term fate as the rich pensions and health care that robbed General Motors of its financial flexibility and, ultimately, of its cash."

Toyota, which will soon be the world's largest auto company, is concerned that U.S. government officials will bail out the ailing Michigan-based corporate giant. Toyota officials say they wish GM the best because of the need for competition, but it is easy to understand the Japanese company's real fear: political meddling that will hamper better-quality overseas makers and politicians who will exploit nationalism with some absurd "Buy American" campaign. But political meddling will only reward those companies that have made the worst decisions. Why should the government punish those companies that have done the best to serve the auto-buying public?

GM, Ford and Chrysler all deserve their current fate. Ford officials recently announced that they would start designing more fuel-efficient cars. "What we really need to do is tell people that we are back in the car business," said Ford's president of the America's Mark Fields, according to an Associated Press article last week. Yet I recall Ford's smugness when it was raking in huge profits from its mega-SUVs and full-size pick-up trucks and ignoring the automobile side of the business.

I have got nothing against big trucks, but I have everything against foolish corporate officials who are incapable of anticipating market changes. Somehow, Toyota and Honda managed to bring out new lines of smaller cars as gas prices headed north of $4 a gallon. But do not worry, Ford -- which is now losing money, and might soon face Chapter 11 -- will start coming up with new cars we might someday want to buy! But it takes quite a while to bring new products to market. Chrysler, by the way, is not in any better shape -- which will not surprise anyone who has recently looked at the firm's ungainly offerings. As the blog, The Truth About Cars, explained, Chrysler's plan is to "become a distributor of cars made by others. Someone. Anyone." That may not be a bad idea, given that GM has been introducing some critically acclaimed new models that are basically European Opels or Australian Holdens. If you cannot come up with a good design in Detroit, you might as well go elsewhere. But corporate innovators tend to do better over time than followers.

Part of the problem, in my view, is that U.S. automakers cannot improve their situation overnight because it takes a long time to create a good reputation for long-term quality and reliability. Even if, say, the latest Pontiac model is better than a comparable Honda, a buyer still might go with the Honda given that brand's exceedingly high resale values, which are a reflection of Honda's reputation for building cars that rack up 300,000 miles. In fact, part of the domestic automakers' current financial gloom is directly the result of their inattention to long-term resale issues.

Last month, Ford wrote off more than $2 billion in losses because the residual values of its returned leased vehicles are so much lower than predicted. With leasing, a buyer pays the difference between the selling price and the residual value (the estimate of what it will be worth when the lease is up) plus some financing and other costs. Domestic manufacturers generally have worse lease deals than imports because of lower residuals/resale values (that means you have to pay a higher amount between the sale price and the residual), but they have been hammered in recent months because the big SUVs and trucks they have so long relied upon are now virtually worthless as buyers turn them in at lease end.

It just keeps getting worse for the Big Three. But, again, this is good news for consumers. First, when the manufacturers cannot get rid of their cars, buyers can negotiate better deals. Just as the subprime housing mess is a blessing for home buyers (it is only a crisis for sellers and the banks that stupidly handed out loans to the credit-unworthy), the falling value of domestic vehicles is good news for anyone who still wants that Expedition or Tahoe. Second, there is nothing like failure to force companies to change their ways and make products that respond to the fickle consumer. If the domestic manufacturers were government agencies or regulated monopolies they would behave as such agencies. They would continue to provide less-than-desirable products, offer shoddy service and increase their prices whenever they overspent their budgets. Governments and government-enforced monopolies can do that because consumers have no options. GM has tried to act like a government, but it cannot ignore that the day of reckoning is coming.

The key to capitalism is competition and the potential for failure. That is why most carmakers keep offering more features and better products each model year. If they don't, they will lose out to other makers. If they do not fear failure, then they will not desperately seek to win over the buyer. In some ways capitalism is an anti-business philosophy, because there is nothing businesses hate more than fierce competition and the threat of bankruptcy.


Bill Kauffman reviews The Selected Essays of Gore Vidal.

Bill Kauffman, author of Look Homeward, America: In Search of Reactionary Radicals and Front-Porch Anarchists and Ain't My America: The Long, Noble History of Antiwar Conservatism and Middle American Anti-Imperialism (also see here and here), and possessor of a hyper-erudite vocabulary, reviews Jay Parini's The Selected Essays of Gore Vidal. Vidal is one of the last remaining champions of the American Republic of his generation, and is also an inordinately literate man of letters. The book of his essays sounds like a real treat.

"Gore Vidal is America's premier man of letters," says Jay Parini in his introduction to The Selected Essays of Gore Vidal, and if after reading Vidal on William Dean Howells, Tennessee Williams, various dead Kennedys, and "American sissy" Theodore Roosevelt the reader denies it -- well, hie on back to the Masters of Fine Arts prison

The Selected Essays were written over the course of a half-century (1953-2004), or almost one-quarter of the lifespan of the Republic that is Vidal's primary subject -- though it might more accurately be said that Vidal has been a contumacious [insubordinate] patriot of the Old Republic for nigh the entirety of the post-Republic era. As such, he is a man out of time in the United States of Amnesia, as he calls his native and beloved land.

What a pleasure these essays are. One imagines Gore Vidal at his writing desk, hint of a smile creasing his mouth as he mints Saint-Gaudens gold-piece witticisms with Lincoln-penny frequency. Here he is on Ohio's greatest novelist: "For a writer, Howells himself was more than usually a dedicated hypochondriac whose adolescence was shadowed by the certainty that he had contracted rabies which would surface in time to kill him at sixteen. Like most serious hypochondriacs, he enjoyed full rude health until he was eighty."

"It should be noted that Vidal is conservative in many respects," writes Parini. "He stands behind individual choice, the limitation of executive power, and preservation of the environment. Like his grandfather, he dislikes the empire. ... He would return us, if possible, to the pure republicanism of early America."

That grandfather, the blind Sen. Thomas P. Gore (D-Oklahoma), was a first-rate populist foe of war and FDR. He was a peace Democrat, which is why no one has ever heard of him. Vidal's education owed more to home than academy, as he read aloud to the senator, from whom he inherited an isolationist opposition to foreign wars, a populist suspicion of concentrated capital, a freethinker's hatred of cant, and a patriot's detestation of empire.

Like Mencken, Ray Bradbury, Hemingway, and other original Americans, Vidal escaped a college sentence. He is the scourge of sciolism [superficiality], of credentialed arrogance. As he writes of his friend's mistreatment while speaking to snotty drama students at Yale: "Any student who has read Sophocles in translation is, demonstrably, superior to Tennessee Williams in the unruly flesh."

The foaming and thoroughly ideologized haters of Vidal are simply incapable of writing prose anywhere near as tautly conversational, as confidently but never pedantically erudite, as amaranthine [unfading] as the master. Vidal commits an unforgivable sin in our age of the national hall monitor: humor. Is it any wonder they hate him? Vidal inevitably gets the best of the carpers in any exchange because he is funny and they are not. Or in his words, "I responded to my critics with characteristic sweetness, turning the other fist as is my wont."

His best essays are often sympathetic readings of such forgotten or undervalued American writers as the Ohio (again!)-bred satirist Dawn Powell (who "always knows how much salt a wound requires"); Tarzan creator Edgar Rice Burroughs (a talented action writer who was "innocent of literature" but as a drifter, cowboy, gold miner, and railroad cop was, like Vidal, "perfectly in the old-American grain"); and Tennessee Williams, "the Glorious Bird," whose work Vidal assesses with an affectionately critical eye. The personal anecdote he deploys expertly. Of a dinner with Williams and his magnificently termagant [shrewish] mother:

Tennessee clears his throat again. "Mother, eat your shrimp."

"Why," counters Miss Edwina, "do you keep making that funny sound in your throat?"

"Because, Mother, when you destroy someone's life you must expect certain nervous disabilities."

One of my favorite Vidal essays is his appreciation of William Dean Howells, who brought Ohio into the Atlantic and championed the new realists and regionalists of the late Gilded Age. He is a man after Vidal's own heart: "Since Howells had left school at fifteen he had been able to become very learned indeed."

Howells was barely of shaving age when he wrote a campaign biography of Lincoln. Precocious -- "an ambitious but not insane poet" -- he obtained a consulate in Venice thanks to his connection with Salmon P. Chase, the Free Soil Buckeye and constitutionalist who, as Lincoln's secretary of the Treasury and later chief justice of the Supreme Court, is one of those men like Robert A. Taft and Bob LaFollette who really ought to have been president.

Howells later wrote another campaign biography, this time of Rather-fraud Hayes, for whom the 1876 election was stolen from Samuel Tilden, the pornography connoisseur known in real-estate circles as "The Great Forecloser." But Howells's legacy was one of the truly great American novels, The Rise of Silas Lapham (1885). Again, Vidal's subject is vivified through a close reading of the novels and perfectly placed anecdotes. I liked Mark Twain's line about Elinor, Howells's wife, entering a room: "Dialogue ceased and monologue inherited its assets and continued business at the old stand." ...

Vidal is also fond of his kindred spirit Edmund Wilson, another proprietary patriot. The country was founded by such as Vidal and Wilson, their people shaped it, and they will not let it go without a fight, which is why in its collapse they turned withering fire upon its enemies. Wilson and Vidal were brave, though it was really a sense of patriotic duty, I think, that impelled their lonely stands against the empire that was erasing their ancestral Republic.

Wilson -- "the most interesting and the most important" critic of mid-century -- was a polymathic [learned] old American autodidact [self-taught individual] (Princeton years excluded) of the Vidal school: "When he died, at seventy-seven, he was busy stuffing his head with irregular Hungarian verbs." Vidal appreciates Wilson in his late autumn, when he really hit his stride with Patriotic Gore (whose introduction, comparing Lincoln to Lenin and Bismarck, got the energetic Bunny expelled from the warren), The Cold War and the Income Tax, Upstate, and Apologies to the Iroquois.

Like Wilson, Vidal regards federal taxes as confiscatory and the fuel by which an anti-American war machine is run. "Why," he asks in his 1972 essay "Homage to Daniel Shays," do we allow our governors to take so much of our money and spend it in ways that not only fail to benefit us but do great damage to others as we prosecute undeclared wars -- which even our brainwashed majority has come to see are a bad proposition because of the cost of maintaining a vast military machine, not to mention a permanent draft of young men (an Un-American activity if there ever was one) in what is supposed to be peacetime? Whether he knows it or not, the middle-income American is taxed as though he were living in a socialist society.

In 1951, most self-described "conservatives" would have nodded their heads in agreement with this observation. But that was before the "conservative movement" sacrificed hearth, home, peace, liberty, and tenderness on the block to wars without end and tanks with 501(c)(3) treads.

Vidal dislikes Wilson's clinical diaristic record of his sexual irruptions. "In literature, sexual revelation is a matter of tact and occasion," writes Vidal, who, contrary to the idiotic canard that he is a "gay writer," has written about his own sex life sparingly. He is impatient with those modern writers who, once they "could put sex into the novel, proceeded to leave out almost everything else." He is what he calls a same-sexer, though where sex intercrops with politics he is libertarian, demanding only that the state leave adults alone to pursue whatever consensual conjugations they please.

He disdains the hatchet, though no one levels the critical boom quite as crushingly, in a single sentence, as Gore Vidal. Of John Updike's memoir Self-Consciousness (1989): "Dental problems occupy many fascinating pages." Of Herman Wouk's The Caine Mutiny (1951): "from Queequeg to Queeg, or the decline of American narrative." Reviewing Donald Barthelme's Guilty Pleasures (1974): "This writer cannot stop making sentences. I have stopped reading a lot of them." (This is in the midst of a hilarious essay based on voluntary exposure to the academy-bound American metafictionists, who provide "the sense of suffocation one experiences reading so much bad writing.")

The inevitable Arthur Schlesinger, ineligible receiver in those Kennedy touch football games, is noticed and dismissed: "A Thousand Days is the best political novel since Coningsby." Unlike "Professor Pendulum," who fretted over the imperial presidency only when Richard Nixon darkened the White House, Vidal, as a good Anti-Federalist, views the president, whether Democrat or Republican, as "a dictator who can only be replaced either in the quadrennial election by a clone or through his own incompetency." Executive orders, executive agreements, executive privileges: he would scrap them all. He admires the Swiss cantonal system and would borrow from it to revive our torpid federalism. He favors national referenda, a pet cause of his grandfather, one of the first proponents of the war referendum that later took shape as the Ludlow Amendment. He would "stop all military aid to the Middle East," repeal "every prohibition against the sale and use of drugs," and "withdraw from NATO."

He is very much in the American libertarian vein, though his conviction that "monotheism is the greatest disaster ever to befall the human race" is unlikely to appeal to many conservative readers. He is a Bill of Rights stalwart, however, who takes the now wildly unfashionable view that kooks and outcasts have liberties, too. These include the Branch Davidians, who "were living peaceably in their own compound at Waco, Texas, until an FBI SWAT team ... killed eighty-two of them." As early as 1953 he spoke of "these last days before the sure if temporary victory of that authoritarian society which, thanks to science, now has every weapon with which to make even the most inspired lover of freedom conform to the official madness."

He patriotically detests the National Security State, which hijacked the country circa 1950 and has not given up the controls yet. In the late 1980s, Vidal called for a "neo-Clayite" candidate to campaign on internal improvements and avoidance of foreign quarrels. I wish he had run the race himself. But by 1992, three such men were running: Ross Perot, Jerry Brown, and Pat Buchanan, in the most interesting political year of the post-Republic era. Each, in his particular way, appealed to heirs and offshoots of the old Thomas P. Gore/Bob LaFollette/America First populist tradition. Vidal sensed a "potentially major constituency -- those who now believe that it was a mistake to have wasted, since 1950, most of the government's revenues on war." He scorned Buchanan's Catholic understanding of sexuality but conceded that "he is a reactionary in the good sense -- reacting against the empire in favor of the old Republic, which he mistakenly thinks was Christian."

Every now and again the reader is reminded that Vidal's bloodlines run south. He chides G. William Domhoff, who is "given to easy liberal epithets like 'Godforsaken Mississippi'" even though "except on the subject of race, the proud folk down there are populist to the core." So is Vidal. He is with Shays, with Bryan, with the America Firsters. He envisages an alliance of the "not-so-poor" and the poor and predicts that the "politician who can forge that alliance will find himself, at best, the maker of a new society; at worst, in a hole at Arlington."

While his subject has been America and the push-pull debate over its empire, Vidal rejects novels "which attempt to change statutes or moral attitudes" as "not literature at all" but arid propaganda. Thus he is capable of the greatest fictive rendering of Abraham Lincoln in all of American literature -- the novel Lincoln (1984) -- despite being largely out of sympathy with Lincoln's politics. For Vidal desires the president to be cut down to constitutional size, and Lincoln, he writes, "levied taxes and made war; took unappropriated money from the Treasury; suspended habeas corpus."

Yet Lincoln, that most confounding of presidents, was also thoughtful, wise, and an erstwhile critic of expansion. His old law partner Billy Herndon claimed that Abe never read a book straight through, but at least he did not make fun of book-writers. The contrast with the current war-maker in the White House reflects well on the 19th century, or poorly on us.

And so I must end with a lovely and poignant passage from Vidal's Howells essay. It is the kind of vignette that would appeal only to a man with a country:

"For some years I have been haunted by a story of Howells and that most civilized of all our presidents, James A. Garfield. In the early 1870s Howells and his father paid a visit to Garfield. As they sat on Garfield's veranda, young Howells began to talk about poetry and about the poets that he had met in Boston and New York. Suddenly, Garfield told him to stop. Then Garfield went to the edge of the veranda and shouted to his Ohio neighbors, 'Come over here! He's telling about Holmes, and Longfellow, and Lowell, and Whittier!' So the neighbors gathered around in the dusk; then Garfield said to Howells, 'Now go on.'"

Today we take it for granted that no living president will ever have heard the name of any living poet. This is not, necessarily, an unbearable loss. But it is unbearable to have lost those Ohio neighbors who actually read books of poetry and wanted to know about the poets.

Thus speaks Gore Vidal, American patriot.


Aleksandr Solzhenitsyn was one of the greatest and most courageous champions for freedom and against tyranny the world has ever seen. His exposés of the evil centrally run, Marxist inspired, system of the Soviet Union -- revealing it and other communist states to be grotesque dictatorships rather than humanity's savior -- came at great personal cost. His reward was that when he died, on August 3, he must have had the satisfaction of knowing he had fulfilled his purpose in this world.

Aleksandr Isayevich Solzhenitsyn, writer, Nobel Prize winner, and the most famous Soviet dissident died at the age of 89 on August 3, 2008 in his home near Moscow. He lived a long and hard life, but he died the way that he wanted to: "He wanted to die in the summer -- and he died in the summer," his wife Natalya said. "He wanted to die at home -- and he died at home. In general I should say that Aleksandr Isayevich lived a difficult but happy life."

His entire life was a victory over the most improbable. Aleksandr Solzhenitsyn was born on December 11, 1918 in Kislovodsk in Southern Russia, half a year after his father died in a hunting accident. He managed to get a Soviet university education despite the fact that his mother Taisiya came from one of the richest families of Southern Russia and his father Isaakiy was an officer in the tsar's army.

Aleksandr was raised by his mother in abject poverty as his earliest years coincided with war communism and its abolition of private property (making economic calculation impossible). What followed was mass starvation and destruction. His family was no exception -- their property was confiscated and later destroyed by central planners.

Solzhenitsyn stated in his autobiographical series of novels The Red Wheel that his mother was fighting for survival and they had to keep his father's background in the old Imperial Army a secret. Taisiya was well educated and openly encouraged her son's literary and scientific interests, while also secretly raising him in the Christian faith. He studied physics and mathematics at Rostov University before becoming a Soviet army officer after Hitler invaded Russia in 1941.

He was commissioned as a Soviet artillery officer during the Second World War despite the fact that he had previously been rejected due to poor health. A successful artillery captain, he was arrested by the secret police in 1945 for disrespectful remarks about Stalin in a letter to a friend.

Despite his 8-year sentence for hard labor (which was nearly a death sentence in Stalin's dreadful Gulag system), he managed to stay near Moscow in the government research facility for imprisoned scientists. Eventually he was transferred to the special Ekibastuz camp in Kazakhstan. In the Tashkent medical ward a malignant tumor was removed from his stomach in 1954, and he survived the tumor and the surgery against all odds.

After release from the Gulag in 1956, Solzhenitsyn returned to Central Russia, worked as a math teacher and began to write his powerful prose. "During all the years until 1961, not only was I convinced that I should never see a single line of mine in print in my lifetime, but, also, I scarcely dared allow any of my close acquaintances to read anything I had written because I feared that this would become known," he said in his autobiography. "Finally, at the age of 42, this secret authorship began to wear me down."

He published his first works, two novellas: One Day in the Life of Ivan Denisovich, and Matryona's House in a literary journal Novyi Mir (New World) in 1962 with explicit approval by Nikita Khrushchev. These were the only publications of Solzhenitsyn in his own country until 1990.

In 1970, after publishing several works in the West, including the novel Cancer Ward -- a fictional piece based on Solzhenitsyn's own treatment at the Tashkent cancer ward -- he was awarded, while in exile, the Nobel Prize in literature. Solzhenitsyn did not attend the ceremony in Stockholm, Sweden for fear that he would not be allowed to reenter the USSR.

Three years later, his Gulag Archipelago was published in France. Immediately after this publication he was accused of treason, stripped of his citizenship, and deported to Germany. He wrote sarcastically: "For a country to have a great writer ... is like having another government. That's why no régime has ever loved great writers, only minor ones."

He accepted an invitation to teach at Stanford University, and then moved to Cavendish, Vermont, where he lived with his family for years.

In 1990, his citizenship was restored by Gorbachev, and he returned to Russia in 1994 and actively participated in the reform process. He crossed the country that had already ceased to be the Soviet Union, from the East to the West, acquiring "a collection of cries and tears."

"It is history's sorrow," Solzhenitsyn wrote afterwards, "the grief of our era, which I carry about me like an anathema."

We will remember Solzhenitsyn as an unyielding champion of freedom who dedicated himself to revealing the horrors of socialism and exposing the ultimate evil of Lenin, Stalin, and their cohort of mass murderers. Once a prisoner of brutal labor camps himself, Solzhenitsyn chronicled the horrors of the Soviet Gulag system and emerged as a one of Russia's greatest writers. He became a moral and spiritual leader who exposed and condemned the nefarious nature of the socialist ideology that served as the basis for the monstrous communist slave camps established from Siberia to Ethiopia, Cuba to Vietnam, China, and Yugoslavia. He riveted socialists of all countries whose secret ghastly history he exposed.

"For us in Russia, communism is a dead dog, while, for many people in the West, it is still a living lion", wrote Solzhenitsyn while in his exile in the West.

In the West, he liked the Swiss model of local government and spoke highly of his experiences living in Vermont. Before leaving for Russia in 1994, Solzhenitsyn spoke to his neighbors in a Cavendish town meeting and thanked the town for its hospitality and for respecting his privacy. He thought of the town-meeting type of self-government as the most suitable for Russia. He did not, however, make a god of democracy. He admired great Russian reformer Pyotr Stolypin with his strong promarket and antisocialist stand as the prime minister of the Russian Empire (1906-1911).

Solzhenitsyn believed in the individual rather than the group, party, or state. He wrote in The Gulag Archipelago, "that the line separating good and evil passes not through states, nor between classes, nor between political parties either -- but through all human hearts."

Solzhenitsyn had enough courage to equate socialism and Nazism as equally evil and morally reprehensible. He condemned both Nazi and Soviet atrocities during the Second World War and he accused his fellow countrymen of masterminding their own shipwreck.

According to Solzhenitsyn, 61,000,000 people were slaughtered in the USSR in the quest for equality. Under Stalin alone, 43,000,000 were murdered. Lenin and Khrushchev are responsible for the other 18,000,000. Most of these deaths (39,000,000) were due to forced labor in gulags and during deportations.

His writings earned him over 20 years of prison, exile, and world-wide renown, making him the most prominent dissident of the Soviet era and a symbol of intellectual resistance to communist rule. But he is also one of the most maligned and defamed writers of the 20th century. He has been the victim of character assassination and willful distortions from almost every quarter.

He published his final original work in June 2001 with "200 Years Together: 1775-1995," about the history of Jews in Russia. Solzhenitsyn spent his last years in failing health and seclusion at his rural home in Troitse-Lykovo near Moscow, editing his 30-volume collected works. He predicted that he would not be able to complete the work, which will "continue after my death."


Conductor Daniel Barenboim talks about pain, politics and the healing power of music.

Daniel Barenboim conducts the West-Eastern Divan Orchestra, which consists of young musicians from both Israel and the Arab world. His new book is called Everything is Connected. His story shows us how politics, confrontation, and riteousness will never solve conflicts. Only coming together as people and discovering a mutual interest in resolving the conflict will. Politics is inherently divisive, relying as it does on imposed force, and at best can only generate a tenuous compromise. If either side perceives the outcome as unjust -- highly likely -- the armistice will not last.

Whether you believe me or not, it doesn't matter," says Daniel Barenboim. "But every day, I wake up and feel pain about the situation in the Middle East. Every day."

I do believe him, as a matter of fact. From the moment we meet, just after breakfast in a hotel in Salzburg, I have been trying to figure out exactly what it is about his appearance that seems so incongruous, and now it comes to me: Despite his brio and bustling energy, the conductor has incredibly sad eyes. Encircled by dark rings, they are bloodshot, heavy-lidded and almost black. If they are a window to his soul, then his soul must be deeply troubled.

"I can't stand injustice," he says, simply. "Every day it brings suffering, both to Palestinians and Israelis."

This concern for justice has made Barenboim a hero, both in the Middle East and around the globe. A star since the age of seven, when he gave his first concert performance, the Buenos Aires-born pianist and musical director has become something of a living saint (if you can describe a Jew that way) thanks to his West-Eastern Divan Orchestra, a group of young musicians from both Israel and the Arab world.

This year, the orchestra ... includes musicians from Israel, the West Bank, Syria, Lebanon, Egypt, Jordan, Turkey and even Iran. "When you consider the political situation at the moment between Israel and Iran, then I think that's pretty extraordinary," Barenboim says with pride.

It was his sincere belief in the healing power of music that inspired Barenboim and his co-founder, the late Palestinian activist and intellectual Edward Said, to set up the "Peace Orchestra" in 1999. Two years ago, Barenboim was invited by the BBC to give the prestigious Reith Lectures on this same topic. Now he has followed that with a book, Everything Is Connected, published this week, in which he explains why music can be a force for harmony and change.

"There is a lot one learns from music," he says. "When you play music you have to express yourself but, simultaneously, you have to listen to what the others are playing. Just think what a lesson that is for life; how our life would be and how our politicians would be if they could think like this. That is why every child should have a musical education." ...

So does peace reign among the 100 or so members of the Divan Orchestra? "Look, there are some that don't mix very much with each other and there are some that have become firm friends."

There have even been love affairs between Israeli and Arab players. "Of course. Outside the music, they have disagreements, normally about the conflict, but there is a degree of respect and even affection from having a shared musical experience." All of which demonstrates, says Barenboim, what can be achieved when the people of the Middle East meet as equals, with the same rights and responsibilities.

A highlight came in 2005 when Barenboim took his young charges to perform in the West Bank town of Ramallah. The concert was a historic occasion but, as he reveals in his book, it only took place after tortuous diplomatic negotiations.

The Israelis were forbidden by law to venture into Palestinian territory and the Syrians and Lebanese were not allowed, by the laws of their respective countries, to travel through Israeli land, which they had to do in order to reach Ramallah. That Barenboim overcame these obstacles is testimony to his astonishing ambition and sheer force of personality. He is tipped by many as a future recipient of the Nobel Peace Prize.

"Doing the impossible has always attracted me more than simply doing the difficult," he says, emphatically. "When you attempt the impossible, failure is what is expected, so whatever you do to avoid that is already a positive result."

Nevertheless, aged 65 and still much in demand as both pianist and conductor -- he is "Chief Conductor for Life" at the Berlin State Opera, and also conducts at La Scala in Milan -- he would be perfectly within his rights to scale down his commitments and spend some of the millions he's earned during a glittering career. There is certainly no need for him to swim in the shark-infested waters of Middle Eastern politics. Barenboim looks at me aghast, as if I have blown a trombone in the middle of a violin solo.

"I am not involved in Middle East politics at all," he says with feeling. "I'm not active in politics. I do what I do because I believe very deeply that the Israeli-Palestinian conflict is not a political conflict. A political conflict is between two nations on the question of petrol, oil, water, gas or borders, and therefore can be solved through either diplomatic or military means. But what we have here, in our conflict, is a human conflict of two peoples who are deeply and fervently convinced that they have the right to live on the same piece of land. It cannot be solved by diplomacy or military power. It can only be solved by the appliance of human standards of justice based on our common interests."

Barenboim is sitting opposite me in a half-lit alcove of the hotel bar, and as he makes this speech, he leans on the table with his elbows, his hands gesticulating wildly, his neck protruding from his black T-shirt, and his face eight inches away from my nose. With his T-shirt almost blending into the dark background, he looks like some demented, disembodied figure, poking through a black curtain.

He has a pathological inability to bite his tongue. He has described Israel's occupation of the West Bank and Gaza as "immoral", and he is a noisy supporter of Palestinian rights. His criticism of Israel, where he was raised by his Argentinian parents in the '50s, has made him many enemies. He has been called a "real Jew hater, a real anti-Semite" by an Israeli minister.

A few years ago, the Israeli President accused him of "cultural rape" for playing Wagner during a concert -- the composer was a rabid anti-Semite and his music is frowned upon in Israel. Earlier this year, the Maestro provoked further right-wing protests by becoming the first Israeli to accept honorary Palestinian citizenship.

Daniel Barenboim has been famous in Britain since the late '60s, when he married the brilliant and beautiful English cellist Jacqueline du Pré. Together, the couple toured the world, shaking up the classical scene with their precocious talent. Then, in 1973, du Pré was diagnosed with multiple sclerosis, and in the last few years before her death in 1987, Barenboim began an affair with his now second wife, Elena.

Hilary and Jackie, a 1998 film about du Pré and her relationship with her sister, suggested that Barenboim abandoned the cellist once he met Elena, an accusation he refutes. "Jacqueline was probably the most talented musician I ever came across," he says softly. "As a cellist she set the highest possible standards. Ever since, I have demanded more from the musicians I conduct -- more colors, more imagination -- because, in Jackie, I saw what can be achieved."

He blinks at me. All the fiery rhetoric he employs on the subject of the Middle East has gone. Once again I am struck by the overwhelming sadness in his eyes.


The author was recently stopped by Homeland Security as she was returning from a trip to Syria. What she saw in the hours that followed shocked and disturbed her.

A U.S. citizen was returning to the U.S. after a short visit to Syria. She was detained for further interogation and investigation by Homeland Security. What she experienced is representative of the police state that the U.S. now is.

I arrived at JFK Airport two weeks ago after a short vacation to Syria and presented my American passport for reentry to the United States. After 28 hours of traveling, I had settled into a hazy awareness that this was the last, most familiar leg of a long journey. I exchanged friendly words with the Homeland Security official who was recording my name in his computer. He scrolled through my passport, and when his thumb rested on my Syrian visa, he paused. Jerking toward the door of his glass-enclosed booth, he slid my passport into a dingy green plastic folder and walked down the hallway, motioning for me to follow with a flick of his wrist. Where was he taking me, I asked him. "You'll find out," he said.

We got to an enclosed holding area in the arrivals section of the airport. He shoved the folder into my hand and gestured toward four sets of Homeland Security guards sitting at large desks. Attached to each desk were metal poles capped with red, white and blue siren lights. I approached two guards carrying weapons and wearing uniforms similar to New York City police officers, but they shook their heads, laughed and said, "Over there," pointing in the direction of four overflowing holding pens. I approached different desks until I found an official who nodded and shoved my green folder in a crowded metal file holder. When I asked him why I was there, he glared at me, took a sip from his water bottle, bit into a sandwich, and began to dig between his molars with his forefinger. I found a seat next to a man who looked about my age -- in his late 20s -- and waited.

Omar (not his real name) finished his 5th year in biomedical engineering at City College in June. He had just arrived from Beirut, where he visited his family and was waiting to go home to the apartment he shared with his brother in Harlem. Despite his near-perfect English and designer jeans, Omar looked scared. He rubbed his hands and rocked softly in his seat. He had been waiting for hours already, and, as he pointed out, a number of people -- some sick, elderly, pregnant or holding sobbing babies -- had too. There were approximately 70 people detained in our cordoned-off section: All were Arab (with the exception of me and the friend I traveled with), and almost all had arrived from Dubai, Amman or Damascus. Many were U.S. citizens.

We were in the front row, sitting a few feet from two guards' desks. They sneered at each bewildered arrival, told jokes in whispers, swiveled in their office chairs and greeted passing guards who stopped to talk -- guards who had a habit of looping their fingers into their holsters. One asked his friend how many nationalities were represented in the room. "About 20. Some of everything today."

No one who had been detained knew precisely why they were there. A few people were led into private rooms. Others were questioned out in the open at desks a few feet from the crowd and then allowed to pass through customs. Some were sent to another section of the holding area with large computer screens and cameras, and then brought back. The uninformed consensus among the detainees was that some people would be fingerprinted, have their irises scanned and be sent back to the countries from which they had disembarked, regardless of citizenship status. Others would be fingerprinted and allowed to stay. And the unlucky ones would be detained indefinitely and moved to a more permanent facility.

There was one British tourist in the group. Paul (also not his real name) was traveling with three friends who had passed through customs soon after their plane landed and were waiting for him on the other side of the metal barrier. He suspected he had been detained because of his dark skin. When he asked if he could go to the bathroom, one of the guards said, "I wouldn't." "What if someone has to?" I asked. "They will just have to hold it," the guard responded with a smile. Paul began to cry. I watched as he, over the course of four hours, went from feeling exuberant about his trip to New York to despising the entire country. "I speak the Queen's English," he said to me. "I am 3rd-generation British. I came to America because I have always wanted to come here, and now they have got me so scared that all I want to do is go home. We are paying for your stupid war anyway."

To be powerless and mocked at the same time makes one feel ashamed, which leads quickly to rage. Within a few hours of my arrival, I saw at least 10 people denied the right to use the bathroom or buy food and water. I watched my traveling companion duck under a barrier, run to the bathroom and slip back into the holding section -- which, of course, someone of another ethnicity in a state of panic would be very reluctant to do. The United States is good at naming enemies, but apparently we are even better at making them, especially of individuals. I don't know if it is worse for national security -- and more embarrassing for Americans -- that this is the first experience tourists have of our country, or that some U.S. citizens get treated this way upon entering their own country.


It is always humorous to see political partisians correctly diagnose the inefficiency and corruption of the U.S. federal government and then procede to blame the other party or, even better, privatization or other allegedly "market" reform attempts. Here LewRockwell.com's Robert Higgs does a nice evisceration job on writer Thomas Frank's analysis of Washington and the Republications. Not that Frank does not have some good observations. It is just that his analyis of causes is a bit lacking.

In a touchingly partisan recent essay titled "Follow This Dime," progressive writer Thomas Frank indicts the federal government under Bush for its having cordially invited and lavishly rewarded corruption by conservative wheeler-dealers: "The ruination they have wrought has been thorough; it has been a professional job." I have no quarrel with Frank's characterization of the present federal government and its corporate cronies as utterly, shamelessly corrupt.

Yet, the touching part is the naïveté of Frank's interpretation and the conclusions he draws from his observations. In perfect progressive pitch, he sings: "We behold the majestic workings of the free market itself, boring ever deeper into the tissues of the state." What he has identified, however, is not the free market, but the very antithesis of the free market. It is classic economic fascism.

Because he has misdiagnosed the illness, he naturally prescribes a remedy that not only will fail to effect a cure, but will only cause the pathogen to penetrate more deeply into the state's tissues. Having railed against the "ruination they [the conservative politicos and their corporate co-conspirators] have wrought," he declares: "Repairing it will require years of political action." Fancy that: politicians are manifestly corrupt; bring on more politicians to fix this mess.

Frank actually seems to buy into the quaint notion that once upon a time -- before the present conservative ascendancy -- government more or less "served the people" in the style touted by old-fashioned civics books such as the one he cites in his article. He fails to appreciate that the federal government has been corrupt from time immemorial. Corruption is its raison d'être. Its very creation was the product of a corrupt counterrevolution mounted by men who sought to shackle the country with a stronger national government -- the better to steer more booty to themselves and their political supporters. After the conspirators unlocked the doors and opened the windows in Philadelphia, the ratification process in the states was not exactly squeaky clean, either.

The main difference between the federal government now and the federal government in the Good Old Days is that the present state is vastly larger in size, scope, and power, and therefore it possesses a great deal more to be corrupt with. As readers with farm backgrounds will appreciate, huge heaps of fresh dung attract enormous swarms of flies. I present you, ladies and gentlemen, with -- voilà -- Washington, D.C.

One of Frank's observations, however, does resonate strongly with me. In remarking on corruption's pervasiveness in the capital city, he notes: "The truth slaps your face in every hotel lobby in town." I am especially struck by this remark because for many years I have been posing a challenge to those who raise questions about what they take to be my "conspiracy theories" of how Washington works. My reply has long been: get thyself to any big Washington hotel early in the morning of a weekday; sit down in the dining room and order a big breakfast; and, then, for the next several hours, listen carefully to the conservations taking place at the surrounding tables. I maintain that in a large number of cases these conversations will present every sign of being de facto conspiracies by special-interest representatives, their lobbyists, and their co-conspirators against the public interest. That is to say, in many instances, these diners will turn out to be aspiring thieves who are plotting how best to bore into the Treasury and make off with boatloads of the taxpayers' money.

"Someone once said, I'm not interested in conspiracy theories, I am interested in conspiracy facts. I concur.

"As for corruption, what is the capital city of a globe-girdling empire for if not for rampant corruption. Notice further that the same city serves as the headquarters of a sprawling welfare/therapeutic/nanny/police state on the domestic front, and the possibilities are limitless. If people were interested in behaving decently, they would never have constructed this monstrosity of a government in the first place, so we can scarcely pretend to be shocked when presented with evidence that sex acts are being committed in the whorehouse.


Let us consult Ludwig Wittgenstein on the matter.

Sheldon Richman, editor of The Future of Freedom Foundation's The Freeman, injects a very reasonable question into the Constitutional debates: Is there anything in the document and the ratification debates which actually states that its intention was to limit the extent of government? After all, it was heavily promoted by parties who thought there was not enough government.

There is no shortcut to a free society. I find myself repeating this because looking for shortcuts is tempting, and thinking is easily overtaken by wishful thinking.

A shortcut favored by most advocates of limited government is "restoration" of the Constitution. "If only we could get back to the Constitution as it was written," people say. It is a sincere wish, but as a path to a free society, it is riddled with potholes. Not that I do not want the Constitution interpreted in the most restrictive way in order to prevent violations of liberty. Of course I do. The problem is how we can get there from here. Many advocates of liberty have thought they just had to appeal to the "original meaning" of the Constitution and things would more or less take care of themselves. But if that were so, why are we in the mess we are in now? I presume that earlier generations interpreted the Constitution in a way more to the liking of today's constitutionalists. What happened? Since that time, the Constitution has never been suspended; the government was not replaced by a non-constitutional regime. The formal Constitution has been in force continuously since 1789. Everything that happened was justified constitutionally.

So Lysander Spooner was right: the Constitution "has either authorized such a government as we have had, or has been powerless to prevent it." The "parchment barrier" against power (James Madison's term for the Bill of Rights) was not much of a barrier.

This suggests that understanding the Constitution -- and constitutional government itself -- is not the straightforward project it is made out to be. The reason is not hard to discern. Controversies over the meaning of rules -- especially rules about justice, freedom, and force, which must be applied in unforeseeable circumstances -- are inevitable. Constitutions do not speak for or interpret themselves. People interpret them. There is no way to avoid moral and political discourse. And there is always the chance that someone else's interpretation will prevail. What then?

The Constitution, let us not forget, was the product of compromise, crafted so as to be acceptable both to Federalists, those who wanted a strong central government, and Antifederalists, those who wanted a weak central government, such as the one under the first constitution, the Articles of Confederation. (Yes, the labels should have been reversed.) The proof is that Alexander Hamilton and Thomas Jefferson, whose political philosophies could hardly have been more different, could both look on the Constitution with favor. As historian Merrill Jensen wrote:
Once it was adopted Thomas Jefferson and Alexander Hamilton, with two opposed ideas of what the United States should be, laid down two classic and contradictory opinions of the nature of the Constitution. The two basic interpretations may be simply stated. Jefferson held that the central government was sharply limited by the letter of the Constitution; that in effect the states retained their sovereign powers except where they were specifically delegated. Hamilton argued in effect that the central government was a national government which could not be restrained by a strict interpretation of the Constitution or by ideas of state sovereignty.
Appeal to the Framers

Can we not resolve the differences over meaning by appealing to the writings of the framers, such as the Federalist Papers or James Madison's letters and notes on the Constitutional Convention? We can try. But where does that get us? Anything the framers said or wrote about the Constitution was necessarily expressed in language -- which inevitably will be subject to the same controversies regarding its application as the Constitution itself. The problem is merely moved back a step. Instead of arguing about the Constitution, we would be arguing about what Madison, Hamilton, and John Jay wrote about the Constitution. But if a given interpretation of a constitutional clause is controversial, would the framers' statements about the clause not be controversial also? How do we resolve any controversy? By resort to other statements? The process would have no end.

As Ludwig Wittgenstein noted, "[A]ny interpretation still hangs in the air along with what it interprets, and cannot give it any support. Interpretations by themselves do not determine meaning." (Roderick Long elaborates on this point here.)

Take the pesky General Welfare Clause. The term general welfare appears in the preamble to the Constitution as well as in Clause 1 of Article I, Section 8, which sets out the powers of Congress. Contrary to what many constitutionalists believe, the clause looks like a general grant of power: "Congress shall have the Power To lay and collect Taxes, Duties, Imposts and Excises, to ... provide for the common Defense and general Welfare of the United States. ..." (Emphasis added.) Following Clause 1 are 17 more clauses, each beginning with the capitalized word To like the one above. This suggests that all 18 clauses are coequal, independent items in a list. Clause 1, then, does not look like a preamble introducing an exhaustive list of 17 powers. (For more on this see my "The Constitution or Liberty.")

Madison rejected this interpretation, which had been voiced by the Antifederalists. In Federalist 41 he writes,
It has been urged and echoed, that the power "to lay and collect taxes, duties, imposts, and excises, to pay the debts, and provide for the common defense and general welfare of the United States," amounts to an unlimited commission to exercise every power which may be alleged to be necessary for the common defense or general welfare. No stronger proof could be given of the distress under which these writers labor for objections, than their stooping to such a misconstruction.

Had no other enumeration or definition of the powers of the Congress been found in the Constitution, than the general expressions just cited, the authors of the objection might have had some color for it; though it would have been difficult to find a reason for so awkward a form of describing an authority to legislate in all possible cases. ...

But what color can the objection have, when a specification of the objects alluded to by these general terms immediately follows, and is not even separated by a longer pause than a semicolon?
Does this dispose of the matter? Hardly. First, the Constitution does not direct us to consult Madison for definitive interpretations of possibly vague clauses. (Must we also find out what Hamilton thought?) In the Federalist Madison was selling the Constitution to a partly skeptical population. It is plausible that the Federalists who dominated the state ratifying conventions were aware of this and did not take Madison's pitch seriously. At any rate, we cannot know what was in their minds when they voted aye. We only know what language they assented to.

Second, the construction of Article I, Section 8, is, alas, patently inconsistent with Madison's interpretation. (I am reminded of Groucho Marx's line, "Who are you going to believe, me or your own eyes?") Madison's point about the semicolon is ironic, since it supports my interpretation not his. Madison's case would have been stronger if the punctuation mark were a colon, since that is how we introduce lists.

At any rate, Madison wrote in another context, "For myself, I am aware that the document [in this case, a presidential veto message] must speak for itself, and that . . . [the author's] intention cannot be substituted for [the intention derived through] the established rules of interpretation." (Quoted in "James Madison's Theory of Constitutional Interpretation" by F. Jefferson Powell. Documents, of course, do not really speak for themselves.)

Appeal to the Preamble

Some might say that we must judge Article I, Section 8, by the entire Constitution and specifically the purposes enumerated in the Preamble. Fine. Here is the Preamble:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
Conspicuously missing from this list of purposes is: to constrain the powers of government. How did we overlook this? One comeback is that restraining government is implicit in the references to justice and liberty. In my view, justice and liberty certainly require limitations on the power to inflict violence. But there are other notions of justice and liberty. Advocates of expansive government power also see themselves as champions of justice and liberty. How do we know that the language in the Constitution does not mirror these competing notions? There was a good deal of government intervention in the states back then.

We could answer that question by pointing to the Declaration of Independence, which embraces the rights to life, liberty, and the pursuit of happiness. But does that really get us out of the woods? Someone who believes the Preamble authorizes the welfare state will similarly believe the rights to life, liberty, and the pursuit of happiness entail the welfare state. But even if the Declaration resists that interpretation, we must note, as Jensen did, that "the founding fathers who wrote the Constitution of 1787 were quite a different set of men from those who signed the Declaration of Independence in 1776."

My message is not one of despair. But we will not cause the freedom philosophy to prevail merely by invoking a political document written by men who thought the main problem with America was too little, not too much, government (PDF). Rather, we must cut to the chase and convince people directly that our concepts of freedom and justice best accord with logic -- and their own deepest moral sense.

To be continued.


Even though economics, the study of how people deal with the constraint of scarcity, may govern many global aspects of life, our actual experience of life largely derives from the quality of our interactions with other people. For the small businessperson this opens a strategy about how to compete with the big boys: Make the experience of dealing with your business a pleasure for your customers and your employees.

Wal-Mart has you beat on price, Whole Foods on selection and Starbucks on ... well, sheer force of habit at this point. A small fry's best weapon: customer service. Here are some seemingly small, yet essential tips for keeping customers coming back for more.

Know How To Apologize

The customer may not always be right, but the customer must always win. When something goes wrong, apologize. It is easy; customers get a sense of satisfaction; and you might get some valuable feedback -- or perhaps even a chance to sell more stuff.

Steve Jobs gets it: Just two months after the release of the iPhone, the Apple chief decided to drop the price by $200. In an e-mail sent to all early adopters, Jobs contritely offered a $100 in-store credit for their loyalty -- just in time for them to blow it on the newly released iPod Nano. Brilliant.

A Customer By Any Other Name Is Not Your Customer

Addressing customers by name is so easy and powerful it is a wonder (and a shame) it does not happen more often. Remembering perhaps hundreds of names is no mean feat, but there are plenty of tricks.

The first is simply to introduce yourself. Some customers will respond in kind. Credit cards are a dead give-away, so look before you swipe. Yet a third method: Ask customers to sign up for a mailing list; that way they have to give you their names.

Empower Your Employees

You cannot be everywhere at once, so give your employees the freedom to do whatever it takes to help customers the moment they need it.

Such is the philosophy of David Acker, CEO of Canton Potsdam Hospital in Canton, New York. During an address at a recent leadership retreat, Acker gave his 50 senior staffers the permission to make tough calls on the spot. What happens if a doctor embarrasses a nurse in front of patients? Or if a parent asks a nurse about the status of a child, but the doctor, who by protocol should field those questions, is busy with other critical patients? Says Acker: "I encourage you to let your heart make the next move."

Putting that kind of trust in people takes courage. Mistakes will get made. But trust is empowering too, and your best lieutenants will respond. Acker is certainly a believer: A recent independent audit pegged patient satisfaction at 94% -- up roughly 20 percentage points from a few years ago.

Follow Up

A big difference between decent and great service is all about what happens after customers leave your store. Do not just nod your head when someone makes a request or a suggestion. Show them that you heard it, even if your hunt yielded squat.

Last Christmas, my 10-year-old daughter had to have that Nike Bauer goalie stick. Sadly, our local sporting goods store in Potsdam, New York was out of stock and would not be getting a new shipment until well into the New Year, so my daughter settled for a new pair of skates instead.

To my surprise, the store owner called several weeks later to tell me the goalie stick was available and asked if I wanted to tag it onto our next order and save a few bucks using the pre-order discount. You bet I did -- not because my daughter needed the stick, but because the follow-up was top-notch.

The Answer Is Always “Yes” (Even If It Might Be “No”)

Bottom line: People want hassle-free solutions to their problems, so make doing business with you as easy as possible. If someone has an oddball request, say you will handle it and deal with the details later on. If you simply cannot meet the need, help find another solution -- even if it means steering someone to a competitor. Customers will thank you for it.