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

W.I.L. Offshore News Digest for Week of November 10, 2008

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


The pain will take the form of both taxation and broken promises.

Everyone "knows" the U.S. federal budget is out of control. Inevitably taxes will go up, spending will go down, including retiree and medical care recipient benefits. Politicians like to pretend otherwise, especially when they are on the campaign trail, but the numbers do not add up any other way.

Forbes takes a look at what this will actually look like at ground level. This useful thought-piece contains advice for middle and upper income earners. Yes, things will change but how? Read on.

If you make more than $250,000 you are perhaps fretting about how much the bailout and the fiscal stimulus will cost and how much you will pay for them. Tune out these dark thoughts. There is something much bigger to think about: The rising cost of government over the next 15 years. This should be on the minds not just of the upper class, who already pay half of the income tax, but of the vast middle class. If we define the larger group as those in families with incomes between $25,000 and $250,000, we are talking about 3/4 of the country. The government is destined to extract a pound of flesh from the middle class because this is where the money is. There simply are not enough millionaires around to pay for everything. The pain will take the form of both taxation and broken promises.

Here is what sober budget analysts (from both parties) see when they focus on 2020 and beyond: The well-off will pay higher federal taxes, for sure. But ordinary folks will pay more, too. They will pay as tax burdens diffuse into the costs of things they buy. They will likely pay more for fuel and electricity, as the costs of carbon permits and renewable-fuels mandates get built in. They may be asked to pay a European-style value-added tax. And they will pay on the other side of the ledger: Their retirement benefits will get clipped.

The federal government will get bigger, but not big enough to keep all the promises Washington has made. So the normal age to receive Social Security retirement benefits, already rising in steps to 67 for those born in 1960 or later, will increase further, perhaps to 69. High earners will pay more in and get less back in retirement. Call it a "tax" or call it "means testing" -- it is government, and it will make you poorer.

Meanwhile, the need to contain Medicare costs and to cover the uninsured will also result in the better-off paying more, either through taxes, insurance premiums or both. "Whether we call it premiums or whether we call it taxes, it is going to be income related," says John Rother, executive vice president of policy and strategy for the AARP, the 40-million-member old folks' lobby.

You may be thinking: This is politically impossible! When Congress tried to raise Medicare premiums in 1989, did a gang of old people not chase Congressman Dan Rostenkowski in Chicago? And force a repeal?

Look again at legislative history. In 2003 a House-Senate conference committee negotiating the expansion of Medicare to cover prescription drugs slipped in a provision mandating income-related Medicare premiums. In 2009, when those premiums are fully phased in, the wealthiest seniors will be charged $7,400 a year per couple for the same outpatient and doctor-visit coverage other seniors will get for just $2,310.

These changes are not dependent on the results of the election or the final tab for the financial markets mess, although both will affect how this all plays out. Instead, the grim predictions are driven by the aging of the baby boomers, the relentless growth in health care costs and decisions politicians have made -- or shirked -- over decades.

During the last 50 years federal government revenues have averaged 18% of U.S. GDP. But if the growth in health care costs is not slowed, and Congress does not renege on its promises, by 2050 the federal government's costs for the Big Three entitlement programs -- Medicare, Medicaid and Social Security -- will exceed 18% of GDP, leaving nothing for defense, homeland security or anything else (including paying interest on the federal debt). Either taxes go up, or benefits get taken away, or both.

"What is unique at this point, relative to all the nation's history, is that the long-term budget is in permanent imbalance," says economist C. Eugene Steuerle, a Ford, Carter and Reagan Administration Treasury official who is now vice president of billionaire Peter G. Peterson's new anti-deficit foundation.

As of mid-October the federal debt stood at $10.5 trillion, with $6.2 trillion of that held by public investors here and abroad. (The rest is mostly the U.S. Treasury owing money to another federal agency or fund, like the Social Security Trust Fund.) Alarming, to be sure. But not compared with the estimated $41 trillion net present cost of unfunded Medicare and Social Security benefits -- that is, benefits in excess of the revenues that under present law will be available to pay them.

When will the politicians get serious about fixing this? Hard to say. The financial crisis might give them an excuse for further delay, making the necessary tax hikes and benefit cuts, when they do come, even more brutal. "It is like saving for retirement. The earlier you do it, the less you have to put away each year," says Clint Stretch, managing principal of tax policy at Deloitte Tax.

On the other hand, the government's new guarantees for trillions in private debt and a trillion-dollar federal deficit for fiscal 2009 could both hasten the day of reckoning -- if foreigners who have been buying up most new Treasury debt become concerned about the U.S. government's long-term fiscal prospects and put their money elsewhere.

The resulting federal debt crisis might force tough political choices that seem unthinkable today. "People will do on day two of a crisis things they would never do on day one," observes Mark Weinberger, who was the Treasury's top tax official when the Bush tax cuts went through and is now global vice chairman of tax at Ernst & Young. "Who would have thought a Republican Administration would nationalize Fannie Mae and Freddie Mac?"


With the 2001 and 2003 tax cuts expiring at the end of 2010, Democrats, including Senator Barack Obama, are itching to push marginal income tax rates for couples earning $250,000 or more back up to their level at the end of the Clinton Administration; the current 33% and 35% ordinary income tax rates would revert to 36% and 39.6%, while the current top 15% capital gains rate would go to 20%. Two sneaky provisions -- one limiting itemized deductions for the better-off and the other denying them personal exemptions -- would also make a comeback, pushing the true top rate to 40.8%.

Yet politicians of all stripes are vowing to preserve the tax cuts for the middle class and add to them, too. Already, 38% of households pay no income tax (or get a net cash transfusion from the earned income tax credit). Obama's proposals would increase the no-pay share to 48%, while transferring an additional $650 billion over 10 years to families who do not owe income taxes, through new or expanded "refundable" credits for such items as child care costs, college, mortgage payments and retirement savings, the Urban-Brookings Tax Policy Center estimates. That is a giveaway of 80% of what Obama would save by raising taxes on the wealthy.

A Democratic Congress will try to wring more from those at the top in other ways. Say, by attacking "loopholes" and tax evasion. A new analysis of IRS data shows that those earning $200,000 to $1 million underreport their taxable incomes by an average of 20%, compared with 8% underreporting by those earning $50,000 to $100,000.

But the country cannot pay its growing bills simply by squeezing the rich. There are not enough of them, and the pressures of world competition will stop marginal rates from going back over 50%, let alone to the 70% in place before President Ronald Reagan took office, Weinberger says. Nor can the politicians shift the load to the corporate income tax. Our 35% federal corporate income tax rate is already the second highest among the developed nations.

"Internationalization puts constraints on what you can do with tax policy that have not always been there. That is most obvious with corporate income tax, but with individual taxes, too," says MIT economics professor James Poterba, president of the National Bureau of Economic Research and a member of a tax commission President George W. Bush created and then ignored.

So the pols are in a box. They have gotten a huge chunk of the electorate accustomed to paying little or no income tax. But they need to raise money from middle-class folks to pay benefits to the middle class, as well as to the less well-off. That is where some sort of consumption tax would come in -- on carbon or, more likely, on everything. The U.S. is the only industrialized country without a VAT -- essentially a sales tax, applied at each level of production to value added at that level. Economists generally agree that the tax (even though invented by the French) is less destructive to economic growth than higher personal or corporate income taxes or higher payroll taxes.

"A VAT has got to happen. We are at a point where the traditional money-raising options are not going to work," says Yale law professor Michael J. Graetz, who was a Treasury official during the Administration of President George H.W. Bush and has been pushing a plan to use proceeds from a VAT to reduce corporate income taxes and exempt families earning less than $100,000 from the income tax. A VAT encourages personal savings, which the U.S. needs more of. Plus, it forces retirees to help pay for their government benefits. Says Graetz: "You tax the elderly and you tax the coupon clippers. But no politician is going to say that out loud."

To be sure, a VAT faces tremendous hurdles. Two decades ago economist Lawrence H. Summers, who later became President Clinton's Treasury Secretary and is now an Obama adviser, famously observed that the U.S. had not adopted a VAT because "liberals think it's regressive and conservatives think it's a money machine." The country might get a VAT, he went on, when liberals realized it was a money machine and conservatives figured out it was regressive.

Now liberals are coming to the view that a VAT would not be regressive (that is, hard on the poor) if the proceeds were used to fund universal health care. Last year Summers and Jason Furman, now director of economic policy for the Obama campaign, made exactly that point in a "strategy paper" called "Achieving Progressive Tax Reform in an Increasingly Global Economy."

Given all that, what should you do? Those who are now in and likely to remain in the top income brackets should plan for higher tax rates -- and think hard before they defer income. "It is misleading to talk to people about the benefits of deferral without explaining they are deferring into a black hole," says Robert Gordon, president of Twenty-First Securities. But, Gordon adds, do not rush to sell stock because you think the capital gains rate is going up. If a gains tax hike is in the offing, you will have time to sell. No gains increase has ever been made retroactive -- Congress has an incentive to give you notice, since the extra selling in advance of a rate increase gooses revenues.

If you are well paid, but not rich, you might be wise to opt for a traditional 401(k) -- which comes out of pretax dollars -- over a Roth 401(k) (aftertax dollars). Roths make sense for people who expect their tax rates to be higher in retirement or want to leave their account to their children. Middle-class and upper-middle-class savers who will need to use the money themselves and expect to be taxed at lower rates in retirement -- plausible if they are moving from California to Nevada -- are usually better off with a pretax retirement account.

Social Security

By 2041 the government will be able to pay only 3/4 of promised benefits with the current Social Security tax, which is 12.4% of the first $106,800 in wages during 2009. (The cost is ostensibly split between worker and employer.) Looked at another way, to fund all the benefits promised for the next 75 years, the Social Security tax would have to be raised immediately by 1.7% of payroll.

Compared with Medicare, Social Security is easy to fix, so long as the politicians are willing to fiddle with both benefits and taxes. Obama has said he will not support benefits cuts or increases in the retirement age. Instead, his advisers have suggested imposing a 2% to 4% payroll tax on salaries greater than $250,000. Yet that would cover only a fraction of the shortfall.

The AARP's Rother offers a more pragmatic view. A final deal, he says, will likely include a phased-in increase in the retirement age, a change in the way the consumer price index is calculated (that would lead to slightly smaller benefits increases for retirees each year), and somewhat higher payroll taxes and lower benefits for the well paid. This is hardly revolutionary. Social Security benefits are already skewed by income, so that low-wage workers get a high return on their savings and high-wage workers get a rotten return.

Congressmen have touched this third rail and lived. Over the years they have increased the retirement age slowly from 65 to 67, raised payroll taxes, delayed a cost of living increase and made as much as 85% of the once tax-exempt benefit checks taxable.

If you are 55 or older now, you should not have to worry about reduced initial benefits, since any changes will be phased in slowly if the AARP has anything to say about it. "But anyone who is more than 10 years away from retirement [at the time of a rewrite of the law] can reasonably expect to have their benefits adjusted," Rother says, adding that a delayed benefits cut is not only fairer but "politically expedient, because people younger than that are not thinking that much about retirement."

So plan on working longer and getting less. Also, no matter when you stop work, consider delaying taking your Social Security benefits until you are 70 -- the "delayed retirement" credits you earn should make up for some of the benefits Uncle Sam will be taking away. Some advisers are suggesting that high-earning, self-employed folks (who pay both the employer and employee side of the tax) form S corporations so they can treat more of their income as profits, subject to income but not payroll tax, and less of it as salary. Former senator John Edwards did this when he was a trial lawyer, to duck Medicare taxes, whose marginal rate on high earners went from 0% to 2.9% in a 1993 tax law.

But Bernard S. Kent, a tax adviser at Telemus Capital Partners in Southfield, Michigan, tells his clients that unless they are making more than a million, the hassle and thousands a year in extra fees involved with an S corp are not worth it. Anyway, any extension of the Social Security tax to a higher income level is likely to be accompanied by an attempt to squelch the S corp strategy. Existing S corps probably will not be grandfathered.

More sophisticated but less rote strategies can accomplish the same goal cost-effectively.

Medical Insurance

The details are hard to predict, but the general drift is inevitable. Medicare will likely evolve toward coverage of the whole population but with restrictions on what is covered. Patients who want to pick their own specialists or demand the latest drug for restless leg syndrome will have to pay extra. "It is basically what the Europeans are evolving into -- an adequate health care system for everybody, and if you want to pay more you can supplement on top of that. Most people in Medicare pay more to supplement the benefit," says Rother. Another point analysts agree on is that the well-off are likely to pay more. Even a flat-rate VAT used to finance universal health coverage would cost big-spenders more. As noted, there is already a progressive tax built into Medicare premiums.

Another likely outcome is that the present income tax exclusion for employer-financed health care will be capped. (The exclusion is worth $200 billion a year.) Senator Obama, to be sure, got much mileage out of saying that Senator John McCain would tax this benefit. But this honey pot is too big to go untouched forever.

Add it all up. Your taxes are going up, your benefits down. There is nothing to do but save more, spend less and work longer. You are already doing this to put your kids through college. Now you will be doing it to pay for your own bacon.


Obama’s advisers are drawn from the same gang of Washington thugs and Wall Street banksters as Bush’s.

"Obama's election was necessary as the only means Americans had to hold the Republicans accountable for their crimes against the Constitution and human rights, for their violations of U.S. and international laws, for their lies and deceptions, and for their financial chicanery," writes Paul Craig Roberts. They also deserved to be repudiated for their general thuggishness, arrogance, and total willingness to sacrifice principle for power. As Ben Franklin could have said, those willing to give up principles for power shall have neither.

Unfortunately one cannot preemptively repudiate the repudiator. Roberts catalogs the cast of characters who will comprise Obama's pricipal advisors, and finds the group to be replete with the unrepentant warmongers and fraudsters who brought us the current disaster. Change? No. More of the same and, we fear, administered with greater efficiency and stealth.

If the change President-elect Obama has promised includes a halt to America's wars of aggression and an end to the rip-off of taxpayers by powerful financial interests, what explains Obama's choice of foreign and economic policy advisors? Indeed, Obama's selection of Rahm Israel Emanuel as White House chief of staff is a signal that change ended with Obama's election. The only thing different about the new administration will be the faces

Rahm Israel Emanuel is a supporter of Bush's invasion of Iraq. Emanuel rose to prominence in the Democratic Party as a result of his fundraising connections to AIPAC. A strong supporter of the American Israeli Public Affairs Committee, he comes from a terrorist family. His father was a member of Irgun, a Jewish terrorist organization that used violence to drive the British and Palestinians out of Palestine in order to create the Jewish state. During the 1991 Gulf War, Rahm Israel Emanuel volunteered to serve in the Israel Defense Forces. He was a member of the Freddie Mac board of directors and received $231,655 in directors fees in 2001. According to Wikipedia, "during the time Emanuel spent on the board, Freddie Mac was plagued with scandals involving campaign contributions and accounting irregularities."

In "Hail to the Chief of Staff," Alexander Cockburn describes Emanuel as "a super-Likudnik hawk," who as chairman of the Democratic Congressional Campaign Committee in 2006 "made great efforts to knock out antiwar Democratic candidates." My despondent friends in the Israeli peace movement ask, "What is this man doing in Obama's administration?"

Obama's election was necessary as the only means Americans had to hold the Republicans accountable for their crimes against the Constitution and human rights, for their violations of U.S. and international laws, for their lies and deceptions, and for their financial chicanery. As an editorial in Pravda put it, "Only Satan would have been worse than the Bush regime. Therefore it could be argued that the new administration in the USA could never be worse than the one which divorced the hearts and minds of Americans from their brothers in the international community, which appalled the rest of the world with shock and awe tactics that included concentration camps, torture, mass murder and utter disrespect for international law."

But Obama's advisers are drawn from the same gang of Washington thugs and Wall Street banksters as Bush's. Richard Holbrooke, son of Russian and German Jews, was an assistant secretary of state and ambassador in the Clinton administration. He implemented the policy to enlarge NATO and to place the military alliance on Russia's border in contravention of Reagan's promise to Gorbachev. Holbrooke is also associated with the Clinton administration's illegal bombing of Serbia, a war crime that killed civilians and Chinese diplomats. If not a neocon himself, Holbrooke is closely allied with them.

According to Wikipedia, Madeline Albright was born Marie Jana Korbelova in Prague to Jewish parents who had converted to Catholicism in order to escape persecution. She is the Clinton era secretary of state who told Leslie Stahl (60 Minutes) that the U.S. policy of Iraq sanctions, which resulted in the deaths of hundreds of thousands of Iraqi children, had goals important enough to justify the children's deaths. Albright's infamous words: "we think the price is worth it." Wikipedia reports that this immoralist served on the board of directors of the New York Stock Exchange at the time of Dick Grasso's $187.5 million compensation scandal.

Dennis Ross has long associations with the Israeli-Palestinian "peace negotiations." A member of his Clinton era team, Aaron David Miller, wrote that during 1999-2000 the U.S. negotiating team led by Ross acted as Israel's lawyer: "We had to run everything by Israel first." This "stripped our policy of the independence and flexibility required for serious peacemaking. If we could not put proposals on the table without checking with the Israelis first, and refused to push back when they said no, how effective could our mediation be?" According to Wikipedia, Ross is "chairman of a new Jerusalem-based think tank, the Jewish People Policy Planning Institute, funded and founded by the Jewish Agency."

Clearly, this is not a group of advisors that is going to halt America's wars against Israel's enemies or force the Israeli government to accept the necessary conditions for a real peace in the Middle East.

Ralph Nader predicted as much. In his "Open Letter to Barack Obama"(November 3, 2008), Nader pointed out to Obama that his "transformation from an articulate defender of Palestinian rights ... to a dittoman for the hard-line AIPAC lobby" puts Obama at odds with "a majority of Jewish-Americans" and "64% of Israelis." Nader quotes the Israeli writer and peace advocate Uri Avnery's description of Obama's appearance before AIPAC as an appearance that "broke all records for obsequiousness and fawning." Nader damns Obama for his "utter lack of political courage [for] surrendering to demands of the hard-liners to prohibit former president Jimmy Carter from speaking at the Democratic National Convention." Carter, who achieved the only meaningful peace agreement between Israel and the Arabs, has been demonized by the powerful AIPAC lobby for criticizing Israel's policy of apartheid toward the Palestinians whose territory Israel forcibly occupies.

Obama's economic team is just as bad. Its star is Robert Rubin, the bankster who was Secretary of the Treasury in the Clinton administration. Rubin has responsibility for the repeal of the Glass-Steagall Act and, thereby, responsibility for the current financial crisis. In his letter to Obama, Nader points out that Obama received unprecedented campaign contributions from corporate and Wall Street interests. "Never before has a Democratic nominee for President achieved this supremacy over his Republican counterpart."

Obama's victory speech was magnificent. The TV cameras scanning faces in the audience showed the hope and belief that propelled Obama into the presidency. But Obama cannot bring change to Washington. There is no one in the Washington crowd that he can appoint who is capable of bringing change. If Obama were to reach outside the usual crowd, anyone suspected of being a bringer of change could not get confirmed by the Senate. Powerful interest groups -- AIPAC, the military-security complex, Wall Street -- use their political influence to block unacceptable appointments.

As Alexander Cockburn put it in his column, "Obama, the first-rate Republican": "Never has the dead hand of the past had a 'reform' candidate so firmly by the windpipe." Obama confirmed Cockburn's verdict in his first press conference as president-elect. Disregarding the unanimous U.S. National Intelligence Estimate, which concluded that Iran stopped working on nuclear weapons five years ago, and ignoring the continued certification by the International Atomic Energy Agency that none of the nuclear material for Iran's civilian nuclear reactor has been diverted to weapons use, Obama sallied forth with the Israel Lobby's propaganda and accused Iran of "development of a nuclear weapon" and vowing "to prevent that from happening."

The change that is coming to America has nothing to do with Obama.

The change that is coming to America has nothing to do with Obama. Change is coming from the financial crisis brought on by Wall Street greed and irresponsibility, from the eroding role of the U.S. dollar as reserve currency, from countless mortgage foreclosures, from the offshoring of millions of America's best jobs, from a deepening recession, from pillars of American manufacturing -- Ford and GM -- begging the government for taxpayers' money to stay alive, and from budget and trade deficits that are too large to be closed by normal means.

Traditionally, the government relies on monetary and fiscal policy to lift the economy out of recession. But easy money is not working. Interest rates are already low and monetary growth is already high, yet unemployment is rising. The budget deficit is already huge -- a world record -- and the red ink is not stimulating the economy. Can even lower interest rates and even higher budget deficits help an economy that has moved offshore, leaving behind jobless consumers overburdened with debt?

How much more can the government borrow? America's foreign creditors are asking this question. An official organ of the Chinese ruling party recently called for Asian and European countries to "banish the U.S. dollar from their direct trade relations, relying only on their own currencies."

"Why," asks another Chinese publication, "should China help the U.S. to issue debt without end in the belief that the national credit of the U.S. can expand without limit?"

The world has tired of American hegemony and had its fill of American arrogance. America's reputation is in tatters: the financial debacle, endless red ink, Abu Ghraib, Gitmo, rendition, torture, illegal wars based on lies and deception, disrespect for the sovereignty of other countries, war crimes, disregard for international law and the Geneva Conventions, the assault on habeas corpus and the separation of powers, a domestic police state, constant interference in the internal affairs of other countries, boundless hypocrisy.

The change that is coming is the end of American empire. The hegemon has run out of money and influence. Obama as "America's First Black President" will lift hopes and, thus, allow the act to be carried on a little longer. But the New American Century is already over.


Ian Fleming was born 100 years ago this year. Jamaica supplied much of the psychic fuel, and a fair amount of the scenery, for Fleming's James Bond stories. A travel writer from the New York Times set out to discover what is left of Fleming's Jamaica -- the intersection of "three overlapping spheres: the author's actual Jamaica of the 1950s and early '60s (when the island was a British colony rapidly becoming a hot spot for the rich and famous); the semifictional Jamaica as seen through James Bond; and Jamaica as a location for the 007 film franchise." Entertaining stuff for fans of the books and earlier movies of the series.

"The first law for a secret agent is to get his geography right," Ian Fleming wrote in The Man With the Golden Gun. And so it is for anyone following the trail of the man who created the world's most famous secret agent through his adopted island of Jamaica, a journey that starts near Kingston on the tiny spit of beach called the Palisadoes that connects the city to Norman Manley International Airport.

Most of the traffic heads into the capital, but if you steer westward, snaking around the contours of dunes on the poorly paved street toward the peninsula's dead end, you will find Morgan's Harbour Hotel in Port Royal. Only five miles from the airport, you are already deep into Ian Fleming's Jamaica.

Fleming, the British intelligence officer turned newspaper man turned spy novelist born 100 years ago this year, spent winters on his Caribbean getaway for almost two decades. The airport and the Palisadoes both feature in James Bond novels. The hotel is where Bond chose to lay his head in Golden Gun. It was on Jamaica that Fleming wrote more than a dozen novels and short stories featuring Agent 007. Of these once best-selling volumes of action pulp, Dr. No, Live and Let Die, The Man With the Golden Gun and the short story Octopussy are largely or partly set in Jamaica, and the films based on the first two were also shot there.

The island was Fleming's retreat, artist colony and passion, and he repeatedly sent Bond, an incarnation of Walter Mitty-esque wish fulfillment, on assignment there. The legendary spy experienced the island as Fleming did -- beautiful and underdeveloped with enough exoticism, history and potential for danger to justify it as a backdrop for postwar espionage adventure.

Over a breakfast of scrambled eggs and Blue Mountain coffee (the same morning fare Fleming preferred and Bond nearly always enjoyed) on the balcony of a private bungalow, guests overlook the same vista Bond did in Live and Let Die, where he "had his breakfast on the veranda and gazed down on the sunlit panorama of Kingston and Port Royal."

Most of Fleming's days in Jamaica, though, were spent on the northern coast, best reached by the A3, or Junction Road, "that runs across the thin waist of Jamaica." Bond and his local sidekick Quarrel travel the same route in Live and Let Die to get to the secret island lair of the villainous genius Big.

The mountainous interior of the island, "like the central ridges of a crocodile's armour" as Fleming put it in Live and Let Die, is a constant pull on the steering wheel, back and forth, through little villages, past cliffside sundries shops and on numerous detours into rutted, gravel-spattered dirt roads. It is a relief to reach the other side and spill into the ramshackle town of Port Maria, its pristine aquiline bay punctuated by the diminutive and uninhabited Cabarita Island, which inspired Surprise Island, the fictional hideout of Big.

Fleming and his wife, Ann, were married in Port Maria's town hall, which still stands. She did not share her husband's love of Jamaica, never staying as long as he did. But his best man and local neighbor, Noel Coward, was equally smitten with the place. Coward was a year-round island resident and a tax exile who died there in 1973. The home he built, Blue Harbour, is a compound of seaside bungalows overlooking Port Maria's bay. Guests can now stay there if they can find it. The only marker is a small, faded sign pointing down a heavily potholed road leading to a rusty white gate.

Judging by the decor and electrical wiring, Blue Harbour has pretty much been left untouched. But despite its rough edges, provincial food and generally musty condition, it has three things going for it: a stunning perch over the sea, a cliffside saltwater pool and a rich history. You can imagine a rotating cast of celebrities like Errol Flynn (who also lived on the North Coast), Katharine Hepburn, Elizabeth Taylor, James Mason and Laurence Olivier, all lounging poolside. The living room is hung with pictures of celebrities like Sean Connery, Alec Guinness clowning in the pool in Arabian headdress and a group shot that included the Flemings.

The scene became too much for Coward, who relocated to a higher perch above Blue Harbour. His retreat from his retreat, Firefly, is now a museum and his grave site. His friends gave their homes colorful names as well. Fleming's haven, about 10 miles west, was Goldeneye, named for a wartime operation he was involved in, and now one of the most exclusive resorts on the island. Between the two writers lived Blanche Blackwell, at Bolt.

Of his mother's relationship with Fleming, Chris Blackwell simply told me that she was a good friend of his and was very fond of him. As a thank you gift for a stay at Goldeneye, Blackwell gave Fleming a small boat she had christened Octopussy. She may have also been an inspiration for Honeychile Rider, the Bond girl from Dr. No, who, like Blackwell, was the Jamaica-born child of an old island family and a passionate student of sea life.

Situated in the small town of Oracabessa, once a banana port, Goldeneye is an unassuming patch of land with stone paths and trees planted by former famous guests. Handwritten signs mark the mango planted by Pierce Brosnan, the lime tree by Harrison Ford, the royal palms by the Clintons. Set among them are three villas that, with Fleming's original house and a restaurant overlooking the ocean, make up the current property. Where the restaurant sits, a gazebo once stood. Fleming liked to take notes in it, and it once served as a command station when Prime Minister Anthony Eden of Britain visited Goldeneye in 1956 (another boon for Jamaican public relations).

The Honeychile villa, just over a small fence from Fleming's house, is nicely appointed with a plush bed draped in mosquito netting, a claw foot tub and an outdoor shower built into a large banyan tree. The bedroom is flanked by a second house with a patio overlooking the sea and a bookshelf housing a nearly complete set of the Bond stories (written a hundred feet away). It is hard to imagine the resort retaining that kind of casual intimacy when Goldeneye's 100-acre residential development currently under construction is finished in the coming years.

Establishing his life in Jamaica was a necessary precursor to Fleming's pursuit of fiction. "One of the first essentials is to create a vacuum in my life which can only be satisfactorily filled by some form of creative work," he wrote in the Evening Standard of London. His training as a Reuters correspondent was another ingredient in this equation, allowing him to write with a don't-look-back, free-flow technique. Six weeks later you have a novel, he wrote, and "if you sell the serial rights and film rights, you do very well." Indeed.

Before mass-market guides like Frommer's and Lonely Planet, travelogues were tourists' main resources outside Europe. For the 1950s Caribbean, Patrick Leigh Fermor's The Traveler's Tree was the bible. Fermor visited Goldeneye and glowingly wrote that "it might serve as a model for new houses in the tropics ... great windows capture every breeze, to cool, even on the hottest day, the large white rooms." His description is apt. The small house's windows are still without glass. Past the sunken garden is the private beach to which Fleming often trod -- fins, mask and spear in hand. The small rock pool Fleming built for his son, Casper, is still standing. Black crabs crawl along its walls, recalling the swarm of them that Dr. No uses to try to torture Honeychile to death. This perch out to the reef that shielded the snorkeling writer from sharks and barracuda directly inspired Fleming's work.

Of the entire 007 cannon, the short story Octopussy, written in 1962, best captures his island lifestyle. The story is about Major Dexter Smythe, a Briton "irretrievably tied to Jamaica," attracted to the "paradise of sunshine, good food, cheap drink, a glorious haven from the gloom ... of postwar England" but later bored from consorting with the "international riffraff" of the north shore. His one joy is exploring the local sea life, including the eponymous octopus to which he feeds conch.

Fleming's gardener, Ramsey Dacosta, who still works at Goldeneye (now in guest relations) and invariably referred to Fleming as the Commander, told me that his old employer would bring conch to an octopus at the reef, and, as in the short story, "the octopus would return the shell." Bond makes a brief appearance in Octopussy to arrest Smythe for a wartime theft, but Smythe takes his own life, with help from the octopus. Fleming died a much less dramatic death from a heart attack in 1964 in England, where he is buried.

Goldeneye is the mecca of any Fleming pilgrimage, but not the heart of it. In Horizon, he wrote about the other elements that made his life in Jamaica fulfilling, from the food ("delicious and limitless") to the weather, calypso and, most importantly, the people. Fleming wrote that the locals "will surprise and charm you," which they often did during my time there.

But even in Fleming's lifetime, Jamaica was evolving. By the time he wrote his final Bond novel, Golden Gun, in 1964, the island had gained independence from Britain, and Fleming's nostalgia for the colonial era is channeled into his spy. Waiting in the Kingston airport for a flight to Havana, the secret agent recalls his "many assignments in Jamaica and many adventures on the island ... the oldest and most romantic of former British possessions." As he reflected on his escapades in Dr. No and his love affair with Honeychile Rider, "James Bond smiled to himself," Fleming wrote, "as the dusty pictures clicked across his brain."


Last week, we noted U.S. president-elect Obama's unmistakable anti-offshore leanings. The Swiss have now publicly announced that they expect to be targeted, saying that the increased pressure on them was "the logical consequence of the financial crisis."

The anti-offshore stance of U.S. President-elect, Barack Obama, coupled with the U.S. need to increase revenue in order to finance the banking bailouts, and slow the current economic slide are likely to increase pressure from the U.S. on Swiss banking secrecy, it has been suggested this week.

Various representatives of the Swiss government and banking sector have warned that although the issue is unlikely to be Obama's first priority when he takes office in January, his administration is likely to step up the anti-offshore campaign sparked earlier this year by the news that Swiss bank, UBS, had helped wealthy U.S. citizens duck their tax liabilities. UBS subsequently announced that it would no longer be offering private banking services to U.S. residents.

Speaking to the Swiss media, Foreign Minister Micheline Calmy-Rey observed that an increase in pressure on the Swiss authorities with regard to the issue of banking secrecy was very much expected by the Swiss authorities, and was quoted by Reuters as observing that:

"It is clear that fiscal questions will come to the forefront and we have to face them, as much from the European Union and as from the United States. That is the logical consequence of the financial crisis."

The AFP news agency, meanwhile, quoted Martin Navillle, head of the Swiss-US Chamber of Commerce, as warning that:

"American legislation can move very quickly and laws can get passed speedily."

Obama lent his support last year to Senate legislation dealing with "Tax Haven Abuse." Switzerland is also under fire closer to home. Last month, the German government suggested that it should be included on any new "blacklist" of uncooperative offshore jurisdictions in an attempt to reduce cross-border tax evasion by wealthy German citizens and raise the level of transparency in the global financial system.

A strident Peer Steinbrueck, Germany's Finance Minister, made his remarks following a conference of OECD leaders in Paris, where the main topic of discussion was the role of offshore financial centres in the international banking crisis.

According to Steinbrueck, Switzerland offers conditions that invite Germans to evade domestic taxes and is unwilling to cooperate with the German authorities when these cases are being followed up. "Therefore, in my view Switzerland belongs on such a list," he argued.

Switzerland was unable to respond directly to Steinbrueck's remarks because, like Austria, Luxembourg and the United States, it did not attend the meeting.

However, the Swiss Finance Ministry responded by stating that it complies with all rules laid down by the OECD regarding exchange of banking information, and that it has information exchange agreements regarding tax with several countries, including Germany.


The IRS has decided that its trusting nature has been abused. Whereas foreign banks have previously had wide discretion in sending funds abroad with relatively little disclosure -- basically only having to levy a withholding percentage on that amount ascribable to income on certain U.S. investments -- now they will be required to implement know-your-customer really well programs. Banks will have to "actively determine whether U.S. investors are behind the foreign accounts" the banks set up, i.e., whether accounts set up for legal entities are in reality controlled by U.S. persons.

As pointed out here, the program which heretofore allowed the banks to get away with relatively lax oversight on the identity of the owners of funds sent abroad was established in 2001 in order to attract foreign investors to U.S. securities. With government deficits still more out of control now than in 2001, a casual reading of the new action would seem counterproductive to that effort. But in the context of the larger goal of gradually clamping down on all movements of capital out of the country, it makes perfectly good sense.

Until now foreign banks could funnel hundreds of billions of dollars overseas on behalf of American clients without disclosing their names to the Internal Revenue Service under a program known as qualified intermediary. The banks would withhold any taxes due on United States securities in their accounts and send that money to the IRS. The program was established 2001 in an attempt to attract foreign investors to U.S. securities. More than 7000 foreign banks participate in the program.

Concerned that it has delegated too much control and authority to the banks and that in recent years American investors have been evading taxes by hiding behind offshore shell companies and trusts set up by the banks, the IRS has issued new rules which will go into effect in 2010. The new rules require the banks participating in the program to actively determine whether U.S. investors are behind the foreign accounts they set up. The banks will have to alert the IRS to any potential fraud that they detect, whether through their own internal controls, complaints from employees or investigations by regulators.

The new rule could be an outcome of the federal investigation of the Swiss banking giant UBS. Federal prosecutors claim that UBS misused the program by selling American clients offshore banking services that went undeclared to the IRS, helping its American clients hide as much as $20 billion in assets offshore, thereby evading at least $300 million in taxes.

The changes to the program means the IRS will now audit small samples of individual bank accounts in the program, without knowing the clients' names, to determine whether U.S. investors actually have control over foreign entities set up by the banks. Participating banks must now hire external auditors who will have to zero in on the bank employees responsible for identifying and preventing abuse of the program. The external auditor must report all red flags to the IRS. In addition, banks using foreign-based external auditors will have to work with an American auditor.

That is not all. ... The U.S. has succeeded in getting the Swiss tax authorities to hand over confidential data on wealthy American clients of UBS. Under Swiss law, it is a crime to disclose client name or data unless the Swiss authorities think that the client has committed a serious offense like money laundering or tax fraud. Tax evasion is not considered a crime in Switzerland. This is a major shift in the Swiss banking secrecy laws. The U.S. could now use this as a precedent in the future to get more Swiss banks to disclose the details of their American clients.

The message is loud and clear -- Uncle Sam will take his rightful share of your money no matter where you hide it.

"Rightful" Uncle Sam's own standards that is. Nothing like being judge, jury, and executioner.


Governments know no shame when it comes to inventing justifications and techniques for stealing assets or otherwise enforcing their dictates. And if fate drops an unexpected opportunity on their lap, why all the better then.

When the failure of Iceland's Kaupthing Bank Hf appeared imminent, the U.K. stepped in and seized the bank's assets located in the U.K. The nominal reason given by U.K. Chancellor of the Exchequer Darling was that he thought that Icelandic depositors would be favored over offshore depositors, so he was protecting the interests of his constituents. He continues to claim as much. The U.K. chose to insure deposits held at U.K. branches of Kaupthing, so the action served to offset some of those costs.

Iceland claims the U.K. seizure instigated a run on its banks and led to the failure of the country's banking system on October 9. Confidence in Iceland was disappearing anyway, so the more reasonable accusation is that the U.K. action hastened the demise -- not caused it. Be that as it may, while the U.K. was guaranteeing Kaupthing deposits in UK proper branches, it said it would not guarantee deposits in the Kaupthing Isle of Man branch. British dependency IoM is a convenient target for the UK's anti-offshore haven propaganda campaign. What a convenient coincidence -- so why not take advantage of the Iceland fiasco to punish Isle of Man banking clients?

Not surprisingly, Isle of Man branch depositors are not happy. And they may have a substantive point of their side. According to the followup article to this one, some £500 million of the assets seized by the UK government may have belonged to IoM branch depositors. How much of an obstacle to the UK's vendetta that little fact, if true, will be awaits discovery.

Chancellor of the Exchequer Alistair Darling rejected calls for the U.K. Treasury to guaranteed bank deposits in failed Isle of Man institutions, saying he wants to review the island's status as an independent banking center.

Savers with money at Kaupthing Singer & Friedlander (Isle of Man) Ltd., a unit of Iceland's Kaupthing Bank Hf, are fighting for their accounts after the parent bank was nationalized by the government in Reykjavik.

Darling has provided guarantees for deposits held at U.K. branches of the Icelandic bank, though not for those on the Isle of Man, which is a British dependency. The U.K. long has been uneasy with the island's status as a destination for cash from people seeking to avoid paying taxes in the U.K.

"We have had to expose the British taxpayer, and I can assure you we would not have done that if there had been any other way," Darling told a panel of U.K. lawmakers ... "People put deposits into a jurisdiction we are not responsible for -- then I don't think so."

Darling faced questions from lawmakers on Parliament's Treasury committee in a room packed members of the public, some of whom were seeking to recoup savings held in the Isle of Man. The Isle of Man, which has a surface of 572 square kilometers and sits in the Irish Sea, is a British Crown Dependency. Offshore banking is one of its main industries.

"The only thing that will satisfy us is to get what is rightfully ours, and we are no closer to that," said Hazel Bell, 64, who had $600,000 in retirement savings in an account in Kaupthing on the Isle of Man. "I'm disgusted. He has put the ball back to the Isle of Man," she said after the hearing.

Darling's call to reassess the Isle of Man's status drew applause from the crowd and murmurs of approval from lawmakers, who are drawn from Britain's three main political parties.

Iceland and the U.K. are embroiled in a dispute over who is to blame for the collapse of the Icelandic banks on October 9 and which nation should pay for the losses of British residents who held accounts in Reykjavik banks.

Darling said today that Iceland's government continues to favor its own residents in the banking bailout over British ones. He refused to apologize for seizing Icelandic bank assets in the U.K., which the Reykjavik government has said triggered a run on its banks.

"Even if I was wrong on that, which I am not, five weeks later they are still not treating British creditors and depositors in the same way in which they are treating Icelandic Ones," Darling said. "That is why I stepped in."

A group of depositors in Icelandic banks packed into the meeting room and said Darling is partly to blame for the squabble. "We are collateral damage in the U.K.'s action against Iceland," said Ziggy Sieczko, the London coordinator for group of savers in Kaupthing's Isle of Man branch. The U.K. government's action helped "cripple Kaupthing and as a result brought it down."

Isle Of Man Officials Invited To Westminster

The Isle of Man's Chief Minister Tony Brown has been invited to Westminster to ensure that relations between the Isle of Man and the United Kingdom government remain "mutually positive and productive."

The invitation follows comments from Chancellor Alistair Darling, who recently described the island as a "tax haven," and suggested that it was time to review the relationship between the UK and the Isle of Man.

The Manx delegation, which also includes Chief Secretary Mary Williams, Director of External Relations Della Fletcher and John Aspden, Chief Executive of the Financial Supervision Commission, will be received in Westminster by Lord Chancellor Jack Straw. They will discuss what needs to be done to maintain a positive and productive relationship between the countries.

The Chief Minister has said that he is awaiting a response from Darling to a letter asking for clarification of his remarks. Brown has also written to the Chairman of the Treasury Committee John McFall to reiterate the Isle of Man government's submission to the Committee made earlier in the year confirming the Island's high regulatory standards and commitment to international cooperation and transparency, and to assure Mr. McFall that the Isle of Man is doing everything possible to resolve the current banking situation in the best interests of the Kaupthing Singer Friedlander (IOM) depositors.

Brown said: "It is important for depositors, and the people of the Isle of Man, that government moves forward on many levels to resolve the current difficulties. Work continues with the provisional liquidator to find the best solution. To this end, a wide variety of possible options are being examined and considered. At this point, no options have been ruled out."

He added: "I must reiterate that the collapse of KSF (IoM) was not caused by any actions taken by the Isle of Man government which has requested clarification as to the status of over £500 million belonging to KSF (IoM), representing creditors' deposits from the bank which were in London when the United Kingdom government put Kaupthing Singer and Friedlander (UK) Limited into administration and froze Icelandic assets."


What we had was failure to communicate, says EU apologist.

When Ireland rejected the EU Lisbon treaty in a referendum last June, the ungrateful wretches, you just knew the EU would not go quietly into the night.

The Irish Taxation Institute now solemnly informs us, and more importantly the benighted people of Ireland who voted against ratification, that their grievous slight of the EU nabobs was based on a mistaken apprehension -- that the EU might actually try to interfere with Ireland's affairs. Good heavens! Don't they know that those fine gentlemen have nothing but the good of the Irish people foremost in their hearts?

And now this insult must be remedied somehow. You see, there has been "apparent damage to Ireland's influence and standing at the EU table since the rejection of the Lisbon Treaty," and, "It is in our collective interests to take whatever action we can to repair this damage." Just taking a total wild shot in the dark here: "action" like holding another referendum and ratifying it this time, perhaps? And if they insist on rejecting it again, the Irish people will undoubtedly be given another chance, and another and another, until they get it right.

According to the ATI's own website, the ITI "is the leading professional body for taxation affairs in Ireland. Our 6,000 membership comprises Registered Tax Consultants, accountants, barristers, solicitors and other business professionals. Our mission is to support an efficient, fair and competitive tax system that encourages economic and social progress." It is most touching and exhilarating to know that the national organization of Irish tax accountants is possessed of sufficient wisdom and knowledge that they clearly understand the virtues of kowtowing to the EU, unlike their ignorant clientel.

Treland's acceptance of the EU's new constitution, known as the Lisbon Treaty, would not have led to the government losing control of tax policy as feared by the "no" campaign in June's referendum on the treaty, according to the Irish Taxation Institute (ITI).

Speaking before a parliamentary committee earlier this month, Mark Redmond, Chief Executive of the Irish Taxation Institute welcomed the Irish government's recent re-affirmation of Ireland's 12.5% corporate tax rate, but he also pointed out that the Lisbon Treaty would have allowed Ireland to retain its veto on tax issues, and the treaty would not have forced harmonized EU tax rates on the country.

"Taxation is one of the key issues of concern to our people when it comes to our membership of the European Union and in particular the terms of the Lisbon Treaty. In the course of the debate on the Lisbon Treaty major concerns were raised about our ability to maintain control over our corporation tax rate should the Treaty be ratified. This issue was linked by some in the debate to the separate matter of EU proposals to harmonize the corporate tax base throughout the EU -- known as CCCTB. At this point I would like to stress that these two issues are not directly linked -- the Lisbon Treaty does not require Ireland to participate in the CCCTB and it does not facilitate the imposition of the CCCTB upon Ireland," Redmond told the committee, continuing:

"A number of parties who have already appeared before this Sub-Committee have emphasised the absolute necessity for Ireland to maintain a corporation tax policy that is underpinned by certainty and competitiveness. They identified this as one of the key factors, along with others such as infrastructure and investment in education, in attracting inward investment. Any threat to our 12.5% corporate tax rate will give rise to considerable uncertainty in the minds of those currently investing or considering investing in Ireland, thereby damaging the competitiveness of our economy and our capacity to sustain and create employment. The political consensus in Ireland on this point and the affirmation of the continuation of the 12.5% rate in the October Budget statement are particularly important. They are important because they provide certainty regarding Ireland's corporation tax policy to those who have created employment here and those who may consider investing to create new employment here. The provisions of the Lisbon Treaty provide no threat to this certainty.

"As I have stated, for the key reasons of maintaining certainty and competitiveness, Ireland must maintain control over our corporation tax rate and structure. It is important to emphasise that we operate a very transparent corporation tax structure in Ireland -- we have a very clear and transparent system with no hidden deductions or adjustments. We are fortunate to have a very advanced and rigorous Revenue Authority who underpin our self assessment system with appropriate checks and balances to ensure that those availing of our 12.5% corporation tax rate bring the required substance and presence to their operations in Ireland. The Committee has already heard detailed comment on these matters from representatives of the multinational sector and from IDA Ireland.

"Finally, in the current difficult economic circumstances we collectively face, it is even more vital that we maintain control of our taxation rates and structures so that we can act swiftly and without unnecessary hindrance in managing our public finances. It is also vital that we maintain our influence and credibility at EU level. The committee has already heard in some detail the scale of the positive contribution to our social and economic well-being arising from our EU membership. The committee has also heard about the apparent damage to Ireland's influence and standing at the EU table since the rejection of the Lisbon Treaty. It is in our collective interests to take whatever action we can to repair this damage."


This beginner's course in basic financial concepts from LewRockwell.com's CPA in residence, Karen De Coster, looks like plain old common sense. Yet, that someone like Donald Trump, who lives a glitzy lifestyle and has lots of real estate baubles to show off but is leveraged to the gills, is viewed as the epitome of wealth shows that such common sense is not universal. People look at visible assets but fail to consider the offsetting, largely invisible, debt.

This confusion, or failure to think things through, fed the recent housing bubble and, really, the whole financial assets mania which took off in 1982. The entire time that the stock market was rising, roughly 15-fold from its 1982 bottom to its top in 2000, the rise in outstanding debt followed closely behind. The increase in asset values was largely mirrored by an increase in debt on the liability side of the balance sheet. There was one small problem: Asset values can fall, and quickly as we have been reminded of late. But debt does not conveniently fall concomitantly. Debt stubbornly sits there, waiting to be paid in full at orignal face value plus interest, until and unless bankruptcy or some other negotiated reorganization is effected.

People often say to me about someone else they know: "He has got a lot of money," or "They are loaded." Does that sound all too familiar?

In the course of normal, everyday conversation, careless adults will bring up someone -- a neighbor, friend, colleague, or acquaintance -- whom they refer to as "having a lot of money." They use words like "rich," "loaded," and "well off." And they use these words to imply "financial wealth," essentially. And since there are different types of wealth, I will refer strictly to what these people are attempting to convey: genuine financial prosperity and balance sheet wealth.

Of course, I quickly process the individual's words, kick into the skeptic mode, and try to validate the statement. I stop the course of the conversation and ask, "How is that so? What makes you think they are loaded?" I ask the person what facts exist that led him to say this, what does he think wealth means, or, what is the nature of that person's personal balance sheet? Are the assets encumbered by debt, or, is there really substantial equity?

At this point, he is checkmated. He has not, of course, looked at the balance sheet of the "loaded" individual he speaks of. He knows nothing about the origins of the accumulated assets or the funding behind the ultra-consumption. You can see glitzy assets and observe the consumption, but without a balance sheet you do not know to what extent the consumption and assets were financed and to what level the personal equity has been zapped to fund purchases. And I do not do this to knock people down. I consider it a necessary educational process to get folks to start defining their terms as opposed to speaking in marketable sound bites.

The typical replies are: "Oh, but they have a Lexus and an Escalade, and you should see the clothes she wears. ..." or "They live in the X subdivision of Y and go to Z every year for vacation. ..." or "He is an engineer for GM, and she is a ______, and they have got the most beautiful summer home up in wherever. ..." We hear this kind of muddled thinking from folks all too often. The explanations for why people are perceived as being "rich" are always tied to vacations, things, adult toys, cars, bragging by the person in question (the most obvious sign of hype), and of course, the house. The house, in fact, defines a person's existence.

The critical mistake people have a tendency to make is forming conclusions about someone's wealth based upon their observations of visible material items. People who have lots of "things" usually have them because they do not save, they over-consume in relation to their income, and more often than not they incur debt -- lots of it -- to get the stuff. The last couple of times I heard about someone's "loaded" friend with great houses, and even better vacations, I acerbically asked, "What do they do for a living?" The first one was a schoolteacher, and the other one was a nurse. Amazingly, people just do not know how to do the quick math on their common sense calculator.

It is remarkable that people -- especially college-degreed types -- cannot make the distinction between accumulation or consumption and personal wealth. Whereas someone would define someone else as being "rich," I, upon seeing a balance sheet, would know that this person is oftentimes the opposite of rich: plenty of declining assets, in debt, negative personal equity, and little or no savings.

Remember, purchases of assets -- the plasma TV, sports car, or the new construction house -- if made from cash savings, is merely a reclassification of assets and is not a step up in personal wealth. And these assets -- durable consumer goods -- decline rapidly in terms of value. The Jamaican or Paris vacation, paid for in cash, is a decrease of an asset, an increase to an expense, and a negative hit to equity. The 100% financed Lexus -- which is typical on a middle-class income -- is an equal increase to an asset and a liability that only increases one's debt-to-equity ratio. A shiny, new car, but there is definitely no wealth increase here. The purchase has only created a weaker balance sheet and the illusion of prosperity (think of Wall Street financial firms) that is being conveyed to those who do not understand basic financial concepts.

Clearly, uninformed people have made a mockery of defining wealth and prosperity. Their immediate perception is their reality, and their perceptions are clouded by ignorance and a lack of desire for the facts. Instead, they prefer exaggerated tales that make a bold statement about something they do not understand. Unfortunately, spreading misinformation makes for a far more interesting conversation -- think sound bites and hook lines -- than putting forth the time and effort to pursue the truth.

The accumulation of things, however, cannot ever be equated with personal wealth. A book to read to understand the difference between having "things" and having wealth is The Millionaire Next Door: The Surprising Secrets of America's Wealthy. Here is the Amazon review of the book:
How can you join the ranks of America's wealthy (defined as people whose net worth is over one million dollars)? It is easy, say doctors Stanley and Danko, who have spent the last 20 years interviewing members of this elite club: you just have to follow seven simple rules. The first rule is, always live well below your means. The last rule is, choose your occupation wisely. You will have to buy the book to find out the other five. It is only fair. The authors' conclusions are commonsensical. But, as they point out, their prescription often flies in the face of what we think wealthy people should do. There are no pop stars or athletes in this book, but plenty of wall-board manufacturers -- particularly ones who take cheap, infrequent vacations! Stanley and Danko mercilessly show how wealth takes sacrifice, discipline, and hard work, qualities that are positively discouraged by our high-consumption society. "You aren't what you drive," admonish the authors.
If you want to determine your individual wealth, merely looking at income or assets (stuff) is not the answer. Acquiring things via revolving credit may add to your assets (a plasma TV or a killer surround-sound system), but it adds to your liabilities as well, so there is no increase in your equity. Hence, there is no "wealth" created here. Essentially, you are not what you drive but you are what you save. Think of personal wealth in this sense: Total assets minus total liabilities = equity. Real wealth is reflected in your equity on your personal balance sheet, not from your subdivision location, vacations, or driveway.

In America, we are witnessing a record-breaking number of foreclosures. A foreclosure -- or worse yet, homelessness -- occurs because people live paycheck-to-paycheck. That means they do not have the cash savings to make one more payment to buy them one more month in their home. They have things, including the home and its contents, but little or no equity to fall back on. What a reckless way to live. Unlike with General Motors, regular folks cannot keep sliding by on massive negative equity without suffering devastating consequences.

Equity, then, is akin to a pillow-top mattress for a creaky back. An equity cushion means strong financial health and a good night's sleep. In bad times, equity is a means to self-preservation. Your equity is your safety net and your window to real prosperity. Equity on your balance sheet is your real wealth.

Trouble for Donald Trump: The Money for a Condo Project Did Not Come Through

He who lives by the bubble ...

Donald Trump was peddling a standard, for 2006, “can’t-miss” real estate project: A condo project in Baja California. Yes, it was in Mexico, and the units were not cheap ... but they looked like a bargain when compared to bubble-inflated comparable oceanfront properties in the U.S. Or so it seemed at the time. This turned out to be analogous to saying that Microsoft at 50 times earnings in 1999 was cheap compared to dot-com stocks at 100 times sales. It failed to see the vast forest inside which the small tree lived.

Our main point today, however, is to tie the Trump project in with Karen De Coster's lesson on assets versus equity above. Trump is a poster-boy for the epochal something-for-nothing era that has now met its inglorious end. He financed fancy real estate developments with lots of debt. Lots of assets; not much equity. They looked good, but what was his net wealth? And more to the point, what is it now? We do not know. Financial writer Rick Ackerman thinks Trump will soon be bankrupt, if he is not already. (He also thinks Trump will recover quickly, "with his peerlessly loud mouth, and new suckers being born every minute.")

Trump has additional problems, because the bank that was supposed to finance the Baja project pulled its commitment due to its own shaky status. The project was started using the condo buyers' deposits. So far all the buyers have is holes in the ground. Highly leveraged assets are risky enough. When the debt is short-term and has to be rolled over during a credit crunch, the risk rises further. And then there is the case where the assets are under construction and the financing is not even in place yet, like here. All of that is easy to overlook when the central banks are pumping fake liquidity into the system. Belatedly people will be getting a lesson on such risks.

When investors gather at a downtown San Diego sales event in 2006, the Trump Ocean Resort was sold as a can’t-miss opportunity: three 26-story towers on the Pacific Ocean only 30 minutes south of San Diego in Baja California, with condos priced from the mid-$200,000s to more than $1 million. Steep, but a bargain compared with comparable oceanfront real estate in the States.

Investing in Mexico sounded risky, given its crime rate, drug wars and weak property laws. But if Donald Trump was willing to put his name on a project, some figured, it meant that it was legit. "I have invested with him lots of other places and made millions doing so," says Michael Mikelic, who runs King Penguin Properties, a property management company with $30 million in assets. Mikelic bought a 2-bedroom condo for $750,000. The project sold 70% of the units in the first tower in one day, worth $122 million, bringing in $25 million in deposits. The second tower sold 1/3 of its units the first day it was on the market.

There is only one thing missing: buildings. There are only holes in the ground. Adam Fisher, a former principal of Irongate who led the project, says a $150 million construction loan from German bank WestLB fell through this year, not long after the state-owned bank had to receive a $6.4 billion bailout from the government to cover its losses on tanking subprime mortgages in the U.S. "We were not speculating with other people's money," he says. "If you went to a construction lender last year and said that you had a project that was 70% sold and had 30% nonrefundable deposits like ours, 99.9% of the time you would get a loan."

The folks who laid down their deposits, however, are now planning on taking Trump's company and its partner, Irongate, a Los Angeles developer, to court in a breach-of-contract action. They say that they were promised that their building would be completed by last spring. They say they have not heard from the Trump Organization or Irongate in months. Mikelic says that he wants his $225,000 deposit back, now sitting in a non-interest-bearing escrow account.

The Trump Organization referred questions to Irongate. Irongate will not say whether Trump put money into the project or just licensed his name. In October 2007 Trump was scoffing at the notion that the real estate slowdown could affect him. "Though it may be true that some of Baja's developments could see a slowdown, these market conditions simply do not apply to Trump Ocean Resort," daughter Ivanka Trump wrote in a newsletter sent to investors.

Trump has seen other early investors try to get out of their contracts as well, though it is hard to say if they are just running scared of the housing bust. In a suit in Miami, for example, 132 buyers want to cancel $146 million in contracts because they claim that a condo project, called the Trump Towers, was misrepresented as a Trump investment. The developers say the case is without merit.


Millions of Americans live in a non-reality-based belief system informed by childish clichés – they can barely differentiate between lies and truth.

The 1989 book The Unreality Industry: The Deliberate Manufacturing of Falsehood and What It Is Doing to Our Lives, by Ian Mitroff and Warren Bennis, argued that the deliberate creation of unreality via the mass media was a pervasive feature of modern times and was having a profound and fearful effect on the collective mind-set. People are encouraged to live in, to consume if you will, a comforting fantasy world as an alternative to the complex and ambiguous real world. And yet, the real world refuses to disappear.

As a reviewer on Amazon puts it:

The authors take care to outline the dichotomy between reality and unreality. Reality is very difficult to understand, is stressful to deal with, and only increases in its complexity. Unreality is simple, mindless, and creates the illusion (computer games, movies) of some kind of control over one's surroundings. Our embrace of unreality as a means of escape from the harshness and confounding nature of reality is deeply rooted in U.S. culture: bigger is better, the infallibility of science and technology, the veneration of "progress." One aspect of unreality is that it employs "boundary warping" to catch the audience's attention. "Boundary warping" entails the near complete destruction of rational thought processes and categorization, the lack of any organization and coherence.

Now, 15 years later, one upshot is that almost 1/3 of the U.S. population at best is barely literate, and cannot think critically. This means that the political candidate who successfully hits on what appeals to and manipulates that mindset can achieve great success at getting elected. The problem is that once in office, the now-officeholder confronts the impossible problem of keeping the same population segment placated and amused while grappling with the nuances of the decidedly challenging reality which faces us. Things are not helped when those who still have the capacity to think instead succumb to wishful thinking and mindless sloganeering. America is truly on the verge of amusing itself to death, as Neil Postman put it.

We live in two Americas. One America, now the minority, functions in a print-based, literate world. It can cope with complexity and has the intellectual tools to separate illusion from truth. The other America, which constitutes the majority, exists in a non-reality-based belief system. This America, dependent on skillfully manipulated images for information, has severed itself from the literate, print-based culture. It cannot differentiate between lies and truth. It is informed by simplistic, childish narratives and cliches. It is thrown into confusion by ambiguity, nuance and self-reflection. This divide, more than race, class or gender, more than rural or urban, believer or nonbeliever, red state or blue state, has split the country into radically distinct, unbridgeable and antagonistic entities.

There are over 42 million American adults, 20% of whom hold high school diplomas, who cannot read, as well as the 50 million who read at a 4th- or 5th-grade level. Nearly 1/3 of the nation's population is illiterate or barely literate. And their numbers are growing by an estimated 2 million a year. But even those who are supposedly literate retreat in huge numbers into this image-based existence. A third of high school graduates, along with 42% of college graduates, never read a book after they finish school. 80% of the families in the U.S. last year did not buy a book.

The illiterate rarely vote, and when they do vote they do so without the ability to make decisions based on textual information. American political campaigns, which have learned to speak in the comforting epistemology of images, eschew real ideas and policy for cheap slogans and reassuring personal narratives. Political propaganda now masquerades as ideology. Political campaigns have become an experience. They do not require cognitive or self-critical skills. They are designed to ignite pseudo-religious feelings of euphoria, empowerment and collective salvation. Campaigns that succeed are carefully constructed psychological instruments that manipulate fickle public moods, emotions and impulses, many of which are subliminal. They create a public ecstasy that annuls individuality and fosters a state of mindlessness. They thrust us into an eternal present. They cater to a nation that now lives in a state of permanent amnesia. It is style and story, not content or history or reality, which inform our politics and our lives. We prefer happy illusions. And it works because so much of the American electorate, including those who should know better, blindly cast ballots for slogans, smiles, the cheerful family tableaux, narratives and the perceived sincerity and the attractiveness of candidates. We confuse how we feel with knowledge.

The illiterate and semi-literate, once the campaigns are over, remain powerless. They still cannot protect their children from dysfunctional public schools. They still cannot understand predatory loan deals, the intricacies of mortgage papers, credit card agreements and equity lines of credit that drive them into foreclosures and bankruptcies. They still struggle with the most basic chores of daily life from reading instructions on medicine bottles to filling out bank forms, car loan documents and unemployment benefit and insurance papers. They watch helplessly and without comprehension as hundreds of thousands of jobs are shed. They are hostages to brands. Brands come with images and slogans. Images and slogans are all they understand. Many eat at fast food restaurants not only because it is cheap but because they can order from pictures rather than menus. And those who serve them, also semi-literate or illiterate, punch in orders on cash registers whose keys are marked with symbols and pictures. This is our brave new world.

Political leaders in our post-literate society no longer need to be competent, sincere or honest. They only need to appear to have these qualities. Most of all they need a story, a narrative. The reality of the narrative is irrelevant. It can be completely at odds with the facts. The consistency and emotional appeal of the story are paramount. The most essential skill in political theater and the consumer culture is artifice. Those who are best at artifice succeed. Those who have not mastered the art of artifice fail. In an age of images and entertainment, in an age of instant emotional gratification, we do not seek or want honesty. We ask to be indulged and entertained by clichs, stereotypes and mythic narratives that tell us we can be whomever we want to be, that we live in the greatest country on Earth, that we are endowed with superior moral and physical qualities and that our glorious future is preordained, either because of our attributes as Americans or because we are blessed by God or both.

The ability to magnify these simple and childish lies, to repeat them and have surrogates repeat them in endless loops of news cycles, gives these lies the aura of an uncontested truth. We are repeatedly fed words or phrases like yes we can, maverick, change, pro-life, hope or war on terror. It feels good not to think. All we have to do is visualize what we want, believe in ourselves and summon those hidden inner resources, whether divine or national, that make the world conform to our desires. Reality is never an impediment to our advancement.

The Princeton Review analyzed the transcripts of the Gore-Bush debates, the Clinton-Bush-Perot debates of 1992, the Kennedy-Nixon debates of 1960 and the Lincoln-Douglas debates of 1858. It reviewed these transcripts using a standard vocabulary test that indicates the minimum educational standard needed for a reader to grasp the text. During the 2000 debates George W. Bush spoke at a 6th-grade level (6.7) and Al Gore at a 7th-grade level (7.6). In the 1992 debates Bill Clinton spoke at a 7th-grade level (7.6), while George H.W. Bush spoke at a 6th-grade level (6.8), as did H. Ross Perot (6.3). In the debates between John F. Kennedy and Richard Nixon the candidates spoke in language used by 10th-graders. In the debates of Abraham Lincoln and Stephen A. Douglas the scores were respectively 11.2 and 12.0. In short, today's political rhetoric is designed to be comprehensible to a 10-year-old child or an adult with a sixth-grade reading level. It is fitted to this level of comprehension because most Americans speak, think and are entertained at this level. This is why serious film and theater and other serious artistic expression, as well as newspapers and books, are being pushed to the margins of American society. Voltaire was the most famous man of the 18th century. Today the most famous "person" is Mickey Mouse.

In our post-literate world, because ideas are inaccessible, there is a need for constant stimulus. News, political debate, theater, art and books are judged not on the power of their ideas but on their ability to entertain. Cultural products that force us to examine ourselves and our society are condemned as elitist and impenetrable. Hannah Arendt warned that the marketization of culture leads to its degradation, that this marketization creates a new celebrity class of intellectuals who, although well read and informed themselves, see their role in society as persuading the masses that Hamlet can be as entertaining as The Lion King and perhaps as educational. "Culture," she wrote, "is being destroyed in order to yield entertainment."

"There are many great authors of the past who have survived centuries of oblivion and neglect," Arendt wrote, "but it is still an open question whether they will be able to survive an entertaining version of what they have to say."

The change from a print-based to an image-based society has transformed our nation. Huge segments of our population, especially those who live in the embrace of the Christian right and the consumer culture, are completely unmoored from reality. They lack the capacity to search for truth and cope rationally with our mounting social and economic ills. They seek clarity, entertainment and order. They are willing to use force to impose this clarity on others, especially those who do not speak as they speak and think as they think. All the traditional tools of democracies, including dispassionate scientific and historical truth, facts, news and rational debate, are useless instruments in a world that lacks the capacity to use them.

As we descend into a devastating economic crisis, one that Barack Obama cannot halt, there will be tens of millions of Americans who will be ruthlessly thrust aside. As their houses are foreclosed, as their jobs are lost, as they are forced to declare bankruptcy and watch their communities collapse, they will retreat even further into irrational fantasy. They will be led toward glittering and self-destructive illusions by our modern Pied Pipers -- our corporate advertisers, our charlatan preachers, our television news celebrities, our self-help gurus, our entertainment industry and our political demagogues -- who will offer increasingly absurd forms of escapism.

The core values of our open society, the ability to think for oneself, to draw independent conclusions, to express dissent when judgment and common sense indicate something is wrong, to be self-critical, to challenge authority, to understand historical facts, to separate truth from lies, to advocate for change and to acknowledge that there are other views, different ways of being, that are morally and socially acceptable, are dying. Obama used hundreds of millions of dollars in campaign funds to appeal to and manipulate this illiteracy and irrationalism to his advantage, but these forces will prove to be his most deadly nemesis once they collide with the awful reality that awaits us.


We have previously posted articles from the website Lifehack here and here. According to its "About" page, the phrase lifehack "describes any hacks, tips and tricks that get things done quickly by automating, increase productivity and organizing." It would appear they are understating their scope and mission there. Lifehack has many more metaphysical pieces which, we find, occupy an interesting middle ground between straightforward how-to's and comprehensive treatises about how to run your life. This one on balancing work and the rest of your life, for instance ...

Today's employers seem to want more of our time than ever. In the U.S., the average worker puts in 55 hours a week; in Europe and other places where short working weeks have long been the norm, workers are struggling to hold on to their reasonable schedules as employers look to the U.S. model in an effort to increase their bottom lines. Email, text messaging, cell phones, and Blackberries keep us tethered to the office even when we are technically "off-duty."

How can you keep up with your always-on career and still find time to do what you need to do at home, spend time with your family, enjoy some kind of social life, and just plain relax? At risk are your personal relationships, your development as a person, your sanity, and even your life. Stress kills. You need downtime to help your mind and body cope with the demands of your job.

That is the question I asked readers in the first installment of our Great Big Summer Giveaway. Some of the answers are below, along with a few of my own ideas about balancing work with the rest of your life.
  1. Attitude is everything.

    No matter how much you love your job, no matter how big a part of your life it is, ultimately you need to be able to "turn it off" and spend some time not working. This is hard for a lot of people, because their work is an important part of who they are as people. This can be admirable, especially when you accomplish great things in your work, but an always-on-the-job attitude can be harmful in the long run. At the least, the peope around you will get tired of coming in second to your work, causing damage to your relationships and eventually leaving you without them. What is more, it might even reduce your effectiveness in your work -- both the mind and body need a break from thinking about and doing the same things all the time to recharge and keep coming up with fresh ideas.
  2. Keep a rational schedule.

    The more you are trying to juggle, the more important it is to make a good schedule and keep to it. Block out all your work and non-work commitments and make sure to allow plenty of downtime and non-work time. Treat non-work commitments as seriously as you treat working commitments -- the time you have assigned to family, housework, and your own activities needs to be just as inviolable as the time you spend in the office, going to meetings, or meeting deadlines. This is especially true if you are so busy that you cannot reschedule that off-work time.
  3. Learn to say "No."

    If you are having trouble keeping on top of everything going on in your life, it may be that you have committed more time than you have. If you are like me (and just about everyone else), you do not like to refuse favors, new responsibilities, or even casual requests, for fear of (a) looking undependable, (b) upsetting someone, or (c) missing out on something. Make a point of seriously considering any request that comes your way, and double-check your schedule before taking anything else on. When it is too much, do not be afraid to refuse -- you will not be doing anyone any good by taking on tasks that you will not be able to do well because you are too overwhelmed to handle them, or by accepting social invitations that you are too stressed out to enjoy.
  4. Enjoy list-free time.

    This tip comes from Sheree, who says she stopped making lists of things to do in her off-time because of the stress that not finishing the list brought to her weekends. While it is reasonable to want to bring the skills you have honed at work into the rest of your life, if it starts to make your non-work time feel like just so much more work, then stop. Drop the list for a day or two, and take things as they come. This is really about attitude, drawing a clear line between your work-life and the rest of your life.
  5. Keep it organized.

    There is nothing worse than finding yourself faced with overtime or extra working days because you did not get enough done at work. Kim suggests a whole set of organization tips at her blog, Cupalatte, such as:
    • Have as little out as possible: meaning nicknacks, decorating items. My desk has nothing except my computer and phone. Maybe boring but I get things done. My house has very little out also so there is less cleaning and less dusting. Less vision clutter makes me feel more zen anyways.
    • Give away what I do not use "regularly": I feel lighter and giving it to someone with a bigger need makes me feel less guilty for getting rid of good items.
    • Going paperless: my office is paperless. Need I say more? There is no getting up looking for files, misfiling, paper waste, toner waste, buying folders, buying paper. Oh, and being able to fax and email documents in seconds saves so much time.
    • Use grouping: for everything. I "group" my medicine cabinet into "morning items" versus "evening items". For example, morning items would be hair serum, sunblock, make up, deodorant. Evening items would all be "grouped" together too, face wash, floss, toothpaste. My cooking cabinet is grouped into "dry seasonings" and "wet seasonings". My fridge is grouped into "breakfast" items and "lunch" using the clear plastic $1 container so that with one scoop, I have all the items I need and do not need to revisit the fridge. As for cleaning up, everything gets put back in the plastic container and returned to the fridge "once."
  6. Batch it.

    This was also recommended by Kim at Cupalatte, but bears its own mention. Batching tasks can be a great way to get more done in less time, whether it's handling your work email or your mail at home. You'll work faster and better because your mid is only on one thing, and when it's done, you can forget it — so worrying about that bill you have to pay or that email you should respond to doesn't "spill over" into the rest of your day. You know that your bill will get paid during your normal bill-paying time, and your email got responded to when you processed your email.
  7. Clear your mind.

    Dave Smyth finds making lists useful so he can stop fretting about what needs to be done, knowing he will not forget anything.

    “I used to always have a dreadful list that was always running through my mind of all the things that I needed to accomplish, mainly work related. They would interrupt my family time causing me stress at just at the time that I am trying to reduce my stress. So the quicker I can get things into a list or email that I know I will work later, the better off I am.”

    On the whole, I agree with Dave -- lists are crucial -- but there is something to be said for Sheree's notion of doing without one for a day or two a week, so that relaxation time does not start to feel like more of the daily grind. The key point here, though, is to do whatever it takes to confine all the things you would be liable to worry about to a trusted system where you know they will get taken care of, so you can spend the rest of your time without worrying.
  8. Get it wrong the first time.

    Bon Temps at Le Bon Temps Roule offers this tip as a way to get last-minute projects and other time-consumers out of the way so you can get on with your life. The idea is to give yourself a set amount of time -- say, an hour -- to do the job, no matter how poorly. Let go of your perfectionism and just do as well as you can in the set time. You may have to go back and fix it up -- but you will be charged up by knowing the "heavy lifting" is already done. Plus, by forcing yourself to cram the whole job into a short time period, you will give yourself a more "global" view that might help you see things you would not have otherwise. Obviously, this is not going to apply to every situation. If your boss comes to you with a last-minute report that has to be generated, this will work great; if your boss asks you to fill in for the other neurosurgeon, who got caught in traffic, a little perfectionism is probably in order.
  9. Keep the lines of communication open.

    I learned this the hard way when a rough patch of work started to alienate me from my family. Let the people closest to you know what is going on in your work life when things get hectic, so they do not feel like your lowest priority or worse, suddenly abandoned. And keep your ears open to hear what they tell you, too -- if your spouse or partner, your friends, or your kids start complaining -- or tell you straight out that you are working too much -- listen to them. They are generally going to be a better judge of your behavior than you are.
  10. Be honest with yourself.

    This is the hardest one, but also the most necessary. Part of your weekly review -- or at least every 3rd or 4th one -- should be to ask yourself "Am I happy with all this?" And to follow up by looking at how well you are doing of balancing everything. Be honest -- this is your life we are talking about. If you cannot face the hard questions, all the lifehacks and organizing will not mean a thing. You will just slide away.