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

W.I.L. Offshore News Digest for Week of December 22, 2008

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


Be we religious or be we not, our celebration of Christ’s birthday celebrates a religion that made us masters of our souls and of our political life on Earth. Such a religion as this is worth holding on to even by atheists.

Paul Craig Roberts reminds us that whatever be our spiritual or religious persuasion, even if it be atheistic, we owe a lot of the political freedom we possess to ideas which first obtained major exposure through the teachings of Christ. At a time where raw power was the only rule of the day he spoke into existence the possibility of a world where the default mode of relating was respect and goodwill -- where the predisposition was to cooperate instead of fight. No wonder the powers that be were threatened. That is another story. For this week, we celebrate the birth of the possibility, and what has actually been accomplished on its account.

Christmas is a time of traditions. If you have found time in the rush before Christmas to decorate a tree, you are sharing in a relatively new tradition. Although the Christmas tree has ancient roots, at the beginning of the 20th century only 1 in 5 American families put up a tree. It was 1920 before the Christmas tree became the hallmark of the season. Calvin Coolidge was the first President to light a national Christmas tree on the White House lawn.

Gifts are another shared custom. This tradition comes from the wise men or three kings who brought gifts to baby Jesus. When I was a kid, gifts were more modest than they are now, but even then people were complaining about the commercialization of Christmas. We have grown accustomed to the commercialization. Christmas sales are the backbone of many businesses. Gift giving causes us to remember others and to take time from our harried lives to give them thought.

The decorations and gifts of Christmas are one of our connections to a Christian culture that has held Western civilization together for 2,000 years.

In our culture the individual counts. This permits an individual person to put his or her foot down, to take a stand on principle, to become a reformer and to take on injustice.

This empowerment of the individual is unique to Western civilization. It has made the individual a citizen equal in rights to all other citizens, protected from tyrannical government by the rule of law and free speech. These achievements are the products of centuries of struggle, but they all flow from the teaching that God so values the individual's soul that He sent His son to die so we might live. By so elevating the individual, Christianity gave him a voice.

Formerly only those with power had a voice. But in Western civilization people with integrity have a voice. So do people with a sense of justice, of honor, of duty, of fair play. Reformers can reform, investors can invest, and entrepreneurs can create commercial enterprises, new products and new occupations.

The result was a land of opportunity. The United States attracted immigrants who shared our values and reflected them in their own lives. Our culture was absorbed by a diverse people who became one.

In recent decades we have begun losing sight of the historic achievement that empowered the individual. The religious, legal and political roots of this great achievement are no longer reverently taught in high schools, colleges and universities. The voices that reach us through the millennia and connect us to our culture are being silenced by "political correctness." Prayer has been driven from schools and Christian religious symbols from public life. Diversity is becoming the consuming value and is dismantling the culture.

There is plenty of room for cultural diversity in the world, but not within a single country. A Tower of Babel has no culture. A person cannot be a Christian one day, a pagan the next and a Muslim the day after. A hodgepodge of cultural and religious values provides no basis for law -- except the raw power of the pre-Christian past.

All Americans have a huge stake in Christianity. Whether or not we are individually believers in Christ, we are beneficiaries of the moral doctrine that has curbed power and protected the weak. Power is the horse ridden by evil. In the 20th century the horse was ridden hard. One hundred million people were exterminated by National Socialists in Germany and by Soviet and Chinese communists simply because they were members of a race or class that had been demonized by intellectuals and political authority.

Power that is secularized and cut free of civilizing traditions is not limited by moral and religious scruples. V.I. Lenin made this clear when he defined the meaning of his dictatorship as "unlimited power, resting directly on force, not limited by anything."

Christianity's emphasis on the worth of the individual makes such power as Lenin claimed unthinkable. Be we religious or be we not, our celebration of Christ's birthday celebrates a religion that made us masters of our souls and of our political life on Earth. Such a religion as this is worth holding on to even by atheists.


For a tragically short time, the Spirit of the Prince of Peace drowned out the murderous demands of the State.

“You’ve got to be taught to hate and fear, you’ve got to be taught from year to year,” go the lyrics of Rogers and Hammerstein's “You’ve Got to Be Carefully Taught” from their South Pacific musical. The same goes for soldiers as children. Those sitting high above the battlefield want their pawns to kill without remorse, but they have to be programmed to do this. Most soldiers are driven by loyalty to their buddies and are just trying to survive. Before the systematic dehumanizing of the opponent had reached today's demented levels, soldiers given a little time to think might wonder if the guys on the other side were as bad as they were taught. The story of the Christmas truce along the Western Front in 1914 showed what can happen when the soldiers acted on such thinking. Those in charge did not like the result one bit.

The extraordinary story is worth repeating often, and especially at this time of year. William Grigg helps us out this holiday season, describing the event and its background in illuminating detail. And it leaves us wondering once again about one of the great unanswered questions of history: What if World War I -- known as "The Great War" until the still greater carnage of World War II -- had been avoided. Would the malignancies of Nazism, Fascism and Bolshevism, Middle East conflict, and an America which metamorphosed from a consititutional republic into an empire, been avoided as well? The question is considered in this ancillary piece. If anything worthwhile came out of that disaster it was the example set by the soldiers during the Christmas truce.

In August 1914, Europe's major powers threw themselves into war with gleeful abandon. Germany, a rising power with vast aspirations, plowed across Belgium, seeking to checkmate France quickly before Russia could mobilize, thereby averting the prospect of a two-front war. Thousands of young Germans, anticipating a 6-week conflict, boarded troop trains singing the optimistic refrain: "Ausflug nach Paris. Auf Widersehen auf dem Boulevard." ("Excursion to Paris. See you again on the Boulevard.")

The French were eager to avenge the loss of Alsace and Lorraine to Germany in 1870. The British government, leery of Germany's growing power, mobilized hundreds of thousands of young men to "teach the Hun a lesson." Across the continent, writes British historian Simon Rees, "millions of servicemen, reservists and volunteers ... rushed enthusiastically to the banners of war. ... The atmosphere was one of holiday rather than conflict."

Each side expected to be victorious by Christmas. But as December dawned, the antagonists found themselves mired along the Western Front -- a static line of trenches running for hundreds of miles through France and Belgium. At some points along the Front, combatants were separated by less than 100 feet. Their crude redoubts were little more than large ditches scooped out of miry, whitish-gray soil. Ill-equipped for winter, soldiers slogged through brackish water that was too cold for human comfort, but too warm to freeze.

The unclaimed territory designated No Man's Land was littered with the awful residue of war -- expended ammunition and the lifeless bodies of those on whom the ammunition had been spent. The mortal remains of many slain soldiers could be found grotesquely woven into barbed wire fences. Villages and homes lay in ruins. Abandoned churches had been appropriated for use as military bases.

As losses mounted and the stalemate hardened, war fever began to dissipate on both sides. Many of those pressed into service on the Western Front had not succumbed to the initial frenzy of bloodlust. Fighting alongside French, Belgian, and English troops were Hindus and Sikhs from India, as well as Gurkhas from the Himalayan Kingdom of Nepal. These colonial conscripts had been transported from their native soil and deployed in trenches carved out of wintry Belgian cabbage patches. Highland Scots were also found at the Front, proudly wearing their kilts in defiance of the bitter December cold.

The German troops were led by elite Prussian officers, representatives of the bellicose Junker aristocracy. The German rank and file included Bavarian, Saxon, Westphalian, and Hessian reservists, more than a few of whom had lived -- or even been born -- in England and spoke perfect English. Bismarck's efforts to unite the scattered German principalities notwithstanding, many German troops remained more attached to their local communities than to what for them was an abstract German nation.

Comrades at Arms

Wallowing in what amounted to cold, fetid sewers, pelted by freezing rain, and surrounded by the decaying remains of their comrades, soldiers on both sides grimly maintained their military discipline. On December 7, Pope Benedict XV called for a Christmas cease-fire. This suggestion earned little enthusiasm from political and military leaders on both sides. But the story was different for the exhausted frontline troops.

A December 4 dispatch from the commander of the British II Corps took disapproving notice of a "live-and-let-live theory of life" that had descended on the Front. Although little overt fraternization was seen between hostile forces, just as little initiative was shown in pressing potential advantages. Neither side fired at the other during meal times, and friendly comments were frequently bandied about across No Man's Land. In a letter published by the Edinburgh Scotsman, Andrew Todd of the Royal Engineers reported that soldiers along his stretch of the Front, "only 60 yards apart at one place ... [had become] very 'pally' with each other."

Rather than flinging lead at their opponents, the troops would occasionally hurl newspapers (weighted with stones) and ration tins across the lines. Barrages of insults sometimes erupted as well, but they were delivered "generally with less venom than a couple of London cabbies after a mild collision," reported Leslie Walkinton of the Queen's Westminster Rifles.

As December waxed, the combat ardor of the frontline troops waned. With Christmas approaching, the scattered and infrequent gestures of goodwill across enemy lines increased. About a week before Christmas, German troops near Armentieres slipped a "splendid" chocolate cake across the lines to their British counterparts. Attached to that delectable peace offering was a remarkable invitation:
We propose having a concert tonight as it is our Captain's birthday, and we cordially invite you to attend -- provided you will give us your word of honor as guests that you agree to cease hostilities between 7:30 and 8:30. ... When you see us light the candles and footlights at the edge of our trench at 7:30 sharp you can safely put your heads above your trenches, and we shall do the same, and begin the concert.
The concert proceeded on time, with the bewhiskered German troops singing "like Christy Minstrels," according to one eyewitness account. Each song earned enthusiastic applause from the British troops, prompting a German to invite the Tommies to "come mit us into the chorus." One British soldier boldly shouted, "We'd rather die than sing German." This jibe was parried instantly with a good-natured reply from the German ranks: "It would kill us if you did." The concert ended with an earnest rendition of "Die Wacht am Rhein," and was closed with a few shots deliberately aimed at the darkening skies -- a signal that the brief pre-Christmas respite was ended.

Elsewhere along the Front, arrangements were worked out to retrieve fallen soldiers and give them proper treatment or burial. In a letter to his mother, Lt. Geoffrey Heinekey of the 2nd Queen's Westminster Rifles described one such event that took place on December 19. "Some Germans came out and held up their hands and began to take in some of their wounded and so we ourselves immediately got out of our trenches and began bringing in our wounded also," he recalled. "The Germans then beckoned to us and a lot of us went over and talked to them and they helped us to bury our dead. This lasted the whole morning and I talked to several of them and I must say they seemed extraordinarily fine men. ... It seemed too ironical for words. There, the night before we had been having a terrific battle and the morning after, there we were smoking their cigarettes and they smoking ours."

Football in No Man’s Land

Soon talk along the Front turned to the prospect of a formal cessation of hostilities in honor of Christmas. Again, this idea met resistance from above. Comments historian Stanley Weintraub, in his book, Silent Night: The Story of the World War I Christmas Truce:
Most higher-ups had looked the other way when scattered fraternization occurred earlier. A Christmas truce, however, was another matter. Any slackening in the action during Christmas week might undermine whatever sacrificial spirit there was among troops who lacked ideological fervor. Despite the efforts of propagandists, German reservists evidenced little hate. Urged to despise the Germans, [British] Tommies saw no compelling interest in retrieving French and Belgian crossroads and cabbage patches. Rather, both sides fought as soldiers fought in most wars -- for survival, and to protect the men who had become extended family.
In a sense, the war itself was being waged within an extended family, since both Germany's Kaiser Wilhelm II and England's King George V were grandsons of Queen Victoria. More importantly, the warring nations were all part of what had once been known as Christendom. The irony of this fact was not lost on those sentenced to spend Christmas at the Front.

By Christmas Eve, the German side of the Front was radiant with glowing Tannenbeume -- small Christmas trees set up, sometimes under fire, by troops determined to commemorate the holy day. "For most British soldiers, the German insistence on celebrating Christmas was a shock after the propaganda about Teutonic bestiality, while the Germans had long dismissed the British as well as the French as soulless and materialistic and incapable of appreciating the festival in the proper spirit," writes Weintraub. "Regarded by the French and British as pagans -- even savages -- the pragmatic Germans were not expected to risk their lives on behalf of each beloved Tannenbaum. Yet when a few were felled by Scrooge-like gunfire, the Saxons opposite the [British line] stubbornly climbed the parapets to set the endangered trees up once more."

The radiant Christmas trees reminded some Indian conscripts of lanterns used to celebrate the Hindu "Festival of Lights." Some of them must have been puzzled over finding themselves freezing, undernourished, and confronting a lonely death thousands of miles from their homes as soldiers in a war which pitted Christian nations against each other. "Do not think that this is war," wrote one Punjabi soldier in a letter to a relative. "This is not war. It is the ending of the world."

But there were souls on each side of that fratricidal conflict determined to preserve the decencies of Christendom, even amid the conflict. As Christmas dawned, German Saxon troops shouted greetings to the British unit across from it: "A happy Christmas to you, Englishmen!" That welcome greeting prompted a mock-insulting reply from one of the Scottish troops, who was mildly irritated at being called an Englishman: "The same to you Fritz, but dinna o'er eat youself wi' they sausages!"

A sudden cold snap had left the battlefield frozen, which was actually a relief for troops wallowing in sodden mire. Along the Front, troops extracted themselves from their trenches and dugouts, approaching each other warily, and then eagerly, across No Man's Land. Greetings and handshakes were exchanged, as were gifts scavenged from care packages sent from home. German souvenirs that ordinarily would have been obtained only through bloodshed -- such as spiked pickelhaube helmets, or Gott mit uns belt buckles -- were bartered for similar British trinkets. Carols were sung in German, English, and French. A few photographs were taken of British and German officers standing alongside each other, unarmed, in No Man's Land.

Near the Ypres salient, Germans and Scotsmen chased after wild hares that, once caught, served as an unexpected Christmas feast. Perhaps the sudden exertion of chasing wild hares prompted some of the soldiers to think of having a football match. Then again, little prompting would have been necessary to inspire young, competitive men -- many of whom were English youth recruited off soccer fields -- to stage a match. In any case, numerous accounts in letters and journals attest to the fact that on Christmas 1914, German and English soldiers played soccer on the frozen turf of No Man's Land.

British Field Artillery Lieutenant John Wedderburn-Maxwell described the event as "probably the most extraordinary event of the whole war -- a soldier's truce without any higher sanction by officers and generals. ..." This is not to say that the event met with unqualified approval. Random exchanges of gunfire along the Front offered lethal reminders that the war was still underway.

From his rearward position behind the lines, a "gaunt, sallow soldier with a thick, dark mustache and hooded eyes" witnessed the spontaneous eruption of Christian fellowship with hateful contempt. The German Field Messenger of Austrian birth heaped scorn on his comrades who were exchanging Christmas greetings with their British counterparts. "Such a thing should not happen in wartime," groused Corporal Adolf Hitler. "Have you no German sense of honor left at all?" "More than patriotic scruples were involved" in Hitler's reaction, notes Weintraub. "Although a baptized Catholic, he rejected every vestige of religious observance while his unit marked the day in the cellar of the Messines monastery."

What If ...?

In a January 2, 1915 account of the Christmas Truce, the London Daily Mirror reflected that "the gospel of hate" had lost its allure to soldiers who had come to know each other.

"The soldier's heart rarely has any hatred in it," commented the paper. "He goes out to fight because that is his job. What came before -- the causes of the war and the why and wherefore -- bother him little. He fights for his country and against his country's enemies. Collectively, they are to be condemned and blown to pieces. Individually, he knows they are not bad sorts."

"Many British and German soldiers, and line officers, viewed each other as gentlemen and men of honor," writes Weintraub. The rank and file came to understand that the man on the other end of the rifle, rather than the soulless monster depicted in ideological propaganda, was frightened and desperate to survive and return to his family. For many along the Front, these realities first became clear in the light cast by the German Tannenbaum.

In the shared symbol of the Christmas tree -- an ornament of pagan origins appropriated by Christians centuries ago -- British and German troops found "a sudden and extraordinary link," observed British author Arthur Conan Doyle after the war (a conflict that claimed his son's life). "It was an amazing spectacle," Doyle reflected, "and must arouse bitter thought concerning the high-born conspirators against the peace of the world, who in their mad ambition had hounded such men on to take each other by the throat rather than by the hand."

In a remarkable letter published by The Times of London on January 4, a German soldier stated that "as the wonderful scenes in the trenches [during Christmas] show, there is no malice on our side, and none in many of those who have been marshaled against us." But this was certainly not true of those who orchestrated the war, the "high-born conspirators against the peace of the world." As British historian Niall Ferguson points out, the war-makers' plans for the world required "Maximum slaughter at minimum expense." The informal truce held through Christmas and, at some points along the Front, through the following day (known as "Boxing Day" to British troops). But before New Year's Day the war had resumed in all of its malignant fury, and the suicide of Christendom continued apace.

Most wars are senseless exercises in mass murder and needless destruction. World War I, however, is remarkable not only for being more avoidable and less justifiable than most wars, but also for its role in opening the gates of hell. Mass starvation and economic ruin inflicted on Germany during the war and its aftermath cultivated the National Socialist (Nazi) movement. Nearly identical ruin wrought in Russia thrust Lenin and the Bolsheviks to power. Benito Mussolini, a socialist agitator once regarded as Lenin's heir, rose to power in Italy. Radical variants of intolerant totalitarian nationalism ulcerated Europe. The seeds of future wars and terrorism were deeply sewn in the Middle East.

What if the Christmas Truce of 1914 had held? Might a negotiated peace have ensued, preserving Christendom for at least a while longer? We do not know. It is doubtful that the "high-born conspirators against the peace of the world" would have been long deterred in pursuing their demented plans. But the truce -- a welcome fermata in the symphony of destruction -- illustrated a timeless truth of the nature of the human soul as designed by its Creator.

Reflecting on the Christmas Truce, Scottish historian Roland Watson writes: "The State bellows the orders ‘Kill! Maim! Conquer!’ but a deeper instinct within the individual does not readily put a bullet through another who has done no great offense, but who rather says with them, ‘What am I doing here?’" For a tragically short time, the Spirit of the Prince of Peace drowned out the murderous demands of the State.


There has been an ongoing and largely unpublicized border dispute between Belize and Guatemala, which is to say the governments of Belize and Guatemala. The dispute formally goes back in some form all the way to 1859, when Guatemala and Great Britain disagreed over exactly what they had agreed to in the treaty of that date, but has its roots in conflicts between the British and Spanish empires over the centuries. Belize, formerly British Honduras, achieved independence from its colonial parent in 1981.

Fighting is a drain of resources and a source of trauma that no one can afford, least of all developing countries. So the announcement of a Special Agreement between the two countries, negotiated under the auspices of the Organization of American States (OAS), to move quickly to get their issue before the International Court of Justice and to act in a civilized manner towards each other in the mean time is good holiday season news. The fact that the sides are settling their problems by peaceful means rather than with guns hopefully indicates a true evolution in thinking.

Border disputes are a contentious and unnecessary barrier to economic and social development in countries involved in them. They frustrate international cooperation on trade, environment protection, security, and law enforcement. They also scare off private sector investment and they are a drain on budgets and resources.

For these reasons, the people of Belize and Guatemala and their neighboring countries should welcome the news that on December 8th, the governments of the two countries signed a Special Agreement to "submit Guatemala's territorial, insular, and maritime claim to the International Court of Justice (ICJ)."

The Caribbean region has been plagued by three border disputes for over four decades. Guatemala has laid claim to the territory of Belize (formerly a British colony), Venezuela seeks to reopen a claim settled over a century ago to 2/3 of Guyana (also a former British colony) and Guyana and Suriname (a former Dutch colony) quarrel over the area that constitutes their boundary.

In 1980, the United Nations urged Guatemala and Belize to find a peaceful solution to their territorial problem. But, since then, there have been serious incidents between the military forces of the two countries and bloody confrontations, loss of life, and destruction of crops. The two sides then participated in an initiative in 2000 by the Organization of American States (OAS) to facilitate a negotiated settlement of their problem. Largely because of Guatemalan recalcitrance, the effort petered out though the OAS-appointed facilitators had laid the groundwork for a lasting solution.

It is a matter of conjecture how much better off Belize and Guyana might now have been had Guatemala and Venezuela not maintained their claims, absorbing the scare resources of the two smaller countries to ward them off, and frightening away investment.

The Special Agreement has to be approved by the citizens of Belize and Guatemala in referenda. It is assumed that the Belize referendum will be fairly plain sailing since both the ruling political party and the main opposition party have both worked toward a resolution of the problem. Although, it has to be said, that there may be some understandable nervousness in Belize because the decision of the ICJ will be binding. In this connection, the worst case scenario for Guatemala is that it will not get any of the territory to which it aspires; the worst case scenario for the Belizeans is the loss of their homeland and their sovereignty.

Nonetheless, encouraged by the efforts of the Secretary-General of OAS under whose auspices the Special Agreement was signed, the foreign minister of Guatemala Roger Haroldo Rodas Melgar declared "we are beginning a process that, regardless of its outcome, will enable the governments and peoples of these two countries to act in a manner that befits the start of the Twenty-first Century." That is a sentiment that had been expressed almost identically by Assad Shoman, then Belize's Chief Negotiator with Guatemala, in September 2005.

Nations everywhere should welcome the signing of the Special Agreement and encourage the two countries to move quickly to get their issue before the ICJ. The fact that the governments have chosen to settle their problems by peaceful means and international law rather than war and bloodshed, indicates both their growing maturity and the value of the OAS in conflict resolution.

The procedures at the ICJ are long and it could be three years before the Court hands down a decision. During this period, both nations will have to behave with considerable restraint toward each other. And, equally, the governments will have to mount programmes of education amongst their own populations to counter the efforts of hot heads who would seek to sacrifice the legal process on the altar of nationalism and perceived patrimony. In this connection, the role of the OAS is not yet over and the Secretary-General should even now be exploring ways in which machinery can be established to keep the peace and educate the public as the ICJ process advances.

The ICJ process is also expensive and particularly so for small countries. Each government will have to hire a battery of lawyers, cartographers and other specialists to assemble their arguments. The cost will run into millions of dollars. The OAS is to be congratulated for its foresight in creating and administering a fund to contribute to the legal costs that both countries will incur. But plaudits are also due to the British government, which, while not a member of the OAS, has announced, through one of its Foreign Ministers, Gillian Merron, that it "will make an initial contribution of £200,000 (US$300,000 aprox) to this fund".

No one can foresee exactly what the ICJ will decide in their adjudication of the Belize-Guatemala issue. However, the merits of each side's case have been argued since 1859, and it seems unlikely that any Court would uphold Guatemala's claim to all of Belize.

One of Guatemala's own point of contention may hold the seeds of a solution. It is that the borders set for Belize deprive Guatemala from access to the Atlantic coast, thus hampering its future economic development and its access to the high seas. If the ceding of such access is what Belize is required to grant in the end, the peace, stability and potential for economic development would be well worth it.

The solution to the Guyana border issues with Venezuela and Suriname may also lie at some future point in recourse to the ICJ, but this depends most particularly on the attitude of the Venezuela government which could have long sought a negotiated solution. Guyana and Suriname last year settled a maritime boundary dispute by arbitration under the United Nations Law of the Sea Convention, and, despite an incident this year in the river separating them, the potential for a legal and lasting settlement is possible.

A final, fair and legally binding settlement of their boundaries by all these countries will put them in the forefront of regional efforts to embrace opportunities for cooperation and mutual growth. They should end these disputes.


Can Singapore more successfully resist pressure from the U.S. and O.E.C.D. than Switzerland and Liechtenstein?

European wealth had been migrating from European-based offshore financial centers to Singapore long before this past year's scandals involving Switzerland and Liechtenstein, and the consequent compromises those two centers made in their client privacy practices. The passage of the EU Savings Tax Directive probably supplied the initial push east. Of course the two scandals also gave anyone who had been dawdling over moving their assets out of Europe a mightly nudge.

All this brings Singapore into the crosshairs of the OECD to a greater degree. Will Singapore be forced to compromise as well? This article identifies what we regard as the most important long-run determinant: Since Asia is emerging financial and military power China's territory, will the U.S. and Europe be willing to challenge China by forcing things with Singapore? Singapore would have every reason to resist putting itself at a competitive disadvantage to competing financial services center Hong Kong -- and in any case then the OECD's problem would just migrate to Hong Kong -- and pressure on Hong Kong would be direct pressure on China.

As pressure mounts on UBS, the flagship bank of Switzerland, and that country's secrecy code comes under fire from the United States and Germany, Singapore's star as a haven for the super-rich is rising fast.

Singapore, a sun-drenched Asian city-state with the highest density of millionaires in the world, is seeing its wealth management industry prosper as the U.S. and Europe grapple with the worst slump in a generation.

Singapore's strict bank secrecy rules are likely to be spared an assault similar to the one that Switzerland is defending itself against now, after UBS's wealth management chief was charged with helping Americans hide money.

With close ties to power throughout Asia, Singapore is in a stronger position to resist pressure from the U.S. than either Switzerland or Liechtenstein, which partially reduced its bank secrecy protections recently.

"It is a wealth center," said Martyn Schilte, a manager in charge of selling million-dollar cars in Singapore. "If you look at the type of client we sell to, it is people with a net worth of $50 million-plus."

The city-state has its sights on attracting the world's wealthy to its palm-tree-lined coastline, where some apartments come with a private yacht berth. Its plan is working. As Asia's elite move billions to the country, assets under management soared by a third last year to more than $800 billion.

The industry is still small compared with Switzerland's. Singapore had $500 billion in offshore assets under management last year, according to the Boston Consulting Group, while Switzerland had four times as much. But it puts the region on the map for banks hoping to capitalize on a more resilient Asia as economies in the West slow.

As jobs cuts cloud London and New York, banks like Credit Suisse and Macquarie Group of Australia are hiring wealth management staff in Singapore. Bank of China is one of the latest to plan a wealth management arm in Singapore, hoping to meet millionaires like those who recently gathered to buy and sell private jets on the sidelines of a Formula One race.

"Singapore has developed a lot and has all the ingredients to compete internationally," said Deepak Sharma, an executive in charge of Citigroup's global wealth management business outside the U.S.

Like Monaco, another tax haven, Singapore has a hard line on bank secrecy. It has not agreed to the standards of transparency and exchange of information as put forth by the Organization for Economic Cooperation and Development (OECD), a grouping of 30 industrialized democracies.

Singapore, which is trying to grow financial services to wean itself from dependence on manufacturing, is on the International Monetary Fund's list of tax havens and is a target of a proposed new U.S. law to fight tax abuses.

Another country that had similarly shunned the OECD, Liechtenstein, recently agreed to a landmark deal with the U.S., paving the way for the exchange of account details with Washington in cases of tax evasion. The agreement may pressure Switzerland into similar concessions, which could work to Singapore's advantage.

Prime Minister Lee Hsien Loong of Singapore said this month such scrutiny in the West could lead to more European money flowing into the country, a hot talking point in the industry.

"It is interesting to notice a growth in the number of European clients booking wealth through Singapore, which unlike Switzerland does not recognize the European tax directive," said Sebastian Dovey, a consultant at Scorpio Partnership.

But European cash comes with the risk that Singapore could be targeted in the crackdown on tax havens. "I expect Singapore to come under pressure, too," Lee said.

The U.S. told Singapore and its banks last year to sever financial links with Myanmar's military junta, widely believed to use Singapore as its main offshore banking center.

"Increasingly Singapore is looking out on a limb," said Jeffrey Owens, director of the Center for Tax Policy Administration at the OECD. "It is for the Singapore government to assess how the political climate is changing to protect the reputation of the Singapore brand."

Singapore's central bank has said that its confidentiality laws are not a shield for criminal activities and that banks can disclose customer information to assist such investigations.

Singapore is in a stronger position to resist the strong arm of Washington. Experts in the region point out that it is a U.S. military ally and one of the few Asian countries with a deep-water port that could hold a U.S. aircraft carrier.

Brussels, too, might shy away from a fight, as it is unclear how many Europeans park money in Singapore. Bankers have played down its significance as a destination for European money and say that most came from Asia, and in particular Indonesia.

Singapore's central bank says over half the money managed in the city-state comes from outside the Asia-Pacific region, although this includes pension funds and hedge funds as well as private banking.

Throwing down the gauntlet to Singapore would be an indirect challenge to China.

Ultimately, however, it may be politics that makes throwing down the gauntlet to Singapore difficult. To do so, said experts, would be an indirect challenge to China.

"If I were the Singapore government, I would not sign unless it is on equal footing with Hong Kong, the key competitor," said Roman Scott, managing director of Calamander Capital, a consulting firm.

The European Union, Scott said, is not putting pressure on Hong Kong, however, because it is reluctant to confront Beijing. Furthermore, any agreement with Europe could pave the way for demands for the same treatment from places like Indonesia, Thailand or Taiwan.

"That is one of the reasons for the resistance as they do not want to open a Pandora's box," Scott said. "They are scared what might come up. The European customers are minor -- what is more important is that you do not want to open up everything for everybody."


As many government supporters feared, little action has resulted from the latest attempt to move against tax havens.

European governments, anti-tax haven lobbyists and "experts", and assorted parties who would like to get their hands on government tax revenues are complaining that for all the talk, not much is being done about the "problem" of tax havens. Could be an attempt to keep the publicity campaign in high gear through the holiday season, or high expectations disappointed, or it could be that substantive actions are not in sight.

The irony of the last event was perhaps telling of the inaction to follow. About 200 experts in international finance met last month in Monte Carlo to discuss tougher international regulations against tax evasion. Monte Carlo, in Monaco to the south of France, is one of the most conspicuous tax havens in Europe.

"At least, we were discussing tax evasion at the geographical heart of the matter," a French financial expert told IPS. Monaco, he said, "has a very bad image even among the global financial community."

Monaco, Andorra and Liechtenstein are the last three tax havens in Europe accused by the OECD, a grouping of 30 wealthy nations, of not applying the body's voluntary standards on financial transparency and exchange of information.

But the meeting in Monte Carlo, organized by the OECD's Financial Action Task Force (FATF), was evidence at least that the fight against tax evasion is back on the international agenda. The OECD and the FATF have been leading a fight against tax havens since the early 1990s. Tax havens are seen as the homes of speculative hedge funds, criminal money laundering, and tax evasion.

A tax haven is a territory -- a state or a jurisdiction within a state -- where taxes are low or not levied at all. This invites wealthy individuals and firms to set up a presence in these territories to escape taxation at home. And they are centers of money laundering because few questions are asked about the source of the money or where it goes.

The efforts of the OECD and the FATF have been largely fruitless.

The OECD hosted an international conference at its headquarters in Paris in October to seek consensus on new rules against tax havens. OECD director-general Angel Gurría said the meeting came "during the most difficult economic times we have faced in many decades."

The conference was sought by the French and German governments. Under pressure as a result of the global financial meltdown, and the need to bail out banks facing bankruptcy due to their involvement in speculative transactions, France and Germany have been leading efforts to control, or even close, tax havens.

"We have agreed to lend money to the banks to rescue them from bankruptcy, but at the same time they cannot continue working with tax havens," French president Nicolas Sarkozy said ahead of the OECD meeting. Tax havens must be closed, he said.

Gurría estimates that tax havens across the world hold up to $7 trillion. He said at the meeting that "many countries ... have over the last three years reinforced their (anti-tax evasion) provisions."

But some figures on tax havens suggest otherwise. According to Tax Justice Network, a London-based independent organisation, some 11 trillion dollars are hidden away from taxation in European countries such as Monaco, Liechtenstein, and Switzerland, and other tax havens across the world.

Eight years ago, the International Monetary Fund (IMF) estimated the total amount in tax havens to be a trillion dollars. If these figures are all correct, they would suggest that money flows into tax havens have increased significantly.

The "black list" of "non-cooperative" tax havens the FATF puts together itself would suggest that there are no more tax havens. In 2000 the FATF blacklisted 15 countries, jurisdictions, and territories for not cooperating in the fight against tax evasion. The last FAFT "list" released in October 2006 is blank. According to Gurría, the OECD's own black list has by 2008 been reduced to Andorra, Liechtenstein and Monaco.

But many experts believe this kind of listing is meaningless when there are thousands of secret bank accounts being operated throughout the tax havens. And they say renewed efforts for international regulation of tax havens seem to be starting from scratch again. "Of course, I salute this return, but I am still pessimistic," Jean Merckaert who coordinates a French analysis group on tax havens told IPS.

Merckaert said the fight is at least 15 years old. "More than 10 years after many international forums started to debate about tax havens and how to control them, we have to admit that nothing has changed."

The supposed international cooperation on this was merely rhetoric, he said. "To get erased from the FAFT black list, it sufficed that the tax havens signed an agreement of cooperation," said Merckaert. And so European Union (EU) member countries, such as Germany, have launched a crackdown on tax evasion against their citizens for maintaining secret bank accounts in other EU states.

At the FATF meeting in Monte Carlo, Prince Alberto of Monaco denied that his country is a tax haven. "I know that Monaco has to have an irreproachable conduct in its financial dealings," he told the audience.

There are not many takers for that view. "Monaco remains a black hole of financial globalization," Paris judge Renaud Van Ruymbeke, who has led many inquiries into financial crimes, said in an interview published in the daily Le Monde.

Van Ruymbeke said it was odd to see renewed talk of closing down tax havens. "I am surprised that our political leaders only now discover offshore financial centers," he said. "Many colleagues and I denounced it in 1996 when we launched the Geneva appeal, drawing attention that tax havens are also havens for criminals." Van Ruymbeke added.


The long arm of the American polically-connected class continues to be felt around the world, as ever. Domestic U.S. gambling interests have succeeded in obtaining increasing government (state and federal) resources devoted to thwarting their competitors, especially internet betting sites based offshore. The most extreme -- and ridiculous -- cases of the efforts were when members of offshore betting operations' upper managements were arrested when they set foot on U.S. soil. Their fellow managers got the message and have avoided the U.S., as far as we are aware, since, but are weighing the costs of possible future enforcement actions against them versus the profitability of their U.S. operations.

Now a leading offshore bookmaker, PinnacleSports.com, has decided to stop taking bets on to North American horse races. The company offered no explanation for the move. With a business, unlike a government, we can pretty much guess: Their assessment of the benefits of continuing to take such bets was less than expected costs ... etc. North American pari-mutuel wagering will come in at 10-year lows this year, partly due to offshore competition. One has a ready explanation for why the domestic gambling interests would want to have offshore competition stomped down on further: Join the crowd and get Uncle Sam to help you.

Incidentally, while the major reasons for the U.S./OECD crackdown on offshore tax havens lie elsewhere, we doubt the domestic providers of financial services are unhappy about the shackling of their foreign competitors.

A decision by a leading offshore bookmaker to stop carrying North American horse races certainly is significant, even if the reasons for the decision are unclear. Pinnaclesports.com, which bills itself as the "Internet's leading sports betting site," offered little in terms of explanation when it announced it would stop carrying United States races on December 15.

"Due to the various changes in the North American racing industry, Pinnacle Sports finds itself in a position where we are unable to offer horse racing to our satisfaction," the site announced. "This, added to the declining interest of our clients in racing in general, has prompted us to discontinue wagering on daily North American horse racing."

A company spokeswoman confirmed the Pinnacle decision but added that the company does not comment on reasons for its business decisions.

The decision could be a result of the U.S. turning up legal pressure. Based on Wire Act violations, the Justice Department has arrested executives of some offshore gambling sites. Also, enforcement provisions of the Unlawful Internet Gambling Enforcement Act of 2006 that focus on blocking gambling transactions at the financial-institution level are coming on line.

Bill Kisby, an expert on offshore financial investigations, said more and more offshore gaming sites are choosing to stop marketing to U.S. players. He said these companies are looking at how much business they are doing with U.S. customers and weighing that against potential legal ramifications.

"More and more of these sites are making the decision that marketing to U.S. players is no longer worth the legal risk," Kisby said.

The U.S. allows pari-mutuel wagering through licensed advance-deposit wagering sites but does not allow betting on offshore sites that book wagers. Because wagers at the bookmakers do not go into the pari-mutuel pools, racetracks and horsemen lose revenue.

North American pari-mutuel wagering on Thoroughbred racing will be off by about $1-billion this year and could finish below $14-billion for the first time since 1998. The decline has been blamed on the bad economy, an ADW dispute that has caused content restrictions for pari-mutuel sites, and customer migration from licensed outlets to offshore bookmakers.

With its 7% rebate on race wagers, Pinnacle -- and sites like it -- are attractive to bettors. This year, the ADW dispute gave bettors another reason to move to offshore outlets, which offer a full menu of signals. For instance, bettors using licensed sites have been unable to wager on tracks like Churchill Downs and Calder Race Course this year, but Pinnacle has offered both.

With offices in London and Willemstad, Curacao, Pinnacle said it does not accept U.S. customers, a policy put in place in 2007. But information on circumventing that requirement is readily available on the Internet. The fact that the site had carried North American races certainly suggested it was continuing to accept U.S. players.

The change at Pinnacle surprised Ian Meyers, chief executive officer of licensed ADW site Premier Turf Club, which has tried to attract offshore bettors back to its licensed site. He was not sure about the reasons for Pinnacle's decision. Perhaps more sites will follow the lead of Pinnacle, although Meyers is not yet convinced.

"There are still more than enough offshore bookmakers to go around, though," Meyers said. "I don't believe that it helps U.S. racetracks all that much." The coming months should be telling as a new administration will address Internet gaming issues.


Weekly direct service from London’s Gatwick airport is a positive.

This is a restrained but optimistic forecast on the economic prospects of St. Kitts/Nevis from the Finance Minister. A couple of noteworthy facts were included in what could be construed as a cheerleading session:

  1. Foreign direct investment (FDI) represents 25% of St. Kitts/Nevis's GDP. He claimed only Anguilla was higher (we presume he means among Caribbean countries), at an amazing 48%. This statistic is an important one that deserves attention in looking at any developing economy. FDI can come and go quickly, as many countries discover when the "go" part of the cycle hits.
  2. The financial services sector constitutes 14.1% of the Federation's GDP from 2002 to 2006 -- mostly concentrated in Nevis. This gives some idea of what is at stake for the small offshore havens when the U.S. and company come around and basically order them to put the whole sector at risk by changing key laws.
For Nevis to attract the high level of FDI, mostly in tourism related investments, one infers that the rule of law is fairly well ingrained and that corruption is low.

Loss of wealth and a drop in consumer confidence as a result of the global financial crisis are impacting negatively on consumer expenditure and hotels in St. Kitts/Nevis are experiencing lower bookings now, compared to this time last year.

But Federal Minister of Finance Dr. Timothy Harris ... said several tourism related projects have to date not been affected by the global financial crisis and expressed cautious optimism that St. Kitts/Nevis will maintain its competitive edge in foreign direct investment. He disclosed that the federal government proposes to allocate more funds to tourism marketing and to increase airlifts into the Federation.

He said while cruise arrivals still continue to be positive, there has been a noticeable reduction in expenditure by cruise passengers. "It is important to note that both high end and more economical type hotels are experiencing soft depressed fall seasons. We can reasonably predict that the 2009 tourism season will not yield the same level of stay over tourist arrivals nor would expenditure be equal to that of 2008," Minister Harris said. ...

He called on workers to try to attain the highest level of performance and productivity and to be flexible enough to perform other tasks than those to which they were customarily assigned. He said in cushioning the fallout expected, the introduction of a weekly direct service from Gatwick-London by British Airways was positive.

"The addition of new amenities to the tourist offerings of St. Kitts/Nevis and Port Zante, the South East Peninsula and the North Eastern area of St. Kitts, will enhance the attractiveness of our destination and can induce large expenditures in the tourism sector," Minister Harris said.

He said several tourism related projects have to date not been affected by the global financial crisis. "A significant portion of the investment, particularly in the tourism sector, come from the United States. Presently, we are expecting major projects such as the 2,500-acre Christophe Harbour project on the South East Peninsula to continue. The recent launch of the world-renowned Fazio Golf Course speaks well of the commitment of the owners to move full steam ahead.

"The Kittitian Heights project is expected to move ahead in 2009. Marriott Vacation Club International Project is on schedule to start its Phase 2 during the first half of 2009 and other noteworthy investment projects such as the Marine Park Project and Beaumont Park projects continue apace," Minister Harris.

He said there was reason for cautious optimism at the foreign direct investment (FDI) level and "government will make every effort to ensure all investments in productive sector whether from foreigners or locals are facilitated."

Minister Harris said St. Kitts and Nevis has been a most attractive destination for investors. In the Caribbean, only Anguilla where FDI represents 48% of GDP does better than St. Kitts/Nevis with 25%, in attracting capital investment.

He noted that the Financial Services Sector constitutes 14.1% of the Federation's GDP (over period 2002-2006), according to Economic Commission for Latin America and the Caribbean.

He noted that the offshore banking sector is a more significant part of the financial sector in Nevis than in St. Kitts and in this regard the intensity of the effects of a U.S. recession on the Federation will be significantly higher in Nevis than in St. Kitts.


The inflationary effects of the zero-interest-rate “cure” will be worse than the pain the Federal Reserve aims to prevent.

Barron's editorial page editor Thomas Donlan leaves us with a year-end question to ponder: Just what will be the ultimate cost of the U.S. Fed's zero-interest rate/bail everybody out policy? The second part of Donlan's editorial -- not merely coincidentally were are sure -- notes that the Ponzi schemes of the idea's founder, Charles Ponzi, and its most recent and notorious practitioner, Bernard Madoff have ongoing and significant company in the form of various U.S. federal government benefit programs -- Social Security, Medicare ... "indeed, the full freight of the federal government constitutes a Ponzi scheme in plain sight. Income is recycled to pay benefits; no new wealth is created."

The U.S. fiat currency/credit-based financial system is itself fundamentally Ponzi in nature. The only way previous investors (so to speak) in the system can be paid off is for later entrants to incur debt which is used to pay them off. We are finally out the point where too many people want out of their investments while there are too few suckers who will come in. So now what? Existing investors suddenly discover that the assets backing their claims are not actual income producing assets. They are just what amounts to a shopworn marketing plan. How much is that worth? The markets' 50% or so decline this past year is one indication of the reassessment which is still in process.

Remember the limbo? A cross between a dance and gymnastics, it had participants bending over backward to maneuver under a horizontal stick. Only their feet could touch the floor. Anyone touching the stick or falling backward onto the floor is out of the game.

As Chubby Checker asked in his 1962 hit single "Limbo Rock": "How low can you go?"

New lows have recently been recorded in interest rates, house prices, oil prices, other commodity prices and much more -- not least the value of the U.S. dollar.

The financial authorities of the United States are pretty good at this game. They can bend their knees and twist their torsos to get under the bar. They stand up and challenge for the next round: "How low can you go?" Many of us are not so skilled. We cannot go much lower. Soon we will touch the bar, or fall flat on our keisters.

The U.S. Treasury and the Federal Reserve, those codependent arbiters of prices and quantities of money, will be hard to beat. They can go as low as they choose. They can even go below zero.

As Fed Chairman Ben Bernanke warned us -- or assured us -- back in 1999 when he was still an academic and New York Fed adviser: "The monetary authorities can issue as much money as they like." His point was to demonstrate that sufficiently dissolute monetary authorities can raise prices and increase aggregate demand.

The question being posed is whether rising prices stimulate demand. It is true that there is, or there can be, "money illusion," the Keynesian term for the notion that rising nominal prices and rising nominal wages make everybody happy and productive, at least for a time. But that time may be short. In the longer run, making money worth less is a step on the road to making money worthless.

The U.S., of course, is several steps down that road. Gold is not a good touchstone for short-term changes in the value of money, but over a long term it offers a good first approximation. Dollars that bought 1/35 of an ounce of gold from 1933 to 1973, last week bought 1/827 of an ounce.

Taking another step down the road to worthless money last week, the Fed said: "Over the next few quarters, the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant."

Is this a new clause in the U.S. Constitution? "The Fed can buy anything, as conditions warrant."

Economist Ed Yardeni provided ample analysis the other day: "After one bubble bursts, the only way to get out of the resulting recession, and to avoid a depression, is to create another bubble by lowering the cost and increasing the availability of credit, particularly for housing."

The deflationary impulse avoided in 2002 is more powerful in 2008. We are on the road to paying the price for two recessions at the same time. Or worse, we are on the road to avoiding most of the effects of a second recession.

Free money from "Feddie" means 0% financing for the entire economy, naturally including the federal government's trillion-dollar deficit right now and soon to include the deficits of state governments, local governments, a couple of million businesses and 120 million households.

It portends inflation, and a real interest rate substantially below zero. How low can it go? Low enough to start a new bubble, however low that may be.

Our Ponzi Problem

When a Ponzi scheme collapses, the schadenfreude industry goes into high gear. Everybody is entertained to read a list of the suckers. If we are honest, we say to ourselves, "There but for the grace of God go I." Or we may say, "I am glad I am too smart to be taken in by the likes of him."

For a few months in 1920, Charles Ponzi was hailed as a miracle man. He paid 50% "profits" in 45 days, and was flooded with cash -- at least $9 million, most of which he recycled to pay those profits.

Our founder, Clarence W. Barron, then proprietor of the Boston News Bureau, had denounced the scheme and started the run that ended it. Barron later declared that the lesson was ignorance about finance:

"This neglect in our educational system leaves the people's financial education to the sensational press, to socialistic propaganda and to designing politicians. It permits schemers to defraud the small earner and small investor through making him believe that capital accumulations and great fortunes are matters of speculation or public robbery."

It is as true now as it was then.

Bernie Madoff's $50 billion hedge fund, like so many others before it, had no shortage of investors taken in and taken down, even though explanations of his wizardry should have been no more persuasive than Ponzi's. (Our skeptical 2001 take on Madoff is reprised this week, see "What We Wrote About Madoff.")

Those who have never fallen into a Wall Street Ponzi scheme should not be too complacent. We are not so smart. There are Ponzi schemes all around us, and they are taking us all in.

Some know that Social Security has been paying beneficiaries with the receipts that should be saved and invested, but Social Security is just the beginning. Medicare, Medicaid, pensions, indeed, the full freight of the federal government constitutes a Ponzi scheme in plain sight. Income is recycled to pay benefits; no new wealth is created.

Nor is that the limit of our Ponzi problem. Citizens of a country experiencing two financial bubbles in less than a decade should wonder about themselves. Our bubbles were created by an excess of borrowed money, and these funds were recycled into stocks and then into real estate. Expanding capital gains took the place of an expanding pool of suckers, but could not expand forever.


The entire financial system that is propped up by the Treasury and the Fed is based on the same idea: That something out of nothing is possible.

Expanding on Thomas Donlan's point above, Lew Rockwell points out the Ponzi nature of not just sundry government shemes such as Social Security, but of the whole financial system. And deeper than the mechanics of the Ponzi schema itself is the human desire to get something for nothing.

Right now the elites claim that they will create a trillion dollars out of thin air in order to stabilize our economy; that ruining perfectly good paper by smearing with ink and dumping it out of heliocopters over the countryside somehow creates real wealth; that consumption today does not come at the expense of the future. The media mavens all seem to have bought it. However many people were outwitted by Madoff, far more people are today being outwitted by the U.S. government and Fed. It will all end in disgrace and disaster, only on a far grander scale, warns Rockwell. Indeed, $50 billion is rounding error versus the numbers being thrown around by the Fed and Uncle Sam.

The mystery of Bernard Madoff will be storied a hundred years from now. As history's biggest financial criminal, he took a cheap rip-off that you can use at home -- the Ponzi scheme -- and turned it into a global empire worth some $50 billion.

One ingredient was financial intelligence. Madoff had buckets of it. Early in his career, he was the real deal, an actual innovator. He combined this with an amazing lack of conscience, for his scam was rooted most fundamentally in lying and stealing. The difference between him and all who came before was his grand scale, the grandest scale imaginable.

There is a saying in the world of Austrian economics about the business cycle. The puzzle is not to explain business failures. Those are part of the normal course of life, and the sign of a healthy economy. The puzzle is to explain the "cluster of errors" that appears at the beginning of a recession. How could so many have been so wrong about so much at the same time? The business cycle is a system-wide failure, not merely the mistaken judgment of a few.

So it is with Madoff's scheme. The mystery is not how one person was able to fool a few. The scheme in which yesterday's "investors" are paid off with the money of today's victims is known in all places and probably all times -- and it always goes belly-up to the originator's complete disgrace. It is a classic example of how moral laws are self-enforcing in the world of economics.

The critical difference this time is that Madoff ran his scheme during an economic boom, a time when people's normal sense of incredulity is put on the shelf. This is part of the grave cultural distortion introduced by funny money. Money is the most widely demanded good in society, and the Fed is making new quantities of it not as a reflection of new real wealth, but purely as an administrative decree.

There is a sense in which funny money literally drives everyone crazy, leading to what is sometimes called the "madness of crowds." Guido Hulsmann explains it all in his remarkably timely and revealing new book: The Ethics of Money Production. With artificial stimulation from the credit machine, multitudes are willing to believe in something that cannot possibly be true. In Madoff's case, it was that he could, even in falling markets, earn 15–20% a year without risk.

Why not? Most everyone believed in some version of the myth. We believed that house prices would go up and up despite the reality that houses are physical things that deteriorate from the instant they are finished, just like cars or computers or anything else. Why did we believe this about houses? Again, you have to look to the fraudulent money system to see why.

And we believed that we could all become millionaires by putting our money in the stocks of companies that were not actually earning money or paying dividends, companies whose wealth was entirely based on infusions of cash from the stock market which in turn were based on the belief that others would buy the stocks and so on. In other words, we believed that something out of nothing was possible, and anyone who did not believe it was a chump. It is exactly what people believed during the other great inflations of history.

What is more, we believed that buying these stocks constituted not consumption, but savings for the future. In fact, people routinely attacked official savings data on grounds that they did not include what people were "saving" in terms of their stock market accounts. In a similar way, people were measuring our national wealth not in terms of accumulated capital, but rather through consumption data, as if granite kitchen counters in bigger houses were a measure of wealth instead of the opposite: the depletion of wealth.

Investment banker salaries represented market rates. What was wildly distorted was the market itself.

The left is big on attacking the salaries of investment bankers, and they were indeed outlandish. But these too represented not a unique problem, but more evidence of inflationary finance. In a bubble economy, the money chases what is most fashionable, and financial services qualified. So the salaries represented market rates. What was wildly distorted was the market itself.

Now let us talk about government finance during these years. The market tried to correct itself from 1999–2001, but the government would not tolerate it. Instead, it used every sign of downturn as an excuse to keep the illusion going, creating billions and billions in new dollars. The Fed drove interest rates lower and lower despite the non-existence of savings available to back them up.

(Low interest rates in a sound money system are a reflection of accumulated capital and deferred consumption. When you see the Fed pushing them down during a boom, it is creating a dangerous mirage.)

Did anyone stop and wonder where the government was getting all this money to pump up the system? Yes, the Austrian economists warned us. The pages of Mises.org and LewRockwell.com were filled with alarms. But it was something people wanted to ignore. We are talking about human nature: the desire to believe in things that do not exist. The government was happy to fuel this sense because it gave the Fed, its connected industries, and the state more power and more money in the short term.

Madoff's scheme played into the belief that wealth was not something to work for, but something to scheme for. It could be generated by playing your cards right, hooking into the right networks, and finding the right "investments." The people with whom he dealt had, it turns out, some internal sense that there was something a little bit shady about the whole operation. But they dispensed with this sense when the fat checks arrived, and concluded that whatever was making this perpetual motion machine operate, it did work.

But listen: The government right now is using the same tactic to convince you that it is saving you from the recession. The whole scheme partakes of the same sense of denying reality that characterized Madoff's scheme. And I am not just talking about Social Security, which is almost an exact replica of the Ponzi version, except that at least Charles Ponzi did not force people to give him money. I am speaking of something broader. The entire financial system that is propped up by the Treasury and the Fed is based on the same idea: That something out of nothing is possible.

So they will jail Madoff. Wall Street would flog him if it could. He is disgraced for all of history. But meanwhile, the likes of Bush, Bernanke, Paulson, Obama, and all the rest are still riding high, even though their scheme is far larger and more egregious.

Most of us like to believe that we would not have been tricked by Madoff. But are you being tricked by the elites who claim that they can conjure up a trillion dollars to stabilize our economy by clicking a few buttons on a computer screen? Most people are. Certainly the press seems to have bought it. Many people were outwitted by Madoff. Many more people are today being outwitted by the government and its central bank. And it will all end in disgrace and disaster, only on a far, far grander scale.


“Theft losses” may be mostly deductible from ordinary income.

Parties who have been victimized by the Madoff scheme may be able to deduct what now look like theft losses against ordinary income, and retroactively against previous years' income at that. This is a far more desirable deduction than if the losses were treated as regular capital losses, which have much stricter rules regarding to what degree they can be used to offset non-investment related income.

Expect the IRS to make anyone who attempts that interpretation of the tax code to fight for it. There could be as much as $17 billion in tax revenues at stake. The IRS would undoubtedly like to nip in the bud any further attempts to transmute investment losses into ordinary income offsets, given that there will be plenty of losses to go around.

As the explosive revelations from the Bernard Madoff investment scandal continue to reverberate across the financial world, investors who have lost money in Madoff's funds may be able to reach for one crumb of comfort in the form of the U.S. tax code, it has emerged.

With many investors still counting the cost of putting their trust -- and substantial sums of money -- into what has allegedly turned out to be Wall Street's largest-ever Ponzi scheme, tax advisors are pointing to certain sections of the U.S. tax code which could allow investors to recoup significant sums through "theft loss" provisions.

Under the theft loss rules, taxpayers can deduct a loss against 90% of their adjusted gross income, plus $100. Therefore, an investor with an income of $100,000 who lost $1 million would -- theoretically -- be able to deduct $989,900. Also, because of the nature of the loss, taxpayers affected by the scam are entitled to claim an "ordinary" (as opposed to a "capital") loss deduction under section 165 of the U.S. tax code, and therefore carry back unused losses by three years (as opposed to two). They can also carry forward unused losses to the next 20 tax years.

Whether the Internal Revenue Service would allow such a claim is another matter entirely. At the very least, taxpayers seeking such deductions, and especially those adjusting previous tax returns, can expect an IRS audit for their troubles.

"These victims of investment fraud may qualify for a little known tax break that until now, not many people have been eligible for," said Michael Rozbruch, founder and CEO of Tax Resolution Services. However, he warned that: "To recover your losses, you will need to go back and amend your tax returns, which means you will inevitably be audited." Rozbruch added that professional advice is essential for taxpayers in such scenarios.

Given the current economic climate and the likelihood of falling tax revenues in the year ahead, the IRS, which could face tax revenue losses in the billions of dollars (as much as $17 billion according to one estimate), is unlikely to want to become an unwitting victim of the Madoff scandal too. Therefore, it remains questionable at present whether the agency would uphold such substantial theft loss claims.

Since the December 11 arrest of the 70-year-old Madoff, the list of companies and individuals facing steep financial losses based on their dealings with Madoff and companies affiliated with or controlled by him has grown to include individuals and institutions across the U.S. In addition, Madoff's fund obtained money from some of Europe's largest banks, including institutions in the United Kingdom, Spain, France and Italy, and their clients.

"If this were a traditional bank robbery, the eyewitness reports would say that Madoff walked out with billions of dollars as someone held the door open for him," says Jeffrey Zwerling, a founding partner of Zwerling, Schachter and Zwerling, which has been retained by individuals and entities allegedly duped by Madoff.

"If it is true, it is just amazing in terms of the audacity, if nothing else," Zwerling observed.


No sooner has we posted the above item on how Madoff's dupes might be able to offset some of their losses against ordinary ,non-investment, income, than someone sent us this "conspiracy theory" alternative view on the affair. We emphasize that it is only a theory, but it makes as much sense as the news we have so far been fed. With a little thought one might persuade oneself it makes more sense. Which does not mean it is true. Nevertheless, as with the original story (see our commentary above and in this week's Finance Digest), the alternative theory offers its own compelling insights into U.S. culture, government, and finance ca. late 2008 and is thus worth looking at for that reason alone.

The theory in a nutshell is that Madoff's hedge fund actually went bust along with countless other hedge funds which invested in all manner of junk during the credit bubble, but instead of admitting he was an incompetent fraud Madoff "confesses" that he was a criminal fraud. The purpose? To allow the fund investors to realize their losses in a more tax advantageous manner, as previously discussed, or -- this part is new to us -- allow them to partake of other U.S. government bailout programs available to victims of "financial fraud." For Madoff to be willing to take this kind of fall there would have to be some sort of backdoor deal where he gets off lightly. This possibility is hardly farfetched. Commenters to the post have further posited that Madoff "confessed" under threat, taking the fall for higher-ups, or that the "guilty" plea was to nip in the bud a discovery process which would have revealed who knows what.

Whatever is true -- and in today's post-modern prevailing paradigm world this story is already starting to have a "reality is whatever you can get away with" overarching theme -- the idea that all manner of financial heavyweights were bamboozled for decades by a well-connected smooth-talker is legitimately called into questionable. And in personal discussions on the matter, one question which kept coming up was, "Why didn't Madoff try use the collapse to cover up his scam?" Here we have a plausible explanation.

The Madoff case has become like an Agatha Christie thriller, in which the reader's willingness to accept new surprises is pushed to the limit by ever more extraordinary twists in the narrative.

This story began (for most of us) with Madoff's confession. Although the crime took years to prepare, we are introduced to his tale at its finale -- the moment the scam came unstuck.

I mentioned Madoff's scam last week. What a story! Apparently, the former head of the NASDAQ ran a "Ponzi Scheme" -- quite a simple con, really -- on a spectacular scale, for years on end. We are introduced to Mr. Madoff when he calmly surrenders to the cops, admitting he has pulled off the biggest fraud in history! He is inconvenienced by being confined to his multi-million dollar appartment, but seems cheerful when he shows up at court.

At first, the mass media seemed slow to report the story. But over time they have picked up confidence. By today, I notice Fox News, the BBC and other usual culprits chattering happily about Madoff and his victims. There are reports of suffering in Israeli soup kitchens -- distant ripple effects on the poor and needy. Some Jewish charities have been forced to close. But it is well accepted that for the most part Madoff's victims were very well off. Some were Jews; others were not.

There is much debate about whether the incident is leading to more "anti-Semitism." ... Yet a devastating loss -- at least half the allegedly missing $50 billion -- was reportedly taken by banks and other institutional investors. It is this category of victim that raised the suspicions of Muhammad Rafeeq ... Writing in the Sunni Forum, he suggests a solution to the Madoff mystery that Agatha Christie would have relished.

Rafeeq's theory is that the Ponzi Scheme "crime" probably was not a crime at all. Madoff's confession is bogus. If Mr. Rafeeq is right, there was no Ponzi Scheme. The failure of Madoff's investment fund is "just" a case of a major hedge fund gone bust. Here is what Mr. Rafeeq says:
It is possible to accept the idea of a Ponzi scheme be played on members of the public, who are ignorant of how such schemes are worked, in fact the schemes are targeted specifically at such people. Yet Madoff would have us believe that he managed to convince professional investment companies to put their funds with him without any due diligence being performed. This is clearly nonsense.

I have acted as a professional consultant to major EC and U.S. financial institutions on corporate and institutional credit risk and the idea that anyone in HSBC or Santander could authorize large investment without the internal checks and controls being employed is almost impossible. To try and believe that EVERY institution that invested in Madoff circumvented their internal control procedures IS impossible.

Why is this important? Simple. If someone approaches the HSBC credit risk team, for instance, with a view to making a loan or investing a sum as large as £600 million to what is ultimately a single institution (therefore a single counterparty credit exposure) a significant number hoops would have to be jumped through. Firstly there is the credit officer competence limit, which is the maximum amount that a single credit officer may be allowed to authorise. More than his/her limit must be referred up the credit approval food chain. In an institution like HSBC or Santander etc, £600 billion or US$1 billion will have been referred to the very top of the food chain, the banks' credit committees at the board level. This is an enormous sum and no lacky is going to be able to approve this by themselves, ever.

When the credit committee are called together to review an application, everything is ready prepared for them, so they can cut to the chase. The lower levels of the credit approval process will have prepared a summary of all the application documentation, included in the meeting bundle, with the strengths, weaknesses, and other important credit risk points. This application will usually contain a set of audited accounts going back a minimum of 3 years and most likely 5 years. There will be a full credit breakdown of the investment profile of the business, Madoff's hedge fund, looking at how the fund obtains its returns; investment assets and investment methodology. After the committee is satisfied that all the issues and concerns have been addressed they will vote on the approval or otherwise.

So there is no way that Madoff could have been pulling a scam. It would have stood out as clear as day to professional financial analysts, whose only job in life is to examine the management of companies and their reports and accounts, to make sure that all is in order. It is their job, it is what they do. They are the world experts in spotting anomalies. The idea that all these professionals in all these companies were all duped is absolute nonsense.
But why? Why would Madoff confess to fraud, when he had really been running a legit (although ultimately unviable) hedge fund? Is he on a Jesus trip, perhaps? Is Bernie Madoff atoning for the sins of Wall Street?

Rafeeq suggests a more mudane explanation:
So why plead guilty? The answer is simple. Look on the net and you will see that because this case is being labeled a fraud, it would appear that investors are going to be able to claim their investment back under the U.S. government's financial fraud protection scheme. A judge has already given his approval in principle for compensation, without any evidence having been presented and financial fraud being demonstrated in a court of law. And it would appear that there will never be such a demonstration in a court of law. Why? It would appear that all the funds financial records are mostly "missing" ... and those few records that do survive are in a terrible mess.

However, since the guy has pleaded guilty we do not need to demonstrate the fraud, because he says he is guilty.

And look further on the net and you will see that these "victims" have also been told by the U.S. tax authorities that they will probably also be entitled to claim back some taxes on these defrauded sums.

Rather than saying this hedge fund has gone bust, due to its choice of investment assets and investment methologies, a scenario which is highly probable in the current financial paradigm, since all the professionals are predicting that at least 30% of all hedge funds are about to fail, more than 700 of them, the CEO chooses to fess up to fraud. If the CEO admits the fund has gone bust, then all those [investors] get nothing, but if the CEO admits to fraud they get their money back as compensation from the U.S. tax payer, just as they are also drawing money back from the tax payers with the other hand.
Over the last few months, so much money has been swishing around in Washington, with bail outs left, right and center, that for outsiders to keep any kind of track is well nigh impossible. What is more, the Administration is stubbornly withholding crucial information on bail-out recipients.

USA in late 2008 is like a bank, purportedly run by idiots and drunks, that is said to be going broke. It's chaos in the chamber! Money seems to be flying everywhere. In the hallways stand crowds of nervous, chattering customers, gossiping about who just lost the most.

Meanwhile, at the back entrance, away from the public gaze, trucks draw up each hour to quietly remove the contents of the main vault.

This synopsis is so similar to how government and the press routinely work together that one feels that the burden of proof is on them to disprove that something like this is not going on here.


Mauritius’s Deputy Prime Minister Reassures OECD that It Is Not a “Tax Haven”

No offshore financial center wants to be deemed a "tax haven" by the OECD, for good reason. They do not want to be black-listed, with the sanctions and consequences that flow from such a finding. In the end that means being willing to hand over information without too much fuss when one of the big boys asks for it.

Evolving OFC Mauritius is the latest to publically assert they are not a tax haven. They do have the anti-money laudering measures and information exchange agreements in place to credibly make the claim.

During a recent visit to Europe, Mauritius's Deputy Prime Minister and Finance Minister Rama Sithanen defended Mauritian businesses and Mauritius's position as a tenable offshore jurisdiction, and consequently urged the OECD not to regard Mauritius as a 'tax haven.'

In an interview conducted with the newspaper le Mauricien, Sithanen alluded to talks held in London, Berlin and Paris, with respective government members, and a representative of the OECD.

Endeavoring to promote the image of Mauritius within the financial services sector, and keen to assuage OECD concerns, Sithanen reassured those present of the integrity of the Global Business Centre in Mauritius, emphasising that Mauritius has an "effective exchange of information mechanism," demonstrating its commitment to transparency, coupled with efficient legislation, regulated by the Financial Services Commission, and designed to combat money laundering and terrorist activities.

The Deputy Prime Minister's comments come in the wake of proposals by leaders from the OECD member nations to implement a new crackdown on offshore financial centres, aimed at tighter regulation of the global financial system. The initiative, led by the governments of France and Germany, could lead to the drawing up of a new "black list" of offshore jurisdictions still deemed to be "uncooperative" or with tight banking secrecy and confidentiality laws.

However, Mauritius has already made great strides in improving its reputation. In the last few years it has implemented deep-seated reforms, aimed at tackling the issue of money laundering, notably through the establishment of the Financial Services Commission and the Financial Services Promotion Agency, the modernization of the Companies Act and the introduction of a new Trusts Act. It has also entered into a considerable number of double-tax treaties, based on the OECD model treaty, and containing exchange of information clauses.

UK Financial Services Authority Says Offshore Marketing Was Clear (Enough) on Lack of Depositor Protection

The debate in the U.K. about the extent to which UK offshore bank account depositors should be bailed out following the failure of their banks continues. The FSA chief asserted that his agency had checked out the offshore banks' promotional literature and that he believed there were -- putting words in his mouth -- no material misrepresentations within. So the mess was not his agency's fault. Glad to hear that that is all cleared up.

FSA chief executive Hector Sants has told MPs he believes the marketing literature for offshore investments sold to UK consumers was clear.

Speaking at a Treasury select committee hearing into the work of the FSA ... Sants was asked whether he thought the regulator had done enough to warn consumers of the risks of investing offshore. Sants said it was not within the FSA's remit to supervise companies outside the UK's borders, but only to regulate advice given by UK IFAs and product literature circulated within the UK.

He said: "We certainly have an obligation to make sure that where those firms are marketing into the UK and fall within our remit in that respect, that the information is clear as to their regulatory status and the status of their consumer protection offering. I do believe that that was clear to consumers."

But he added that the FSA would look into any case where clients feel that they have been mis-sold offshore products by UK-regulated IFAs.

Money Marketing research of offshore bond marketing material in November revealed widespread variations in the material circulated by providers regarding warnings on the lack of protection for cash deposits held via offshore bonds in the event the underlying bank goes bust.

Scottish Life International, Aegon Scottish Equitable International, Axa Isle of Man, Friends Provident, Legal & General International, Canada Life, Skandia and Clerical Medical did not make it clear that there may be depositor protection in the event that the underlying bank used to deposit cash within an offshore bond went bust.

Ireland to Inject Up to $13.5 Billion in Banks

Ireland has joined the lengthening list of governments which have chosen to directly shore up the capital of their banking system. The "Celtic Tiger" Irish economy was just about the hottest of the European economies during the worldwide credit bubble years. Now it is among the hardest hit the morning after, with housing price declines among the "worst in the developed world." A couple of major Irish bank stocks have fallen over 90% this year.

There were sound reasons for Ireland's boom while it was happening, but justifications for a boom are never in short supply while one is happening. It is just hard to tell what is reality-based and what is so much hot air. This is part of the credit-based fiat currency package. Once the bubble froth has been drained out of the world economic system we will be able to assess just how genuine were the foundations of the everyone's economies.

In a statement the Department of Finance said the move is intended to "ensure the long-term sustainability" of the sector and help underpin the availability of loans to individuals and businesses.

The statement said the investment could be made through the National Pensions Reserve Fund and may take the form of preference shares or ordinary shares. Existing shareholders will also have the right to subscribe for new capital on the same terms as the government.

Shares in the Irish banking sector were higher across the board ... Irish banking stocks have been some of the heaviest hit in Europe as the country faces a deep recession, driven by a collapse in property prices. ...

While the details remained sparse, the capital injections are likely to take a form similar to those that other European governments, like the U.K. and Germany, are providing to their own banking industries. In the U.K., for example, banks are raising more than £43 billion ($65 billion) in fresh capital from the government and private investors.

Government cash also tends to come with strings attached, such as restrictions on dividend payouts or management bonuses.

"A key principle in the operation of such a fund will be to secure the interests of the taxpayers through an appropriate return on, and appropriate terms for, the investment," the Department of Finance said in its statement. "The next step in this process will be for the minister for finance to initiate detailed engagement with the credit institutions themselves in respect of specific proposals," it added.

Ireland was the first country in Europe to fully guarantee deposits at its major banks, but had previously stopped short of providing a direct cash injection. The Department of Finance said banks are being asked to submit their proposals for funding by early January.