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

December 2008 Selected Offshore News Clips

(Especially noteworthy articles’ dates highlighted in gold.)

December 5, 2008

A few useful words of advice from the Director and co-founder of Expat Women, which apply people of either sex. The Expat Women site looks like an interesting resource itself. We have posted one of the articles from the site's "Business Ideas" section immediately below.

You do not have to be a one of the Beatles to believe that you get by with a little help from your friends. I help you, you help me -- that is how society works.

Whether you are migrating to Madrid, expatriating to Jakarta or leaving for a short-term assignment to Buenos Aires, the process of settling in and getting connected is one of the most important first steps that you will make. Do it well and your whole experience could be positive. Leave it off the priority list and you might find that your work life and personal life both start to suffer.

Expats need networks -- and they need them fast. They need someone to call to impress their new boss with VIP event invitations. They need someone to count on at 2am when they are rushed to the local emergency room and need a friend to both translate for them and lend critical moral support.

If you are an expat and you do not already have a strong support network abroad, here are seven top expat networking tips to help get you started:

See The Value
If you understand that your ability to network could either make or break your assignment success, you will network, because you personally see it as important. This applies equally to both working and non-working expats. Expat executives need to network primarily to facilitate business and to gain local credibility. Non-working expats, such as trailing spouses and free-spirited solo expats, need to network because they do not enjoy the luxury of walking into an employer's ready-made office support network. They need to create their own networks from scratch.

Do Your Research
Get online to research as many local clubs, associations, sports activities, interest groups and support systems as you can. Then when you arrive, physically visit these groups and ask about where to find more groups.

Be Proactive
Take responsibility for your own success. Before you arrive, make calls to others in your company who are already based in your destination. Introduce yourself. Ask for advice -- most expats have plenty. Upon arrival, visit the groups that you are interested in and remember to write down all of the names and contact numbers of the people that you meet and would like to keep in touch with.

Don’t Judge A Book By Its Cover
Every expat that you meet can offer you more than their current position title suggests. Dig deep. Find out what other international assignments they have been on and ask them about their experiences. There is bound to be at least one thing that you can learn from every person that you meet. This applies also when you meet non-working expats, who you should only dismiss at your own detriment. Not only do these expats typically have a great skill set and a valuable list of connections back home, but the long-termers have usually built up fabulous local networks that would turn expat executives green with envy. Never underestimate what a non-working expat might bring to the table.

Find Mentors
In addition to friends, seek mentors. These are people that can offer priceless experience, wisdom and guidance. For the expat executive, mentors might be the heads of local business associations, colleagues, local or locally-based business owners, expat executive coaches and so on. For the non-worker, mentors might consist of the presidents of local expat clubs, Community Liaison Officers (CLOs) in your organization, independent entrepreneurs -- who might provide the necessary inspiration for you to start a business abroad, and expat life coaches -- who are typically longer-term, very well-connected expats who have also become experts on the local culture, expectations and challenges.

Mould Your Own Identity
Everybody needs to be "somebody." If you arrive in a country and you do not have a job to go to and a box of business cards waiting for you, then go straight to the print shop and design some. At first, you just need cards showing your name and basic contact details. Then down the track, go back and order cards that also describe what you do or would like to do, to help spark meaningful conversation with the people that you meet and to give them some reason to remember you. If you were, or would like to be, an editor, then your card confidently displays "Editorial Advisor". If you would like to get into photography, pronounce yourself a "Photographic Consultant". If you are proud to be a stay-at-home mother, write "Maternal Empress", "Chief Arbitrator", "24/7 Educator" -- or anything else that gives you your own sense of identity, boosts your self-esteem plus conveys a message to new acquaintances.

Give, Give, Give
The number one rule in networking is to give without expecting anything in return. Whenever someone asks you for something, give with a smile on your face and go out of your way to help them. This will not only make both of you feel good, but it will build up your piggy bank of potential reciprocal favors. Even better, become a "go-to" person in your local community and people will start introducing themselves to you. At that point, your network will grow by itself and when you need to call someone for help at 2 a.m., rather than be scrambling for names, your Blackberry will be literally full of numbers to call.

And that, I can assure you, is a wonderful feeling.

December 5, 2008

The Expat Women website we discovered in a link from an Escape from America Magazine article (posted above) looks like an interesting and informative resource, featuring many firsthand stories and interviews with people who have successfully made a transition to being expatriates. We look forward to exploring the site further.

In this interview, Rev. Macarena Rose explains how she moved to Belize as director of her church and fell in love with the country. With her teenage daughter's active consent and encouragement they decided to make the move permanent. She soon perceived the business opportunity of providing trustworthy real estate brokerage services for Belize and founded Rainforest Realty. She also went on to host an inspirational local television show and coach a semipro soccer team. Obviously an interesting woman!

Rev. Macarena Rose moved from the U.S. to Belize, as the director of her church. Two years later, she runs Rainforest Realty, hosts a weekly TV show, has coached the Semipro Men's soccer team and is the voice on the cell phone system in Belize.

ExpatWomen: Macarena, let's start from the beginning. What inspired you to move with your 16-year-old daughter Chiara and your 10 animals from Florida, United States, to Belize, 5 years ago?

Macarena: I believe in following your inspiration and dreams. Mine was strong to move to Belize, as was my daughter's. I do not believe in wondering what if, or later saying, "Wow, I wish I had ..." So off we went!

What did Chiara think of your decision and how has she adapted in Belize?

I was going to wait and not move to Belize until she graduated from high school, but she shared my dream -- she too wanted to go, so it was her desire to be part of the journey of moving to Belize. I have no regrets and can see the difference in her from having had an international living experience in her life. She is now very open to all people, and has more of a worldly understanding and sense of compassion for people's lives and their struggles.

Initially, I was not sure how she would adjust, so she and I signed an 18 month contract with each other: We would move to Belize and stay there, no matter what for the term. Well, we moved to Belize and she had not been there even 10 days, when she looked over the veranda's views of the stunning Mayan Mountains and said, "I never want to leave, Mom." This -- from a teenager who used to have the cable TV on, a cell phone tied to her ear, the house phone attached to the other ear and instant messaging on the computer all at the same time!! Now she was living in Belize with not even a McDonald's in the country! One of my earliest memories of her speedy adaptation took place on Chiara's first day of school. I went to take her lunch and there she was -- leaning out of the barn door-like windows, looking like a scene out of Mr. Ed, and a gorgeous happy smile from ear to ear. She had just mastered her first words of Creole with her newly-made friends.

How did you end up working as a real estate agent and being elected as the President of the Belize National Association of Realtors®?

When I first moved to Belize, I looked for land for Chiara and myself on which to build our home. In doing so, I was shown around San Ignacio by three different men, (who still work here), and they each offered me the same piece of real estate -- for three different prices! I was, let us say, highly insulted. When I complained to my friend, who happened to be a political leader of Belize, he said, well this is what they do here, and if you do not like it, I will give you my properties to sell and you can show them how to do it differently. So, with that, I went to work learning everything I could about titles, land laws and ownership rights in Belize. In 2005, I became a Founding Member of the Belize National Association of Realtors. In November of 2007, I signed the Bi-Lateral Agreement with the U.S.-based National Association of Realtors (N.A.R.), for our Association.

You also offer your services as a Relocation Specialist. Do you think the real estate and the destination services industries are good options for expats looking to start new businesses abroad?

It is my humble opinion that who better to help you than someone who has done it, who can advise on what to look out for, and who knows it from your perspective.

You also host a weekly TV show in Belize, you have coached the Semi Pro Men's soccer team and you are the voice on the cell phone system in Belize. Tell us more.

Well, I moved to Belize to be part of Belize, and feel very fortunate to be able to contribute time and energy in many different activities. The television show I host, is all about bringing to light the extraordinary men and women who make Belize a better country, and this a better world. When the producer of the station asked me to do this show, I immediately agreed to do so, and for free. What better way to spread the positive aspects of people's lives than by making sure their light shines to all! I love that the youth see these adults they may know little about getting the recognition they deserve.

As to being the soccer coach; well, that just happened. It was not because I knew a thing about soccer. Mostly, they needed a team medic but then it just kind of snowballed. It was, of course, an oddity for Belize to have a woman travelling with the guys, being in the dressing rooms, and stretching them out on the fields before games. I can tell you these players have, in fact, become like sons to me and I love them as such.

As to being the voice on the cell phone service, I was asked to read 10 lines for a demo, and then I was chosen. I read thousands of lines in both English (the main language of Belize) and Spanish. It is still so funny for my friends and I to hear my voice on the cell phone telling them, "The number you have reached is not available", or "You do not have sufficient credit for this call," etc.

When I am working on relocations with my clients, I always recommend and provide suggestions on how to become actively involved as a member of their new community. I feel it is by getting involved that you truly become a part of your new community.

From all of your experience in Belize, what would be the top 5 things that you have learned that you could share with us?

It is my pleasure to do so. The top 5 things I have learned are:
  1. Do your research, find a true professionals who have experiences like yours (Google their names to check);
  2. Ask questions, there is no such thing as too many;
  3. Get everything in writing;
  4. Accept that things may proceed slower in other countries and remember that this is why you looked to move in the first place;
  5. Enjoy your journey, ALL of it.
Macarena, we thank you very much for your time and we wish you and Chiara all the very best.

December 1, 2008

Consumers are replacing a 25-year borrowing and spending binge with a saving spree.

A. Gary Shilling has been pretty much correct in his forecasts for deflation and subdued economic activity. Seemingly rare among commentators who appear in mainstream publications, he incorporates obviously significant statistical trends into his thinking, such as that household debt rose from 45% of GDP in 1973 to 98% by the end of last year. Meanwhile, gadflies like Bob Prechtor and Peter Schiff have been pointing to such statistics for years, and have largely been ignored for their efforts -- until now.

Shilling believes the credit bubble unwinding and readjustment process is going to take years. Even after a recovery starts, he foresees slow economic and profits growth prevailing. Ergo, unlike David Dreman, Shilling is in no rush to own stocks.

Painful financial deleveraging has given us an excruciating global recession. It may cause even deeper pain ahead. The slashing of borrowing comes after spectacular buildups in the financial and consumer sectors. The combined debt and equity of U.S. financial institutions went from 10% of GDP in 1973 to 118% at the end of 2007. Over the same period household debt, including mortgages, rose from 45% of GDP to 98%. Is it any surprise that this borrowing binge ended in a credit crisis?

The ending of a credit crisis entails deleveraging, which is to say, the liquidation, repayment or cancelation of debt. This process engenders pain.

Consumers dropped their saving rate from 12% in the early 1980s to zero 20 years later. They did this while persuading themselves that watching a rising stock portfolio or living in an appreciating house was a form of saving. The stock market crash at the turn of the century did not bring them to their senses, because by then the house price boom was under way. Now there is no asset left with which to play the savings fantasy game.

Stocks are not much higher than they were at the 2002 bottom. Houses are en route to what I forecast will be a 37% peak-to-trough falloff. Consumers are tapped out. Their credit cards are maxed out, and home equity lending is dead. Heavy borrowing pushed their equity in autos and other durables from 60% in the early 1990s to 40% today. Their $3 trillion in 401(k) plans at the end of 2007 has taken a beating as stocks have swooned.

So people are shrinking their discretionary outlays on everything from motorcycles to liquor. They are replacing a 25-year borrowing and spending binge with a saving spree. Over the last quarter-century consumer spending grew an average of one-half a percentage point per year faster than aftertax income, adding about a third of a percentage point to GDP growth. For the next decade spending is likely to rise a percentage point slower than income each year. Consumer spending constitutes 70% of GDP, and the effect of that restraint is multiplied as it ripples through the economy. As a result real GDP growth will drop by a full percentage point from its earlier 3% rate to 2%.

The saving spree will be reinforced by the fact that baby boomers desperately need to save for retirement, while those in their 20s and 30s, typically big spenders as they form households, are much fewer in number. The threat of deflation also depresses consumer spending. People are waiting for lower prices before buying houses, and they will wait to buy other things, too.

Capital spending will also be subdued, as slowing growth makes for excess capacity. Forget exports as a source of strength. American consumer restraint will slow imports, hurting foreign lands that depend on the U.S. for export growth and depressing their own demand for American products. Hence the clamor these days for government spending as a form of stimulus.

The BRICs will sink like bricks.

The BRIC quartet (Brazil, Russia, India and China) and other developing countries will sink like bricks as their exports drop and as commodity prices collapse, driven down by both enfeebled global demand and the end of the delusion that commodities are an asset class like stocks and bonds. China doesn't have a big enough middle class of free spenders to offset export weakness there (see my May 19 column,"Chinese Chance"), and the end of the oil boom will slash Middle East economic growth and hobble the petroleum-addled dictators of Venezuela and Russia.

Deleveraging threatens economic growth in many countries that have depended on Western bank generosity. Iceland is bust. Baltic nations, and eastern European ones like Hungary, are in for years of sluggish growth, with homeowners no longer able to borrow cheap money abroad. Argentina, already a pariah to international lenders, is setting an ugly precedent in grabbing its private pension funds to repay its debt.

The demise of securitization and other derivatives and the return to basic banking -- lending prudently at profitable interest rates -- will reduce credit availability for years and subdue economic growth. Big firms cannot float commercial paper; little ones cannot get bank loans to meet their payrolls. The accelerating consolidation of financial institutions will eliminate many risk-taking lenders, and entrepreneurs will be inhibited by the scarcity of venture capital money.

So even after the financial crisis and recession end, maybe by 2010, slow economic growth and poor profits are likely to drag on. Do not be in a rush to buy stocks.

December 8, 2008

Another informative interview from the Expat Women website. Rebecca Kousky founded a microfinance loan making nonprofit institution, Nest, which targets a clientel of women artists in developing countries. The basic idea of microfinance is that small investments, too tiny for conventional financial institutions to bother with, can result in outsized payoffs in capital deprived economies. In standard neoclassical economic theory: The marginal return on capital is large when capital is short and labor is in surplus.

The whole idea of microfinance predates the invention of money but has really only recently been codified into a widely recognized concept. It has had naysayers, some who perhaps objected in principle to the notion that such a profit-making opportunity could have gone overlooked and unserved for so long. The article below from Forbes (typically) cautioned that the business was hardly a one-way success ticket, and to be careful where you place your bets. Fair enough. In fact, they further warn, there are some fraudsters using microfinance as a front. What a surprise (not). (Forbes has a multitude of articles on microfinance. See search results.) We also recall one article from an unremembered source which said that loans designed to empower women can end up upgrading their husbands' lifestyles instead. Probably true in some cases.

No doubt as with any industry the experience across participating businesses (and customers) is not uniform. However, Ms. Kousky is happily and successfully running Nest within the nonprofit arena she has chosen. The procedures implemented in Nest's business and oversight practices appear to offer safeguards to make sure the loans' intended beneficiaries actually benefit.

Rebecca Kousky is the founder of Nest, a nonprofit with a mission of giving microfinance loans to female artists in developing countries and an online artistic community.

Nest's microfinance loans allow women to create and/or maintain small arts and crafts-based businesses. Nest raises funds for loans via its online store. Nest sells clothing, accessories and home merchandise created by successful international artists and designers to discerning customers who want their purchases to make a difference.

ExpatWomen: Rebecca, tell us about your experience living overseas and where you live today? How did this experience influence you to start Nest?

Rebecca: I have had extensive experience working with women both internationally and in the U.S., but two experiences in particular shaped my vision for Nest. In 2002, I worked with Mayan Indian women in Chiapas, Mexico, on agricultural techniques to help them increase yields from small farms, thereby becoming more financially independent. In 2004, I traveled to Delhi, India, to volunteer at an NGO which provided education and training to children and adults afflicted with polio. Through these experiences and others, I was able to see firsthand the plight of women in developing countries who face hardships complicated by lower levels of education, lower social status and talents and abilities that do not always translate into productive employment. I observed that when women are given the opportunity to create their own businesses and earn a steady income, families are strengthened and communities are stabilized. Returning from my travels, I made my entrée into social enterprise in my hometown of St. Louis, Missouri.

Why this name?

I chose the name Nest for several reasons. I love the idea of the "nesting instinct" -- that, universally, women have a compelling desire to create a sanctuary for themselves and their families, filled with objects of comfort and joy. Our eclectic line of merchandise reflects this: beautiful, affordable, one-of-a-kind specialty items for women and their homes. But more importantly, our loan program brings this promise to women worldwide.

But Nest is more than the objects each artist has created. It is also a place where women artisans across the globe come together to bring about lasting social change. From the designers, who create special objects, as well as donate their time and share their expertise, to loan recipients, who are now able to provide for their families, to facilitators, who arrange our microfinance loans in countries all over the world, to volunteers, who assist Nest in all its endeavors and to customers, who want their purchases to make a difference in the lives of women, Nest is virtual gathering place and an online artistic community.

How do you choose the women who will receive the loans? And when do they need to pay the money back?

We work with facilitators who live in the countries and communities where we operate. They help us locate and process each loan recipient. We provide loans that are used directly for the purchase of a specific item or to implement an idea that will allow our loan recipients to start or expand art- or craft- based businesses. For example, they can use the money for sewing machines, pottery kilns, rent for studio space, etc. Recipients may pay back the loan either by wiring money or in-kind, by providing merchandise they have created which we then sell on our website. This latter option allows women to access the western market and gives them flexibility in how the loans are repaid. Additionally, when we purchase an order, only a percentage of the order is used as repayment, so they have continual orders coming in.

Once loan recipients have been approved, we wire the money, but ask for accountability of its use. We want to make sure the funds are being used appropriately, but we also want to keep track of how the money has changed the lives of women and their families. Through their facilitators, we do follow-up for five years post-loan.

Most of the decisions about the loan, including how and when the money should be returned, is decided by the woman herself. I think this is what Nest is all about -- helping women jumpstart their dreams by giving them the capital they need to become self-sufficient business owners. The choice of loans, as opposed to other forms of charitable giving, was intentional. By requiring that each woman be intimately involved in the process -- from deciding how much to ask for (creating a business plan), what to use it for, the method and time frame for repayment, and actually being responsible for the repayment -- Nest's microcredit loans encourage active participation in each step of the process and encourage self-sustainability.

Rebecca, how do you get successful artists and designers to sell their merchandise on your site? (Proceeds from these sales are used to fund the loans.)

We are lucky and have had wonderful press, so artists and designers now find us! It is also a wonderful win-win, because we allow our designers to donate to a cause that supports women like them -- who just happen to be slightly less fortunate. Further, Nest designers not only offer exclusive merchandise for sale, with the proceeds used to fund loans, many have also agreed to advise loan recipients on building their businesses. In this way, Nest is a worldwide network of artists helping artists (and largely women helping women).

What are some of the challenges you have faced running Nest?

There honestly have not been too many! I am surrounded by a great support network of friends and family and the Nest team is amazing. We face small challenges each day, but we try to get through them one at a time. Maybe one of the biggest challenges has been being too strict with myself. As any entrepreneur can attest, starting a business is an emotional roller coaster. I try to learn from my mistakes, but I also try to keep things in perspective, and above all, to see and appreciate each new learning experience. I am dedicated to my work to the point of obsession, but I also try to enjoy the journey.

Please share with us some of your success stories.

Our first loan recipient was a woman named Meral Tuncer, who lives in Izmit, Turkey. She received a Nest microfinance loan to grow her jewelry business by being able to purchase higher quality stones and beads that will allow her to reach new clientele at the bazaar.

Our facilitator in Turkey is Nest designer, Rose Deniz. Rose once told me, and it made me cry, "when we told Meral how much she was going to make from the earring order, she was so happy. [C]ombine that with the loan, in one week she is making more than she might make in a month. You can imagine her excitement! Thanks does not express it enough."

But I think Meral's own testimonial speaks most clearly. She wrote: "At the bazaar, I have my own table where I display my goods. I want to stop selling at the bazaars because people do not appreciate quality things. I spend a lot of time setting up my table and am there all day. It is my dream to open my own store where I sell beads and my own jewelry. The Nest loan will help me to create more variety of jewelry with more materials, better sales because I won't only be displaying my jewelry at bazaars, and create a start towards achieving my dreams."

Rebecca, any big plans in the future for Nest?

Yes, within the next year we would like to launch a wholesale interior design line created by our loan recipients. This line would be marketed in the U.S. and would allow our women to have stable income. It would be in addition to the microlending services we already provide. We also hope to expand the services we offer each woman to include more intensive training on personal finances, business assistance and product development.

What are your Top 3 Tips for women who want to help women in their local communities.
  1. Consider using it as a way to learn the language. By getting involved locally, you can have those you are helping teach you!
  2. Include your family. Volunteering as a family allows you to spend more time together and teach your children the importance of giving back.
  3. Do not wait to get started. Your "to do" list will never be shorter, your days will never be less full, so just start!

December 8, 2008

The U.S. and Liechtenstein have signed a tax information exchange agreement (TIEA). A small and limited-life loophole is that it covers information for 2009 and later only. Reading this article from Bloomberg one might conclude this is the end of the line for true privacy courtesy of Liechtenstein.

Not so fast, writes the Sovereign Society's Bob Bauman in a note to those on their email distribution list: “[T]here is one major catch: the agreement covers only clients who are already being investigated or prosecuted for tax evasion in the United States. In other words, no IRS ‘fishing expeditions’ allowed.” A careful reading of the U.S.-Liechtenstein TIEA annoucement does not contradict Bauman's conclusion.

Bauman further quotes one Jack Blum, “a self-appointed authority on offshore fraud to whom the leftist news media habitually turn for quotes”: “It does not do anything. They are offering to give up what we already know.” No better anti-endorsement needed. Odd how Bloomberg fails to mention the little fillip. Hmmmm. Actually, no.

Note well, however: This does not mean failing to report offshore financial accounts or taxable earnings is in any way intelligent or safe. Far from it. For one, who knows what the future will bring vis a vis the U.S. and Liechtenstein. Today's agreement is today's. For two, there are too many other weak links in the chain required to preserve absolute privacy to think that they will all hold forever. But for today, Liechtenstein has upheld and indeed enhanced its reputation as a defender of the basic human right of privacy.

The United States and Liechtenstein plan to sign an agreement to share information on banking clients that will erode the principality's allure to rich Americans trying to hide assets behind impenetrable bank-secrecy laws.

The accord culminates two years of negotiations, and follows a U.S. Senate committee probe this year of tax avoidance by clients of Swiss and Liechtenstein banks, including LGT Group, which is controlled by the principality's ruling family.

The agreement will be signed December 8 in Liechtenstein's capital of Vaduz, Matthew Keller, an official at the principality's Washington embassy, said in an interview. That will leave only Monaco and Andorra as havens without formal procedures for exchanging information with the U.S. Internal Revenue Service, according to the Paris-based OECD.

"People who would hide assets or income from the IRS are running out of places to move it to," said Pamela Olson, a former Treasury Department tax official who is now a lawyer at Skadden, Arps, Slate, Meagher & Flom in Washington.

The Liechtenstein accord takes effect in 2010, according to a statement from the principality's embassy in Washington. It covers financial information for 2009 and later tax years. Americans are required to disclose most offshore assets to the IRS, although some take advantage of bank-secrecy standards in places such as Liechtenstein and Switzerland to hide money from tax collectors.

The U.S. Justice Department is investigating possible tax evasion by as many as 17,000 American clients of UBS AG in neighboring Switzerland. A Switzerland-based UBS executive was indicted last month in Florida on a charge that he helped rich Americans evade taxes, and a former UBS banker pleaded guilty in a related case earlier this year.

In July, Zurich-based UBS said it would stop providing cross-border banking services to American clients through units that are not licensed in the U.S.

Because the Liechtenstein agreement does not apply to information from 2008 and previous years, American clients of UBS's Swiss banking operations may have a brief window to move assets to Liechtenstein before January 1 without exposing earlier transactions to U.S. authorities, said Asher Rubinstein, a lawyer in New York with nearly 100 clients who have accounts in the principality.

"Clients with non-compliant accounts with UBS and elsewhere have a month to set up a tax-compliant strategy in Liechtenstein," Rubinstein said. "Anything before 2009 will not be revealed to the IRS."

The delayed implementation of the U.S.-Liechtenstein agreement may undermine the accord's immediate deterrent effect on tax evasion, said John Christensen, director of the London-based Tax Justice Network, an advocacy group that tracks tax havens and supports global cooperation to combat them. "It creates a situation where people might be able to get in before the deadline," he said. ...

Even with its 2010 effective date, the Liechtenstein agreement will not protect taxpayers from penalties for earlier misdeeds, said Bryan Skarlatos, a lawyer with New York-based Kostelanetz & Fink. "It is not as if this is going to be a magic bullet and everything will be OK," Skarlatos said. "The IRS is simply going to go to the person and say 'Did you have any foreign financial arrangements before 2009?' A truthful answer would implicate the taxpayer if they did not file the necessary returns and report the income."

Skarlatos said he will not help clients move accounts to Liechtenstein unless they voluntarily disclose assets that have not been properly reported to the IRS.

Cono Namorato, a lawyer at Caplin & Drysdale in Washington, said Americans facing tax liability for offshore accounts should take advantage of an IRS leniency policy, which typically lets taxpayers avoid criminal prosecution if they voluntarily report assets. "Given the new agreement, it would be very short-sighted to move into Liechtenstein if the objective is to keep it in a secret jurisdiction," Namorato said.

Under the accord, Liechtenstein in some cases will provide information about how corporations use the principality's banks to reduce their tax bills. The embassy said the accord will be delayed until 2010 to give the principality time to enact enabling legislation.

"With this negotiation result, we are expanding our good relations with the United States, creating stability for the financial center and legal certainty for bank clients," Liechtenstein Prime Minister Otmar Hasler said in the statement.

Liechtenstein, a 62-square mile principality bordered by Switzerland and Austria, found itself at the center of an international scandal in February when a former LGT employee sold data on customer accounts to German authorities. Germany raided hundreds of businesses and the homes of wealthy citizens to collect back taxes and shared the data worldwide.

UBS spokesman Mark Arena said the bank continues to work "on an orderly wind-down" of Swiss banking services for U.S. clients. Arena said he does not know whether any clients are moving to Liechtenstein banks.

December 15, 2008

So finds the largest ever independent survey of expatriates.

While factors such as cost of living and climate are key to any expatriation decision, the fact is that the quality of life is fundamentally effected by the friends one makes and one's fit in the adopted country's culture and community. HSBC surveyed 2,155 exats, a number which they claim makes it the largest independent survey of expats ever, regarding four major integration factors -- friends, community, language and buying property.

In overall winner Canada people found it easy to make friends. This was also the case in famously friendly Australia, but because in Australia is was difficult to find a community group to join its overall ranking was impaired. Germany ranked high because people found it easy to join a community group and because 3/4 learned the language. Not surprisingly given the difficulty Westerners have learning Chinese, only 20% of Hong Kong and Singapore expats learned the native language. Asian expats in general were the least likely to purchase homes in the new country, whereas France came in first in that category with 64% taking the plunge.

Clearly different people and families will have different social preferences and fall on different spots on the introversion-extroversion scale. But one cannot override human nature, which is that we are social animals. An isolated existence in a tropical paradise will wear thin for most people pretty quickly, whereas having in a vibrant social and community life will compensate for a lot of negative factors elsewhere.

HSBC Bank International revealed ... that Germany, Canada and Spain are perceived to be the easiest countries to settle in, according to the findings of the bank's "Expat Experience" report.

HSBC Bank International said that its report, the third and final study in its "Expat Explorer" survey, is the largest ever independent survey of expatriates, questioning 2,155 expats across four continents. The report examines the integration challenges faced by expats relocating to a new country by looking at the cultural and social differences experienced.

Expats were asked to rate their host country in four areas: (1) whether they made friends with people from the local population; (2) if they joined a local community group, such as a religious or sports group; (3) whether or not they learned the local language; and (4) if they bought property in their host country.

Among the most difficult countries in which to integrate were Australia, the United Arab Emirates and China. Australia ranked poorly on the number of expats who joined community groups. Expats in the UAE found it difficult to make friends. And China scored relatively low for the number of expats who bought property.

Martin Spurling, Chief Executive Officer for HSBC Bank International and Head of HSBC Global Offshore, said: "We commissioned this independent survey to take a look into the lives and experiences of our customers who live across the globe and the transitional challenges they encounter from country to country."

He added: "This final report in our 'Expat Explorer' series focuses on something that is incredibly important to all expats -- their ability to fit in to their new home. This is often the aspect that is most daunting, with many concerned about whether or not they will be able to make friends or feel like they belong in their adopted country. Through this survey we have been provided with a fascinating insight into our customers' lives which will help us also to best adapt to their offshore finance needs."

According to the survey, Canada is the most welcoming country to expats, with almost all (95%) of respondents claiming that they found it easy to make friends with the locals. This was followed by Germany (92%) and Australia (91%).

The United Arab Emirates was revealed to be the hardest country in which to make friends with the local population, with only half of expats living there (54% -- the lowest score in the survey) advising that they found it easy to make local friends. Singapore also ranked lower, with 68% of respondents indicating that they found it possible to make local friends.

HSBC's survey found that almost half (45%) of all respondents said that they had joined a local community group as expatriates. Expats living in Germany were most likely to join a community group (65% of respondents), followed by around half of expats living in Hong Kong (53%), Singapore (50%), Canada (50%) and the U.S. (50%). Australia, despite scoring highly for making friends with local people, came last in the category, with just 38% of expats saying that they had joined one of these groups.

Expats living in Europe were most likely to learn the local language, the survey revealed. Germany came top in this category with 3/4 of expats learning the German language, followed by expats in Spain (70%) and Belgium (70%) who were also likely to adopt the language of their country of residence. Conversely, only 1/5 of expats in Singapore and Hong Kong (20%) learned the language of their new homeland.

France came out as a property hotspot, ranking highest in the category of expats buying property, with almost two-thirds (64%) of respondents stating that they had purchased a property in the country. Expats in Asia are the least likely to buy a home with India (6%), China (12%) and Singapore (24%) ranking lowest for purchasing a property.

December 16, 2008

An ongoing court case in Kentucky is attracting much attention. Internet gambling is illegal in Kentucky. The state wants internet gambling sites to block Kentucky surfers from viewing the sites. The sites have refused on the basis of expense and broad legal issues such as the Commerce Clause of the U.S. Constitution. Kentucky has countered by trying to expropriate the domain names of the sites, e.g., UltimateBet.com -- quite an innovative and potentially disruptive legal initiative.

Arrayed against the state are a diverse set of interest groups. The domain owners themselves and gambling (online or not) trade groups we expect. Joining them are internet and civil liberties advocacy groups the Electronic Frontier Foundation, the Center for Democracy and Technology and the Kentucky ACLU, as well as Network Solutions LLC, the controller of the .com internet domain suffix. Oral arguments before the Kentucky Court of Appeals were made last Friday.

Arbitrarily pushing the boundaries of the atrocious U.S. and state forfeiture laws are old hat by now. We have always wondered where they will all end short of a Caligula-style "We need it. You have it. We’re taking it." This case explores strange, new legal worlds. The federal government has, we recall, summarily expropriated what were deemed sites offering illegal information or services. Subsequent visitors to the site would find a warning from the FBI instead. Here, as is standard with forfeiture cases, the state is trying to grab the domains without the formality of a prior finding of illegal behavior (on the part of the gambling site owners).

Not mentioned here is where the companies which did the actual domain registration were domiciled. Network Solutions is a U.S. company, and perhaps represents the ultimate "owner" of .com domains. But is GoDaddy or some other U.S. company the domain name registrar, and will that matter -- now or in future cases of this sort? Network Solutions has been criticized for its powerful hold over the internet exercized via its control of .com. If its domains become subject to being arbitrarily expropriated and suddenly non-.com domains will look more attractive than they have been until now.

LOUISVILLE — Lawyers representing online gambling interests told the Kentucky Court of Appeals on Friday that Gov. Steve Beshear's effort to seize domain names is blatantly unconstitutional. A three-judge panel is weighing Beshear's unprecedented move to seize the domain names of 141 gambling Web sites.

Franklin Circuit Judge Thomas Wingate allowed the Cabinet for Justice and Public Safety to seize the domain names last month. The seizure, at this point, is meaningless because the state cannot control the content of the Web sites until a judge orders the domain names forfeited to the state.

A forfeiture hearing has been stayed pending a ruling from the Court of Apeals.

In oral arguments Friday, lawyers representing six domain names, two online gambling trade groups and The Poker Players Alliance said the cabinet's move is littered with legal and constitutional flaws. They focused on four arguments: "We have Kentucky exercising worldwide jurisdiction," said Frankfort lawyer William E. Johnson, who represents five domain names. Friend-of-the-court briefs supporting the online gambling interests were filed by the Electronic Frontier Foundation, Center for Democracy and Technology and the American Civil Liberties Union of Kentucky; Network Solutions LLC; and The Poker Players Alliance.

The owners of gambling sites did not appear in court Friday and have not directly participated in the lawsuit. Instead, proxy owners of six domain names and two trade groups have sought to represent their interests.

The cabinet has argued that the proxy owners and trade groups do not have standing to challenge the seizure since they are not revealing their client's identities, and hence cannot prove they own the gambling sites. The cabinet's lawyers called it a "heads I win, tails you can't find me" legal strategy.

Trade groups and the ACLU of Kentucky retorted that government is attempting to coerce the gambling sites into self-incrimination -- which is prohibited by the Fifth Amendment -- or risk losing their domain names.

The domain name owners note that it was the state that chose to sue them rather than the gambling businesses that operate the Web sites, likely because they are overseas and cannot be located.

A private lawyer representing the state, Erik Lycan, said the gambling sites are engaging "in a massive offshore criminal conspiracy" that is masquerading "as a legitimate business." ... "They can't bring that masquerade into Kentucky," Lycan said.

Beshear campaigned last year on a promise to open casinos in Kentucky, but says some of the most popular gambling sites in the world are bad for the state. The governor has said the sites create ways for children to gamble; undermine horse racing by creating untaxed competition [emphasis added]; make it easier to launder money; and lack consumer protections to ensure people actually receive their winnings.

While Wingate's ruling would allow the state to commandeer domain names, Internet users in Kentucky could still access the Web sites by typing their IP addresses -- unique numbers assigned to every computer or Web server connected to the Internet -- into their browsers, lawyers notes.

Louisville lawyer Jon L. Fleischaker, who represents the Interactive Media Entertainment and Gaming Association, a trade group, argued that domain names are no more than billboards. He noted that the Horseshoe Casino in Southern Indiana can advertise in Kentucky, even though gambling is illegal here, because of the First Amendment.

Seizing a domain name is no different than the state seizing a casino billboard, Fleischaker said. "That is classic prior restraint," he said.

The state wants gambling sites to block Kentucky Internet users from viewing the sites. But such technology is prohibitively expensive and faulty, gambling trade groups argued in briefs. Furthermore, Kentucky is constitutionally prohibited from imposing such a requirement for Web sites located in other states and other countries, where the Web sites may be perfectly legal, the lawyers argued.

In briefs, the lawyers likened it to China attempting to seize a domain name registered in the United States because the Web site promotes religion. "If we can do it to them, they can do it to us," said lawyer John L. Tate, who represents vicsbingo.com and the Interactive Gaming Council, a trade group.

Another key issue is whether domain names are gambling devices. Johnson said domain names do not meet the legal definition of a gambling device because domain names are not electronic devices that are manufactured. He noted that Kentucky's gaming statutes were written in 1974, long before the Internet was commercially available.

Two of the three judges expressed skepticism about the government's case. Judge Jeff Taylor asked how the government could seize the domain names when the Web site operators have not been prosecuted. Justice and Public Safety Cabinet Secretary J. Michael Brown "taught a law school class 27 years ago and he taught that there is a presumption of innocence until proven guilty," Taylor said.

December 15, 2008

Online virtual world players have shown a willingness to exchange real world currency for virtual currency that can in turn be used to buy enhanced powers and toys. To us this looks on the face of it to be missing the point. In practice as in the real world, a division of labor has arisen and those with time produce virtual goods that those with money are willing to buy. If people value the thrill of participation over the joy of learning, so be it.

Now the Chinese government wants a cut of the virtual currency sellers' revenues. The tax also applies to a variety of other businesses where virtual currencies are used. China's virtual currency market is said to be growing 15-20% annually.

That some government wants to get its hand in a growing and profitable business is so unsurprising as to not warrant notice. What makes this instance interesting is the domain. Virtual worlds and e-currencies are evolving, as with the internet itself, in ways unexpected and confounding. Real world problems such as fraud and identity theft have started routinely appearing. Of course now some want the government to come in and provide "protection" against that. Been there, done that. Expect the tax battle between e-currency users and governments to be protracted.

Successful online video game players and Internet surfers in China have found ways to make real money from virtual assets. Now China's taxman wants a piece of the action.

The State Administration of Taxation said ... that China will impose a personal income tax of 20% on profit from virtual money. The announcement, which was distributed to local tax bureaus, specifically takes aim at those who buy virtual currency from gamers and surfers and sell it to others at a mark-up. Taxation officials are granted the right to determine the original price of online virtual currency if the individual fails to provide proof of an original price, it says.

The policy would cover China's legions of online gamers, who can use online virtual currency to buy better equipment and new powers for their online warriors. But it also affects millions of others who use virtual currencies on instant-messaging services and Web portals. For example, users of Tencent Holding's popular QQ chat service can earn Q-coins they can use to purchase online game equipments and buy e-gifts. Statistics from research firm iResearch show that China's virtual currency market is growing at a yearly rate of 15% to 20%, and several billion yuan worth of virtual money is traded in the market.

The fast growth already has raised fears among China's policymakers, who last year restricted the conversion of virtual currency into yuan. Among other reasons cited in this Chinese language Xinhua report, they feared the practice could lead to inflation as well as money-laundering.

This week's move has become a hot topic among Chinese Web users nationwide. Over 6,000 comments were left by netizens on Netease.com one day after the news appeared on the portal site (in Chinese here).

Many said it is unfair to tax on individuals while internet companies are exempt. "Tax everything and no refund at all. This time, it even charges 20 percent. No wonder the country is the world's No. 1 tax bearer," wrote one netizen on Netease.com.

In an online poll by the Sina.com, over 70% out of about 3,000 people who voted were against the new taxation decision. The biggest doubt is how the actual sum of property will be evaluated. Blogger Ruan Zhanjiang wrote that, "Many game players are classmates or friends in real life, thus most of them will not have credentials when trading virtual money. It is difficult to prove the original value of virtual currency, though." ...

Still, some believe the government's move can help better protect the property rights of online gamers. Identity theft has long been a fast-growing problem for online gamers in the high-profit virtual currency trading market.

December 25, 2008

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.

December 23, 2008

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."

December 24, 2008

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 using 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.