W.I.L. Offshore News Digest for Week of May 5, 2008

THE DRAINING NATIONAL PROSPERITY

The Federal Reserve's exceedingly aggressive monetary policy and the U.S. government's income tax rebate (borrowed from the Chinese) have succeeded in staving off the crisis that looked imminent earlier this year. At a cost. "It is perhaps disappointing for bears that a crisis may not occur immediately," drolly writes Martin Hutchinson, "but there can be no question that the vigorous monetary and fiscal medicine administered by the Bernanke Fed and the George W. Bush administration will have its effect."

The money is bound to find its way into consumer prices, Hutchinson argues, which will create a monetary crisis and a political crisis. Bush, Paulson, and Bernanke will all have been discredited by reality and be unable to provide leadership. It will be up to the incoming president. Hutchinson does not foresee a rerun of the Great Depression, unless the government really mucks things up -- as they did in the 1930s.

The first quarter Gross Domestic Product rise of 0.6% was greeted with considerable relief by most Wall Street commentators. They had expected the chaos in the housing market and the banking system to have pushed the U.S. economy into recession. This was unreasonable; the huge monetary stimulus currently being hurled at the economy was always likely to prevent immediate recession, while the fiscal stimulus of the $110 billion rebate package is likely to prop it up through July or so. Beyond that, the future becomes less clear. At some stage the monetary and fiscal stimulus must run out.

As I have frequently written, monetary conditions have been pretty lax since 1995. It had been becoming difficult to determine how lax since March 2006, when the Federal Reserve stopped reporting M3 money supply, the measure used in by the European Central Bank and other monetarist organizations. However the St. Louis Fed, which for the decade until April was run by the monetarist William Poole, has constructed its own measure of broad money, Money of Zero Maturity, which is a reasonable proxy for M3. It consists of M2 plus institutional money market funds minus small time deposits. Like M3, MZM began to expand excessively in early 1995. In the 13 years to March 2008 it grew at an average annual rate of 8.88%, compared with growth in nominal GDP during that period of 5.25%.

And guess where all the excess money went? Towards inflating asset prices of all sorts.

Thus monetary policy, however measured, has been excessively expansionary since 1995, in the sense of expanding the money supply faster than output. As I have written previously, the inflation-creating effect of this excessive monetary expansion has been suppressed for a decade by the Internet, which has had a similar deflationary effect through enabling outsourcing to cheap labor countries that the railroads and refrigeration did in the 1880s through allowing cheap agricultural produce from the Midwest, Canada, Australia and Argentina to be shipped worldwide.

From the beginning of 2008, however, monetary expansion has sharply accelerated. In the three months to April 21, the latest data available, MZM expanded at an annual rate of no less than 28.7%. This extra-rapid expansion is not surprising -- the Fed has been terrified that the U.S. financial system was about to collapse, and has been making funding available in large quantities in a variety of ways. Indeed on May 2 the Fed, concerned about the credit card financing market, allowed banks to use credit-card-backed AAA bonds as security for Fed loans -- needless to say this involves yet more monetary expansion and further risk to the taxpayer. Monetary stimulus of this extraordinary magnitude will have an effect, it has to.

Other countries have also been expanding their money supply excessively. The European Central bank has allowed euro M3 to expand by 11.1% in the three months to March 2008, following an increase of 11.5% during 2007. As in the U.S., this increase is much faster than that of nominal GDP, and it had been continuing for several years, with annual growth rates of 7.4% in 2005 and 10.0% in 2006. Of the major emerging markets, China and India have both been operating expansionary monetary policies and now have considerable inflation problems. Vietnam too has been surprised in spite of its rapid growth by inflation surging towards 25%. Only in Japan, where "broadly-defined liquidity" has been increasing at rates in the 3-4% range in 2006-08, has monetary policy been reasonably consistent with low inflation.

Monetary stimulus generally works with a lag of several months at a minimum. Thus it is likely that the extremely lax monetary conditions of the past few months have not yet produced their full effect. Nevertheless it is remarkable how rapid has been the advance of energy and commodity prices, with the Reuters CRB commodity price index up 24% since the Fed began its misguided interest rate cutting campaign on September 18 last year.

It is also remarkable how feeble growth in the U.S. has been. With the Fed essentially printing money as fast as it could, the U.S. economy grew only 0.6% in each of the 4th and 1st quarters. Since the U.S. population increases by around 1% per capita, the economy has thus been in a per capita recession since September. In the first quarter indeed, even ignoring population growth, the economy was only pushed above the flatline by increases in inventory and government spending, both detrimental to economic output in the long term.

Over the next several months, it is likely that current trends of feebly advancing GDP and soaring commodity prices will continue. Certainly the stock market seems to think so; it has recovered nicely from its mid-March low and is now above the levels when the crisis hit last August, even though earnings in the financial sector, representing more than 40% of total U.S. earnings before crisis hit, have essentially disappeared in the last two quarters. The Fed may not currently intend to push interest rates down further, but it has already forced them more than 2% below even the thoroughly fudged statistics of inflation produced by the Bureau of Labor Statistics.

It is perhaps disappointing for bears that a crisis may not occur immediately, but there can be no question that the vigorous monetary and fiscal medicine administered by the Bernanke Fed and the George W. Bush administration will have its effect. Indeed, far from declining in the second quarter, as has been confidently predicted, GDP may even tick up a bit, boosted by monetary and fiscal stimulus, perhaps to around 2% or 1% after population increase has been taken into account.

At some point, a crisis will arrive. Inflation in the eurozone, China and India is already at levels deemed unacceptable, while even Japan has positive inflation for the first time in many years. In the U.S., the producer price index increased 6.9% in the year to March, while that for crude goods increased more than 30%. Like a bowling ball swallowed by a python, that inflation will move through the economic system and eventually be reflected in consumer prices. Indeed, it may already be showing up there. The seasonally unadjusted CPI for March was up 0.9% (an annual rate of around 11%) and only a heroic seasonal adjustment of 0.6%, double the next largest seasonal adjustment for any month in the last 10 years, brought the figure down to an acceptable 0.3%.

The Bureau of Labor Statistics explains on its website that its seasonal adjustment methodology changed in January. Should it be the case that this is being used to suppress consumer price inflation, even the dozier members of the media will come to notice after another couple of months have passed. In any case, it is likely that by the latter part of 2008, consumer price inflation in the U.S. will be running at more than 10%, and that even the heroic mavens at the BLS will be unable to suppress that information completely (though on past form they will undoubtedly try).

There will come a point at which the irresistible force of gradually increasing GDP and continually optimistic stock market will meet the immovable object of consumer price figures that can no longer be ignored. At that point, the U.S. will suffer not merely a monetary crisis but a political crisis. President George W. Bush, with his refusal to see recession, Treasury Secretary Hank Paulson, with his background in an institution, Goldman Sachs and a market, the Wall Street of 1995-2007 that together bear a very substantial responsibility for the problem, and Bush's appointee Ben Bernanke, with his continual insistence that inflation is imminently about to disappear, will be discredited by reality and unable to provide leadership. Awkwardly, it is more likely than not that the crisis point will occur before November, so there will be no fresh-faced President-elect to take control of the situation.

Almost certainly, it will prove impossible to put the entire U.S. economy on ice until January 20, 2009, so the financial markets themselves, probably the Treasury bond market, will take control. With the U.S. Treasury's funding need in the fiscal years 2008 and 2009 already around $500 billion in each year, hiccups in the bond market have an almost immediate way of making themselves felt. To avoid a collapse in the bond market and a catastrophic decline in the dollar as foreign central banks withdraw their money, short term interest rates will have to be raised very quickly to at least 3% above the then prevailing level of inflation. That would imply a level of 7-8% today, but probably considerably more by the time the crisis hits.

Once interest rates have been raised, inflation will not decline immediately, but nor will the U.S. descend into a rerun of the Great Depression. There will be a lengthy and grinding recession, probably persisting throughout 2009 and into 2010, with GDP declining maybe 4-5% from top to bottom and inflation coming definitively under control only towards the end of the period. On the other hand, the dollar will stop being weak, since U.S. interest rates will be internationally attractive, and the U.S. balance of payments position will swing back sharply towards balance as U.S. consumption and therefore imports decline sharply. The U.S. savings rate will also increase, allowing the country to finance new capital investment from domestic resources, and giving it once more a substantial capital cost advantage over the emerging markets with lower labor costs.

The wild card will be politics. It is not yet clear who will be the next President, and it is abundantly clear that this pretty unpleasant economic environment will dominate that President's first two years in office. As happened to Herbert Hoover, it will be possible for the new President and/or Congress, through misguided protectionist or anti-capitalist policies, to make things sufficiently worse that a Great Depression Mark II ensues.

ETERNAL CITY, CHRONIC TROUBLE

A little more grist for the "Is America the new Rome?" mill, courtesy of the inimitable Bill Bonner.

No modern government policy is so stupid that the Romans did not think of it first.

A visitor to the Eternal City, even if he has been many times before, feels his jaw drop and his pulse rise. The city is still a magnificent ruin ... a vast memento mori recalling every absurdity and corruption known to man. Here we begin ab ovo, as the Romans used to say -- with the egg.

At the far end of the Largo di Torre Argentina, for example, is the spot where Julius Caesar's body was ventilated. Poor Julius. His wife warned him. His soothsayer warned him. Even his friends warned him that something was up. Still, the man who had conquered Gaul and brought Vercingetorix back to Rome in chains, and then triumphed in the civil war against one of Rome's greatest generals, Pompey, dismissed his guards and walked into a cheap ambush by politicians, one of whom was probably his own son. ... But that is the amazing thing about the Romans and modern man too. Even when the traps are as obvious as bailouts and Baghdad, they sashay right in.

And over there ... at the Domus Aurea, was Nero's golden palace; a place that saw such debauches as to make Britain's royals -- perhaps with the exception of that ancient Edward -- seem like archangels. Nero's mother was Caligula's sister, with whom she an "inappropriate relationship." She plotted against Caligula, and when he was out of the way, married her uncle, Claudius. She poisoned Claudius ... and his son, Britannicus, too, so that her own son from a previous marriage -- Nero -- could become Emperor. Then, fearing that she was losing her grip on her son, she seduced him. But by that time, he was so deep into carnality with slaves, senators' wives and castrated boys, that her motherly charms could not hold him. So, she tried to kill him. He beat her to the punch, sending his soldiers to skewer her. ...

Our beat is money, not history. But today we pick through Rome's huge trash pile to try to learn something.

Everything started to go wrong in the time of Marcus Aurelius, say most historians. Soldiers returning from the Parthian war brought the first major plague epidemic with them. There was a revolt in Egypt. And Germanic tribes pushed across the Danube and the Rhine.

But the real problem began much, much earlier, practically ab ovo. From the very beginning, the Romans picked fights with the neighbors. The small colony had a shortage of females, so the Romans carried off the women of a nearby tribe. ... From there, one local tribe after another was subdued. And each successful campaign elevated the power and wealth of Rome and led, like antipasto to primo platti, to the next campaign.

As a business model, Rome's strategy was obviously flawed. Like a credit bubble, it required constant expansion. Still it was nice in the beginning. The early days of the Roman Empire were like the early days of the British Empire or the American Hegemony. Expansion opened up new markets and brought in new supplies of raw materials at better prices. Not only was there booty; there were also slaves.

Nothing fails like success. The slaves had an effect on the domestic labor market of the time not unlike Chinese and Indian peasants on today's labor rates. The price of free labor fell. Another familiar consequence was an increase in speculation and what we would call "financialization" of the economy. Instead of farming themselves, ambitious Romans outsourced, setting up huge agricultural estates all over the empire, which were operated by slaves. This had a further effect of lowering prices on farm products. Small, independent landowners could not compete. They went to the cities. Or, they joined the army.

Eventually, Roman expansion reached its limits under Trajan. Then, the military machine gradually changed from a profit-making institution manned by Romans, to an expensive peace-keeping force staffed largely by barbarians. Worse, the clattering of chains was no more to be heard in the Delian slave market. Now the problems really began. The government had begun distributing free bread, in order to keep the urban mobs quiet, a program similar to today's tax rebate checks. Already, under Augustus, one in five people in Rome depended on the "dole".

Then, Rome's balance of trade grew increasingly negative. This gave rise to something else that will be familiar to us: inflation. Nero took 10% of the silver out of the denarius. Then, under Marcus Aurelius, it was down to 75%. Finally, by the third century, the denarius was made of brass, with a silver coating. Consumer prices soared. Diocletian's solution was very similar to what Richard Nixon would do many years later -- The Edict of Prices, a system of price controls.

With no more slaves shuffling into the city, Rome turned to its remaining small farmers. First, it subsidized the farmers -- with the "alimenta" -- like our own crop support programs. Then, desperate for food, it requisitioned grain and cattle from them directly ... and forced the farmers to stay with their land, like serfs. The farmers' situation became so miserable they began to sell themselves into slavery. This traffic became so heavy that the government banned the practice in 368 AD.

Modern politicians and central bankers have nothing on their ancient forebears. Bailouts ... monetary stimulus ... subsidies ... giveaways -- the Romans had a solution for every problem. And every solution brought new problems ... until the weight of them crushed the whole empire.

SWITZERLAND REPORTS JUMP IN EU WITHHOLDING TAX REVENUES

The EU Savings Tax Directive allows Switzerland, among other countries, to withhold 15% (so far) of client interest income earned and turn it over to the mother country, rather than disclosing the client's earnings and identity directly to the mother country -- if the client so elects. The agreement kicked in on July 1, 2005. The aggregate withholdings took a nontrivial 20% jump during the 2007 tax year. Meanwhile, the number of people who chose to allow their identities to be disclosed, and thus avoided withholding, jumped 14.5% from 55,000 to 63,000.

The Swiss government announced ... that gross revenues collected from interest payments under the European Savings Tax Directive increased substantially between 2006 and 2007.

The Federal Department of Finance revealed this week that tax withheld on interest payments in Switzerland on earnings liable to tax in the EU increased from CHF536.7 million (€331 million) for the year 2006 to CHF653.2 million [apx. $625 million] for the tax year 2007. On 31st March, 2008, the payment deadline expired for EU tax retained from individuals resident in EU member states on interest payments made by Swiss paying agents during the course of 2007.

The agreement on the taxation of savings income with the European Community, in force since 1st July, 2005, makes provision for 75% of the proceeds to be passed on to the member states concerned. The remaining 25% is kept by the Swiss government, although 10% of this is passed on to the cantons.

Accordingly, CHF489.9 million in withholding tax revenues was transferred to EU member states, and CHF163.3 million was kept by Switzerland, out of which CHF16.3 was passed on to the cantons.

The Swiss figures show that, of the withholding tax revenues transferred to EU member states, the largest amounts were passed to Germany (CHF130.5 million), Italy (CHF125 million), France (CHF61.9 million) and the UK (CHF40.2 million).

In addition, the agreement on the taxation of savings income makes provision for the recipients of interest payments to choose between the system of tax retention and a voluntary declaration to the tax authorities. Overall in 2007, in the region of 63,000 declarations were received. Approximately 55,000 declarations were received in 2006.

So 63,000 Swiss clients elected to waive bank secrecy and allow disclosure to the home country. It would certainly be interesting to know the number of clients who chose instead to allow the withholding of part of the client's interest earned (currently 15%, rising to 20% starting this July) and pass it on to the home country without disclosing any client information. Absent this second number, it is hard to guess how many Swiss bank clients have secrecy among their primary motivations.

EU AND LIECHTENSTEIN MAKE PROGRESS ON ANTI-FRAUD AGREEMENT

EU and Liechtenstein are negotiating the terms of the later's integration into the European Economic Area. "This integration gives us rights and duties," Liechtenstein's Prime Minister announced. One of the areas being negotiated is "cooperation on tax matters". We shall see if Liechtenstein's vaunted financial secrecy is compromised in coming to an agreement.

Delegations from the European Commission and Liechtenstein have conducted a further round of negotiations on the envisaged Anti-Fraud Agreement, which sets out a framework for cooperation in the area of tax. According to Liechtenstein's government, the negotiations, which were staged in Vaduz on 25th April, took place in a "constructive atmosphere".

"We have made significant progress today on many questions," Prime Minister Otmar Hasler confirmed after the meeting. Liechtenstein is aiming to achieve a negotiation result that entails no lesser but also no greater obligations than those the EU States have imposed upon themselves.

"By joining the European Economic Area, we have chosen the path of European integration, because it is the best guarantor of our sovereignty," the Prime Minister went on to explain. "This integration gives us rights and duties. The rights include being heard as a sovereign State when we present the legitimate interests of our citizens. The duties include seeking compromises with our European partners, so that we can continue on the path of European cooperation for the benefit of us all."

One of the goals of the Anti-Fraud Agreement, under negotiation since summer 2007, is to regulate cooperation on tax matters. The Prime Minister emphasized that the political will to achieve an agreement exists, and he expressed optimism that the negotiations would soon reach a successful conclusion.

Spain Investigating 198 people in Liechtenstein Tax Evasion Case

Spain's Tax Agency says prosecutors have been given the names of holders and beneficiaries of accounts in the principality. ... A wider case broke in February when it emerged that Germany's intelligence service paid an informant for a CD-ROM believed to contain 1,400 names of alleged tax cheats. Liechtenstein's LGT Group says it believes the data were stolen from its subsidiary, LGT Treuhand.

The case prompted investigations in Germany, France, Britain, Australia, Italy, the United States, Spain and elsewhere.

GOVERNMENT OF MAURITIUS RESPONDS TO THIRD TRADE POLICY REVIEW BY WTO

It is unclear from the official response by Mauritius to the WTO report whether the report was critical, contained heavy-handed suggestions about how Mauritius ought to follow its sage advice, or whatever. But the response is noteable for its straightforwardness.

The Government of Mauritius recently responded to the 3rd Trade Policy Review by the World Trade Organisation (WTO) ... In a statement Ambassador A. P. Neewoor, Secretary for Foreign Affairs of the Ministry of Foreign Affairs, International Trade and Cooperation revealed that the major policy drive of Mauritius has been to establish conditions for economic stability, sustainable growth and further integration into the international trading system, in the face of domestic, regional and global economic developments.

For the past seven years, Mauritius has continued to implement policies aimed at creating a more efficient, vibrant and outward looking economy, he recalled. With regard to the economic transformation of Mauritius, Ambassador Neewoor stated that the strategy is based on preferential trade with a view to the creation of growth and employment through labor-intensive, export-oriented manufacturing, while maintaining an elaborate social welfare system.

He also made reference to the new and daunting challenges which Mauritius, as a Small Island Developing State and Net Food Importing Developing Country, is facing: "Like many countries, Mauritius is now facing a changing global trade environment, which is set against a backdrop of soaring oil prices, continuing human and supply-side capacity constraints, and public debt as well as a relatively high unemployment rate," Neewoor stated. Ambassador Neewoor added that in spite of the challenges confronting Mauritius in this aspect, the long-term prospects for the country look good.

The Trade Policy Review is a mandatory exercise to encourage members of the World Trade Organization to be transparent in the formulation and implementation of trade policies, and to ensure that they are in compliance with their obligations to the WTO. The Trade Policy Review was based on the following two reports: a country report prepared by the Government of Mauritius, and a report on Mauritius prepared by the WTO Secretariat.

AUSTRALIAN TAX COMMISSIONER WARNS AGAINST USING TAX EVASION ARRANGEMENTS IN VANUATU

The ATO has recently netted a number of Australian tax payers who tried to hide income via Vanuatu-based structures and accounts. With no little cooperation from Vanuatu itself, we might add, contrary to its professed dedication to privacy.

Australian Tax Commissioner Michael D'Ascenzo issued a taxpayer alert ... warning people against using arrangements in Vanuatu or any other jurisdiction to claim false deductions or hide income offshore.

"The message is simple -- people should be cautious when considering the abusive use of offshore structures or tax havens including Vanuatu," Mr D'Ascenzo explained. "With excellent cooperation from Australia, New Zealand, Vanuatu and other international agencies under Project Wickenby, we are closing the net on people trying to use tax havens to hide income.

"People who use offshore structures to generate false deductions or to deliberately hide assets or income in tax havens like Vanuatu can face serious penalties including criminal prosecutions."

The Tax Office revealed that it is conducting 80 audits linked to Vanuatu, with over A$90 million in allegedly false deductions, and will write to another 500 Australians with apparent links to Vanuatu seeking more information on their tax affairs.

"Last year we asked Vanuatu branches or subsidiaries of some Australian financial institutions to ask their Australian customers to check their arrangements," Mr D'Ascenzo revealed. "If people thought they had tax compliance problems we offered them the opportunity to come forward and voluntarily disclose any issues. We have been disappointed with the low response rate from this particular initiative and urge people to think again."

"However, I am pleased we have received 661 voluntary disclosures to date in relation to the abusive use of tax havens generally. People who contact us before they are the subject of an audit may be entitled to substantial reductions in shortfall penalties under our offshore voluntary disclosure initiative," he concluded.

Earlier this month, Australian and international agencies conducted operations across three countries to attack abusive tax evasion schemes linked to Vanuatu

Commenting on the anti-evasion operations, Australian Treasurer Wayne Swann stated that: "People who avoid tax through the use of abusive tax haven schemes place an unfair burden on the vast majority of the Australian community who do the right thing."

Now in the interest of evenhandedness and balance, Mr. Swann should also announce that "abusive" government spending (i.e., most of it) places an unfair burden on the vast majority of the Australian community who do not partake of the spending's benefits, and he is going to conduct extensive anti-abusive spending operations.

"Anyone involved in these schemes is encouraged to come forward voluntarily and cooperate with the authorities. People who contact the Tax Office before they are contacted may have access to reduced penalties."

U.S. CONTRACTORS FACE OFFSHORE TAX INQUIRY

Henry Waxman is at it again, this time investigating whether government contractors are using foreign subsidiaries to pay overseas workers, thereby avoiding tax. Waxman, chair of the U.S. Congress committee on oversight, has asked 15 contractors to provide detailed information on their use of overseas subsidiaries.

Committee chairman Henry Waxman has asked specifically for more information about the role of two KBR subsidiaries incorporated in the Cayman Islands: Service Employees International Inc. (SEII), and Overseas Administrative Services (OAS).

In a letter to James H. Andrews, KBR's director of government affairs based in Arlington, Virginia, Mr. Waxman says that after a briefing given recently to his committee staff by KBR representatives, he understands that the primary purpose of these offshore arrangements is to reduce KBR's tax obligations. According to that briefing, SEII and OAS employ thousands of U.S. citizens who work in Iraq and other countries under KBR's contracts with the U.S. government. At the same time it was observed that no KBR, SEII or OAS employees perform any significant work on the Cayman Islands.

The committee has now asked KBR for full documentation on the status of the two companies, the names and titles of their current directors and officers, and those who hold an ownership interest in them.

The demands for information are formidable, including a list of contracts under which SEII or OAS provided goods and services to any agency of the US Government from 2002 onwards, whether directly or indirectly.

The committee also wants to know about the activities these two companies perform on the Cayman Islands, their profits and the proportion of profits allocated to the Cayman Islands, plus a description of the number of U.S. and foreign nationals paid by them since 2002.

It has also asked to see any estimates or calculations of the amount of social security, Medicare, unemployment, or other taxes and benefits not withheld from or paid to its U.S. national workers because it is incorporated in a foreign jurisdiction.

BILL TARGETS WAL-MART “TAX EVASION SCHEME”

Wal-Mart takes advantage of one of the older tax loopholes in the book, arranging to have expenses incurred by a fully taxable entity while the concommitant income is realized in a tax-advantaged entity. The tax authorities vow to close down the loophole, and perhaps they will. The game goes on ...

Rep. Claire Levy, D-Boulder [Colorado], introduced a tax bill designed to stop Wal-Mart and other companies from deducting real-estate expenses they are paying to themselves. Levy calls the technique an illegal tax evasion scheme.

The tactic, revealed by The Wall Street Journal in February 2007, involves Wal-Mart giving its stores and land to a real estate investment trust, which it then pays rent to. REITs pay no corporate taxes if they pay out most of their income to shareholders. Another Wal-Mart subsidiary owns the REIT and gets the income. The rent is then deducted on state income taxes as a business expense.

Presumably the REIT owning subsidiary is beyond the reach of the Colorado Department of Revenue.

"They've concocted a scheme that allows them to launder their own money and evade their fair share of state taxes," Levy said. Her bill gives the state Department of Revenue greater power to discover and block the transactions.

In a prepared statement, Wal-Mart Corporate Communications Director Daphne Moore called the tax position "lawful arrangements ... known to state departments of revenue for many years. While there is a tax benefit . . . it makes sense to have properties administered by a separate professional real estate office, rather than by individual store managers," she said. "Anything Wal-Mart can do to lawfully reduce its costs enables the company to pass those savings on to customers in the form of lower prices."

BANK LAYOFFS AND NATIONAL SECURITY

When banks were flush with credit bubble originated profits, as they got their routine cut of all the newly printed cash by dint of being in business, it was easy to pay for all the anti-money laundering personel and systems being mandated by the feds. Now times are suddenly tough for banks, and those programs' costs are taking noticeable bites out of the bottom lines. What to do?

"Banks need to develop compliance strategies that are smarter, more cost effective, use fewer people and are right the first time," writes Sandy Jaffee, CEO of "risk and compliance solutions company" Fortent. Gee. Why didn't we think of that? To be sure, there is some insight into human nature embedded in the advice. When times are good, people are not at their cost-cutting sharpest -- even the alleged profits maximizing company managers so beloved by microeconomic theorists.

The federal government views banks as America's first line of defense to ensure that terrorists and criminals do not use the financial system to facilitate their activities. As a result, extensive anti-money laundering and anti-terrorist regulations have placed financial institutions in the trenches of the war against terror -- and against any criminal activity involving money flows. The costs of these regulatory compliance programs have reached $7 billion annually for financial institutions worldwide, and are rising.

But these are tough times for banks. The specter of increased regulation is becoming all too real as institutions are still reeling from the losses they suffered during the past year's credit crisis.

Even before the current bank woes consumed the interest of the federal oversight agencies, financial institutions began to face tougher penalties in recent years for failure to implement adequate anti-money laundering programs. Over the past five years, for example, the U.S. Department of Justice has shifted its tactics toward pursuing criminal proceedings against institutions for Bank Secrecy Act violations, rather than pursuing them as civil cases. Since New York-based Broadway National Bank entered a guilty plea for money-laundering violations in 2002, a number of banks have pleaded guilty or reached deferred prosecution agreements with the Department of Justice, resulting in tens of millions of dollars in forfeitures and monetary penalties.

These are monetary and reputational costs that banks want to avoid and are ill-equipped to afford in today's environment, but compliance is not optional. Indeed, at a time when staff, morale and budgets are falling, banks are still very much on the hook for better risk management in all areas of operation -- whether it is absorbing bad loans or keeping money launderers out of the system.

Two forces are at work here. First, to meet regulatory and compliance goals, banks have to be able to show that the technology they are using complies with present regulation, can manage the requirements of enhanced regulations and can handle the increasing complexity of financial instruments available to customers.

Second, to meet budgetary goals, banks have to find ways to comply in a period of difficult decisions and cutting costs. Further, banks are not getting the kinds of revenues they earned last year, or even six months ago.

So to tackle both of these challenges, banks need to develop compliance strategies that are smarter, more cost effective, use fewer people and are right the first time. In this way, banks can weather layoffs and budget cuts without compromising their compliance goals and the societal needs of national security.

A critical aspect of achieving compliance goals in today's economic storm is ensuring that all the technology systems put in place have an adequate return on investment. To accomplish this, financial institutions need to leverage industry best practices and, further, to integrate relevant compliance and fraud applications to realize optimal results across the financial crimes spectrum. Returns on the compliance side are based on cost reductions; compliance doesn't generate revenues. The key then is to find systems that efficiently address the necessary compliance functions to take the cost out of compliance. ...

Banks have been through this cycle before -- and they will survive it again. These tough times bring the benefit of forcing all of us to think smarter and more critically about how to make systems work efficiently as well as effectively. We no longer have the luxury of throwing money at compliance problems, but instead have to achieve the rigorous returns demanded of all our investments -- and utilize advanced financial crime detection technology to manage compliance requirements in an economically efficient manner.

BANK OF IRELAND LOSES THOUSANDS OF CUSTOMER RECORDS

Another big loss of private data by a big financial company, the Bank of Ireland in this case. It was lost via the theft of company laptops containing data unprotected by encryption. Not intelligent.

Four laptops containing personal details of 10,000 people have been stolen from the Bank of Ireland (BoI). The Data Protection Commissioner in Ireland is investigating the thefts. Data on the four laptops is not thought to have been encrypted, and BoI will now begin a process of encryption of data on its laptops.

Nothing like closing the barn door after the horse has escaped. Stolen laptops have only been a problem for, oh, 20-odd years -- when laptops were invented.

As well as names, addresses and financial details of customers the computers contained some medical records because they were part of the bank's life assurance business. Though the thefts of the laptops occurred last year between June and October the Data Protection Commissioner was not told until last Friday morning [mid-April]. The Commissioner has launched an investigation.

"The investigation will focus on the justification for the personal data, including sensitive medical data in some cases, being placed on the laptops in the first place, the security arrangements in place and the exact circumstances which led to the delay in the reporting of this matter internally within the Bank of Ireland to the appropriate personnel for the taking of further action," said a statement from the Commissioner.

"Consideration will then be given as to what further action will be sought from Bank of Ireland to ensure that the obligations contained in the Data Protection Acts in this area are met. The Data Protection Commissioner and the Financial Regulator are cooperating on this matter and we will refer any relevant issues to the Financial Regulator," it said.

BoI said that the information concerned people who had taken out life assurance or received a quote at seven branches, which it named. Financial organizations possess huge amounts of personal data on customers and are amongst the more at risk companies from data theft or loss.

The UK Information Commissioner's Office (ICO) said this week that half of the 28 data security breaches in the private sector that have been reported to it since last November have involved financial services companies.

Earlier this month one of the world's biggest banks, HSBC, lost a computer disc with the policy details of 370,000 people on them in the UK. Customers lost £3.3 million due to failures by Norwich Union to manage customer data effectively.

COME HOME, CONSERVATIVES! – TO THE ANTIWAR CONSERVATIVE MOVEMENT

Under Consideration: Bill Kauffman, Ain’t My America: The Long, Noble History of Anti-War Conservatism and Middle-American Anti-Imperialism.

Thomas E. Woods, Jr., bestselling author of seven books, including 33 Questions About American History You're Not Supposed to Ask and The Politically Incorrect Guide to American History reviews Bill Kauffman's latest book. We featured a review of Kauffman's now second most recent book, Look Homeward, America: In Search of Reactionary Radicals and Front-Porch Anarchists, here.

Winston Churchill once described the Soviet Union as the only country in the world with an unpredictable past. It was an impressive racket, really, in which the official version of history changed in accordance with the political demands of the present. If something in the past discomfited the regime and its propaganda, then it never happened, or happened quite differently.

In our own country, teachers and ordinary citizens alike are expected to conform to the Official Version of our history. Book publishers, to be sure, do not conspire behind closed doors to come up with ways to enslave the American people to their government. But suppose they did, and American history textbooks were written for the express purpose of turning American students into zombies who mindlessly repeated government propaganda and believed the state existed to protect the common good. How would the books be any different?

For a maverick historian, though, an ossified Official History has a silver lining: He can make a career out of exposing and correcting it, or filling in the gaps that court historians choose to ignore. Until Bill Watkins's 2004 volume Reclaiming the American Revolution, for instance, there had not been a single book on the Virginia and Kentucky Resolutions of 1798 in a hundred years -- as scores of studies of every bit of useless trivia lined the shelves.

Bill Kauffman has filled another such gap in delightful and dramatic style with Ain't My America: The Long, Noble History of Anti-War Conservatism and Middle-American Anti-Imperialism. Kauffman's book joins only a handful of titles on this interesting and important subject, including Justin Raimondo's excellent Reclaiming the American Right: The Lost Legacy of the Conservative Movement (which is being re-released with additional material this month), Justus Doenecke's Not to the Swift: The Old Isolationists in the Cold War Era, and Ronald Radosh's Prophets on the Right: Profiles of Conservative Critics of American Globalism. (Radosh, now a neoconservative, has doubtless repudiated this useful book, which is further indication of its worth.)

The figures and organizations Kauffman profiles do not fit into the received version of American history, in which only "leftists" who "hate America" might object to spending trillions of dollars feeding imperial ambition. The conservative John Randolph of Roanoke, who opposed the War of 1812, and Alexander Stephens, the Confederate vice president who had earlier opposed war with Mexico, are just two of the people discussed in Ain't My America who refuse to fit themselves into the proper categories.

A strange omission from this book is the War Between the States, for if violently suppressing the peaceful secession of sovereign states does not smack of imperialism -- especially in the context of the nation-building nineteenth century -- then nothing does. The depiction of that war as glorious and righteous is a central ingredient in the current regime's flattering portrayal of itself, and in the civic religion taught in the institutions of propaganda to which some still entrust their young. Robert E. Lee made the connection explicit, predicting that the "consolidation of the states into one vast republic" would produce an entity that was "sure to be aggressive abroad and despotic at home." This should have been perfect grist for Kauffman's mill.

This is not quite fair. We have only just started the book ourselves, but on page 16, discussing the opposition to Thomas Jefferson's Louisiana Purchase: "The spirit of separation, condemned by New Englanders with bombast and cannonblast threescore years later, was fanned by her representatives in the wake of the Purchase. The [bilious] Federalist Timothy Pickering, who despised 'the Moonshine philosopher of Monticello,' dreamed of a northern confederacy, 'exempt from the corrupt and corrupting influence and oppression of the aristocratic Democrats of the South.'"

The cross-ideological American Anti-Imperialist League, formed in the wake of the American acquisition of (among other territory) the Philippines following the Spanish-American War, is right up Kauffman's alley. ... Now once in a while the anti-imperialists are taken to task for their alleged lack of racial enlightenment (the pro-war forces, of course, being their usual models of toleration). This description of the anti-imperialists is not even accurate in the first place; Moorfield Storey, a leader of the NAACP, is one of many obvious counter-examples. But Kauffman, who is able to put such matters into perspective, suggests that mass murder may actually be a worse crime than racial insensitivity: "If neither side distinguished itself by the elevated moral standards of the twenty-first century, when all men are brothers and peace rules our planet, at least the anti-imperialists wanted to leave the Filipinos alone rather than conquer and slaughter them."

Along the same lines Kauffman cites Sen. James K. Vardaman of Mississippi, who like most Americans at the time believed neither in integration nor racial equality but who sacrificed his career for the cause of peace as Woodrow Wilson was pushing his country into the Great War. His friends tried in vain to persuade him to support the president, but he would not budge. Losing his Senate seat was as nothing, he said, compared to the lives and liberties that Americans would lose if the country entered the war. In 1918 he was defeated for re-election by Democrat Pat Harrison—who, by the way, was pro-war and pro-segregation. (Wilson himself was not exactly known as a champion of the oppressed black man, but is still ranked among the "near great" presidents; taking the country to war evidently covers a multitude of sins.)

Vardaman, says Kauffman, "understood that standing athwart the empire would destroy his career." How easy it would have been "to trim, to temporize, to dissemble, to quietly slip out of the peace camp and vote for Death. But to his eternal credit, he did not." As he left the Senate, Vardaman called on the nations of the world to abolish conscription and to establish national referenda to decide on war. ...

But if that proposal held more potential peril than promise, opponents of the warfare state in the 1930s possessed equal parts cleverness, cynicism, and dark humor. Kauffman reminds us of the Veterans of Future Wars, a group organized at Princeton University in 1936 that went on to boast 584 chapters around the country. Then there was the Association of Gold Star Mothers of Future Veterans, born at Vassar College, as well as the Foreign Correspondents of Future Wars, established at the City College of New York. This latter group proposed "to establish training courses for members of the association in the writing of atrocity stories and garbled war dispatches for patriotic purposes." If only our own opposition to war and propaganda could be half as inspired.

Thanks to Ron Paul's campaign the term "Taft Republican" is being tossed around once again, and Kauffman reintroduces us to the Ohio senator. Taft, known in his day as Mr. Republican, declared on the Senate floor in January 1951 that "the principal purpose of the foreign policy of the United States is to maintain the liberty of our people. ... Its purpose is not to reform the entire world or spread sweetness and light and economic prosperity to peoples who have lived and worked out their own salvation for centuries, according to their customs, and to the best of their abilities." Taft identified the second goal of American foreign policy as peace. Writes Kauffman: "Liberty and peace; with those two words, [Taft] had placed himself as far outside postwar discourse as one could reasonably stand."

We are also treated to a sympathetic account of the anti-militarist side of Russell Kirk, whose seminal work The Conservative Mind became a revered text in the conservative canon. Among other things, Kirk was a staunch opponent of the first Persian Gulf War, writing privately to a friend that George H.W. Bush should be strung up on the White House lawn for war crimes. His lectures at the Heritage Foundation in the early 1990s decrying war and militarism were allowed, no doubt, only because the aging Kirk was considered too iconic not to be granted respect. Those speeches would never be permitted today, it hardly need be said, with war and bankruptcy now the most urgent conservative goals. Kirk, who had earlier dismissed libertarians as "chirping sectaries," praised them in the 1990s for having an "understanding of foreign policy that the elder Robert Taft represented." ...

For whatever reason, Ron Paul barely registers in Ain't My America -- perhaps because, compared to the others featured here, he is already relatively well known. Kauffman instead interviews Congressman Jimmy Duncan (R-Tennessee), who agrees with the Texas congressman that there was nothing conservative about the Iraq war. Duncan also has the crazy idea that the U.S. government might engage in too much military spending: "My goodness, we're spending as much as all other countries of the world combined on defense spending -- and they always want more." This alone makes Duncan a "liberal," according to the automatons.

Kauffman's writing style is a perfect medium for transmitting the flavor of these times and the character of these men. The old republic practically courses through his veins, and the words flow effortlessly from his pen -- even if they happen to be words like amaranthine, mephitic, esurient, and nepenthe. [As we commented in the 2-11 Digest posting, Kauffman's love of flowery words gets the best of him sometimes.] At times an understandable exasperation comes through. Thus: "War effaces and perverts everything that traditionalist conservatives profess. Every damn thing, from motherhood to the country church. And yet postwar conservatives, and especially the scowling ninnies of the Bush Right, revere war above all other values. It trumps the First Amendment; it razes the home; it decks the decalogue. And they don't care."

Nor do most Americans, if their voting patterns and apathy are any indication. "The American Century, alas, did not belong to the likes of Moorfield Storey, Murray Rothbard, or Russell Kirk," Kauffman laments. "But the American soul does."

I agree, or at least I want to. Ours is a great anti-colonial tradition, and our founders cautioned us about the perils of war and entangling alliances. Charles Pinckney warned his countrymen that global ambition was incompatible with republicanism. And the feisty individualism, the aversion to propaganda, and the plain-speaking common sense of the conservatives who populate Bill Kauffman's book have a distinctly American flavor.

Yet one nagging argument just will not go away: If this truly is the American soul, someone must have forgotten to tell the American people. William James, aghast at the colonial occupation of the Philippines that followed the Spanish-American War, declared that the U.S. had "puked up its ancient soul ... in five minutes." That soul, such as it is, has been sold time and again. And not to particularly high bidders, either. What people possessed of an antiwar, anti-imperial soul, that wishes only to do justice and pursue the ordinary things of life, could have been led into an immoral absurdity like the Iraq war?

With very rare exceptions, Kauffman observes, the American people have never really been presented with a choice for or against the empire. All too true -- but are the people really blameless here? Some of their stupid electoral decisions may be the result of an ignorance for which they are not entirely responsible, but what remotely educated or even half-conscious living being could consider John McCain a fit candidate for anything?

I am not entirely sure why the old America is so unpopular, though part of the reason is that few Americans have been allowed to discover it. When they do, many want to recover it. That is why, if I were looking to transform a neoconservative into a normal human being, Ain't My America would be one of the first books I would hand him in my proselytizing mission.

THIS IS A MAN: THE HEROIC INTRANSIGENCE OF JAMES L. WOODARD

William N. Grigg, editor of the excellent "Pro Libertate" blog, shares another one of his commentaries about U.S. prosecutors and accomplices run amuck. In this instance the victimized man's story is unusually inspiring, as well as routinely outrageous.

"I don't know your 'philosophy' of life, but I assume you wouldn't take a man's freedom just because you can. That's why I keep sending these letters to you. ... I've been locked up 3 1/2 years now and it's been really 'frustrating,' but I won't allow anything to prevent me from obtaining what God gave me at birth and what is rightfully mine, my freedom." ~~ From a letter written by James Lee Woodard on June 24, 1984 to Dallas County District Attorney Henry Wade

James Woodard was unduly optimistic in his assessment of what passed for Henry Wade's character. As it happened, Wade was precisely the kind of person who would take a man's freedom from him simply because he could. He did so with great frequency, remarkable efficiency, and the chilling composure of a sociopath. In this respect Wade could be considered a prototype of the modern prosecuting attorney.

"I really would like to know one thing," wrote Woodard in a March 31, 1985 letter to Wade, "if you found out for yourself that I was innocent, would you let me go?"

Wade, as we will shortly see, almost certainly knew that Woodard was innocent. Not that he was unduly troubled by that knowledge, of course.

That letter, like all the others Woodard wrote, was redirected to one of Wade's assistants. Wade never read letters from those he had sent to prison. Presumably, this is because of the volume of correspondence involved. But in the case of Woodard -- and, as we are now learning, a very large number of the other men Wade convicted -- it is likely that the much-heralded DA was trying to protect a bad conscience.

The Book of Proverbs instructs us that "The wicked flee where no man pursueth, but the righteous are as bold as a lion." Clothed in the supposed majesty of his office, supposedly the soul of blustery rectitude and civic virtue Henry Wade was a cringing, terrified rodent when the truth about his "achievements" threatened to overtake him.

Consigned to a dismal prison cell, facing the prospect of dying behind bars surrounded by those who insisted on his guilt, James Woodard displayed leonine strength of character and inexhaustible tenacity.

Woodard was convicted in 1980 of murdering his girlfriend, Beverly Ann Jones. The case turned on the testimony of an eyewitness who claimed to have seen Woodward near the scene of the murder. That witness claimed to have identified Woodward from several hundred yards away at 3:30 a.m.

Woodward maintained that he had been at a party in Arlington in the company of numerous eyewitnesses at the time of the murder. The Dallas DA's office, headed by former FBI agent Henry Wade, was able to confirm Woodward's alibi. And it was also aware of the fact that three other men had been seen with Miss Jones that night, including two who would later be convicted of sexual assault.

Wade and his office, in their zeal to close the case, refused to provide that exculpatory evidence to the defense, as they were legally and ethically required to do. The case against Woodward was thinner than a bulimic heroin addict; it relied on a dubious eyewitness ID and a pile of circumstantial evidence. Wade and his henchmen did what they could to flesh out that case with layers of insinuation and theatrical outrage, and this proved to be sufficient. In 1981, Woodward was found guilty and sent to prison, apparently for life.

Prosecutors withholding exculpatory evidence from the defense has become so routine that it is generally just assumed now. "Convictions at any cost ... justice be damned" is the de facto mission statement.

Over the next 27 years, Woodard was up for parole on at least 12 occasions. His conduct in prison was exemplary, and apart from the conviction there was no indication that he would pose a threat to anyone if he were freed. However, at each hearing the parole board insisted that Woodard allocute to the crime, often saying that his refusal to acknowledge his guilt was the only thing standing between him and freedom

And each time, Woodard refused to concede his guilt. "They always told me, as long as you deny your guilt it's saying something about you -- you know, you are not willing to own up to your deed," Woodard noted in a remarkable interview broadcast on CBS's 60 Minutes program. And each time, he recalled in a gentle, resonant drawl, the parole board's reaction was, "We gonna deny you."

Like any human being blessed with even a particle of self-awareness, Woodard craved his freedom. But unlike the vast majority of people, he understood that he would not truly be free if, in order to escape his physical imprisonment, he permitted the State to brand him indelibly as a criminal for an offense he did not commit.

As routinely happens when people agree to plead guilty to some lesser crime in exchange for not going to trial to face some artificially bloated stack of charges.

Woodard's physical freedom had been stolen from him. He refused to become an accomplice in that crime by ratifying the State's assault on his integrity. This is why, in a very real sense, Woodard -- even when he was confined to his prison cell -- was freer than many of us who make soul-killing compromises with our Enemy, the State under much less onerous circumstances.

"I wasn't guilty," Woodard explained, his voice flavored with a hint of incredulity when asked why he wouldn't submit to the parole board's demands. "A man has to stand for something."

At some point following Woodard's conviction, a forensic pathologist determined that Miss Jones had been raped the night she was murdered; he collected DNA evidence that could be used either to exonerate Woodard, or confirm his guilt.

To Woodard's considerable good fortune, Dallas authorities maintain an inventory of physical evidence from cases running back several decades. He was blessed by two other remarkable developments: The election last year of reformist Dallas County DA Craig Watkins, and the advent of the Innocence Project, a non-profit, volunteer group that investigates cases that appear to be wrongful convictions.

Good fortune indeed. Some prosecutor offices are intentionally destroying old evidence in order to avoid reversing previous convictions.

Watkins has provoked considerable controversy -- and inspired no small amount of gratitude in some quarters -- by energetically reviewing old convictions. To that end he has effectively deputized the Innocence Project of Texas (IPT), providing them with access to case files and backing its investigative efforts with subpoenas. (Case reviews are conducted by law students who receive neither monetary compensation nor class credit for their efforts.) So far, Watkins and the IPT have exonerated 17 innocent men who had been imprisoned by the Dallas DA's office.

Last year, law student Alexis Hoff of the IPT -- a young lady who had not been born when 28-year-old James Woodard went to prison in 1981 -- began to review Woodard's conviction. In November the prisoner -- who had never ceased to proclaim his innocence -- submitted a DNA sample, which didn't match the one obtained from the body of Miss Jones.

Last week, Woodard was released from prison after serving 27 years for a crime he didn't commit. He was imprisoned longer than any of the other convicts whose innocence has been established by DNA testing.

"Unfortunately, Mr. Woodard, you're not getting justice today," explained Texas District Judge Mark Stoltz as he commuted the prison sentence. "You're just getting the end of injustice."

The injustice visited on Woodard was entirely avoidable. Like many prosecutors who came in his wake (Craig Watkins is a very welcome anomaly), Wade's credo appeared to be: "Convict in haste, and exonerate at leisure -- if at all."

A couple of years after Wade hustled Woodard into prison, he pulled the same stunt on Lenell Geter, a transit worker who was convicted of the August 1982 armed robbery of a KFC restaurant and sentenced to life in prison.

About a year and a half later, spurred by adverse publicity generated by an earlier 60 Minutes investigation into the crime and a penetrating series published by the Dallas Times Herald, and conscious that his career was winding down, Wade authorized his office to reopen the case. With minimal effort the investigators turned up a wealth of exculpatory evidence, much of it coming from numerous witnesses who confirmed that Geter had been at work at the time of the robbery. Many of them had not even been interviewed. The second investigation also quickly turned up a different suspect, Curtis Mason, who was eventually convicted of the KFC robbery and several other violent crimes.

Despite the overwhelming evidence collected and presented by his own investigators, Wade initially balked at freeing Geter. He eventually relented, and Geter was released in 1984. (Geter, whose story was adapted into a made-for-television movie, now works as a motivational speaker.)

Woodard had to wait 24 more years. 28 years of age at the time of his wrongful imprisonment, he is now 55; the prime of his life was stolen from him because of a vain, corrupt, power-intoxicated, glory-mongering prosecutor -- and, of course, because of the culpable indifference (at best) of the citizens tapped to serve as his jury.

And it should not be forgotten that Woodard made the choice to prolong his own incarceration rather than concede unearned guilt for a crime he did not commit. In doing so he exercised the only freedom left to him: The freedom to protect his personal integrity. When he was asked about his priorities last year by the Innocence Project, Woodard did not say that his most cherished goal was to be freed from prison, but rather "To clear my name."

Another worthy mission of the Innocence Project might be to clear the names of those who were not so steadfast as Mr. Woodward, and "admitted" their crime in order to obtain parole.

Craig Watkins says he is "haunted" by the possibility that innocent men have been sent to the execution chamber by the Dallas County DA's office. I would say that this is something akin to a statistical certainty.

The U.S. Government and its various subsidiaries, as author Don Bacon recently pointed out (see last week's entry on this subject here), has in its custody 25% of the world's total prison population. The Prison-Industrial Complex is a huge and growing subsidized bonanza for government-funded contractors, as well as a surprising number of nominally private companies (from Microsoft to Toys 'R' Us) who profit from extremely low-cost prison labor.

That is right: The U.S., with a prison population that exceeds that of Communist China by 500,000, has its own "reform through labor" system that is the functional equivalent of China's much- and properly-condemned Laogai camps.

Such are the times in which we live that we should take satisfaction in relatively small victories. Of course, to James Woodard there was nothing small or insignificant in the victory he achieved -- with the indispensable help of the Innocence Project -- over the Prison-Industrial Complex. A few more such individual victories could coalesce into a legitimate, and badly overdue, counter-offensive.

THE LONG NIGHT

Charley Reese warns where the systematic disregard for the rule of law and the aggregation of power into the U.S. Executive branch's hands will lead.

Have you ever wondered how human beings can be so cruel? And how cruelty crosses all the boundaries -- national, racial and ethnic? I have. Rereading an autobiography published in 1941 by a communist agent reminded me of the dark side of human nature.

The book, Out of the Night, was written -- under the pseudonym "Jan Valtin" -- by a German who lived through the chaos of the collapse of the Weimar Republic and the rise of Nazism. Broken by Gestapo torture, he ended up being pursued by both the Nazi and the communist manhunters and killers.

Murders by these two forms of socialism are measured in the millions during the 20th century. That alone should warn all people off any form of collectivism, because all of those millions, in the minds of their killers, were sacrificed "for the greater good." They -- flesh-and-blood individual human beings -- were all murdered in the name of an abstraction, a stupid theory of how society should be organized. I doubt if the head thugs on both sides actually believed the theories. What they really believed in was power over their fellow man.

If you look at the French Revolution and the Bolshevik Revolution, the message is clear: Intellectuals and the common people can produce a blood bath. Latching on to some "ism" for justification, their greed for power and desire for revenge can run amok. Butchering women and children because they were born into the "wrong" class is surely insane.

In our time, when people are saying we must sacrifice liberty for security, that scrapping the Constitution is necessary to win the "war" against terrorism, I would suggest that you take your choice of genocides in the past 100 years and remind yourself what happens when people buy into the false proposition that the end justifies the means. People who preach that are always more interested in the means than in any end.

The only safe environment for a human being is under a weak government with very restricted powers. Normal people do not need much to be happy -- food, shelter, dignity and freedom from marauders. They need a rule of law that applies to everyone equally and at all times and in all circumstances. In established societies, legislators should meet rarely -- perhaps once every two or three years -- because a continuing cascade of new laws will eventually drown freedom.

The Founding Fathers, whether through luck, wisdom or divine guidance, gave us an almost perfect form of government, and we have been busy ever since trying to take it apart. Human beings are dangerous predators and cannot be trusted with power over their fellows. Many Americans have forgotten that the power of government comes out of the barrel of a gun. Governments coerce; they do not persuade.

There are people living among us at this very moment capable of the cruelty so evident in the Holocaust. All they are waiting for is the opportunity. No greater opportunity exists than when a government enlists such people and says whatever you do is now justified for the sake of the "greater good."

Who would have guessed that George W. Bush, who seemed to be a genial good old boy, would turn out to be a tyrant, launching wars of aggression, arresting and confining people without charges or access to a lawyer, condoning torture and lying to the American people? A government that can without trial destroy you by simply putting on a list your name or the name of an organization with which you are associated is a tyranny. A government that invades other countries and that feels free to murder people in any country it chooses is a tyranny.

Americans are on the edge of a long night. We had better wake up and step back before it is too late.

RUNNING A BUSINESS ON DESKTOP LINUX

More important that whether Linux is good enough for your grandmother is whether is is fit to run a small business. This useful article attempts an answer with commendable detail. It also usefully features extensively links to external sources.

How many are self-employed in the United States? No one knows for sure, but estimates range around 20 million. Add to this millions of small businesses, and you have a huge pool of workers who run their businesses on personal computers. Dentists, handymen, shop owners, yoga instructors, lawyers ... all require reliable, easy-to-use computers for their work. Should they use Linux?

Here is my take as someone who has run his one-person business on Linux for several years. I will be objective. This is not a promotional piece. Let us state up front that I have an advantage over many business Linux users because I am an IT professional. Yet we all depend on business Linux.

What do the self-employed require of their computers? The list varies by the person and the kind of work they do. Here are the essentials:

Easy to use	Workers want to spend time on their business, not learning computer programs
Help is readily available	People want quick answers to problems
Reliable	The system should "just work" without losing data or messing up applications
Run office applications	Everyone needs office suites, email, and web access
Compatible	It is essential to exchange email and office documents with customers and suppliers
Run business applications	These vary by the business
Manage finances	Everyone must "keep the books" somehow
Inexpensive	Computers are overhead
Performance	Nothing is worse than a slow computer when you are trying to get your work done

Small business workers are on their own, without IT support. They depend on computers and just want to do their jobs without computer headaches. I feel the same way. Though I am an IT professional, I cannot squander time on random PC issues. I need to get my work done.

How Does Linux Rate?

I will discuss each of the criteria in light of my Ubuntu experiences. Ubuntu is the most popular Linux, it is consumer-oriented, and it is one of the two Linuxes I use.

Easy to Use -- As a hobby, I fix up computers donated to charity, which we then give to deserving families. I observe adults and children using Linux for the first time. Most instantly recognize the graphical user interface as just another Windows-like GUI. (Microsoft has done an excellent job in training computer users to adapt to GUI changes, having altered the user interface in every Windows release.) You may need to point out which programs are equivalent to the Windows programs they are used to, but most have little difficulty switching to Ubuntu.

It is the same with applications. OpenOffice programs do not look much different than their Microsoft Office counterparts. Users tentatively explore the menus to find the functions they want, and usually they succeed. Only when trying advanced features do they struggle -- but then you are likely to see the same distress when they try Office's advanced features.

What happens when they face a problem? Most know to search the web for an answer. Windows and Ubuntu solutions often require altering obscure GUI panel settings. But in Ubuntu you sometimes have to run command line commands. Unless users can cut-and-paste the commands, this is a show-stopper.

A few years ago, Linux was suitable for servers and embedded systems, but was not user-friendly enough for desktops. Now that has changed. Ubuntu competes head-to-head with Windows. But the command line commands indicate there is still room for improvement.

Help is Readily Available -- Ubuntu has attained critical mass. If you "Google" a problem you will find the answer. Rarely do you need to post a forum question. (This compares favorably with less popular Linux distributions, where answers require time-consuming posts.) You can find an Ubuntu answer as easy as you can find a Windows answer.

Ubuntu's popularity means that everyday people use it at work or at home. Business owners and freelancers feel comfortable because they talk with others like themselves in resolving problems. One issue for business workers is that they do not have time for the rudeness and aggression sometimes found online. This applies to both Linux and Windows, unfortunately. Forums that tolerate juvenile behavior repell serious people.

Reliable -- For most people, "reliability" means that their computer will allow them to do their work without interruption. They do not get side-tracked to figure out computer problems. They do not have to worry whether their system is "corrupted." Business owners just want their systems to work. Like a car, it is ok if you have to schedule occasional maintenance, but your chances of being stranded while driving should be nil.

How does reliability compare for Linux and Windows? Most familiar with both give the advantage to Linux for these reasons:

• Systems do not slow down over time
• Little risk of malware infection
• No vulnerable, complex Registry
• Little need for software maintenance

Here is evidence that verifies this view. I developed a comprehensive guide for Windows users called "How to Secure Your Windows Computer and Protect Your Privacy." In simple, non-technical terms, it tells Windows users about their security and privacy exposures. It shows how to address them through a combination of "best practices" and free software. Most -- but not all -- of the risks this e-book addresses are unique to Windows. They do not pertain to Linux. You can download this 20-page guide here.

This site run by the article author, Open Consulting, looks like an interesting resouce that we will be checking into further in the future.

Run Office Applications -- Here are Windows office applications and their Linux equivalents. Ubuntu's default, bundled applications are underlined:

Application	Windows	Linux
Office suite	Microsoft Office	OpenOffice, GNOME Office, KOffice
Word processor	Microsoft Word	OpenOffice Writer, Abiword, others
Spreadsheet	Microsoft Excel	OpenOffice Calc, Gnumeric, others
Presentation graphics	Microsoft Powerpoint	OpenOffice Impress, others
Email	Microsoft Outlook	Evolution, Thunderbird
Browser	Microsoft Internet Explorer	Firefox, Opera, SeaMonkey, Epiphany, others
File manager	Microsoft Explorer	Nautilus, many others
Web sites / HTML editor	MS FrontPage, Dreamweaver, others	Nvu, Composer, Amaya, Bluefish, others
Text editor	Notepad, others	Gedit, Adie, Mousepad, many others

Windows customers assume they must pay for office applications. As proven by Microsoft's market share, they assume Microsoft will be the provider. These costs are major expenses for the freelancer or small business. Office 2007 costs between $149.95 and $679.95. Windows Vista retails between $199.95 for Home Basic and $319.95 for Ultimate edition.

Linux users enjoy a great variety of applications. All are free. Ubuntu helps anyone download and install them with just a few mouse clicks. Installing Ubuntu software is as easy as installing Windows programs.

One place where Ubuntu falters is in providing full web access. You have to install browser plug-ins and multimedia codecs to run web video and audio. Why? Ideology about "open source" and "free" software. Business customers do not care about that. They expect full web access right out of the box. Linux distributions like Mint and Vector meet this expectation, while Ubuntu offers a band-aid solution in recent releases with "plug-in install wizards."

Compatible -- Windows dominates the consumer computer market, so all my customers use it. I can only support them if we can exchange documents.

Start with email. Everyone relies on it. Email has long been standardized regardless of operating system and email program. You can send and receive email between Windows, Linux, and Mac computers. It does not matter whether you use Microsoft Outlook on a Windows computer, or Thunderbird or Evolution on a Linux computer. No problem there.

How about office documents? Microsoft Office file formats are the de facto world standard. Linux applications must seamlessly interchange and create Word files, Excel files, and Powerpoint files (*.doc, *.xls, and *.ppt).

Among Linux office suites, OpenOffice is most compatible with Microsoft Office. I use OpenOffice Writer to read Word files from clients, edit them, and send them back. I also create new documents in Word format with OO Writer.

I have never had a problem reading a Word document, no matter how complex. I have run into minor incompatibilities when creating Word documents from scratch (e.g., web links that show up in incorrect font sizes in Word, or tables of contents that do not render correctly). It took me a couple months to learn to avoid these incompatibilities. Now I create documents in Microsoft format with 100% accurate rendering in Word. (See how to set up OO Writer for Word compatibility here and here.)

When your income depends on documents looking professional, you cannot afford to take chances. Initially, I kept an old Windows 98 computer around with Office 97 to check compatibility. I do not anymore. Others buy Microsoft Office and run it under Wine. Wine runs Windows applications within Linux.

With spreadsheets and presentation graphics, I encounter the same situation. Not once have I ever had a problem reading documents sent to me by clients. But if I create an MS-file-format document from scratch I must be careful to use only compatible product features.

I am witnessing movement away from the Microsoft standards. Many publishers and vendor clients now accept or even prefer HTML files. Increasingly I create content with HTML tools like Mozilla Composer. For data interchange, businesses use the open standard Extensible Markup Language (XML).

Microsoft recently retired their decade-old binary Office file formats. They introduced new formats called Office Open XML. Will the new formats result in a greater OpenOffice compatibility, since OOXML is a published standard? Or will their influence will be disruptive, due to departure from the long-used formats? Those of us who run business Linux absolutely require OpenOffice to support OOXML.

I have found a several advantages to OpenOffice over Microsoft Office. OO Writer generates PDF files. (Only in Office 2007 does Microsoft finally offer an "add-in" to save documents in PDF format.) OpenOffice generates better HTML than Microsoft Office. Publishers reject Office-generated HTML as unusable. [It does stink.] OO does not bloat with every release, so I do not have to upgrade my hardware just to run a current office suite. Why do Windows customers accept inflated hardware requirements to run the same office applications they have for years on older computers?

Run Business Applications -- Whether Linux fits the bill here depends on the applications you need.

Most of my work is database administration, so I am glad Linux hosts commercial databases like Oracle and IBM DB2 and open source systems like MySQL and PostgreSQL. The only major database system that does not run under Linux is Microsoft SQL Server.

I remotely support client databases through the Internet. Any browser works. The days when special software or local logins were necessary to administer remote servers are past. Many knowledge workers now access company applications remotely with browsers.

I also create and maintain web sites. Ubuntu offers great free tools like Nvu and Amaya. But I face the same issue with the web sites I support as I do with the published products I create in Word format. Customers view my web sites using Microsoft's Internet Explorer. Sometimes IE renders web pages a little differently than do Ubuntu and Firefox. For example, spacing and formating differ.

We have noticed that the rendering differences can be small but crucial. A page will look professional in one browser and amateurish in the other. This not always Microsoft being obnoxious either -- sometimes IE's rendering makes more intuitive sense. The simplest solution is to stick to code that works the same in both.

I used to double-check my web sites by viewing the final product on Windows with Internet Explorer. These days I just verify my product on different Linux computers with different screen sizes, resolutions, and browsers. If the result looks good, it will look fine with IE.

What other Windows applications might the sole proprietor need? A thread on the Puppy Linux forum suggests video editing, printer and device drivers, and legacy applications. You can use Wine to run legacy Windows applications within Linux. It supports 10,000 applications. A few Windows programs will not run on Wine or just take too much time or expertise to set up properly.

Inexpensive and Performance -- I will discuss the final two criteria together because they are interrelated -- you can always solve a performance problem if you are willing to spend more money. (Ultimately you could just buy a new computer!)

Low cost is a major Linux benefit. Not only is the operating system free, but so are its applications. There is much more to cost equation than the up-front price you pay. Microsoft has done an outstanding job of hiding the true costs of its software from consumers. Linux eliminates these hidden costs from Windows:

• Fewer security and privacy problems
• No loss of support as systems age
• No problems running current software on older computers
• No forced software and hardware upgrades every couple years
• No system slowdown over time (due to Registry bloat, malware, or other causes)
• No forced upgrade of one product due to artificial coupling with another ("Installing this product requires IE 8!")
• No need to re-install the operating system due to software corruption
• No performance costs from built-in digital rights management (Vista Content Management)
• No worry about whether you understand the legalistic license terms
• No buying multiple licenses for desktop and laptop, or for primary and backup systems
• No risk that the software CD you purchased in good faith is counterfeit
• No system outages due to inaccurate license checks by Windows Genuine Advantage
• No errant "piracy pop-ups" when you are running legal software due to Microsoft's Office Genuine Advantage
• No restrictions on computer upgrades (no Windows Product Activation / Windows Genuine Advantage)
• No restrictions on disk image backups (no WPA/WGA or Registry problems)
• No restrictions on moving disks between computers during upgrades (no WPA/WGA or Registry problems)

Linux empowers you to run your business on low-cost computers that are deemed worthless within the distorted perspective of "Windows world." I am writing this article, for example, on a Pentium III. It runs Ubuntu just fine, and it runs Puppy Linux fast as a scalded greyhound.

Another interesting article along these lines, also written by the authori, is "Reincarnating a discarded laptop with Linux".

This low-end laptop supports all requirements in this article. It was given to me, free, by an dissatisfied Windows user because it was "too slow." Apparently it was sold to him as an Windows XP computer, but no one told him he had to eliminate unnecessary Windows Services and craplets and double its 256 MB of memory to get it running acceptably. Or, install Ubuntu.

The Verdict

From a sole proprietor's perspective, here is how I would rate Ubuntu Linux:

Criteria	Rating
Ease of use	Competitive
Help is available	Competitive
Reliable	Superior
Run office applications	Competitive
Compatible	Minimally acceptable
Run business-specific applications	Competitive
Manage business finances	Competitive
Inexpensive	Superior
Performance	Superior

Linux lags in one key area -- compatibility with Microsoft file formats. This requirement is critical because businesses must work with Windows-based customers. I hope the Linux community uses the new OOXML standards to improve compatibility. For all other requirements, Ubuntu is competitive. It even excels in reliability and price/performance. Why has Linux not achieved greater market share?

The reason is that Windows is bundled with over 90 percent of all new computers sold in the U.S. While the courts focus on whether Microsoft engages in monopolistic behavior when they add an anti-spyware or browser program into Windows, they miss the real issue -- Microsoft wields monopoly power in negotiations with personal computer vendors:

• Why should Microsoft be allowed to force vendors to sell an operating system with every computer?
• Why are vendors not allowed to install another operating system along with Windows?
• How can Microsoft limit vendors to shipping hobbled "restore CDs" instead of the full operating system?
• Why is there such a huge price difference between retail Windows and bundled Windows? (And why do the courts tolerate such an obvious monopolist tactic?)

We would not advocate government intervention in this situation, as it is hard to look to history and believe that that would change anything for the better. Microsoft's dominant market position is due several factors, including: (1) Luck -- e.g., dumb IBM decisions, in turn driven in good part by the U.S. government's misguided handling of the IBM antitrust case (we rest our case) but also IBM's arrogance and bureausclerosis, as well Microsoft's original chancing into possession of DOS. (2) Quick and astute thinking, marketing, and action. Microsoft was steps ahead of its competitors and acted while everyone else was still figuring out what game they were in. (3) Ruthlessness. No one expects choir boys to be running successful businesses in fast moving markets, but Microsoft sets a high hurdle in narcissistically looking out for #1 without giving a damn about the greater community they reside within. (4) This is overlooked: The U.S. legal system. Without wandering into the wide Sargasso Sea of copyright and other "intellectual property" laws, suffice it to say that without the somewhat arbitrary and certainly politically concocted laws pertaining to this domain, which create a legal but not nature-given scarcity in software, Microsoft would be a far smaller company with more earthbound profit margins. Microsoft has also never hestitated to use the "How much justice can you afford?" U.S. court system to nip competition in the bud before it ever had a chance to get big enough to constitute a threat.

To restore competition, we need to fix the unequal relationship between Microsoft and the hardware vendors. But where the courts fail, technology may succeed. The One Laptop Per Child project has ignited an explosion in demand for low-cost Linux laptops. Very low-end computer systems are now proliferating and transforming the marketplace.

At only a few hundred dollars per laptop, these computers will not support Microsoft's 70% profit margins. (Remember the old pre-profiteering days when Windows 98 cost $89?). Linux's cost advantages and flexibility are compelling.

I have saved over $2000 in expenses over three years with Linux. This slashes my overhead. Small businesses can extend these savings across their employees for competitive advantage.

Click‘N’Run Now Supports Linux Mint

The above article addresses the issue of Linux's suitability for use by owners of small businesses and the self-employed, using Ubuntu Linux as a reference for comparison with Windows. Ubuntu does have a few characteristics that someone coming from the Windows world, or who comes carrying no anti-Microsoft or pro-Free Software/Open Source ideological torches, might find slightly eccentric. From the above article: "One place where Ubuntu falters is in providing full web access. You have to install browser plug-ins and multimedia codecs to run web video and audio. Why? Ideology about 'open source' and 'free' software."

Linux Mint, on the other hand, addresses out of the "box" the wants of those who are happy to add proprietary software to their installation mix if it makes life easier. Now commercial Linux vendor Linspire has extended its Click'N'Run service -- which enables Linux users to install, update, and manage thousands of free, open-source software programs -- to include Mint. Every little bit helps.

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