The Great American Bubble Machine

The article ‘The Great American Bubble Machine’  by Matt Taibbi in the Rolling Stone magazine tells the story how Goldman Sachs’ leadership and partners recklessly enrich themselves and empoverish small investors and tax payers. It is a well researched article and helps to explain some of the reasons why there is so little appetite in Washington to close down tax havens. Rep Lloyd Doggett, a Democrat from Texas who is quoted in the article and who serves on the House Ways and Means Committee, sums up the behaviour of many banks: “With the right hand out begging for bailout money,” he said, “the left is hiding it offshore.”
Ultimately, thanks to a 15 Trillion Dollar bailout by governments worldwide, paid for by current and future tax payers, a global financial meltdown was avoided and the global banking system, including Goldman Sachs, saved. The tax havens and offshore banking haven’t saved the global financial system. They do their best to corrupt and destroy it.

You can find the full-length version of the article here: 

(Caution: the article contains some strong language)http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine/print

Nobel Laureate Prof Stiglitz Explains What Went Wrong

Nobel Laureate Prof Joseph Stiglitz explains five key mistakes made over the past 20 years that led to the current financial crisis. His article ‘Capitalist Fools’  in the magazine Vanity Fair, January 2009, is essential background reading for anyone seeking to understand what went wrong.

Please read the following article of Prof Stiglitz: 

http://www.vanityfair.com/magazine/2009/01/stiglitz200901?printable=true

 

Tax Havens Face Serious Investigation for the First Time

The centuries old profession of some states (and some British overseas territories) to make a living by providing a safe haven for financial pirates is coming under serious pressure. These tax havens have for too long provided an easy escape route for all those who do not like to pay taxes, but at the same time like to enjoy the services of their respective homelands which are payed for by their less fortunate and/or less reckless fellow citizens.
By some estimates up to 15 trillion US dollars are stashed away and hidden away in these centres of global financial corruption (an adequate description for tax havens).
A new BBC article reports that according to research of a British Labour Union (TUC), the four biggest British banks have set up more than 1000 subsidiary companies in tax havens to avoid tax for themselves and their clients. If these four banks have set up over 1000 subsidiaries in these centres of corruption, they have done so with the intent to make tax free profits, keeping some of their activities off their balance sheet and avoid taxes wherever they can. Such activities not only defraud the average tax payer in many countries, but often lead to a lack of transparency, supervision and governance. Such working in the shadows normally encourages excessive risk taking and undisclosed high bonuses. It also often facilitates dubious financial transactions with questionable financial partners.
We need an immediate end to this global shadow banking system.
Please read the following BBC article:
Banks warned over tax avoidance

Update 4 May 2009: Finally, Obama Makes a First Move on Tax Havens

Finally, President Obama makes a first move on tax havens. Let’s hope that such a move gradually exposes the massive tax avoidance and widespread fraud committed through the global shadow banking system (including hedge funds and offshore banks).

Read more on this in the following New York Times article: http://thecaucus.blogs.nytimes.com/2009/05/04/obama-takes-aim-at-offshore-tax-havens/

It Is Time For Governments To Govern the Financial Sector

After another epidemic of exuberance (in this decade it was the subprime bubble ) infected wide parts of the financial world with disastrous results (disastrous at least for average middle class and working class citizens and  not necessarily for the  financial oligarchy) it is now high time for governments to bring a wild west financial sector back under government control. 

Strict financial regulation and a fair taxation must be enforceable globally and this needs to be done in a globally coordinated way, to keep a check on widespread creative (fraudulent) accounting and to close the loopholes which are exploited by a multitude of highly payed tax avoidance advisers (most often lawyers and accountants).

Attempts by a financial elite to block change because they want to preserve their privileged status quo should not be accepted. The endless party of those who have benefitted richly from their influence and power and now want to send the bill for their failed speculation to the tax payer needs to be stopped. Please find a clear argument for change in the following article from Simon Johnson, former Chief Economist of the IMF (2007-2008). He should know what he is talking about.

The Quiet Coup by Simon Johnson  

http://www.theatlantic.com/doc/200905/imf-advice

Update 30 March 2009: President Obama explains the need for change in the financial sector  in his interview with the Financial Times (30 March 2009). He highlights, amongst other issues, the necessity to enforce a global regulatory system for tax havens and offshore banking. You can listen to the audio file of the interview here:   http://media.ft.com/cms/6c145ea0-1c89-11de-977c-00144feabdc0.mp3

Who Has the Courage to Prosecute the Unlawful Mega-rich?

There is a lot of capital hidden away in tax havens and deposited in offshore banks. Where did this capital come from and who are the account holders? Are they really morally upright citizens, concerned for the welfare of their homelands, or have they exploited every possible legal loophole to escape weak regulatory systems and then to stash away their barely legal (sometimes illegal) monetary gains? Fortunately there are still some brave citizens with a conscience left who are not afraid to speak out. For example, we have to be thankful to Robert M. Morgenthau, District Attorney of New York, who wrote in a letter to the New York Times on 4 March 2008 (‘Havens for Tax Evasion’ published by the New York Times on 11 March 2008):

“Bank deposits in the Caymans have increased by $500 billion in the last 18 months and now amount to four times the total deposits in all the banks in New York City.

The Caymans, notorious for their bank secrecy laws and lack of supervision over financial markets, have figured in many major financial scandals. For example, they were the nominal home of Long Term Capital, the giant hedge fund that collapsed in 1998. Enron Corporation used 441 Cayman affiliates to hide $2.9 billion in losses. Parmalat Finanziaria used Cayman subsidiaries to falsely claim $4.9 billion in bank deposits that it did not have.

Last year, two Bear Stearns hedge funds that were incorporated in the Caymans collapsed, following the devaluation of its subprime mortgage-backed investments — the implosion cost investors $1.6 billion in losses.

The economically developed countries need to impose severe sanctions on the tax havens and those who use them to unfair advantage. As recent history confirms, totally unsupervised markets will eventually have serious problems, with ripple effects for markets worldwide.

And offshore tax evasion alone costs the United States government more than $70 billion annually. Left unchecked, these rogue jurisdictions have the potential to do a great deal of harm to the world’s truly productive economies.”

Morgenthau’s letter was published here: http://www.nytimes.com/2008/03/11/opinion/lweb11morgenthau.html

I like to invite the readers of this blog to become active wherever they are, by sharing similar information online. This will help to expose a shadow banking system that can bankrupt whole societies for the benefit of a few extremely greedy individuals.

The Dangers of Unregulated Markets

On 14 March 2009 Robert Peston posted an article on his BBC blog on Watchdog says markets not rational

  There is nothing surprising about the insight that markets are not rational, however it is really surprising that such an insight is big news, or even that it is news to anyone at all. It is such an obvious fact that we would normally expect anyone with a normal education to have learned about the widespread greediness and herd mentality of people in unregulated markets. Unfortunately, there is a good chance that people have not learned in school, at universities, or even in business schools about the immoral aspects of unregulated markets. Why? What paradigms or moneyed interests have prevented a more realistic education which should teach all of us about the irrationality and deceitfullness of unregulated markets and the excesses of casino capitalism?

There is everything wrong with an unregulated market. Greed, herd mentality and lies take easily over when human beings can make vast amounts of money by selling questionable products without being held accountable for the consequences. The average banker joe will take the money and run. The market is always shaped by the decisions of human beings: greedy and sinful human beings to be precise. Why have politicians such a difficult time to understand this and then take the necessary steps to control and regulate the vital financial sytems of our society to protect citizens form being mislead, lied to and taken for an expensive ride? We need strict global banking regulation. You can read more about the dangers of tax havens, offshore banking and the shadow banking system in my previous blog on offshore banking and tax havens .

Finally, a  good article by David Leonhardt about the need for stricter regulation can be found in the New York Times (10 March 2009). Please read his article: ‘The Looting of America’s Coffers’

Towards Global Justice: Who Will Regulate Offshore Banking and Tax Havens?

If governments want to clean up a morally corrupt banking system for the benefit of the majority of the working people and want to stop a few profiteers of ‘creative accounting’ from exploiting societies around the world, governments have to clamp down and better regulate offshore banking and tax havens. A wikipedia article on offshore banks explains: “Offshore banking is an important part of the international financial system. Experts believe that as much as half the world’s capital flows through offshore centers. Tax havens have 1.2% of the world’s population and hold 26% of the world’s wealth, including 31% of the net profits of United States multinationals.“          ( http://en.wikipedia.org/wiki/Offshore_bank )

 Now here is a challenge which should be worth the attention of Gordon Brown’s global thinking and of all those who want to create more just and more stable economies: how do we get this capital back into credit crunched societies, for the benefit of the people from whom this capital was taken in the first place?

Furthermore, the same wikipedia article informs us that according to the ‘World Wealth Report’ for 2000, one third of the wealth of the world’s ‘high net-worth individuals’ – nearly $6 trillion out of $17.5 trillion- may now be held offshore. Some $3 trillion is in deposits in tax haven banks and the rest is in securities held by international business companies (IBCs) and trusts.

This article provides more interesting facts: the IMF has estimated that between $600 billion and $1.5 trillion of illicit money is laundered annually, equal to 2% to 5% of global economic output. Today, offshore is where most of the world’s drug money is allegedly laundered, estimated at up to $500 billion a year, more than the total income of the world’s poorest 20%. Add the proceeds of tax evasion and the figure skyrockets to $1 trillion. Another few hundred billion come from fraud and corruption. “These offshore centers awash in money are the hub of a colossal, underground network of crime, fraud, and corruption” commented Lucy Komisar quoting these statistics. Her web site can be found here: http://thekomisarscoop.com/ 

 

There is more than enough capital available globally, it just is currently hidden away and often unlawfully in the wrong hands. Without cleaning up the world of tax havens and offshore banking, as well a tighter controls on hedge funds and those financial businesses who serve anyone with money, no questions asked, it is difficult to see how a lawful banking system can be sustained. The moral hazard of fast and easy money will corrupt most bankers, unless banking is firmly regulated and bankers are subjected to law and order, just like other ’normal citizens’.

 

Where are the true global leaders with a moral compass that will use this moment of opportunity to unmask the impunity of those banks and businesses which helped to hide away trillions, with no questions asked. Can we expect Gordon Brown or Barack Obama to take this decisive step forward, to show global leadership?

No doubt it would be good for the majority of citizens worldwide if there would be a worldwide repatriation of those untaxed trillions.

 

Finally, a quote from Prof Joseph Stiglitz, Nobel Laureate (2001) in Economics, in an interview with Lucy Komisar:
“You ask why, if there’s an important role for a regulated banking system, do you allow a non-regulated banking system to continue? It’s in the interest of some of the moneyed interests to allow this to occur. It’s not an accident; it could have been shut down at any time. If you said the US, the UK, the major G7 banks will not deal with offshore bank centers that don’t comply with G7 banks regulations, these banks could not exist. They only exist because they engage in transactions with standard banks.” (The Nation, 18 June 2001) You can watch a video of comments of Prof Stiglitz at a meeting co-sponsored by the Tax Justice Network-USA and his Initiative for Policy Dialogue here:  http://thekomisarscoop.blip.tv/#693718 

 
 Let’s get serious and have a long overdue, real global banking reform, for the benefit of the majority of the world population. After all governments are here to serve the people, not the elite?