Welcome Nicholas Shaxson, and Host Yves Smith.

[As a courtesy to our guests, please keep comments to the book.  Please take other conversations to a previous thread. - bev]

Treasure Islands: Tax Havens and the Men who Stole the World

Yves Smith, Host:

Treasure Islands tells us that tax havens are much larger and much more destructive than most might realize, yet at the same time enjoy much more unofficial and formal support from governments in advanced economies than many of us want to believe.

Nicholas Shaxson defines a tax haven (or “offshore”) as having these qualities: secrecy, low or zero taxes, very large financial service sectors compared to the domestic economy, and political stability by virtue of being captured by banking interests.

Even though Shaxon’s account includes a rogue’s gallery that would be at home in a Graham Greene novel, such as a Mr. Autogue, who has access to everyone important in Gabon, and virtually the entire government of the Isle of Jersey, the broader ramifications are far more chilling.

It’s bad enough that money launderers, arms dealers, and dictators are major beneficiaries of the presence of banks that profess to operate at first world standards without pesky first world oversight. “Offshore” also allows for governments to be denied legitimate tax revenues for activities within their borders. Thus, as implausible as it seems, Africa is a net capital exporter, losing far more in taxes than it gets back in foreign aid. And as Shaxson accounts, many of the devices used by major corporations to chop their tax bills have nothing to do with the actual flow of goods.

Treasure Islands describes how this system evolved. The UK’s Vestey Brothers, early in the 20th century, went to considerable lengths to be “technically abroad” so as to shield their income from beef imports from Argentina from taxes. Switzerland became the modern template for a tax haven during World War II. The Bank of England’s decision not to regulate the Eurodollar market, which developed in the 1960s, set the stage for the development of a much larger unfettered banking system. It expanded during the 1980s as a new cluster of tax havens in parts of what was once the British Empire, became “intimately linked to the City of London.” And the City of London, or more accurately, the Corporation of London, is a state-within-a-state, existing from “time immemorial,” with the world’s longest-standing official lobbyist, the Remembrancer. Nominally democratic, with corporate voters far outnumbering the real inhabitants, it like the various tax havens in its web, has quite deliberately been allowed to exist outside the normal rules of transparency and accountability due to the status and power of its bank residents. Even major scandals like BCCI have left this system unperturbed.

And this network also increases systemic risk. The IMF warned in 1999 that the growth of OTC markets, particularly derivative trading, likely involves offshore banks, which are typically highly leveraged. And when they get in trouble, they lack ready access to a big balance sheet central bank to bail them out. The shadow banking system is heavily anchored in offshore banking, with many hedge funds domiciled in the Caymans or Luxembourg, and special purpose like SIVs typically located in Ireland, Luxembourg, Jersey, or the UK. The point here is that their offshore status means that they finesse key aspects of regulation and oversight.

The US answer to the Channel Islands and the Caymans is Delaware. Its bank-friendly regulations have been arguably as detrimental to the US as clever transfer pricing has been to Africa. Its combination of special ring-fencing to corporations and bank-friendly statutes led to a race to the bottom by other states seeking to get banks to locate operations there. While none have beaten Delaware on being the best state for corporate headquarters, the result of Delaware’s “leadership” was the end of laws against usury and interest rate caps generally, which played a significant role in the willingness of banks to lend to crappy borrowers and helped stoke the crisis just past.

US shell companies are a less well known mechanism for conducting illicit activity, with professional nominees shielding who the real owners are. Only the company’s attorneys, who can maintain secrecy by invoking attorney-client privilege, know their identities. States like Wyoming make it easy to maintain secrecy. With no requirement to keep records in the state, shady businessmen can assure they will never be found out by keeping their books in a cooperative foreign country.

The casualties of this system are numerous. For instance, the civil conflict in Congo was sustained because tax havens made it safe and easy to loot its mineral resources. Similarly, the plutocratic land grab after the fall of the USSR was facilitated by access to offshore banks.

Shaxson calls for changes in banking regulations, greater transparency, bringing the City to heel, as well as much greater cultural emphasis on having the wealthy, both individuals and corporations, pay their freight. The growth of the UK Uncut and its little sister US Uncut movements shows that public sentiment is increasingly in line with the root and branch reform that Shaxson advocates.

It’s a great pleasure to have Mr. Shaxson join us, particularly in light of the debate his book has stirred up in the UK.

A lot of Americans would find it hard to believe your statement, that the US is the biggest tax haven country. Can you explain why?

184 Responses to “FDL Book Salon Welcomes Nicholas Shaxson, Treasure Islands: Tax Havens and the Men who Stole the World”

BevW April 30th, 2011 at 1:57 pm

Nick, Welcome to the Lake.

Yves, Thank you for returning and Hosting this Book Salon.

Yves Smith April 30th, 2011 at 1:59 pm

Can you tell us a bit about the US as tax haven and how it differs from and resembles the sort of tax havens (as in the type frequented by the rich and the criminal) that most of us think of?

Nick Shaxson April 30th, 2011 at 2:00 pm

Hello Yves. Thanks very much for hosting.

Nick Shaxson April 30th, 2011 at 2:00 pm

In Treasure Islands, that statement is a little nuanced, in fact. One chapter, the “The Fall of America,” describes how the United States steadily degraded its rules, laws and regulations to attract foreign hot money from overseas, increasingly became to look offshore-like. Its main offerings have been various forms of secrecy plus tax exemption for foreigners who invest or send their money to the U.S., as Yves explains. There is more to this, such as a willingness to overlook the fact that the funds may have been obtained from criminal acts committed overseas. Huge volumes of capital flows into the U.S. – whether into real estate, or bond markets, or whatever – in the knowledge that the income earned in the U.S. won’t be taxed locally, and that the U.S. won’t tell that foreign investor’s tax authorities that they have earned that income. Or it might be criminal money. (This link provides an interesting explanation of the criminal side, if you’re interested. http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_senate_hearings&docid=f:32353.wais

Trillions of dollars are attracted to the U.S. as a result of the offshore facilities it offers. The chapter ends by referring to a Financial Secrecy Index ( http://www.financialsecrecyindex.com/2009results.html ) , which ranks countries on the range and depth of secrecy they provide, and weights it against size of cross-border financial services. The last words in the chapter were:

“Third and fourth most important were, respec- tively, Switzerland and the Cayman Islands. Luxembourg, a gigantic but hardly no- ticed haven of financial secrecy, came second. And which country was ranked—by a mile—the world’s most important secrecy jurisdiction?
Step forward, the United States of America.”

But there are of course lots of different ways one could rank the world’s tax havens, and the rest of the book spends a lot of time exploring the role of Britain plays in the offshore system. Britain is a tax haven in its own right. And this has two many components. First, it offers many offshore facilities in its own right, and as Yves notes the City of London Corporation itself is bizarre offshore entity within the United Kingdom. But second, it partly controls a range of jurisdictions around the world, ranging from its Crown Dependencies (Jersey, Guernsey and the Isle of Man) and its Overseas Territories (14 of them including the Cayman Islands, Bermuda, Turks & Caicos, Gibraltar, and various others.) These territories effectively feed money and business through to the City of London. It’s bizarre set-up.

So one could read the book and also conclude that Britain is the most important player in the system. I actually don’t want to come down hard on any side here, since as I say there are so many ways to measure this.

Now apologies for this overly long response at the start. But before writing anything else, I must briefly explore one area that is absolutely, absolutely crucial. It is essential to understand what I mean by a tax haven.

Yves gives a good idea of the characteristics I describe in offshore jurisdictions, and the issue of political capture by financial interests is crucial. But I must say two more (short) things.

First, the term ‘tax haven’ is a bit of a misnomer. Tax is only one of a range of offshore offerings. Ultimately, what they offer is escape: escape from tax, from financial regulation, from criminal laws, and so on. If we think it’s only about tax we cannot understand offshore.

Second – and the point about the U.S. illustrates this – the world’s biggest tax havens aren’t so much small Caribbean islands as big OECD states: apart from the US and UK, I’d also highlight Luxembourg, Switzerland (of course,) and Ireland. Cayman ranks up there too. Delaware is important as a tax haven in its own right. Once we understand this, we begin to understand all sorts of things – such as why the world’s most powerful institutions (and countries) have been so lax in tackling offshore finance.

Yves Smith April 30th, 2011 at 2:02 pm

I did want to be clear about that, that what you define as “offshore” comes in different flavors, some of which may seem not too offensive to those who have not looked at them closely

dakine01 April 30th, 2011 at 2:02 pm

Good afternoon Nick and welcome to FDL this afternoon and welcome back to FDL Yves!

Nick, there was an article at the Washington Post on Thursday (I linked to it here at my personal blog on a post about the fantasy land of the Beltway Village) about a number of businesses and groups pushing for another corporate tax holiday where the corps are offering to buy their off-shore funds back to the US at a nickel on the dollar ($50B to bring back $1T of profits). Ostensibly to create “jobs.”

How much of this is total BS or am I just an idiot? (always a valid question)

Nick Shaxson April 30th, 2011 at 2:06 pm

In short, I think the BS answer is the closest. This was done back in 2004, I think it was – corporations were allowed to repatriate money to the U.S. under an amnesty that triggered just a 5(ish) percent tax rate – and about US$350 billion whooshed back under that amnesty. Subsequent studies indicated that despite the promises that this money would go to job creation, in fact almost all of it went to boost bonuses and the like. In fact, there is considerable evidence that the long-term effect is to shift money overseas.

I will try and get a report or two on that to you in the next few minutes.

Yves Smith April 30th, 2011 at 2:07 pm
In response to dakine01 @ 6

I’m skeptical that the repatriation of money will lead to ANY job creation, give that US companies are sitting on record levels of cash right now. If they wanted to create jobs, many have the dough and the ones that don’t can borrow very cheaply.

Yves Smith April 30th, 2011 at 2:07 pm

You give a damning portrayal of the consequences of “offshore”: loss of vital tax revenues, particularly in Africa, which as you point out sacrifices more in income than it gets back in aid, a safe haven for criminals, and a system for the wealthy that allows them to operate outside national jurisdictions and hence weakens their loyalties to nation-states.

What reactions has your critique elicited from national banking regulators and senior bank executives?

dakine01 April 30th, 2011 at 2:08 pm
In response to Nick Shaxson @ 4

As a technical note, there’s a “Reply” button in the lwoer right hand of each comment. Pressing the “Reply” will pre-fill the comment number and commenter name being replied to and makes it easier to follow the conversation.

Note: Some browsers don’t lie to let the Reply work correctly if it is pressed after a page refresh but before the page completes loading

Nick Shaxson April 30th, 2011 at 2:09 pm

OK – here is one of these reports on the corporate tax holidays, from the Center on Budget and Policy Priorities
http://www.cbpp.org/files/4-8-11tax.pdf

There are a few of these around.

Yves Smith April 30th, 2011 at 2:11 pm
In response to dakine01 @ 10

Thanks for helping with hosting :-)

dakine01 April 30th, 2011 at 2:12 pm
In response to Yves Smith @ 8

Yeah, I’m thinking the “tax holiday” will create jobs in the same way all the tax cuts since ’01 and ’03 have created jobs. As in not at all

Nick Shaxson April 30th, 2011 at 2:12 pm

I had expected vitriolic denunciations from players in the sector. It wasn’t quite as I expected, though. The most vocal reaction has come from Anthony Travers, who until very recently was chairman of the Cayman Islands Monetary Authority. He called me an ‘imbecile,’ among other things, in several outbursts directed against me – but he never offered a specific rebuttal of things that I wrote in Treasure Islands – except for repeating the usual canards that Cayman is transparent, co-operative and well-regulated jurisdiction. This has, in general, been the most common reaction: furious repetitions of “we are clean!” but without specific rebuttal.

More generally, there have been a very large numbers of reviews now (see here for an incomplete list http://treasureislands.org/praise-for-the-book/ ), since its publication in the UK in January, and apart from a few small glitches (see here http://treasureislands.org/updates-and-errors/ – with a couple more small ones to come) – nobody has turned around and said that what I have written is factually wrong. Perhaps someone will point something out here on Firedoglake! There are plenty of people with philosophical differences with my arguments, of course. This is a book with a strong opinion about offshore. But so far, the book and its arguments have withstood the scrutiny.

But there’s another strange reaction I’ve had. The other day I was in a debate about tax havens at a big offshore conference in Miami. Afterwards, someone who has a high profile in this area – someone known to be a passionate defender of tax havens — came up to me and say ‘you know what? You guys are doing interesting and important work; I hope you keep it up.” And this is, very often, the reaction, on a personal level. You will find corporate tax officials who are involved in this stuff agreeing with you, admitting that they feel uncomfortable with what they do (even the quite legal stuff), but being compelled by market forces to do this stuff.

dakine01 April 30th, 2011 at 2:12 pm
In response to Yves Smith @ 12

:})

Nick Shaxson April 30th, 2011 at 2:13 pm
In response to Yves Smith @ 9

I am re-posting this again unchanged – this time after pressing the ‘reply’ button. Sorry.

I had expected vitriolic denunciations from players in the sector. It wasn’t quite as I expected, though. The most vocal reaction has come from Anthony Travers, who until very recently was chairman of the Cayman Islands Monetary Authority. He called me an ‘imbecile,’ among other things, in several outbursts directed against me – but he never offered a specific rebuttal of things that I wrote in Treasure Islands – except for repeating the usual canards that Cayman is transparent, co-operative and well-regulated jurisdiction. This has, in general, been the most common reaction: furious repetitions of “we are clean!” but without specific rebuttal.

More generally, there have been a very large numbers of reviews now (see here for an incomplete list http://treasureislands.org/praise-for-the-book/ ), since its publication in the UK in January, and apart from a few small glitches (see here http://treasureislands.org/updates-and-errors/ – with a couple more small ones to come) – nobody has turned around and said that what I have written is factually wrong. Perhaps someone will point something out here on Firedoglake! There are plenty of people with philosophical differences with my arguments, of course. This is a book with a strong opinion about offshore. But so far, the book and its arguments have withstood the scrutiny.

But there’s another strange reaction I’ve had. The other day I was in a debate about tax havens at a big offshore conference in Miami. Afterwards, someone who has a high profile in this area – someone known to be a passionate defender of tax havens — came up to me and say ‘you know what? You guys are doing interesting and important work; I hope you keep it up.” And this is, very often, the reaction, on a personal level. You will find corporate tax officials who are involved in this stuff agreeing with you, admitting that they feel uncomfortable with what they do (even the quite legal stuff), but being compelled by market forces to do this stuff.

Yves Smith April 30th, 2011 at 2:15 pm
In response to Nick Shaxson @ 14

But isn’t “market forces” the usual excuse, which doesn’t stand up to real scrutiny? As I understand it, all the international banks interface with money transfer systems that ultimately interface with facilities run by central banks. It would be possible to cut off or restrict flows in and out of the Caymans if anyone were serious about this, no? They could still get money in and out, I’d imagine, but it would be vastly harder and much less attractive.

readerOfTeaLeaves April 30th, 2011 at 2:15 pm
In response to Nick Shaxson @ 4

Second – and the point about the U.S. illustrates this – the world’s biggest tax havens aren’t so much small Caribbean islands as big OECD states: apart from the US and UK, I’d also highlight Luxembourg, Switzerland (of course,) and Ireland. Cayman ranks up there too. Delaware is important as a tax haven in its own right. Once we understand this, we begin to understand all sorts of things – such as why the world’s most powerful institutions (and countries) have been so lax in tackling offshore finance.

For me, this was one of the most useful concepts in the book, although there are many, many others as well.

Nick Shaxson April 30th, 2011 at 2:15 pm
In response to dakine01 @ 6

And I’m re-posting this one as a reply

OK – here is one of these reports on the corporate tax holidays, from the Center on Budget and Policy Priorities
http://www.cbpp.org/files/4-8-11tax.pdf

There are a few of these around.

allan April 30th, 2011 at 2:17 pm

Thank you for stopping by, Mr. Shaxson.

How badly do offshore haven impede the abilities of governments and central banks to
carry out well-informed fiscal and monetary policy? Does the Fed (or the ESB) really know
how many liquid assets are sloshing around?

stryx April 30th, 2011 at 2:18 pm

My knowledge of offshore bank accounts comes entirely from fiction, where one classic plot device is to have the bank abscond with the ill-gotten gains (e. g. Blow).

How much of a risk is this to a depositor? Is there any way to seize such assets without a long process?

dakine01 April 30th, 2011 at 2:19 pm
In response to Nick Shaxson @ 19

Thank you for this. I try to cover the problems facing long term un and under employed (since I am of that group) on my blog posts and that will be quite helpful as I go forward and attempt to refute nonsense articles in the Traditional Media

PeasantParty April 30th, 2011 at 2:20 pm

Mr. Shaxson,

Thank you for being here at FDL. These accounts hold the biggest loot in the world, do they pay interest on the balances and is that rate exaggerated from what we normally see in the US?

Yves Smith April 30th, 2011 at 2:21 pm
In response to stryx @ 21

I’ve always wondered about that too, that someone at the bank could abscond with funds, and the person who was abused would find it hard to complain. Then again, I recall from one of the older money books, maybe one by Anthony Tobias, that “crimes against banks” in Switzerland is one of the most serious types of offenses that they have. He somehow ran afoul of that, I think merely by saying seriously bad stuff about a Swiss bank, and was incarcerated. A very nice cell, but a cell nevertheless.

readerOfTeaLeaves April 30th, 2011 at 2:21 pm
In response to Nick Shaxson @ 14

First, I wonder how many people are *reading*this thread, but (ahem) NOT commenting.

Second, this doesn’t surprise me one bit:

nobody has turned around and said that what I have written is factually wrong. … But so far, the book and its arguments have withstood the scrutiny.

I’ll be surprised if the tax haven and offshore beneficiaries make much fuss, other than to smear you personally.

On a personal note, your observations in a later chapter about being warned re: your personal safety really resonated with me. And particularly your descriptions about the right-wing attitudes affiliated with Jersey and Caymans, etc, etc (also, not surprising to me, but more confirming my own hunches). These people don’t have much ability to look at their own conduct, methinks.

And anyone who exposes them, they will probably view as a ‘threat’.
So I think it’s important to have as open and public a discussion as possible.

I’ve been raving about this book to my few accountant friends.
I hope it finds many readers, ASAP.

readerOfTeaLeaves April 30th, 2011 at 2:23 pm
In response to stryx @ 21

It’s wayyyy more evil than what you are describing.
Far more multilayered.

Nick Shaxson April 30th, 2011 at 2:23 pm
In response to Yves Smith @ 17

Yes, it would be possible to heavily restrict business with these places. I think that the very short answer to this is that the lobbying forces that would oppose such moves are absolutely ferocious.

One of the most interesting episodes in this respect was the Patriot Act in 2001, following Al-Qaeda’s attacks, where efforts were put in place to crack down on some of the shell banks and other tax haven offerings that were involved in all kinds of murky business. There’s quite a good article in The American Interest about this episode, here
http://the-american-interest.com/article.cfm?piece=830
Without a subscription, you don’t get all of the article, but here is a flavour (I have cut and pasted various paragraphs here in different orders; I hope it makes it clear):

“”In the aftermath of 9/11, a pitched battle emerged between the American banking industry and the U.S. Congress. The month before the attacks, in August 2001, Senator Carl Levin (D-MI) placed a far-reaching anti-money laundering (AML) bill before the Senate Banking Committee chaired by Senator Phil Gramm (R-TX).

Among its provisions, Title III decrees that no bank registered in the United States can receive a transfer from a foreign shell bank and that no foreign bank can transfer money to the United States that it has received from a foreign shell bank, including wire transfers that might only momentarily touch New York City before speeding off elsewhere.

Gramm ignored Levin’s proposed legislation just as over the past six years he had prevented no fewer than 11 AML bills from emerging from the committee. But the 9/11 terror attacks changed the political landscape. As Congress began work in October on the U.S.A. PATRIOT Act, Levin pleaded that his draft AML bill be included in the new act on the grounds that money laundering had helped and would otherwise continue to help fund terrorist groups intent on the mass-murder of Americans.

Enter Citibank.

Civility collapsed; shouting matches between Citibank officers and congressional staffers erupted in the halls of Congress.”

But in fact, this was one of the rare examples where action was in fact possible – due to the political climate of those frenzied months — and the results were remarkable.

“The thousands of shell banks that used to run loose have been reduced to perhaps a few dozen.”

I think this gives a flavour of what happens when you try to fight against these things.

PeasantParty April 30th, 2011 at 2:24 pm

Yes, it is. While I haven’t read the entire book I was lucky enough to read a few chapters. The way corps shift the numbers around from country to country and never pay one cent in tax is mind boggling!

Yves Smith April 30th, 2011 at 2:24 pm

I am surprised that he hasn’t gotten more negative comments from the officialdom (he was so hard on the Caymans, which really does look like a classic banana republic except the officials have better diction) that they couldn’t contain themselves. But maybe they learned from Goldman 666 (a website that aggregated negative information about Goldman that the firm then tried to take down) that going after critics, particularly ones that have done their homework, often backfires.

Watson April 30th, 2011 at 2:25 pm

Structured finance. Off-shore banking. Off-books accounting.

How brazen!

The CEOs and their accountants have made the priests and the lawyers look respectable.

earlofhuntingdon April 30th, 2011 at 2:25 pm

I once knew an int’l vp for a US Fortune 500 company, a citizen of a white Commonwealth country known for abusing the Queen’s English. He claimed to live nowhere and work everywhere. Nominally based in Hong Kong, but receiving most of his income for work performed elsewhere, the bulk of his income failed to incur Hong Kong’s then paltry 20% income tax rate because it was deemed earned offshore.

The same game played elsewhere worked like a check kiting scheme in reverse. When he retired, his final bonus, his largest by far, was paid while he was in mid-flight over the Pacific, which allowed him to claim he was stateless when paid.

What income he declared and paid tax was deemed his “personal” business and outside of one’s concern, as was the company’s willingness to aid and abet, except that the company also paid for his tax accountants. They were presumably stateless, too, although their offices, naturally, were in the City. Needless to say, their rates were among the highest in the world.

Offshore is a culture. It’s also a financial, tax and social virus. If only the John Galt’s would live and stay in their Gulch, rather than enjoy the benefits of the world’s finest locales and hotels, deduct those expenses, and then escape back to their Gulch without having given back to all those communities and people which made “their” success possible. I suggest it’s time for those communities to take in the welcome mat.

Nick Shaxson April 30th, 2011 at 2:27 pm
In response to PeasantParty @ 23

They certainly do pay interest on balances; historically they have been able to pay higher interest rates in many cases because they aren’t subject to the same regulations as they are in ‘onshore’ jurisdictions – reserve requirements, for example. (And let’s not forget that of course those regulations, for all their flaws, are put there for good democratic reasons) But on the other hand, they are also able to pay lower interest rates because, for example, tax cheats will accept lower interest rates as a price they are prepared to pay in exchange for secrecy, escape from taxation, and so on.) So the banks, with possibilities for higher profits – but not necessarily having to pass those on to customers – can clean up here. This is one reason why banks love offshore so very much.

Yves Smith April 30th, 2011 at 2:29 pm
In response to Nick Shaxson @ 27

Wow, I didn’t realize that some measures were put forward that did make a difference, even if at the margin.

One reader complained bitterly today that the US passed something called the HIRE act, that requires foreign banks to report a lot of information when US citizens open foreign accounts. He claimed it is making it hard for US citizens to get accounts overseas, but since I haven’t seen any complaints from big companies who send staff abroad, I have a sneaking suspicion this is something Congress passed that Treasury isn’t too keen to enforce. This may be too US specific for you to have any direct knowledge, but would you expect there to be retaliation from foreign regulators if the US were (in a parallel universe) to get serious about cracking down?

wendydavis April 30th, 2011 at 2:30 pm

So sorry to be late; no time to catch up so far for now.

Welcome, Yves and Nicholas. I’m a daily reader at your site, Yves. The comments are often worth saving, too. Plenty of philosophers and historians you attract. ;o)

I hope this isn’t OT, but I’ll ask if this isn’t possibly another example of tax havens since money is so global now.

Apparently Tim Geithner wants to dick around with the transparency of swaps even further, and exempt foreign currency swaps, which DD’s diary quotes Zach Carter as saysing is about a $30 trillion piece of the market pie.

http://news.firedoglake.com/2011/04/30/geithner-pries-away-30-trillion-forex-derivative-market-from-regulation/

Pardon me if you may have already spoken to this, or it’s not germane to the topic here.

readerOfTeaLeaves April 30th, 2011 at 2:30 pm

Yves and Nick, would it be possible to take one or two questions about:

1. Gaydamak, the ex-Russian, with his views about ‘clean money’ and his complete ignorance about what is actually required to *create* wealth or resources. Because I think that in our globalized world, this is a problem — I’ve certainly seen the impacts of this kind of thinking, where people who grew up in non-capitalist systems seem to assume, blithely, that what we call ‘stealing’ is in their minds, ‘clean money’. Because I think that people need to see this mindset and recognize how it is affecting large, huge systems of finance.

2. The Heritage Club funded Dan Mitchell, ideologue extraordinaire, who doesn’t seem to have ever done anything in his life other than go to school and write think pieces for right-wing funded think tanks. This is a guy with absolutely no clue about the world, about an (?Angolan) six-year-old girl who has no access to medicines, so her entire cheek is eaten away by bacteria — yet if the tax havens were cleaned up and her government had to be accountable to its people, she’d have medicine.

Yet the nitwit who blathers on about ‘competition’ among finance and tax havens has absolutely no clue about the impacts of his actions on other people’s lives. And he has a nice, cushy life to perpetuate this drivel.

Yves Smith April 30th, 2011 at 2:31 pm
In response to Nick Shaxson @ 32

That’s long been what I have heard regarding the famed Swiss bank accounts: the returns are terrible.

Yves Smith April 30th, 2011 at 2:32 pm

I say we are game so what’s the question? :-)

Nick Shaxson April 30th, 2011 at 2:33 pm
In response to stryx @ 21

This is a fascinating topic. On the one hand, offshore jurisdictions have an incentive to be seen to be reputable, and that ‘your money is safe with us.’ So there is a lot of effort taken in many of them to try and make sure the local practitioners don’t run off with the investor’s money. (But it is crucial to remember: if you are an investor, what they will very happily do is to help you run off with other people’s money.)

There is another aspect to this – and this involves offshore trusts. I don’t have time to explain in great detail, but in essence, trusts separate out different facets of ownership of an asset, in ways that enable you to no longer be the legal owner of the assets, but still have power to enjoy the income on those assets. It’s a very slippery world. And this slipperiness creates bizarre possibilities for investors to lose their assets.

I just wrote a long article about this on the Treasure Islands blog, which goes into this in some detail, after I was contacted by someone called Michael Inglis who was involved in Project Wickenby, a massive Australian project to hunt down money in tax havens (they fingered Paul Hogan, among others, then let him go.) That article is here, if you want to explore this in detail.

http://treasureislands.org/project-wickenby-notes-and-a-warning-from-the-inside-track/

This section from that article I think explains the problem.

One especially fascinating element, from my point of view, is how untrustworthy offshore trusts (and other structures) can be. As he explains it (lower down in this blog) offshore arrangements often involve a devious side agreement based on a pretence that the individual(s) concerned does not control or enjoy the assets and income in question – and hence escape taxes or the long arm of the law – while in reality they do retain that control. But they are often discovering that when push comes to shove – notably when the courts or the Tax Authorities get involved – that the offshore promoters who had hitherto been so diligent in maintaining the real control, alongside that pretence of non-control, suddenly find themselves reinterpreting the arrangement, and the individual actually loses control of the asset. (If you want to read more about the devious arrangements involved in offshore trusts, take a look at this blog I wrote a while back: In Trusts We Trust .)

readerOfTeaLeaves April 30th, 2011 at 2:35 pm
In response to Yves Smith @ 29

But maybe they learned from Goldman 666 (a website that aggregated negative information about Goldman that the firm then tried to take down) that going after critics, particularly ones that have done their homework, often backfires.

That’s the way that I read it, also.

Plus, his comment about the congressional staffers and Citibank staff shouting in the hallways of Congress: that was around 2002? Citibank is ostensibly bigger now (largely due to its tax shelter uses), but it is a decaying beast.

I think the power has shifted since then, but Congress is still behind the public.

Nick Shaxson April 30th, 2011 at 2:35 pm

Thanks, ReaderOfTeaLeaves! Do get in touch via my site http://treasureislands.org/ if you’re interested in chatting more about this stuff. All thoughts and insights welcome.

earlofhuntingdon April 30th, 2011 at 2:35 pm
In response to Yves Smith @ 29

As is true in Ivy League faculty clubs, London clubs, university clubs, athletic clubs and the club grilles frequented while one’s shoes are being cleaned and shined after a hard day’s walk in the grass, the harshest epithets and reprisals are delivered quietly and without attribution.

Yves Smith April 30th, 2011 at 2:37 pm
In response to wendydavis @ 34

There is sort of an argument in favor of Geithner but I don’t buy it.

A lot of FX is very short dated, spot to one month forwards. The people in that market are really big corporate treasuries and smaller banks trading with bigger banks, they can get good indicative quotes (as opposed to what trade just happened) and so presumably aren’t getting ripped off. So arguably no reason to have that on a clearinghouse.

Then the argument goes: having some of the market be OTC but the longer dated stuff be cleared would be an operational nightmare for the banks.

To me, one simple good reason to have everything cleared is you have central reporting, which then produces a record of actual trade prices and volumes. Right now, there is no way for regulators to see patterns in trades. The bankers will argue that FX is so liquid no one can manipulate the market, but that’s not true. A famous trader, Andy Krieger, did so repeatedly in the early 1990s and the market was plenty liquid then.

emptywheel April 30th, 2011 at 2:39 pm

Nick, Yves, thanks for joining us. I’ve been looking forward to this book salon.

Nick, one of the things that fascinated me about the book was your description of Keynes and the question of whether or not countries could prevent these kinds of international flows.

In all the discussions about Keynes of late, I had never heard that. I’d love to hear from you and Yves on this history.

Nick Shaxson April 30th, 2011 at 2:39 pm
In response to Yves Smith @ 29

You know, I think that there is also the issue that there is a strong groupthink in these places that all is OK and the critics don’t know what they are talking about, that there is a strong reluctance to actually think about the issues. And I think actually reading Treasure Islands would be too uncomfortable an experience. So that may also partly explain the relative lack of attacks. I mean there have been others (from U.S. publications such as the Sovereign Society there are the usual idiotic comments like “socialist” but again, just smeary words being thrown, without real analysis.

readerOfTeaLeaves April 30th, 2011 at 2:39 pm
In response to Yves Smith @ 37

Well, it seems to be that the psychologies of the Russian munitions seller-aka ‘translator’ (ahem), and the right-wing think tank guy have some interesting similiarities.

They both rely on ideology, and they both have strong views that are ‘libertarian’.

Neither has the merest hint of a clue about the concept of ‘social capital’.

So:
1. Have you heard people start to talk, and speak about ‘social capital’, and how it can ONLY be created within a nation: in other words, do you see signs that people are beginning to understand that without taxation, you have no social capital, no accountability, no wealth-creation over time.
Do you see this conversation emerging?

2. Since this conversation is probably most threatening to the [ignoramouses and ideologues] at places like Cato and Heritage, do you see them beginning to respond — do they respond to your data? If so, how?

Yves Smith April 30th, 2011 at 2:39 pm

Hah! So if folks like Shaxson aren’t part of the right clubs, these folks can’t get in his face to complain! :-)

earlofhuntingdon April 30th, 2011 at 2:40 pm
In response to Yves Smith @ 33

That’s not a rule that would be enforceable directly against foreign bank operations. Presumably, it would be enforced through macro-level sanctions against a foreign bank’s US interests. Geithner and those he works for would be loathe to take such action; it’s one of the few areas where “what goes around, comes around” remains a recognized principle.

masaccio April 30th, 2011 at 2:41 pm

Welcome to the Lake Nick and Yves.
Ben Bernanke, like a number of economists, says that a world-wide savings glut was the driving force behind the bubble that created the Great Crash of 2008. Do you think that this is code words for the money sitting Off-Shore?

seaglass April 30th, 2011 at 2:41 pm

Hi Nick, I got a first hand look a few weeks ago @ just how much loot the robber barons in this country stash away in the Caymans. I was meeting a boat in West Palm and it was docked in a Marina there that was filled with huge ( over 120 ft. ) personal yachts all registered in the Cayman’s and all I was told owned by Americans, who registered them their to avoid US taxes. The ships though resided in the US. Why do we tolerate this obvious tax dodging?

wendydavis April 30th, 2011 at 2:41 pm
In response to Yves Smith @ 42

Thanks, Yves. Dayen/Carter have some quotes from Maria Cantwell and others being fairly outraged about it…

Peterr April 30th, 2011 at 2:42 pm

Welcome, Nick and Yves!

I’m curious about who you’d consider the biggest supporters in Congress of reforming this mess. You mentioned Levin above . . . any other names you’d care to name?

Yves Smith April 30th, 2011 at 2:42 pm
In response to emptywheel @ 44

There is a section in TI in which Shaxson points out that when the Eurodollar market started, the US could have gotten more aggressive to cut off its air supply, but chose not too.

I’m in the process of trying to understand the money plumbing a bit more, but the preliminary reading I’ve gotten is that it would be impossible for the international banks to innovate their way around reliance on central bank facilities in money transfers. But that’s one academic’s opinion, I want to run this by practitioners to make sure this reading is accurate.

Phoenix Woman April 30th, 2011 at 2:43 pm
In response to Nick Shaxson @ 27

Wow — so the PATRIOT Act did have at least one salutary (though unintended) effect. I remember how hard (and unsuccessfully) Bill Clinton fought to try and shut down Osama bin Laden’s money spigots in the 1990s; the same Congressional Republicans that backed it when Bush ordered it in the wake of 9/11 flatly refused to do it only a year or two earlier under Clinton.

Nick Shaxson April 30th, 2011 at 2:44 pm
In response to Phoenix Woman @ 43

Well I think that if we get into the subject of derivatives (an area where Yves knows plenty more than I do) then we can start talking about the shadow banking system. A lot of people wonder what relationship this has to tax havens. Well, the shadow banking system isn’t the same as the offshore system, but there’s a huge overlap, and a lot of similarities. For me – and interested to hear Yves’ take on this – shadow banking is what takes place outside of the social contract. Offshore is of course that, too. The difference, I suppose, is that ‘shadow banking’ doesn’t have to be about different jurisdictions elsewhere (though it often is) – while ‘offshore’, actually by definition, is about other jurisdictions elsewhere. Thoughts Yves?

readerOfTeaLeaves April 30th, 2011 at 2:44 pm

how it can ONLY be created within a nationcommunity that has some basis for sharing resources.

Sorry for earlier quick, inaccurate remark 8-p

readerOfTeaLeaves April 30th, 2011 at 2:46 pm
In response to Yves Smith @ 47

;-)

I believe his CV mentions having written for Economist and FT.
If that doesn’t qualify him, then… ;-)

Yves Smith April 30th, 2011 at 2:46 pm

I checked the language briefly earlier so take this with a grain of salt, I think it imposed a draconian tax on banks that did not comply on transfers into the US, IIRC 30%. Since all big banks are engaged in two way funds transfers, that would effectively put them out of that business by making them completely uncompetitive

Of course, no way to assure how good compliance is. Report a few American, including some small accounts to look serious and not bother with the rest (problem is in reality banks aren’t set up to do things in onesies and twosies).

earlofhuntingdon April 30th, 2011 at 2:48 pm
In response to Nick Shaxson @ 38

I’ve found that to be true in other offshore arrangements, such as foreign loans to operations in countries that control forex exposure. Int’l banks that sell “custom arrangements” to corporate treasuries, touting their ability to get round such restrictions, sometimes disappear when clients attempt to reap their benefits.

One in Brazil went so far as to advocate for the government’s restrictions in specific case A, so as to avoid a negotiation that would reveal the deals it had arranged for clients B-Z.

emptywheel April 30th, 2011 at 2:50 pm

Nick

Something I’ve been asking Yves about is how SWIFT–the database that the US started mining for terrorist intelligence after 9/11–plays into this.

Am I right in imagining that SWIFT is one of the few places where all this secrecy becomes transparent?

I’m particularly interested in some of Eric Lichtblau’s reporting on it. He said that Robert Mueller tried to get access to SWIFT under Poppy’s Admin, but SWIFT wouldn’t allow it (Mueller was in charge of money laundering at the time; this was the era of BCCI).

So then 9/11 happens and one of the bankers recommend the Bush Admin get SWIFT (I always imagine it was someone like Hank Paulson, but that’s just my fancy). For a while, the US got the entire database. Then SWIFT started imposing some rules and limits.

But now we’re at the point where the US and Europe have been fighting about SWIFT access for the last year or so. The EUP is supposed to be able to audit what the US gets. But the US gives the specifics of its request verbally, meanign there’s nothing to audit.

I’ve always wondered whether some of the concern in Europe had more to do with the US being able to see Europe’s money laundering, but not vice versa.

In any case, it seems to me that if the world got serious about this stuff, they could use SWIFT to figure out where the money is flowing, at least historically. Is that right?

earlofhuntingdon April 30th, 2011 at 2:51 pm
In response to Yves Smith @ 47

Sadly, one needn’t be a member of a particular club to be harmed by its epithets and reprisals. London, in particular, I hear, is quite a small place for those about whom one hears whispers. Thankfully, journalism gives journalists a soap box denied to most.

Nick Shaxson April 30th, 2011 at 2:51 pm
In response to emptywheel @ 44

Well, if we’re talking about Keynes and international capital flows, I think that we are now in a situation, at least in the medium term, where the genie is kind of out of the bottle. The post-cold war era after Bretton Woods was a time when financial trading across borders was quite heavily constrained, and capital flows didn’t whizz at high speed all over the place, but where much more plodding, and probably more considered, affairs. (For example, find a very old British person who travelled a lot and ask to see their old passport – and you will see that they have stamps giving them permission to export a certain amount of currency. Imagine that today.) And it’s always important to note that that quarter century era that began soon after WW2 (which was also an era of super-high marginal taxes on the wealthy in the US and elsehwere) was one of very high and broad-based growth: capitalism’s Golden Age, as some call it.

Anyway, I argue in the book that we’ve not only got a world where capital controls have been pretty much removed altogether – but we have gone much, much further, where capital is actively encouraged to flow across border by incentives such as secrecy, shelter from criminal laws, possibilities for tax evasion, and other nasties – which have nothing to do with efficient markets or anything like that, and everything to do with insiders taking the cream and shifting the costs, risks and burdens onto everyone else. So I see that era as a kind of ‘opposite of offshore.’

Having said that, capital controls haven’t evaporated – China has quite strong ones in place, and in the latest turmoil they have acquired a bit of a renewed legitimacy – even the IMF is tentatively talking about them. BUt still, I think that for now the genie is out of the bottle.

PeasantParty April 30th, 2011 at 2:52 pm

What really burns me up is the fact that all that TARP and stimulus money is most likely sitting off-shore. While the little people like me have to pay 40% or more in tax to use my 401K funds!

Yves Smith April 30th, 2011 at 2:54 pm
In response to Nick Shaxson @ 55

“Shadow banking” is roughly defined as “a parallel largely unregulated banking system that got so big we had to backstop it when it fell over”.

The analogue to deposits in the shadow banking system is repo. All big dealers use repo. Letting the repo system get in trouble would mean all the big dealer banks would die. That’s crude but accurate.

Repo was actually perfectly OK historically when it was used only with US Treasuries. But as the derivatives market exploded, the banks needed more stuff they could repo so they could post collateral for their derivatives positions.

Then they started using AAA securities. But there were so few AAA issuers that that created incentives to create more AAA paper. That eventually led to the creation of lots of what turned out to be phony AAA paper, like AAA rated CDOs. Those securitized structures, the AAA mortgage bonds, the structured investment vehicles, involved offshore structures (for instance, many were registered in the Caymans or Luxembourg to make it easier for foreign investors to buy them).

Particularly for CDOs, those deals weren’t subject to any normal disclosure rules. That’s why the SEC has not gotten very far in going after them. They can go after them using contract law theories (saying things that are not true) but not under securities law theories (failure to disclose material facts, like the CDO was created to appeal to short investors and hence was crap)

emptywheel April 30th, 2011 at 2:54 pm
In response to Nick Shaxson @ 62

Remind me–Keynes was on the side of loosening money flow, or vice versa? It was just an interesting part of the history you tell in the book.

econobuzz April 30th, 2011 at 2:57 pm
In response to Yves Smith @ 64

Repo was actually perfectly OK historically when it was used only with US Treasuries.

Is there any economic rationale for repo used for risky financial assets.

Yves Smith April 30th, 2011 at 2:58 pm
In response to Nick Shaxson @ 62

It’s now virtually orthodoxy that open capital flows are better. The World Bank went around helping make the world safe for investment banks by encouraging emerging economies to develop capital markets.

There isn’t strong evidence to support this view. The work by Carmen Reinhart and Kenneth Rogoff shows that higher level of international capital flows leads to more frequent and severe financial crises. The net result is the cost of the bust phase more than offsets whatever extra growth you get in the boom cycle. But asset bubbles are politically very popular until they pop. They look like an increase in wealth to the community.

Nick Shaxson April 30th, 2011 at 3:00 pm
In response to emptywheel @ 60

Emptywheel – SWIFT is something that I don’t cover in the book, and I’m not on the most solid ground when I talk about it. I think that it’s right that Swift could be a huge resource for delivering transparency. But there are two problems I can see. The first is the issue of offshore trusts, and their like. By separating out the different aspects of ownership of an asset, and then setting up sneaky side-agreements (known only to the client and perhaps their lawyer and accountant) that dictate who really controls the asset – no amount of transparency on transfer is going to crack that one.

Having said that – it is essential to understand that there is no magic bullet or bullets for the problems posed by offshore – the best we can hope for – and which we shoudl fight for – is partial solutions, enhanced transparency through various measures, and so on.

Underneath that is, of course, the deeper problem – the problem of political will. You have to get the politicians to want to do something about it. The lobbying against trying to do any of these things is ferocious. It’s not very visible – far too few people pay attention to offshore — but it’s probably as big as anything out there.

The complexity makes it quite hard too. But I think that the example of US Uncut, protesting against corporate tax avoidance (a complex subject if ever there was one) suggests that we shouldn’t be too gloomy about people getting interested in this stuff, and taking political action.

earlofhuntingdon April 30th, 2011 at 3:00 pm

which have nothing to do with efficient markets or anything like that, and everything to do with insiders taking the cream and shifting the costs, risks and burdens onto everyone else.

Agreed. That was the point of my comment @31.

The corruption appears systemic, which means that tighter regulation in one or a few countries will be pressing on the balloon: it will pop out elsewhere, leading to lost revenue, profits, data and “competitiveness”. I imagine that’s the argument used from Delaware to the Caymans.

Frankly, since 9/11 if not before, I’m not sure the top OECD countries have much interest in tighter regulation. They are scrounging for a piece of the pie, like a rural county commissioner hoping to land that shopping center deal in exchange for tax giveaways that will far exceed support costs.

Yves Smith April 30th, 2011 at 3:01 pm
In response to econobuzz @ 66

For repo to work, it has to have assets of impeccable quality so you can be sure you can always sell them.

So first Treasuries, then Fannie and Freddie debt, then other AAA, then manufactured AAA.

That’s the problem. If AAA were real AAA (as it lived up to what is was supposed to be), even if it got downgraded, it would be only a notch or two at a time. Some people who held it might take a whack but no systemic crisis.

You manufacture a bunch of AAA paper with a defective structure (it can blow up in way that it collapses in value) and you manufacture a whole lot of it with the same underlying exposure, and whodathunk it, you create a ton of systemic risk.

Shoto April 30th, 2011 at 3:02 pm

I’m late to the party. Thank you, Mr. Shaxson for appearing here, and thank you Yves Smith for hosting.

If I might ask a few stupid questions..

Is there any merit to the idea that elected US House and Senate personnel maintain offshore accounts into which transnational companies (and/or other entities) might (in theory) transfer funds in exchange for favorable votes? From one numbered account to another, and no one is any the wiser. (No, I am in no way, shape or form a conspiracy type. It simply seems logical to me that this could be happening.)

Also, how much (if any) static did you run into while researching this book.

Thank you again.

earlofhuntingdon April 30th, 2011 at 3:03 pm
In response to Yves Smith @ 67

It’s good principally for the investment banks, opening up new markets to plunder. Their promises of systemic benefits are a tad less credible than that real estate developer’s promise to pay his construction workers full union wages and not break their kneecaps when they want more than half.

wendydavis April 30th, 2011 at 3:03 pm
In response to Nick Shaxson @ 68

LOL! Glad to hear you’re a US Uncut fan, Nicholas; many of us here are, too.

http://my.firedoglake.com/wendydavis/2011/04/22/uncut-flashmobs-undermining-the-power-structure-through-humor-and-humiliation/

;o)

econobuzz April 30th, 2011 at 3:03 pm
In response to Yves Smith @ 67

It’s now virtually orthodoxy that open capital flows are better.

I think an argument can be made that, with fiscal policy hamstrung, open capital flows reduce the ability of monetary policy to increase employment, no?

Yves Smith April 30th, 2011 at 3:03 pm
In response to PeasantParty @ 63

You did bail out General Electric, they were unable to roll over their commercial paper. And as has been reported, they are VERY aggressive users of international low and no tax jurisdictions.

readerOfTeaLeaves April 30th, 2011 at 3:04 pm

One of the most interesting themes for me was your description of how secrecy jurisdictions transform what is ‘legal’ into what is ‘legitimate’.

Do you have the sense that many electeds officials, or OECD or other international organizations, are clear about this point? Or are they still assuming that ‘tax havens’ are only for Mafia?

emptywheel April 30th, 2011 at 3:04 pm

Nick

You come close to saying that tax havens serves as a key basis for Anglo-American hegemony, particularly as the US empire gets creakier and creakier.

I’m really struck by that–given our increasingly large current account deficits, it seems like having the money flow in from people like Qaddafi and Mukbarak is critical for the US.

One of the things the Wikileaks State cables make clear is that we’re often watching as these dictators (both our favored ones and unfavored ones) loot the money out of their country (they specified, for example, that Qaddafi’s money went through Scotland). And activists were asking the US to stop it, to no avail (we plead helplessness).

Is that about what you see happening?

earlofhuntingdon April 30th, 2011 at 3:05 pm
In response to Nick Shaxson @ 68

Your point about trusts is really a big one. I think they are more used in the City than in the US, but they can be marvelously opaque, by design, making it hard to match funds flows with their beneficiaries-in-fact.

onitgoes April 30th, 2011 at 3:06 pm
In response to Yves Smith @ 75

Didn’t we bail out more than just GE? Albeit I see GE as the great Satan and particularly egregious in this regard. I feel that most US citizens really got whacked by bailing out various giant corps. who further suck the lifeblood out of citizens with other tax incentives and loopholes.

Thanks for being here, btw. Very interesting topic and book. Enjoying the conversation.

PeasantParty April 30th, 2011 at 3:06 pm
In response to Yves Smith @ 75

Yes, I did. I also see that we gave them a huge tax refund as well. For what that refund was to cover I have no idea, but then again, the accountants can say it was for the costs of forcing the US to use their light bulbs or some shit like that.

Yves Smith April 30th, 2011 at 3:06 pm
In response to Shoto @ 71

There are so many permitted ways to bribe Senators and Congressmen I don’t see why they need to bother. The big payoff is when they leave office: board seats, overpaid speaking gigs.

But having seen the former head of McKinsey engage in probable insider trading, which had to have involved secrecy jurisdiction bank accounts for him to be paid, nothing is impossible. He really was a member of all the best clubs in the corporate world, yet it appears not to have been enough for him.

Nick Shaxson April 30th, 2011 at 3:07 pm

Ah “competitiveness” – I dedicate quite a few pages to this, having a go at the crazy arguments put out by people like Dan Mitchell of the Center for Freedom and Prosperity. In essence, competition in markets between firms bears no economic relation to competition between countries on things like tax and regulation (to illustrate this, think what it means for a company to go bust (it likely disappears.) then think what it means for a country to go bust.) But because these two very different processes carry the same name, ‘competition’ then people lazily conflate the two and say that because one is good the other must be good.

And “scrounging for a piece of the pie” is a very good way to describe it. This is just what happens.

The systemic problem you describe is definitely there, and there is something to be said for the balloon analogy, but I don’t think it quite fits. This is because when you squeeze a balloon, its volume stays the same. But with this stuff, when you take countermeasures, generally what happens is that you capture some of what you were after, and you lose some to displacement elsewhere. But the point is that the countermeasures aren’t pointless. They are very worthwhile. Crack down on Swiss banks, and some of the money will go to Singapore. But some of it will come home too.

readerOfTeaLeaves April 30th, 2011 at 3:08 pm
In response to emptywheel @ 77

I see it the same way. (But maybe that’s because I read EW ;-)

But yes, this book gave me the clear sense that the Spiderweb is the modern day Anglo-American structure and heaven forbid anyone mess with it.

onitgoes April 30th, 2011 at 3:09 pm
In response to Yves Smith @ 81

He really was a member of all the best clubs in the corporate world, yet it appears not to have been enough for him.

Is out-of-control greed really the engine fueling all of this highway robbery? That’s the way it looks from here.

It certainly feels like the obscenely wealthy just can never have “enough,” so they use any chicanery to get more.

Yves Smith April 30th, 2011 at 3:11 pm
In response to onitgoes @ 79

Yes, I was just using them as the poster child.

I don’t think anyone has really dug through all the disclosure of where the loans went. But they either went to large financial firms, or in the case of one facility, to investors (and that includes Matt Taibbi’s famed Wall Street housewives) who had to use US banks. So I think it would be hard for them to shove the money into offshore accounts and evade taxes. They’d have to use ruses like GE: creating losses somehow by how they book other activities.

Nick Shaxson April 30th, 2011 at 3:11 pm
In response to emptywheel @ 65

In answer to your question, Keynes, remembering the Great Depression, which itself followed a period of insane financial loosening, knew that freedom for finance to flit around the world meant unfreedom (can I use that word?) for democratic societies and their representatives. So he helped persuade people to construct a system where capital flows were tightly controlled.

Yves Smith April 30th, 2011 at 3:12 pm
In response to Nick Shaxson @ 82

I’d agree. Countermeasures introduce another layer of costs and risk and will deter some people from participating.

earlofhuntingdon April 30th, 2011 at 3:12 pm
In response to Nick Shaxson @ 82

Excellent point. Tighter regulation by key players, the US and Britain or the EU, for example, would have much greater effect than tighter regulations by others.

The int’l system may be virtually seemless, but there are still significant reasons to prefer holding money in certain countries. Halliburton, Stanley and Blackwater/Xe may have reincorporated offshore, but its executives don’t live and work or hold real assets in Bermuda or the Gulf.

onitgoes April 30th, 2011 at 3:13 pm

But the point is that the countermeasures aren’t pointless. They are very worthwhile. Crack down on Swiss banks, and some of the money will go to Singapore. But some of it will come home too.

That’s good to know bc the message sent out is: if we don’t continue to indulge ourselves in highway robbery, then you serfs back in the USA (or wherever) will *suffer* even more. We’re just doing this for “your own good.”

I’ve never bought that, although I get that something may be “lost.” too bad, so sad.

masaccio April 30th, 2011 at 3:13 pm
In response to Nick Shaxson @ 82

I totally agree with this. One goal of good regulation is to raise the cost of non-compliance as much as possible, reducing the benefit of cheating. Of course the best kind of cost is jail: white collar criminals know they can’t make it in jail, so they can be deterred by prompt aggressive criminal prosecutions.

emptywheel April 30th, 2011 at 3:14 pm
In response to Nick Shaxson @ 68

Yeah, I guess I’m interested in SWIFT not so much as a magic bullet (as you say, the political will is not there), but perhaps in understanding why the govt here freaked out so much more over SWIFT being revealed than the warrantless wiretap program (which was arguably more illegal).

Lichtblau’s reporting makes it pretty clear the govt argued that there is no privacy protection for any of these flows. So at least in theory, law enforcement here maintains it can have this info, for any purpose.

So did the US freak out so much bc they knew there are a lot of powerful people who would worry that the US had asymmetric access to this info? Were they so worried bc SWIFT in a sense threatens this structure of secrecy on which their financial system depends?

It also demonstrates so well our priorities. These capital flows are what is killing the world, not terrorism (indeed, you could argue the former exacerbates the support for the latter). But we at least claim we never use this info to pursue money launderers. (Though FWIW, it’s worth noting that one of the few stories that Risen and Lichtblau joined back together for since their original series was one on what Qaddafi had been doing w/his money. Given the way the US broadly interprets people with ties to terrorism, it would not be a stretch to imagine they’ve been followign Qaddafi’s $$ via SWIFT).

Yves Smith April 30th, 2011 at 3:14 pm
In response to Nick Shaxson @ 86

Some people are looking at China’s performance, and China has pretty strict capital controls, as an argument in favor of them. The IMF, remarkably, recently said it’s OK for emerging economies to have capital controls since hot money flows can be very destabilizing. That’s a comparatively minor concession, but it’s a chink in the orthodoxy nevertheless.

papau April 30th, 2011 at 3:14 pm
In response to Nick Shaxson @ 16

I started up, and was head of, the Sun Life Financial (US) tax department and learned about the Brit’s system of tax havens. Before that I was into how the international hiding places worked for our CIA (as a one off observer via conversations with a old fellow that had dinner with Reagan on Thursday nights). And after that I was into “financial engineering” at a Fortune 50 company that exposed me to dropping earnings in the sea, buying expenses to use as a deduction in a given tax return, selling investment income to avoid the EU’s I-E income tax approach, and the beauty of counting the same expense in multiple countries tax returns, all the while learning about the number of persons and family trusts that could cut a $5 billion dollar check at the drop of a hat to start a chain of accounting to accomplish all of the above.

I also learned of the different attitudes toward taxation that rich have, all depending on country of origin (a Brit that made 10 figures explained why he chose to not lower his tax to zero, choosing instead to pay about 2%, because small percentage tax paid was a large amount despite being a small percentage, so it gave him political clout, and “Gentlemen pay their taxes”. That last phrase came back to me during the Royal’s wedding this week.

These tax havens are known to the governments and could be stopped if any in power cared. Indeed there is an industry set up by former government lawyers for advising folks on how to go through an offshore island and into Dublin before filing your Brit corporate return, or how to get your 5 fake “employees” in the Caribbean recognized for your paper shell company so that they will satisfy Canadian tax folks.

My major take away from those years was appreciation for how hard Clinton fought the Reagan/Bush weak enforcement of IRS Code 482 where a companies apparent income is split between tax immediately that year, and the portion that is deferred as being earned overseas. That Clinton approach I believe kept jobs in the US -A fact not known/conceded/appreciated by the Clinton haters of the left for some reason not known to me.

Which finally brings me to my question – do you see Obama doing anything in the tax area to keep jobs in the US (I note Section 482 enforcement requires no Congressional input, so the lack of ability to get new legislation, at least for this, is not needed to start the process of keeping jobs in the US via the tax code).

masaccio April 30th, 2011 at 3:14 pm

Do you have any information about how much Off-Shore money was used to buy real estate mortgage-backed securities, collateralized debt obligations and similar securities that led to the Great Crash?

emptywheel April 30th, 2011 at 3:15 pm
In response to Nick Shaxson @ 86

Ah, thanks, I read the book when Yves first started recommending it. I wanted to clarify that bc even in all the discussions about Keynes being right, still, few people talk about his views on capital flows.

earlofhuntingdon April 30th, 2011 at 3:15 pm
In response to masaccio @ 90

Does the US DoJ and its USA’s still prosecute anyone besides whistleblowers?

Yves Smith April 30th, 2011 at 3:16 pm
In response to masaccio @ 90

Instead, if my memory serves me right, a recent Swiss banker/whistleblower was incarcerated by the US.

onitgoes April 30th, 2011 at 3:16 pm
In response to Nick Shaxson @ 86

So he helped persuade people to construct a system where capital flows were tightly controlled.

We really need a present-day Keynes to do this again, but I see no one on the horizon who is advocating strongly enough or who appears to have enough power to “persuade” those at the top to do this.

emptywheel April 30th, 2011 at 3:16 pm

Well, Prince moved to Dubai. Though the papers around here still treat BW as a home town company, which it never was.

kspopulist April 30th, 2011 at 3:16 pm

Thanx for comin!
thanx fer sharin!
looks like I have lots of good discussion to catch up on here…
but should we forget about Libya and ‘invade’ the Cayman Islands I ask only partly joking ;-)

Shoto April 30th, 2011 at 3:16 pm
In response to Yves Smith @ 81

The big payoff is when they leave office: board seats, overpaid speaking gigs.

This is obviously true, but it doesn’t explain why many of these individuals would choose to hang around Capitol Hill for multiple upon multiple terms. While I will readily admit to being a bit cynical, I don’t see any of these DeeCee types as being altruistic, as being truly interested in public service. I’m sure there are a few, but I’m afraid you’d have to send out a search party to find them

wendydavis April 30th, 2011 at 3:17 pm

Hmmm. Confessions of an Economic Hitman… ;o)

Shoto April 30th, 2011 at 3:18 pm
In response to masaccio @ 90

Of course the best kind of cost is jail: white collar criminals know they can’t make it in jail, so they can be deterred by prompt aggressive criminal prosecutions.

Agree. Fines are considered a mere cost of doing business. Prison time, however? That would tend to get their attention, but quick.

Nick Shaxson April 30th, 2011 at 3:19 pm
In response to emptywheel @ 77

“a key basis for Anglo-American hegemony, particularly as the US empire gets creakier and creakier.” Yes, that puts it quite well: the contradiction. Ofshore has made for incredibly strong financial sectors in the US and UK. But now they have grown far too strong. Hence the creaking.

And yes, vast amounts of dirty money flow into the U.S. because of its secrecy and so on. recently a letter from 25 Florida members of the House of Representatives said this:

“Because of the privacy laws of the United States, nonresident aliens are estimated to have deposited over $3 trillion in U.S. financial institutions . . (the United States has) refrained from taxing the interest earned by them or requiring their reporting).”

http://treasureislands.org/tax-haven-usa-attracts-over-3-trillion-in-foreign-dirty-money/

Now this is a lobbyist’s number, of course, and should be treated with caution. But other estimates suggest that this order of magnitude isn’t necessarily fanciful. Global Financial INtegrity in Washington in a report in January estimated that U.S.$1.2 trillion – yes trillion – flowed out of developing countries into tax havens and rich countries in 2008 alone – a flow increasing at well over 15% a year. One might quibble with those numbers, but almost certainly not with the magnitudes. This stuff is huge – colossal. It has been a key U.S. deficit strategy, attracting all this foreign hot money.

And I argue that this stuff is bad for the U.S. A lot of it’s been flowing into U.S. real estate, puffing up the housing bubble, puffing up Wall Street, increasing the too-big-to-fail problem,

The U.S. has been deficit financing for years, and it’s got itself into quite a pickle now. Gigantic deficit financing for the U.S. has become a kind of a drug. Very hard to wean itself off right now, I admit. But if it did one day, I think that would be very good thing for ordinary Americans. And it would weaken Wall Street, which could only be a good thing in light of all that’s happened.

earlofhuntingdon April 30th, 2011 at 3:19 pm
In response to Yves Smith @ 92

From China’s perspective, it can implement its own plans and there’s not much the IMF can or will do about it. One would think their success, and Japan’s and South Korea’s before, and its trends would put paid to the idea that mixed economies don’t work. That meme may be untrue, but it is still a bulwark for the principle that governments should aid and abet, but not regulate, private capital.

earlofhuntingdon April 30th, 2011 at 3:20 pm
In response to Nick Shaxson @ 104

I’m curious, has David Cornwell commented to you on your fine work?

onitgoes April 30th, 2011 at 3:20 pm
In response to papau @ 93

My major take away from those years was appreciation for how hard Clinton fought the Reagan/Bush weak enforcement of IRS Code 482 where a companies apparent income is split between tax immediately that year, and the portion that is deferred as being earned overseas. That Clinton approach I believe kept jobs in the US -A fact not known/conceded/appreciated by the Clinton haters of the left for some reason not known to me.

I think Clinton’s capitulation on so many other issues, esp Glass-Stiegle, is what drives many on the left to despair about Bubba. Plus what you discuss is rather complex, and personally I didn’t know about it. So thanks for that tidbit of info.

I, too, wonder if Obama is doing *anything* remotely like this, or is Obama the utter sell-out NeoCon that he appears to be??

emptywheel April 30th, 2011 at 3:21 pm
In response to Yves Smith @ 97

Bradley Birkenfeld. We put him in jail not long after the Swiss pressured us to drop the investigation into the tax evaders he exposed and sort of suggested they’d take some Gitmo detainees if we did so.

So we get rid of three wrongly incarcerated Gitmo detainees and, seemingly in response, wrongly incarcerated Birkenfeld.

papau April 30th, 2011 at 3:22 pm

LOL -

Things have not changed!

I should note our language’s use of “derivative” is a bit imprecise because the securitized assets of the 70′s and the interest derivatives and the mortgage loan sales via securities of the early 80′s (which kept housing going after Volker effectively closed down mortgage loan lending), and commodities that have “futures” are all not dangerous per se.

It took the investment banks “creativity” in the late 90′s – all under Greenspan’s control – not under G-S regulation at any time – to run us off the rails.

Yves Smith April 30th, 2011 at 3:22 pm
In response to masaccio @ 94

I’m hoping to get some bandwidth to look into this more.

Goldman reportedly does have some big accounts in the Middle East that bought CDOs. That’s why, when AIG was bailed out, they had to have two closings on Maiden Lane III (you can see this in the disclosures). Most of the banks had kept the CDOs, but Goldman had sold them and written swaps on them. So they needed to get them back from their clients.

But ex that, my impression is that the CDOs went into remarkably few hands. Twenty longs and ten shorts on the AAA tranches were the overwhelming majority of that market (the longs being AIG, the monolines, and the dealer banks themselves. The junior tranches went to real stuffees around the world and other CDOs.

Nick Shaxson April 30th, 2011 at 3:22 pm
In response to wendydavis @ 73

I did a US Uncut book signing at Union Station in DC the other day . . . it was great fun!

http://treasureislands.org/notes-from-a-guerrilla-book-signing/

earlofhuntingdon April 30th, 2011 at 3:23 pm

These tax havens are known to the governments and could be stopped if any in power cared.

A la my question to Nick Shaxson about David Cornwell, one wonders how long someone who did that would stay in power. Jumping from 2% to 5%, let alone to 30%, would tend to increase one’s tax bill mightily.

Yves Smith April 30th, 2011 at 3:23 pm
In response to Shoto @ 101

As Kissinger said (rough quote), power is the best aphrodisiac :-)

Nick Shaxson April 30th, 2011 at 3:23 pm
In response to Yves Smith @ 64

Yves, on shadow banking as “a parallel largely unregulated banking system” I think that’s pretty close to my way of talking about it as banking outside the social contract. Would you agree?

onitgoes April 30th, 2011 at 3:23 pm
In response to Shoto @ 101

I agree. So many stay in office forever at what are – in these days – not really high salaries. Yet somehow, as if by magic, most/all in Congress and the Senate are millionaires many times over. And the older ones these days simply didn’t come into office with a lot of money.

Some kind of payola is going on to make it worth their while to stay put. Else why would they do it? No incentive otherwise. These are not altruistic public service oriented folks, as you indicate.

earlofhuntingdon April 30th, 2011 at 3:25 pm
In response to emptywheel @ 99

Prince may be more worried about extradition than taxes, but his work is surely international.

Yves Smith April 30th, 2011 at 3:27 pm
In response to papau @ 109

Yes this is a pet peeve of mine, “derivative” covers a LOT of territory and the industry lobbyists have gotten both credit default swaps and complex OTC derivatives (which are almost without exceptions for regulatory arb, accounting games, or ripping off clients) defined as “derivatives” along with the simple, harmless ones (although you can blow yourself up on any highly leveraged contract, and some futures do have a lot of leverage).

Yves Smith April 30th, 2011 at 3:29 pm
In response to Nick Shaxson @ 114

Well we have a pretty crappy social contract here in the US. Most people here have drunk the “free markets” Kool Aid.

What do you mean by “outside the social contract”? We take a contractual view of things here. That the instruments of the shadow banking system made it easier for the banks to engage in looting?

PeasantParty April 30th, 2011 at 3:29 pm

Mr. Shaxson,

Is there any way to take from this information and push for a real economic renewal in the US? Over half of America is unemployed and 1/4 of those currently employed are there through temp agencies.

I’m seeing the downfall of the US getting closer everyday to the cardboard house scenarios in thrid world countries where the US Corps have raped and pillaged.

Nick Shaxson April 30th, 2011 at 3:30 pm
In response to papau @ 93

I love you story about “Gentlemen pay their taxes” and the Royal Wedding. In fact when I saw (bits of) that, and all the pomp, all I could think about was the City of London Corporation. The most mind-stretching oddness I think I came across in all my offshore research.

As regards Obama doing stuff to “keep jobs in the US” (sorry, that’s from memory, it’s like whack-a-mole trying to answer all these comments and queries, so trying not to take up time to scroll back) well I think that Obama has so far, to his credit, resisted the siren calls for a tax holiday for repatriating deferred assets, which I view as an approach that will protect American jobs. If you came late to the discussion, scroll up to see my comments near the top on that. There may be others, but off the top of my head I can’t think of one right now. But he’s been pretty absent on a bunch of other stuff related to tax havens, even though he was co-sponsor during his campaign of the Stop Tax Haven Abuse Act.

Shoto April 30th, 2011 at 3:30 pm
In response to Yves Smith @ 113

Excellent point.

Yves Smith April 30th, 2011 at 3:31 pm
In response to onitgoes @ 115

A lot of people come to Congress relatively well off. I saw a recent post or article on how many came to office were already millionaires.

wendydavis April 30th, 2011 at 3:31 pm
In response to Nick Shaxson @ 111

Fantastic, Nicholas! I love the dickens outta them! Wish I were spry enough to organize some, but then I live in the tulies, so…Mancos Valley Bank wouldn’t be too impressed… ;o)

Nick Shaxson April 30th, 2011 at 3:31 pm
In response to papau @ 93

Papau and if you ever felt like chatting about your experiences, I’d be fascinated to hear your story. You can contact me via my website http://www.treasureislands.org

sadlyyes April 30th, 2011 at 3:31 pm

just got here…will read this very important blog post later…thanks to hosts,and author

greengiant April 30th, 2011 at 3:32 pm

Back in 2008 the top US banks had over 5 Trillion assets in structured investment vehicles which seem to have been “off the books” as far as Federal Reserve reports and US regulation. I would call that part of the shadow banking system.
I dont think the “social” contract has any weight with US corporations.

gigi3 April 30th, 2011 at 3:32 pm
In response to onitgoes @ 115

I believe they also receive a lot of help in investing their money. Remember HRC’s pork bellies investment?

earlofhuntingdon April 30th, 2011 at 3:33 pm
In response to PeasantParty @ 119

Like China, which has multiple economies centered on its major cities, the US will descend into multiple economies and societies. The ones that operate inside the Beltway and in Manhattan already significantly diverge from those that apply elsewhere. The trouble is that they also control government and its regulation of business, which does not bode well for the growth of the other US economies.

wendydavis April 30th, 2011 at 3:33 pm
In response to onitgoes @ 115

I think they stay partly to accrue more power and influence: the longer the better, no? And make contacts up the ladder. Also, Matt Stoller or someone did a piece on Insiders and Outsiders, and concluded that many in Congress rubbed elbows occassionally at parties with the uber-wealthy movers and shakers, and the contact made them yearn for more of everything.

readerOfTeaLeaves April 30th, 2011 at 3:34 pm
In response to Yves Smith @ 118

I dunno. It seemed to me that the view of ‘social contract’ held by Heritage Fdn’s Dan Mitchell is so small it could probably fit on the head of a pin.

It’ll be interesting to see whether the events in Wisconsin and neighboring states, plus now the biggest tornados (ever) prompt any kind of meaningful redefinition of ‘social contract’.

That Russian ‘translator’ didn’t seem to have any concept of ‘social contract’, and it’s interesting to get a sense that this limited, legalistic, contractual view of ‘social contract’ is so linked to the secrecy juridictions. I don’t find it surprising; indeed, to me it underscores the psychological and social dimensions of this whole problem of ‘I can pay to live by nobody’s rules but my own, while extracting whatever value you chumps manage to create…’

A rather dystopian view.

earlofhuntingdon April 30th, 2011 at 3:34 pm
In response to gigi3 @ 127

I thought that was a scene in Trading Places.

PeasantParty April 30th, 2011 at 3:34 pm
In response to gigi3 @ 127

Definitely! They are the original “insider trader”.

wendydavis April 30th, 2011 at 3:35 pm
In response to wendydavis @ 129

Yeah; didn’t you have that piece of Stoller’s up at your house, Yves?

readerOfTeaLeaves April 30th, 2011 at 3:35 pm
In response to PeasantParty @ 119

I think some of the union bosses need to read TI and pass it around.
Also, city managers and governors, who are all wondering where the heck all their budgets vanished…

Yves Smith April 30th, 2011 at 3:37 pm
In response to PeasantParty @ 119

One big problem, as Jane Hamsher has pointed out, is that Obama has systematically gone after groups on the nominal left and gotten corporate funding yanked if they step out of line with his messaging. He started with smaller groups and I’ve heard recently of him going after larger ones.

Look, you have guys like Matt Yglesias, who most people who don’t watch closely consider to be a pinko, spouting Geithner PR and saying “fraud didn’t contribute to the crisis, move along”. WTF? This is worse than friendly fire. Is he that stupid, or merely craven?

PeasantParty April 30th, 2011 at 3:37 pm

Ha-ha! City managers for sure. The good gov’s know. Especially, the repug ones because they are doing everything possible to keep it going.

sadlyyes April 30th, 2011 at 3:38 pm

saw this today

EU inquiry into claims of banks’ collusion in credit derivatives market
The Guardian – ‎Apr 29, 2011‎
EU competition commissioner Joaquin Almunia will oversee the investigation into credit default swaps. Photograph Yves Herman/Reuters The European Union is investigating HSBC, Royal Bank of Scotland and Barclays among 16 of the world’s leading … All 63 related articles »

masaccio April 30th, 2011 at 3:38 pm
In response to Yves Smith @ 110

Interesting to know. The thing that makes me curious about this is why the holders of junior tranches aren’t taking action. One possible explanation is that they don’t want to be public about their losses, which suggests off-shore money.

earlofhuntingdon April 30th, 2011 at 3:39 pm
In response to Yves Smith @ 135

Deaf, dumb and blind. It’s standing in the middle of the road so that the semi can’t possibly miss you. Helluva price for a paycheck.

PeasantParty April 30th, 2011 at 3:40 pm
In response to Yves Smith @ 135

Not a Matt fan! Seriously. I understand what you said and what Jane has said about the funding being yanked. I just think that at some point they have to stop playing politics and witty words before we become Thailand.

earlofhuntingdon April 30th, 2011 at 3:40 pm
In response to masaccio @ 138

One of the many corruptions from offshore. That big banks can pay miserly returns on huge deposits in exchange for assisting in their clients’ tax planning is a smaller corruption.

Yves Smith April 30th, 2011 at 3:41 pm

That’s sort of what I mean. This is why I have a one person campaign against “free markets”. You introduce it into most debates and you get this weird Pavlovian response like it’s something sacred. It’s intellectually incoherent, even to the extent it could work, it doesn’t scale, and it’s amoral.

Societies where you don’t punish cheaters start to break down. The “free markets” idea that courts are the mechanism of redress is ridiculous and needs to be challenged more (well the whole idiot idea needs to be treated with much greater skepticism).

Shoto April 30th, 2011 at 3:41 pm
In response to Yves Smith @ 135

Is he that stupid, or merely craven?

Wait: That’s a trick question, right? ;-)

Nick Shaxson April 30th, 2011 at 3:42 pm
In response to masaccio @ 49

“Ben Bernanke, like a number of economists, says that a world-wide savings glut was the driving force behind the bubble that created the Great Crash of 2008. Do you think that this is code words for the money sitting Off-Shore?”

I think partly, yes, though obviously it isn’t as simple as that. There is another big and related connection here too. The global macroeconomic imbalances that underlay the crisis involved, among other things, massive foreign purchases of U.S. bonds, real estate and so on, puffing up housing bubbles and so on. The tax exemptions and the secrecy that the US offers – in its role as a tax haven itself – played a huge part in attracting these flows (which might otherwise have flowed to, who knows, Germany or Lithuania or stayed at home or wherever) House prices in the U.S. wouldn’t have risen so far without the Mubaraks of this world buying swanky American houses and so on, (in secret.) It’s a mystery to me why so few people are looking at these drivers. Well, i can see political reasons why people might not want to look at this stuff. But why aren’t economists paying attention to it? We are most probably talking many trillions in assets over the years.

“how much Off-Shore money was used to buy real estate mortgage-backed securities, collateralized debt obligations and similar securities that led to the Great Crash?”

I don’t know. But again, a whole lot, I am sure. As well as buying the underlying assets directly.

PeasantParty April 30th, 2011 at 3:42 pm

Mr. Shaxston,

Thank you so much for your work and for sharing with everyone here. Citizens in the US need more and more transparency and if it were not for people like you we would never get any!

masaccio April 30th, 2011 at 3:43 pm
In response to Yves Smith @ 135

Re Yglesias: how about “utterly lacking in real world experience with power structures and with people who have been crushed by real world power structures”?

Yves Smith April 30th, 2011 at 3:43 pm
In response to masaccio @ 138

They are suing in Australia, but it’s the little folk like town councils going after stupid domestic hedge fund that lied to them.

Litigation is really really expensive and take a long time. It’s even more expensive when it’s cross border. And if you are sorta broke by virtue of having lost a lot of money, how are you going to sue?

onitgoes April 30th, 2011 at 3:43 pm
In response to Nick Shaxson @ 120

well I think that Obama has so far, to his credit, resisted the siren calls for a tax holiday for repatriating deferred assets, which I view as an approach that will protect American jobs. There may be other [things Obama did to save/protect US jobs], but off the top of my head I can’t think of one right now. But he’s been pretty absent on a bunch of other stuff related to tax havens, even though he was co-sponsor during his campaign of the Stop Tax Haven Abuse Act.

If memory serves me, Obama *started* to go after Tax Havens very very early in his Admin, but “suddenly” he stopped talking about it, and that was the last we heard of that.

That’s when I started to wonder who was “getting” to Obama & telling him to shut up.

Yves Smith April 30th, 2011 at 3:44 pm
In response to Shoto @ 143

Oh right, he can be both :-)

It’s just that he presents well and now he has changed his look to be even wonkier.

Teddy Partridge April 30th, 2011 at 3:45 pm

Sorry to be late to this: remarkable book, clear and concise. How we’ve allowed this offshore cancer to grow on our planet, I will never understand. We’ve reached the point where sovereignty is no armor; our species needs a planetary agency to break the back of these greedy monsters.

Thanks for writing this book. I really enjoyed it and recommend it to anyone who thinks they are missing a piece of the puzzle of our economic enslavement: offshore IS that piece.

econobuzz April 30th, 2011 at 3:46 pm
In response to Yves Smith @ 149

My problem with him is that he is linked to by progressives who don’t understand the game he is playing.

Yves Smith April 30th, 2011 at 3:46 pm
In response to Nick Shaxson @ 144

That’s fair. You pointed out an eye opening factoid in your book: that the Marshall Plan really just recycled European flight capital. No one had the confidence to invest in bombed-out countries.

Yves Smith April 30th, 2011 at 3:47 pm
In response to econobuzz @ 151

Yes, because he has cred, others accept him as a validator.

readerOfTeaLeaves April 30th, 2011 at 3:48 pm
In response to Yves Smith @ 142

This is why I have a one person campaign against “free markets”. You introduce it into most debates and you get this weird Pavlovian response like it’s something sacred. It’s intellectually incoherent, even to the extent it could work, it doesn’t scale, and it’s amoral.

Oh, I ardently concur.
I’m still mulling over what I think of the Sustainability videos at INET (from the Bretton Woods conference), but at least they’re pulling out data that shows free, completely unregulated markets = sewers.

But while I’m finding the entire TI book fascinating, one of the things that has been most compelling for me is to see the vignettes of the people who defend tax havens, and the Russian who honestly seems to believe that the process of moving money through tax havens has some kind of magical ‘cleansing’ effect: clean money! whee!

I just found myself thinking, ‘That poor little sweet doe-eyed Heritage Foundation free-marketeer is no match for the Russian translator, who is going to gulp him down in one swallow and grunt for more.’
Dumb enough to think markets are ‘free’ (libertarian euphoria!) without also asking yourself, “Hmmm, what if there’s bears in these woods…?”

The innocent stupidity of that Mitchell ideologue just makes me want to yank out my hair in clumps 8-

It’s like watching him hand our collective wealth over to smiling predators. Eeeeeeeeek!

Nick Shaxson April 30th, 2011 at 3:48 pm
In response to Yves Smith @ 118

Hmm. I don’t take such a contractual view. Well, I feel that the statements are at least compatible.

Yves Smith April 30th, 2011 at 3:49 pm
In response to onitgoes @ 148

I’d love to follow up on Obama’s posture on tax havens, although I can’t promise getting to the bottom of it very quickly. Those of you who have news sightings or other info/surmises on this topic please e-mail me @ yves@nakedcapitalism.com

gigi3 April 30th, 2011 at 3:49 pm
In response to Nick Shaxson @ 144

I believe at least some of the money the Fed “loaned” foreign banks was to repurchase mortgage-backed securities that turned out to be toxic in order to stop many lawsuits against the TBTFs.

Yves Smith April 30th, 2011 at 3:50 pm
In response to Nick Shaxson @ 155

Look, I’m no fan, you are speaking to the converted. But trust me, it’s really bad here.

onitgoes April 30th, 2011 at 3:51 pm
In response to Yves Smith @ 156

I won’t have anything to send you, I’m sure, but please do this. Do you also recall Obama saying he’d go after them? My recollection is that he wanted also to go after the “biggies” who hid their money off-shore in order to tax them.

Well, that certainly didn’t fly, did it? We can’t even raise the marginal tax rates on income taxes, much less raise the Capital gains tax rate on Hedgefund earnings of 15%, much less consider (heart palpitations!) go after off-shore secret money in order to (gasp!) tax it.

Keep us posted!

econobuzz April 30th, 2011 at 3:52 pm

Given all the problems cited in Treasure Islands by Nick, and recent political and economic developments, I’m starting to think that a retreat to some of the core aspects of Mercantilism may be in order.

BevW April 30th, 2011 at 3:52 pm

As we come to the end of this great Book Salon,

Nick, Thank you for stopping by the Lake and spending the afternoon with us discussing your new book and tax havens.

Yves, Thank you very much for Hosting this great Book Salon.

Everyone if you would like more information:

Nick’s website and book

Yves’ website and book

Thanks all,
Have a great evening!

Yves Smith April 30th, 2011 at 3:53 pm
In response to gigi3 @ 157

actually it’s REALLY REALLY hard to sue. All the pooling and servicing agreements require that 25% of the bondholders on any one issue get together. Courts have upheld this threshold against legal theories to defeat it.

And guess what? No easy way to find who else bought the crappy bond you bought! No “MBS victims” Facebook page or Yahoo chat board :-) (one guy is trying to address this problem but I haven’t seen any concrete results).

onitgoes April 30th, 2011 at 3:53 pm
In response to Yves Smith @ 158

Keep educating and informing, and more will learn, grow and “get it.” It’s not totally a lost cause at FDL, is my opinion. People do change their minds sometimes…

Yves Smith April 30th, 2011 at 3:53 pm
In response to onitgoes @ 159

I missed that, I think I was too busy being pissed about the stress tests.

onitgoes April 30th, 2011 at 3:54 pm
In response to Yves Smith @ 162

Yes, it was a truly “neat trick” that they set up there to make it nigh onto impossible to go after them in court. I noticed that side of it. Interesting to learn that some local councils in Australia are attempting to sue; it will be interesting to watch that to see what happens.

Yves Smith April 30th, 2011 at 3:54 pm

Thank you Nick for discussing your important book and thanks to the participants for your questions and comments!

Nick Shaxson April 30th, 2011 at 3:56 pm
In response to Yves Smith @ 152

And that recycling just happened again and again, in developing countries. The IMF bent over backwards trying to find reasons why poor countries borrowed so much money, then went bust amid vast debts, which their poor people have to service. And it’s pretty clear as you say that the assets of these countries could in theory pay off the debts – it’s just that, as Boyce/Ndikumana said:

“The subcontinent’s private external assets belong to a narrow, relatively wealthy stratum of its population, while public external debts are borne by the people through their governments.”
http://www.peri.umass.edu/Publication.236+M5b6cc4564e3.0.html

But the IMF just didn’t want to spend any time probing into this one – it screams ‘tax havens’ and I know from discussions with people in Washington and elsewhere that there are people in the IMF and World Bank who fight hard to stop this stuff getting the attention it needs. I had dinner the other night with a lawyer who described being shouted at in an IMF meeting when he brought this stuff up. I mean it seems so corny to talk of conspiracies like this but it seems that there really are some awful attempts to deflect attention away from offshore. See my recent piece in the Financial Times on some of the drivers of this.
http://www.ft.com/cms/s/0/0f687dee-5eea-11e0-a2d7-00144feab49a.html

onitgoes April 30th, 2011 at 3:56 pm
In response to Yves Smith @ 164

It was really really early in his admin. I’ll see if I can dig up anything. It was over in a blink of an eye, too. So it’s easy to see why you’d miss it. I thought at the time: well great!! But even then (and this was before I was 1million% disgusted with Obama), I figured: fat chance! I’ll believe it when I see it, and duly noted that I’m still not seeing it. Ain’t gonna happen. But Obama did say he’d do that…

econobuzz April 30th, 2011 at 3:57 pm

Yes, Nick, thanks very much. And thanks, Yves.

Nick Shaxson April 30th, 2011 at 3:57 pm
In response to Yves Smith @ 156

I will ask a few folk and see what comes up. I am not sure of the ins and outs of his personal position on the various bills.

onitgoes April 30th, 2011 at 3:57 pm
In response to BevW @ 161

Thanks to all concerned. This was a great and very informative discussion!

emptywheel April 30th, 2011 at 3:57 pm

Thanks to Nick and Yves for joining us for this talk. For those who haven’t already read it, I highly recommend Nick’s book.

Nick Shaxson April 30th, 2011 at 3:59 pm

Thanks Yves. I hadn’t realised time was up – what a great forum this has been, lots of fine questions.

OK it’s 1am here in Europe, so good time for me to stop.

Nick

gigi3 April 30th, 2011 at 4:00 pm
In response to Yves Smith @ 162

Thanks for the clarification.

readerOfTeaLeaves April 30th, 2011 at 4:00 pm

Thanks very much to Nick Shaxson, Yves, and FDL.

It’s a remarkable book, and a timely topic (!)

wendydavis April 30th, 2011 at 4:00 pm

Thanks so much Nicholas and Yves. Keep up the stellar work!

TheLurkingMod April 30th, 2011 at 4:01 pm

Rania Khalek’s diary is upstairs!
Cognitive Dissonance Is Fueling Conservative Denial

Teddy Partridge April 30th, 2011 at 4:12 pm
In response to emptywheel @ 172

x2

Nick Shaxson April 30th, 2011 at 4:20 pm
In response to Nick Shaxson @ 144

whoops didn’t mean to say ‘underlying’ there

earlofhuntingdon April 30th, 2011 at 5:15 pm
In response to Yves Smith @ 162

I wonder which side paid the lawyers who drafted those agreements to make it so hard to sue the issuer, etc.

lawson April 30th, 2011 at 6:20 pm

wow two of my favs — yves and emptywheel — and now a new one Shaxson — this was wonderfully educational, one of the best book salons

cbl April 30th, 2011 at 8:48 pm
In response to Yves Smith @ 162

Talcott Franklin is the Dallas attorney (Patton Boggs Securitization vet) – employng a “clearing house” concept that “allows bondholders to coordinate without divulging to each other which securities they own”

Black Rock, PIMCO, and two or three of the Federal Home Loan Banks among current clients – will have to do some digging as to developments

cbl April 30th, 2011 at 8:52 pm
In response to lawson @ 182

“wonderfully educational” indeed

thanks Yves, Mr Shaxson !

I knew this was going to be a great Salon – so sorry I missed it in real time

thanks FDL !!

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