According to most reports in the mainstream media, Offshore tax-havens siphon off trillions of dollars every year that high-tax nations would otherwise spend on health care, education and sorely needed infrastructure. Also, as a sideline, the tax-havens launder money for crooks. Their existence is a crime against humanity, and a symbol of how rotten the world of business has become.
Well, yes and no...
The siphoning of the trillions of dollars is partly true, though it is not the tax-havens who do the siphoning; they are merely passive go-betweens. Much of the siphoned money is not destined for the legitimate benefit of taxpayers, but for unnecessary invasions and occupations of faraway places. Those actions really are a crime against humanity. If the criminal warmakers would stop doing them, they would have the extra trillions to spend on health, education and sorely needed infrastructure.
It’s a sad fact of life that most high-tax nations are controlled by people whose self-interest mocks all notions of decency. Arguably, the less money left in their hands, the more humane place the world would be. As it is, their budgets provide for the destruction of health, education and infrastructure in the Middle East.
And/or in Black Africa, which is being mooted as the next victim of the NATO military machine.
More millions of lives will be ended, and more trillions of dollars will be diverted away from the provision of health care, education and sorely needed infrastructure at home, into the bank accounts of the wanton destroyers of the quality of life in other countries. Most of the money will be channelled through Offshore tax-havens, yes, but always with the full knowledge and consent of the rulers of the high-tax nations and their tax-collectors.
The tax-collectors (IRS, Internal Revenue and the like) and their political masters know exactly how much is going to which tax-havens and for what purpose. After all, it’s the legislators who write the laws, and the tax-collectors who write the regulations. How could they not know?
It’s partly true, too, that Offshore tax-havens launder money for crooks. Actually, the havens facilitate the transfer of moneys for anybody who asks, pretty much. It’s impossible for the local facilitators to know which money belongs to crooks and which belongs to legitimate trading companies. Both those categories are advised by lawyers, accountants and banks that are licensed in high-tax nations. After all, wire-transfers aren’t accompanied by memos that say “This money is the property of the Mafia. Don’t mix it up with Exxon’s.” Be reasonable.
Transfers do include money belonging to criminals not approved by the rulers of the high-tax nations. Some of it belongs to drug-smuggling gangs who are actually in competition with gangs protected by the CIA and other official agencies. That’s pretty cheeky, eh?
Is the existence of Offshore tax-havens a crime against humanity? Well, only to the degree that all international trade is, and the licensing of international trading companies’ lawyers, accountants and banks is. Many properly licensed international trading companies are involved in serious crime, you know – far more serious than petty tax-dodging. Think of Blackwater, Halliburton, and all the other destroyers of lives and infrastructure in the world, and the banks that finance them, and the politicians and retired generals who work for them.
Last question: What happens to the trillions of dollars sent to the tax-havens? One never reads or hears about that. In fact, none of it stays here, except for a miniscule percentage taken as fees by facilitators. Why would it stay here? Our local economies couldn’t possibly find a use for it; Cayman’s GDP is less than a billion dollars, for goodness sake. Rather, it is invested by its owners in ever more inventory, to be traded for ever more profits. Round and round and round it goes.
All the high-tax nations' senior politicians and tax-collectors know about it.
Thursday, January 3, 2013
Wednesday, December 26, 2012
Trouble in Paradise
In a blog-post of mine back in September last year (2011 – House of Cards) I wondered whether Britain might be preparing to pull the plug on Cayman’s tax-haven, and maybe encouraging our local politicians to go independent. (Which would in effect transfer us to US administration, since the US would never allow an independent little village-state to exist in such a strategic spot.)
At the time, our local rulers had just passed a law exempting them from producing audited government financial statements for the preceding six years. Our colonial masters in London had instructed our Governor to give his formal assent to the Law.
I wrote: If the Governor’s assent didn’t signal Britain’s intention to let Cayman go its own way, nothing will. The disclosure in a lawsuit that our Monetary Authority was no longer monitoring the behaviour of hedge-fund directors constituted another sign... The UK’s meek response to all the open contempt shown to the Governor and his superiors recently, puts the matter beyond all reasonable doubt. In years to come, these won’t be remembered as straws in the wind so much as whole forests blowing away before our eyes.
In light of our recent political shenanigans, it is fair to wonder, again, whether our tax-haven is being set up for destruction. Our present minority government of five elected MLAs and three ex-officio Civil Servants, opposed by the other ten elected MLAs, must try to hang together for the next three months until the scheduled elections.
The recently dismissed Premier and his three MLA cronies seem to be blaming the FCO and its local agents (the Police and the Governor, mainly) for the coup: “Enemies of Cayman!” “British imperialists!” “We will not be told what to do by London!” It all sounds like the slogans of the 1960s, when demagogues led half the British Empire into independence – not abandoning Britain’s authoritarian system of colonial governance, but appropriating it holus-bolus.
That kind of sloganising puts our prosperity at risk. Half a century ago, Britain rarely resisted the demands for independence; one wonders whether she would resist now. Many FCO clerks in London must be muttering to their political masters, “Oh, for God’s sake, let the silly buggers go!”
Cayman has been useful to Britain. As hosts to Britain’s overseas intelligence services, these Islands have for forty years been her eyes and ears in the Caribbean region, and her bankers, too. But there are limits to her patience. From our side of the fence, Britain is crucial to Cayman. She guarantees all our government’s loans, and keeps the interest-rates much lower than they would be otherwise. Even more important: as our colonial power, her presence guarantees that “the rule of law” applies here, safe from any corrupt practices that our local officials might attempt. Well, that’s the theory...
Independence from Britain would kill our tax-haven stone dead, and our prosperity with it. We have a flourishing tourism industry, but it is not nearly enough to keep us in the style to which we have all become accustomed. Without the tax-haven, our Public Revenue would be a quarter of its present level, as would our Public Expenditure, and our population.
Without the tax-haven, we would quickly cease to be the richest little community in the region. We would become indistinguishable from all the other English-speaking Caribbean islands – except for this: that whoever remained here would never forget that they once had it all, and threw it away in a fit of pique. They would be inconsolable for a long, long, time.
At the time, our local rulers had just passed a law exempting them from producing audited government financial statements for the preceding six years. Our colonial masters in London had instructed our Governor to give his formal assent to the Law.
I wrote: If the Governor’s assent didn’t signal Britain’s intention to let Cayman go its own way, nothing will. The disclosure in a lawsuit that our Monetary Authority was no longer monitoring the behaviour of hedge-fund directors constituted another sign... The UK’s meek response to all the open contempt shown to the Governor and his superiors recently, puts the matter beyond all reasonable doubt. In years to come, these won’t be remembered as straws in the wind so much as whole forests blowing away before our eyes.
In light of our recent political shenanigans, it is fair to wonder, again, whether our tax-haven is being set up for destruction. Our present minority government of five elected MLAs and three ex-officio Civil Servants, opposed by the other ten elected MLAs, must try to hang together for the next three months until the scheduled elections.
The recently dismissed Premier and his three MLA cronies seem to be blaming the FCO and its local agents (the Police and the Governor, mainly) for the coup: “Enemies of Cayman!” “British imperialists!” “We will not be told what to do by London!” It all sounds like the slogans of the 1960s, when demagogues led half the British Empire into independence – not abandoning Britain’s authoritarian system of colonial governance, but appropriating it holus-bolus.
That kind of sloganising puts our prosperity at risk. Half a century ago, Britain rarely resisted the demands for independence; one wonders whether she would resist now. Many FCO clerks in London must be muttering to their political masters, “Oh, for God’s sake, let the silly buggers go!”
Cayman has been useful to Britain. As hosts to Britain’s overseas intelligence services, these Islands have for forty years been her eyes and ears in the Caribbean region, and her bankers, too. But there are limits to her patience. From our side of the fence, Britain is crucial to Cayman. She guarantees all our government’s loans, and keeps the interest-rates much lower than they would be otherwise. Even more important: as our colonial power, her presence guarantees that “the rule of law” applies here, safe from any corrupt practices that our local officials might attempt. Well, that’s the theory...
Independence from Britain would kill our tax-haven stone dead, and our prosperity with it. We have a flourishing tourism industry, but it is not nearly enough to keep us in the style to which we have all become accustomed. Without the tax-haven, our Public Revenue would be a quarter of its present level, as would our Public Expenditure, and our population.
Without the tax-haven, we would quickly cease to be the richest little community in the region. We would become indistinguishable from all the other English-speaking Caribbean islands – except for this: that whoever remained here would never forget that they once had it all, and threw it away in a fit of pique. They would be inconsolable for a long, long, time.
Friday, December 21, 2012
Fiscal Cliff
The world’s governments are not coping at all well with their financial crises. Big and small, they are displaying the same incompetence that got them into the mess in the first place. They all borrowed more money than their taxpayers could ever repay – more, even, than their taxpayers’ children and grandchildren could repay.
With no spare money in the kitty, they must renew each loan as it falls due, at whatever interest-rate the creditors ask, or pay it back. Even to pay interest on the loans they must squeeze more money out of their constituents – and reduce the amount spent on government services. The term “fiscal cliff” describes the effect of that combination – each economy lurches from a plateau of prosperity to a chasm of recession: higher government expenditure, less loan-money coming in, and less revenue.
A thousand books have been written on how the world got into this situation: very few on how to get out of it. Bankers without conscience persuaded politicians without morals to borrow money for vanity projects and vote-buying projects, and/or to invest it in new types of securities (“derivatives”) endorsed by crooked rating agencies.
NINJA loans became famous. (N I N J A stood for mortgages granted to borrowers with No Income No Jobs or Assets.) Thousands of rubbish mortgages were diced and sliced and the pieces glued together in the same process by which bits of hooves and skin from slaughterhouse floors become sausages. The rubbish was advertised as Triple-A securities, the same rating as Swiss Government bonds. That’s how bankers became “banksters” – gangster-bankers.
The securities proved worthless. The loans that paid for them could have been defaulted on, but the banksters threatened to cut off all future loans to the borrowing governments, and politicians without morals will never agree to that. So the governments signed contracts to repay the existing loans as they fell due, and ended up in the same place.
Nations that fall off today’s fiscal cliffs will take generations to recover. Infrastructures will decay – Google “Detroit decay” for photos. Private companies will go broke: check the unemployment lines in Greece and Spain. Government services will shrink, except for the military (!). Pension Funds (private and public alike) will fail to cover retirees’ needs. Government employees will join their private-sector fellows on the dole, after it has been reduced to the bare minimum – or below.
How will nations ever climb out of the fiscal chasm, back up the fiscal cliff? There is a way; of course there’s a way. There is always a way. In this case, the way is inflation – maybe even hyper-inflation. But that’s a story for another day. Hyper-inflation is a very drastic solution – like cutting off a person’s gangrenous legs in order to save his life. Check out the Wikipedia entry for hyper-inflation.
Currency notes become worth less and less until they become literally worth-less. At some point some Central Bank invents a replacement currency – a hundred old dollars for one new dollar, say. In 1922 the German government of the day thought about doing this, but wasn’t quite brave enough. Two years later, when German workers were carrying their wages home in wheelbarrows full of near-worthless notes, the government finally authorised the Central Bank to make the switch – and by that time the rate of exchange was set at a trillion old marks for one new mark.
When I was a boy, I once had a German postage-stamp with a face value of fifty billion marks. It was worth a penny in the catalogue. It’s worth twenty-five cents today, with inflation.
With no spare money in the kitty, they must renew each loan as it falls due, at whatever interest-rate the creditors ask, or pay it back. Even to pay interest on the loans they must squeeze more money out of their constituents – and reduce the amount spent on government services. The term “fiscal cliff” describes the effect of that combination – each economy lurches from a plateau of prosperity to a chasm of recession: higher government expenditure, less loan-money coming in, and less revenue.
A thousand books have been written on how the world got into this situation: very few on how to get out of it. Bankers without conscience persuaded politicians without morals to borrow money for vanity projects and vote-buying projects, and/or to invest it in new types of securities (“derivatives”) endorsed by crooked rating agencies.
NINJA loans became famous. (N I N J A stood for mortgages granted to borrowers with No Income No Jobs or Assets.) Thousands of rubbish mortgages were diced and sliced and the pieces glued together in the same process by which bits of hooves and skin from slaughterhouse floors become sausages. The rubbish was advertised as Triple-A securities, the same rating as Swiss Government bonds. That’s how bankers became “banksters” – gangster-bankers.
The securities proved worthless. The loans that paid for them could have been defaulted on, but the banksters threatened to cut off all future loans to the borrowing governments, and politicians without morals will never agree to that. So the governments signed contracts to repay the existing loans as they fell due, and ended up in the same place.
Nations that fall off today’s fiscal cliffs will take generations to recover. Infrastructures will decay – Google “Detroit decay” for photos. Private companies will go broke: check the unemployment lines in Greece and Spain. Government services will shrink, except for the military (!). Pension Funds (private and public alike) will fail to cover retirees’ needs. Government employees will join their private-sector fellows on the dole, after it has been reduced to the bare minimum – or below.
How will nations ever climb out of the fiscal chasm, back up the fiscal cliff? There is a way; of course there’s a way. There is always a way. In this case, the way is inflation – maybe even hyper-inflation. But that’s a story for another day. Hyper-inflation is a very drastic solution – like cutting off a person’s gangrenous legs in order to save his life. Check out the Wikipedia entry for hyper-inflation.
Currency notes become worth less and less until they become literally worth-less. At some point some Central Bank invents a replacement currency – a hundred old dollars for one new dollar, say. In 1922 the German government of the day thought about doing this, but wasn’t quite brave enough. Two years later, when German workers were carrying their wages home in wheelbarrows full of near-worthless notes, the government finally authorised the Central Bank to make the switch – and by that time the rate of exchange was set at a trillion old marks for one new mark.
When I was a boy, I once had a German postage-stamp with a face value of fifty billion marks. It was worth a penny in the catalogue. It’s worth twenty-five cents today, with inflation.
Friday, December 14, 2012
Cayman’s uncertain future
This week our Premier was arrested, and his home and office were searched by the Police Commercial Crimes unit. For the next two months he will be “helping the Police with their enquiries”, as the saying goes. He has not yet been charged with anything, and is refusing to step down. Further, he has declared the British governor and the UK Government his enemies – and therefore Cayman’s enemies.
The anti-British stance is probably just a ploy to garner political support. There is some pro-independence sentiment among the native-born Caymanians, but most of them are fully aware that without Britain their prosperity would vanish. Our Offshore tax-haven – as structured – depends on Britain’s reputation for integrity. Without it these Islands would quickly revert to being “the lawless Caymanas”, as they were called in the bad old days of piracy and freebooting.
Britain is playing its cards close to its chest, for the moment. The most likely next step is to suspend our Constitution (a Mickey Mouse document cobbled together by the local illiterati a few years ago) and to impose direct rule from London, with our Governor administering day-to-day affairs, assisted by a team of helpers flown in from London. That’s what happened to Turks & Caicos in similar circumstances.
The arrest has been a long time coming. After all, it’s been at least a year since the Police announced that McKeeva was under investigation. Our Police and our Prosecution Service are both noted for their incompetence, so it’s quite possible that there will be no proper follow-through. We can only hope that the FCO really is determined to introduce good governance, at last. Good luck to them.
Unfortunately, the FCO itself has little credibility in an anti-corruption context. For the past forty years it has turned the blindest of eyes to endemic crony-corruption. It has allowed The Immigration Monster to flourish as the exploiter-in-chief of indentured migrant workers, especially the lower-paid of them.
In a crony-corruption regime, actual cash-corruption is not all that common. When government contracts at all levels are awarded to friends or family, there is no need for plain brown envelopes to change hands. Mutual back-scratching is what works best.
When government is an ever-expanding empire, the scope for corruption is also ever-expanding. When two-thirds of the workforce are foreigners, and all their Work Permits are issued as directed by political cronies, it is financially risky not to be a crony. That’s our situation here. Crony-government has been an integral part of the Caymanian community since slavery days, so there’s nothing new about it.
The only thing new about the economic environment in which it exists, is the quantity of revenue that flows into the Public Purse each year. In just 45 years or so, a little cowboy tuppenny-ha’penny money-laundry has grown into a hugely successful international financial centre that benefits from the taxes paid by hedge funds and other Offshore investment vehicles. I was working in Bahamas in the late 1960s when my employers were busy in establishing Cayman as a viable alternative to Nassau. I spent a weekend here in 1968. And I remember what an empty shell it was then. Not any more!
What prompts the FCO’s intervention now is the ineptness of our local community leaders’ money-management skills. You’d think that the legislators of one of the world’s most sophisticated financial centres would know how to balance their books – but no. They over-borrowed and over-spent like there was no tomorrow, with scarcely a nod of recognition for the principle of double-entry bookkeeping.
Well, tomorrow has arrived. Britain, the guarantor of all our Public Debt, is asking where all the Revenue went, and is demanding audited Statements of Account. They don’t even know how bad it is, yet.
The anti-British stance is probably just a ploy to garner political support. There is some pro-independence sentiment among the native-born Caymanians, but most of them are fully aware that without Britain their prosperity would vanish. Our Offshore tax-haven – as structured – depends on Britain’s reputation for integrity. Without it these Islands would quickly revert to being “the lawless Caymanas”, as they were called in the bad old days of piracy and freebooting.
Britain is playing its cards close to its chest, for the moment. The most likely next step is to suspend our Constitution (a Mickey Mouse document cobbled together by the local illiterati a few years ago) and to impose direct rule from London, with our Governor administering day-to-day affairs, assisted by a team of helpers flown in from London. That’s what happened to Turks & Caicos in similar circumstances.
The arrest has been a long time coming. After all, it’s been at least a year since the Police announced that McKeeva was under investigation. Our Police and our Prosecution Service are both noted for their incompetence, so it’s quite possible that there will be no proper follow-through. We can only hope that the FCO really is determined to introduce good governance, at last. Good luck to them.
Unfortunately, the FCO itself has little credibility in an anti-corruption context. For the past forty years it has turned the blindest of eyes to endemic crony-corruption. It has allowed The Immigration Monster to flourish as the exploiter-in-chief of indentured migrant workers, especially the lower-paid of them.
In a crony-corruption regime, actual cash-corruption is not all that common. When government contracts at all levels are awarded to friends or family, there is no need for plain brown envelopes to change hands. Mutual back-scratching is what works best.
When government is an ever-expanding empire, the scope for corruption is also ever-expanding. When two-thirds of the workforce are foreigners, and all their Work Permits are issued as directed by political cronies, it is financially risky not to be a crony. That’s our situation here. Crony-government has been an integral part of the Caymanian community since slavery days, so there’s nothing new about it.
The only thing new about the economic environment in which it exists, is the quantity of revenue that flows into the Public Purse each year. In just 45 years or so, a little cowboy tuppenny-ha’penny money-laundry has grown into a hugely successful international financial centre that benefits from the taxes paid by hedge funds and other Offshore investment vehicles. I was working in Bahamas in the late 1960s when my employers were busy in establishing Cayman as a viable alternative to Nassau. I spent a weekend here in 1968. And I remember what an empty shell it was then. Not any more!
What prompts the FCO’s intervention now is the ineptness of our local community leaders’ money-management skills. You’d think that the legislators of one of the world’s most sophisticated financial centres would know how to balance their books – but no. They over-borrowed and over-spent like there was no tomorrow, with scarcely a nod of recognition for the principle of double-entry bookkeeping.
Well, tomorrow has arrived. Britain, the guarantor of all our Public Debt, is asking where all the Revenue went, and is demanding audited Statements of Account. They don’t even know how bad it is, yet.
Tuesday, December 11, 2012
McKeeva arrested
Breaking news this morning is that McKeeva (Cayman's controversial Premier) was arrested at his home at 7 a.m. and is in Police custody. He has not been formally charged, but the arrest relates to accusations of corruption.
At this early stage it’s difficult to predict what effect the arrest will have on Cayman’s Offshore tax-haven sector, on which our prosperity rests. The most likely next step is the suspension of our Constitution and the imposition of direct rule by decree from London via the Governor lasting two or three years. That’s what happened to Turks & Caicos under similar circumstances.
This post is purely an interim report. A proper commentary will follow. The full story is on the CNS website http://www.caymannewsservice.com/ . It will be running hot for the next few days, I expect.
UPDATE 4th January: This interim report was followed by the posts titled Cayman's Uncertain Future and Trouble in Paradise. McKeeva has still not been formally charged, and any criminal trial may be years away. Our political representation will remain uncertain until the general elections scheduled for May, and it is anybody's guess what kind of government we will have after that. The Legislative Assembly will have three extra MLAs - making a total of 18 MLAs for an electorate of 18,000. Each of them draws a salary of over US$100,000 - an egregious extravagance for an Island government hasn't balanced its books for the past umpteen years.
Except for the several tribal loyalties, there is no confidence among the general public - and especially among the tax-haven expats - that the situation will be significantly better after the election. McKeeva is a very clever politician, and few of us would bet the farm against his regaining power sooner or later.
At this early stage it’s difficult to predict what effect the arrest will have on Cayman’s Offshore tax-haven sector, on which our prosperity rests. The most likely next step is the suspension of our Constitution and the imposition of direct rule by decree from London via the Governor lasting two or three years. That’s what happened to Turks & Caicos under similar circumstances.
This post is purely an interim report. A proper commentary will follow. The full story is on the CNS website http://www.caymannewsservice.com/ . It will be running hot for the next few days, I expect.
UPDATE 4th January: This interim report was followed by the posts titled Cayman's Uncertain Future and Trouble in Paradise. McKeeva has still not been formally charged, and any criminal trial may be years away. Our political representation will remain uncertain until the general elections scheduled for May, and it is anybody's guess what kind of government we will have after that. The Legislative Assembly will have three extra MLAs - making a total of 18 MLAs for an electorate of 18,000. Each of them draws a salary of over US$100,000 - an egregious extravagance for an Island government hasn't balanced its books for the past umpteen years.
Except for the several tribal loyalties, there is no confidence among the general public - and especially among the tax-haven expats - that the situation will be significantly better after the election. McKeeva is a very clever politician, and few of us would bet the farm against his regaining power sooner or later.
Tuesday, December 4, 2012
How to buy gold
Most financial pundits recommend that every investment portfolio contain some gold, especially retirement portfolios. I’ve written two blog-posts on the subject. Gold and other currencies, in March this year, gave a brief layman’s report on gold’s role as a yardstick, by which the sustainability of paper currencies can be measured. I imagined a new-born baby being given a $35 gift certificate in 1971 and his twin given a one-ounce gold coin (then worth $35), and I asked which of them would be the more pleased today.
Gold, silver & war, posted in October, gave a brief layman’s report on gold as a store of value and its relationship to paper currencies. All aggressive wars are, and have always been, fought for loot. Wars used to be financed by gold, and repaid in loot that was valued in gold. Today, wars are financed by paper money and repaid in loot (oil, etc) sold for paper money.
What the pundits don’t tell us is what form of gold should be in the retirement portfolios, and where it should be stored. Here is a brief layman’s summary.
1. Gold in the ground – shares in mining companies whose prices are quoted on some major stock exchange. Custody: the share certificates are most conveniently held by the bank or broker that carries out an investor’s instruction to buy; the gold itself stays with the mining company, naturally enough! Risk: the company’s managers might not be good at their jobs, or be honest; nor might their auditors.
(Mining companies customarily sell gold-in-the-ground for the current price, and promise delivery some months ahead – when the price may be much different. That practice partly explains the disconnect between the price-charts of the companies’ shares and of bullion.)
2. Gold in an Exchange Traded Fund (ETF) – units in mutual funds that are traded like shares. Custody: the certificates stay with the bank or broker as per #1 above, and the physical gold stays in the ETF’s vault. There are also ETFs that buy and hold shares in mining companies, and hold those certificates as per #1. Risk: gold-bullion ETFs might not physically possess all the gold they claim to own; some of it might have been lent out to professional speculators who won’t pay it back.
3. Gold in jewellery – self-explanatory. Custody: at home or in an outside safety deposit box. Risk: all that glitters is not 24-carat gold.
4. Gold bars of varying sizes and weights – bought through banks or brokers. Custody: usually at a bank or bullion-storage facility. Either specified numbered bars are identified as belonging to specific owners or a custodian holds an entire inventory of bullion for multiple owners and issues a formal certificate of ownership for each client for the weight held in his name. Risk: all banks and brokers aren’t 24-carat ones.
(Alternatively, one can take personal delivery of bars or coins and bury them in the back yard. The risk is the same as in #3 above. Gold-plated bars of other metals would fool most of us; even experts can’t always tell them apart without actually cutting them open.)
5. Gold coins – as #4 – bought through banks or brokers. Custody: as #3 & #4. Risk: Coins sell above the bullion price, at premiums that vary. Also, coins can be counterfeited, too.
6. Gold “futures” – contracts with other gold-owners to buy very large amounts of bullion, with a good-faith deposit that is only a small percentage of the value of the contract. In effect, it is a bet on the price of gold – a gamble, and not an investment suitable for retirement portfolios.
Most financial pundits suspect that Fort Knox has lent some or all of its gold to speculators who won’t ever pay it back. Yes, even Fort Knox! Who can one trust, these days? There is more risk in custody than in price, in these wicked days.
Gold, silver & war, posted in October, gave a brief layman’s report on gold as a store of value and its relationship to paper currencies. All aggressive wars are, and have always been, fought for loot. Wars used to be financed by gold, and repaid in loot that was valued in gold. Today, wars are financed by paper money and repaid in loot (oil, etc) sold for paper money.
What the pundits don’t tell us is what form of gold should be in the retirement portfolios, and where it should be stored. Here is a brief layman’s summary.
1. Gold in the ground – shares in mining companies whose prices are quoted on some major stock exchange. Custody: the share certificates are most conveniently held by the bank or broker that carries out an investor’s instruction to buy; the gold itself stays with the mining company, naturally enough! Risk: the company’s managers might not be good at their jobs, or be honest; nor might their auditors.
(Mining companies customarily sell gold-in-the-ground for the current price, and promise delivery some months ahead – when the price may be much different. That practice partly explains the disconnect between the price-charts of the companies’ shares and of bullion.)
2. Gold in an Exchange Traded Fund (ETF) – units in mutual funds that are traded like shares. Custody: the certificates stay with the bank or broker as per #1 above, and the physical gold stays in the ETF’s vault. There are also ETFs that buy and hold shares in mining companies, and hold those certificates as per #1. Risk: gold-bullion ETFs might not physically possess all the gold they claim to own; some of it might have been lent out to professional speculators who won’t pay it back.
3. Gold in jewellery – self-explanatory. Custody: at home or in an outside safety deposit box. Risk: all that glitters is not 24-carat gold.
4. Gold bars of varying sizes and weights – bought through banks or brokers. Custody: usually at a bank or bullion-storage facility. Either specified numbered bars are identified as belonging to specific owners or a custodian holds an entire inventory of bullion for multiple owners and issues a formal certificate of ownership for each client for the weight held in his name. Risk: all banks and brokers aren’t 24-carat ones.
(Alternatively, one can take personal delivery of bars or coins and bury them in the back yard. The risk is the same as in #3 above. Gold-plated bars of other metals would fool most of us; even experts can’t always tell them apart without actually cutting them open.)
5. Gold coins – as #4 – bought through banks or brokers. Custody: as #3 & #4. Risk: Coins sell above the bullion price, at premiums that vary. Also, coins can be counterfeited, too.
6. Gold “futures” – contracts with other gold-owners to buy very large amounts of bullion, with a good-faith deposit that is only a small percentage of the value of the contract. In effect, it is a bet on the price of gold – a gamble, and not an investment suitable for retirement portfolios.
Most financial pundits suspect that Fort Knox has lent some or all of its gold to speculators who won’t ever pay it back. Yes, even Fort Knox! Who can one trust, these days? There is more risk in custody than in price, in these wicked days.
Tuesday, November 27, 2012
The Man from Snowy River (Aussie bush life)
In my Town and Country blog-post of
18th December 2011, I noted some of the cultural differences between
townies and country folk, from my own experience. The post was prompted by an
English newspaper report of a speed-castration contest (of lambs, of course; what
else would it be?). Two of the contestants had become sick, and I marvelled
that my father had never gotten sick whenever he pulled lambs’ balls off
with his teeth.
To put food on the table, Dad killed a
sheep every ten days, and we ate mutton three meals a day every day. I remember
the violence of the killing – SAS-style, I guess: head jerked up from behind to
expose the throat to the knife and allow the blood to gush out. The body was
hung upside-down on a hook to let the rest of the blood leak out. In town, we
bought from a butcher. Nowadays, meat is pre-packaged by supermarkets. (And sometimes
it probably isn’t meat at all!)
In towns, dogs are either house-pets or
yard-dogs; pets have no duties except to love their human gods, yard-dogs have
to keep the neighbours awake all day and as much of the night as they can
manage. Country dogs’ terms of employment require them to be slave-drivers –
the slaves being the sheep and cattle belonging to the boss. The same
distinction applies to horses. In towns, they’re pets. In the country, they’re
house-slaves, duty-bound to accompany their masters whenever called upon.
Only once in my life was I allowed to ride
my Dad’s horse. She was a huge beast, who accepted only one master. She shuddered
with shame when I hit the saddle, aged nine and small for my age. Dad held her
head and gently explained the circumstances to her. The dog and I were
deputised to escort a few hundred sheep to the railway siding a few miles away, to
be shipped off to the butcher.
The dog could have done it by itself, and
pretty much did. My control of dogs was severely handicapped by my inability to
whistle. What an embarrassment for a country boy! On this occasion I shouted
instructions, which the dog cheerfully ignored as it went about its familiar
business. I just sat and prayed that Big Bess would forget I was up
there; and maybe she did forget, at that.
If I’d been on my own horse I’d have
cantered up and down the mob pretending to know what I was doing, which would
have mucked up the dog’s agenda. I’d have been no less use if I’d galloped up
and down the road behind us.
Actually, one never did gallop much,
strange to say, because in our part of Australia the land was pock-marked with
depressions large and deep enough to be dangerous to galloping horses. Even
dingo-hunts (adults only) were done at nothing more than a fastish canter.
Occasionally, after school, some of us
would pretend we were The Man From Snowy River and charge headlong through copses
with fallen trees underfoot. That was fun, until Bryan broke his arm trying to
squeeze between two trees that were too close together. The Man From Snowy
River was the hero of our favourite action poem, a role-model for
Australia’s bush horsemen.
Through
the stringy barks and saplings, on the rough and broken ground,
Down the hillside at a racing pace he went;
Down the hillside at a racing pace he went;
And
he never drew the bridle till he landed safe and sound
At the bottom of that terrible descent.
At the bottom of that terrible descent.
It’s an exciting description, and impossible
to recite properly without bending your body to the rhythm of the ride. My Dad
knew all the words, but would never recite it in public. It was an unrealistic
description, anyway. Galloping downhill over fallen trees would be suicide for
both man and horse, on a loose rein.
Tuesday, November 20, 2012
Aiding and abetting adultery in the South Pacific
The New Hebrides (now the independent nation of Vanuatu) was an Anglo-French condominium in the Pacific Ocean – and a Franco-Britannique one called Nouvelles Hebrides, to the French. It had a bizarre constitutional set-up – the result of a strange episode in its history as a European protectorate.
By the late 1800s, most of the islands in the Pacific had fallen under the control of the European empires of the day, plus the USA. The native peoples of Polynesia, Melanesia and Micronesia had no weapons to match those of the Western powers, who simply divvied up the territories among themselves.
France claimed New Caledonia, Britain claimed Fiji. Germany wanted the New Hebrides, but neither Britain nor France wanted a German presence in the region; they also didn’t want the Islands themselves. The logical thing to do would have been to split the entire archipelago down the middle; but logic has never featured strongly in Anglo-French intercourse over the centuries. What they did was agree to run the Islands jointly, as a “condominium”. It was referred to, by one and all, as a pandemonium.
The clerks at the imperial headquarters of the British and French expatriates composed two legal Codes, one for each set in its own language. Expats of other nationalities were obliged to choose which Code they would be bound by. Additionally, there was a Condominium Code, applicable to all residents – British, French, all other foreigners, and all natives.
A fourth collection of rules comprised a Native Code that applied to all natives and all native-white affairs. This was published (as was the Condominium code) in both English and French, by a printer in Montreal. The translations did not always correspond exactly, but that’s life. C’est la vie, in fact.
Finally, there was a fifth set of laws that the natives had to cope with, and that was their own “Custom Law”, analogous to England’s Common Law. It was unwritten, and little known among expats. It didn’t vary much from village to village – although, with seventy Melanesian and four Polynesian languages spoken in the archipelago (none of them written), there existed some scope for disagreement.
When I had nothing better to do at the office, I waded my way through the Islands’ constitutional laws, Custom Law excluded. I was intrigued by one odd law in the Native Code that prescribed six months in prison for the crime of “aiding and abetting adultery”. The mind boggled. Surely there wasn’t a travelling cheer-squad that attended each adulterous mating, that the European powers were trying to abolish, like suttee in India? One expat old-timer explained it to me, amused by my indignation.
Marriage was taken very seriously by the Melanesians, newly converted to Presbyterian Christianity. Unfortunately, boys will be boys, and the more attractive of the young bachelors did not always resist the temptation to seduce married women, when the opportunity arose.
An unfaithful wife would be beaten by her husband; Custom Law allowed that. Her partner in infidelity might be killed by the husband; Custom Law allowed that, too. But the Native Code forbade murder, and it took precedence over Custom Law. How could the murders be stopped?
The chiefs came in a delegation to the European administrators. If the white rulers really wanted to be helpful and stop the killings, would they please amend their Native Code and outlaw adultery? Perhaps it could carry a penalty of six months in pokey, to allow tempers to cool. Well, the administrators would be delighted! However... By legal definition, the lawyers said, “adultery” could only be committed by a married person. Outlawing adultery would catch an erring wife, but not her unmarried paramour.
“Aiding and abetting adultery” was not the most elegant of terms, but it served the purpose.
By the late 1800s, most of the islands in the Pacific had fallen under the control of the European empires of the day, plus the USA. The native peoples of Polynesia, Melanesia and Micronesia had no weapons to match those of the Western powers, who simply divvied up the territories among themselves.
France claimed New Caledonia, Britain claimed Fiji. Germany wanted the New Hebrides, but neither Britain nor France wanted a German presence in the region; they also didn’t want the Islands themselves. The logical thing to do would have been to split the entire archipelago down the middle; but logic has never featured strongly in Anglo-French intercourse over the centuries. What they did was agree to run the Islands jointly, as a “condominium”. It was referred to, by one and all, as a pandemonium.
The clerks at the imperial headquarters of the British and French expatriates composed two legal Codes, one for each set in its own language. Expats of other nationalities were obliged to choose which Code they would be bound by. Additionally, there was a Condominium Code, applicable to all residents – British, French, all other foreigners, and all natives.
A fourth collection of rules comprised a Native Code that applied to all natives and all native-white affairs. This was published (as was the Condominium code) in both English and French, by a printer in Montreal. The translations did not always correspond exactly, but that’s life. C’est la vie, in fact.
Finally, there was a fifth set of laws that the natives had to cope with, and that was their own “Custom Law”, analogous to England’s Common Law. It was unwritten, and little known among expats. It didn’t vary much from village to village – although, with seventy Melanesian and four Polynesian languages spoken in the archipelago (none of them written), there existed some scope for disagreement.
When I had nothing better to do at the office, I waded my way through the Islands’ constitutional laws, Custom Law excluded. I was intrigued by one odd law in the Native Code that prescribed six months in prison for the crime of “aiding and abetting adultery”. The mind boggled. Surely there wasn’t a travelling cheer-squad that attended each adulterous mating, that the European powers were trying to abolish, like suttee in India? One expat old-timer explained it to me, amused by my indignation.
Marriage was taken very seriously by the Melanesians, newly converted to Presbyterian Christianity. Unfortunately, boys will be boys, and the more attractive of the young bachelors did not always resist the temptation to seduce married women, when the opportunity arose.
An unfaithful wife would be beaten by her husband; Custom Law allowed that. Her partner in infidelity might be killed by the husband; Custom Law allowed that, too. But the Native Code forbade murder, and it took precedence over Custom Law. How could the murders be stopped?
The chiefs came in a delegation to the European administrators. If the white rulers really wanted to be helpful and stop the killings, would they please amend their Native Code and outlaw adultery? Perhaps it could carry a penalty of six months in pokey, to allow tempers to cool. Well, the administrators would be delighted! However... By legal definition, the lawyers said, “adultery” could only be committed by a married person. Outlawing adultery would catch an erring wife, but not her unmarried paramour.
“Aiding and abetting adultery” was not the most elegant of terms, but it served the purpose.
Monday, November 12, 2012
Cayman’s political impasse – and its solution
There is a strong desire here to vote out all the present MLAs (Members of the Legislative Assembly) at the next general election. It won’t happen, of course, but it makes for some interesting speculations.
The people we have now comprise two political factions of our sole political force: namely, the unofficial Protectionist Party. The UDP and the PPM are not distinguished by anything that can be called a policy. They differ only in the personalities of their leaders. The only political promises our candidates make are 1) “We will do the same things as our opponents, only better!” and 2) “We will stick it to the expats harder than our opponents would!”
Both factions are fiscally incompetent. Both are in thrall to Cayman’s special-interest lobbies – the beneficiaries of our protectionist and indentured-labour system, and the beneficiaries of our ever-expanding central government.
There are regular calls for independent candidates, not members of the usual gangs of egotists. Those of us with Cayman’s best long-term interests at heart are desperate to persuade businessmen of proven ability and trustworthiness to do their civic duty.
Unfortunately, “trustworthiness” at election time means “can be trusted to protect all native-born Caymanians against better-qualified and better-motivated foreigners, in commerce and the workplace”. The protectionist system that has kept wages low for the unskilled and uneducated, and productivity low for everybody, must continue. That is not up for negotiation with people who would vote as a bloc to protect their permanent affirmative-action program.
“Proven ability”, in prospective candidates for public office, means “proven ability to succeed within the protectionist program”. Sigh. What can you do?
The problem is this. The prospects best qualified to run our Islands’ government include expatriates. Yet the thought of having expats in the Legislature and on Statutory Boards is abhorrent to the bulk of the electorate. It’s not expats’ birthplaces that handicap them: it’s their ancestry.
Individuals born in Cayman of non-Caymanian parents are and always will be regarded as expats; persons born overseas with even one native-Caymanian parent are and always will be regarded as Caymanian. “Real” Caymanians inherit their qualifications, which out-rank all other qualifications. It’s like the Church’s doctrine of apostolic succession.
MLAs must be “of the blood”. In theory, there are plenty of independently minded bloodline-Caymanians who could unseat the present MLAs; but in practice, no there aren’t. Most of the independents have served on government committees or boards whose members are appointed by MLAs. They are thereby tarred with the brush of association with one or other of the present Parties. Government by cronies is our tradition, after all. Very, very few individuals escape such service with their reputations intact.
So here’s the thing. If we rule out all expats as inherently untrustworthy, and all bloodline-Caymanians as compromised, who is left? Nobody. Only the British FCO can help us out of this mess, though I doubt if it will make the effort.
Two years of direct rule from London would allow our system of parliamentary representation to be re-set. During those two years, some responsible and carefully selected long-term immigrants could be encouraged to become public figures by serving on important public committees – appointed by the governor, not by local politicians. Some responsible and carefully selected “non-politicals” among our bloodline Caymanians could be similarly appointed. For them, two years ought to be enough for their past associations to be forgotten, or at least forgiven.
That solution would give us hope. Nothing else will, I fear.
The people we have now comprise two political factions of our sole political force: namely, the unofficial Protectionist Party. The UDP and the PPM are not distinguished by anything that can be called a policy. They differ only in the personalities of their leaders. The only political promises our candidates make are 1) “We will do the same things as our opponents, only better!” and 2) “We will stick it to the expats harder than our opponents would!”
Both factions are fiscally incompetent. Both are in thrall to Cayman’s special-interest lobbies – the beneficiaries of our protectionist and indentured-labour system, and the beneficiaries of our ever-expanding central government.
There are regular calls for independent candidates, not members of the usual gangs of egotists. Those of us with Cayman’s best long-term interests at heart are desperate to persuade businessmen of proven ability and trustworthiness to do their civic duty.
Unfortunately, “trustworthiness” at election time means “can be trusted to protect all native-born Caymanians against better-qualified and better-motivated foreigners, in commerce and the workplace”. The protectionist system that has kept wages low for the unskilled and uneducated, and productivity low for everybody, must continue. That is not up for negotiation with people who would vote as a bloc to protect their permanent affirmative-action program.
“Proven ability”, in prospective candidates for public office, means “proven ability to succeed within the protectionist program”. Sigh. What can you do?
The problem is this. The prospects best qualified to run our Islands’ government include expatriates. Yet the thought of having expats in the Legislature and on Statutory Boards is abhorrent to the bulk of the electorate. It’s not expats’ birthplaces that handicap them: it’s their ancestry.
Individuals born in Cayman of non-Caymanian parents are and always will be regarded as expats; persons born overseas with even one native-Caymanian parent are and always will be regarded as Caymanian. “Real” Caymanians inherit their qualifications, which out-rank all other qualifications. It’s like the Church’s doctrine of apostolic succession.
MLAs must be “of the blood”. In theory, there are plenty of independently minded bloodline-Caymanians who could unseat the present MLAs; but in practice, no there aren’t. Most of the independents have served on government committees or boards whose members are appointed by MLAs. They are thereby tarred with the brush of association with one or other of the present Parties. Government by cronies is our tradition, after all. Very, very few individuals escape such service with their reputations intact.
So here’s the thing. If we rule out all expats as inherently untrustworthy, and all bloodline-Caymanians as compromised, who is left? Nobody. Only the British FCO can help us out of this mess, though I doubt if it will make the effort.
Two years of direct rule from London would allow our system of parliamentary representation to be re-set. During those two years, some responsible and carefully selected long-term immigrants could be encouraged to become public figures by serving on important public committees – appointed by the governor, not by local politicians. Some responsible and carefully selected “non-politicals” among our bloodline Caymanians could be similarly appointed. For them, two years ought to be enough for their past associations to be forgotten, or at least forgiven.
That solution would give us hope. Nothing else will, I fear.
Tuesday, November 6, 2012
Cayman’s friendly expats
The headline in last Friday’s newspaper read Cayman friendliest country in the world. Beneath it, the usual braggadocio and false comparison with countries like China, USA and India that have thousands of times the population and area of our tiny Island. I scoffed at this practice in a post called Apples & Oranges in January 2011, and my comments are still valid.
The report was based on a survey by the HSBC bank of 5300 expats (not visitors) in 100 countries – including dependent territories, apparently. Cayman is “the easiest nation in the world [for expats] to make friends and integrate into the community and its culture”, the survey concluded: and that’s probably correct. Considering that two thirds of the community are expats, making friends and integrating is indeed easy. Most migrants rarely get to interact with the native-born, except individuals.
Several posts on this blog (e.g. House of Cards in September 2011) have reported on the societal schism that exists here, fostered by politicians and our Immigration bureaucracy. Many of the ethnic, native-born, Caymanians resent being outnumbered in their own tiny territory, and resent being indebted to the expat flood for all the recent comforts of life such as air-conditioning and good food.
To appease the natives, the British Foreign & Commonwealth Office (FCO) in London allows them a monopoly of political power with the authority to control the foreign workforce and to exploit the lower-paid unskilled migrants.
If we ever cease to be a British colony, the mutual resentment will catch fire, and end our status as an international financial centre – which will end the prosperity that attracts so many expats. We are in the middle of a minor crisis at the moment, with our governing political party positioning itself to demand independence from Britain – the independence that would destroy us. (See A day late and a dollar short, September 2012.) We could be in deep trouble a few weeks or months from now.
Nevertheless, the HSBC survey’s finding may well be accurate: this is a very friendly place for expats. I would have answered favourably, too, if the Bank had surveyed me. Since most of the population are expats, it is expats who display the friendliness that was reported, and the ease of integration. Socially, the usual national divisions apply, though loosely, and the usual occupational divisions too. There are no racial divisions, as such, or religious ones either, except on Sundays.
We have Jamaicans and other West Indians, Filipinos and Indians from their respective different islands and regions, Latinos from all over Latin America, British and other Europeans, and North Americans galore. Most of the Europeans, Canadians and Americans are middle-class and overpaid, most of the others working-class and underpaid. To a man and woman, they are delighted to be here, and it shows in their cheerfulness and general attitude.
For further information, let me recommend a website called Expat Focus and the first report from Cayman that I wrote in it, called Cayman’s Expats – 57 Varieties and Counting. To find it, the easiest way is to Google “expat focus 57 varieties”. I’ve just done it, and it works!
Last month we had friends staying with us. (Cayman for Visitors, October 2012). Except for Captain Marvin’s sons on the Stingray City tour, they rarely encountered any true-born Caymanians. As for the nationalities, colours, races and accents of the people they did meet during the visit, it’s all a blur to me. Living here, describing an individual by colour or voice often becomes a serious test of memory. Cayman’s expats don’t all look alike, of course; but it does seem that way sometimes.
The report was based on a survey by the HSBC bank of 5300 expats (not visitors) in 100 countries – including dependent territories, apparently. Cayman is “the easiest nation in the world [for expats] to make friends and integrate into the community and its culture”, the survey concluded: and that’s probably correct. Considering that two thirds of the community are expats, making friends and integrating is indeed easy. Most migrants rarely get to interact with the native-born, except individuals.
Several posts on this blog (e.g. House of Cards in September 2011) have reported on the societal schism that exists here, fostered by politicians and our Immigration bureaucracy. Many of the ethnic, native-born, Caymanians resent being outnumbered in their own tiny territory, and resent being indebted to the expat flood for all the recent comforts of life such as air-conditioning and good food.
To appease the natives, the British Foreign & Commonwealth Office (FCO) in London allows them a monopoly of political power with the authority to control the foreign workforce and to exploit the lower-paid unskilled migrants.
If we ever cease to be a British colony, the mutual resentment will catch fire, and end our status as an international financial centre – which will end the prosperity that attracts so many expats. We are in the middle of a minor crisis at the moment, with our governing political party positioning itself to demand independence from Britain – the independence that would destroy us. (See A day late and a dollar short, September 2012.) We could be in deep trouble a few weeks or months from now.
Nevertheless, the HSBC survey’s finding may well be accurate: this is a very friendly place for expats. I would have answered favourably, too, if the Bank had surveyed me. Since most of the population are expats, it is expats who display the friendliness that was reported, and the ease of integration. Socially, the usual national divisions apply, though loosely, and the usual occupational divisions too. There are no racial divisions, as such, or religious ones either, except on Sundays.
We have Jamaicans and other West Indians, Filipinos and Indians from their respective different islands and regions, Latinos from all over Latin America, British and other Europeans, and North Americans galore. Most of the Europeans, Canadians and Americans are middle-class and overpaid, most of the others working-class and underpaid. To a man and woman, they are delighted to be here, and it shows in their cheerfulness and general attitude.
For further information, let me recommend a website called Expat Focus and the first report from Cayman that I wrote in it, called Cayman’s Expats – 57 Varieties and Counting. To find it, the easiest way is to Google “expat focus 57 varieties”. I’ve just done it, and it works!
Last month we had friends staying with us. (Cayman for Visitors, October 2012). Except for Captain Marvin’s sons on the Stingray City tour, they rarely encountered any true-born Caymanians. As for the nationalities, colours, races and accents of the people they did meet during the visit, it’s all a blur to me. Living here, describing an individual by colour or voice often becomes a serious test of memory. Cayman’s expats don’t all look alike, of course; but it does seem that way sometimes.
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