Life’s two certainties (being sold out by the Swiss may be one of them)
As yesterday’s New York Times reports. Lost in the universal focus on the credit crisis, we have seen a somewhat troubling change taking place in Switzerland’s longtime bank secrecy laws.
Switzerland’s tax authorities, under pressure from a growing United States investigation into the Swiss bank giant UBS, are expected to hand over confidential data on wealthy American clients of UBS to the Justice Department, two people briefed on the matter said Tuesday.
The move would represent a significant shift in Switzerland’s banking secrecy laws, whose tradition dates to the Middle Ages.
Swiss neutrality (which is irritable to some) and stability has enabled its banking sector to become a source of prosperity for the nation. Reasonable exceptions to their secrecy laws for actual criminal activity should be allowed, but forcing banks to share private information on its clients merely for ’suspicion’ of tax evasion (something often disputable due to folks scrounging through the complicated tax code to reduce liability) seems quite dangerous. Especially since Swiss tax law has a different view of tax evasion than the U.S.
Swiss law makes disclosure of client data or names a crime unless the Swiss authorities think that the client has committed a serious crime, like money laundering or tax fraud. Unlike in the United States, Switzerland does not consider tax evasion to be a crime, though both countries have largely similar definitions of tax fraud.
And the Swiss are capitulating! In direct contradiction to their own legal view of tax evasion. Even though some may argue that this is moot because the U.S. does not consider a financial transaction as something beholden to privacy rights, the Swiss do–and besides, the U.S. view is wrong. A person’s financial records should be considered as sacred as their medical records.
Every citizen should maintain a healthy distrust of its government, after all, we have seen federal bureaucracies used to abuse the rights of citizens in many ways by many different regimes. If the government has the power to search through someone’s private financial dealings in another country solely on suspicion, where does our right to privacy stand? In terms of what constitutes law-breaking in one country as opposed to another, can the U.S. impose its view of a crime on another sovereign nation? Here, the U.S. Justice Department wants to see foreign bank records of thousands for the suspicion of committing an act NOT considered a crime in the country in which those records are held (I know, it happens).
Under pressure in recent months from the Justice Department, Switzerland’s justice ministry, taxing authority and banking regulator have adopted the view that some American clients of UBS may have committed tax fraud.
Note what this says, “Under pressure…[from the DOJ],” Swiss officials “have adopted the view…” that sees, contrary to their own law, these folks as criminals–because the DOJ ’suspects’ that they are.
So where does this lead? If the DOJ can pressure a foreign authority into ignoring its own legal views, where does this leave the U.S. on other issues, namely environmental and other laws that seek to usurp national sovereignty (there are a few)? What’s worse, under U.S. tax law, a U.S. citizen can still be taxed on income he earns outside of its borders and cannot renounce his citizenship solely to avoid taxes (how they’d find out who knows)–which is in my opinion just wrong–leaving you with the IRS and DOJ chasing down every red cent of your money they feel entitled to. Add to that some of the invasive banking provisions of the PATRIOT Act, and you have further intrusion into people’s lives and business by a government that knows no boundary. This is not a “pro-rich” or pro-tax cheat view, but a pro-civil rights and sovereignty view.
-GH
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Why the Bailout Won’t Help Money Markets
It will actually divert money to the Treasury from commercial lending. Naked Capitalism has more, concluding:
When Paulson dumps out his 700 billion in treasuries it’s going to be at the short end. That will drive up rates for short-term treasuries. This will obviously draw even *more* deposits into the treasury MMs. That means even less in the commercial MMs and thus less working credit, the eventual commercial MM product. Hence Paulson’s billions remove working capital by competing for the deposits that could get used to make working capital loans. That 700 billion is going to go to fairly long-term mortgage securities. So Paulson’s billions divert credit from working capital to long-term mortgages - from where it’s most needed to where it’s most wasted.
Even if the giveaway adequately props up the banks, which I doubt, they still can’t make working capital loans, because the raw material they used (commercial MM deposits) will be desperately short.
I think it’s very telling that in two days of hearings and two weeks of discussion we have yet to see *any* detailed mechanism for how Paulson’s plan will increase the supply of, say, inventory loans. It’s not that every economist in the world is an idiot, it’s just not going to help. I think people have fallen into the fallacy that if it costs a lot it must be valuable. Paulson’s plan falls into the category of very expensive way to hurt ourselves.
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Bailout fails — Move on to Mark-to-Market Reform
Oh, Happy Day! And it certainly is for all those who value freedom, responsibility and the true free market in which individuals are free to profit from their risks on the condition that they don’t stick the rest of us with their losses.
It’s not hyperbole to say the Republican and Democratic backbenchers who defied both parties’ leadership to defeat this $700 billion package of Wall Street socialism literally saved America. Whatever their reasons, this defeat (or rather victory for freedom), means that America is much less likely to turn into France, Venezuela, or the old Soviet Union, as this bailout/nationalization package would have set us on the road to becoming.
Several great speeches on the Right and Left were given. Democrats Brad Sherman of California and Earl Blumenauer of Oregon gave powerful speeches against corporate giveaways. And conservative leaders of the Republican Study Committee — such as Jeb Hensarling, Jeff Flake, Mike Pence, and of course Ron Paul — spoke about how government intervention was largely the cause of this predicament, but the bailout would doom arguments for the free market form here on out. The idea of the government making this kind of outlay to high-flying risk takers just didn’t jibe with members, and certainly not with the American people.
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BREAKING NEWS: Bailout Vote Fails in House
The House of Representatives just voted down the $700 billion corporate finance bailout, despite earlier urging from President Bush to push the measure through. Look for in depth analysis from our very own John Berlau and the rest of the policy team as the day progresses. Read CEI’s roundup of the continuing finance crisis (and sign up for email updates) here.
NEW: John Berlau responds (and speaks!) in reaction to today’s vote. Updated post and audio clip here.
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Lehman bankruptcy: In capitalism, failure is not a dirty word
My reaction to Lehman Brothers’ declaring of Chapter 11 bankruptcy and the refusal of Treasury Secretary Hank Paulson and others to take extraordinary Bear Stearns-like measures for the government to prop the firm up can be summed up in three words: It’s about time!
Business failure is not only a permissible outcome of capitalism, it’s a necessary one. As the great economist Joseph Schumpeter has written, the process of “creative destruction” is essential for the market to function. For innovation to flourish and the standard of living of the populace to improve, the market must be free to reward success and punish failure.
As Schumpeter wrote in his 1942 book Capitalism, Socialism and Democracy, there is an ongoing “process of industrial mutation — if I may use that biological term — that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in, and what every capitalist concern has got to live in.”
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