July 2005 Selected Offshore News Clips

(Especially noteworthy articles’ headings highlighted in gold.)

WHAT INDEPENDENCE?

According to the Columbia professor being interviewed on National Public Radio this weekend, freedom is an amorphous concept that is primarily a state of mind. This would appear to be at significant odds with the principle of unalienable rights to life, liberty and the pursuit of happiness envisioned by Thomas Jefferson in the Declaration of Independence, as well as the list of specific freedoms delineated in the Bill of Rights.

The right to life has long been under assault, as the culture of death has successfully placed the aged, the helpless and the unborn on the list of those defined as inhuman and therefore legal to kill. The last vestiges of a right to private property have been eliminated, as the recent Kelo decision makes all property officially communal, held only at the seigniorial whim of the local council. The right to bear arms has been limited, too – while it has not yet been destroyed completely, it is obvious that an attack on it will soon be forthcoming.

White House spokesman Scott McClellan’s statement that Americans “obviously have to respect the decisions of the Supreme Court” are downright Toryish. After all, the founders of this country rejected the notion that they had to respect the decisions of the English Parliament and King George’s ministers, for they had decided that they were going to be a free people. But considering that President Bush, as an owner of Major League Baseball’s Texas Rangers, was the beneficiary of a pre-Kelo land seizure himself, what other position could his spokesman possibly take? As McClellan said, “the president has made his views clear when it comes to private property rights.”

There is always an inherent conflict between government and freedom. Nearly every act of government, almost every law and regulation that is imposed from above, is intended to limit freedom. What conservatives must understand is that it is not always possible to be a fine, upstanding, law-abiding citizen and be a free man at the same time. In fact, for most of human history, it has been impossible. The American revolutionaries were lawbreakers of the worst kind, for they were directly challenging those who were their rightful masters in the eyes of the law. And yet even today, few would argue that their disobedience was both just and right. The question of justice turns on the point of whether government – on all levels – has overstepped its lawful bounds. For if the laws of government have passed those limits, they are not law, but mere dictatorial assertions.

The genius of America was its independence. As that independence has been systematically reduced over the years, so too has its competitive advantage over other, less free, nations declined. The best and brightest have been leaving the country for years, and the American brain drain is accelerating as the Internet has made it possible to run a software company from the Bahamas or an import-export operation from Ireland, where the taxes are lower and there is no danger of losing your home to a Wal-Mart. In summary, this is not a day to celebrate American independence. It is, instead, a day to mourn America’s passing and pray for its eventual rebirth.

U.K. ID CARD BATTLE HEATS UP

Britain’s House of Commons last week moved forward with plans to create a new national ID card, but a sharp reversal in support for the controversial measure signals a rocky road ahead. British lawmakers voted in favor of the bill on Tuesday by an unexpectedly thin margin of 314-283. At the last minute, some members of Prime Minister Tony Blair’s Labour Party revolted against the cards, which would carry fingerprints and iris scans of cardholders and be backed by a national database containing extensive personal information.

The bill still has to pass a number of stages and final votes, but the preliminary vote, along with a report released last week by the London School of Economics showing that the plan would cost two to three times what the government promised, makes some activists hopeful that the plan might be altered drastically or abandoned altogether. “This was the first test of Tony Blair’s new government,” said Gus Hosein, a senior fellow at Privacy International, a civil liberties advocacy group, as well as a fellow in the Department of Information Systems at the London School of Economics. “It was critical that they win this and they went hard. And instead the majority (lead) was halved. Clearly the government is going to have to start listening (to criticism) where it wasn’t before.” A Home Office spokeswoman said it is too early to comment on the bill’s future success.

The bill still has to go to committee, where it likely will be amended, before a final reading and vote in the House of Commons as well as the House of Lords, the higher chamber of parliament. But local papers referred to the Labour Party defection as “the first real test” of Blair’s new electoral mandate after his party’s re-election on May 5th. If the bill is made law, it will be the first time Britain has had national ID cards since just after World War II, when the government abolished them. The bill, introduced to combat terrorism, illegal immigration and fraud, proposes an ambitious and complex plan that, if approved, could be a model for other countries.

CHINA ARRIVES: UNOCAL BID SIGN OF MORE TO COME

The Chinese are coming. That is the consensus among investment bankers and private equity players who are closely watching China National Offshore Oil Corp.’s $18.5 billion takeover bid for Los Angeles-based Unocal Corp. So far, there has been just a trickle of Chinese companies scouring Pacific shores for U.S. companies and brands. Yet the Unocal bid is widely seen as a harbinger of more aggressive direct investment in the U.S. from mainland China, where $691 million in foreign currency reserves is waiting to be put to work.

“They have to do something with their money,” said Steve Dollinger, managing director of Crimson Investments, a Palo Alto private equity firm that builds manufacturing plants in Asia for U.S. firms. Most Chinese firms operate offshore subsidiaries in Hong Kong that are flush with dollars and euros.

Southern California already has benefited from personal Chinese wealth being plowed into real estate assets. Bankers see a handful of local industries as ripe for Chinese buyouts: the textile and garment industries, automotive components suppliers and energy companies. But they also say a number of factors will make for a slow build-up, rather than a rush to buy. Among them: language barriers, cultural differences and distances that make purchasing a company, rather than a passive asset like real estate, more difficult from afar.

WE MUST ALL SNEER AND SCOFF AT THE CORRUPT, CRUEL JACKASSES OF AFRICA

Pity poisons Africa when it stifles criticism. As leaders of the G8 gather to discuss aid, they should be pitiless in their resolve to make pariahs of black Africa’s cruel and rotten governments. A ruling class of greedy men, sheltered by a popular culture of passivity in the face of political swagger, is suffocating the people of Africa and neither tears nor money nor rock music should be our first response. Rage, not rock, is called for. This is no counsel of despair. If Africa were hopeless, why even write about it? If the leaders in Africa were all wicked and the led all feeble, then we might as well write off their debts, drop food on them from aeroplanes and turn away.

But the truth is otherwise. Everywhere on the continent there are people making a go of things. Everywhere there is a struggle between energetic self-improvement and an enervating corruption. There are good people and good ideas in African politics, fighting for survival. Across much of the continent the structures of administration are still in place and leaderships know how to work them – too often to line their own pockets. Chains of command and supply, the collection and exchange of information, the imposition of order and taxation may be shaky but they exist. It is not all like Congo where anarchy rules. Most of Africa is not anarchy – it is tyranny. But tyranny is not a bad place to start. Tyranny can be mended. Kleptocracy can be disinfected.

JUDGE HALTS HONG KONG CORRUPTION HEARING DUE TO ILLEGAL WIRETAPPING

An Independent Commission Against Corruption bribery case came to a spectacular end when a District Court judge stayed proceedings against four defendants on the grounds the agency had illegally taped privileged legal conversations in a manner that was “a degradation of the justice system.” Deputy Judge Julia Livesey condemned the ICAC for violating Basic Law provisions which safeguard privacy and legal privilege and called on legislators to curb some powers of the anti-graft body to prevent a recurrence.

“Legislators also need to introduce the regulations required for lawful covert recording as was originally envisaged under the Basic Law with all due haste, so that the guarding of the guards is not just left to the Judiciary,” she said. “[The ICAC] must make sure they do not overstep the bounds of what is right in their enthusiasm for ridding Hong Kong of corruption.”

The four defendants were charged with two counts of falsifying accounts and two counts of offering bribes to a public servant. Nearly HK$2 million was alleged to have been offered to Housing Authority officers in order to win contracts. Proceedings were stayed against all four when Livesey said the defendants were not able to have a fair trial because the means by which evidence was gathered “set a dangerous precedent.” However, two defendants had their bail extended to face trial on false accounting charges.

Lawmaker Audrey Eu praised the ruling. Hong Kong is fortunate that “we have judges who would be able to speak robustly when they see what they regard as a flagrant breach of rights by enforcement agencies,” she said. Eu called on the government to respect the ruling. “It’s unfortunate that this administration somehow doesn’t seem to respect judicial decisions as much as they ought to and sometime you get the feeling if the judgment is not convenient they think of ways to get round it,” she said. Livesey was harsh in her ruling, calling the ICAC’s behavior so “unworthy or shameful that it would be an affront to the public conscience to allow the trial to proceed.”

MORPHING THE GESTAPO

There I was – a bratty, independent kid, with a twisted sense of humor who enjoyed doing illegal things: Entrance into anyplace at all displaying the “No Dogs or Jews Allowed” signs was fun, even though it was clearly understood that – if discovered – neither dog nor Jew would ever be seen again, regardless of age. The best game of all, though, was diving into the Berlin Olympic Pool, and, hiding behind my Teutonic looks, smiling innocently at the guards. But those men were just ordinary cops. When it came to the Gestapo, it was best to quickly and quietly disappear. Oh yes. The Gestapo meant business.

When Benjamin Franklin said, “Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety,” he was right on! In 1930’s Germany, “safety” meant “power”. The popular sentiment was, “Power will keep us safe. After all, we are the good people, the ones who want to clear the planet earth of all who hinder progress, of all who stand in the way of our good intentions – and the more power our Empire has, the safer we will be, the safer we will make the world.” The national slogan, shouted joyfully in the streets, was, after all, “Heute Deutschland, Morgen Die Welt” (“Today Germany, Tomorrow the World”).

The Germans, then, willingly gave up essential liberty to purchase that safety of power, and the Nazis did an excellent job of facilitating that. They invented the Gestapo, which was an acronym for Geheime Staats Polizei (Secret State Police). And the Gestapo was formidable, indeed. Black, form-fitting uniform jackets, complete with epaulets; black breeches tucked into jack-boots polished to such perfection that they gleamed in all weather; black hats with visors so glossy, they shone in the dark. Oh, yes, these men were quite rightfully feared.

In 1930’s Germany, it was completely proper, fitting and expected for persons to turn in to the authorities anyone even remotely suspected of in some way subverting the government. Neither a suspicion nor an informant was too small: Children over the age of eight, all of whom were members of the Hitler Jugend if they were boys and Bund Deutscher Mädchen if they were girls, were expected to turn in family members – including parents – if they were overheard speaking disrespectfully or seditiously of Hitler or any members of his administration. These kids were trained and propagandized to simply put the “safety” of their great country over the “liberty” of their families. Thus, if even one’s own kids were gleeful informants, can you imagine what the neighbors were?

When someone was turned in, the Gestapo showed up to do the honors. No warrant was needed. Time of day or night was irrelevant. Folks simply got hauled off, and, once taken away, never returned. Gestapo interrogation methods were simple: Torture them until they talk. Most of the time – even if these prisoners had absolutely nothing of value to report – they eventually broke under the torture and simply blurted out whatever they thought the inquisitors wanted to hear. Once they had spoken, off they went to their deaths at the local extermination camp, and if they chose not to speak, well, then the torture continued till they died in the interrogation chamber.

Now, here we are in 2005, in the United States of America, busily trading essential liberties for the safety of power. We, too, understand that “safety” means “power”…

HOUSING SPECULATION IS MORE RAMPANT THAN YOU THINK

As the “debate” over the existence of a housing bubble intensifies, both sides are likely to be proven wrong when it comes to predictions for housing declines should the bubble burst. Most bubble advocates believe that rather than collapsing, housing prices will either rise more slowly, fall slightly, or simply stop going up, thereby allowing stagnant incomes to catch up with surging prices. However, a closer look at the facts reveals it is far more likely to burst with as big a bang as did the NASDAQ five years ago.

One of the main arguments (more wishful thinking than reasoned perspective) against a precipitous drop is that homeowners will not quickly unload houses in the same manner stock investors bailed out of losing equity positions. For example, Treasury Secretary John Snow recently argued against the existence of a housing bubble by claiming, “houses are not like stocks, pork bellies, or gold, and are therefore not prone to bubbles.” He claimed that unlike buyers of those other assets, Americans are buying houses because everyone knows that houses are great investments. Setting aside the self-serving nature of his dismissal of even the possibility of a housing bubble, his comments ironically provided some of the most convincing evidence in support of a housing bubble that I have ever heard.

One reason few expect housing prices to collapse is the mentality that homeowners need to live somewhere and as such will be reluctant to sell their residences. This argument ignores that fact that so many of today’s homebuyers do not occupy their properties as primary residences, and that relatively attractive rentals provide homeowners with viable, none-ownership alternatives for shelter. However, a more in-depth analysis reveals that contrary to prevailing rhetoric, housing speculation is not only rampant, but also far more pervasive than the data suggests, perhaps even more widespread than was the case with tech stocks during the NASDAQ bubble.

According to a recent study by the National Association of Realtors, 23% of homebuyers specifically identified their purchases as investments. Another 13% identified their purchases as vacation properties. Since rental yields are so low, those buying properties as investments are by definition speculating. However, buyers of vacation homes, are also speculating, as inherent in the decision to buy such properties is the expectation of price appreciation. Absent such a forecast, it is far more economical to vacation in hotels. Further, as owners of rental or vacation properties do not occupy their properties as principal residences, a change in sentiment as to future price appreciation could easily cause such owners to sell, or worse, to walk away from mortgages in circumstances of negative equity.

However, the mere fact that owners occupy their houses as principal residences does not necessarily remove such properties from the category of speculative investments. For example, 58% of recent California homebuyers financed their purchases using ARMs (with percentages in pricier counties exceeding 80%). The primary reason given to justify such mortgages was owners’ intentions to resell the properties in relatively short periods of time. Such buying is clearly speculative, regardless of the speculator’s intention to occupy the property. Given high transaction costs and low relative rents available in markets where such mortgages are most pervasive, absent the expectation of rapid price appreciation, such short-term buyers would clearly be better off renting.

Also, the fact that so many buyers are using interest-only, or negative-amortization mortgages, suggests even greater degrees of speculation. Since none of the monthly payments on such loans reduce the principal of the mortgages, buyers utilizing them are no better off than renters. However, since they must also pay property taxes and maintenance, interest only buyers actually get the worst of both worlds. They rent property from lenders, yet get stuck with all the headaches associated with ownership. The only way interest-only buyers build equity is though price appreciation. In other words, they are the ultimate speculators.

The reasons for such unbridled, rampant speculation are clear. According to the Economist, a recent survey showed that the Los Angeles homebuyers expected an average 22% annual home price appreciation over the next 10 years. So intoxicating is the expected payoff from home ownership, that the incentives to lie to qualify for mortgages have never been greater, and, as it so conveniently happens, easier to do. Should we be amazed that when reckless lenders offer buyers can’t lose bets, with huge expected payoffs, that so many want a piece of the action? The fact that the majority of today’s homebuyers are actually speculators in disguise, suggests that when the trend turns, prices will drop precipitously.

FEDS SAY BANKS OVERREPORT DATA

The government’s use of the Patriot Act to force financial institutions to report suspicious transactions has resulted in an avalanche of unwanted paper and computer tapes that officials who collect the data say is undermining efforts to detect money flowing to terrorists. The government’s money-laundering crackdown in the past two years has ensnared a handful of banks that were fined for failing to report suspect transactions. This has prompted executives to file more “suspicious-activity reports” – the majority of which involve activity that is not suspicious at all, government and banking officials say.

This defensive filing by banks is clogging the database of the Treasury Department’s Financial Crimes Enforcement Network, which collects the reports, say current and former officials of the network, also known as FinCEN. In 2004, 689,414 suspicious-activity reports were filed, up from 507,217 in 2003 and 281,373 in 2002, FinCEN data show. In the first half of this year, roughly 400,000 reports were filed. The volume indicates that banks’ tactic for avoiding regulatory scrutiny is “to file more reports, regardless of whether the conduct or transaction identified is suspicious,” said FinCEN Director William J. Fox in an April report. These defensive filings “have little value, degrade the valuable reports in the database and implicate privacy concerns.” Law-enforcement and intelligence officials can get detailed information about individuals from the database without having to request and justify subpoenas.

Banks have been required to file suspicious-activity reports since a 1992 amendment to the Bank Secrecy Act aimed at catching money launderers and drug smugglers. The Patriot Act expanded the requirement to include looking for signs of terrorist financial activity and increased banks’ responsibility for monitoring their customers. It also extended suspicious-activity reporting requirements to brokerage firms, casinos and firms that cash checks or transfer money overseas. Money-laundering laws also require banks to file currency-transaction reports on any deposit or withdrawal of more than $10,000 in cash. They file about 13.6 million of these reports a year, a number that has stayed consistent because these reports do not involve judgment calls.

LIVING WELL ON PRACTICALLY NOTHING

Tired of being one of the rats in the rat race? Are you trying to take a different path than mindless consumerism and debt? Author Edward Romney has some excellent techniques on how to achieve independence on an ordinary income. Living Well on Practically Nothing is radically different than most financial and self-help books, newsletters or infomercials. No get-rich-quick fantasies, Texas-sized “guru” egos, or risky speculations using OPM (other people’s money, or borrowing) are promoted or suggested.

As might be expected from someone who grew up in Depression-era New Hampshire, Romney is full of old-time Yankee common sense, thrift and wisdom. While that does not sound like the basis for an interesting 21st century book, the utter scarcity of those traits in modern society makes Romney’s advice and observations leap off the page and into the reader’s mind. Buy a modest, affordable house (sometimes for $50,000 or less) in an age of “bigger is better” and a monstrous real estate bubble? It can still be done in a number of states. Living on a boat in coastal areas or an old school bus in the desert southwest are other ways to survive on a minimum amount of cash.

What kind of person would drive a 10-year old car when they can get a no-money-down payment plan from just about any car dealer? Why spend big bucks for designer clothes when the same items are available for a dollar or two at thrift shops? If this makes sense to you, then Living Well on Practically Nothing will be one book that will be read and re-examined many times. As Romney points out in his wise old uncle/curmudgeonly style, following the herd only leads to debt slavery and a gnawing dissatisfaction with life. While some of Romney’s suggestions are admittedly offbeat and not practical for most folks, the book is a very solid piece of outside-the-box thinking and sensible counsel.

THE LOGIC OF SUICIDE TERRORISM: IT’S THE OCCUPATION, NOT THE FUNDAMENTALISM

The central fact is that overwhelmingly suicide-terrorist attacks are not driven by religion as much as they are by a clear strategic objective: to compel modern democracies to withdraw military forces from the territory that the terrorists view as their homeland. From Lebanon to Sri Lanka to Chechnya to Kashmir to the West Bank, every major suicide-terrorist campaign – over 95% of all the incidents – has had as its central objective to compel a democratic state to withdraw.

Since suicide terrorism is mainly a response to foreign occupation and not Islamic fundamentalism, the use of heavy military force to transform Muslim societies over there, if you would, is only likely to increase the number of suicide terrorists coming at us. The central motive for anti-American terrorism, suicide terrorism, and catastrophic terrorism is response to foreign occupation, the presence of our troops. The longer our forces stay on the ground in the Arabian Peninsula, the greater the risk of the next 9/11, whether that is a suicide attack, a nuclear attack, or a biological attack.

THE ASYMMETRICAL RHETORIC OF WAR AND PEACE

Rhetoric is the technique of verbal persuasion. Those of us who favor limited civil government and extensive self-government like to think that logic is on our side. The problem is, rhetoric is not. Rhetoric mobilizes emotion. Its primary goal is to produce an emotional response that in turn produces a specific action. Those of us who write direct-response copy know from years of measurable responses to our ads that emotion sells. Logic is there to justify the emotional commitment that the copywriter’s copy produces in the reader. Here is the problem facing those who favor limited civil government and extensive self-government: personal responsibility is a difficult sell. From the day that Adam blamed Eve, and Eve blamed the serpent, mankind has been in a fruitless quest to shift blame and avoid personal responsibility for failure.

It takes long chains of reasoning to defend the free market as a means of coordination. Most people cannot follow these long chains of reasoning. Adam Smith invoked the rhetorical image of the invisible hand. That was an effective tactic. It worked because Western intellectuals in the mid-eighteenth century associated this image with providence. The problem was that Smith’s image failed to persuade intellectual socialists, who appeared soon after The Wealth of Nations appeared. They had abandoned the idea of providence. Smith’s image failed to persuade them. They looked instead for an institutional replacement for the non-existent Deist god of the Scottish Enlightenment. They found it in the state: the visible hand.

It took two centuries for the popularity of the image of the visible hand to fade. It took the visible failure of the Soviet Union to convince most Western intellectuals that the visible hand of central planning could not be relied on to deliver the goods. The Soviet Union’s visible hand had always been arthritic, but the USSR projected military power and imposed systematic domestic violence. Most Western intellectuals respect visible power above everything else. They are still unable to follow long chains of economic reasoning, but they have looked at what China has done under the free markets and what socialism did for Russia, and they finally have concluded that the free market does work like an invisible hand. The logic of the free market has not persuaded them. The visible results have persuaded them.

The case for peace is mostly logical. The case for war is mostly rhetorical. So, men keep going to war. Sin has a more ready market than righteousness. Then what offers hope? Reality. The visible hand of war, like the visible hand of central planning, eventually produces widespread losses. Eventually, someone says, “Let them eat rhetoric.” The caloric content of rhetoric is nil. When the rhetoric of the sacred no longer extends to military funerals, the visible hand of war is getting close to the end of its popularity. Swords are not yet being converted into ploughshares, but the politicians who favored war with their rhetoric are beginning to resemble Damocles.

CHINESE FIRMS PONDER OVERSEAS INVESTMENT RULES

Chinese companies with plans to list their assets indirectly overseas have been left steaming after the foreign exchange watchdog issued two notices earlier this year. All of the parties whose interests may be affected have joined in heated discussions and a desperate search for answers to questions raised by the two documents. According to the two notices, published respectively in January and April, the State Administration of Foreign Exchange (SAFE) will be more active in checking out what many insiders call “roundtrip investments”.

To enjoy tax breaks and other preferential treatment available only to foreign investors, many Chinese citizens have registered companies overseas, mostly in tax havens such as the British Virgin Islands and Cayman Islands, and then invested in China through the overseas-incorporated firms. In recent years, offshore companies have played an important role in many listing schemes. These overseas companies, which take over the assets of companies in China, become vehicles that may be listed on foreign bourses to raise funds.

According to the notices, “roundtrip investments”, including mergers and acquisitions that form a crucial part of listing schemes, will be subject to SAFE approval. Officials and supporters of the move said it is aimed mainly at stopping investors from enjoying unfair tax breaks. The decision is also meant to prevent managers of State-owned companies from transferring State firms’ assets to overseas-incorporated companies they personally control. In addition, the step will also be helpful in the fight against money laundering, corruption among officials and financial criminals’ attempts to move assets out of China, supporters of the plan said. But opponents say rules announced in the two notices make it highly unlikely roundtrip investors will be granted approval.

DEMOLISHING SHAKY TAX SHELTERS

New York Attorney General Eliot Spitzer may get all the press, but the Justice Department and IRS have reason to strut, too. The two have amassed an impressive enforcement record against businesses and the individuals and advisers who transformed sketchy tax shelters into business-as-usual in the late 1990s. In June, the IRS and DoJ were successful against a 3rd major accounting giant, when KPMG admitted “unlawful conduct”. And since 2000, the IRS has collected $3.5 billion from about 1,200 taxpayers who invested in just one kind of shelter. “We have changed the landscape,” says IRS Commissioner Mark Everson.

Thanks to the shelter crackdown, mainstream firms seem to be steering clear of the sometimes bizarre schemes that flourished at even reputable outfits in the late 1990s and early 2000s, industry observers say. Enriched by the bull market, the wealthy fell for elaborate deals that were short on economic value and designed solely to create paper losses to offset taxable gains. “No one is selling the kind of junk that was being sold in 1999,” says Joseph Bankman, a Stanford Law School professor and taxation expert. “The market has pretty much dried up.”

Of course, tax management – the legal kind that helps lower tax bills through planning and investment – certainly has not gone away. The tax-services bazaar has expanded into a wider set of providers – from law firms to Wall Street and insurers, which are happy to help well-heeled companies and individuals to lighten their tax loads. And certainly, the tax-advice business has not gone away, even as it spreads beyond the Big Four and other accounting firms. Major law firms increasingly have gotten into the act, since giants KPMG, Ernst & Young International, and PricewaterhouseCoopers were sullied in 2003 investigations spearheaded by Congress. Still, under intensified legal and enforcement pressures, the market for minimizing taxes may now splinter.

No matter who is offering the help, taxpayers who want to ease a tax burden now must make doubly sure their efforts will pass muster with the IRS. Though pressed for resources, the agency continues to pursue tax evaders and lately has been particularly attacking misuses of charitable organizations. One scheme now vexing the IRS involves individual donors who set up charities that they control … which appear primarily to benefit the donors. In another scheme, taxpayers donate easement rights to historic home facades to preservation outfits and then claim deductions, even though local zoning may bar the homeowner from making any changes.

RFID FOES FIND RIGHTEOUS ALLY

Privacy advocate Katherine Albrecht, an opponent of the use of radio tags on consumer goods and in ID documents, is a woman any X-Files fan could love. She is youthful-looking and attractive, with fair skin and cherry-blonde hair. A former schoolteacher, Albrecht also has a master’s degree from Harvard, where she is completing a doctoral degree. Albrecht is suspicious of the government and big business. She has been an electrifying guest on Coast to Coast AM, the cult radio show featuring talk about aliens, ghosts, conspiracies and cryptozoology. As director of the consumer privacy group Caspian, Albrecht is a darling of the mainstream news media too. In hundreds of interviews, in a list of publications that includes Business Week and Times of London, she has warned of privacy risks posed by RFID tags, the radio devices that retailers plan to use as a replacement for bar-code labels.

Albrecht fears that retailers will match the data emitted by the tags with their customers’ information, turning each tag into a potential tracking beacon. She also suspects the government will want access to the retailers’ RFID databases. But one aspect of Albrecht’s anti-RFID crusade has been attracting a lot of attention from other privacy groups: her religious beliefs.

Albrecht does not often discuss her religious views with reporters. But she believes that RFID technology may be part of the fulfillment of the Mark of the Beast prophesied in the Book of Revelation. Other privacy rights advocates want Albrecht to help them connect with Christians who believe that RFID tags – tiny chips that emit serial numbers – are the Mark of the Beast. Many of those Christians believe humans one day will be compelled to bear a mark on their heads or wrists, to engage in the buying and selling of goods. Bill Scannell, a privacy advocate, and Lee Tien, senior staff attorney at the Electronic Frontier Foundation, are among those who have talked to Albrecht about reaching out to Christians who take parts of the Bible literally.

CELL PHONE RECORDS FOR SALE

They are not just after your credit card or Social Security numbers. Fueled by the ease of online commerce, snoops are on the trail of other personal information, too. One of the hottest markets: records of phone calls, especially from cell phones. A tool long used by law enforcement and private investigators to help locate criminals or debt-skippers, phone records are a part of the sea of personal data routinely bought and sold online in an Internet-driven, I-can-find-out-anything-about-you world. Legal experts say many of the methods for acquiring such information are illegal, but they receive scant attention from authorities.

Think your mate is cheating? For $110, Locatecell.com will provide you with the outgoing calls from his or her cell phone for the last billing cycle, up to 100 calls. All you need to supply is the name, address and the number for the phone you want to trace. Order online, and get results within hours. Carlos Anderson, a licensed private investigator in Florida, offers a similar service for $165, for all major telephone carriers. “This report provides all the calls with dates, times, and duration on the billing statement,” according to Anderson’s Web site, which adds, “Incoming Calls and Call Location are provided if available.” Learning who someone talked to on the phone cannot enable the kind of financial fraud made easier when a Social Security or credit card number is purloined. Instead, privacy advocates say, the intrusion is more personal.

WHO IS WATCHING THE “NO FLY” WATCH LIST?

Heading for Oakland from Seattle to see my grandkids last week, the Alaska Airline check-in machine refused to give me a boarding pass. Directed to the ticket counter, I gave the agent my driver’s license and watched her punch keys at her computer. Frowning, she told me that my name was on the national terrorist No Fly Watch List and that I had to be specially cleared to board a plane. Any plane. Then she disappeared with my license for ten minutes, returning with a boarding pass and a written notice from the Transportation Security Administration (TSA) confirming that my name was on a list of persons “who posed, or were suspected of posing, a threat to civil aviation or national security.” No one could tell me more than that. The computer was certain.

Back home from Oakland, I called the TSA 800 number, where I rode a merry-go-round of pleasant recorded voices until I gave up. Turning to the TSA website, I downloaded a Passenger Identity Verification Form that would assist the TSA in “assessing” my situation if I sent it in with a package of certified documents attesting to who I was. I collected all this stuff and sent it in. Another 20 minutes on the phone to the TSA uncovered no live human being at all, let alone one who would tell me what I had presumably done to get on The List. Searching my own mind for possible reasons, I have been more and more puzzled. I used to work on national security issues myself for the State Department and I know how dangerous our country’s opponents can be. To the dismay of many of my more progressive friends, I have given the Feds the benefit of the doubt on homeland security. I tend to dismiss conspiracy theories as nonsense and I take my shoes off for the airport screeners with a smile.

I am embarrassed that it took my own ox being gored for me to see the threat posed by the Administration’s current restricting of civil liberties. I am being accused of a serious – even treasonous – criminal intent by a faceless bureaucracy, with no chance (that I can find) to refute any errors or false charges. My ability to earn a living is threatened – I speak on civic action and leadership all over the world, including recently at the U.S. Air Force Academy. Plane travel is key to my livelihood. According to a recent MSNBC piece, thousands of Americans are having similar experiences. And this is not Chile under Pinochet. It is America. My country and yours.

I know what I will do. If my name is not removed completely from the Watch List in 45 days I will use every resource I have got to challenge the government of a country that I love and have served. In all the press about identity theft, I find myself railing at having my identity as a patriot stolen – by my own government. This must not stand.

EU EXTORTIONISTS

Imagine you own a successful business, and you have a much larger and less efficient competitor. Your inefficient competitor has demanded you make payments to him or he will pressure your suppliers to stop doing business with you. I have just described classic criminal extortion, as now conducted by some governments in the European Union. In the above example, substitute France, Germany and Italy for the “inefficient competitor”; smaller, low tax jurisdictions for the “successful business”; global financial institutions for “suppliers”; and coerced taxes and information for “payments”. Now you begin to understand what is going on.

On July 1, the controversial European tax savings directive took effect. This requires 25 EU members and 15 other countries and independent territories to institute an automatic information exchange system. This would require financial institutions to report to the citizen’s home country any interest earned outside that country. Or countries may withhold taxes on interest income at a rate that will rise to 35%. Yet, June 30, the day before the directive became effective, the EU Commission had the unmitigated gall to announce it would try by amendment to make the directive even more onerous on the signers and to extend it to jurisdictions that have not signed on, like Singapore and Hong Kong. This, again, proves paying blackmailers only whets their appetites.

SECRECY IS LIFTED IN SOME TAX COURT TRIALS

Burton W. Kanter, one of the nation’s most prominent tax lawyers, spent a career pushing the limits of the tax laws. He used creative tax planning to finance such movies as One Flew Over the Cuckoo’s Nest and The Rocky Horror Picture Show. He pioneered the use of foreign trusts to reduce taxes. He lectured for decades on his creative tax structures at the University of Chicago Law School and wrote a regular column in The Journal of Taxation. In 1994, the I.R.S. accused Mr. Kanter and two other prominent businessmen of creating an elaborate scheme to commit tax fraud, and it challenged tax returns from the three men for the 1970’s and 1980’s.

The case is still unresolved, and Mr. Kanter is dead, but his case has become much more than a dispute involving a few taxpayers. The case has radically changed the way the U.S. Tax Court – the place where individuals and companies can dispute their tax bills – will hear and decide some cases. Last week, the tax court announced that it would end a 20-year-old practice of keeping secret reports prepared by its hearing judges, known as special trial judges. The court said it was making the change because of a Supreme Court ruling in March that criticized the tax court’s secrecy and ordered the release of the report in Mr. Kanter’s case.

The Kanter report was released at the end of May, and it caused a stir among tax lawyers. It was strikingly different from the final opinion in the Kanter case, even though the front page of the opinion stated that the court “agrees with and adopts the opinion of the special trial judge.” In fact, the special trial judge’s report found that there was not enough evidence that the three men had committed tax fraud, whereas the final court opinion said they had. “This is going to fundamentally change how these cases are heard by special trial judges,” said Norman R. Williams, an assistant professor of administrative law at the Willamette University College of Law. “The Kanter case was obviously the precipitating and, I think, exclusive factor that generated this rule change.”

The tax court is the only place where taxpayers can contest I.R.S. assessments before having to pay them. There are 19 regular judges of the court, appointed to 15-year terms by the president, and a handful of special trial judges, hired by the chief judge of the court, who regularly travel to 77 cities to hear claims. Many cases before the court involve small amounts and can be decided by either type of judge. But every so often, a special trial judge tries a case that he is not allowed to decide because of the large sums of money involved – at least $50,000. In those cases, the special trial judge submits a recommendation to a senior judge for review and approval. “The tax court is seen as a place that a taxpayer ought to be able to go and get a fair shake, and the secrecy here, and the outcome in these cases, does raise the question as to whether they’re getting a fair shake,” said Alan B. Morrison, a senior lecturer at Stanford Law School, who wrote a supporting brief for the three taxpayers in the Supreme Court case. The court’s secrecy, “confirmed now by a major change in a decision, is a big deal, and it’s not right,” he said.

FEW ARE CONVICTED ON TERROR CHARGES. U.S. OFTEN PROSECUTES LESSER CRIMES

Last month, President Bush stepped to a lectern at the Ohio State Highway Patrol Academy in Columbus to urge renewal of the USA Patriot Act and to boast of the government’s success in prosecuting terrorists. Flanked by Attorney General Alberto R. Gonzales, Bush said that “federal terrorism investigations have resulted in charges against more than 400 suspects, and more than half of those charged have been convicted.” Those statistics have been used repeatedly by Bush and other administration officials, including Gonzales and his predecessor, John Ashcroft, to characterize the government’s efforts against terrorism. But the numbers are misleading at best.

A Washington Post analysis of the Justice Department’s list of terrorism prosecutions shows that 39 people – not 200 – have been convicted of crimes related to terrorism or national security. Most of the others were convicted of relatively minor crimes such as making false statements and violating immigration law – and had nothing to do with terrorism, the analysis shows. Overall, the median sentence was just 11 months.

Taken as a whole, the data indicate that identifying terrorists in the U.S. has been less successful than the government has often suggested. The statistics provide little support for the suggestion that authorities have discovered and prosecuted hundreds of terrorists. In fact, among all the people charged as a result of terrorism investigations in the three years after the 9/11, attacks, The Post found no demonstrated connection to terrorism or terrorist groups for 180 of them.

WHEN THE BILLS COME DUE, THEN WHAT?

Thanks to rock-bottom interest rates and easy ways to borrow, consumers have been on an all-out spending spree for several years. Now, though, there are signs that the bills may be piling up too high. The portion of Americans’ disposable income devoted to paying off debt hit a record high recently, even though interest rates have stayed at record lows. That could put a financial squeeze on many households if and when long-term interest rates finally start to go up. U.S. consumers are more vulnerable than ever to rate increases because they have taken on more adjustable-rate debt in recent years – meaning monthly payments fluctuate when interest rates change.

Nearly half of all consumer debt and 26% of all mortgage debt is now adjustable, estimates Joe Abate, senior economist at Lehman Brothers. That is a stark change from the early 1980s when nearly all debt had fixed rates. Other estimates peg adjustable-rate debt at closer to 20% of all consumer debt. And recent data suggest the debt burden on households is growing heavier, despite low interest rates. The “debt service ratio”, the Federal Reserve’s estimate of the ratio of debt payments to after-tax income, hit 13.4% in the first quarter of this year, an all-time high since the Fed began tracking it in 1980. The financial obligations ratio, which adds automobile lease and rent payments, homeowners insurance and property-tax payments to the debt service ratio, was 18.45% last quarter, near the record high of 18.84% in late 2002.

Overall, U.S. consumers now owe roughly $11 trillion, nearly double what they owed a decade ago. The vast majority of that debt growth came from people taking out big mortgages and tapping their escalating home equity. Total household debt grew 11.2% in 2004, the largest year-to-year increase since 1986. “We’re still in the midst of this consumer debt binge,” says Kathy Bostjancic, U.S. senior economist at Merrill Lynch. As long as the housing boom continues, “it’s going to give consumers a false sense of security.”

Here is the impact rising rates can have on household finances: A family with a 30-year adjustable-rate mortgage with a 5% interest rate would see its monthly payment jump from $1,074 to $1,468 – a 37% leap – if mortgage rates rose to 8%. Couple this with rises in other debt payments such as credit cards, home-equity loans and such, and households may struggle to pay all the bills each month. The rise in payments due could be exacerbated if job growth and incomes do not keep pace. For consumers, this means it is high time to make a serious dent in their debts, especially those with adjustable-rate debts such as many mortgages, home-equity loans and credit cards. While it may not be realistic to pay off some debts entirely (easier said than done), borrowers can at least make more than the minimum payments each month – and cut back or stop buying on credit.

Much of the debt spree reflects unusual market trends in recent years, particularly the housing boom. Even as the U.S. economy sputtered and jobs fizzled in 2001 and 2002, consumers continued to borrow and spend as they did during the raging 1990s bull market. But as home prices surged and interest rates hit record lows, consumers took out bigger mortgages and started tapping their escalating home equity like a credit card. U.S. regulators kept interest rates low to keep the economy chugging. “It was a good strategy in that we needed something to boost the economy in the economic downturn,” says Dean Baker, founder of the Washington think tank Center for Economic and Policy Research. “But it sets us up for an even worse crash when housing” cools. “In the long term, we’ll probably regret it.”

What is more, consumers’ attitude about debt is changing, says Robert D. Manning, a finance professor at Rochester Institute of Technology. While older generations are more debt-averse and cut spending during economic downturns, younger generations rely on debt for spending money. “What we’re seeing here is really a deferral of the financial responsibility and consequences,” Mr. Manning says. “We may be heading into a very gut-wrenching period.”

SECURITY PROFESSIONALS SEE MIND-READING, WIRELESS TECHNOLOGY AS KEY TO SECTOR’S FUTURE

What if you had committed the perfect crime? It is the year 2020, and in a brilliant heist, you have managed to steal the infamous Hope diamond. The police suspected you all along – they have even brought you in for questioning – but the diamond has been safely hidden away, and the FBI has no leads on its location. Your slimy attorney assures you that they have no evidence and will be forced to release you in a matter of moments. You smile arrogantly at the police detective. It looks as though you are going to make a clean getaway.

But the detective only smiles back and slowly dons a pair of mysterious-looking glasses. Strangely enough, he asks you to recite your name. As soon as the words “John Doe” escape your lips, he slaps a pair of handcuffs on your wrists and escorts you to the prison to be arraigned on charges of theft. Chillingly enough, he instantly knows about the safe deposit box in New Zealand where the diamond is tucked away and, what is more, he now has the combination that only you knew about. It is almost as if he can read your mind. That is because he can. It is just one of many developments analysts predict will shake the future of security. It might sound like the plot of a fast-action sci-fi flick, but the mind-reading concept already is being applied.

YOUR COMPUTER’S STEALTH IDENTITY THIEF

Next time you are online, it might be worthwhile to consider the dangers of aimless surfing. Every time you visit a Web site or open an attachment in your e-mail, you could be downloading a spy into your computer. The “spy” is known as a keylogger – an invisible software program that identity thieves can use to track your online activity. And even if you are careful, it is probably impossible to detect if a keylogger is recording information like your credit card number or bank account password. “You won’t know it’s there, you won’t see your machine slow down, you won’t see anything unusual,” said Vincent Weafer, director of security with the digital security firm Symantec. “It can just silently watch every keystroke you type in … as if they’re standing over your shoulder.”

At least a third of online crimes can now be traced to keylogging. Part of the reason for this is that the programs are legal to obtain and the crime is relatively easy to commit. Typing “keylogger” into a simple Internet search engine returns multiple programs that are perfectly legal to buy and install. Many parents use keylogging technology to check up on the Web sites children are visiting, and some businesses use it to monitor employee activity. But in the hands of a hacker looking to steal your financial information, keyloggers are very dangerous. And as more Americans turn home computers into personal banking and bill-paying centers, the chances for identity theft grow by the day.

Experts say the most basic safety rule is to carefully monitor what is downloaded onto your computer and which sites your are visiting. Brand name sites of major banks and retailers are usually relatively safe, they say. But responding to spam e-mails or downloading free software from unfamiliar sites leave you open to potential hacking. The following are other tips to help protect yourself against key logging, spyware and other computer viruses.

PACIFIC PARADISE LOST AS JOB-SEEKING ISLANDERS MIGRATE EN MASSE

The future of three of the Pacific’s smallest countries is under threat as their inhabitants seek new lives elsewhere. The tiny nations of Niue and Tokelau are losing people at such a rate that their viability has been cast in serious doubt. The neighboring Cook Islands, although larger, have also been drastically depleted by migration. All three are former British colonies but have close historical links with New Zealand and their inhabitants are automatically granted New Zealand passports. Although their homelands are regarded by many as enviable tropical idylls, a dire lack of job opportunities has propelled thousands of islanders to opt for a better life abroad. The population of Niue, which means “Behold the Coconut”, is now just 1,200, down from 4,000 when the island was granted self-government 30 years ago. In contrast, 18,000 Niueans live in New Zealand, 1,500 miles to the south-west. Tokelau is in a similarly precarious position – just 1,500 people now call the archipelago home while 6,000 of their compatriots have moved to New Zealand.

In the neighboring Cook Islands, named after the explorer Captain James Cook, the population stands at around 15,000, but nearly four times that many have migrated to New Zealand and Australia. A study by the Secretariat of the Pacific Community, a regional development body, shows that the population of Niue and the Cooks is continuing to decline while that of Tokelau is stagnant. Tucked up beside the International Date Line, all three are suffering from critical shortages of people aged between 15 and 24, the age group which normally propels economic growth, the secretariat reported. “Not only are they the future labor force, they are the people who will produce the next generation,” said Arthur Jorari, a population expert from the secretariat. “Once people have tasted life in New Zealand, it’s very hard to attract them back.”

An official headcount of Niue’s population last year was hushed up, reportedly because it showed the population had dipped as low as 1,000 – barely more than the 840 inhabitants of the Vatican, the world’s smallest state by population. Despite this, Niue’s Prime Minister, Young Vivian, is upbeat about the future. The island’s 20-member legislative council is to embark on a concerted effort to lure Niueans back from New Zealand by boosting farming and fisheries. There are plans to develop organic farming on Niue in the hope of exporting fruit and vegetables to New Zealand.

BUYING REAL ESTATE IN ANOTHER COUNTRY: THE LAST GREAT NON-REPORTABLE INVESTMENT IDEA?

As we progress into the 21st Century, one theme that seems to a common one among the so-called modern industrialized welfare states is a new aggressiveness towards worldwide taxation of citizens. In the case of the US, it has been the situation for some time now that the US tax authorities claim the right to tax U.S. Citizens on worldwide income regardless of where they are living and working. They even go so far to claim the right to continue taxing a citizen after that citizen may have even renounced US citizenship (and procured another in the process presumably). Death does not give you an escape, as the U.S. claims the right to tax the estate of U.S. citizens as well. Europeans on the other hand have it a bit easier in that they can declare themselves legally non-resident in their former country (while retaining citizenship) and opt out of the tax system accordingly. However, with that said, we know that the EU certainly has a Savings Tax Directive designed to collect interest from bank accounts across borders, that are owned by EU citizens.

In any event, many of these tax collection issues center around investment or banking accounts owned by citizens in another country. However, it is very interesting to note that real estate ownership is not reported, is not required to be reported and is a non taxable asset for Americans or Europeans in terms of any worldwide taxation reporting initiatives (unless you happen to have rental income and are a U.S. citizen, in which case Uncle Sam claims the right to pick your pocket, which is another matter for another day). So, for those people that very concerned about following the tax reporting regulations to the word, owning an asset such as real estate in another country may be the answer. In fact, apart from the idea of moving funds offshore to buy real estate (which is perfectly legal to do and does not invoke any sort of tax liability to do so), there are also a number of social, economic and other benefits to consider as well.

Let us put our long-term rational thinking caps on for a moment. If the U.S. and Europe have experienced explosive double-digit gains in the housing markets (a boom, if you will), is it perhaps time for some profit taking? If you do believe that there is a debt and leverage problem affiliated with the housing market in these places as well, then where will this lead socially and economically? The final question is, depending of course how you answered the first two questions – Where do you go? The surprising answer for some might be … those very countries where credit is strict and housing equity in the hands of the owners and not the bankers. For many people, the equity in their current home is the bulk of their wealth or savings. So, it stands to reason, the opportunity exists to tap into that wealth and buy a home, apartment or small farm in Argentina, Brazil, Dominican Republic, Ecuador and a host of other places where the climate is good year round, real estate prices are not overblown AND whereby perhaps the opportunity exists to draw a tax-free income from the left over funds. So, we started our discussion with the idea that buying real estate abroad may be one of the few legal non-reportable wealth transfer opportunities left (for Americans especially). However, the benefits extend far beyond just that.

PLACES TO LIVE IN THE WORLD: EMERGING ALTERNATIVES

The advent of fast Internet communication and inexpensive air travel makes it easier to turn any far-flung paradise into a permanent home. Which places in the world have the most to offer? The perfect place to live or retire, of course depends on your idea of perfection. I am taking a different approach for this article. Instead of giving an overview of the better-known and increasingly-popular expatriate destinations around the world (Mexico, Costa Rica, Belize, Panama, Nicaragua, Ecuador, France, Spain, Portugal, Italy, etc.), I have decided to introduce you to 7 locales you probably do not know much about. All offer affordability and abundant recreational and cultural opportunities.

THOUGHTS ON OFF-SHORE INVESTING (PART 2)

It certainly takes a special person to be interested in international ventures. Many, Americans in particular, have been institutionalized since birth through uninformed societal influence and bombastic, self-aggrandizing arrogance to believe that everything outside the borders of the U.S. is tragically uncivilized, as if the rest of the world exists in the background of a Feed the Children commercial. Armed with inept geographical ignorance, they pass woeful judgment on what 98% of the rest of the world calls “home”. These are precisely the people who are satisfied with a 2% return of their U.S. savings accounts (and losing a third of it to the tax man).

For the rest of us, there is literally a whole world of opportunity out there. In Part 1 we briefly discussed some general off-shore investment concepts, including deposit accounts, foreign exchange, and real estate. Given the amount of responses I received, I thought it beneficial to reiterate a few key points.

Five key advantages of offshore investing.

The “offshore” world is a world where you can achieve greater profits … greater privacy … greater asset protection … and greater protection against unanticipated events than you can domestically. Let me tell you about what may be the single most significant reason to invest offshore. Profits!

END OF THE U.S.-CHINA HONEYMOON

America’s grievances with China mounted this quarter, signaling a likely end to the post- September 11 honeymoon in China-U.S. relations and the beginning of a rocky phase. On a range of trade and economic issues, the Bush administration adopted a harsher stance, increasing pressure on Beijing to appreciate its currency to fend off criticism from Congress and domestic groups that blame China for stealing U.S. jobs and unfairly creating a massive trade surplus with the U.S.

Trade officials began taking action to curtail the flood of Chinese textiles and punish China for widespread violations of intellectual property rights. A takeover bid for Unocal Corporation by the PRC’s state-owned China National Offshore Oil Company (CNOOC) raised cries in some quarters that Beijing’s offer was part of a long-term national plan to gain strategic advantage over the U.S. Washington leaned harder on Beijing to apply economic and diplomatic pressure on North Korea to rejoin the six-party talks aimed at eliminating its nuclear weapons programs. U.S. officials openly declared that they hold China largely responsible for reining in the nuclear ambitions of its formerly “close as lips and teeth” ally, North Korea. China’s military buildup also came under sharper criticism. Mindful of the benefits to the U.S. of cooperation with China where the two countries’ interests overlap and the dangers of engaging in full-blown strategic competition with China, President George W Bush and his cabinet members attempted to keep the bilateral relationship on an even keel, while urging Chinese leaders to modify their policies to make them more compatible with US national interests.

Are U.S.-China ties headed for retrogression? It is premature to predict a downward slide, but current trends are on balance more negative than positive. Opportunities will be presented in the second half of the year that, if actively seized, could put the relationship on a more positive trajectory. The list of thorny international issues on which the U.S. and China are on opposing sides or are partially at odds keeps growing: UN reform, U.S. presence in Iraq, Iran’s nuclear programs, Uzbekistan’s crackdown, East Asian regionalism, the Proliferation Security Initiative, genocide in Sudan, North Korea’s nuclear programs, the U.S.-Japan alliance, Taiwan, and the militarization of space. Summits and other high-level meetings will provide a chance to inject new momentum into the bilateral relationship.

CRACKS IN THE IRS CRACK DOWN

Chalk up another win for IRS Commissioner Mark W. Everson’s drive to boost tax enforcement. On July 11 the IRS announced that 95 executives had agreed to pay taxes – plus interest and penalties – on $500 million in stock option income they diverted into a complex tax shelter. On top of that, the agency said it has collected $4 billion from 1,300 individuals who used another scheme. Great numbers … for now. But Everson’s crackdown could soon hit its limits. The assault on abusive shelters marketed by big accounting and financial firms has driven the shelter biz underground, making the next generation of schemers much tougher to root out. With an $85 billion surge in federal revenues, pressure for tougher enforcement could ease. And the agency remains haunted by its own history. Congress, which traded on lurid tales of jack-booted and incompetent auditors in the 1990s, is slashing President Bush’s request for an 8% boost in IRS enforcement funds in half.

Everson, who has headed the agency since 2003, says he is “disappointed that Congress has not fully funded the enforcement we’ve asked for in recent years.” Yet he insists his tactics are working. The IRS has boosted its enforcement ranks by 800 since 2003, bringing the total to 9,800. “We’ve got a lot more resources than we had,” Everson says. Maybe, but a decade ago the IRS had 14,000 agents looking for abuses. Its diminished force of tax cops is another sign that there is less than meets the eye to this crackdown. While audit counts have risen from rock-bottom, they are still far below 1990s rates. According to the Government Accountability Office, only about 1% of individuals are audited – half the rate of a decade ago. Also falling short are audits of partnerships and Subchapter S corporations, structures that are popular with shelter creators. In 2004, the IRS audited only 2.2 of every 1,000 returns filed by these outfits, according to Syracuse University’s Transactional Records Access Clearinghouse [TRAC], which follows IRS enforcement. “The IRS is always going to be behind the eight ball,” says Ronald A. Pearlman, a former Assistant Treasury Secretary for tax policy. “They don’t have the numbers, and they never will.”

While abusive tax shelters are a top enforcement priority, the IRS still misses many scams. The IRS Oversight Board, an independent panel created by Congress, reports that in 2004 the agency pursued only 18% of known cases of abusive tax shelters and failed to collect at least $447 million, in part because it cannot afford to battle more miscreant taxpayers in court. And negligence penalties against corporations have plummeted from 1,234 a decade ago to just 25 in 2004, according to TRAC. Give the agency credit for ending the days when national accounting firms and white-shoe law firms sold abusive shelters like so much Tupperware. But as scamsters go underground and their deals get more complex, the IRS is going to have to work a lot harder to keep its enforcement drive from stalling.

TOP TEN REASONS EVERYONE SHOULD FEAR THE TRANSIT SEARCHES IN NEW YORK CITY

1.) I is starting small. 2.) It began this way at the airports. 3.) According to the courts, you consent to being searched by flying – and now riding. (I kid you not.) 4.) The searches purport to be random, but cops are picking on “suspicious” folks. 5.) It is spreading like wildfire. 6.) NYC officials have been scheming about this for 3-1/2 years, but they were waiting for the right moment to spring it on us. (Yo, guys, those plans for the camps: have you ordered the razor-wire yet?) 7.) It has nothing to do with security. 8.) Your fellow citizens think it is dandy. 9.) Contraband will get you arrested. 10.) Larry D. Hiibel, Petitioner v. Sixth Judicial District Court of Nevada, Humboldt County, et al. This case, decided last summer by the Supreme Court, held that citizens must identify themselves to cops. Refusal can result in arrest.

At some point, Our Rulers will revoke the “freedom” to leave the transit system rather than be searched. And searching will spread to streetcorners. If one consents to being frisked by riding in planes and busses, one consents as well by stepping onto a sidewalk. Those who do not cooperate, who complain or hesitate or perhaps do not raise their hands overhead as quickly as ordered, will immediately rouse suspicion. Names will be demanded and compared against lists of “protestors”. It will not be difficult to join those lists. Writing letters critical of Our Rulers to one’s congressman or a newspaper editor will be enough. Having written one probably will be too – computers have long memories. And we all know the patience police states extend to dissidents. Are you scared yet?

SWISS HIDE THEIR WEALTH UNDER A BUSHEL

There are no fewer than 185,000 dollar millionaires living in Switzerland today, according to consultants Capgemini and investment bank Merrill Lynch. In percentage terms, the number translates into well over 2% of the population with personal assets (excluding primary residential property) worth at least SFr1.2 million. However, the study also highlights an interesting social paradox. If the mainstream media are a good guide to what people really think, then “excessive” management salaries are one of the country’s hottest social issues. But there is an apparent dearth of public interest in the huge number of Swiss who are just “plain rich”.

So, where is all the money? A first-time visitor to Switzerland would certainly register many of the obvious signs of an affluent nation, but there is little of the so-called vulgar pomp that in many countries signals the presence of extreme wealth. The privacy principle seems to extend well beyond banking, for instance to the world of property – Lake Zurich’s Gold Coast is dotted with beautiful and extravagant villas, but it is a labor of Hercules to find out who they actually belong to.

The Swiss attitude to wealth is well illustrated by an anecdote from legendary Swiss banker Hans Bär, co-founder of the country’s largest private bank, Julius Bär. In his recent autobiography, Bär tells the story of how his family deliberately bought two identical limousines, in order to give the neighbours the impression that they only had one. A hangover from Switzerland’s Calvinist past? Either way, it’s hardly a story you’d expect to hear about any of the Beverley Hills “elite”. While many Swiss may still prefer to hide their wealth under a bushel, they are less hesitant when it comes to making sure they hang on to it. Basel University economics professor Silvio Borner says the level of accumulated wealth in Switzerland, particularly among the elderly, is one reason why the country finds it so hard to push through economic reforms.

DUBAI’S FUTURE PROMISES EXCESS, SIN

As your jet starts its descent, you are glued to your window. The scene below is astonishing: a 24-square-mile archipelago of coral-colored islands in the shape of an almost finished puzzle of the world. In the shallow green waters between continents, the sunken shapes of the Pyramids of Giza and the Roman Colosseum are clearly visible. In the distance are three other large island groups configured as palms within crescents and planted with high-rise resorts, amusement parks, and a thousand mansions built on stilts over the water. The palms are connected by causeways to a Miami-like beachfront chockablock with full of mega-hotels, apartment high-rises and yacht marinas. As the plane slowly banks toward the desert mainland, you gasp at the even more improbable vision ahead. Out of a chrome forest of skyscrapers (nearly a dozen taller than 1,000 feet) soars a new Tower of Babel. It is an impossible one-half mile high, the equivalent of the Empire State Building stacked on top of itself.

Welcome to paradise – the Persian Gulf city-state of Dubai in 2010. After Shanghai (population: 15 million), Dubai (population: 1.5 million) is the world’s biggest building site, an emerging dreamworld of conspicuous consumption and what locals dub “supreme lifestyles”. Dozens of outlandish mega-projects are actually under construction or will soon leave the drawing boards. Under the enlightened despotism of its crown prince and chief executive officer, 56-year-old Sheikh Mohammed bin Rashid al-Maktoum, the Rhode Island-size Emirate of Dubai has become the new global icon of imagineered urbanism. The coastal desert has become a huge circuit board into which the elite of transnational engineering firms and retail developers are invited to plug in high-tech clusters, entertainment zones, artificial islands, “cities within cities” – whatever is the latest fad in urban capitalism.

Sheikh Mo’s architectural megalomania, although reminiscent of Albert Speer and his patron, is not irrational. Having “learned from Las Vegas”, he understands that if Dubai wants to become the luxury-consumer paradise of the Middle East and South Asia (its officially defined home market of 1.6 billion), it must ceaselessly strive for excess. From this standpoint, the city’s monstrous caricature of futurism is simply shrewd marketing. Moreover, Dubai can count on the peak-oil epoch to cover the costs of these hyperboles. Al Qaeda and the war on terrorism deserve some of the credit for this boom. Since the Sept. 11 attacks, many Middle Eastern investors, fearing possible lawsuits or sanctions, have pulled up stakes in the West. According to Salman bin Dasmal of Dubai Holdings, the Saudis alone have repatriated 1/3 of their $1 trillion overseas portfolio. The sheikhs are bringing it back home, and last year, the Saudis were believed to have plowed at least $7 billion into Dubai’s sand castles.

Paradise, however, has its dark corners. Dubai, any of the hipper guidebooks will advise, is the Bangkok of the Middle East, populated with thousands of Russian, Armenian, Indian and Iranian prostitutes controlled by various transnational gangs and mafias. (The city, conveniently, is also a world center for money laundering, with an estimated 10% of real estate changing hands in cash-only transactions.) The sheikh himself has been personally linked to Dubai’s most scandalous vice, child slavery. Sheikh Mo, who fancies himself a prophet of modernization, likes to impress visitors with clever proverbs and heavy aphorisms. A favorite is “Anyone who does not attempt to change the future will stay a captive of the past.” Yet the future that he is building in Dubai – to the applause of billionaires and transnational corporations everywhere – looks like nothing so much as a nightmare of the past: Walt Disney meets Albert Speer on the shores of Araby.

LEFT VS. RIGHT FUTILITY

During the Abbeville Institute’s week-long summer school a few weeks ago a student asked the Institute’s founder and director, Professor Don Livingston of Emory University, a question about the composition of “The Left” and “The Right” in American politics today. He wanted Professor Livingston’s opinion of the prospects for the success of “The Right” to get the country to move in a more conservative direction. Professor Livingston correctly pointed out that the premise of the question was all wrong. The premise, of course, was that America’s highly centralized, monopolistic, imperialistic, federal government – the Lincolnite state – is desirable if not inevitable. Consequently, the route to greater freedom and prosperity is for “The Right” to control the federal Leviathan and use the levers of federal power to achieve its political ends.

It is true that, since the death of genuine federalism – sometimes called “states’ rights” – in 1865, this has indeed been the political game. But it is not inevitable. An alternative way of thinking of how to achieve a freer and more prosperous society is through the devolution of political power, as Professor Livingston responded. Therein lies the only hope of citizens ever being able to control their own government and becoming sovereign over it once again. Forget about the fantasy of controlling the federal government. It has accumulated so much power and created so many vested interests in that power, that any genuine conservatives or libertarians who become a part of it are immediately targeted, sabotaged, worn down, smeared, and marginalized so that they have no influence whatsoever. The entire apparatus of the centralized state will always view this as its number one priority.

A relevant publication is a book that Professor Clyde Wilson regards as the best book ever written on the subject of the “Civil War” and Reconstruction. It is North Against South: The American Iliad, 1848–1877, by Ludwell H. Johnson, professor emeritus of history at William and Mary College. Professor Johnson argues that “The Confederate Constitution throws considerable light on the reasons for secession”. Like the U.S. Constitution, it outlawed the African slave trade but declared slavery to be legal. (But unlike the U.S. Constitution, it permitted individual states to abolish slavery. At the exact same time this stipulation was being added to the Confederate Constitution, Abraham Lincoln and the Republican Party were supporting a constitutional amendment that would have prohibited the federal government from ever ending slavery).

In addition, the Confederate Constitution restricted the powers of the central government much more than the U.S. Constitution did by abolishing the “General Welfare” Clause, explicitly declaring that the states were sovereign, “delegating” and not “granting” any powers to the central government, allowing constitutional amendments to only be initiated by the states, outlawing protectionist tariffs altogether, making all federal expenditures more difficult by requiring a two-thirds vote of Congress and giving the president a line-item veto, and more. “These innovations,” writes Professor Johnson, “can be summarized as an attempt to protect the rights of the states, to limit the power of the central governme…” Southern secession can only be understood, says Professor Johnson, by realizing that “Underlying the Southern movement for independence was an abiding passion to be free from outside control and interference. This is a phenomenon with deep roots in Anglo-American history.”

A conservative or libertarian takeover of the federal Leviathan state is the silliest of pipe dreams. The only hope for restoring a free society is the devolution of power and a complete overthrow of the Lincolnite ideology of government, with all its garish monuments to itself, its “civic religion” of centralized governmental power in pursuit of world domination, its brainwashing of the public through nationalized education, its army of myth-making court historians (a.k.a., “Lincoln scholars”), and its monstrous appetite for tax revenues, which now account for almost half of all national income – especially if one counts the implicit “tax” of the costs of government regulation. The devolution of power, combined with the destruction of all the Lincolnite superstitions, is the most hopeful means of emancipating America’s tax slaves.

DOOMSDAY: THE FINAL MONTHS OF THE “HOUSING BUBBLE”

I sold my home three weeks ago anticipating what I believe will be “Economic Armageddon” in the United States. It was not an easy thing to do. My wife and I have lived in the same home for 25 years, raised both of our children there, and owned the property outright without any loans or mortgage. The house was paid for in “sweat-equity”, that is, by wielding a shovel day in and day out in my one-man landscape business. I do not say that for sympathy, but to illustrate that we played by the rules, worked hard, paid our taxes, and took advantage of the American dream of home ownership. All that has changed.

I sold my home for one reason: George W. Bush. He and his protégé at the Federal Reserve have submerged the country into a morass of “unsustainable” debt, disrupted the nation’s economic equilibrium and thrust us towards fiscal disaster. They have also generated a humongous housing bubble through their irresponsible and self-serving manipulation of interest rates.

The facts are astonishing. The current housing bubble is “larger than the global stock market bubble in the late 1990s (an increase over five years of 80% of GDP) or America’s stock market bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.” (The Economist, June 16, 2005) The banks have lowered the standards for home loans to such an extent that the traditional loan of 20% down and a fixed interest rate is virtually a thing of the past. Instead, those conservative practices have been replaced with “creative financing” schemes that put the entire housing market at risk. Consider this: In 2004 “one-fourth of all home-buyers – including 42% of first-time buyers – made no down payment.” (New York Times, July 7, 2005)

No down payment?! Sorry, but if a buyer cannot come up with at least $5,000 for a down payment, he should not qualify for a home loan. Equally troubling is the fact that “nearly one third of all new mortgages this year call for interest-only payments (in California, it is almost half)” (NY Times) This tells us that a large number of new buyers can barely make their payments, but are gambling that their property value will go up enough to justify their investment. This is “equity roulette”, a shell game that anticipates that salaries will go up while interest rates stay low. Is that a reasonable judgment?

No, Greenspan has said that he will continue to ratchet up interest rates to head off inflation. This means that an economic slowdown is a near certainty, and doomsday for over-extended homeowners. Greenspan assumed he could carry out his plan without too much unnecessary carnage. Unfortunately, gluttonous mortgage lenders have lowered long-term loans while the prime rate continues to go up. This has upset the Fed master’s strategy for a “soft landing”, and Greenspan has begun feverishly issuing warnings about an inevitable “adjustment” when the market bogs down. The bottom line is that the housing bubble is getting bigger by the day and increasing the potential for catastrophe.

Why would banks foolishly loan money to people who cannot even scrap together a few thousand dollars for a down payment or who can scarcely meet their “interest-only” obligations? The reason is simple: they are not the ones taking the risk. Mortgage loans are acquired by investment banks and chopped up into various securities where they are sold in mutual funds, hedge funds and pension funds etc. To some extent, this takes the lenders off the hook, but it also means that the shock to the system will be much more widespread when the day of reckoning finally arrives. If we encounter a major glitch in the economy the shock waves will be felt throughout the world.

Shaky lending, interest-only loans, no down payments, a U.S. government that is $8 trillion in debt, and a ticking-time bomb of adjustable-rate mortgages that will reset within 3 years – the table is set for a disaster of Biblical proportions. If we hit a bump in the economic road ahead (rising gas prices? recession?) the “Land of the free” will be knee deep in bankruptcies and foreclosures. We will all be fighting for a soft spot under the freeway onramp. The fatuous Greenspan believes that all this can be avoided by regulating the money supply. He is dead wrong, and I bet my house on it.

HAS THE U.S. GONE CRAZY?

Here, in the home of the free, the land of the brave, and suchlike prattle, I encounter this: “An 11-year-old girl who threw a stone at a group of boys pelting her with water balloons is being prosecuted on serious assault charges in California. Maribel Cuevas was arrested in April in a police operation which involved three police cars and a helicopter.” It seems that the rock gashed the little monster’s forehead and, according to the BBC, he needed “hospital treatment”. (I suspect this means that he needed treatment that any general practitioner could have given him in his office, but ambulances do not take people to general practitioners.) Now, if I had a son who was ganging up with other boys to torment a girl who did not speak English, or did (apparently Maribel barely did), I would slap him across the room so hard that he would think he was an astronomer. Actions have consequences. There are things kids need to know that you do not do, especially boys, who are pack animals.

But what leaves me gasping in wonderment is the police. First, why the police at all? Schools and parents cannot manage children who have not even reached adolescence? When I was a kid in high school in rural Virginia, the principal did not need cops to control a school full of rowdy country boys. These were kids who could hurt you. My girlfriend Gloria, pretty as a flower, could pull a crab boat onto a mud flat by herself, and did. We all had guns. No serious discipline problems. Ever. Anywhere. The concept was like presidential grammar … unheard of. Anyone who bucked the principal would have been expelled in three seconds, and would have known better than to go home, ever. His father would be waiting.

How is it that the police department needs three squad cars, an ambulance, and a freaking helicopter to subdue an annoyed girl of 11? In my many years of riding with the police, I knew them to be men, gutsy, hard-core, willing to go to bad places full of bad people. You might like them or you might not, and you might have reason either way. But they were not pansies. Real cops would be stone embarrassed to arrest little girls on assault charges. Not these cops, though. Yet the use of police when frightened mushroomy little purported teachers get upset is becoming the custom in American schools.

Cockamamie stories are legion. I have followed any number of them. A little boy swats a little girl on the backside on the playground, and he is arrested by cops, charged with sexual harassment, and put into compulsory psychiatric counseling. Another kid draws a picture of a soldier with his rifle, and gets suspended. On and on. What twisted circus of social decay is going on here? Have these people’s minds, if any, been taken over by extragalactic flatworms? That is my guess. We are seeing the first step toward cocooning us. They plan to feed us to their starving wiggly populations on some croaking planet knee-deep in bloodsucking phyla unknown to science. Gurgle gurgle glop. I’m serious.

Now, I may not know what is really going on, but I sure as hell know what is really not going on. None of this is about security. At least, it is not about security in any sane way, having some minor 3-generations-back relation to reality. We are a nation frightened of our daughters of eleven? Are girl kids that dangerous? Does any other country, anywhere, fear its daughters? Give me a break. It is truly weird. America, the most aggressive nation on the planet, the grr, bowwow, woof superpower, is also the most timid. Anyway, I guess the Chinese will be merciful. Maybe they will put us in special homes, with soft walls.

NEW EU PROPOSAL INVOLVES EXTENSIVE DISCLOSURE REQUIREMENTS ON WIRE TRANSFERS

The EU unveiled new proposals aimed at cutting off funding for terrorist networks. Under the plans banks will be required to register the name, address and account number of everyone making money transfers in the EU’s member states. That information would not normally be disclosed, but would be made available to police seeking to prevent money laundering, or to investigate or prosecute those behind terrorist funding. The new requirement would apply to even the smallest amounts of money, and would include all transfers made from abroad into the EU and from the EU to accounts outside Europe. A simpler version of the regime will apply to money transfers within the EU, so as not to endanger the Union’s efforts to build a single market for payments.

If those sending money – individuals or institutions – refuse to provide the required data, banks and other money remitters will ultimately be obliged to reject such transfers, or end links with these customers. Banks will be obliged to retain transfer data for at least five years. The European Commission, the EU executive, says the new measures will assist the appropriate law enforcement authorities in detecting, investigating and prosecuting terrorists and other criminals and tracing their assets.

Internal market commissioner Charlie McCreevy said the new measures aim to increase the traceability of money flows by increasing the obligation for banks to alert law enforcement agencies of irregular payments that may then lead to prosecution of money laundering or terrorist financing. McCreevy said he hoped the measure will quickly be endorsed by the European Parliament so it can become law across the EU in 2007.

The proposed new regulation is part of the EU’s “plan of action to combat terrorism”, and comes shortly after the London attacks in which suicide bombers killed 56 people and injured some 700. The attacks sparked renewed criticism of the EU’s record in fighting terrorism, as well as fresh pledges to step up joint work on terrorism and to meet missed commitments made after last year’s Madrid bombings.

“KNOW YOUR CUSTOMER” RULES IMPACT IS LIMITED

There remains increasing pressure on Offshore Financial Centers (OFCs) like the Cayman islands to adopt higher Know Your Customer (KYC) standards. But it is questionable whether following stringent KYC procedures and carefully filtering new account applications actually makes as much difference in the fight against money laundering and the financing of terrorist activities as some think it does. A report from the Scarman Center for studying criminology at the University of Leicester found that KYC had fairly limited impact on reducing money laundering. According to the banks and other financial institutions surveyed as part of the report, KYC procedures may make it more difficult for someone to just walk in off the street and start laundering money, but serious criminals can easily overcome the KYC checks.

The survey also found general skepticism among financial professionals and banks about the effectiveness of suspicious transaction reports (STRs) – the other mainstay of efforts to counter money laundering. Traditionally, banks and other institutions must file an STR for any transaction that shows any signs of being suspect. But they get little, if any, feedback from the authorities because the regulators are overwhelmed by the number of reports being filed. The U.S. Financial Crimes Enforcement Network (FinCEN), which oversees anti-money-laundering efforts, is notorious in U.S. banking circles for having a huge backlog of STRs.

In addition, a report issued by the UN in September 2002 found that the drive to close down the sources of terrorist finance had slowed sharply after the initial flurry of activity. Indeed, the UN’s report could hardly have been less encouraging. For the UN found that the fight against terror financing was failing, and al-Qaeda had as much money as it is needed and could move it wherever it wanted.

Most of the money used to finance terrorism does not flow through the global financial structure but via an alternative banking system. This system, known in India as hawala, and in Pakistan, Afghanistan and the Middle East as hundi, is hundreds of years old. For example, if someone working in the U.S. wants to send money back to a village in Pakistan, a bank transfer – which would have to take place at the official exchange rate – would be of little use since the village in Pakistan is unlikely to have a bank. It is more likely that the Pakistani would approach a hundi broker, often a local small businessman, and give him the money. After a short time his contacts back home will deliver the money – at the (more favorable) black market rate, in local currency and minus a handling fee – to his relatives.

Hundreds of thousands of Americans from overseas use systems such as these to remit money to relatives who live anywhere from the Middle East to the Pacific. There is no paper trail, no fuss and no money ever crosses a border. Discrepancies in the two-way flow are settled up at the end of the month, or perhaps every half-year. Consequently the system is ideally suited to drug traffickers – Afghan drug smugglers have used Pakistani hundi brokers for years – other criminals and, of course, terrorists.