Revealed: Apple’s “Offshore” Cash Isn’t Even Offshore
WEDNESDAY, MAY 22, 2013 AT 4:39PM
No one accused Apple of having violated US tax laws. The Senate subcommittee investigation and hearings merely exposed how Apple is dodging income taxes by doing what multinationals do: taking advantage of the handouts and loopholes that the US Congress and governments around the world are handing them. Tim Cook emerged smelling like a rose, the triumphant CEO of America’s most iconic welfare queen. Alas, much of the discussion was based on a fairytale.
Apple got into this pickle because it had decided to fund a juicy stock buy-back and dividend program by taking on a record $17 billion in debt rather than paying income taxes on “repatriating” part of its $102 billion in “offshore” cash.
The Senate investigation showed that Apple sheltered at least $74 billion from US income taxes between 2009 and 2012 by using a “complex web” of offshore mailbox companies. One such Irish subsidiary with no employees made $30 billion and didn’t pay a dime to a single government anywhere, not even Ireland. Another Irish mailbox company paid 0.05% in taxes on $22 billion in profit. Over the years, these untaxed “offshore” profits accumulated to $102 billion held by Irish subsidiaries – the moolah Apple refused to “repatriate.”
Turns out, Apple wouldn’t have to repatriate it. The money is already safely ensconced in TBTF banks in New York. The Irish mailbox subsidiaries, on whose books this money is for accounting purposes, transferred it to bank accounts in New York; it is managed by an Apple subsidiary in Reno, Nevada; and Apple’s accountants in Austin, Texas, keep the books, according to the Senate report that vivisected Apple’s tax dodge strategies.
“Apple does not use tax gimmicks,” Apple wrote lamely in response. It’s just that money doesn’t stop at borders or oceans; accounting does. So, in these crazy times of ours, where fairytales are reality, “offshore” actually means “onshore.” The difference between taxed income and untaxed income.
In this manner, US corporations have stashed away a $1.6 trillion of untaxed profits in “offshore” subsidiaries. And yet, as in Apple’s case, much of that is actually in the US. Just because the cash is nominally held by an offshore mailbox company doesn’t mean that it can’t be transferred to the US, where it can do the job money is supposed to do – beget more money.
That explains another corporate mystery. When Congress, after heavy lobbying by the largest US corporations, declared a “repatriation holiday” in 2004 to encourage the “return” of $300 billion to be invested in the US, nothing happened. The “repatriated” profits were taxed at the minuscule rate of 5.25% – less than the payroll taxes withheld from their US working stiffs. The companies made some adjustments on their books. But there were no investments and no hiring because the money had already been deployed in the US. The New York Times reported:
On the contrary, some of the companies that brought back the most money laid off thousands of workers, and a study by the National Bureau of Economic Research later concluded that 92 cents on every dollar was used for dividends, stock buybacks or executive bonuses. A study by the Congressional Joint Committee on Taxation estimated that a similar program would result in $79 billion in forgone tax revenue over a decade.
Apple is among the two dozen multinationals that are flailing their arms at Congress to obtain a new “repatriation holiday” that would allow them to “repatriate” hundreds of billions at a super-low tax rate. In return, they dangle in front of us the promise of investment and jobs. Yet much of that money is already in the US. It would not cause any additional hiring or investment. It would simply be a handout benefitting the largest behemoths, but not the hundreds of thousands of smaller companies that don’t have the resources to lobby Congress or make special deals with governments around the world. They don’t have the time and money to create that “complex web” of offshore mailbox companies but are instead struggling on a daily basis to stay alive in their dog-eat-dog world.
Beyond the unfair advantages that these loopholes bestow on a few large companies, but not on smaller ones that get raked over the coals by the tax code, there is a broader fairness problem, as Senator John McCain pointed out in his opening statement: “As the shadow of sequestration encroaches on hard-working American families, it is unacceptable that corporations like Apple are able to exploit tax loopholes to avoid paying billions in taxes.”
To identify the root cause of the problem, the Senator doesn’t have to look far. The only entity to blame is Congress. It’s addicted to the corporate money flow that keeps campaigns greased. It threatens or promises changes to the tax code to milk these companies. And it loves to succumb to lobbying. That’s how these loopholes ended up in the tax code. They didn’t get there on their own.
Last month, Senators Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican, introduced a resolution calling for the end of the implicit subsidies that TBTF banks enjoy and that put taxpayers at risk. The Senate voted 99-0 in support.
Statistics: Posted by yoda — Wed May 22, 2013 11:02 pm
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Google insider exposes ‘immoral’ tax scam
Simon Duke and Jon Ungoed-Thomas Published: 19 May 2013
Former Google executive Barney Jones has a cache of 100,000 emails and documents (
A FORMER Google executive has blown the whistle on a massive and “immoral” tax avoidance scheme that has “cheated” British taxpayers out of hundreds of millions of pounds over the past decade.
Barney Jones, 34, who worked for the internet search giant between 2002 and 2006, has lifted the lid on an elaborate structure which diverts British profits through Ireland to the Bermuda tax haven.
Although Google’s London sales staff would negotiate and sign contracts with British customers, and cash was paid into a UK bank account, deals were technically booked through its Dublin office to minimise its liabilities here. Jones, a devout Christian and father of four, is ready to hand over a cache of more than 100,000 emails and documents to HM Revenue & Customs (HMRC), detailing the “concocted scheme”.
Statistics: Posted by yoda — Sat May 18, 2013 6:44 pm
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Will the last buyers please turn out the lights?
Posted on 14 May 2013
How long can global stock markets rise on the back of money printing by central banks while their underlying economies show very little sign of recovery and far from preparing for lift-off look every bit as likely to fall back into recession?
Global stock markets have continued on up into May, defying the short sellers and cries of ’sell in May and go away’. But the last few sessions have looked weak to negative. Will the last buyers please turn out the lights?
One thing we do know about stock market bullishness is that it eventually fizzles out. You need a constant stream of new buyers to keep the show on the road. The market might look to be rising on the hot air of media output but in fact you do have to have money buying stocks.
Why would anybody buy at a new all-time high? Buy cheap, sell expensive, that’s how you make money as an investor, especially more after more than four years of rising prices.
If there is some kind of genuine economic revival going on in the world then ArabianMoney can perhaps be forgiven for missing it. Strip away inflation and there’s not been much advance in national GDPs since the global financial crisis and many nations have gone backwards, not forwards.
The Financial Times commented recently that the latest profit and sales figures have been lacklustre in both the US and UK with companies ‘bearish about the future’ and ‘talking down earnings’ at the fastest rate since 2001.
Low interest rates have left investors so desperate for income yield that they accept lower and lower returns as they bid share prices higher. There has to come a tipping point when the huge downward risk to share prices outweighs the tiny dividends available in the current environment of central bank manipulation.
Then those buyers will sell and put a market reversal into place. When markets have risen higher and higher with almost no underlying economic justification they do generally reverse quite dramatically.
Of course behaving like Chicken Little of the children’s fable and running around saying that the sky is falling in does make you look stupid, until you are right!
Statistics: Posted by yoda — Tue May 14, 2013 6:14 am
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U.S Retail Depression is ‘Good News’
Written by Jeff Nielson
Monday, 13 May 2013
Perverse reporting of economic data by the Corporate Media is nothing new. However, what is newsworthy is when that same Corporate Media explicitly acknowledges such perversity. Such open manipulation of the news was on display today.
The context is the accelerating Depression in the U.S. retail sector; which as the propaganda machine itself regularly acknowledges, represents more than ¾ of the total U.S. economy. In March, the revised numbers indicated U.S. retail sales plummeting by -0.5%.
However, that number is neither adjusted for inflation, nor is it reported at an annualized rate (as are most economic statistics). Let me perform those adjustments. Currently, U.S. inflation is somewhere close to 20%. This is likely a conservative estimate, given that as recently as July of last year the World Bank was reporting that global food inflation was running at a current, annualized rate of 120%.
An annual inflation rate of nearly 20% works out to roughly 1.5%/month. When we subtract that number from the “raw” retail sales estimate of -0.5%, we get an actual collapse in U.S. retail sales of roughly -2% for the month of March. Convert that to an annualized rate (i.e. multiply it by twelve); and what the U.S. government really reported last month was retail sales plummeting lower at an annualized rate of approximately 25%.
Let me repeat this. In the U.S.’s consumer economy, retail sales plummeted lower at a rate of 25% in the month of March. Doesn’t sound like much of an “economic recovery” to me. But this brings us to the April figure for retail sales just released this morning.
Given that (almost) all U.S. economists continue to claim the U.S. economy is “growing”; clearly these economists must have been “expecting” retail sales to bounce-back in April with a strong number. Right? Wrong.
U.S. economists were “expecting” an even more-severe collapse in retail sales this month. This brings us to the “beating expectations” game played by the Corporate Media. While this sham has been explained previously, Bloomberg was kind enough to explicitly do so today itself:
…April’s retail sales report is another example of a generally weak report that is better than expected, so it’s perceived to be a positive,” Jim Baird…at Plante Moran Financial Advisors, said in an e-mail to clients. [emphasis mine]
And with that simple statement, the propaganda machine’s Beating Expectations sham is completely unmasked. How do you make “bad news” sound like “good news”? You pretend that you were expecting terrible news.
Then, when merely bad news is announced; you dance a merry little jig, pull out the marching band – and tell everyone that the bad news is really “good news.” This is precisely what we see the cynical U.S. propagandists doing with the April retail sales report.
The economic experts claimed they were expecting U.S. retail sales to plummet lower in April by -0.6% (-27% annualized and roughly adjusted for real inflation). Instead, when a microscopic gain of 0.1% is actually reported it is proclaimed to be “good news”. When adjusted for inflation and expressed as an annualized number, the April number actually reported translates into U.S. retail sales falling at a rate of roughly 18% — still depression-like numbers.
Could any sane individual consider this to be good news?
But there is a larger issue here. On the one hand, we have this herd of economic experts parroting their opinion month after month that the U.S. economy is experiencing an “economic recovery” (i.e. it’s actually growing).
On the other hand, out of the other side of their mouths; we have the same herd “predicting” an even bigger collapse in April retail sales following the disastrous number reported in March. Retail sales declining at a rate of 25% (or better) are Great Depression numbers.
Can any sane individual (even an economist) claim the U.S. consumer economy is growing, while expecting a Great Depression in retail sales? Of course not.
The Beating Expectations game is merely another one of the reporting shams regularly practiced by the Corporate Media. Note that Bloomberg itself admits that the Beating Expectations game is a regular form of fictionalized reporting:
…another example of a generally weak report that is better than expected, so it’s perceived to be a positive…
Why is a “generally weak report…perceived to be a positive”? Because that’s how they are reported by the Corporate Media, accompanied by another, rousing chorus of “Happy Days Are Here Again.”
What is always ignored by the Corporate Media are the Great Depression-like “predictions” of their cadre of experts, which make it possible for terrible numbers to still beat expectations. The absurd contradiction of expecting Depression while proclaiming “recovery” is conveniently and entirely overlooked.
Of course, by itself the retail sales numbers refute any possibility of the U.S. economy actually growing/recovering. Consumer economies can’t grow when their retail sector is shrinking – rapidly.
There are no shortage of such unequivocal indicators that the U.S. economic recovery is a myth, many of which have been pointed out on previous occasions. Perhaps the most-obvious proof of recession (if not depression) is the collapse in energy consumption, by the world’s great, energy glutton.
As recently as 2007; the U.S. oil industry was lamenting the lack of refining capacity within the U.S. to meet future domestic demand for petroleum products. Yet by 2012, and with no new refineries brought on line; U.S. demand for petroleum products had collapsed to the point where the U.S. is now a “net energy exporter”.
To many, however, nothing illustrates a concept better than a picture. Here is further proof of the U.S. Greater Depression which is now familiar to regular readers. This chart, produced by the Federal Reserve itself, shows the U.S. economy not only relentlessly losing jobs (for the past 15 years), but those job-losses have accelerated since the beginning of the supposed recovery.
Consumer economies can’t grow while retail sales are plummeting lower. Equally, energy-intensive economies can’t grow while energy consumption plummets. And no economy of any kind can grow while shedding jobs at an accelerating rate.
We now have all the pieces of the puzzle in this Economic Myth of a U.S. recovery. Laughably fictional inflation statistics, which in turn are then used to warp the reporting of other statistics like GDP, retail sales, and U.S. home prices. What happens to the U.S. “housing recovery” if you subtract actual inflation numbers from the “gains” in house prices? That’s right: still in recession.
Meanwhile, to maintain the myth of recovery; we have the media propaganda machine playing the Beat Expectations game month after month, to transform all of the bad news into good news. At the same time; any and all contradictions of this “recovery” – contradictions in the numbers and by the experts themselves – are totally ignored by the myopic media.
Bad news is not good news, irrespective of whether or not it “beats expectations.” However, with the Corporate Media now implicitly acknowledging the fraudulent nature of those expectations, this analytical point is even more relevant. Ignore mere expectations and focus on the actual news…if/when you can find it.
Statistics: Posted by yoda — Tue May 14, 2013 12:03 am
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Don’t fall for this banking scam
by Simon Black on May 9, 2013
If I told you that your bank only held 1% of its customer deposits in reserve, would you feel that your money was safe?
If I told you that the insurance fund which backed your bank deposit only had enough cash to bail out 0.35% of the banking system, would that make you feel any better?
Probably not. But this scam is the reality in the US banking system… and across the West.
As an example, US Bancorp has $248 billion in total customer deposits according to their most recent reporting, yet a mere $6.9 billion in cash… roughly 2.8%.
PNC Bank holds just 1.8% of its customers’ $248 billion deposits in cash. And BB&T holds barely 1.0% of its customers’ $131 billion deposits in cash.
These figures are indicative of the entire western financial system. Banks hold a very small percentage of customer deposits in cash. The rest is sitting in loans, bonds, and other securities of indeterminable value– mortgages that are still under water, shaky commercial real estate deals, etc.
Truth is, nobody really knows what’s on their books. Loan portfolios are like a black box, and the liquidity structure doesn’t leave a lot of room for error.
Think about it. If the slightest thing goes wrong– a spike in customer withdrawals, a decline in bond prices or commercial real estate, etc.– banks simply don’t have any rainy day funds set aside to handle it.
And who can blame them…? The FDIC, one of the US banking system’s chief regulators, has a mere $33.0 billion reserve fund to insure $9.3 TRILLION worth of deposits in US banks… a ratio of just 0.35%. And the FDIC is backed by the insolvent US government!
Bottom line, we simply can no longer afford to blithely assume that our bank… our most intimate financial partner… is in good financial condition.
The good news is that in 2013, it’s no longer necessary to save within the confines of our home country; it’s possible to establish a bank account in a country where the banks are actually well capitalized and liquid.
Singapore is one of those places. In fact, Singapore has ZERO net debt and has never had a banking failure in its history. Plus the banks are swimming in cash.
UOB Bank, for example, has 33.7% of its customer deposits in cash equivalents. OCBC holds 35.8%. These banks are literally 10 to 30 times more liquid than their western counterparts.
With a bit of legwork, it’s possible for both individuals and businesses to open insured accounts at either of these banks.
Today I even managed to convince one of my bankers here to open business accounts for US LLC’s… which means that anyone with a global self-directed IRA can hold retirement savings at a well-capitalized Singaporean bank. More on this soon.
The advantages of banking here are obvious; pitting the US against Singapore, there’s simply no comparison.
If everything goes fine and there are no major hiccups in the world, you won’t be worse off for holding some savings at a highly capitalized bank in Asia’s most dominant financial center.
Yet if there’s another major meltdown like we saw in 2008, or worse… these insolvent Western governments pull a Cyprus… then having funds in Singapore may turn out to be one of the sharpest financial decisions you could have made.
Statistics: Posted by yoda — Thu May 09, 2013 10:59 am
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Would you accept 2-3% on an investment with a 50% downside selling at an all-time high?
Posted on 08 May 2013
Would anybody in their right minds accept a two to three per cent annual return on an investment selling at an all-time high with a potential to lose half its value and perhaps as much as 10-15 per cent in a single day?
Step forward anybody with their money in US stocks today. The risk-to-reward ratio is so heavily skewed against you that staying invested is far more risky than moving to the sidelines and parking your wealth in a bank.
What is the upside? Seven to 13 per cent by the end of the year if you take the advice of perma bull Jeremy Siegel. However, any technical chartist will point out that the downside risk is up to 50 per cent. All it would take is a shift in confidence that lowered the market’s price-to-earnings ratio to a level consistent with an economic recession and not a recovery.
How much poor economic data does it take to do that? How long will investors believe the sham data from China that is completely divergent from that of its trading partners? Is the US economy really improving except for owners of inflated stocks and real estate? Has the eurozone not just downgraded its economic outlook yet again?
Most stock traders accept all this but put their trust in the Federal Reserve to pump more and more money into the economy. That will work until it doesn’t. Do people not remember how house prices were supposed to never fall because the Fed was going to always lower interest rates to keep them up?
We are in the wrong place on the risk-reward curve in the US stock market and the end is nigh!
Statistics: Posted by yoda — Wed May 08, 2013 12:22 am
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The percentage of Americans that are working for themselves has never been lower in the history of the United States. Once upon a time, the United States was a paradise for entrepreneurs and small businesses, but now the control freak bureaucrats that dominate our society have created a system that absolutely eviscerates them. This is very unfortunate, because by murdering small business, the bureaucrats are destroying the primary engine of job growth in this country. One of the big reasons why there are not enough jobs in America today is because small business creation is way down. As I mentioned yesterday, entrepreneurs and small businesses are being absolutely devastated by rules, regulations, red tape and by oppressive levels of taxation. If anyone doubts that small business in the United States is dying, just look at the charts below. Sadly, this is what the bureaucrats that run things want. They don’t want us to be independent of the system. Instead, they are much more comfortable when as many of us as possible are heavily dependent on the system in one way or another. If all of us have to go running to the government or to one of the big corporations for a job, then we are much easier to control. But as the control freaks continue to construct their bureaucratic utopia, they are also killing off what once made the U.S. economy so great.
The other day I came across the following two charts in an article by Charles Hugh Smith, and I was absolutely stunned by what I saw. This first chart shows that the number of unincorporated self-employed Americans has dropped back to levels that we have not seen since the mid-1980s even though our population has increased by tens of millions of people since that time…
As you can see, from 1970 to the mid-1990s the number of unincorporated self-employed Americans rose steadily. But in the mid-1990s it began to level off and now it is falling rapidly.
This next chart shows the percentage of self-employed Americans as a share of non-farm employment. In other words, those that work on farms are excluded from this chart. The percentage of self-employed Americans was fairly stable between 1970 and 1990, but since 1990 it has been steadily eroding and it has now reached a level never seen before…
At this point, only about 7 percent of non-farm workers are self-employed. That is depressingly low. That means that an overwhelming majority of those that are employed in America are working for the system in one capacity or another.
But isn’t that what we pound into the heads of our children these days? We teach them to work hard in school so that they can “get a good job” when they grow up. From a very early age we train our children to plug themselves into the system.
Not that working for someone else is wrong. Of course not. It is just that we are not fostering a spirit of entrepreneurship in America today. In fact, we seem to be doing everything that we can to kill it off.
In a previous article, I detailed how the number of new businesses (and the number of jobs those businesses create) has been steadily declining. In particular, this decline has accelerated dramatically under the Obama administration. According to an analysis of U.S. Department of Labor data performed by economist Tim Kane, the following is how the decline in the number of startup jobs per 1000 Americans breaks down by presidential administration…
Bush Sr.: 11.3
Bush Jr.: 10.8
Is that a good trend or a bad trend?
It doesn’t take an advanced degree in economics to figure out where things are going.
Kane speculated about why we are witnessing such a decline in his paper…
There is anecdotal evidence that the U.S. policy environment has become inadvertently hostile to entrepreneurial employment. At the federal level, high taxes and higher uncertainty about taxes are undoubtedly inhibiting entrepreneurship, but to what degree is unknown. The dominant factor may be new regulations on labor. The passage of the Affordable Care Act is creating a sweeping alteration of the regulatory environment that directly changes how employers engage their workforces, and it will be some time until those changes are understood by employers or scholars. Separately, there has been a federal crackdown since 2009 by the Internal Revenue Service on U.S. employers that hire U.S. workers as independent contractors rather than employees, raising the question of mandatory benefits. New firms tend to use part-time and contract staffing rather than full-time employees during the startup stage. According to Labor Department data, the typical American today only takes home 70 percent of compensation as pay, while the rest is absorbed by the spiraling cost of benefits (e.g., health insurance). The dilemma for U.S. policy is that an American entrepreneur has zero tax or regulatory burden when hiring a consultant/contractor who resides abroad. But that same employer is subject to paperwork, taxation, and possible IRS harassment if employing U.S.-based contractors. Finally, there has been a steady barrier erected to entrepreneurs at the local policy level. Brink Lindsey points out in his book Human Capitalism that the rise of occupational licensing is destroying startup opportunities for poor and middle class Americans.
In my previous article, I also pointed out some of the other statistics that show that small business in America is dying…
-According to the U.S. Census Bureau, the U.S. economy lost more than 220,000 small businesses during the last recession.
-As a share of the population, the percentage of Americans that are self-employed fell by more than 20 percent between 1991 and 2010.
-As a share of the population, the percentage of “new entrepreneurs and business owners” dropped by a staggering 53 percent between 1977 and 2010.
Unfortunately, this is a crisis that has taken decades to develop and that there are not any easy solutions for. But there are certain factors that should be addressed immediately. The following are some of the things that are contributing to the murder of self-employment and small business in America…
#1 Taxes: The IRS seems to especially enjoy tormenting entrepreneurs and small businesses. In fact, things have gotten so bad that even late night talk show hosts are joking about it. Recently, NBC Tonight Show host Jay Leno joked that if Barack Obama really wanted to close down Guantanamo Bay, he should “do what he always does: declare it a small business and tax it out of existence”
#2 Ridiculous Regulations: If you have ever tried to start a small business, you probably know how frustrating it can be dealing with government red tape. In particular, the federal government has burdened our small businesses with gigantic mountains of rules and regulations and it gets worse with each passing day.
#3 State Governments That Are Openly Hostile To Business: A perfect example of this is the state of California. In 2011, the state of California ranked 50th out of all 50 states in new business creation, and yet they just continue to pass more legislation that hurts small businesses.
#5 The One World Trade Agenda: In many industries, U.S. small businesses simply cannot compete against products made by workers that are being paid slave labor wages on the other side of the globe.
#6 Predator Corporations: Time after time we have seen corporate giants extract huge tax breaks and other enormous concessions from local officials which give them an overwhelming advantage. But once the corporate giant moves into town, many of the existing small businesses find that they cannot compete and are forced to shut down.
#7 Our Corrupt Political System: On the national level, elections are almost always won by the politician that raises the most money. Our politicians know that their careers depend on raising money, so they tend to be very good to those that they get big money from. There is a reason why big corporations spend billions of dollars on campaign contributions and lobbying. They do it because it works. Over the decades, the big corporations have been able to shift the rules of the game massively in their favor, and this has been to the detriment of entrepreneurs and small businesses.
Can you think of any other factors that you would add to this list? Please feel free to share your opinion by leaving a comment below…
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NYSE Margin Debt Approaches All-Time High
05/01/2013 AT 2:35 AMCULLEN ROCHE
Disaggregation of credit is the understanding that there are good forms of credit and bad forms of credit. A good form of credit is something like a standard business loan in which a company obtains access to a line of credit in order to make investments in the firm. It pays employees, invests in equipment, etc. This form of credit, when issued prudently, is usually productive in that it helps the company expand and it rewards the lender for having taken the risk.
As a credit based money system we rely largely on the health of these sorts of loans to keep the system running smoothly. But there are also bad forms of credit. For instance, when a homeowner decides they want to speculate on real estate as an investment because they (incorrectly) believe real estate can outpace inflation over the long-term. We could make this matter even worse by repackaging the original loan and selling it off to new investors as AAA rated securities. In other words, disaggregation of credit was a core piece of the 2008 crisis.
I think another sign of disaggregation of credit is the extraordinary growth in borrowing that occurs around stock market booms. As the market surges we inevitably see a sort of ponzi effect in the market where more confidence breeds more credit and the bidding up of prices. It works until it doesn’t and when it doesn’t the air sure comes out fast.
So it’s rather alarming to see NYSE margin debt just shy of its all-time high as of the March reading. My guess is we’ve actually already surpassed the all-time high though we won’t officially know until April data is released. Fun times knowing we live in a world that is built on such a fragile foundation.
Statistics: Posted by yoda — Wed May 01, 2013 9:35 am
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No Bank Deposits Will Be Spared from Confiscation
By Matthias Chang
Global Research, April 24, 2013
I challenge anyone to prove me wrong that confiscation of bank deposits is legalized daylight robbery
Bank depositors in the UK and USA may think that their bank deposits would not be confiscated as they are insured and no government would dare embark on such a drastic action to bail out insolvent banks.
Before I explain why confiscation of bank deposits in the UK and US is a certainty and absolutely legal, I need all readers of this article to do the following:
Ask your local police, sheriffs, lawyers, judges the following questions:
1) If I place my money with a lawyer as a stake-holder and he uses the money without my consent, has the lawyer committed a crime?
2) If I store a bushel of wheat or cotton in a warehouse and the owner of the warehouse sold my wheat/cotton without my consent or authority, has the warehouse owner committed a crime?
3) If I place monies with my broker (stock or commodity) and the broker uses my monies for other purposes and or contrary to my instructions, has the broker committed a crime?
I am confident that the answer to the above questions is a Yes!
However, for the purposes of this article, I would like to first highlight the situation of the deposit / storage of wheat with a warehouse owner in relation to the deposit of money / storage with a banker.
First, you will notice that all wheat is the same i.e. the wheat in one bushel is no different from the wheat in another bushel. Likewise with cotton, it is indistinguishable. The deposit of a bushel of wheat with the warehouse owner in law constitutes a bailment. Ownership of the bushel of wheat remains with you and there is no transfer of ownership at all to the warehouse owner.
And as stated above, if the owner sells the bushel of wheat without your consent or authority, he has committed a crime as well as having committed a civil wrong (a tort) of conversion – converting your property to his own use and he can be sued.
Let me use another analogy. If a cashier in a supermarket removes $100 from the till on Friday to have a frolic on Saturday, he has committed theft, even though he may replace the $100 on Monday without the knowledge of the owner / manager of the supermarket. The $100 the cashier stole on Friday is also indistinguishable from the $100 he put back in the till on Monday. In both situations – the wheat in the warehouse and the $100 dollar bill in the till, which have been unlawfully misappropriated would constitute a crime.
Keep this principle and issue at the back of your mind.
Now we shall proceed with the money that you have deposited with your banker.
I am sure that most of you have little or no knowledge about banking, specifically fractional reserve banking.
Since you were a little kid, your parents have encouraged you to save some money to instil in you the good habit of money management.
And when you grew up and got married, you in turn instilled the same discipline in your children. Your faith in the integrity of the bank is almost absolute. Your money in the bank would earn an interest income.
And when you want your money back, all you needed to do is to withdraw the money together with the accumulated interest. Never for a moment did you think that you had transferred ownership of your money to the bank. Your belief was grounded in like manner as the owner of the bushel of wheat stored in the warehouse.
However, this belief is and has always been a lie. You were led to believe this lie because of savvy advertisements by the banks and government assurances that your money is safe and is protected by deposit insurance.
But, the insurance does not cover all the monies that you have deposited in the bank, but to a limited amount e.g. $250,000 in the US by the Federal Deposit Insurance Corporation (FDIC), Germany €100,000, UK £85,000 etc.
But, unlike the owner of the bushel of wheat who has deposited the wheat with the warehouse owner, your ownership of the monies that you have deposited with the bank is transferred to the bank and all you have is the right to demand its repayment. And, if the bank fails to repay your monies (e.g. $100), your only remedy is to sue the bank and if the bank is insolvent you get nothing.
You may recover some of your money if your deposit is covered by an insurance scheme as referred to earlier but in a fixed amount. But, there is a catch here. Most insurance schemes whether backed by the government or not do not have sufficient monies to cover all the deposits in the banking system.
So, in the worst case scenario – a systemic collapse, there is no way for you to get your money back.
In fact, and as illustrated in the Cyprus banking fiasco, the authorities went to the extent of confiscating your deposits to pay the banks’ creditors. When that happened, ordinary citizens and financial analysts cried out that such confiscation was daylight robbery. But, is it?
It will come as a shock to all of you to know that such daylight robbery is perfectly legal and this has been so for hundreds of years.
Let me explain.
The reason is that unlike the owner of the bushel of wheat whose ownership of the wheat WAS NEVER TRANSFERRED to the warehouse owner when the same was deposited, the moment you deposited your money with the bank, the ownership is transferred to the bank.
Your status is that of A CREDITOR TO THE BANK and the BANK IS IN LAW A DEBTOR to you. You are deemed to have “lent” your money to the bank for the bank to apply to its banking business (even to gamble in the biggest casino in the world – the global derivatives casino).
You have become a creditor, AN UNSECURED CREDITOR. Therefore, by law, in the insolvency of a bank, you as an unsecured creditor stand last in the queue of creditors to be paid out of any funds and or assets which the bank has to pay its creditors. The secured creditors are always first in line to be paid. It is only after secured creditors have been paid and there are still some funds left (usually, not much, more often zilch!) that unsecured creditors are paid and the sums pro-rated among all the unsecured creditors.
This is the truth, the whole truth and nothing but the truth.
The law has been in existence for hundreds of years and was established in England by the House of Lords in the case Foley v Hill in 1848.
When a customer deposits money with his banker, the relationship that arises is one of creditor and debtor, with the banker liable to repay the money deposited when demanded by the customer. Once money has been paid to the banker, it belongs to the banker and he is free to use the money for his own purpose.
I will now quote the relevant portion of the judgment of the House of Lords handed down by Lord Cottenham, the Lord Chancellor. He stated thus:
“Money when paid into a bank, ceases altogether to be the money of the principal… it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it.
The money paid into the banker’s, is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker’s money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains himself,…
The money placed in the custody of the banker is, to all intent and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable TO THE PRINCIPAL IF HE PUTS IT INTO JEOPARDY, IF HE ENGAGES IN A HAZARDOUS SPECULATION; he is not bound to keep it or deal with it as the property of the principal, but he is of course answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands.” (quoted in UK Law Essays, Relationship Between A Banker And Customer,That Of A Creditor/Debtor, emphasis added,)
Holding that the relationship between a banker and his customer was one of debtor and creditor and not one of trusteeship, Lord Brougham said:
“This trade of a banker is to receive money, and use it as if it were his own, he becoming debtor to the person who has lent or deposited with him the money to use as his own, and for which money he is accountable as a debtor. I cannot at all confound the situation of a banker with that of a trustee, and conclude that the banker is a debtor with a fiduciary character.”
In plain simple English – bankers cannot be prosecuted for breach of trust, because it owes no fiduciary duty to the depositor / customer, as he is deemed to be using his own money to speculate etc. There is absolutely no criminal liability.
The trillion dollar question is, Why has no one in the Justice Department or other government agencies mentioned this legal principle?
The reason why no one dare speak this legal truth is because there would be a run on the banks when all the Joe Six-Packs wise up to the fact that their deposits with the bankers CONSTITUTE IN LAW A LOAN TO THE BANK and the bank can do whatever it likes even to indulge in hazardous speculation such as gambling in the global derivative casino.
The Joe Six-Packs always consider the bank the creditor even when he deposits money in the bank. No depositor ever considers himself as the creditor!
Yes, Eric Holder, the US Attorney-General is right when he said that bankers cannot be prosecuted for the losses suffered by the bank. This is because a banker cannot be prosecuted for losing his “own money” as stated by the House of Lords. This is because when money is deposited with the bank, that money belongs to the banker.
The reason that if a banker is prosecuted it would collapse the entire banking system is a big lie.
The US Attorney-General could not and would not state the legal principle because it would cause a run on the banks when people discover that their monies are not safe with bankers as they can in law use the monies deposited as their own even to speculate.
What is worrisome is that your right to be repaid arises only when you demand payment.
Obviously, when you demand payment, the bank must pay you. But, if you demand payment after the bank has collapsed and is insolvent, it is too late. Your entitlement to be repaid is that of a lonely unsecured creditor and only if there are funds left after liquidation to be paid out to all the unsecured creditors and the remaining funds to be pro-rated. You would be lucky to get ten cents on the dollar.
So, when the Bank of England, the FED and the BIS issued the guidelines which became the template for the Cyprus “bail-in” (which was endorsed by the G-20 Cannes Summit in 2011), it was merely a circuitous way of stating the legal position without arousing the wrath of the people, as they well knew that if the truth was out, there would be a revolution and blood on the streets. It is therefore not surprising that the global central bankers came out with this nonsensical advisory:
“The objective of an effective resolution regime is to make feasible the resolution of financial institutions without severe systemic disruption and without exposing taxpayers to losses, while protecting vital economic functions through mechanisms which make it possible for shareholders and unsecured and uninsured creditors to absorb losses in a manner that respects the hierarchy of claims in liquidation.”(quoted in FSB Consultative Document: Effective Resolution of Systemically …)
This is the kind of complex technical jargon used by bankers to confuse the people, especially depositors and to cover up what I have stated in plain and simple English in the foregoing paragraphs.
The key words of the BIS guideline are:
“without severe systemic disruptions” (i.e. bank runs),
“while protecting vital economic functions” (i.e. protecting vested interests – bankers),
“unsecured creditors” (i.e. your monies, you are the dummy),
“respects the hierarchy of claims in liquidation” (i.e. you are last in the queue to be paid, after all secured creditors have been paid).
This means all depositors are losers!
Statistics: Posted by yoda — Wed May 01, 2013 12:16 pm
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