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Unintended Consequences - Man bites dog
Often when the government “fixes” things something else gets broken in
the process. Two examples of that in the news recently. One deals with
global hot money, the other with Ambac.
Tim Geithner announced that Treasury is going where no man has gone
before. They are going into the disclosure business. Big time. Under the
proposed new regs EVERY account held by foreigners would have to be
reported separately and income earned related to that account could be
reported back to the host country. (CCH Link)
Under
proposed regulations issued in 2002, reporting of U.S. bank deposit
interest is required only if the interest is paid to a U.S. person or a
nonresident alien individual who is a resident of Canada.The new proposed regulations withdraw the 2002 regulations and extend
the information reporting requirement to include interest paid to
nonresident alien individuals who are residents of any foreign country. This extension is expected to strengthen the United States exchange of information program.
It’s hard to argue with this proposal (unless you’re a foreigner with
hot money in a US account). After all, just a few years ago the US
Justice Department damn near took out UBS and a chunk of the Swiss
government over the issue of banking secrecy and offshore accounts.
What’s good for the goose has got to be good for the gander, right?
I’m not sure how much money is involved. I know it is a very big
number. The tax-lawyer fellow that sent me the link had this to say:
This is huge. There's over a trillion in deposits by
non-resident aliens in US banks. Fear of losing all that capital ended
up slowing the proposal under Clinton, and then leading to its
withdrawal under Bush 41.
Does this mean that a Tril or so is leaving the USA? “No” is the answer to that. It probably will not be over $250 billion.
A quarter trillion shouldn’t make much difference should it? That is
only 15% of M1. It’s not even two months of funding for Treasury. $250b
is less than the market cap of Apple these days. It probably won’t make
any difference at all. Maybe. I hope….
___________________________________________
The Ambac file is thick. This is just an update on a slightly bizarre aspect to this very bizarre story.
ABK got hit from all sides in 07, big losses. In an interesting trick,
they reshuffled the books to restate their income from prior years. The
restatement showed they actually made no money and as a result they had over paid federal income taxes to the tune of $708MM. Now get this; the IRS refunded them the $708 million!
Guess what? A year later the IRS looks at it again and concludes that
the refund should never have been paid. They sued ABK to get the money
back. (They wrote a monster check, regretted it and then sued. What were they thinking of?) Bond Buyer
The IRS argues this is not an insurance dispute, but a tax one. It points out that Ambac’s “tentative”
tax refund was granted before the segregated account was created, and
a corporate restructuring cannot escape its repayment.
This matter is presently before The U.S. District Court for the Western
District of Wisconsin. I’m not sure who I’m rooting for. It is quite
possible that I (we) could lose either way.
ABK is a chapter filing story. So it is immune from claims from
creditors. The Wisconsin insurance commissioner oversees its operations.
The commission’s job is to protect what assets are left at ABK so that
it can pay claims on policies that it has written.
ABK was sort of split into parts. One is a very bad problem, the other just a bad problem. The bad problem had about $313 million in the bank as of mid-year. What did they have on the other side? Ready? $223 BILLION of municipal bond insurance.
It’s not like the world thinks ABK is money good. But ABK is still
collecting premiums and paying claims. That might have to come to a halt
if the IRS wins in court. (they have a 90+% success record) From the
normally mild-mannered Bond Buyer:
A move by federal authorities to seize Ambac’s assets to satisfy tax claims could detonate a catastrophic chain of events: state regulators could assume control of Ambac Assurance, causing a technical default that would trigger a $3 billion payment to terminate swap policies. Any resources the company has to pay claims on municipal bond policies would be trampled.
The muni market is already walking a tightrope. A complete balls-up with
Ambac would be just another kink in the system. Once you get a big
kink, it is hard to forecast where it will lead to.
Think of where we are on this. ABK is alive (but mortally wounded) as a
result of an emergency 'equity injection' of $700mm from, of all places,
the IRS. But the IRS is claiming they never should have paid the money
in the first place. Does that mean that Ambac should have
self-destructed a year ago, bringing down with it a bunch of muni paper?
If the IRS gets its way in Wisconsin does it mean that the muni paper
now goes smoke?
Tim Geithner is on all sides of this. He runs the IRS. He is also
responsible to see to it that the muni market doesn’t hit a mountain. He
sets policy on foreign bank accounts. He is also supposed to be looking
out for the financial system. Our boy has lots of conflicts on his
plate. These two examples seem to be of his own making.
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http://theeconomiccollapseblog.com/archives/10-things-that-would-be-different-if-the-federal-reserve-had-never-been-created
10 Things That Would Be Different If The Federal Reserve Had Never Been Created"unless you’re a foreigner with hot money in a US account" - yes I am shiiiiiiiiiiiiiiiiiiit
Does this include broker accounts or just normal bank accounts ?
A foreigner would have to be some kind of idiot to keep money in a US bank. The Bank Secrecy Act is not about the customer's secrecy, it's about criminalizing a bank's telling the customer that he has been ratted out to the government. Now the Fourth Amendment violation is out in the open, applying continually to all alien-owned accounts. This latest assclownery will greatly benefit Singapore and Hong Kong. Well done, Uncle Scam.
Bruce,
You told me inflation would be coming onshore in a big way in 2011... ?
Do you have an update, mid summer, fall ??
It's Jan 12. What up date? Inflation is going higher, same as two weeks ago.
There's only one bottom line - foreign capital is soon to be long gone. As our natl capital is doing nuttin but buying up our debt (Gresham's Law), we are doomed to a low % of return on private capital, which is what the Rentiers want.
Although I headed to the mtns years ago, there's not the financial blanket much of ZHers have here. Just will suck it up, run mah biz and carry on.
Circa 2017 before things get back to normal, unless we all be speaking Mandarin down south.
"It probably will not be over $250 billion"....not to worry, Uncle Ben can easily handle that amount....
http://mitworld.mit.edu/video/861
.
The Financial Crisis, the Recession, and the American Political Economy: A Systemic PerspectiveNothing of substance to add, but really enjoy pieces like this, Bruce.
Yes, amusingly, the US can be just as secretive with its foreign-held bank accounts as the Swiss. And Delaware and a few other US states are almost as secretive with corporate shareholders as all those Caribbean isles (Delaware will give the info to the US federal authorities, but not, say, to the Germans). Money launderers love to use US shell companies owned by offshore companies with accounts in yet other offshore jurisdictions.
The NRA deposit interest reporting rule is one the IRS has been alternately shelving and reintroducing for more than a decade. It is a quid pro quo (a sop) to the EU as means of helping them end “harmful tax competition.” Harmful to whom, you might ask? Indeed.
As for the $250B estimate, even if its approximately correct, would a shrinkage in the US deposit base of that magnitude be a welcome development now? What kind of knock-on effects does it have on the dollar’s forex value, on domestic interest rates, on credit availability, and on bank liquidity? You can bet the IRS will focus on the comparatively small paperwork and compliance costs while ignoring or diverting attention from these much larger secondary effects.
This is a cut-your-nose-to-spite-your-face rule. The NRAs will simply go to other havens that dont rat them out to their European overlords resulting in damage to us with little positive offset.
The Establishment and Mainstream Media is losing control of the PEOPLE and as a result vehemently ATTACKING ALTERNATIVE NEWS. Suddenly, anyone that does not agree with the Socialist policies of the Obama Administration is an ENEMY OF THE STATE!
Watch the video “The Establishment is Losing Control” at (http://www.youtube.com/watch?v=6JIDs7Luwxg).
Anonymous-
“We do not have much time left before the FREEDOM of Americans is robbed by our leaders, the Internet Censored, Guns confiscated and the PEOPLE jailed for speaking truth!”
Why eat a little crow, when you can devour a whole black swan?
if the irs doesn't go get the 700m, why am i paying taxes, if they do, munis dont have insurance to pay of the debts of the states. easy 1 fornicate the taxpayer let the irs get the 700m and we taxpayers will backstop the states, only so much dry fornication the taxpayer can take
muni is the new 4 letter word
What is all the huff Bruce. Timmy is one of the best globalist trained leaders we have Comrade! All is well! BTFD! /sarc off
Yeah, remember how he like totally saved Asia.
Great law. Wonder how it would work under selective enforcement. Choosy mothers choose jip.
Great piece, Bruce, both articles. Per ABK, I simply cannot understand why Timmay hasn't jerked the rug out from under IRS. A don't-do-it note could be transported to the IRS Commish by carrier pigeon. TG must be waiting for a secret sign or something. He can't possibly be willing to sacrifice all these months of manipulation for a lousy $ 700 M.
Conservatorship for Ambac it is! Could (seem to) solve a number of existing problems, actually.
Ok so Gheithner's the dog, who's man? ;)
This is simply the case of breaking one of the domestic piggy banks that was originally saved for a rainy day, which happens to have arrived....
To me this is just an indiscreet act of forcing hot foreign money out. I believe timing is critical. Timmy and Heli Ben are planning to crash the markets and by forcing out the hot money before the SHTF event it will be easier to limit the overall damage. US citizens get stuck with the bag. yeah
Wasn't it the drug money which saved the London Banks back in 2008? They were the last place with real money, as I recall.
Ya they switched the drug trade from dollars to euros as euro trouble had them needing euros for stolen merchandise and such from their little crop of addicts.
Ambac does stink, as does our other pal, MBIA. But I thought Phil Lassiter was your pal? Did the shit only stink after he left? Most people thought Mean Mike Callen was a bigger jerk. Maybe they are twins??
Jeepers! Who are you?
Yes I worked for Phil Lassiter for a bit. Best boss I ever had. Reported to Mike Callen too. Mike was mean. He and I got along just fine as a result.
We're talking 25 years back. I'm feeling old just thinking about it.
bk
If you were working at least 25 years ago, you ARE old! (but on you, it looks good) :>D
Just when you think they ran out of things to fuck up in a big way...
You can't make this stuff up ...
Depending on your circumstance setting up an account with a Canadian or other foreign bank that has a US division, and also setting up a zero interest account in that US division facilitates moving money to/from the US in a seamless manner without the regulatory or potential tax BS (other than what is required by prevailing laws in both jurisdictions).
The new rules are based on the US/Swiss agreement, which basically says that any of your nationals have to report for tax purposes here and all our nationals have to report for tax purposes there. We'll simply exhange the data.
The entire idea is to stop people from off-shoring capital to avoid paying taxes.
I understand that but if you are outside of the US and require easy access to funds within the US this is a simple way to handle without triggering any US generated income or currency related port of entry issues.
But what you're saying, and please correct me if I'm wrong, is that you wouldn't have to report if you have an account, as an American citizen, in an American bank operating on foreing soil. That's true. The IRS would already have access to that information because they have jurisdiction over the American bank.
You would keep your money in dollars and pay bills in dollars, so there is no 4X exchange going on. Or if you had to pay bills in local currency, then you should expect some fee.
Addo: I would expect it to be the same with a foreign bank on native soil. You give an address as an American citizen and, come reporting time, IRS has access to the information obtained.
Now, if you were laundering money from the sales of knock-off Gucci bags in Milan and stuffing the money into your BAC account, I would hope that you're smart enough to know you're going to get busted. In the old days, you could take the train and a briefcase to Switzerland every week and no one would be the wiser.
I still think the Swiss will eventually back out of this deal. Discretionary banking is kind of what they do and I wonder if they can just change their stripes like that.
I know that there are all kinds of practical reasons why it behooves the Swiss to play international rules ball here but there are (or could be) I believe more compelling reasons to play by house rules instead.
If several of the world's major currencies (or even just the USD and Euro) start to spin out of control into an inflationary/debasement/money printing death spiral (just a supposition here mind you) wouldn't a smallish, fortified and officially neutral country with a relatively sound currency and banking system that could offer certain fee-laden services to wealthy, foreigners looking to preserve capital...be an attractive business model?
In fact, I bet either Switzerland goes back into that business or someone else eats their lunch. Get yourself an island somewhere, a big pile of gold and a half-assed "nuclear program" (so no one would fuck with you) and you're ready to hang out your shingle.
Goldman is probably already on it...
Which leads back to the question, "Why are they doing this and why are they doing this now?"
Is the target really the Swiss? I doubt it. I'm sure that the Swiss have been allowed "ways around" certain reporting for "certain clients." Ahem...
The Caribbean and Pacific Island off-shoring has got to be stopped. The man is getting cut out of the circle and he don't like it.
Maybe some way to choke off the Russian mob?
Who knows? But it prolly ain't really about the Swiss.
But, but... if secret, black ops bank accounts for the CIA, DIA, NSA, DEA, etc., are outlawed, only outlaws will have secret, black ops bank accounts!
Yeah? Let's ask Allen Stanford. On second thought, he's psyched out on "depression" meds and just had his teeth kicked in in prison.
He ain't doin' a lotta talkin', if ya know what I mean.
I think you're a little closer to the mark, myself.
or... its just another piece of the pie put in place to facilitate a single world taxable currency.
My, that's some loose hem.
They say that a stitch in time saves nine. Sounds like they're a year late already.
ruh-roh
maybe I can get money like that? maybe I should try something like that.
http://covert2.wordpress.com
So, Bruce's post is saying that the US is taking itself off of that list (one of ninety-five world offshore finance centers) of tax havens?
Seems like an odd thing and odd time to be doing this?
No. It is saying that we are reluctantly putting ourselves on the list...hold it, hold it. I'm confused.
No, after we strong-armed the Swiss into revealing all that was held in American's secret Swiss bank accounts, we agreed to tell as well. The reason we didn't do it before was because the US banking system has about a trillion dollars of dubious dough, a quarter of which (by Bruce's reckoning...) would be repatriated. That's a lot of money to a giant pyramidial 10:1 (ha!) fractional reserve banking system.
Welcome to Bruce's world and why I get such a kick over reading his posts:
"Seems like an odd thing and odd time to be doing this?"
Exactly. Why? Why now? What's up?
Kinda makes you think outside the box.
So I'm guessing that the CIA narcobux that get laundered within the U.S. banking system will flow back out again without being reported as deposits. No?
OK, in a latter comment of yours you mention it originates from the US/Swiss agreement which, if they haven't made any changes since the last time I perused it, gave the US government unusual access to the S.W.I.F.T. inner sanctum (databases).
Perhaps this is the ulterior reason?
I don't know about such stuff. But when I get a cool acronym and "databases" in the same sentence, my conspiracy theorist ears perk up.
At which point, I would generally ask, "Why, sgt_doom, whatever do you mean?"
:D