On Bullying Friends

Bruce Krasting's picture

 

Lost in last week's Taper Talk and generally bad markets was a development that I think has some legs. The Swiss Parliament basically told the US Department of Justice to fuck off. I'm very surprised by this outcome - I would have bet against this result. There will be repercussions.

wsj

The details can be found here. The quick story is that after many years of pressure from the US DOJ, the Swiss Government was forced to offer up new legislation that would (1) end banking secrecy, (2) force the Swiss banks to open their books, (3) force the banks to pay pay fines and (4) obligate the banks to identify the names of specific employees who assisted US customers in evading taxes. Eveline Schlumph, the Finance Minister and former President, championed the proposed laws in the political debate. She fell flat. The Swiss said "no" with a 126 to 67 vote.

I believe that this outcome came as a surprise to the tough guys at the DOJ. They have been beating the Swiss Banks to death for years. The most recent example is Wegelin Bank. This 270 year old bank was forced into selling its "good' assets at a cheap price and then just shutting down what was left in a matter of weeks. That's how powerful the DOJ is.

It's 100% certain that the DOJ is going to retaliate for the "No" vote in Switzerland. It has to; there is too much at stake. The only question is which Swiss Bank comes under the DOJ rifle scope. I think the DOJ is going to come out swinging for the fence and target a big bank. Credit Suisse, Julius Baer and the Cantonal Bank come to mind.

If the DOJ indicts a Swiss bank, it can prevent it from making dollar based wire transfers. The DOJ will order all US banks to not make transfers on behalf of the targeted institution . At that point, the bank is functionally shut out of all dollar based business. No global bank can operate for long without the ability to make transfers in dollars.

This possibility has been discussed openly in Switzerland. That's why I'm surprised at the vote outcome. The Swiss parliament has taken a step that could result in a hammer blow to one of the country's important institutions.

A fallback position for a Swiss Bank that is indicted is for the Swiss Central Bank (SNB) to assume the role of the indicted bank, and make all of the necessary dollar based transfers on its behalf. The SNB's Thomas Jordan has indicated he's lukewarm to this approach. Jordan understands that if he pushes against the DOJ, the outcome will be an indictment of the SNB.

It's possible that some last minute deal will be pulled out of the hat. But any attempt by Schlumph to ram through a solution over the objections of the Swiss Lower House will create a different set of problems. I'm not sure how this ends up. There are several scenarios that lead to trouble. The US Treasury has already labeled the SNB as a currency manipulator; the peg policy of the SNB could come under more criticism if the Swiss don't play ball with he DOJ. The thought that the SNB could get hit with an indictment if it comes to the aid of an indicted Swiss bank, is a black hole of uncertainty.

 

I think that most Americans would support the move by the DOJ to go after untaxed offshore accounts. A very small group of people are evading taxes; that means that everyone else has to chip in for them. The Swiss understand this, but they do not like being bullied. Make no mistake, the DOJ is playing the bully in this story.

Assume that Canada told the USA that it had to change its immigration laws. That this had to be done ASAP, and under terms that were not at all acceptable to Americans. If the the USA did not bow-down and accept the Canadian terms, then Canada would end all oil exports to the USA and divert the crude to China.

I don't think that scenario would go over very well in America. From the Swiss perspective, the DOJ muscle is no different.

 

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Zero Govt's picture

"The Swiss Parliament basically told the US Department of Justice to fuck off."

The Yanky Doodle bully boys have so wrecked US citizens business around the globe they are now empty handed for any purchase abroad

US Foreign policy has painted itself into a corner, well done cretins, better get used to the 1 and 2 fingered salutes to your whining and throwing your dummies out the pram ...nobody gives a crap

shovelhead's picture

I'm not one for predictions, but eventually the DOJ, and the US are going to run out of feet to shoot.

Americans are stuck with the dollar and, for the present, most other countries are too. This is changing, slowly it seems now, but these things can take on a life of their own. Resentment over being bullied and swindled does not make for healthy long term business transactions when there are many global options in the marketplace.

A few trees in Turkey and a few cents hike in bus fares in Brazil illustrate how small events can lead to rapid, unpredictable consequences. I'm not feeling a whole lot of love out there for US foreign policy and diplomacy, political as well as financial.

We shall see.

 

Yellowhoard's picture

There are no good guys in this battle.

Our banks are evil. The Swiss banks are evil.

Remember how the Swiss just decided to keep all of the gold and jewels and bank accounts of halocost victims after WWII?

Survivors families would show up to claim their inheritances and got nothing but a blank stare.

Oldwood's picture

As they say, power corrupts and absolute power corrupts absolutely. This is a battle for absolute power that results in absolute evil. Choosing sides is picking the lesser of two (or more) evils? The stakes have never been higher.

Fish Gone Bad's picture

This is a battle for absolute power that results in absolute evil.

How is this any different than any other power struggle?  Depending on what side you are on, it may or may not be evil. I have no idea if the Swiss are less evil, perhaps they are just not as clever.  At one time the Swiss mercenaries were the best money could buy.  Now they just guard the Vatican in clown suits.

Free Wary's picture

The US Treasury has already labeled the SNB as a currency manipulator

This always seems hypocritical to me when the US govt calls other nation currency manipulators and I'm trying to figure out how to keep up with 9% - 10% cost of living increases.

KickIce's picture

Outstanding article and comments, thanks again ZH.

 

It sickens me to see what these bastards are doing to the country I love as well as the poison they are spreading to the rest of the world.

F. Bastiat's picture

Both Obama and Holder, in particular, are affirmative action frauds.

The Russians, Chi-coms, and Swiss clearly know it.

blanketof ash's picture

"If the DOJ indicts a Swiss bank, it can prevent it from making dollar based wire transfers."

Some more little incentive to move into other currencies.

 

zipit's picture

"Bully If You Don't Get Your Way" is Chapter 1 on the playbook.  Err.  Scratch that, "Bully If You Don't Get Your Way" is the title of the playbook.

legal eagle's picture

The Swiss did not learn from the Hitler debacle.  If you try to appease the aggressor, the aggressor only gets stronger.  The Swiss should have had this battle in 2006.  The US is free to go after tax dodgers in every foreign country, but when they go after foreign institutions, then it is financial war.  The US is such a bully about everything now.  When I was a child, I thought - why are the Soviets afraid of us?  No one should be afraid of the US all we want is democracy, free enterprise, nations states with self-determination, peace -- boy did I buy in to the propoganda hook, line, and sinker.  The world should fear, and loath, what the US has done to itself as well as what it is doing to the rest of the world.

hootowl's picture

The bankster greed has turned the U.S. Government into the greatest state terrorist in the world.  This attitude will come back to haunt this evil behemoth east of the Potomac, as well it should.

There are no sinless entities in the faux-Hebrew/ Babylonian world financial scam, but bullying from the amoral U.S. DOJ can have only ill effects and unanticipated flashbacks in the long run.

Stupid! Stupid! Stupid!

Other nations, especially when they act in concert, have resources and options inimical to U.S. financial interests.  This will just degrade the status of the U.S. Dollar as the reserve fiat.  Other options are rising to the fore.

The idiocracy of this current U.S. regime is in full flower.

Divine Wind's picture

 

 

 

There is a significant difference between tax AVOIDANCE and tax EVASION.

hootowl's picture

Significantly, only by IRS and U.S. federal courts legalistic linguistic legerdemain, is there an equivocally definitive difference created solely for the imposition of punitive tax measures.

.....And only when the definition is effective in feeding the insatiable maw of the faux-Hebrew Babylonian Fiat Beast.

 

falak pema's picture

the one invloved a team of tax lawyers, the other a team of suitcase carrying courriers in the OLD days.

I guess since they invented the SWIFT and Internet and HFT fisting, you can now transfer your ill gotten gains from margin calls all over the world via shell companies into bank accounts that run from pillar to post, before NSA/IRS can say "hey presto, we got our hooks on you and on the Swiss."

FACTA dictat gets a faceload of Brussels's iconic piss. 

Oups in this case its FATCA and not FACTA, which is for fair accounting; my bad.

overmedicatedundersexed's picture

let's ship gold and bonds across the Italian / Swiss border, with korean mules on euro rail...oops

Ghordius's picture

"The US Treasury has already labeled the SNB as a currency manipulator; the peg policy of the SNB could come under more criticism if the Swiss don't play ball with he DOJ"

which is really interesting if you remember that the floor the SNB has set for the CHF is versus the EUR, not versus the USD

falak pema's picture

but the real gun that the DOJ holds is access to US markets by the Swiss banks...short hairs there! 

Empires can get tuff with allies.

Cultural Capital's picture

Well put Bruce, you should do more stories on FATCA.  Wonder how many American's know that Zürich's mayor renounced her US citizenship. 

Tenshin Headache's picture

Doesn't the NSA have all this information already?

newengland's picture

The BIS is in Basel, Switzerland. This fact determines who gets what in the tussel between this latest fiatsco; the sharks fighting sharks.

The gnomes of Zurich rule SWIFT, a creation by and for the privately owned central  banks...not the DoJ in any land.

disabledvet's picture

the bottom line is that QE works. seems rather odd "now is the time to throw it over board." i mean how many more municipal bankruptcies do we need before we can call this recovery "a real gangbuster"? we'll see what happens but i really don't see what the Fed is doing right now as making any sense whatsover.

CheapBastard's picture

If the Swiss give up their main industry....secret banking--what else do they have?

 

 

Swiss cheese?

 

[just kidding]

hootowl's picture

If they get desperate, they may work to encroach on the drug-money-laundrying monopoly of the U.S. banks......through many surrogates.

DeadFred's picture

They make a mean cuckoo clock.

BKbroiler's picture

They have it good.   Strong currency, top notch social programs, indigenous population with low immigration, and a fortress geographical location with no alliances. and swiss girls are hot

Ar-Pharazôn's picture

LOL, i am a swiss and i currently live in Lugano, southern Switzerland, cantone Ticino.

 

low immigration lvl? what do you mean? only in 2012 we've had like 30000 refugees coming here which is more than Italy. we have almost 8 milions people here, while italy have 60 milions? and that does make low level immigration?

 

foreign population in Switzerland is depending on the canton, between 25% and 30%, and you call that low level immigration?

 

i just hope you were joking.

 

regards Arphy

hootowl's picture

Are they buying-up the churches to convert them to mosques, yet?

Ar-Pharazôn's picture

his information are totally wrong

WTF_247's picture

Amazing that no media is lining up the fact that American banks (and select other global banks outside the US) are given a 100% free pass to commit all sorts of fraud - nothing happens.   Token small fine and business as usual.  Repeat again and again - its good and profitable business for them.  Swiss banks do similar and all hell breaks loose.

The only difference is that the Swiss banks helped defraud the US govt rather than the US people.  Tax evasion the govt does not like - cheating, lying, stealing and committing fraud on regular Americans is A-O.K and is no big deal.  Other than outright murder they can do whatever they want - the fines go to the govt so the govt benefits. 

The govt only gives a shit when the shit happens to them.  I would tell them to fuck off also.  What comes around goes around.

hootowl's picture

"What comes around goes around.".....or vice-versa.

WTFx10's picture

"Amazing that no media is lining up the fact that American Mafia banks (and select other global banks outside the US) are given a 100% free pass to commit all sorts of fraud - nothing happens.   Token small fine and business as usual.  Repeat again and again - its good and profitable business for them.  Swiss banks do similar and all hell breaks loose.

The only difference is that the Swiss banks helped defraud the US Mob rather than the US people.  Extortion evasion the Mafia does not like - cheating, lying, stealing and committing fraud on regular Americans is A-O.K and is no big deal. If someone takes notice outright murder works too. They can do whatever they want - the fines go to the Mafia so the mafia benefits. 

The mob only gives a shit when the shit happens to them.  I would tell them to fuck off also.  What comes around goes around."

Couldn't resist.

Tinky's picture

By the way, it increasingly appears as though the DOJ is hell-bent on being used as a prime example of dictionary definitions of "oxymoron".

q99x2's picture

My dog would tell the US DOJ to fuck off after knowing as much as he does about Eric Holder.

williambanzai7's picture

If they were serious, they would go after the British Tax havens. But their agenda is never what they would have us believe, is it?.

Parrotile's picture

The "British" tax havens aren't quite as British as you think - Isle of Man, The Canaries, Channel Islands - all "Protectorates" but all with their OWN Governments and Legal Systems.

They design their Banking laws to suit them, not "Britain". Also, their "low taxation" rules are perfectly legal under International Law - this is not tax evasion (which is illegal), but tax avoidance - which as far as I'm aware is still perfectly legal, and open to everyone via Trust accounts, special "Tax Minimised" accounts (e.g. the old UK Tax-Exempt Special Savings Account - or "TESSA" scheme), and many others.

Tax minimisation / avoidance is not necessarily evasion.

Oliver Jones's picture

Nicholas Shaxson disagrees with you.

disabledvet's picture

Cyprus is/was a British tax haven. a very good one actually. "not anymore" as Inspector Clouseau famously observed.

chindit13's picture

Imagine that.  Economic self-interest goes both ways.  Who woulda thought?

I'm not sure what is more dangerous....offending the DoJ or offending a Swiss Bank.  Too bad Paul Erdman passed away long ago.  He became rather an unintended expert on "crimes against a bank" in Switzerland.

Promethus's picture

I don't think the US has any friends left - and deservedly so.

Widowmaker's picture

Nothingburger.

The spineless injustice department let every lead get cold the last 5 years to give precious banks fellatio.

No one will be charged or so much as looked at crosseyed, let alone any institute of Fascism. 

They might hand out a parking ticket, everything else was buried to protect the guilty...

tony bonn's picture

"The Swiss Parliament basically told the US Department of Justice to fuck off..."

i wish more governments would tell the usa to fuck off...it is the biggest terrorist state in the world thanks to the bush crime syndicate and rockfeller nazi cabal - but they have been doing those sort of things since the russian revolution and before....and of course who could forget their masterpiece of 9/11....

in the short run the swiss are fucked and they will back track. but it is this sort of financial terrorism which has backfired badly......the cut off of iran from the swift system has set in motion earth rumbling changes which will start to appear this year and next...the days of the dollar supremacy are numbered and with the loss of that prestige, american living standards will plunge even more than they have already....amerika will become a 3 world nation.....it will still have its 1% citizens of the world, but all others can eat shit....

Notarocketscientist's picture

You forgot to mention the Obama crime syndicate....  indict Obama - jail him - then do the same to bush cheney rumsfeld....

Then if the DOJ really wants to fry some big fish - cut these puppets deals and go after the PUPPET MASTERS

DeadFred's picture

I've often been at a loss to figure out why these guys go along with the stuff shoveled their way by the US or EU. Now I wonder if Ed Snowdon could shed a light on the issue. Maybe now the politicians will think that the spooks threatening to release the tapes of their calls to Mimi or whoever have as much to lose if their bluff is called. Of course I'm paranoid and prone to conspiracy theories.