Tag Archives: Cayman Islands

The Big Bailout Scam (EU Version)

While the recent Basle agreement requires banks to carry a slightly higher cash cushion, nothing has been done to re-establish the division between investment banking and commercial high-street banking. Except for a temporary ban on naked short sales in Germany, the derivatives trade remains mainly unregulated. Honorary Professorial Research Fellow in London, George Irvin, makes the picture crystal clear.

“How long will sensible people go on accepting this nonsense before venting their anger on our ruling classes?”

George Irvin


“It may sound like total madness, but that’s pretty well what’s happening to a growing number of Europeans (including Brits) today,” George Irvin writes in his latest blog post.

I don’t think anyone could tell the story of the European Great Resession better and more understandable than professor George Irvin does in his latest blog post at the EUobserver.com:

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Suppose that my rich neighbour down the road mortgaged his mansion up to the hilt to bet on the horses, ran up millions in debt and asked me, an ordinary punter, to pay off his debts plus interest.

Suppose that foolishly I accepted, and while I struggled to pay it off while barely able to feed my family and pay off the mortgage, my super-rich neighbour acquired an even bigger mansion.

To make matters worse, he used all sorts of clever dodges in the Caymans to pay negligible taxes, while if I failed to pay mine I knew I’d be sent to prison.

It may sound like total madness, but that’s pretty well what’s happening to a growing number of Europeans (including Brits) today.

How did we get here? In Britain, the 2008 credit crunch produced a massive recession which played havoc with government finances.

In Ireland the government took over the entire debt of its banking system, while in Greece, the rich paid minimal taxes and successive governments, unwilling to challenge them, indulged in creative accounting.

That’s somewhat simplified, but it’s the essence of the story.

Everywhere in Europe, voters are being told that decent pensions and universal welfare provision are no longer affordable and that we must all tighten our belts.

Governments can no longer borrow because the credit rating agencies might downgrade their bonds.

First it was Greece and Ireland, today it is Portugal, and tomorrow perhaps Spain, then Italy, and then … who knows?

But ordinary punters are starting to wake up.

Instead of enduring years of economic depression, the Greeks and the Irish will probably have to default, as will the Portuguese if their economy reacts the same way to belt-tightening.

And what if Spain has to be bailed out, still less defaults?

That would spell a major hit for banks in Germany, France, the UK (and elsewhere), all of which could easily add up to another major financial crisis.

Are we really so vulnerable?

The answer is indeed yes – because so little has been done to address the underlying causes of the 2008 crisis.

While the recent Basle Three agreement requires banks to carry a slightly higher cash cushion, nothing has been done to re-establish the division between investment banking and commercial high-street banking, a division which disappeared with the repeal in the US of Glass–Steagall in 1999.

Except for a temporary ban on naked short sales in Germany, the derivatives trade remains mainly unregulated.

Credit default swaps (a form of insurance on risky financial products) are still sold over-the-counter rather than through an official market, the US President having failed to follow up his 2009 promise to re-regulate these.

Meanwhile, the trillions poured into the big banks since 2008, instead of going to cash-starved small business or being used to build infrastructure and to create jobs, have largely helped fuel a new stock market bubble.

The extraordinary rise in the value of companies such as Facebook and Zynga provides a worrying parallel with the dotcom bubble of 2000.

Tax dodging is now a major growth industry—witness the latest GE scandal.

As for making the bankers pay by introducing some form of Tobin tax, there’s been much talk but little action.

Perhaps most galling of all is the injustice of using Keynesian economics to justify the need for state intervention in banking bailouts while claiming today that the profligate state caused the problem, as politicians now argue in London, Brussels and Frankfurt.

How long will sensible people go on accepting this nonsense before venting their anger on our ruling classes?


By George Irvin


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Texas Billionaires Charged With Fraud

Sam and Charles Wyly, billionaire Texas brothers who gained prominence spending millions of dollars on conservative political causes, committed fraud by using secret overseas accounts to generate more than $550 million in profit through illegal stock trades, the Securities and Exchange Commission said.

“They are among the biggest of the big when it comes to campaign bank-rollers, and their donors list is a who’s who of the Republican Party over the past decade.”

Dave Levinthal


The Wylys, who have been generous contributors to the Republican Party and GOP candidates, have spent the past several years facing questions, including from a Senate investigative committee, about whether they hid millions of dollars in tax shelters abroad.

Through their lawyer, the Wylys denied all charges.

According to the SEC, the brothers, who live in Dallas, created an elaborate and clandestine network of accounts and companies on the Isle of Man and in the Cayman Islands. The brothers then used these accounts and companies to trade more than $750 million of stock in four public companies on whose boards they served, not filing the disclosures required for corporate insiders, the SEC said.

Charles Wyly

In one case, the SEC alleges that the Wylys traded based on insider information they learned as board members, netting a profit of $32 million.

“The cloak of secrecy has been lifted from the complex web of foreign structures used by the Wylys to evade the securities laws,” Lorin L. Reisner, deputy director of SEC enforcement, said Thursday in a statement announcing the civil charges.

The agency is seeking unspecified financial penalties and a variety of other sanctions, including barring the Wylys from serving as directors or top executives of public companies.

According to The Washington Post, William Brewer III, a lawyer representing the Wylys, said they intend to clear their name.

“After six years of investigations, the SEC has chosen to make claims against the Wyly brothers — claims that, in our view, are without merit,” Brewer said in a statement. “It will come as little surprise to those who know them that the Wylys intend to vigorously defend themselves — and expect to be fully vindicated,” he says.

“They are among the biggest of the big when it comes to campaign bank-rollers, and their donors list is a who’s who of the Republican Party over the past decade,” says Dave Levinthal, a spokesman at the nonpartisan Center for Responsive Politics.

“It’s almost hard to find prominent Republicans who haven’t been a beneficiary of their financial largess. They’ve definitely been very kind, financially speaking, to a number of Republicans,” Levinthal says.

Both brothers, according to Forbes magazine, are billionaires who amassed their fortune by founding a computer company and investing in a wide range of interests including oil, insurance and restaurants.

In 1979, Sam Wyly faced sanctions by the SEC for improper regulatory disclosures.

They have been the subject of probes into potential financial wrongdoing since then. In 2006, the Senate permanent subcommittee on investigations completed a report on tax havens that focused on the Wylys.

Over 13 years, the Wylys used an “armada” of lawyers, brokers and other professionals to manage hundreds of millions of dollars in transactions that amounted to “the most elaborate offshore operations reviewed by the Subcommittee,” according to the panel’s report.

The regulators alleges that the Wylys committed fraud and various other violations of securities laws while sitting on the boards of four companies over the course of a decade: Michaels Stores, Sterling Software, Sterling Commerce and Scottish Annuity & Life Holdings.

The SEC says that by using offshore accounts to trade shares of these public companies, the Wylys were able to escape filing the regulatory disclosures required of board members when they buy or sell shares.

By keeping their trading activity secret, the Wylys deprived outside investors of information they could use “to gauge the sentiment of public companies’ insiders and large shareholders about the financial condition and prospects of those companies,” the SEC says.

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Sarkozy, Brown Fails To Agree On Hedge Fund Rules

A meeting between French President Nicolas Sarkozy and UK Prime Minister Gordon Brown on Friday has failed to clinch a breakthrough on hedge fund and private equity regulation, as EU talks approach their endgame.

“Its Cayman rules that apply, and Cayman judges.”

french diplomat


Both sides said they were confident a deal could be struck in the coming days however, with the Spanish EU presidency keen to secure a common member-state position when finance ministers meet in Brussels next Monday and Tuesday, the EUobserver report.

“We’ve had good talks on this and I’m pretty confident that we can get a very satisfactory outcome in our discussions over the next few days,” Mr. Brown said in a joint press conference with the French leader after their meeting in London.

At the heart of the current debate are so-called ‘third country’ measures: If the latest Spanish text is agreed by qualified majority on Tuesday, non-EU domiciled funds will need individual member-state permission before they can market their products to investors in that country.

The UK and US are in favor of a European hedge fund ‘passport’ however, an idea contained in the original legislative proposals put forward by the European Commission last April, but subsequently removed.

Under the a ‘Schengen-type’ concept, permission from one national regulator, for example the Financial Services Authority in London, would be sufficient to give a foreign-domiciled fund access to Europe’s 500 million citizens, without the need to apply in each separate EU capital.

London is home to roughly 70 percent of the EU’s hedge fund and 80 percent of private equity industry. However, a majority of the UK firms are actually domiciled overseas, in particular in the Cayman Islands.

“But what happens if a Cayman fund fails,” said one French diplomat on Friday, indicating his country’s objections to the passport idea. “Its Cayman rules that apply, and Cayman judges.”

Spanish diplomats say the UK has failed to muster a blocking majority for Tuesday’s finance minister discussion, and while their “objective is to find the largest consensus possible,” they would not rule out the possibility of a sealing a deal against UK wishes.

A member state common position – known as a ‘general approach’ in Brussels legalese – is necessary before negotiations can begin with the European Parliament, a co-legislator in the area.

Also high up on the finance minsters’ agenda is the question of Greece. Following fresh austerity measures announced by Athens last week, a commission report is expected to say enough has been done to bring the country’s deficit down by the promised four percent this year, with implementation now the key.

Whether there will be a further announcement on the financial support plan being prepared for Greece, in case Athens runs into debt refinancing difficulties in the coming months, is a topic of much discussion in economic circles.

One senior Greek source told EUobserver this week that “there could be a clear message” that would go beyond the ‘solidarity’ pledge given by EU leaders in February.

Bloomberg was reporting on Friday that ministers would discuss whether a Greek bailout should be funded by EU bonds guaranteed by euro region governments.

Original article at EUobserver.com

Related by the Econotwist:

Geithner Warns E.U.

E.U. To Reform Economic Policy

Beginning Of The End For The European Union?

European Commission Warns Of “Lost Decade”

Wave Of Protests To Hit Troubled E.U. States

E.U. Parliament Spending Out Of Control?

Naked self-interest

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