patrick.net

what do they care?

"Offshore banking is a symptom of excessive taxation and regulation."

Yes. But even if you think we need more regulation, we are in a trap because over time our industry will leave the US for the easier rules and lower taxes offshore.

The US has one of the very highest tax rates and heavier regulation in the industrialized world. Why form a company here when you can set up offshore and sell into the US?

But even if you think we need more regulation...

I want more regulations? Me? LOL! :)

I am a big fan of Mellonomics.

Zephyr, I also think tax rate, especially corporate tax rate, is way too high here. There is absolutely no reason why the rate for the highest bracket should exceed 20%.

No, Offshore banking is a symptom of excessive greed and lax regulation.

Zephyr,

do I have to spell it out loud?

I think it is the Fed buying the Treasury under the disguise of these tax-haven islands.

Do you see Buffet and Gates loaded with T purchase? I don't. I wonder who these patriotic ultra rich Americans are.

Nice of you to spell out your conspiracy theory. It could be true.

However, there is no need for it to be true to see what we are seeing. There are plenty of investors with huge portfolios sheltered offshore who are buying the Treasury as a safe haven from the asset declines. This is not a theory.

Forbes' richest persons/families of the world have a combined total wealth of $1.47T.

Not all of them are Americans. Not all of them have it in liquid cash, most of their money is tied in their own company stocks, which they cannot easily cash out. Gates or Buffet's biggest source of wealth is still their holding in their companies.

So let's say out of that $1.47T, 1/3 is completely liquid, that gives us roughly $500B liquid wealth from the richest (remember, the wealth scale falls off very rapidly outside of 100).

So someone tells me that the richest people in the world in the last 12 months, bought $218B Treasury, out of $500B total liquid wealth they have.

Does that even sound reasonable to you?

Many uber-rich people are not on Forbe's list.

Forbe's may underestimate wealth of those who hide their money well.

Besides, the collective wealth of mere multi-millionaires in hedge funds can be vast.

You also have to assume that all these rich people park their money in the tax havens, which is certainly NOT the case for the richest.

They can at most park a SMALL amt there because as the richest and highest profile, they are high on IRS watch list.

It is a misunderstanding that the richest people park ALL their money at the tax havens, no, they only park part of their money there, most of their money are sitting in the US. Most common type of investment for these super riches is actually tax-exempt Munis.

So it is an extremely far stretch for me to believe that these ultra-rich people have an EXTRA $218B parked in tax havens just for the purchase of US Treasury. This argument is not going to fly with me for a sec.

Justme, Offshore banking is a result of a signifcant difference in the tax rates between two locations of domicile. You can base in the US and keep 60% of your profits or base in Cayman and potentially keep 100%. I can assure you that most people have no trouble understanding this math.

I believe Hedge funds from cayman are buying those treasuries. These guys are super rich and i remember vaguely the name of fund started with Ben....

TOB,

I did not think you were joking. But I suppose most people just don't know about these things, and jump to conclusions.

Peter P,

if anything, Forbes always overestimates, not underestimates their wealth. Let's say I know someone who compiles the list and happen to know how it works.

OO,

I never said anything about what portion of peoples' money is in these locations. And you also wrongly assume that its not legal to do so.

The IRS has no jurisdiction over non-US companies. And US citizens can legally invest in them. And non-US companies do not pay US income tax on profits earned outside the US.

A rich person could legally put all of their money offshore and pay no income if the deal is structured properly (in compliance). This does not require smoke and mirrors. All perfectly legal.

OO,

If Forbes overestimates for many then their methodology is either lame, or it is evidence that some of the money has susequently slipped away uncounted.

OO, I trust you.

However, I believe they did underestimate Bloomberg's networth until recently. (Or are they overestimating it now?)

Zephyr,

we will just wait for another 3 months to see how many of these phantom "rich people" from tax havens are going to US Ts.

Japan is certainly not buying, they started shedding a year ago and even offloaded some in the "flight to quality" period of Sept. Chinese simply doesn't have the dough to pay, if they don't cash out, I am already very thankful.

There is already a number circling around saying that our next quarter (!) deficit will hit $500B. I will be watching in amusement how these "tax haven super riches and hedgies" just keep buying our T, no matter the economy goes up or down, they just happen to have unlimited amount of money to buy, very funny.

Just as a reference, all the Asian superriches on the Forbes list suffered huge losses from stock market and a financial weapon of mass destruction called Accumulator. Don't expect these guys to chip in on T. Russian oligarchs are bleeding to death on the tanking oil price. Middle Eastern riches are hurting like hell with oil price more than halved. So there just happen to be a group of really smart rich people whose wealth does not shrink in the deleveraging, and they can afford to buy as many T as they want, not on leverage but dollar for dollar. Very nice.

This offshore game has been going for a very long time. I have no idea when it started (probably with the first income tax). I was in the business of forming and managing offshore companies during the 1980s, and I have set up and run a few offshore companies since then. The companies that I ran elected to be taxed as if they were based in the US. But that is only because our ownership profile did fit the US tax rules to be untaxed.

OO,

You overlook one very important fact in this market decline. All the people who bought stock, real estate and other assets at or near the top bought from someone. For every top of the market buyer there was a seller - selling at the top. Some people sold and went largely to cash, or at least partially to cash.

Many of these people even shorted the markets. Too risky for my taste, but they have made money in the decline. And still have it. Probably in the safest place one can put it - US Treasury bonds.

Zephyr,

no, stocks are priced at the margin.

So not the whole lot was sold, just that the wealth of a family or a person is valued as his total stock holding x the marginal price at which the stock changed hand.

A lot of wealth never existed in the first place, it was on paper. Only the marginal amount that changed hand accounts for the wealth that changed hand, but you never see personal wealth being evaluated that way.

Only a small part of that wealth got transferred at the top. Most of the wealth was never there, it just evaporated.

Are there more people shorting the market making money or are there more people longing the market making money?

My whole point is, I do not believe for a sec that the banking centers that hide identity of buyers are representative of the real demand for US Treasury than many countries combined, and these are not small countries, I am talking about Germany, France, Japan, Canada, Korea, etc. the most industrialized countries in the world.

I am of the firm belief that the Fed has already started raw printing, and I take my actions accordingly.

Most people who short the market lose money. This is why allowing short-selling is great for bulls. (Think short squeezes.)

The next big play is to short the Treasury.

But the problem is, when Treasury implodes, what currency do I hold? Is there any way to short the Treasury and get paid in another currency?

There is way too much negativity. Perhaps we should calm down.

Of course stocks are priced at the margin... everything is priced at the margin (econ 101). And turnover is very high. So a very large share of all stock did change hands during the 2007 peak market.

BTW, the stock market dwarfs the Treasury market. So even a modest exit from the stock market can cause a tidal wave in the Treasury market. Of course we are witnessing a massive exit from the stock market, and the the Treasury market cannot absorb it all.

The amount of stock traded during a typical year is roughly equal to 100% of all stock existing. Of course, much of this stock trades repeatedly during the year, while the rest never or rarely trades. But on average the turnover is about 100% per year. Probably higher in the last two years.

In contrrast, only about 6% of resdential real estate turns over in a typical normal year. (Is there such thing as a normal year anymore?)

That is sad, the world is flat is a best seller in China, because it inspires so many Chinese to be living just like the Americans, do you mean they are denied the chance to live like the flat broke Americans? Boo hoo.

I have never read his book.

TOB,

Could not agree more about Thomas Friedman. That windbag of windbags among columnists is the sneakiest right-wing propagandist I can think of. He always does that "notice-how-moderate-and-reasonable-I-am" writing style all the while underhandedly spouting propaganda and right-wing memes. Good riddance.

The best economics book I have ever read is The Alchemy of Finance by George Soros.

No kidding.

No kidding? Huh?

The real reason that the Republicans are against the auto industry rescue is that they want bankruptcy so that the Big 3 corporations can get out their legal obligation to pay pensions and health-care for their retired workers (the weasel-word they use is "legacy costs")

The Big 3 made promises, now Republicans want them to break them. The unions have negotiated in good faith and agreed to accept lesser obligations so that the Big 3 can stay afloat. For the Republicans, the desire to screw the unions trumps everything, at considerable cost to the economy.

Barack Obama has the wits to structure a Big 3 rescue package that is good for the country and good for the workers. Better cars, high mileage standards, the works. Let us hope he gets a chance to influence the rescue package.

We can smooth the disruption of the automakers’ decline - but not for long. It is a hopeless cause - Detroit is dead.

The biggest problem Detroit auto makers have is their excessive compensation levels for workers and incompetent management.

It is hard to be competitive when your workers are paid about 60% more than your competitors pay their workers. You either charge much higher prices, or sell inferior goods at the same price (or a blend of the two).

A rock and a hard place comes to mind.

Cars will no longer be made by overpaid workers. The question is whose workers will build cars in the future.

Who will replace Detroit’s remaining market share?

There is nothing Obama can do to restore health to the big 3 because their cost structure is not viable. They pay their workers an average $72 per hour including benefits (about $140,000 per year).

The only thing that will keep them operating as they are now is to subsidize them like Amtrak at taxpayer expense.

Zephyr,

The workers are not overpaid, that is the lie that the propagandists are spreading.

The problem is that Big 3 management underfunded their pension plans, and count pension expenses against current worker hourly rates

Go back to the previous thread and read this comment (and the others), you will get the big picture:

http://patrick.net/wp/?p=645#comment-640898

Come on, anyone who is against the Wall Street bailout cannot support the automaker bailout in good conscience.

Please be consistent.