The GAO Exposes a Possible Cayman Islands Sham

It's one thing to hear stories about the tax havens in various parts of the world, such as the Cayman Islands. It's another thing when you find out the Government Accountability Office has been busily compiling the information for Congress. That's a pretty good sign that someone is finally going to close the loopholes.

The Cayman Islands is a major offshore financial center and the registered home of thousands of corporations and financial entities. Financial activity there is in the trillions of dollars annually. One Cayman building--Ugland House--has been the subject of public attention as the listed address of thousands of companies.

GAO was asked to study

(1) the nature and extent of U.S. persons' involvement with Ugland House registered entities and the nature of such business;
(2) the reasons why U.S. persons conduct business in the Cayman Islands;
(3) information available to the U.S. government regarding U.S. persons' Cayman activities; and
(4) the U.S. government's compliance and enforcement efforts.

The facility known as Ugland House is of particular importance to anyone who wants to know what's going on in the Cayman Islands.

Shurna Robbins for The New York Times

This is the hub of what could be a lot of shady dealing. And you also have to acknowledge that much of what they do there is probably perfectly legal as well. Ugland House is where a law firm and a company-services provider named Maples and Calder is housed. The company has a list of 18,857 entities tied to it that draw from a mostly international list of clients. According to a person at that business, about 5 percent of these entities were companies that were owned entirely by US persons but--and this is important to note--some 40 to 50 percent of their clients had a U.S. billing address. Obviously, we need more information on what is going on.

Information about U.S. persons' Cayman activities comes from self-reporting, international agreements, and less formal sharing with the Cayman government. Because there is often no third-party reporting, self-reported information may be vulnerable to being inaccurate or incomplete. U.S. officials said the Cayman government has been responsive to taxpayer-specific information requests. The Internal Revenue Service has several initiatives that target offshore tax evasion, including cases involving Cayman entities, but oversight and enforcement challenges related to offshore financial activity exist. U.S. officials said that cooperation with the Cayman Islands government has been good. Also, Maples partners said that ultimate responsibility for compliance with U.S. tax laws lies with U.S. taxpayers.

That's why I think this is a sham--there's no accountability or oversight and who really thinks there aren't at least a few US individuals who are using the Cayman Islands to hide money that should be taxed? I think the GAO has decided to start exposing this sham, and Congress needs to step in as well.

Here's hoping the GAO can shed a little light onto this tax shelter, and help drive home the fact that these scams are being perpetrated by some heavy hitters. I don't have a whole lot of faith--after all, this isn't the first time the issue has been raised.

Now we just need to find out who the heavy hitters are and what they're doing.

--WS

Do ya think this might have something to do with Gramm's sudden departure?

Oh boy, this is going to blow up all over the McCain campaign.

Gramm's stated reason for his abrupt departure from the McCain campaign - that's Democrats are picking ion him over his "nation of whiners" comment smelled like bullshit to us from the get-go. After all, this is the guy who defended saying that we are the only country where all the poor people are fat, and who rails about government but has spent his entire life suckling at the government teat.

Ol' Phill just ain't the kind of guy who would quit the campaign of Mr. Straight Talk for talking, as he sees it, straight.

We think he is going to get hauled up in front of Senator Levin and his buddies on the Permanent Subcommittee On Investigations, a subcommittee of the Committee on Homeland Security and Governmental Affairs for being a tax cheat. There are 1400 names on the list of treasonous tax cheaters who are engaged in economic warfare against the United States provided by a former employee of LGT Bank in Liechtenstein, and Durbin's subcommitte starts holding hearings on Thursday, and we do not think it is coincidence that this report (.pdf) to the subcommittee was released on Thursday and Gramm bailed on Friday.

But if you do, we have a killer deal on some beachfront property in Mesa, Arizona and we'll throw in a bridge in Brooklyn as soon as your check clears.

~BG

We doff our cap to a lurker for the email that put us on the trail. You know who you are, and you should also know we are deeply appreciative of the tip.

Frank Rich Takes John McCain to the Woodshed

You have to celebrate the moment when a prominent columnist actually does his or her job and points out just how ridiculous this campaign has become. We are enthralled with images and slights, attacks and smears when we should be focused on who has the best strategy to reduce the threat of terrorism and manage our economy. The two are intertwined, and Frank Rich nails it:

“In a time of war,” Mr. McCain said last week, “the commander in chief doesn’t get a learning curve.” Fair enough, but he imparted this wisdom in a speech that was almost a year behind Mr. Obama in recognizing Afghanistan as the central front in the war against Al Qaeda. Given that it took the deadliest Taliban suicide bombing in Kabul since 9/11 to get Mr. McCain’s attention, you have to wonder if even General Custer’s learning curve was faster than his.

Mr. McCain still doesn’t understand that we can’t send troops to Afghanistan unless they’re shifted from Iraq. But simple math, to put it charitably, has never been his forte. When it comes to the central front of American anxiety — the economy — his learning curve has flat-lined.

In 2000, he told an interviewer that he would make up for his lack of attention to “those issues.” As he entered the 2008 campaign, Mr. McCain was still saying the same, vowing to read “Greenspan’s book” as a tutorial. Last weekend, the resolutely analog candidate told The New York Times he is at last starting to learn how “to get online myself.” Perhaps he’ll retire his abacus by Election Day.

Mr. McCain’s fiscal ineptitude has received so little scrutiny in some press quarters that his chief economic adviser, the former Senator Phil Gramm of Texas, got a free pass until the moment he self-immolated on video by whining about “a nation of whiners.” The McCain-Gramm bond, dating back 15 years, is more scandalous than Mr. Obama’s connection with his pastor, the Rev. Jeremiah Wright. Mr. McCain has been so dependent on Mr. Gramm for economic policy that he sent him to newspaper editorial board meetings, no doubt to correct the candidate’s numbers much as Joe Lieberman cleans up after his confusions of Sunni and Shia.

A vote for McCain is a vote for Gramm. And Gramm was so soundly rejected the last time he ran for President, you have to question the judgement of someone who would hire him to give advice on running for President. It's a wonder that it took this long for McCain to get rid of Gramm. Again, you come back to judgement.

--WS

Phil Gramm Reacts to Being Fired From the McCain Campaign

When this kind of thing happens, all you can do is hope and pray that former Senator Phil Gramm gets the help that he needs and that his family will be there for him.

An American Airlines flight from Boston to Los Angeles was diverted to Oklahoma City on Friday after a passenger stripped, put his clothes back on and then tried to open an emergency exit door before being subdued by members of a Major League Soccer team on board, the FBI said.

"He was completely naked. I mean, he'd taken off his clothes, sleeping across the three seats," said passenger David Pease, who was sitting next to the man.

Members of the New England Revolution professional soccer team helped diffuse the situation.

[SNIP]

"Then he sat back down in his seat, and then about five or 10 minutes later, when he got up again, and it appeared as though he was going to the bathroom, but that's when he didn't and went for the emergency exit door," Burns said.
The man, whose name was not immediately released, was taken off the flight in Oklahoma City and was undergoing mental evaluation, Johnson said.

Burns added that the man was fairly emotional at times.

"There were times he was crying. There were times he was kind of laughing. ...It was very strange," Burns said.

"He was pretty mild as far as a guy who was first, naked, and the secondly, running for the door to jump out," Tornberg said. "If he walked by you right now, you probably wouldn't notice, unless of course he was naked."

Now, try and tell me that wasn't Phil Gramm. You know it was.

--WS

McCain Throws Gramm Under His Bus, Backs Up, And Runs Over Him Again

When John McCain throws his real BFF Phil Gramm under the bus, it's news:

Republican John McCain distanced himself from an economic adviser who dubbed the United States "a nation of whiners" in a "mental recession" as Democrat Barack Obama turned the remarks against his rival.

"I strongly disagree" with Phil Gramm's remarks, McCain told reporters in Belleville, Mich. "Phil Gramm does not speak for me. I speak for me."

The Republican presidential hopeful said a person who just lost a job "isn't suffering from a mental recession."

"America is in great difficulty. And we are experiencing enormous economic challenges as well as others," McCain said, seeking to stem the fallout of Gramm's comments.

Gramm, a former Texas senator who is a vice chairman of the Swiss bank UBS, made the remarks in an interview with The Washington Times. Gramm has a doctorate in economics.

Gramm had basically said that Americans were "whiners" and since that gaffe, he's been trying to backtrack and say that he was talking about the leaders, not the people. This comes on the heels of McCain saying that Social Security is a "disgrace." There HAS to be a media mancrush the likes of which we have never seen before--that's the only way to explain two wrenching, out of control gaffes of major importance happening so close to one another, one from the candidate and one from a friend like Gramm. I mean, how do you get away with having Gramm on your campaign in the first place? Gramm was instrumental in the recent mortgage meltdown and has worked as a lobbyist for a foreign-owned bank.


Remember, it was McCain who was once the surrogate for Gramm, when Gramm electrified this nation and came within several thousand delegates of being the Republican nominee for President. (I kid--Gramm was within 1,800 delegates or so at one point, probably.)

Senator Obama twists the knife, and we appreciate that kind of thing:

In Virginia, Obama seized on the comments as he tried to paint McCain as out of touch: "America already has one Dr. Phil. We don't need another one when it comes to the economy."

He drew cheers and laughter with that comment referencing television psychologist "Dr. Phil" McGraw - and boos and hisses when he read Gramm's quotes to his audience. He contrasted them with rising gas and food prices, home foreclosures and job layoffs.

"It's not just a figment of your imagination," Obama said at a town-hall event focused on helping women advance economically. "Let's be clear. This economic downturn is not in your head."

Shades of the first President Bush in 1991, I would say. McCain is out of touch, out of his element, and lost when it comes to economics. And he's getting advice from people like Gramm who have failed, miserably, at electoral politics.

The Legacy of Phil Gramm

Photo credits: Gabriel Chmielewski/College Station Eagle, via Associated Press

Wingnuttery has a price...

Given the risks to the economy if the financial system melts down, this rescue mission is justified. But you don’t have to be an economic radical, or even a vocal reformer like Representative Barney Frank, the chairman of the House Financial Services Committee, to see that what’s happening now is the quid without the quo.

Last week Robert Rubin, the former Treasury secretary, declared that Mr. Frank is right about the need for expanded regulation. Mr. Rubin put it clearly: If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks.

But will that logic prevail politically?

Not if Mr. McCain makes it to the White House. His chief economic adviser is former Senator Phil Gramm, a fervent advocate of financial deregulation. In fact, I’d argue that aside from Alan Greenspan, nobody did as much as Mr. Gramm to make this crisis possible.

That's right--Phil Gramm. He of the wildly popular Presidential campaign that went no where. He of the electrifying personality. He of the wingnuttery of the 90s known as "deregulation" that has placed our current financial system in jeopardy. Does this set off any kind of warning bell for you?

The collapse of Enron Corp. has drawn new scrutiny of a powerful Washington couple who between them played prominent roles in deregulating energy trading to the benefit of the company.

The couple, U.S. Sen. Phil Gramm (R-Texas) and his wife, Wendy Gramm, who serves on Enron's board of directors, both know Enron's top executive, Kenneth Lay--and have benefited financially from their relationship with him.

Phil Gramm has collected more than $97,000 in campaign contributions from Enron, according to the advocacy group Public Citizen. Wendy Gramm was paid between $915,000 and $1.8 million in salary, attendance fees, stock options and dividends over the past eight years, the group concluded.

"What has all of this bought" Enron, asked Sheila Krumholz, research director for the Center for Responsive Politics. "Has this bought them cover?"

In the early 1990s, Wendy Gramm, then chairwoman of the Commodity Futures Trading Commission, moved to lift governmental oversight of energy contracts that Enron and other companies traded. A short time later, she was appointed to Enron's board of directors.

And in December 2000, Phil Gramm helped clear the way for a bill turning his wife's deregulation decision into law, something Enron had long wanted.

The Commodity Futures Modernization Act, of which Phil Gramm was a sponsor, contained a clause making the exemption law. Though it is now called the "Enron exemption" on Capitol Hill, a Gramm aide said the senator had not prepared that section of the bill.

See, every time you deregulate something, it opens it up to the predators who swoop in and ruin the industry. Or it allows the fatcats to plunder the treasure and (almost) get away with it. There's nothing wrong with the idea of getting government regulations out of the way of people who want to grow an industry. The problem is, once the government opens something up for abuse, there are specially trained people who are savvy enough to come in and make a killing or work from the inside and ruin that industry and then walk away. Does the Savings and Loan Industry bailout ring a bell?

The Savings and Loan Crisis resulted in the failure of over 1,000 banks with over $500 billion in assets on their books. The FDIC estimates that the total cost to resolve the crisis was $153 billion. This was needed to administer the closing of defunct banks, pay the insurance on savings account deposits, and pay off other debts. Of this, the taxpayer cost was $124 billion.
The Fed's bailout in the current Banking Liquidity Crisis has totaled $64 billion in the form of loans to member banks. If the Fed's actions are successful, and liquidity is restored, then the money will be repaid, and it shouldn't cost the taxpayers directly.

However, no ones really knows exactly how deep the Subprime Mortgage Crisis goes. This was also the problem with the S&L Crisis, and the reason costs kept mounting. In fact, it took nine years before the full extent of the S&L crisis was known.

The current crisis is further complicated because it probably extends beyond real estate. The financial firms that repackaged mortgages into mortgage-backed securities did the same auto loans, credit card debt, and corporate debt. These Collateralized Debt Obligations (CDO's) have been bought by corporations, mutual funds and pension funds. Therefore, the extent of the potential bad debt is completely unknown, and this is what is scaring Wall Street, economists...and the Fed.

So you have Phil Gramm, king of deregulation, advising John McCain on economic matters. It's ironic that the bailout of the Savings and Loan Industry comes up in polite conversation again because it reminds us of this little episode:

Senator McCain had taken $112,000 in Keating-related campaign donations, trips aboard Mr. Keating's corporate jet and family vacations at the executive's Bahamas hideaway. While legal, these gifts made his attendance at the meetings with federal regulators all the more questionable. (The other four senators had also taken large contributions from Mr. Keating, some of them far more than Mr. McCain.)

He survived and was re-elected easily in 1992 and again, with almost 70 percent of his state's vote, in 1998. Three other members of the Keating Five were more seriously rebuked by the ethics panel and all of them retired rather than face difficult re-election battles. John Glenn of Ohio, who was exonerated with Mr. McCain, was also re-elected in 1992, but retired in 1998.

What did McCain do between 1992 and 1998, you ask? Well, one of the things he did was co-chair Phil Gramm's disastrous run for the Presidency in 1995.

I can't wait to see the bill they will try to hand the American people if they ever get their hands on the US Government.