Value Add Tax needed for Banking Products

All illegal businesses have one thing in common – they don’t pay tax when they sell their products. The only way to bring the Mafia bosses to jail was to accuse them of tax fraud, because they had no good explanation where all their money was coming from. Obviously the banksters have learned from this experience. Togehter with their fellow lawyers and lobbyists they have created all kinds of legal paths to illegal wealth and can play lots of tricks to avoid income tax. Income tax is probably the easiest tax to cheat government and the honest citizens. It is much more complicated to play around with Value Add Tax (VAT) because its based on transaction value and not on profit.  Assume banks had to pay a modest VAT of 1% on all products they sell  and foreign banks had to pay 1 % VAT on all banking products they ship into the country – such a tax was already proposed by John Maynard Keynesto prevent marginal baning transactions. The processing of the tax would immediately create a record of all financial transactions (why should banks treated different than WalMart or MacDonald’s?). Most phony transactions would no longer be valid, because VAT would be due immediately. The VAT on banking products would be also a simple way to recover the money the governments (the citizens – you and me) are throwing at the financial markets. Certainly some banks would outsource their risky business to VAT free countries. However no customer nor any other bank should assume that the US government will cover any of that risk associated with this illegal business.  Certainly a VAT on banking products would make thes products more expensive (so does the VAT on Whoppers for MacDonald’s) but the cost would be taken by the people using banking products and not by the public.

A key problem of General Motors – going metric too late and not full speed

A subtle but important cause of the high manufacturing cost of U.S. car manufacturers is the late and limited use of of the metric system, the standard measuring system for automotive parts in the rest of the world. Thus U.S.  car manufacturers use of global, low cost, standardized parts was limited. In contrast Japan adopted the metric system and DIN  standards mainly defined by the German machinery industry before serving the world market. Other parts of the U.S. industry made the transition to the metric system much earlier (e.g. IBM in the 80’s ) and were able to reduce their manufacturing cost of mechanical parts by typically 50%.  Even when a U.S. manufacturer officially introduced the metric system, engineers were still designing in “inches”. This attitude still complicates cooperation of U.S. car manufacturers like G.M. with European and Japanese manufcaturers. Whereas Ford has adapted the metric system much earlier.

The power of standardization is seen in the software industry where U.S. companies set the standards and dominate the markets.

The retirement trap – are people saving too much?

In his article “Revenge of the Glut”, Paul Bernanke points out that WW people are saving lots of money which they try to secure in “safe” countries like US or the big European countries. Thus these countries especially the USA are flooded with cheap money creating a huge trade deficit.  A good example of “saving countries” are Japan, China or Germany, where people are traditionally saving a large part of their earnings to be prepared for hard times. In good old days this money was used by farmers, entrepreneurs and large companies to finance profitable investments. Today even large excellent companies like IBM don’t have lots of ideas how they could create profitable new business. Most of the IBM profits was spent in 2007 on share repurchase ($ 18.8b share repurchase versus $6.2b for R&D) . As a result IBM much like other big businesses did not grow as analysts expected in the 1990s.  Developing countries could absorb huge investments. However, they do not have to infrastructure to invest and maintain the assets providing reliable return to the investors. USA is still one of the most interesting targets when people want to secure money for the future although US was consuming much of the incoming capital flow in the past.  However, people do not believe anymore that they will get their money back when they need it e.g. for their retirement. In addition the amount of money people need for retirement is growing fast because people live longer, healthcare cost are exploding and companies do not provide pension plans (financed out of cash flow) for their employees anymore.  This is one major reason why people gave their money to banksters promising high revenue.

Now even middle class people must realize that they will not be able to make enough secure investments to maintain their lifestyle during 25 + years of retirement. The only viable solution is probably to scale back much like our grandfathers and grandmothers did.  You must not be a member of a expensive golf club, you don’t need an expensive house in an affluent area, youd don’t need expensive vacations etc.  I even think that our ancestors were happier with their modest style of living growing their vegetables in the backyard than today’s retiree’s. Unfortunately this attitude will decrease the GNP because consumer spending in an aging population will decline. Is there any reason why a wealthy country should not be able to manage such a change?   The answer is probably – yes. we can.

The tax deduction trap – cross border leasing

Very often private investors are trapped by promises of tax deductions. Unreasonable risks are accepted when there is a chance to play tricks on the IRS.  A nice example for best intentions being abused by banksters is cross border leasing. Initially tax deductions were granted for US citizens investing in US air planes to be  leased by airlines in foreign countries. This should help the US aircraft industry to sell more planes abroad and create jobs in the US (and prevent aircraft industry growth in other countries). In the beginning this seemed to work rather well. The IRS lost some taxes thru cross border leasing but was compensated by additional taxes from the aircraft industry.  In the 90’s banksters figured out how they could get enormous tax deductions without investment in US products. CBL fonds started buying already existing infrastructure abroad (sewer systems, water supply, railroads, etc) and leased it back to the original owners. The original owners were offered an initial reward of immediate cash (typically 1 – 2 %  of the asset value)  for taking lots of risk whereas the banksters could make as much as 10 % profit on the deal immediately. In addition they could sell the tax deductions to US taxpayers. Typically cross border leasing to cities, public utilities and states was promoted by former politicians becoming lobbyists for US banks and became a multi billion “virtual” cross border industry in US and Europe. Lease takers are now struggling to manage their long term financing from banks which can no longer be trusted.

Why should US government be interested to grant tax deductions on such deals which do not create jobs in the US and reduce US tax income? This is a good example how laws and rules outside the finance industry must be corrected to prevent banksters from inventing new criminal schemes.

Are mortgage bonds safe?

Traditionall mortgage bonds have been considered a very conservative and safe investment because mortgage bonds are backed by real estate or physical equipment you can see and touch. Mortgage bonds have been a used to secure long term investments in pension funds and life insurance. However with the current turmoil in the housing and real estate market and all kinds of tricks played with loans on physical equipment, people realize that the mortgage bonds are not as secure any more as private investors have assumed. Bankers now discover e.g. in Germany that the safety net provided by mortgage bonds was never tried. Would you trust a safety net which never was tested? The German Hypo Real Estate bank recieved more the 110 billion $ in capital and government guarantees  but is not capable of securing their mortgages > 900 billion $.  A break down of Hypo Real Estate (HRE) would have a major impact on life insurance and government loans.

The HRE crisis is another example how important trust in banking products is. As soon somebody starts to investigate and to test the basic scheme the system breaks. The recommended solution of the banksters to private investors: all your investments are secure but please do not ask and do not investigate!

How to kill the virtual money?

Surprise! Pumping billions of $ in the banking system does not cure the system. The banksters have created a huge amount of virtual money by increasing the hypothetical value of real goods (housing) and virtual “banking products”. The only way out is really to kill the virtual money and hit the financial speculators and not the public. In good old days  during the Great Crash 1873 private banks really printed their money. This had the advantage that the owner of the money and the issuer could be identified easily. Today the banksters have created asocial networks where nobody can be blamed for wrongdoing. The idea that a “bad bank” should buy all the virtual money with real taxpayer money is not really a good idea. It would reward the banksters and the financial speculators which have made fortunes in the past by creating the current financial crisis. A study in Germany showed that during the time period between 2002 and 2008 90% of the population have experienced reduced real income and lost money on their savings and assets. However, the richest 10% of the population have significantly increased their income and their assets.  The situation in the US may be even worse.  A good solution could be a “Intelligent Bank” which buys virtual assets for e.g. 10% of its nominal value for a limited time e.g. 1 year.Thus banks would be forced to reevaluate their virtual assets and sort out the “banking products” which have real value. Huge amounts of public money would be needed to kill the “virtual assets”. However, the amount would be much lower than what would be needed to maintain the current system in the future.

Rebuilding the country by reallocation of intellect

The high salaries and boni of the financial industry have attracted many bright people in all countries, resulting in an intellectual drain in engineering, government or education. Tthe “leading” countries in the financial crisis USA und UK   have also taken the hardest hit. Unlike in the dot.com boom in the 90″s (which has also attracted the bright young people) which created at least some new business models and corporations like Amazon, eBay or Google there is no hope that the large amount of skilled people in the financial sector will create new assets for the society. There is even a danger that these people making their living on fraud and illegal business models will apply their “skills” to other industries! The intellectual skills of the nations must be redirected to support the real businesses and the creation of new values in the real industry. In a first step government must reduce the influence of consultants from the banking industry and the associated lawyers. President-eElect Obama seems to take the first steps in this direction.

2009 – the year of the lawyers

The S.E.C. did not punish the malpractices in the U.S. financial industry but was very active to fight foreign companies e.g. Siemens competing with U.S. companies e.g. General Electric for large government controlled investements in the energy and communication sector. Which is traditionally is industry segment where corruption is a common WW marketing instrument. Now Siemens is about to settle the case with S.E.C. for an expected amount of 1 B $. Interesting enough Siemens had to spend also approximately 1 B$ for the lawyers (mostly U.S. based law firms) handling the case.   There seems to exist almost a secret cartel with S.E.C. and various U.S. law firms working together to cash in money from government and companies much like the rating agencies have worked with the banking industry in the past. The financial crisis will create a huge market for lawyers because almost every contract requires special handling according to U.S. law.  Most contracts in the current global financial crash are based on Anglo-Saxon law and produced by lawyers or lawsters in analogy to the word bankster derived from the word gangster.  Thus the WW banking crisis will be followed by a WW law crisis – in god we trust no longer! People outside USA should be very carefull about closing contracts according to US law in the future.

Forget the S.E.C. – watch out for the Russion oligarchs

Bernard Madoff must not be afraid of the S.E.C  or the U.S. procesutors even after after a 50 B $ fraud. The procesutors are rather helpfull for not allowing Mr. Madoff to leave his comfortable NY apartment.He rather should be afraid of a couple Russian oligarchs spending more than 2 B$ on Bernie’s Ponzi enterprise thru Ms Sonja Kohn in Austria. Ms Kohn already decided to hide in a secret place for good reason.   Maybe the S.E.C should hire a few consultants from Russia.

German billionaire Adolf Merckle commits suicide

Adolf Merckle, a German selfmade billionaire ranking #44 in the Forbes Billionaires list, committed suicide on January 6th, 2009 throwinfg himself in front of a train. After wild speculations with buyouts of companies and a recent one billion €  loss on short selling of Volkswagen shares, he was forced to turn over his “imperium” to the banks. Unfortunately he did not run a bank by himself. Thus he could not get government guarantees for his bad loans.

Adolf Merckle was a typical “tough” manager playing tricks on various legal borderlines to acquire a wide various companies which employ nearly 100 000 people. One of his hobbies was to buy forest from the peerage of Germany, running in financial troubles.  In some parts of Southern Germany 40% ofthe forest was owned by Adlof Merckle.  Certainly the crash of his enterprise was a major rason for committing suicide. However, another reason was that none of his four sons was willing to take over the family business  and work in the same “style” as the father. One of his sons dropped out of the family business  and declared only to work for “real” value with his part of the family fortune. Certainly Adolf Merckle found managers willing to work the same style as the company owner finally resulting in the crash of his whole Merckle empire. Although Adolf Merckle’s suicide is probably the most spectucular suicide as a result of the financial crisis it is not the first and probably not the last .  There are other similiar suicides in the finance world e.g. in the UK.  In contrast live seems to be easier in the US. e.g. Bernard Madoff seems to plan a restart with his and his wives family jewels although his fraud caused at least the suicide of Rene-Thierry Magon de Villehucher, a french aristocrat.

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