I have a growing interest in ancient finances. Try thinking about how to run a large operation, such as an empire or an army on campaign when there is no banking system and no means of storing wealth other than controlling territory or possessing gold or silver. There is no way to gain any sort of liquidity. Your ability to buy something is limited to the gold in your hand.
How you pay your army today here in the field or buy supplies for 20,000 troops when your wealth is in the form of tons of gold which is a two-month march behind you?
The primary focus in media coverage is on tax evasion. There are other ways to look at the offshore industry. There are more and deeper legal issues involved. The tax evasion concerns under discussion are just the starting point on the list of issues that ought to generate irritation.
Following articles provide a variety of alternative views of what is going on in the Panama Papers leaks. That the articles I mention contradict each other illustrates my point that there are more issues involved than just tax evasion.
Question for you to ponder: Why have people been hiding their money for over 2,000 years?
In 1934 when Switzerland made it a crime for a banker to reveal a customer’s name, they were a bit behind the curve. Liechtenstein, Luxembourg, and Bermuda were tax havens a couple of decades earlier. As a depressing note, the Swiss offered confidentiality for a fee all the way back in 1789.
When I look at the political news or any news in general I get very pessimistic about our future.
In contrast, when I look at the amazing things happening beyond the headlines in today’s newspaper I feel incredibly optimistic.
Consider that private companies are developing the technology for space exploration. Consider the energy revolution created by hydraulic fracturing and horizontal drilling. Consider radical changes in technology that are making so many things easier, faster, and cheaper. Consider that anyone that wants to do so can publish their own book, distribute their own music, or create a feature movie.
As a tiny illustration, look at my company and pastimes. Technology allows me to run a high quality CPA practice without any staff. In my spare time I am a publisher and journalist. Anyone in Europe or North America or most of Asia could easily do the same and at minimal cost.
Until relatively recently, an illness-filled short life of dirt-eating poverty was the normal condition for practically everybody on the planet. In the last 100 or 200 years life has gotten radically better for practically everyone.
Over 5.1M views of the first video in the series and just a few more views to cross the 3M point for the second. Check them out for entertaining, creative ways of explaining the views of Hayek and Keynes. Great contrast between the two.
Just like money funds disintermediated (that means cut out of the picture) bank deposits in the distant ‘80s, bitcoin and other yet-to-be-invented digital currencies will disintermediate a huge portion of the financial system.
Picture the long series of transactions when you buy a cup of coffee at the corner shop with your credit card (this is a long quote cited under fair use, oh, also to promote the book it is extracted from): …
My previous post described a comment by Sam Antar during his CPE session that the fines arising from of a long list of financial fiascos are essentially a tax on illegal behavior.
He made another comment in that session that I wanted to describe in detail. He said these frauds are a cancer destroying capitalism.
I had opportunity to visit with him a few weeks ago and asked him to expand on this idea. I will summarize what we discussed.
Cancer destroying capitalism
He indicated the foundation of capitalism is reliability of financial information. If you can trust financial information you read then we can do business with each other.
He says the extent of frauds we have seen are leading people to lose faith in financial information. That leads to losing faith in their counterparties. Therefore people have less trust. In financial terms that means the risk premiums for transactions go up. The interest rate built into a transaction increases and the return drops.
A few links and comments of interest to auditors. Trained investigators can’t read when someone is lying; too-big-to-fail/jail/govern is just too big; and update on lease accounting.
6/10 – FBI – The Truth About Lying: What Investigators Need to Know – Detecting lies, especially in high stakes interviews (like a criminal investigation) is far more difficult that interviewers and investigators realize. There are complex factors behind why people react they way they do. Not telling the truth is merely one of many causes. Vast interpersonal differences create more complications.
If you try to discern truthfulness during your auditing interviews, might be worth reading the article. Since trained pros can’t do it very well, us CPAs might want to reconsider how well we do at detecting liars.
When the vice chairman of the FDIC is concerned about the subsidies going to the too-big-to-fail banks and calls it corporate welfare, you know something is wrong.
The generous federal insurance gives the large banks an advantage. The extra-large unlimited insurance that ran until last December multiplied the advantage. Their too-big-to-fail status means they can take more risks that otherwise. They need not fear heavy enforcement action because the U.S. Attorney General has said what many previously realized – enforcement action against them would create market turmoil. The combination of retail and commercial banking means the deposit insurance is subsidizing them taking positions in the market.
I have a post on my other blog, Outrun Change, that discusses the reshoring trend. More companies are bringing their manufacturing back to the U.S. because of changing economics of offshoring. One challenge in reshoring is improving the skills of American workers so they can use the latest technology.