U.S. banking giant switches billions in debt to Britain to avoid paying corporation tax for 60 years
Merrill Lynch might not pay any corporation tax for the next 60 years, it emerged today.
The giant American investment bank, which employs thousands in the City, has made losses of $29 billion (£15 billion) for its exposure to the U.S. subprime mortgage crisis.
But it has charged the amount to its British arm, meaning it can offset the losses against corporation tax for decades to come.
August 15, 2008

COMMENT:Once again ,big business plays "within the law " ,but will the british tax payer be made to suffer . Can the uk government close this loophole and close it quickley before other multi nationals from around the world start dumping their debts on to british subsidery companies . I get increasing suspicions that the big banks are " using " the sub prime problems in the u.s.a to hide their accounting problems . Lets face facts -- £250 billion of debt must relate to an aweful lot of mortages , and the more we hear ,the more we begin to doubt the what THE TRUTH really is .

Fred Harrison Interviews Michael Hudson:

transcript by Peter Myers, July 30, 2009


Fred Harrison: How do we solve the Debt problem today?


Michael Hudson: The only way to do it is to wipe out the debts that can't be paid. If a mortgage is $500,000 on a $250,000 house, you've got to write down the mortgage to the market price, and you've got to have the creditors take a loss for their bad loans. (And we may ask ourselves that as this is the obvious path to go, why did no government TD in Ireland suggest this solution? Jocelyn Braddell, editor)


FH: Is the bailout of the banks going to solve this financial crisis?


MH: No, the bailout of the banks is only paying the creditors, and giving the creditors the money for the bank loans, without giving a penny of debt relief to the actual debtors who owe the loans. All it means is that the government is taking over the creditor position, and it's taking out the home-owners, and throwing the homes on the market.


FH: But won't the tax-payers get their money back in the end?


MH: If the tax-payers could get their money back, then you can be sure that private enterprise would have come in, and THEY would have bought the mortgages. If you have the market-place NOT buying the mortgages, if you have the banks saying, "These are JUNK mortgages, and this is toxic waste", how on earth can the tax-payers make money off toxic waste? Is it really a good investment for the tax-payers to come in and bail out the banks that say, "We've made junk mortgages, and this is toxic waste, and we weren't able to sell it, to find a greater fool." There's no way the tax-payers can make money out of that.


FH: Ok, now I know you've been an economist in Wall St., you teach economics in universities, all over the world, actually. You're a consultant to governments around the world, and yet you think there are lessons to be learned from the Ancient World – that somehow in the Biblical times the debt-cancellation was something that we can learn from today. In what way?


MH: Well, for 3,000 years, from Sumer to Babylonia to the Jewish lands with the Jubilee law, they all had the same policy. And when a new ruler would take the throne for the second year in Babylonia and Sumer, he had a three-pronged solution: he would liberate the debt-bondsmen, he would return the lands to people who'd lost them for foreclosure, for homes – the basic self-support - and he would annul the personal debts. And by wiping the bad debts off the books, he'd create a clean slate. And this was exactly the policy that was taken over in Jewish law, in Leviticus, by the Jubilee Year.


FH: So you're now saying that there is a way to translate that history into modern economics, to solve the global financial crisis.


MH: Yes. Antiquity managed to last for 3,000 years, without a financial bubble, without an economic bubble, and continually restoring order. And Antiquity realized something that the modern economists don't: they realized that debts tend to grow in excess of the ability to pay. And when the debts did that in Antiquity, the ruler would cancel the debts. Now that was very easy in Antiquity, because most debts were tax debts owed to the Palace – and it's easy to cancel debts when the debts are owed to you. It's harder to cancel debts once you got to Greece and Rome, and the debts were owed to private creditors; that's where the problem began.


FH: So, now, 2,000 years later, we can't just cancel the debts by rule of the Government.


MH: Well, you actually can, because the debts are going to be written off … already they estimate … they've said there are 8 trillion dollars worth of bad real estate debts. Now if the Government would have just left market conditions to take their place, when Lehman Brothers went bankrupt in September, Lehman Brothers mortgages were trading on the market at 22 cents on the $. Now at this point, buyers could have come in, bought the mortgages at 22 cents on the $, and then gone to the home-owners and the real-estate on this, and said, "OK, we're going to re-negotiate your mortgage at 22 cents, maybe 24 cents on the $, or even 25 cents on the $" - that would have given them a profit. They would have marked down the debts to the ability to pay, or to the market price. And one way or other the debts are going to have to be written down to the ability to pay, otherwise they're not going to be paid. If people can't pay more debt, they won't pay. The question is, "How won't they pay"?


FH: So why aren't Governments doing that, writing off the debts, or allowing the debts to be cancelled today?


MH: Very good question. The reason is that the largest contributor to the political campaigns is the Financial Sector, and the Governments have a choice – they can save the economy, or they can save the creditors who made the bad loans. They've said, "We don't care about the economy, we're bailing out the creditors – that's our constituency." And that's what the Governments are doing today. They're not saving the economy; they're saving their constituency, the creditors: they're saving London City, they're saving Wall St., and they're saving the bourse, and the economy's left to shrink. And until the Government saves the economy, and writes down the debts to the ability to pay, there's not going to be a recovery. 


FH: You're saying, then, Governments are acting in bad faith.


MH: They're not acting democratically. What the Governments have done has been to turn from a Democracy into an Oligarchy. And we're seeing an Oligarchy, and in fact a Kleptocracy emerge here. And the Governments are not doing what the people expected them to do – they're not representing the interests of their constituents.


FH: But President Obama says he's going to effect a change, it's not business as usual in Washington.


MH: When Obama talks about change, he's not talking about financial change; he's not talking about economic change. He's talking about workmen's laws, health reform, racial equality; he's not talking about any economic change at all, because, in fact, he's re-appointed the Bush administrators and the Clinton administrators. He's brought back the same people who brought us the Russian crisis. And if you want to see what their plans are for the United States, look what Obama's team did when they had a free hand in Russia in the 1990s. They brought the biggest inequality and kleptocracy in modern times.


FH: So, Michael, you're in London to address a conference here at the University of London. What is it that you're going to tell them?


MH: Well, I'm going to tell them that the Finance sector, and the Real Estate and the Insurance sector are not part of the real economy of production and consumption. The asset and wealth sector is different from the production sector. You can think of the financial sector as being wrapped around the real economy, almost like a parasite, and that's why it's been called parasitic for so long. The financial sector extracts interest from the economy, the property sector extracts economic rent, as do monopolies. Now the key thing about parasites, is that it's not simply that they extract nourishment from the host. The parasite takes over the host's brain, to make it think it's part of the economy, to make it think it's part of the host's own body, and, in fact, that's it almost like a child of the host, to be protected. And that's what the financial sector has done today. You have Obama coming out and saying, "We have to save the banks in order to save the real economy." The fact is, you can't serve both the parasite and the host.


Now the amazing thing is that we have the economic training tablets from Babylonia, from 2000 BC, and the mathematical models they had of the economy, in 2000 BC, are more sophisticated than any of the mathematical models that they use today for government planning. And the reason is that they calculated how long it takes for a debt to double. Any interest-rate has a doubling time. They knew in 2,000 BC that the debts double; they also knew that the economy grew in an S-curve. They had mathematical models for the growth of herds in an S-curve, for agricultural production, so they knew that the tendency was for debts to grow faster than the economy can grow, and that's why, when every new ruler took the throne, they cancelled the debts.


FH: But, look, we've had Nobel-prize-winning economists telling hedge funds how to operate. Are you saying they are clueless on mathematics?


MH: Well, that's a very good question. You look at the fact that Long Term Credit Management went broke using the Nobel-prize-winners. The mathematical models that won the Nobel Prize have led to 450 trillion dollars of Derivative contracts that are now junk. So, what they won the Nobel Prize for, is junk mathematics that have led to junk derivatives and junk mortgages. That's what's happened.

From the Ramparts
                                  Junious Ricardo Stanton
                        Bernie Madoff, Vince Fumo and Wayne  Bryant

    “For his efforts Mr. Madoff received 150 years in prison, a ludicrous sentence under the circumstances. The nature of his trial was unusual. No media coverage, no attempt to charge any co-conspirators and no effort that we are aware of to recover funds, except for a billion here and a billion there. You don’t run a scheme like this out of your back pocket. Many on Wall Street knew what was going on and scores of others were involved. In the case of following the money all the court has to do is check with the NY Federal Reserve and the Treasury Department, both of which have access to every money wire out of his company and the banks he used. That would be too easy or is the avenue deliberately not being pursued. Then there is the case of the SEC, which knew for years a scam was being perpetrated. They were served up proof positive of a scam and did nothing to stop it. That tells us higher up in government they were told hands off, look the other way. The whole episode stinks, just like BCCI, Iran-Contra and Nugan-Hand, all CIA scam operations.”  

    Looking at the US astute and deep thinking persons can readily see this country is imploding, sinking fast morally, intellectually as well as financially. We see massive disparities in the administration of so called justice where, race, economic status and social/political connections play an enormous role in the decisions the various courts render on a daily basis. For example Bernie Lawrence Madoff a Wall Street insider who was so well connected and influential in the economic hierarchy he once served as chairman of the NASDAQ Stock Exchange, turned himself in to authorities saying he defrauded hundreds or people. After much media scrutiny into his life but a virtual black out of the investigation into his activities and how he did it, Bernie Madoff  was sentenced to one hundred fifty years in prison!
    Rob Chapman who publishes an extremely accurate and informative newsletter called The International Forecaster pointed out a major anomaly in Madoff’s subsequent trial and sentencing: one of the charges not levied against Madoff by the US government was conspiracy. This means the federal authorities never even entertained the idea Madoff was working with someone else. Conspiracy is routinely charged in most crimes even the most mundane. I was a probation officer for over thirty years and I can count on one hand the times a police report did not include at least one count of conspiracy no matter what the other charges were. Yet in a case like Madoff’s which essentially was a major financial rip off, an international money laundering and fraud operation in the tune of over fifty billion dollars involving individuals, companies, retirement and hedge funds, FBI investigators, the people from the SEC and other agencies supposedly never asked Madoff if he was in it with anyone else?!! Chapman pointed out, “Mr. Madoff was convicted on 11 criminal charges – none of which included conspiracy. In other words, who assisted you in your criminal acts? Strangely the court had no interest in uncovering who else was involved. Thus far only a few billion dollars have been recovered. The only reason Mr. Madoff turned himself in and pleaded guilty to all 11 counts of criminal activity was to protect his co-conspirators by not having to testify and government willingly allowed that. Mr. Madoff kept insisting he acted alone. After 28 years on Wall Street we ca hardly believe that. None of his family was charged, yet they had to know what was going on. There are just too many unanswered questions that government and Wall Street have been all too willing to sweep under the rug.”  International Forecaster Weekly July 23, 2009  Mr Chapman is a former Wall Street trader and an intelligence operative, so he knows there is something amiss, something larger being covered up here.
    Contrast Madoff’s  sentence with those given to Pennsylvania State Senator Vince Fumo and New Jersey State Senator Wayne Bryant. Wayne Bryant was the only person of African heritage sentenced recently.  Both Fumo and Bryant rose within their respective legislative bodies to wield great influence over the purse-strings of their states. Both were charged with inappropriate behavior by the Feds, both were subsequently found guilty amidst very public and politically charged trials. Fumo was convicted on one hundred and thirty seven counts of charges as wide ranging as defrauding the Pennsylvania. State Senate, defrauding two non-profit organizations, fraud, obstruction of justice, and conspiracy. Bryant was found guilty of eleven counts of bribery, pension fraud, conspiracy and influence peddling. Both Fumo and Bryant, unlike Madoff were charged with conspiracy and their co-conspirators were also found guilty. But their co-conspirators received less jail time than Fumo and Bryant. Vince Fumo was sentenced to fifty-five months in Federal jail and Wayne Bryant four years.
    Madoff  was running a gargantuan Ponzi scheme that bilked hundreds if not thousands of people out of their savings worth billions of dollars.  No one knows where the money is or how it was used. The US authorities never bothered to ask or track it down.  One man supposedly working all by himself, (like the government’s sham version of the lone gunmen involved in the President Kennedy, Martin Luther King Jr and Robert Kennedy assassinations) pulled it off all by his lonesome. In a case like that, don’t you think it would be logical the US government would at least investigate whether or not Madoff had at least some help, or if he was involved with others, especially since the SEC had been warned about him for years?!!  The SEC standing down, not following up on numerous written warnings about Madoff  is another question/issue altogether, but for a later time. Why didn’t the corporate media dog the Bu$h administration and SEC about that?  I guess that wasn’t important enough question to be raised.
    Unlike Madoff, Fumo and Bryant were charged with conspiracy. The government alleged they had co-conspirators and the government’s case against both of them hinged on evidence of  the direct involvement of these co-conspirators. Don’t you find it odd that the FBI and US Attorneys didn’t bother to look deeper into Madoff’s affairs?  Let me get this straight, Fumo and Bryant sold out their constituents’ trust for chump change using co-conspirators yet Bernie Madoff supposedly stole over fifty billion dollars that the US government knows about and reported (it could be more) all by himself ? What’s more fishy is, the US government never bothered to check to see if  others were involved; they simply took Madoff’s word for it and closed the case!
    All of three of them are miscreants but it seems to me although Madoff was sentenced to one hundred and fifty years in jail, he was merely a fall guy, a patsy and scapegoat to cover up a much larger, systemic pattern of fraud and criminality. It’s like the Savings and Loan and Enron scandals  where only few guys went to jail and the rest got off Scott free!  In the mind of the ruling elite, Madoff’s real crime was he brought unwanted attention on himself as an investment broker at a time when the economy is in free fall caused by thousands of people on Wall Street just like him..
    This certainly doesn’t excuse Fumo and Bryant.  They were skilled players in a morally bankrupt political system/game just like Madoff was in the financial arena. They all fell prey to the temptations, values and mentality of entitlement, exceptionalism and greed currently metastasizing throughout this society. This mind-set permeates Wall Street, all levels and branches of government.  But there is a not so subtle message here, a message of selective prosecution and sentencing. Keep in mind the SEC had been warned several times over the years about Bernie Madoff and they chose to ignore it.  The lesson seems to be, when you mess with rich people’s money , or you bring unwanted scrutiny and exposure on their economic Ponzi  machine, and you jeopardize their whole game, the government mobilizes to kick you to the curb in a New York minute. There is another message in the Fumo and Bryant cases: if you aren’t a Blue Blood (like Neil Bu$h for example) or of a certain ethnic group the government will make an example of you. If you are skilled at misusing the public trust, you use your office to rob from the public till and you do what other politicians are doing feathering your own nest by stealing from the little people, the people the ruling oligarches don’t think count, you get a slap on the wrist.

How You Finance Goldman Sachs’ Profits

By Nomi Prins
July 28, 2009 -- This is perhaps the most important thing I learned over my years working on Wall Street, including as a managing director at Goldman Sachs: Numbers lie. In a normal time, the fact that the numbers generated by the nation's biggest banks can't be trusted might not matter very much to the rest of us. But since the record bank profits we're now hearing about are essentially created by massive federal funding, perhaps it behooves us to dig beneath their data. On July 27, 10 congressmen, led by Rep. Alan Grayson (D-Fla.), did just that, writing a letter to Federal Reserve Chairman Ben Bernanke questioning the Fed's role in Goldman's rapid return to the top of Wall Street.

To understand this particular giveaway, look back to September 21, 2008. It was a frenzied night for Goldman Sachs and the only other remaining major investment bank, Morgan Stanley. Their three main competitors were gone. Bear Stearns had been taken over by JPMorgan Chase in March, 2008, Lehman Brothers had just declared bankruptcy due to lack of capital, and Bank of America had been pushed to acquire Merrill Lynch because the firm didn't have enough cash to survive on its own. Anxious to avoid a similar fate, hat in hand, they came to the Fed for access to desperately needed capital. All they had to do was become bank holding companies to get it. So, without so much as clearing the standard five-day antitrust waiting period for such a change, the Fed granted their wish.

Bank holding companies (which all the biggest financial firms now are) come under the regulatory purview of the Fed, the Office of the Comptroller of the Currency, and the FDIC. The capital they keep in reserve in case of emergency (like, say, toxic assets hemorrhaging on their books, or credit derivatives trades not being paid) is supposed to be greater than investment banks'. That's the trade-off. You get access to federal assistance, you pony up more capital, and you take less risk.

Goldman didn't like the last part. It makes most of its money speculating, or trading. So it asked the Fed to be exempt from what's called the Market Risk Rules that bank holding companies adhere to when computing their risk.

Keep in mind that by virtue of becoming a bank holding company, Goldman received a total of $63.6 billion in federal subsidies (that we know about—probably more if the Fed were ever forced to disclose its $7.6 trillion of borrower details). There was the $10 billion it got from TARP (which it repaid), the $12.9 billion it grabbed from AIG's spoils—even though Goldman had stated beforehand that it was protected from losses incurred by AIG's free fall, and if that were the case, would not have needed that money, let alone deserved it. Then, there's the $29.7 billion it's used so far out of the $35 billion it has available, backed by the FDIC's Temporary Liquidity Guarantee Program, and finally, there's the $11 billion available under the Fed's Commercial Paper Funding Facility.

Tactically, after bagging this bounty, Goldman asked the Fed, its new regulator, if it could use its old risk model to determine capital reserves. It wanted to use the model that its old investment bank regulator, the SEC, was fine with, called VaR, or value at risk. VaR pretty much allows banks to plug in their own parameters, and based on these, calculate how much risk they have, and thus how much capital they need to hold against it. VaR was the same lax SEC-approved risk model that investment banks such as Bear Stearns and Lehman Brothers used, with the aforementioned results.

On February 5, 2009, the Fed granted Goldman's request. This meant that not only was Goldman getting big federal subsidies, but also that it could keep betting big without saving aside as much capital as the other banks. Using VaR gave Goldman more leeway to, well, accentuate the positive. Yes, Goldman is a more risk-prone firm now than it was before it got to play with our money.

Which brings us back to these recent quarterly earnings. Goldman posted record profits of $3.4 billion on revenues of $13.76 billion. More than 78 precent of those revenues came from its most risky division, the one that requires the most capital to operate, Trading and Principal Investments. Of those, the Fixed Income, Currency and Commodities (FICC) area within that division brought in a record $6.8 billion in revenues. That's the division, by the way, that I worked in and that Lloyd Blankfein managed on his way up the Goldman totem pole. (It's also the division that would stand to gain the most if Waxman's cap-and-trade bill passes.)

Since Goldman is trading big with our money, why not also use it to pay big bonuses? It's not like there are any strings attached. For the first half of 2009, Goldman set aside $11.4 billion for compensation—34 percent more than for the first half of 2008, keeping them on target for a record bonus year—even though they still owe the federal government $53.6 billion, a sum more than four times that bonus amount.

But capital is still key. Capital is the lifeblood that pumps through a financial organization. You can't trade without it. As of June 26, 2009, Goldman's total capital was $254 billion, but that included $191 billion in unsecured long-term borrowing (meaning money it had borrowed without putting up any collateral for it). On November 28, 2008 (4Q 2008), it had only $168 billion in unsecured long-term borrowing. Thus, its long-term unsecured debt jumped 14 percent. Though Goldman doesn't disclose exactly where all this debt comes from, given the $23 billion jump, we can only wonder whether some of it has come from government subsidies or the Fed's secret facilities.

Not only that, by virtue of how it's set up, most of Goldman's unsecured funding comes in through its parent company, Group Inc. (Think the top point of an umbrella with each spoke being a subsidiary.) This parent parcels that money out to Goldman's subsidiaries, some of which are regulated, some of which aren't. This means that even though Goldman is supposed to be regulated by the Fed and other agencies, it has unregulated elements receiving unsecured funding—just like before the crisis, but with more of our money involved.

As for JPMorgan Chase, its profit of $2.7 billion was up 36 percent for the second quarter of 2009 vs. the same quarter last year, but a lot of that also came from trading revenues, meaning its speculative endeavors are driving its profits. Over on the consumer side, the firm had to set aside nearly $30 billion in reserve for credit-related losses. Riding on its trading laurels, when its consumer business is still in deterioration mode, is not a recipe for stability, no matter how much cheering JPMorgan Chase's results got from Wall Street. Betting is betting.

Let's pause for some reflection: The bank "stars" made most of their money on speculation, got nearly $124 billion in government guarantees and subsidies between them over the past year and a half, yet saw continued losses in the credit products most affected by consumer credit problems. Both are setting aside top-dollar bonuses. JPMorgan Chase CEO Jamie Dimon mentioned that he's concerned about attracting talent, a translation for wanting to pay investment bankers big bucks—because, after all, they suffered so terribly last year, and he needs to stay competitive with his friends at Goldman. This doesn't add up to a really healthy scenario. It's more like bad déjà vu.

As a recent New York Times article (and many other publications in different words) said, "For the most part, the worst of the financial crisis seems to be over." Sure, the crisis may appear to be over because the major banks of Wall Street are speculating well with government subsidies. But that's a dangerous conclusion. It doesn't mean that finance firms could thrive without the artificial, public-funded assistance. And it certainly doesn't mean that consumers are any better off than they were before the crisis emerged. It's just that they didn't get the same generous subsidies.

Additional research by Clark Merrefield.