Gordon Grant Curtis | Money Manager, Financial Strategist
 
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Understanding the European Money Haven Debacle
and its Ramifications

In the early part of 2008, illegally obtained documents from banking institutions--that have very strict privacy laws--were provided to third party governments using coercive tactics. The trail of evidence, however tainted, and under what court of law of jurisdiction, began a ripple effect that contributed to the current collapses in the world financial markets.

Arguably, the world would have you believe that it was subprime lending instruments and associated leverage, coupled with insufficient collateralization.  In actuality, more sellers than buyers created a depression of pricing for such instruments that affected the overall market place and then became more fueled by lack of investor confidence further exacerbated by lack of liquidity.

All this because of one person stealing illegal bank documents?  Quite possibly.  The beginning of the saga starts with governments that have grown to a point where entities with in the governments are fighting for funding and ultimately job preservation within a department, branch or office.  The easiest method to raise money in such a situation is to take it by use of force or “government law.”

Many westernized Governments, most of whom by definition do not have profit centers outside of taxation, are faced with this difficult dilemma.  Taxpayers criticize governments and lawmakers when they print currency or spend more tax dollars then they take it.  Therefore, to create villains (someone to blame) and take their money in the name of “law breaking” seems like a plausible excuse for theft.  This initial petty theft intent by Government resulted in ultimate loss of faith in the private banking community in Switzerland and Liechtenstein by non-residents, and the need to move assets elsewhere.  The first panic was by US and German investors, and then added UK and Canadian investors to the list.  This was a combination of fear by investors for loss of privacy and also new information and criteria required by existing bank relationships in Switzerland and Liechtenstein.

The semi-controlled panic of money movement and change of asset agendas has placed downward pressure on the markets.  Even faster sales in the US and elsewhere because of eroding prices created and continues to create a lot of downward pressure.  Without consideration for the implications of what many sellers can do, the markets react in a fashion based on the amount of buyers and sellers.  Because the capital markets are not zero sum contracts such as commodities and options are, the value is created from confidence and support by buyers, offset by some smaller sellers taking profits but moving into a new opportunity.  If this were not the case, the capital markets would be marked to zero or solely valued based on income distributions only.  Believe it or not, a few sellers can hurt a lot of owners if there are not commensurate buyers to support the selling desires.  Welcome to the world of the capital markets.

The world now has a wake up call that it is attempting to absorb that is well beyond the comprehension of most citizens.  It is therefore incumbent upon politicians and businessmen from the financial sector to appreciate one another and come to an understanding that respects worldwide considerations.  Without solving the whole problem, one of the parts can come back and infect the whole again.

The globality of the financial markets are such that the market valuation of financial instruments will impact every Country and every currency. Simply stated, the value of all assets has recently shrunk dramatically and will continue to do so until stabilized by one of a number of possible factors.  This is a topic of another white paper.

According to Swiss News within financial circles, as much as 42 pct of all assets deposited in Swiss financial institutions had had US roots.  This is likely to have changed dramatically in 2008 because of the previous mentioned privacy issue debacle.  Whether this statistic be true or not, the US Government and German Government have used nothing short of Gestapo tactics to put pressure on Switzerland and Liechtenstein to "cooperate" which would ultimately cause the respective Governments to violate their own laws.

It is not the place of another Government to cooperate with the civil budgetary issues of another Government relative to enforcement.  Although socially responsible people should want to contribute to the well being of where they reside in the form of taxes.

The result of the egregious acts by the US and German Governments has been an end run that started the collapse. The US, now famous for its Patriot Act Treaty requirements, now has Governmental Employees interpreting the law allowing indirect exercising of control on Switzerland.  The ultimate goal is to collect money.  The abuse and instrument for doing so is nothing short of fraud tactics using inter country treaty provisions.

The Governments involved, particularly the US, would prefer to seize assets by alleging fraud than to collect taxes.  Why take only a percentage of wealth when you can take it all.

The result of this has caused chaos in the Swiss and Liechtenstein Banking systems that are now under new reporting rules attempting to justify potential cooperation to other bully Government tactics covered by stretches of treaty law.  The end result has been a rapid move toward financial liquidity, which likely sparked the beginning of the collapse within the global financial system.

Albeit that I am a firm believer that citizens of respective countries should observe the tax considerations under the jurisdictions where they reside or are governed by, the reign of terror has now started, and a complete bailout and resurgence of faith in the world markets is necessary.

Governmental bodies have now taken on lives that they were never supposed to do that no longer represent or serve the people that they govern.  Even employees in top level positions within westernized Governments are afraid of who they work for.
Fear is an element that people should not have to live under.  It impacts confidence and trust.  It undermines the need for the velocity of money created by faith in economic conditions and reinvestment.  Those that openly oppose “the system” are now jailed.  This should sound familiar to historians.

Those that discuss Governmental impropriety in intellectual circles are labeled as crazy by those that still believe.  Assuming that history will repeat itself, the no longer sleeping giants will need to collapse to give way to the next cycle of governance that will repeat all of what we have experienced in this era.

There are solutions available but given the Stare Decisis of Government Culture and their philosophy of increased regulation as the response, there is little hope for a well-conceived plan. The good news is that out of chaos there will be opportunity and perhaps the transition will better serve the people for whom it may govern.