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Monday, June 24, 2013

On Bullying Friends

 

Lost in last week’s Taper Talk and generally bad markets was a development that I think has some legs. The Swiss Parliament basically told the US Department of Justice to fuck off. I’m very surprised by this outcome – I would have bet against this result. There will be repercussions.

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The details can be found here. The quick story is that after many years of pressure from the US DOJ, the Swiss Government was forced to offer up new legislation that would (1) end banking secrecy, (2) force the Swiss Banks to open their books, (3) force the banks to pay pay fines and (4) obligate the banks to identify the names of specific employees who assisted US customers in evading taxes. Eveline Schlumph, the Finance Minister and former President, championed the proposed laws in the political debate. She fell flat. The Swiss said “no”  with a 126 to 67 vote.

I believe that this outcome came as a surprise to the tough guys at the DOJ. They have been beating the Swiss Banks to death for years. The most recent example is Wegelin Bank. This 270 year old bank was forced into selling its “good’ assets at a cheap price and then just shutting down what was left in a matter of weeks. That’s how powerful the DOJ is.

It’s 100% certain that the DOJ is going to retaliate for the “No” vote in Switzerland. It has to; there is too much at stake. The only question is which Swiss Bank comes under the DOJ rifle scope. I think the DOJ is going to come out swinging for the fence and target a big bank. Credit Suisse, Julius Baer and the Cantonal Bank come to mind.

If the DOJ indicts a Swiss bank, it can prevent it from making dollar based wire transfers. The DOJ will order all US banks to not make transfers on behalf of the targeted institution . At that point, the bank is functionally shut out of all dollar based business. No global bank can operate for long without the ability to make transfers in dollars.

This possibility has been discussed openly in Switzerland. That’s why I’m surprised at the vote outcome. The Swiss parliament has taken a step that could result in a hammer blow to one of the country’s important institutions.

A fallback position for a Swiss Bank that is indicted is for the Swiss Central Bank (SNB) to assume the role of the indicted bank, and make all of the necessary dollar based transfers on its behalf. The SNB’s Thomas Jordan has indicated he’s lukewarm to this approach. Jordan understands that if he pushes against the DOJ, the outcome will be an indictment of the SNB.

It’s possible that some last minute deal will be pulled out of the hat. But any attempt by Schlumph to ram through a solution over the objections of the Swiss Lower House will create a different set of problems. I’m not sure how this ends up. There are several scenarios that lead to trouble. The US Treasury has already labeled the SNB as a currency manipulator; the peg policy of the SNB could come under more criticism if the Swiss don’t play ball with he DOJ. The thought that the SNB could get hit with an indictment if it comes to the aid of an indicted Swiss bank, is a black hole of uncertainty.

 

I think that most Americans would support the move by the DOJ to go after untaxed offshore accounts. A very small group of people are evading taxes; that means that everyone else has to chip in for them. The Swiss understand this, but they do not like being bullied. Make no mistake, the DOJ is playing the bully in this story.

Assume that Canada told the USA that it had to change its immigration laws. That this had to be done ASAP, and under terms that were not at all acceptable to Americans. If the the USA did not bow-down and accept the Canadian terms, then Canada would end all oil exports to the USA and divert the crude to China.

I don’t think that scenario would go over very well in America. From the Swiss perspective, the DOJ muscle is no different.

 

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Comments

  1. Swiss, Hong Kong, China and Russia appear to be telling Obama and Holder to fuck off

  2. The rest of the world should tell Obama and company to fuck off. About time the US stopped trying to rule the world; how do they have the time with all the eavesdropping they’re doing here at home. I voted for him once, but “fool me twice, shame on me”, he should be impeached for serial violations of his oath to uphold the constitution.

  3. Funny thing – you say Swissies did not like the Schlumpf offer, they could not turn down? Let me explain it to you. Nearly half of Swissies are germanic. FYI Schlumpf means Smurf – the ones from cartoon. Nobody likes to be smurfed around, don’t you think? It is about time to show a finger to Banana and to grow some spine on the fast, because otherwise the black gorilla will bully everyone and everybody. The Swissies know it instinctively – if they allow the smurfs to bully them around in their money business [and it is a huge, vital chunk of their economy] they can pack the bags and head for the hills [actually not possible, because they are there already - so you see the deadlock]. As far as I know them, they will never allow it to happen – and rightfully so. Let them grow some spine and a little muscle to give Banana-Holder moronic tandem a slap in the face. They really deserve it, o boy, how well they deserve it!

  4. Bully is an interesting word choice. We have all experienced them. I have observed several and note they all share one basic trait… fear. Yes they are fearful of someone being “badder” than them. However they are normally looking for the bigger tough guys and they ignore the small guys. All to often, I have seen a small guy get pissed off and pick up a 2X4 or baseball bat and knock the shit out of the bully. The bully is shocked that the little guy challenged him, and the on looking crowd cheers. Daniel 17:50 comes to mind. However sure the DC brain trust is spying on all the little guys and have everything under control.

  5. Are they really crazy enough to declare open war on the Swiss National Bank?

  6. A first. I agree with the post and I agree with all the comments. That never happens!

  7. “Make no mistake, the DOJ is playing the bully in this story.
    Assume that Canada told the USA that it had to change its immigration laws. That this had to be done ASAP, and under terms that were not at all acceptable to Americans.”

    Good story except for above quote.
    Laws on immigration are diametrically different than trying to collect taxes that are due.
    In your analogy: you are comparing a country (Canada) trying hypothetically to impose its will on another country’s border laws with a country trying to collect taxes that are owed. In the first instance a country would be forcing another country to give up its sovereignty over its borders in this instance a country (the US) is trying to maintain its sovereign currency. Don’t think that the right to tax is not the basis of a sovereign currency!

    • a’propos – say Canadians – your words betray you. There is NO SOVEREIGN CURRENCY in this world, conversely there are reportedly sovereign countries. The currency of a sovereign has no subject attribute at all, it is a thing, an object, some subject’s belonging. We are subjects, countries are subjects, because we can act and execute our rights. Currency cannot act and has no rights to execute, it is a nonentity, it is a thing. You cannot harm a currency or trespass its rights, because it has none, as any other object too.

      The above story is about encroaching on monetary and judiciary sovereignety of Swittzerland – on their turf, where this sovereignety applies – by american DOJ. That’s all. That is natural law and international law [not to speak of swiss constitution, that's a mere aside] encroachment. That means international bullying. You do not get it seemingly.

      • I’m not sure of what point you are trying to make. Obviously there is a difference between a sovereign currency as the US dollar and the Swiss franc and he Euro. If you do not understand that then we cannot have a rational conversation.

        • Monetary sovereignety means per definition, that DOJ can have no claim on matters of SNB issuance [franc] and financial legislation in Switzeralnd. None whatsoever. The dollar is not a sovereign currency. it is a currency of a sovereign country [sovereign on its territory ONLY]. Conversely franc is emitted by SNB as a currency of sovereign Switzerland and on their territory it is the only legal authority to decide in all matters purporting to it. The only one. This means sovereignety and you arduously seem to not get it. Sovereignety is territorial and therefore – per definition – DOJ should stuff their dollar encroachments, they have no legal claim to financial sovereignety of Switzerland for short. Obviously the great gorilla will bully the Swiss and obviously they will not take kindly to it, resolved as they seem to give the american asskissers a pitchfork.

          • Didn’t mean to offend but you seem not to be addressing the issue I raised which is a logical one while trotting out some red herrings. While it is obviously true that when two countries disagree over some matter there is always give and take. “Bullying” is being defined in this analogy as country A threatening a retaliatory action against B if B does not do what A wants. I’m OK with that for the sake of argument if nothing else. I am not OK with the analogy on the grounds that in one case there is no reasonableness to it and in the other there is a very sound reason: a country such as the US with its own currency must have the ability to tax persons (including corporations) in order (among other things) to protect the value of its currency.

            • I’m not offended. Ignorance is self-offence my dear friend. You can ignore true facts only for so long as they do not come back smashing you full frontal. And the indisputable, as per definition, facts remain, DOJ of the USA has no legal standing to mess with anybody’s elses sovereign currency issues.

              The Swiss can devalue theirs as they please, so long they do not touch any international trreaties, they are part to. Actually they do not trespass any trieaties, because they are as a matter of course, usually a founding party to them. Therefore all these swiss international organizations domiciled there. US have no legal standing to “defend their currency” messing with other sovereign nations financial matters. It is not my supposition, but an undisputable, reasonable, obvious fact. If you do not get it, OK, you can remain in your happy dreams about some dollar super sovereignety status, allowing americans roaming the world over, peeping in everyone’s mails though PRISM and dictating financial laws. You are free to believe this crap, but it does not make it true. IT IS STRICTLY ILLEGAL AND DANGEROUS to routinely break international and sovereign nations laws. It means WAR, pure and simple and this one you will loose dead broke in the end. Everybody and their grandma has had it and the writing is on the wall. If you can read, obviously.

              Bretton Woods means dollar hegemony, but it does not mean abrogation of international law or abolition of national sovereignety. If now US resorts to this hegemonical, bullying tactic, it means only one thing – that the end of the dollar and Bretton Woods order is near, because jungle tactics in place of international law is the last stop short of outright war. It is a factual statement too, taken from history. It was always this way that imperial rule crumbled – through monetary plunder in the name of defending the emperor’s currency. Plus ca change, plus c’est la meme chose. Take it easy and look up the monetary sovereignety issue. It is not one to discuss about, but to study in detail. That’s all.

              • I can’t respond to a non-response.
                Good luck to you.

              • I did not await any response — if it were not clear enough. Check up ‘monetary sovereignety in international law’ topic. It’s quite a field in it’s own right, no kidding – some 100 books curriculum for the introductory course. Thereafter you will be able to dress up sort of argument for plain american bullying [and I will shoot it down for peanuts]. Cheer up, it is really hard to sell to this audience, but you can always try.

              • In regards to overseas tax havens, I fully support the US government’s attempts to recover that money. The Swiss might be proud of their banking tradition—I call it shameful.

                But the Swiss bankers are not the only ones who should be indicted. American investment banking is even more shameful, and Holder has shown no interest in indicting Goldman Sachs, JP Morgan, or the also-evil supporting players like the rating agencies.

      • Maybe the Swiss should think about NOT helping American evade taxes. That’s better than fighting a war they are sure to lose.

  8. I understand the US is cheesed off with some of their citizens evading taxes by stashing cash in Switzerland.
    But what about Delaware or Miami?
    Are those places operating any different to Switz.?