Spitfire List Web site and blog of anti-fascist researcher and radio personality Dave Emory.

For The Record  

FTR #651 The Engineer Has Wrecked The Train

TrainwreckMP3: Side 1 | Side 2

Introduction: Supplementing a prediction from FTR #412 (June of 2003), this program notes that the engineer–the Bush administration–has wrecked the train. As we passengers stumble from the economic wreckage, identifying the causes of the disaster is as important as pursuing the malefactors behind the decisive actions. The program begins with review of an article by Lucy Komisar stressing that the U.S. government should use its stewardship of AIG to investigate the offshore operations through which it conducted business in the past. In addition to reviewing AIG’s pioneering development of “captive” reinsurance companies to launder profits and evade taxes, the article highlights AIG’s use of Coral Reinsurance for a variety of illegal gambits. It should be noted that AIG’s illegal operations have been aided by a number of powerful and influential people. Much of the first side of the program consists of analysis of why AIG was central to the institutional financial collapse of September 2008. Among those who note the role of what Lucy Komisar calls “offshore” in the current economic debacle is Manhattan District Attorney Robert Morgenthau, who helped investigate the BCCI affair. Concluding with information from FTR #412, the program sets forth a column by Paul Krugman of The New York Times (a professor of economics at Princeton University.) In numerous recent broadcasts, Mr. Emory has used the phrase “the engineer is out to wreck the train” to describe the direction of the Bush administration and the forces that drive it. For some time, the For The Record series has advanced the working hypothesis that this administration is a front for the Underground Reich, with the goal of the political, economic and/or physical destruction and/or subjugation of the United States as its goal. By maniacally reducing the federal budget and dramatically increasing federal expenditures, the GOP extremists are going to destroy the country. Now, the notion that “the engineer intends to wreck the train” is not just Mr. Emory’s refrain.

Program Highlights Include: Detailed discussion of the role of AIG’s credit default swaps in first buttressing and then undermining the subprime market; a stunning recap of the grim statistics concerning the looming deficit picture; review of the fact that Karl Rove and Grover Norquist are the architects of both fiscal disaster through massive tax cuts and the forgers of the GOP/Muslim Brotherhood alliance.

1. The program begins with review of a paper written by Lucy Komisar in which she discussed the necessity of examining AIG’s use of offshore tax havens.

“The U.S. takeover of the world’s largest insurance conglomerate, AIG, puts it in a unique position to look into the inner dealings of a company that is a profligate user of tax havens. AIG has employed offshore shell companies to cook its books and dodge taxes. The new U.S. managers should investigate how they do it. AIG’s favorite offshore jurisdictions are Bermuda, Barbados, Switzerland, and Luxembourg, places immune from even the lax enforcement of America’s state insurance regulators and the Securities and Exchange Commission (SEC). AIG’s offshore subsidiaries include American International Assurance Company Limited, Bermuda; American International Reinsurance Company, Ltd., Bermuda; AIG Life Insurance Company Ltd., Switzerland; and AIG Financial Advisor Services, S.A., Luxembourg. AIG in the past has used tax havens to evade regulations and hide insider connections in supposedly “arms-length” deals. This is especially significant as the company has moved into financial services and asset management. It has also used the offshore system to evade U.S. taxes.

Here are two examples, the first reported exclusively by this writer. AIG helped Victor Posner, a notoriously crooked investor, set up an offshore reinsurance company so that Posner could evade U.S. taxes. The policy scam was discovered in the early 1990s, after the SEC prosecuted Posner for a fraudulent takeover scheme concocted with Wall Street thieves Michael Milken and Ivan Boesky, ordered him to pay $4 million to fraud victims and banned him from serving as officer or director of any publicly-held company. New managers took over Posner’s NVF Corp., which ran a Delaware vulcanized rubber plant. An insurance agent charged with examining company policies discovered that NVF was paying AIG’s National Union Fire of Pittsburgh substantially over market for workmen’s compensation insurance. AIG reinsured the policy through Chesapeake Insurance, an offshore reinsurance company Posner owned in Bermuda. In essence, NVF, owned by Posner, was buying insurance from an AIG company which was buying reinsurance for the policy from an offshore company owned by Posner. Bermuda provided tax and corporate secrecy, so Chesapeake’s books were safe from the eyes of American regulators and tax authorities. AIG and Posner made out like bandits. AIG got a higher commission from the inflated NVF premium before sending the rest to Chesapeake. Posner wrote off the entire amount as a business expense and enjoyed the extra cash in Bermuda, tax free, stiffing the U.S. government. Reduced profits also meant smaller dividends and share prices for investors. The insurance agent cancelled the NVF policy with AIG, but the Delaware Insurance Department did not make the scam public or take any action against AIG. A former insurance department regulator told me, “This was not an isolated case with Vulcan [NVF]. AIG did that a lot. AIG helped companies set up offshore captive reinsurance companies.” A “captive” is owned by the company it insures. AIG, he alleged, “would then overcharge on insurance and pay reinsurance premiums to the captives, giving the captive owners tax-free offshore income.”

“U.S. Should Examine AIG’s Use of Tax Havens” by Lucy Komisar.

2. Much of the first side of the program consists of analysis of why AIG was central to the institutional financial collapse of September 2008:

“If September didn’t give you enough to worry about, consider what will happen to real estate prices as unemployment grows steadily over the next several months. As bad as things are now, they’ll get much worse.

They’ll get worse for the obvious reason: because more people will default on their mortgages. But they’ll also remain depressed for far longer than anyone expects, for a reason most people will never understand.

What follows is one of the real secrets to September’s stock market collapse. Once you understand what really happened last month, the events to come will be much clearer to you…

Every great bull market has similar characteristics. The speculation must – at the beginning – start with a reasonably good idea. Using long-term mortgages to pay for homes is a good idea, with a few important caveats.

Some of these limitations are obvious to any intelligent observer… like the need for a substantial down payment, the verification of income, an independent appraisal, etc. But human nature dictates that, given enough time and the right incentives, any endeavor will be corrupted. This is one of the two critical elements of a bubble. What was once a good idea becomes a farce. You already know all the stories of how this happened in the housing market, where loans were eventually given without fixed rates, without income verification, without down payments, and without legitimate appraisals.

As bad as these practices were, they would not have created a global financial panic without the second, more critical element. For things to get really out of control, the farce must evolve further… into fraud.

And this is where AIG comes into the story. . . .”

“How AIG’s Collapse Began a Global Run on the Banks” by Porter Stansberry; DailyWealth.com; 10/04/08.

3. Noting the significance of “offshore” for rectifying the current financial crisis, Manhattan District Attorney Robert Morgenthau highlights the fact that much of the untaxed money cannot, under current regulations, be reclaimed by the U.S. Note that Morgenthau helped investigate the BCCI case, cited by him in the article.

“A major factor in the current financial crisis is the lack of transparency in the activities of the principal players in the financial markets. This opaqueness is compounded by vast sums of money that lie outside the jurisdiction of U.S. regulators and other supervisory authorities.

The $700 billion in Treasury Secretary Henry Paulson’s current proposed rescue plan pales in comparison to the volume of dollars that now escape the watchful eye, not only of U.S. regulators, but from the media and the general public as well.

There is $1.9 trillion, almost all of it run out of the New York metropolitan area, that sits in the Cayman Islands, a secrecy jurisdiction. Another $1.5 trillion is lodged in four other secrecy jurisdictions.

Following the Great Depression, we bragged about a newly installed safety net that was suppose to save us from such a hard economic fall in the future. However, the Securities and Exchange Commission, the Federal Reserve System, the Comptroller of the Currency and others have ignored trillions of dollars that have migrated to offshore jurisdictions that are secretive in nature and outside the safety net — beyond the reach of U.S. regulators. . . .”

“Too Much Money Is Beyond Legal Reach” by Robert Morgenthau; Wall Street Journal; 9/30/2008.

4. Concluding with information from FTR #412, the program sets forth a column by Paul Krugman of The New York Times (a professor of economics at Princeton University.) In numerous recent broadcasts, Mr. Emory has used the phrase “the engineer is out to wreck the train” to describe the direction of the Bush administration and the forces that drive it. For some time, the For The Record series has advanced the working hypothesis that this administration is a front for the Underground Reich, with the goal of the political, economic and/or physical destruction and/or subjugation of the United States as its goal. By maniacally reducing the federal budget and dramatically increasing federal expenditures, the GOP extremists are going to destroy the country. Now, the notion that “the engineer intends to wreck the train” is not just Mr. Emory’s refrain. Note that FTR #412 was recorded in June of 2003.)

“ ‘The lunatics are now in charge of the asylum.’ So wrote the normally staid Financial Times, traditionally the voice of solid British business opinion, when surveying last week’s bill. Indeed, the legislation is doubly absurd: the gimmicks used to make an $800-billion-plus tax cut carry an official price tag of only $320 billion are a joke, yet the cost without the gimmicks is so large that the nation can’t possibly afford it while keeping its other promises.

“But then maybe that’s the point. The Financial Times suggests that ‘more extreme Republicans’ actually want a fiscal train wreck: ‘proposing to slash federal spending, particularly on social programs, is a tricky electoral proposition, but a fiscal crisis offers the tantalizing prospect of forcing such cuts through the back door.’ Good for The Financial Times. It seems that stating the obvious has now, finally, become respectable.

“It’s no secret that right-wing ideologues want to abolish programs Americans take for granted. But not long ago, to suggest that the Bush administration’s policies might actually be driven by those ideologues—that the administration was deliberately setting the country up for a fiscal crisis in which popular social programs could be sharply cut—was to be accused of spouting conspiracy theories. [Italics are Mr. Emory’s] Yet by pushing through another huge tax cut in the face of record deficits, the administration clearly demonstrates either that it is completely feckless, or that it actually wants a fiscal crisis. (Or maybe both.)”

“Stating the Obvious” by Paul Krugman; The New York Times; 5/27/2003.


4 comments for “FTR #651 The Engineer Has Wrecked The Train”

  1. http://www.investmentweek.co.uk/investment-week/news/2124105/rogers-100-chance-2008-crash

    Rogers: 100% chance of another 2008 crash

    10 Nov 2011

    Investment veteran Jim Rogers has said he is 100% sure the world will face another financial crash prompted by the eurozone debt crisis, adding this time it will be worse than 2008’s collapse.

    The CEO and chairman of Rogers Holdings told CNBC the upcoming crisis could be worse than the Lehman Brothers collapse three years ago due to astronomically higher debt levels in economies.

    “In 2002 it was bad, in 2008 it was worse and 2012 or 2013 is going to be worse still – be careful,” he warned.

    “The world has been spending staggering amounts of money it does not have for a few decades now, and it is all coming home to roost.

    “We are certainly going to have more crises coming out of Europe and America; the world is in trouble.” said Rogers.

    He said borrowing more cash to fix the problem was no longer a solution for indebted nations.

    “Last time, America quadrupled its debt. The system is much more extended now, and America cannot quadruple its debt again. Greece cannot double its debt again. The next time around is going to be much worse,” he said.

    Rogers told CNBC he believed the only solution to the global financial crisis was to allow “everyone to go bankrupt”.

    “Get everyone in a room and decide you will go bankrupt. You will survive and we are going to ring-fence you. We will make sure your cheques clear. Everyone’s deposits are going to be ok, the system is going to survive,” he said.

    However, he warned letting Greece leave the euro would be a disastrous decision because the country would go back to its “same old ways”.

    “They would start printing money, no one would lend them money and inflation would go through the roof. The Greek economy would get worse and worse. That is not good for Greece and it is not good for the world.

    “It would be better off if we can hold the euro together and reorganise. People are bankrupt and when people are bankrupt you might as well face reality.”

    Posted by R. Wilson | November 19, 2011, 1:38 am
  2. I’m not sure how much accountants and tax attorney’s for major multinationals get paid, but the ones working at the 10 large firms that managed to booked more in tax-free overseas profits than they reported in net revenue are really ‘good’ at their jobs:

    Updated March 10, 2013, 8:15 p.m. ET

    More U.S. Profits Parked Abroad, Saving on Taxes


    U.S. companies are making record profits. And more of the money is staying offshore, and lightly taxed.

    A Wall Street Journal analysis of 60 big U.S. companies found that, together, they parked a total of $166 billion offshore last year. That shielded more than 40% of their annual profits from U.S. taxes, though it left the money off-limits for paying dividends, buying back shares or making investments in the U.S. The 60 companies were chosen for the analysis because each of them had held at least $5 billion offshore in 2011.

    The practice is a result of U.S. tax rules that create incentives for companies to maximize the earnings, and holdings, of foreign subsidiaries. The law generally allows companies to not record or pay taxes on profits earned by overseas subsidiaries if the money isn’t brought back to the U.S.

    Big American companies are booking more of their sales in faster-growing foreign markets. But companies also are moving more of their earnings overseas by assigning valuable patents and licenses to foreign units.

    Untaxed foreign earnings are part of a contentious debate over U.S. fiscal policy and tax code. The current system attracts criticism from many points of view. Business groups want the U.S. to tax profit based on where it is generated, as many countries do, rather than globally, as the U.S. does now. Moreover, they point out, tax rates are higher in the U.S. than in many other nations, putting American companies at a disadvantage.

    Others say that the growing cash hoards often are the result of sophisticated corporate maneuvers to shift profits to low-tax countries.

    Within the group of 60 companies, the Journal found 10 that parked more earnings offshore last year than they generated for their bottom lines. They include Abbott Laboratories, whose store of untaxed overseas earnings rose by $8.1 billion, to $40 billion. The increase exceeded the pharmaceutical maker’s net income of $6 billion, which was weighed down by a $1.4 billion charge related to early repayment of debt. Including that charge, Abbott reported a pretax loss on its U.S. operations.

    An Abbott spokesman declined to comment.

    Abbott runs manufacturing plants in more than a dozen foreign countries, plus Puerto Rico, and generated 58% of its $40 billion in 2012 revenue outside the U.S. In a securities filing, Abbott estimated that lower tax rates on its foreign operations cut its U.S. tax bill by $1.6 billion last year.

    A big Abbott subsidiary in Ireland, Abbott Laboratories Vascular Enterprises Ltd., reported profit of €1.1 billion for 2011 ($1.43 billion), the latest figures available, and paid no Irish tax, because it is incorporated in Bermuda, according to an Irish corporate filing.

    Posted by Pterrafractyl | March 14, 2013, 1:46 pm
  3. Here’s a reminder that when the GOP 2016 candidates pledge to “overturn Obamacare”, the reality is that if a GOPer wins the White House in 2016 they’re probably going to have an opportunity to overturn all the policies that have come out of Congress or the White House since the end of the Bush administration that were actually helpful. So while the 2016 will inevitably be portrayed as an opportunity to roll back Obamacare, it’ll probably effectively become a de facto referendum on whether or not to roll the United States back to the Bush era, wars and all. And, amazingly, it’s a referendum that the GOP just might win:

    TPM Cafe: Opinion
    2016 Might Be America’s Next High-Stakes Election
    By Ed Kilgore
    Published March 18, 2015, 6:00 AM EDT

    In this space a couple of weeks ago I made the argument that partisan and ideological gridlock was feeding on itself by creating an insatiable craving for the occasional Big Election with big consequences. What didn’t fully occur to me is that the next Big Election might be the one just ahead, in 2016.

    No, it’s extremely unlikely that 2016 will produce the kind of temporary governing capacity for either party that Democrats won in 2008, with a big majority in the House and a filibuster-proof majority in the Senate (for a year, at least, until the disaster of Scott Brown’s special election victory in January 2010). But a rapidly escalating series of Republican post-election promises that do not require a landslide are making this a “high-stakes election” nonetheless.

    Most notably, Republican proto-presidential candidates are tripping over each other to promise to revoke Obama’s executive orders and regulations. This threatens to become a counterrevolutionary executive agenda that goes beyond high-profile items like immunity for prosecution for immigration violations and utility carbon emissions regulations and extend deep into everything Democrats were able to accomplish since 2009. It’s just a matter of time until a competition breaks out that culminates with demands and promises to repeal everything Obama ordered, including regulations needed to implement everything Congress passed since 2009. That’s obviously a pretty big deal.

    A second major “high stakes” area involves the president’s power to use military force. In 2012 Republicans accused Barack Obama of weak leadership and predicted threats to American interests ranging from Palestine to Iraq to Russia to North Korea, with a particular emphasis on Iran. This time around Republicans both in Congress and on the presidential campaign trail are describing these threats as imminent, and advocating what amounts to a re-invasion of Iraq to deal with Islamic State and an ultimatum to Iran to abandon its entire nuclear program immediately or face U.S. or Israeli airstrikes. That’s aside from the equally radical but less immediately dire course of action the GOP is advocating with respect to Israeli-Palestinian relations (an abandonment of any two-state solution), and its treatment of the current Israeli government (which as of last night appeared likely to continue in power for the next four years) as the linchpin of U.S. foreign policy.

    More generally, what looked as recently as a couple of years ago like a burgeoning intra-GOP debate over “non-interventionism” as a corollary of limited government conservatism has collapsed, and even Rand Paul is joining his party colleagues in trying to sabotage a nuclear deal with Iran at the risk of war, and rejecting any obligation to fulfill diplomatic commitments made by Obama. The fork in the road in November of 2016 appears as stark for foreign policy as it does for executive action on domestic policy.

    A third “high stakes” area is legislative, and involves the strong possibility that Republicans will, if they control the White House and both chambers of Congress, use the budget reconciliation process to kill or at least disable the Affordable Care Act, cut taxes, boost defense spending, and radically “reform” entitlements—all in one bill that requires only majority votes in each House. There were reportedly plans in the works to do all that back in 2012, in a blitzkrieg action planned for early in 2013, had Mitt Romney won and Republicans reclaimed the Senate that year.

    There’s no telling what the next year of frenetic campaigning, especially in the GOP presidential nominating process, will add to the 2017 agenda of action to make or remake history. But at present, there are already enough crucial matters of war and peace, prosperity and austerity, and equality and freedom, to make this a Big Election, even if the choice between, say, Hillary Clinton and Scott Walker as president were not choice enough.

    “This time around Republicans both in Congress and on the presidential campaign trail are describing these threats as imminent, and advocating what amounts to a re-invasion of Iraq to deal with Islamic State and an ultimatum to Iran to abandon its entire nuclear program immediately or face U.S. or Israeli airstrikes”.

    Are Americans ready for another round of endless war? We’ll find out in another year and a half but, for right now, it’s definitely looking like a ‘maybe’.

    Posted by Pterrafractyl | March 18, 2015, 1:23 pm
  4. Here’s a free hot stock tip: former Senator Phil Gramm, the driving force in the Senate behind the repeal of Glass-Steagall that is widely attributed with playing a major role in destabilizing the US financial system and causing the eventual financial meltdown, appears to have secretly invested in torch and pitchfork manufacturers and is now trying to drive up interest in their products. Yes, there is no evidence that Gramm is heavily in vested in torch and pitchfork manufacturers and is trying to create a torch and pitchfork bubble, but that’s really the only reasonable explanation what for he just said:

    Vanity Fair
    Former U.S. Senator: C.E.O.s Are the Victims of “Bigotry”

    Get ready to experience 2008-financial-crisis PTSD.

    Tina Nguyen

    July 29, 2015 1:39 pm

    Remember when American taxpayers paid for major financial institutions to receive a bailout worth hundreds of millions of dollars, following the subprime-mortgage crisis? Those institutions, Citigroup, Inc. and Merrill Lynch & Co. among them, then awarded billions of dollars in bonuses to their C.E.O.s, while the nation fell into a recession. Get ready to experience 2008-financial-crisis PTSD with this footage of former U.S. senator Phil Gramm, one of the men arguably responsible for the housing bubble that led to the financial crisis, saying that the very C.E.O.s were the victims of “bigotry.”

    Gramm, a former Republican from Texas who left the Senate in 2002, was called before the House Financial Services Committee on Tuesday to testify on the effectiveness of the 2010 Dodd-Frank Act, which was passed in the wake of the financial bailout. Hilariously, Dodd-Frank addressed some of the issues stemming from Gramm’s legislation—specifically, the Gramm-Leach-Bliley Act of 1999, which removed the barriers between commercial banking (i.e., the banks that hold people’s money and issue mortgages) and investment banking (i.e., the banks that control where to throw investment money). And Gramm happens to be one of the people—possibly the only person in America—who thinks that his bill was not a direct cause of the 2008 financial crisis.

    Gramm, currently a consultant for UBS,, might have been expected to express some remorse during the hearing. No one expected him to argue that he and his fellow rich people were the victims of “bigotry”:

    “What all of this is about is political demagoguery. It’s the one form of bigotry that is still allowed in America, and that is the bigotry against the successful. Why do people pay executives a lot of money? Why do C.E.O.s make these huge salaries? It’s because they add value.”

    As an example, he cited former New York Jets quarterback and “victim” Joe Namath as an “exploited” man who added value to his team and received the highest salary as a result. And it didn’t stop there:

    My friend Ed Whitacre at AT&T: if there’s ever been an exploited worker—even though they made a big deal abut him getting $75 million when he retired, the man added billions of dollars of value. He was exploited! It was an outrage! But nobody’s raising hell about it. They’re raising hell about the fact that he made a lot of money, and other people would like to have the money, and even if they don’t want it, they don’t want him to have it. I don’t get it.

    From this, we can derive that either Gramm has no idea how to use the word “exploited,” or Gramm truly believes that Joe Namath and the former C.E.O. of AT&T are being unfairly used by…the public?

    Poor Ed Whitacre. Hopefully the additional $83 million on top of the measly $75 million Phil Gramm cited plus $24,000 in annual automobile benefits and access to the corporate jet for 10 hours a month he got in his retirement package made up for all the exploitation he suffered.

    Not all retirement crises are equal, but don’t think that means you can start harping about inequality in retirement crises. That’s just bigotry.

    Posted by Pterrafractyl | July 31, 2015, 4:49 pm

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