MP3: 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.”
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. . . .”
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. . . .”
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.)”