How a simple data CD may bring down Switzerland

A simple Data-CD is about to shake the foundations of  Switzerland itself. How come?

An unknown Data thief has offered German Authorities a CD containing valuable data about some 1’500 tax frauds, for some 2,5 Mio. Euros. Germany may generate a 100 Mio. Euros on back taxes and penalties and the odd bad boy will face jail. This is an impressive return on investment and Germany, as much under pressure financially as most other industrialized nations, does not really want to not use it. Moreover, it is a hard sell to tell your welfare recipients that they have to pay back the  €20, they erroneously received in January and then go on and graciously waive a hundred million. Poor people are voters, too and Angela Merkel is not a political suicide.

I personally have my doubts about the legality of the purchase, but one may well argue that a higher interest is at stake und thus the purchase is legitimate.

So this is an entirely German affair, is it not?

So why are the Swiss so very upset?

Here’s the math:

An estimated 3 Trillion Swiss Francs in Swiss bank accounts are Assets under Management owned by foreigners. 30% to 50% are at least from grey, if not black money, that is   approximately 1 trillion Swiss Francs.

“Switzerland has become a paradise for foreign capital on which tax is not paid. The uproar from foreign governments is understandable.” These are not the words of a critic of the banks, but of private banker Konrad Hummler. He says that around 30%, or CHF 1,000 billion, of the CHF 2,800 billion or so of foreign assets in Swiss banks is untaxed “black money”.

I’m still being conservative. Let’s say 30% of those funds are from German individuals, that makes it 330 billion Swiss Francs.

Let’s say German investors panic, because the only argument for having your money in Switzerland is the banking secrecy (they pay a measly 1% interest here). They are going to get their own money and transfer it elsewhere, or even repatriate the stuff and grudgingly pay the back taxes to avoid a hefty fine or in some cases jail.

More math:

The Swiss GDP is about 500 bn Swiss Francs (2008), the financial sector is generating about 12% of GDP, banks about 7.5% that makes it 37.5 bn. But they may lose 330 bn. They would stop contributing to GDP for almost ten years to refill their coffers.

But banks have equity capital, have they not? Well at least UBS, the biggest player, is still in a load of trouble and struggling to get it’s equity capital quota into a reasonable percentage.

Now add to that the fact that we are talking about bank accounts owned by Germans only, what’s more, we talk about German tax dodgers’ accounts. There are other countries’ citizens involved, too. This adds another hefty sum at stake. Then there are those who have put their money into Swiss accounts legally, but don’t want to be under the general suspicion of being a tax fraud. Again: In sum there are some 3 trillion Swiss Francs at stake. If only a third of it is lost to other markets, Switzerland goes broke.

Some of the more naive here reckon banking secrecy can still be saved. The naivest of them all, the right wing SVP (Swiss People’s Party), even think they can win the next elections by harshly defending the status quo. The Swiss are not so stupid. Still sore about the UBS bailout, they are not prepared to ruin their country to protect a couple of foreign tax frauds and their banksters.

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FDIC in Crisis?

Your Government At Work

Your Government At Work

This is unbelievable.

The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.

The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.

Bair [FDIC Chairwoman] said yesterday that the agency’s failure to collect premiums from most banks “was surprising to me and of concern.” As a Treasury Department official in 2001, she said, she testified on Capitol Hill about the need to impose the fees, but nothing happened. Congress did not grant the authority for the fees until 2006, just weeks before Bair took over the FDIC. She then used that authority to impose the fees over the objections of some within the banking industry.

I didn’t know whether I should use the Three Stooges or Dumb and Dumber as the most appropriate graphical depiction of this potential disaster.  At this point, I think being completely broke or stashing whatever cash I might manage to save in a tin can buried in the barn might be the best way to go.

Now both parties are responsible for this mess – if for nothing else not bringing it to the public’s attention, but, for the record, which party held the majority in Congress from 1996 to 2006? Just sayin’.

h/t: Washington Monthly

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China to stop lending to US banks

Reuters reports:

BEIJING, Sept 25 (Reuters) – Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.

The Hong Kong newspaper cited unidentified industry sources as saying the instruction from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to U.S. banks but not to banks from other countries.

“The decree appears to be Beijing’s first attempt to erect defences against the deepening U.S. financial meltdown after the mainland’s major lenders reported billions of U.S. dollars in exposure to the credit crisis, the SCMP said.

A spokesman for the CBRC had no immediate comment.

Oh boy. This is NOT good.

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