Er, actually it’s heads I win, tails I lose

| 22/04/2010

The most depressing point about Mr Iton’s analysis (see Viewpoint below) of the civil fraud charges brought by the US Securities and Exchange Commission against Goldman Sachs is not the tortured misunderstanding of the most basic of principles of the CDO transaction but the inescapable conclusion that the financial services industry in Cayman has clearly failed comprehensively to explain how and why it functions.

It is difficult to know quite where to start in dealing with the misunderstandings (and see too Mr Seales’ effort in Cayman Net News 21/4/2010) but the following may assist (and for further enlightenment I strongly suggest attendance at the Cayman Finance Summit on 6 May at the Ritz Carlton Grand Cayman):

Let us look firstly at the point where Mr Iton is right, albeit for the wrong reason. There is no doubt that the only progressive route for the Cayman Islands financial services industry is to attract the financial professionals who can undertake the financial engineering of the transactions so that the substantive aspects are undertaken in the Cayman Islands. The Premier has this right in terms of both the necessary amendments to the immigration policy to render the Cayman Islands more attractive in terms of security of tenure for these professionals, and to reverse the rollover policy in relation to the financial services industry. In this way a higher value can be obtained from each transaction by both the public and the private sectors. However it must be recognised that we have a steep hill to climb in terms of the comparative attraction of Cayman.

Daily evidence of the failure to understand better the financial industry is itself a major deterrent to attracting the highest quality professionals across a broad range of new disciplines, regardless of how attractive the new immigration policies may be. There is no tax incentive for a US citizen to move (other than State tax) and we are not geographically proximate to the United Kingdom, so on neither ground is the Cayman Islands favoured and nor has it been for the past four decades. As matters stand this necessarily means that the Cayman Islands Government and the local economy must derive its revenue (which currently amounts to over 50 per cent of Government expenditure on the public sector and generally) not from the provision of substantive financial engineering in relation to these transactions, but from ancillary services provided of a legal, accounting and administrative nature and from fees. That fundamental is the one that must be changed if the Cayman financial services industry is to continue to support Cayman Islands Government expenditure. It is by no means a given that it can do so.

Now for the points where we do not agree with Mr. Iton’s analysis.

The SEC claim is based on civil fraud not criminal fraud and is in the nature of a complaint concerning non-disclosure. There is doubt that the SEC claim is soundly based in law and on the facts and it is vigorously defended by Goldman Sachs. Notwithstanding the vehement denials, informed comment suggests that the claim is politically motivated and it is timed to correspond with President Obama’s support for financial services regulation.

To put the issue in context, the claim concerns US$1 billion, or just less than 0.0002% of the dollar value of the structured finance transactions undertaken by Cayman Islands issuers in the past decade. We need to understand that as with any business venture, inherent in the relationships that have resulted in the financial industry having generated billions of dollars for the Cayman Government, is an element of risk. In fact, the Cayman Islands financial services industry has been spectacularly successful in managing that risk. Only the financially naive, or certain British politicians, believe foreign regulators when they attempt to point fingers of blame at the Cayman Islands for their failings in BCCI, Enron or Parmalat.

Mr Iton does not understand a derivative CDO trade. There is necessarily a long position that matches the short position. Every CDO transaction must have a winner and a loser. What Mr Iton meant to say was “Heads I win, Tails I lose”, which describes perfectly the functioning of a multi-billion dollar marketplace. No investors were relieved of US$1 billion who did not understand that one side would lose. One party to the trade bet that mortgage values would go up and one party to the trade bet the mortgage values would go down. It takes two to tango and it took two to make the bet. At the time Mr Paulson, who was an unknown to Wall Street, was one of the very few persons betting that the trade would go down. It is his role, if any, in the selection of the securities within the portfolio and the disclosure of that role that is at issue. The parties that took the long side of the trade were highly sophisticated and believed the value would go up. No one forced them to take the trade. The long side of the trade knew what securities were in the underlying asset class that comprised the related derivative positions.

The issue is simply whether Mr Paulson’s involvement, if any, in the selection of the asset class was disclosed adequately. That is a difficult question for the court and will turn on evidence as yet undisclosed.

As a self-interested captain of the financial industry I must repeat my warning that the industry is indeed contributing to the local economy at an optimal level. Mr Iton’s point is a non-sequitur. The start point of the discussion is admirably described in the Miller Report: What is the appropriate level of expenditure by Government for an Island population of 60,000 people? $500,000,000 annually by any comparative standard should have been enough. The financial services industry can only produce what it can produce and it has been seriously hampered both by a short-sighted immigration policy and the external global economic crisis. Even if you do not understand the structuring of a CDO, you should understand that, as any decent tailor will tell you, your cloak must be cut according to your cloth.

The issue of the fees that may be charged by the private sector and the Government in the Cayman Islands in relation to any offshore transaction is driven by a number of factors, none of which Mr. Iton describes. There is a balance that has to be struck between the quality of services that we can provide in the Cayman Islands given the available personnel and, given competitive forces, the price that can be charged by the private sector and government in providing them. That is a sensitive economic dynamic that has developed over four decades and one which is constantly under review.At the moment, it should be said, it is a dynamic that is under considerable stress as a result of the recent (and hopefully temporary) fee increases introduced by the Government to deal with the domestic financial shortfall. If and when Cayman can present itself in a better light and attract superior financial professionals, possibly the overall fees charged per transaction may be increased. But that is an analysis that requires a high degree of expertise and understanding not, incidentally, evidenced in Mr Iton’s commentary.

A supreme financial services provider, whether a Government or in the private sector, can indeed charge whatever he wants. Those who are not supreme can only charge what the market will bear and need to be happy doing so. When I last looked I saw delusions of supremacy but a shortage of the real thing. This means that the only question for Mr Iton is whether the Cayman Islands Government and the private sector should be in the business of generating fees from financial services on the present basis or not. If the level of outrage at the SEC claim is so great and universally accepted that the answer is that the Cayman Islands financial services industry should not be involved in these types of transactions, we are led to the inescapable conclusion that Mr Iton must immediately find about $250 million per year in revenue from an alternative source. If he does not then the only conclusion is the reduction of the civil service by about 75 per cent. That would be a mistake. Those who agree it would be a mistake must understand that we do not currently have the luxury here and now of faux moral outrage.

 

Anthony Travers is the chair of Cayman Finance
 

Category: Viewpoint

Comments (45)

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  1. Anonymous says:

    Re. "Only the financially naive, or certain British politicians, believe foreign regulators when they attempt to point fingers of blame at the Cayman Islands for their failings in BCCI, Enron or Parmalat."

    Only the self-delusional, or certain Cayman Islands representatives, believe locals when they attempt to deflect fingers of blame at the Cayman Islands whenever the jurisdiction has a nexus to an international financial scandal.

    To pretend that Cayman is not responsible for anything that occurs on its shores is to bury one’s head deeply in the sand. It is a sign of immaturity.

    Like any jurisdiction, Cayman has its fair share of financial scandals that its regulators, auditors, bankers and professional service providers must take responsibility for.

    • I didn’t mean to post the above comment anonymously. Prior to saving the message, I forgot to enter my name in the appropriate box.

      • David R. Legge says:

        David, you, I, and a few others are the only ones who sign our names to our postings. Maybe because we’re writers we like to "own our words." In any case, it’s the responsible thing to do, and maybe we can get some others to join us . . .

        • Anonymous says:

          Mr. Legge, I would guess most posters to CNS (Caymanian, as well as expat) would be in deep XXXX with the powers that be if real names were attached to opinions.  However, XXXXX

          • That’s an interesting point in more ways than one.

            If you are expatriate, there is probably a greater risk of you being removed from the island against your wishes if you have published something critical of Cayman and/or one of its luminaries than if you are involved in a financial scandal, the latter of which can be, and is routinely, easily ignored.

            As former Cayman Islands CEO Ann Nealon found out several years ago, even a simple decision of leaving Company A to join Company B can be enough to have you kicked off the island.

            I believe Mr. Travers is familiar with the Nealon affair. Perhaps he would comment on itand its apparent incompabibility with his position that work permit regulations should be relaxed to allow key employees to remain on the island.

  2. Anonymous says:

    http://michaelmoore.com/books-films/capitalism-love-story

     

    Meant to post this link which takes you direct to Michael Moores link to the film – Cayman watch this , it makes everything crystal clear  – its also hilarious !!  You can also watch key parts online .

  3. Anonymous says:

    "Capitalism a Love Story "  The film by Michael Moore –

    Could I suggest a screening event ? Perhaps Cayman Finance would perhaps act as event sponsors ?or even better  a screening forthe delegates attending their event on May ?

    See Youtube link below which previews movie

  4. slowpoke says:

     My last post on this thread, 

    "As the U.S. housing market started to slide, executives at the most legendary investment bank on Wall Street, Goldman Sachs, were trading e-mails in which they cheered the declines, even when those declines meant some of their clients were taking major losses, according to newly released documents."

    http://www.washingtonpost.com/wp-dyn/content/article/2010/04/24/AR2010042401049.html

    Get an ethical and moral compass!

    • Really says:

      Well if they took short positions on an obvious bubble at the right time then well done to them.  Their clients (themselves investment institutions) were trying to eke more profits out of an obvious bubble which was driven by selling mortgages to greedy liars.  Goldmans took a better market position.  That is why they are Goldmans and others aren’t.

      • Shock and Awe says:

        Yes, 9:11 and here’s how they did it:

         

        "The whole building is about to collapse any time now," Mr. Tourre wrote to his girlfriend. "Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!" according to an email in the SEC case. "Anyway, not feeling too guilty about this."

  5. Anonymous says:

    Andre you apologised to quickly, XXXX doesn’t appear to understand a CDO either, there can actually be two winners on a CDO transaction, where Paulson made his money was on credit default swaps.

    • Anonymous says:

      XXXX

      I am an average person who enjoys taking part in this type of debate – to be honest I havent commented on this topic as I still dont fully comprehend the ins and out also where PR spin starts and stops- and im guessing that applies to the majority including those who are so called industry  experts -If you look at recent items in the press there is a lot of mud slinging going on – leaked e mails etc . What we can be certain of is Goldman isnt going anywhere and large bonuses will continue to be paid – Cayman is part of that world and needs to continue that relationship –

       

       

  6. Scrooge McDuck says:

    This is all hogwash.  What the banking industry needs is some good old fashioned ethics.  We can listen to lectures on CDO’s, SPv’s until we’re blind. But the bottom line is none of these "instruments" worked, at least not for the general population.  They do not create wealth for a country or an economy.  Vast sums, created out of thin air, were transferred to and fro and commissions and fees were generated in the process.  That was the sole purpose.  This was not the old days of Wall Street, or the original intention  when stock was issued, in order to allow a company to grow, and therefore enhance the economy.  There is no such redeeming quality to this pile of crap.  When the smoke cleared and no matter what exotic terms were given to these things it all turned out to be hocus pocus and the public was stiffed. 

    Lest we forget the public bailed out this disaster!  Because we, with the help of our unwitting governments and their Wall Street advisors helped turn fictitious money into real money.  OUR money!

    Now these same bright lights purport to talk down to us?  And tell us we just don’t understand?  Keep your lectures for someone else Travers.

    We do understand!

    It was nothing more than a Ponzi Scheme.

    And….

    The largest transfer of Public Wealth supported by governments in history. 

    Bite me

     

  7. Anonymous says:

    Any Civil Service contract can be terminated if the right procedures are followed.  The problem is political, not legal.

     

     

  8. isandman says:

    Knowing and researching much work of both Mr. Iton and Mr. Travers and taking into consideration that both have extensive financial experience i would (without hesitation) align myself and my investments that it is Mr. Iton who has and continues to make decisions and contributions based on more ethically sound judgements.

     

    • O'Really says:

      Andre Iton’s opinion piece is quite clear where he stands. He wrote: "Are we really so naïve to continue to believe that $25,000.00 is adequate compensation to the public purse for the provision of an enabling environment…."

      It is clear from his words that he is concerned less that Cayman might act as an enabler of any such transaction and more that Cayman should be more generously compensated. I must have missed the bit of the textbook where it states that more generous compensation for a service renders anything to do with that service legitimate.

      And this in your opinion is an " ethically sound judgement"?

      • isandman says:

        "If" we were going to enable "unethical" business then let’s at least get paid hansomely. I think that is what mr. Iton was saying. Currently Cayman is enabling such business for what? Bragging rights and "a few very rich" people to get richer?

        Certainly not REAL long term benefit to the country!..else why is Cayman so broke.

        My post speaks to the reality that Cayman HAS often enabled unethical business…and must NOW look to the future to correct that by becoming a jurisdiction that promotes the highest business ethics. And continuing to offer long winded talk down at others, i’m smarter than you, only us financial wizards can understand such complexity BS attitude will NOT help.

        Of course there are those (who are getting rich at the expense of others) who will disagree and want things to stay as they are.

        Then again, there are some like Mr. Iton who believes in fairness and ethics!…And i will allign myself with ethics also.

        Ethics and Justice must be seen to be done! Or we all lose..as a country (or island).

      • Shock and Awe says:

        O’Really you’re missing the point given enough money changing hands anything can be made to appear legitimate.  Some recent examples:

        The fraudulent Savings and Loans.

        The fraudulent bookkeeping of Arthur Anderson.

        The fraudulent escapades of ENRON.

        Bush’s fraudulent U.S. Presidential Election.

        The fraudulent WMD’s.

        The fraudulent War on Drugs by the CIA.

        The fraudulent Invasion of Iraq.

        The Patriot Act.  The Department of Homeland Security.  Illegal wire-tapping. 

        Extraordinary rendition.  Water-boarding. Torture.

        The paid mercenaries.

        The fraudulent billing of Halliburton.

        The fraudulent TARP bailout.

        The co-opting of the Secretary of the Treasury by Wall Street.

        The fraudulent manouvers of Goldman Sachs, AIG, B of A, Merrill Lynch, CitiGroup, Fanny Mae, Freddie Mac, and Federal Reserve.

        RC Church pedophiles.

        The list goes on and all insist what they have done is legitimate.

        What we need to focus on is who decides what is legitimate?  Who decides what is ethical?  And more importantly, how do we get our focus back after s*it like this because we depend on human decency to survive.  Some of us do…. and have we left it in the wrong hands?  Yep.

        • O'Really says:

          My point is quite simple. You cannot make ethical any transaction which is inherently unethical simply by charging a higher fee.

          Iton’s article implies that if Cayman is to continue to provide vehicles to facilitate transactions of this type, Cayman should be able to charge a higher fee. This is not ethical, merely more lucrative. 

          If you don’t get this, maybe I’m not the one missing the point.

    • Anonymous says:

      Why is this an ethical debate?  To date there is no public evidence that either party in this trade was misled, the SEC’s own complaint says otherwise!  Paulson (like many other astute investors) bet that the mortgage market was overheated in 2007, and he was guilty of being correct.  

      If you were betting that the overwhelming favorite Colts would win Superbowl XLIV, would you call your buddy unethical if the Saints won 79 to 10?  Probably not, since ethics has nothing to do with the bet or outcome.
       

      • isandman says:

        A more applicable analogy might be to bet (back in the day) on the plantation owner who had the most and strongest slaves would sow and reap the larger crop…or that to take away the Indians (American Natives) lands would also make one rich. And even though this was accepted and legal behavior at the time, it still was NOT right (ethical).

        ps: I did bet on the Saints.

         

  9. Anonymous says:

    We need to recall the housing mania and "flip-this-house" culture which prevailed in 2007 to understand how Paulson won the bet (on his side of the trade). 

    Paulson: “When we expressed our concerns about the mortgage markets many of the most sophisticated investors in the world, who had analyzed the same publicly available data as we had, were convinced that we were wrong, and more than willing to bet against us.”

    The SEC’s own statement shows that ACA, "an experienced mortage-investment conglomerate", participated in "numerous detailed meetings to select the portfolio", working with Paulson & Company.

    Case closed.  Back to work everybody.

  10. Poor Boy on the Street says:

    Tony praises Big Mac by saying "the Premier has this right in terms of…etc, etc, etc." However, when the Premier speaks he praises Tony and Cayman Finance using his favourite term "Creation of Wealth", and I am sure he honestly believes that is what they are doing.

    Interestingly, Tony admits in his article that these complex instruments are not creating wealth, but rather they are a vehicle for transferring wealth from the long to the short or vice versa, but generally speaking from the less astute, or in some cases from those without inside knowledge.

    When a poor person in rural Alabama is given a mortgage that he or she cannot afford, using land that nobody wants to buy as collateral, and then a whole lot of similar mortgages are all packaged together and form the basis for a "complex" Cayman financial instrument then Iton and everyone else living here has a right to question what is going on.

    Undoubtedly there is more going on in Cayman than this one deal or all of these law firms would not be here, and I assume that the majority of it is both legal and sophisticated, but when something is created here using smoke and mirrors and then someone pulls back the curtains to reveal what it really is, we must not try to sweep that under the carpet using the BS line "It’s too complex for you to understand".

     

    • Anonymous says:

      That is precisely the problem here in the financial industry. The establishment’s game is to make it appear so complex that they delude themselves and others to believe that it is like rocket science. And by extension one needs to be so and so to understand it, in order work in the industry and a false glass ceiling is perpetuated. 1+1 always equals 2.

       Perhaps we did not have the arable land mass and hence much of large scale sugar industry to make us attractive for large scale plantocracy like other islands did, which has created some degree of ignorance and false beliefs in our indigenous populace to such colonial practices i.e. that they could not exist here. But surely, we are getting it in a different form today but with a different twist to it, and the perpetuation of wealth by others at often the expense of locals, who continue to be marginalised.

      Caymanians and West Indians in general should not be taken to be fools, and it is time that we question at minimum this modern day colonialism.

       

       

       

       

  11. Andre Iton says:

    Mr.Travers is indeed right. I do not understand Collateral Debt Obligations. I am not ashamed of that fact given that some of the main users of these "weapons of mass destruction" (CEOs of the major global finanical institutions included) have confesed to a similar ignorance.

    I am indeed heartened that in our midst there is at least one individual who has a sound grasp of these socially useless instruments ( that is not my descriition, but one offered by numerous financial luminaries, included the  Head of the UK’ s FSA).

    What ever diversions the upholders of the status quo may wish to offer, the reality is that the global financial architecure and by extension Cayman’s role in it, is undergoing  fundamantal change.

    In the current week the IMF has proposed the introduction of  a global tax regime for Banks. Indeed today the G-20 is looking at similar proposals.

     We would do well to remember that dinasours ( as large as they were) are extinct precisely because they failed to adapt to changing enviorment.

    I am reasonably confident that the people of this country in the main understand this and will, with the passage of time impress upon their leaders the imperative of engaging and adapting to the evolving landscape.

    Mr. Travers asserts that as a self- interested captain of the local financial industry, the current contibution of the sector is optimal. I would  respectfully suggest that such a judgement should be the preserve of the elected representatives of the people of the Cayman Islands. 

    If he is however indeed correct then the Law of Diminshing Returns would suggest we shift our focus elsehwere.

     

    • Anonymous says:

      At least Messrs Travers, Iton and Legge offer their differing points of view in a reasonably courteous manner and with their names attached, unlike the rest of us. They don’t sling race cards or university matriculation cards at each other either, again unlike some posters. I enjoy reading all of their contributions and thank CNS for making them available.

      I suggest to Mr Iton he gives up on writing for Desmond and Net News as it does not do his credibility the justice it deserves. After all, look at his fellow columnists: The Son of the Soil J M Bodden III (totally incomprehensible), Rev Nick Sykes (totally incomprehensible) and Gordon Barlow (totally…er..well… you fill in the space.).

    • Khan Dhu says:

      CDO’s offered many people the chance to obtain mortgages at lower prices than if these structures has not been created.  It was the decision of politicians to relax mortgage lending to fuel the expansion of property ownership and rampant price inflation because of its political "feel good factor" that was the root cause of the problem.  The principle behind how CDO’s work is really not that complicated.

      • pauly cicero says:

        I agree and disagree. CDO’s were designed to help banks avoid losing their shirts. The government responded to the minorities’ complaints of "redlining". The banks responded that they were not discriminating but rather that they know the applicants were too high a default risk. Government said tough, these folks vote for us, relax your rules or we will make life difficult for you. Programs were developed for those who could not meet the traditional mortgage requirements but the banks still felt the risk was too high. Banks asked their smart guys how to cut/shift the risk and still make money – the CDO was born. Speculators, flippers and others realised they could take advantage of the programs and get in on all the money being given away and the CDO’s were dependent on the bubble continuing. The principle behind CDO’s is simple but assumes continuation of an inflated market. Mortgages were cheaper because the banks and mortgage companies had no intention of keeping them – they were sold and bundled into CDO’s almost immediately and shifting the risk onto the CDO investors.

  12. slowpoke says:

     Er, nice try at diverting us from reality.  The underlying issue is that this is just another financial service provider that is s******g the public, for their executive bonuses, shareholders and HNW clients. 

    Whether they are found guilty or not (let us take a look at how much each spent on lawyers when all is said and done) does not explain or account for the losses and bailouts occurred by Enron, Lehman, CITI, AIG… Sub-Prime, SPV, CDO, Derivatives, blah, blah, blah.  Take some responsibility for leading us down a road of economic collapse. The political argument, is just wing nut stupid.

    All of the rationalizations, arguments, and clarifications, do not justify supporting an industry that behaves unethically, with a total disregard for “the little people”.

    That said, I would like to reissue my request for a response as to whether “a contract is a contract” (Ridley- hedge fund investors) or basically “not so much, if it is an employment contract for a CS” (Travers).

    (Just to clarify, I am not a CS, have benefited greatly from investments, BUT, have maintained a conscience)

    • Anonymous says:

      This is more of the same c…p to keep the blind fold on people’s eyes, but it will not work, we have too many smart and brilliant people like Andre around.

    • Afraid to Strap on a Pair Also says:

      Good for you, Slowpoke.  People of conscience are very hard to find on this island.  On a related note, sorry to see Dan go.

  13. Anonymous says:

    Food for thought.

    Did Mr. Iton by chance touch some nerve in his article?

  14. David R. Legge says:

    There are few people—perhaps none—in the Cayman Islands more knowledgeable in the details of derivatives such as CDOs than Anthony Travers. Certainly Andre Iton and publisher Desmond Seales (who editorialized on this subject in Cayman Net News) are not among them.

    "Media-types" or casual practitioners are generally not well-informed enough to write with authority on these arcane subjects and should approach them with extreme caution, if at all.

    Many years ago as editor of Newstar Magazine in Grand Cayman, I got the bright idea to do a cover story on the complex BCCI scandal, since much of it unfolded here. Trying to be a good reporter, I went to the Banking Supervisor, a wise man who had been seconded from the Bank of England, and asked him to explain it to me. He laughed and suggested there weren’t enough years in either of our lives for that to happen.

    I abandoned that cover story idea and substituted a feature on how the world’s leading news media (Time, Newsweek, Forbes, Fortune, etc.) were covering the scandal and what they were saying about the Cayman Islands. Turns out they didn’t know what they were talking about either.

    Just last evening I finished a book called "The Big Short" by Michael Lewis which deals with these CDOs, credit default swaps, and other subprime derivatives that led to the near-meltdown of the world’s financial establishment. It’s recommended reading and certainly Goldman Sachs, along with John Paulson, play leading roles.

    I shot off an e-mail to a friend (a Harvard Business School graduate) now active in the financial markets and asked him, in the court battle between the Securities and Exchange Commission (SEC) and Goldman Sachs, who would he bet on. He wrote back that the "smart money" was on Goldman Sachs.

    Likewise, in a debate between Anthony Travers and Andre Iton (or Desmond Seales) on this subject, the smart money would be on Travers for one simple reason: He knows what he’s talking about.

     

    • Anonymous says:

      This one is below the belt my dear fellow!

      Mr Iton is an economist par excellence, and has impeccable credentials. 

      His views have always been about the big picture, and that of forewarning not only financial but social situations. Some of the social situations he predicted with the marginalisation of our local youth are bearing fruit today with the rise in delinquency and youth crime etc.

      When he was with the CDB as an economist he came here on project work, and as I understand it, was recruited by some of the leading lights at the time in the formative years of our financial industry where he remains.

      Perhaps the real issue is that he is not of G20 extract and Oxbridge educated, but nevertheless is a product of our world-class regional university system UWI.

      Only time will tell who is right.

    • Anonymous says:

      Excuse me, it’s a pity the Cayman Islands does not have more brains like Andre’s, at least he is genuine and is really concerned about us and not just himself or his business.   Thats more than we can say about many who are only here only to benefit their wallet/purse.    As the old saying goes, "birds of a feather flock together".

       

    • Anonymous says:

      How dare you criticise Andre Iton.  He has impeccable qualifications as well as the fact that he is a colored man who has made it in the financial industry.   Anthony Travers, you need to sweep out your own corner before you try to discredit a man like Andre Iton.  The Bible quotes that "If there is any among you without sin, let him cast the first stone", or do you not understand something as simple as that?

    • Anonymous says:

      A summary of David Legge’s comment: People who don’t understand this subject shouldn’t comment about it. I don’t understand it (I tried once but failed) but I’m going to comment anyway. I hero worship Anthony Travers and mere mortals are not worthy to lick his boots. Andre Iton disagrees with Anthony Travers and so does Desmond Seales. Ipso facto, despite the fact that he has worked in the financial industry for 30 years, it is clear that Andre Iton doesn’t know what he is talking about and is just like Desmond Seales.

      PS. I have a very very clever friend.

    • Anonymous says:

      So much for Mr. Legge and the "smart money". lol.

      Goldman Sachs to Pay Record $550 Million to Settle SEC Charges Related to Subprime Mortgage CDO

      http://www.sec.gov/news/press/2010/2010-123.htm

      • Pauly Cicero says:

        A severe spanking and a close haircut. The bruises will fade and the hair will grow back. Didn’t Goldman make billions last year? A finding of liability and even half of the fine would have carried far more weight and done much more damage to Goldman. A settlement, even this severe, was the "smart money" play here.

  15. Mike Hardy says:

    A very interesting view on the situation facing all tax havens and offshore finance centres in small islands. I live in Bermuda which is faced with the same uncertainty.

    Mr. Iton is right in that Mr. Paulson was advising which investments should go into the fund, whilst in his opinion such investments were about to implode. I assume that the investor would expect Mr. Paulson not to suggest investments that he personally believed and was financially interested in their demise.

    You are also right in assuming that for International Business to flourish in tax havens, then the actual business should be engineered and managed in the same domicile as the entity is registered. Otherwise the registration is just one of convenience, whatever that convenience might be. A significant number of companies registered in Cayman associated with Mr. Paulson had business addresses in Bermuda which also seemed to have no substance. These companies owned Paulson & Co.

    The Paulson business, I am led to believe was actually engineered in New York!

    Youare also right that it is a very long shot that Cayman could persuade such business men and their staff to actually work from Cayman, however there are businesses like reinsurance companies that have seen fit to do this. These are viable alternatives for international business to be done in tax havens.

    However, they are finding that working from tax havens may not be such a good thing based upon the attentionthey are getting from countries tax authorities and regulators around the world. Some have already moved to jurisdictions that have double taxation agreements with the US and are temporarily seen as less provocative tax havens. Although in the case of Switzerland this seems far fetched.

    So what is the answer for so called tax havens, especially those in small islands? If I knew I would be very happy to share it with you.

    But what I do know is that pretending that this situation will too pass without addressing the problem is downright willful ignorance.

    Telling the population that Cayman or Bermuda has strong regulation and are not tax havens and should bear no responsibility for actions taken by entities registered in their domicile but transacted elsewhere is dumb and enhances the negative view by the world at large.

    You will also note that such locations as Cayman and Bermuda do not have any measurable white crime statistics. Why is that? Because criminal action against service providers in these locations (lawyers, accountants, banks etc.) are seldom investigated to see if any facilitation or collaboration in such crime took place in that jurisdiction.

    Who since Jean Doucette have you put in jail? What happened to the accountants and lawyers associated with Mr. Doucette besides making money out of the liquidation of the Interbank Group? I bet they are still operating as reputable businessmen.

    That is a long time ago.

    But more up to date, what has happened with the service providers for the Enron off balance sheet subsidiaries.

    And now Paulson with many others in between.

    My view is that whichever way tax havens like Cayman and Bermuda where I live, "willful ignorance" cannot be tolerated and must be punished criminally.

    • Anonymous says:

      No point in asking anyone in Cayman what happened re Enron off balance sheet subsidiaries. The answer to that, I believe, can best be found in an office in Delaware.

    • deja vu says:

      Good article Mike, you must return one day!

      The problem with Cayman is that not only is there any enthusiasm for CIMA and the Government to pursue white collar fraud but the laws are seriously lacking. For example there are no Directors Disquailification laws and consequently they get away with it. Moreover any local white collar crime is swept under the carpet for obvious reasons. By this I refer to Guardian Bank, First Cayman Bank, and more recently the notorious oil fund fraud. No doubt Bermuda is little different.

      By the way you forgot to include the many ‘Sark Lark’ directors when thinking of service providers that we have here who are frequently chastised by the US courts. Having said that when you have 400/500 directorships it is easy to slip up I suppose!

  16. Anonymous says:

    Thank you, Mr. Travers, you know your stuff.

    I am sure that Mr. Iton has learnt something from you, more knowledgable of Cayman’s Financial Industry. 

    Tricky question and if not qualified with evidence, don’t answer: 

    Do you think the UK has these Islands best interest (financial interest) at heart?

    • konroy says:

      Ummm… silly question… I can see you’re new to this. Of course their interests is their interest alone – not ours. Anyone that doesn’t see that is blind to reality