
How the City of London invented offshore banking - NeedMoreTea
https://www.theguardian.com/news/2018/sep/07/the-real-goldfinger-the-london-banker-who-broke-the-world
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tim333
I'm skeptical offshore banking started with the brits in the 1940s. Wikipedia
has banking starting around 2000 BC in Assyria and later ancient Greece. They
also had islands with shores and I'm sure someone figured they might avoid
hassle from the local rulers by taking their money to another island.

~~~
NeedMoreTea
The article covers all that.

Warburg missed the freedom, and excitement, of the German markets in the 20s
and 30s. So created an instrument, Eurobonds, in the 1960s to escape the
carefully constructed international limitations of Bretton Woods. Add further
desire to be outside the system from the US not being a neutral arbiter of the
postwar international currency. That led to the inspiration for Eurobonds: the
Eurodollar market.

Thus course was set on the race to the bottom. The US came off the Gold
Standard, Bretton Woods was deconstructed and most national regulations that
responded to the depression and war were repealed along the way.

That Warburg managed to get away with something so artificially constructed to
evade laws is, to say the least, disappointing.

~~~
simonh
>That Warburg managed to get away with something so artificially constructed
to evade laws is, to say the least, disappointing.

Why should a person in London be bound by laws in the US? Warburg did nothing
illegal.

I’m all for the rule of law in general, but it’s unreasonable to try to use
laws to distort fundamental economic reality, while also actually acting in
such a way to undermine the economic system those laws were supposed to
create. That’s what the US was doing. They were trying to cheat the markets
for political purposes.

~~~
NeedMoreTea
The UK was an enthusiastic participant to Bretton Woods and the Bank of
England was not yet an independent body.

I would have assumed that UK laws and regulations were updated similarly to
facilitate Bretton Woods, not just the US. In fact I was under the impression
they had been resulting in the dullness of City banking, and the unprecedented
period of stable growth etc, postwar through to the 60s.

Even had they not BoE should have been able, or been required, to step in and
regulate it out of existence - or at least out of the UK.

> trying to cheat the markets for political purposes

Fundamentally disagree here. Markets need strong regulation for purposes that
need not be political at all.

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UncleEntity
Interesting that they try to pin the failure of the Bretton Woods system on
some shadowy backroom figures instead of 1) the US inflating the dollar well
past the amount of gold backing it, 2) governments cashing in their dollars
for gold @ $35/oz and making a profit by selling it on the international
market for its true market value and 3) the French calling for a return to a
true gold standard...because who doesn't like to blame the French?

My understanding of the main argument put forth in the article is that capital
controls are the answer to global inequality?

~~~
Lazare
Yeah. Netting it down to the essence, the proposed explanation for the
collapse of Bretton Woods seemed to be "USD inflation". Which is sure,
plausible enough, I suppose.

Unfortunately they then threw up their hands, ignored everything we know about
inflation in general or that inflationary period in specific, and come up with
some weird story about how 70s stagflation was actually caused by South
American dictators stashing money in Swiss bank accounts and then lending the
money to the Italian government to build motorways.

A+ for imagination, but yeah, actually, the US just printed a ton of money.
It's not a huge mystery!

> My understanding of the main argument put forth in the article is that
> capital controls are the answer to global inequality?

And yes, that was the other big weakness. Their argument for capital controls
seems to mostly be "inequality was better when we had capital controls, so
clearly capital controls caused lower inequality". There's no real attempt to
outline a mechanism for this. There's an implication that capital controls
allowed higher marginal taxes which in turn financed higher spending, but if
you actually look at government spending, this is clearly nonsense. The UK has
been spending between 35% and 45% of GDP on government since the 1950s, with
no correlation between the start or end of Bretton Woods. Extremely high
marginal tax rates may lead to good song lyrics, but they don't necessarily
collect a lot of actual money.

~~~
hristov
Obviously, if there is higher tax rate on higher incomes this will reduce
inequality even if the net amount of taxes collected stays the same.

~~~
Lazare
That's a lot less obvious than you'd think, in large part because people have
so much scope to react to changes in tax rates by restructuring their income,
sheltering it, etc.

The impact of taxation on inequality is empirically much lower than the impact
of spending. You can see this, eg, by looking at the Nordic countries, which
have relatively flat taxes skewed towards regressive taxes like a VAT, but low
inequality, while countries like the US have very progressive income tax
structures but high inequality. The difference, at a very high level, is that
Denmark spends money on the poor, and the US spends it on the upper middle
class. :)

You can see this clearly looking at the first graph here:
[https://lanekenworthy.net/2008/02/10/taxes-and-inequality-
le...](https://lanekenworthy.net/2008/02/10/taxes-and-inequality-lessons-from-
abroad/)

Inequality is reduced via _spending_ , not _taxes_ ; taxes are primarily
useful as a revenue source.

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5ersi
My theory is that The City was the primary force behind Brexit. They are by
far the largest and most influential entity and one of the only few that are
going to be better off after Brexit.

Even more, staying in the EU would actually jeopardize their special tax-
heaven status as EU was moving toward more banking regulation. Note: EU rules
or laws, once accepted by local parliaments, have the status of international
law, which is above the local laws. Since The City has special exempt status
in British legal system, accepting the EU banking regulation could potentially
do away with their special "tax-heaven" status. So leaving the EU was actually
a matter of survival for them.

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ForFreedom
who/what is the "The City"?

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n4r9
It variously means London, The City of London (which is a district inside
London with an unusual political status), or the host of financial and trading
services industries which in the UK are largely based in the City of London.

~~~
zazen
It doesn't mean greater London. It means the second and third things on your
list.

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Havoc
Welcome to capitalism & competitive forces 101.

Of course the hot money moves to the place offering optimal conditions. Just
like if you have a very portable app you'll host it on whatever cloud provider
is cheapest & best.

