Floating Dubai’s
Apparently, simple yachts are not luxury goods. John Taglibue of the New York Times on Tuesday:
“Today a mega yacht is indispensable” said Olivier Milliex, head of yacht finance at the Dutch bank ING (Setser aside: what a job). “It is not like 15 years ago, when a yacht was a luxury item.”
Silly me, I thought a spacious two bed room New York City apartment was a luxury item …
Somehow though, those who can afford to buy yachts — including those with enough money to buy mega-yachts fitted out with their own min-helicopters and toy subs – don’t necessarily seem to think that they have enough money to be able to pay tax or contribute to the national social security systems of their crews.
Mr Milliex apparently offers tax advice as well as yacht-financing:
“Some wealthy customers for instance prefer to take a mortgage for their yacht, taking advantage of low interest rates, rather than tying up cash in a yacht purchase. Others need advice on creating a corporate entity to buy their yacht rather than purchase it directly to save on taxes, or on registering their boat in a foreign country to pay lower Social Security contributions for crew members.”
Turns out the Cayman Islands are a full service shop for the very-well-to-do. The Times business section – seeking to offer news billionaires can use – notes that the Caymans are the current venue of choice for yacht owners seeking a “registration of convenience” to skimp on taxes of all sorts.
It isn't all that hard to see why globalization – at least in its current form – might have a bit of an image problem in the US and Europe. “Offshore” yacht-size sure seems to be growing faster than “onshore” median real wages …
As William Greider writes, the growing income inequality in the US Economy is what happens when government under both the Clinton-Rubin and Bush-Cheney administrations tips the balance in favor of capital over labor, favoring super-rich over middle class and poor, then holds it there for nearly a generation. It sowed profound and dangerous imbalances in the US economy. Wall Street loves both Robert Rubin and Henry Paulson because the traders and bankers know they are always on their side and would come to their taxpayer bailout rescue. The Neo-liberal Washington Consensus stomps on the real economy of work and industrial production, but is utterly blind to the destructive chaos from the unregulated financial system.
The fact that these people consider it reasonable to take out a mortgage to buy a yacht but not worth spending their own money on one suggests that interest rates have been too low.
It is ironic that DC attributes the advantage that capital has recently had over labour to US politicians. I would have thought that the addition of the massive Chinese labour force to the global economy was the main explanation. The UK has also seen growing inequality, and we are supposed to have a Labour government!
“…suggests interest rates are too low”!!! Hell, they could buy those yachts with their chump change.
Can’t stop chuckling over Brad’s dripping sarcasm. Well done. The super rich have done well with globalization, literally at every one else’s expense. Trade policy was designed for them, as was tax policy here and in the developing world. Such a surfeit of goodies. Toss in a few mega yachts as a just reward.
And, yes, I would include most of the Clinton administration in that indictment. Hey, Clinton advocated these trade policies. Am sure Rubin did as well.
And now we all have front seats to the rest of the story, as trade balances tilt precariously, as the dollar tries to find a bottom, and as the deluded American patriots worry only about terrorism. Methinks I hear the piper’s scratchy flute coming nearer and nearer.
Cayman Tax Haven - You can run, but you can’t hide:
http://caymannetnews.com/news-108–1-1–.html
“UK citizens have until 26 November to make a full disclosure, a move which avoids the standard 100% non-disclosure penalty and allows them to pay just 10%, plus any interest accrued.
Experts say that shutting down the non-dom tax rules would generate a far greater return, for far less effort, than the current clamp down on the offshore assets of UK citizens, most of whom are claimed to be relatively small investors.”
‘Tis amazing what a prolonged run of negative real rates coupled with uber-loose fiscal policy can accomplish!! Gosh, I can remember that as recently as 1996, the second-hand market for big boats (those >30 meters), was “offered-only”, with bids for nice second-hand at less than 30 cents on the dollar of new build (where they could be found) - kind of like the Toronto real-estate market just three years before. While second-hand market is(slightly) firmer today, lack of capacity in the yards, and too-much-money translates into a minimum of two-year wait before delivery. Of course if the winds change (and rates rise and asset prices fall), they can cancel orders foregoing deposits, a bit like recent PE-flu where GS & friends walked from Harman, and Flowers left Sallie at the altar, losing their “deposits” in the process.
But as anyone who owns a boat will tell you: Boats are dreadfully uneconomic propositions with the happiest days being (according to the old saw) the day you buy it and the day you sell it. 30c on the dollar represents something closer to the true economic value whereby the (standalone charterable rental yield + the tax benefit) less the (fixed running costs + crew costs + depreciation) still provides less than an acceptable minimum compensation for the capital so tied up. Rather, it remains perhaps as its always been, about “the ooohs and the aaahs” and toys for boys…
Flamebait!
Is this story a snide way of saying its good to have real assets, with intrinsic value or utility; instead of currency and other financial instruments? I’m just a ignert redneck, but when put that way, it seems to fit any income level.
A yacht slip alone can cost over $500,000. If someone gave me a yacht, I couldn’t afford to fuel it.
Just an aside, but imagine where the stockmarket would be if the Fed had raised the funds rate 50 basis points, instead of lowering it 50 basis points. Yet, some say the central banks have lost their power.
it was meant to be a snide way of saying that if you rich enough to buy a yacht (especially given cassandra’s little nuggets of wisdom), you are rich enough to pay taxes on the yacht … and presumably don’t particularly need to skimp on crew costs by avoiding social security contributions (or otherwise cutting labor costs) either.
http://money.cnn.com/2007/08/02/lifestyle/luxury_submarines/index.htm?postversion=2007080311
Private subs plumb deep pockets, deeper waters
Forget fancy sports cars and private jets, submarines are the new vessel of choice for the ultra rich.
Ambrose Evans-Pritchard at the Telegraph has more bad news for the greenback (http://www.telegraph.co.uk/money/main.jhtml;jsessionid=UJJC40LF55O5PQFIQMGSFFWAVCBQWIV0?xml=/money/2007/10/03/bcnviet103.xml)
…including:
- Qatar has cut its $USD holdings from 99% to 40% (!!!) from some $49+bn to $20bn.
- Vietnam is “abandoning the attempt to hold down the Vietnamese currency through heavy purchases of dollars”
The cracks in the dam are getting more numerous if not larger…
InqMind
Inquiring mind, be careful. Back when Qatar had 99% of its assets in the dollar, it also didn’t have $50b — Qatar only recently finished developing a big natural gas field (something that required a fair amount of borrowing) and started to run significant surpluses. QIA is very much “new” money.
Of course, the US needs to be able to attract the lion’s share of this new money to sustain its large deficit, and qatar’s decision to reduce the dollar share of its portfolio hasn’t helped.
Credit bubbles produce massive inequality.
I guess you can’t please everybody. Someone’s gain got to come from someone’s loss.
But sadly, its the masses hard earned money which are sucked in by the minority filthy scheming rich misers. What a contradiction!
Ha..but am I one of them too?
There may be a lot of inequity, but the nature of the inequity creates a stable system. If you have rich people and poor people, then the system would be unstable, but as it is, at each level of income there is a next higher rung that seems within reach. The top 10% wants to be the top 1%, the top 1% wants to be the top 0.1% and so on.
The other things to point out is that most people in finance aren’t uber-wealthy, merely wealthy. Most people I know live in Queens or suburban New Jersey since a Manhattan apartment is way too expensive, for example. However, one thing that is interesting about NYC is that there are enough uber-wealthy people to create a society, and the lifestyles of the rich and famous seem just within grasp to avoid social upheaval.
The other really important thing to keep in mind is that wealth and consumption are quite different. One of the nice things about the finance industry is that it you learn that it is pretty much impossible to tell how much is in someone’s bank account by what their spending habits are, and if anything there is a reverse coorelation. There are people who make millions of dollars a year in income that drive Hondas and take brown bag lunchs to work.
There are also people who are totally broke who manage to buy yachts and really expensive clothes (and it’s the fact that they buy yachts that they are broke). An example of the latter is Donald Trump who actually has spent much of this life with less net worth than you or I, is a pretty incompetent businessman, but a *damn* good self-promoter.
Brad, you didn’t comment on Vietnam move, I would be interested in your opinion.
Vietnam is a smaller player in Asia, but it a clear sign for all the others, in the case of a run out of the dollar, the first who gets out take the least damage.
Rising yacht sizes are another expression - if one were needed - of the Winner Takes All economy engineered by our masters for their own benefit.
The USA has become a giant ponzi scheme where new money chases the returns observed by those who got in earlier in the game, requiring higher and higher levels of leverage with each passing quarter. M3 growth is now above 14 percent according to shadowstats.com, and yet real productive capacity has been shrinking in favour of the “financial industry”. As Mr Prince of Citibank advised, however, the rational thing to do is to keep dancing as long as you can hear the music.
In the interests of disclosure, I’ll admit that I’m on my second boat. As it is a humble British narrowboat only suitable to canals, and licensed locally, I guess I’m not at risk of incurring your scorn as a tax avoiding billionaire. In fact, you’re welcome to a cruise to Little Venice any time you’re in town.
London Banker,
the invitation’s extended to all of us? or jux brad?
Anyway, the music had stopped momentarily, well…Mr Prince and gang were caught without the chairs or should I say fighting for the remaining chairs…
No prizes for guessing whos out…the Bear and the Rock…