6 ms·

How the City of London invented offshore banking

97 points by NeedMoreTea 8y ago

tim333 8y ago
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 8y ago
  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Standard, Bretton Woods was deconstructed and most national regulations that responded to the depression and war were repealed along the way.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 8y ago
    >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 8y ago
      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.
5ersi 8y ago
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.
- raverbashing 8y ago
  Quite the contrary. They lose passaporting rights with Brexit Not to mention all the EU nationals they employ > special tax-heaven status as EU was moving toward more banking regulation. "Tax haven" status has "nothing" to do with banks, it has to do with taxation rules and agreements. (Some banking rules could have an effect, but in general they don't. Bank secrecy is something that has gone out the window a couple of years now, so it's indifferent)
  - deleted 8y ago
    [deleted]
- Chyzwar 8y ago
  After Brexit, The City will lose passporting rights and It would lose a large portion of the EU market. Most of City banks are large multinational corporations that care very little about British politics. If anything Brexit was surprising for them as well. City banks are already moving to EU. JP Morgan is moving to Dublin, Frankfurt, Warsaw, Luxemburg. Goldman is moving to Frankfurt and Paris. EU will start applying pressure to move City jobs to the continent. Brexit will destroy City and London in long-term.
  - user5994461 8y ago
    >>> EU will start applying pressure to move City jobs to the continent. Brexit will destroy City and London in long-term. Short term is good so far. Rent did not increase last year and jobs have less candidates applying. People literally stop coming overnight since Brexit, there is less competition for everything. Long term, we will see. Probably nothing good. Working at one of these big banks, there are 10 000 employees for each building in canary wharf. It's delusional to think that they can be moved.
Havoc 8y ago
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.
UncleEntity 8y ago
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 8y ago
  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.
  - yuhong 8y ago
    The fun thing is that while I focus mostly on the US debt-based economy, the UK don't seem to be much better today.
  - 8y ago
deleted 8y ago
[deleted]

97 points by NeedMoreTea 8y ago

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 8y ago
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 8y ago
  >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 8y ago
    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.

5ersi 8y ago

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.

raverbashing 8y ago
Quite the contrary. They lose passaporting rights with Brexit Not to mention all the EU nationals they employ > special tax-heaven status as EU was moving toward more banking regulation. "Tax haven" status has "nothing" to do with banks, it has to do with taxation rules and agreements. (Some banking rules could have an effect, but in general they don't. Bank secrecy is something that has gone out the window a couple of years now, so it's indifferent)
- deleted 8y ago
  [deleted]
Chyzwar 8y ago
After Brexit, The City will lose passporting rights and It would lose a large portion of the EU market. Most of City banks are large multinational corporations that care very little about British politics. If anything Brexit was surprising for them as well. City banks are already moving to EU. JP Morgan is moving to Dublin, Frankfurt, Warsaw, Luxemburg. Goldman is moving to Frankfurt and Paris. EU will start applying pressure to move City jobs to the continent. Brexit will destroy City and London in long-term.
- user5994461 8y ago
  >>> EU will start applying pressure to move City jobs to the continent. Brexit will destroy City and London in long-term. Short term is good so far. Rent did not increase last year and jobs have less candidates applying. People literally stop coming overnight since Brexit, there is less competition for everything. Long term, we will see. Probably nothing good. Working at one of these big banks, there are 10 000 employees for each building in canary wharf. It's delusional to think that they can be moved.

Havoc 8y ago

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.

UncleEntity 8y ago

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 8y ago
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.
- yuhong 8y ago
  The fun thing is that while I focus mostly on the US debt-based economy, the UK don't seem to be much better today.
- 8y ago

deleted 8y ago

[deleted]