Letter to Financial Times from Jeffrey D. Sachs, Director, The Earth Institute, Columbia University, New York, NY, US, says Cayman is “playing with fire”

May 7 2013

Sir, I wonder whether the Cayman Islands leadership knows that it is playing with fire (“Great progress by Cayman Islands”, Letters, May 2). It writes that everything is under control, that my concerns are more influenced by Hollywood movies than hard fact.

Well here are a few hard facts. There are 57,000 residents in the Caymans, yet the Cayman authorities report 92,000 corporations registered there. There are roughly 10,000 hedge funds.

The Bank for International Settlements reports that the Cayman banking system has roughly $1.4tn in liabilities and assets, or $24m per resident. Cayman Island board members often sit on dozens or even hundreds of boards, offering essentially no oversight or accountability.

This house of cards is a mortal threat to the world economy, as well as an abuse of basic financial practices. It is a playground of Wall Street and European politicians and it is reckless.

I have no problem with the Cayman Islands developing its financing expertise and housing a financial industry commensurate with its size and its capacity to protect the world from abuses and upheavals.

Instead, it is being used by powerful and out-of-control forces vastly beyond the Caymans’ capacity to regulate, monitor or backstop in the event of crisis. A blow-up in the Caymans’ finances would make Cyprus’s crisis look like child’s play.

Jeffrey D. Sachs, Director, The Earth Institute, Columbia University, New York, NY, US

For more on this story go to:

http://www.ft.com/intl/cms/s/0/ff5b2b4c-b34f-11e2-b5a5-00144feabdc0.html#axzz2SfGZfTC9

From Cayman Finance

Why Professor Sachs has got it so wrong about the Cayman Islands

Grand Cayman, 8th May 2013 – Columbia University’s finest, Professor Jeffrey D. Sachs, has exploded into print for the second time in a week with yet another withering condemnation of The Cayman Islands.  His preferred medium is, once again, the London-based Financial Times.

Cayman Finance CEO Gonzalo Jalles last week criticised an article by Professor Sachs which appeared in the FT headlined, “Austerity exposes the global threat from tax havens.”   This rambling article threw in the usual horror tales of drug runners, arms traders and terrorist groups which prompted Mr Jalles to claim that the professor was more influenced by Hollywood movies than by hard facts.

Now in his latest outburst Professor Sachs claims “This house of cards (Cayman) is a mortal threat to the world economy,” but we are also treated to “a blow-up in the Caymans’ finances would make Cyprus’s crisis look like child’s play.”

Mr Jalles responded, “For an academic, the professor shows a frightening familiarity with tabloid language and that concerns me as a fellow economist.”

“The headline figures he quotes in his last letter to the FT do not reflect the true size of Cayman’s banking industry nor the completely different structure it has from Cyprus.

“Professor Sachs needs to understand that a significant part of the banking assets registered in Cayman are US banks placing overnight deposits in their own Cayman registered branch. The money is effectively being transferred between accounts in NY and not being exposed to how a local banker in Cayman decides to invest it. That is the significant difference with Cyprus. If he doesn’t like it then he should seek to change the US regulation instead of blaming Cayman.”

Mr Jalles continued, “What we in Cayman find odd is that Professor Sachs needs to cast his net so far when sitting only 130 miles away from his ivory tower at Columbia is 1208 North Orange Street, Wilmington, Delaware.

“That humdrum office in Delaware plays host to no fewer than 285,000 separate businesses.  To say that all of these businesses are paragons of corporate virtue would be stretching the truth to breaking point.

“However don’t take our word for this. We defer to Professor Sachs’ fellow traveller and high taxation zealot, Richard Murphy of the Tax Justice Network. Mr Murphy was quoted (in the New York Times – June 30, 2012) saying, “Two million corporations are formed each year in the United States, more than anywhere else in the world. Delaware, in turn, is the biggest single source of anonymous corporations in the world. Why go to the Caymans when you can just go down the street?”

Mr Jalles concluded: “If Professor Sachs has an issue with corporations having registered offices in a different place than where their main operations are I suggest he promotes an amendment to the law in the US. Strangely we have found it impossible to find criticism of the USA’s domestic tax havens in Professor Sachs’ oeuvre”.