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By Root 303 0

is,” Blum said, “you can’t separate the channels for paying people off from the other purposes.” Although it was tax, not criminality, that most interested the corporations (and lax financial regulation that interested the banks), the big American crime families were especially pleased with the political umbrella that the corporations, and the spies, had hoisted over their offshore playgrounds. And the secrecy, in turn, provided the managers of large corporations with fabulous new opportunities for bribery, insider trading, and fraud. A new crime-friendly environment was being created for American capitalism. The scale of this criminality can hardly be guessed at. But secrecy makes criminality possible. And in competitive markets, whatever is possible becomes necessary.

As this offshore expansion accelerated, the erosion of America from the inside gathered pace.

The oil crises of the 1970s led to high inflation: This, plus the legacy of Vietnam-era deficits, sent the dollar spiraling downward. In August 1979, U.S. president Carter appointed Paul Volcker, a renowned hard-money man, to head the Federal Reserve Board and reassure the markets. Carter cut spending, and Volcker tightened monetary policy savagely.

But Volcker had a problem. “Monetarist” theories of tackling economic problems by focusing on the money supply were coming into vogue, just at the time that unregulated Euromarkets, lacking regulation and official checks on banks’ abilities to create money out of thin air, were starting to disrupt the Fed’s efforts to control that very money supply.15 Volcker called for a new cooperative international framework through the Bank for International Settlements, in Switzerland, to get other countries to stamp down on uncontrolled money creation in the offshore system. But New York bankers, in an alliance with the Bank of England and the Swiss National Bank, killed the initiative.16

The bankers of Manhattan began to wield the offshore system as a weapon to attack the New Deal regulations that had so effectively clipped their wings at home. In the words of Professor Ronen Palan, a leading academic authority on the offshore system, “The New York banking fraternity, led by Chase Manhattan, used the real or imagined threat posed by the Euromarket and the Caribbean tax havens—which the same banks had of course helped establish as large financial centres in the first place—to achieve their aim of more liberal financial laws.”17 If you can’t beat the offshore markets, the lobbyists argued, then join them.

In June 1981, less than six months after Reagan’s inauguration, the United States approved a new offshore possibility, the international banking facility. The United States was another step closer to becoming the tax haven imagined in the memo to Michael Hudson.

IBFs, as they are known, are kind of offshore Euromarkets-lite: They let U.S. bankers do at home what they could previously do only in places like London, Zurich, or Nassau: lend to foreigners, free from reserve requirements and from city and state taxes. The bankers would sit in the same Manhattan offices as before and simply open up a new set of books and operate as if they were a branch in Nassau. Once the IBFs were in place, the banks could dispense with the subterfuge entirely and book them openly in New York. The United States had moved closer to the British offshore model.

Bankers in New York signed on to the new possibility with gusto, followed by those in Florida, California, Illinois, and Texas. In three years almost five hundred offshore IBFs had popped up inside the United States, draining money out of other offshore markets in the Caribbean and elsewhere.18 It was a new get-out-of-regulation-free card for Wall Street and another hole in the American fortress. Not only that, but as author Tom Naylor puts it, “The US hoped to use the IBFs as a bludgeon to force other countries to relax restrictions on the entry of US banks into their domestic financial markets.”

Japan followed the lead in 1986 by creating its own offshore market, modeled on the U.S.