The hedge funds took on everything that moved in the markets and made killings by shorting stocks and humbling public companies in the process. But when they targeted the banks, they were undermining the very thing they most needed to ply their trade — the billions of dollars borrowed from banks to make their bets with.
Offshore capitalism was powered by a seemingly infinite supply of cheap money and finance across the world.
So it was no surprise that when the money dried up, the system ground to a halt. And what caused the money to dry up was the most complete and outlandish separation of the offshore world of finance from the bricks and mortar world of onshore society — people’s homes.
As we now know, mortgages were sold to banks for a panoply of complex credit derivatives that were then transformed into new derivatives, and then sold on again until no one knew where the buck stopped. The mortgage business was by and large structured offshore to get the most tax-efficient and flexible arrangements and to keep the deals off the main books of the banks. Thus the property market was stoked up and the bubble grew bigger and bigger — until, like every bubble, it burst.
Pushed to the limit, offshore capitalism imploded. But the fallout is not kept detached, isolated offshore. It is felt onshore — in the mortgage foreclosures, the redundancies and the companies going to the wall; in the costs of the offshore farrago that have now been passed onshore to society and its taxpayers, who end up paying higher taxes.
Schopenhauer’s experience of the economic collapse of his time led him to the gruesome suggestion that the world was a place where people devour and feast on each other in their daily struggle for survival. He would have recognized this behavior as inherent in the cut-throat, winner-takes-all capitalism of his day — and no less, I believe, in the period of offshore capitalism that we have just endured. It is time, surely, to come back onshore once and for all.
William Brittain-Catlin, the author of Offshore: The Dark Side of the Global Economy, is an investigator with the risk consultancy Kroll.
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