U.S. Economy: A Money Laundering Operation?
America is emerging as safe haven for the world’s super-rich and their money – honest and ill-gotten alike.
January 12, 2016
U.S. cities are flourishing for the first time in half a century. There are legitimate demographic and cultural reasons for urban renewal.
Crime, which precipitated the flight of the middle class from urban areas during the 1960s and 1970s, has come down. Young people no longer want to live in suburbs nor do Baby Boomers who are retiring and downsizing.
In addition, legal immigration has been growing, creating new demand for housing.
But in an economic context, there is more to this new American urbanization wave than the return of the middle class, young upwardly mobile professionals and immigrants.
In fact, they increasingly find themselves priced out of America’s largest cities.
Instead, as has happened in London before, such cities are becoming playgrounds for the super-rich — and not only native ones. Foreigners are buying up high-end real estate in U.S. cities – and developers cater ever more directly to foreign buyers and investors.
Multimillion-dollar properties are often bought for cash and transactions are executed through anonymous offshore shell companies. Even among known owners, there are plenty of crooks and shady characters. Meanwhile, no one has any idea how those who prefer to remain hidden made their money.
No one cares, either. As long as the money is not related to Islamic terrorism, the U.S. government turns a blind eye to its provenance.
But, like all easy money, this massive international money laundering operation comes with considerable risks attached.
The foray into money laundering
New York City started this trend under former mayor Mike Bloomberg. Before he left office in 2013, he famously declared that he would be happy to see every one of his fellow billionaires move to New York.
Two years ago, New York magazine published an exposé of the nation’s largest city, calling multimillion-dollar digs “stash pads” – after apartments that drug pushers rent to hold their merchandise.
A year ago, a series of articles appeared in the New York Times, detailing how hard it is to identify who exactly the super-rich buying New York City apartments are.
The few that the Times dug out made a nice rogue’s gallery, with misdeeds ranging from corruption and malfeasance to tax evasion and suspected links to organized crime.
New York City remains the most outrageous example of America’s foray into money laundering. The southern end of Central Park has been turned into a veritable theme park for the global “one percent,” with apartments going for as much as $100 million.
With several of its three slim apartment buildings surpassing 1,000 feet – including the 1,775 feet Central Park Tower, which will be the tallest residential building in the world when completed – the area is starting to look like the Italian town of San Giminiano, famous for medieval towers built by its feudal lords.
According to the Times, some $8 billion is spent annually on apartments in the city costing $5 million or more – and this figure is rising.
The selling prices of the average Manhattan apartment has now reached $1.1 million, an all-time high, surpassing the bubble years before the 2008 financial debacle.
It should be noted that lending practices are now considerably tighter and restrictions on mortgages remain in place.
Similar situation across the United States
But New York is merely the tip of an iceberg. Miami, Los Angeles, San Francisco, Houston and, to a lesser extent, Washington, Chicago, Boston and other cities, are not very far behind.
Miami has been called Ground Zero of climate change. Large portions of South Florida may end up under water within the next 15 years, some environmentalists warn.
Yet, the city is in the midst of a major construction boom, much of it taking place along the shore.
Russian, Chinese and Latin American fat cats are snatching up condos as rapidly as they are built – also often paying cash. Prices are starting to creep up toward New York levels. A penthouse apartment recently went for $60 million.
It would seem that it’s a win-win situation for the United States. Its economy is running perennial current account deficits, sending around $400 billion abroad as Americans buy more goods and services than they produce.
However, the dollar is actually rising, thanks to strong capital inflows. The dollar index gained more than one quarter of its value since 2011. Even as Swiss banks lose their appeal to the publicity-shy rich, the United States steps in to welcome their cash.
Unlike banks, which merely take cash, foreign investment in U.S. real estate offers additional economic benefits to the country.
Construction employment increased by some 20% since the low point of the 2008-09 recession.
Along with professional and business services, it has been a driving force behind job creation in recent years, having added nearly 1 million well-paid jobs. These jobs had a major multiplier effect on the economy as a whole.
Meanwhile, downtown Miami is lined with the offices of financial institutions and companies providing all kinds of services to the international super-rich.
They manage their money and arrange for residency permits and a path to citizenship that is far smoother than anything President Obama’s Dreamers are likely to get.
They also help their kids to get into prestigious U.S. colleges and universities, set up medical treatment if needed and lease boats and planes on their behalf, etc.
This means even more money flowing into the U.S. economy, along with lots of jobs and tax revenues.
As to the damage which these keptocrats and criminals cause their native countries – be that China, Russia, India, Kazakhstan, Brazil, Colombia, Venezuela, Nigeria or any number of others – it is not America’s concern.
Savor the irony: The U.S. Treasury goes hard after Americans doing shady things with their money abroad, but it welcomes other countries’ nationals doing the same thing in the United States itself!
As Calvin Coolidge observed nearly 100 years ago, “The chief business of the American people is business.” It still rings true, but the nature of America’s business is constantly changing.
In Coolidge’s time, the United States was a manufacturing giant and it remained so until the 1970s. It gradually turned to services and information technologies by the end of the 20th century.
But now, with the emergence of a sizeable international class of “one-percenters” and increased flows of untraceable funds through the global financial system, America is emerging as a safe haven for the world’s super-rich and their money – honest and ill-gotten alike.
Conspiracy theorists like to claim that America has always been run by its robber barons.
It’s tempting to think that Donald Trump, who has benefitted greatly from the money laundering operations that New York City, Miami and other American cities have become, actually represents these business interests.
But even these excesses aside, there are plenty of problems looming for America’s newly found money laundering success.
The new age threat
In the old days, Washington acted not only as an international policeman, but an international financial regulator and rules enforcer.
American officials understood that widespread corruption and thievery destabilizes the global community. Not so anymore.
As a result, the world is full of criminal gangs reaching across international borders and making alliances on different continents.
These gangs are able to move massive amounts of money. They also enjoy protection from kleptocratic regimes.
Not surprisingly, the Organized Crime and Corruption Reporting Project, a international NGO, named Russia’s president Vladimir Putin its person of the year.
While the United States is fighting the old war against funding for Islamic terrorists, a new massive threat is quietly emerging under its nose.
And then there are domestic repercussions. Regional real estate bubbles are being inflated in many markets across the United States, even as home prices on average remain stable – and some regions are still depressed. New York is a prime candidate for a spectacular implosion.
The period of free liquidity, which major central banks have been pumping into the global financial system, is coming to an end.
The U.S. Federal Reserve has already started to raise its interest rates. A number of speculative bubbles that appeared when money was plentiful and free have already popped, including the oil bubble and the U.S. junk bond bubble.
It is only a matter of time before disaster strikes overbuilt American urban centers, hitting developers and their lenders and burying ordinary people straining to pay their mortgages in overpriced markets.
But in the case you wonder, this won’t affect the likes of Donald Trump. Trump is a past master of playing bankrupcy law for personal enrichment.
Donald Trump has benefitted greatly from money laundering in NYC, Miami and other American cities.
American officials used to understand that corruption destabilizes the global community. Not anymore.
While the US is fighting the old war against funding for terrorists, a new massive threat is emerging.
New York City is the most outrageous example of America’s foray into money laundering.
The selling price of the average Manhattan apartment has reached $1.1 million, an all-time high.
While Swiss banks have lost their appeal to the publicity-shy rich, US steps in to welcome their cash.
Miami is lined with financial offices providing various services to the international super-rich.