July 21, 2008 – I lived in South East Asia for most of the 1970’s, working in the branch offices there for one of the large New York City banks. I was a ‘line’ officer. This meant that I was not in the back-office, but instead, I dealt with the bank’s customers, which principally were large corporations and the wealthy individuals who owned them.
As a line officer I was responsible for developing the bank’s business relationships, and one of the ways I did this was by making sure the bank’s customers were aware of all of the bank’s capabilities through its myriad of products and services. One of these products was called a ‘last plane account’. That was the name we used internally, and not with customers. But it captures exactly the essence of what the bank offered with this product.
To explain what it was, think for a moment about the environment in South East Asia back in the early 1970s. The Viet Nam War was in high gear. Mao Tse-tung’s (Mao Zedong) so-called ‘Cultural Revolution’ had concluded only a few years before. Just before that Hong Kong had endured vicious riots, which caused some American companies and banks to pack-up and close their operations in that Crown Colony, and everyone pondered the fate of the New Territories when Britain’s concession there ended in 1997. These disruptions were a threat to one’s wealth and one’s standard of living.
The communist “threat” was everywhere, and the so-called “domino theory” represented mainstream thought. Namely, it contended that if one country was overrun by communists, those on its border would in turn ‘fall like dominos’ and also become communist, spreading rapidly throughout South East Asia like a contagion.
In short, there was a lot to worry about if you were a wealthy South East Asian because everyone recognized that no one would want to live in a communist country. Not only would you and your family not be able to live in the manner in which you had become accustomed, but as a person of wealth, you became a target – a criminal even – in the eyes of the communist State.
So if the communists were about to invade the country in which you lived, you wanted to make sure that when they came across the border you and your family were on the last plane out of there, which is where the ‘last plane account’ comes in. Once you left, where would you go and more importantly, how would you live if you had to leave behind your company and source of wealth and many of your assets?
The ‘last plane account’ addressed these issues. The account was designed so that you had a monetary nest-egg legally structured in a financial safe haven outside the reach of the government where you lived. So even if you lost those assets in the country invaded by communists, with this nest-egg you and your family could live comfortably somewhere else, with the hope that someday you would eventually be able to return to your country of birth after the communists were ousted and traditional law and order were re-established.
I was reminded of all this recently when reading a new book by Barton Biggs entitled “Wealth, War & Wisdom“. For four decades, Biggs has been one of the top investment strategists on Wall Street, having spent most of that time with Morgan Stanley. As the book’s title suggests, much of the content is directly related to those matters we had in mind when putting together a last plane account for wealthy South East Asian businessman.
As Biggs explains: “At least once in every century there has been an episode of great wealth destruction when the Four Horsemen of the Apocalypse…have ridden rough-shod…How do you preserve wealth in times when the Four Horsemen are on the loose?”
Biggs goes on to answer his own question: “Asset diversification helped. Real assets such as land, property, gold, or a business were somewhat better than stocks but far from perfect. A working farm protected both your wealth and your life. The other solution was having money outside the country in a safe haven.”
He then explains: “Anyone with wealth has to care about all this. There is no use working yourself to death to accumulate wealth if it can’t be preserved and enhanced.” And just to open up the essentially unlimited scope of possible threats, he observes: “The next apocalypse may be different from the previous one.”
Biggs’ parting comments are also worth pondering: “History suggests that the rich almost always are too complacent, because they cherish the illusion that when things start to go bad, they will have time to extricate themselves and their wealth. It never works that way. Events move much faster than anyone expects, and the barbarians are on top of you before you can escape.”
Obviously these few quotes only capture the essence of Biggs’ book, which I highly recommend. It provides much food for thought, and Biggs is to be commended for a book that is easy to read but also informative and useful.
Though his book focuses principally on stock markets and how they responded at “major inflexion points and in the long-term ebb and flow of events“, it also addresses this basic question posed by Biggs: “How well in real-inflation adjusted, purchasing power terms, do public equities perform?” By answering this question Biggs inevitably delves into ‘last plane account’ thinking.
Interestingly, one does not have to read too much between the lines to relate the historical precedents provided by Biggs to present day America. When he writes that people should “assume the possibility of a breakdown of the civilized infrastructure“, he is addressing all readers in every country. He makes this point clear by the recommending that “…part of your diversification strategy should be to have a farm or ranch somewhere far off the beaten track but which you can get to reasonably quickly and easily. Think of it as an insurance policy…Your safe haven must be self-sufficient and capable of growing some kind of food. It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson. Even in America and Europe there could be moments of riot and rebellion when law and order temporarily completely breaks down.”
Biggs recommends a strategy that is called survivalist by some. But he comes to his recommendations solely by studying historical precedent and reaching from it a logical conclusion. In short, what has happened elsewhere could happen anywhere.
Clearly, the U.S. does not face any communist invasion, but today’s monetary problems in my view pose a serious threat. From the early 1920s hyperinflationary episode of Weimar Germany Biggs concludes: “The message for wealth preservation is important. Hyperinflation occurs from time to time, and basically it is one of the Four Horsemen in drag. To survive much less prosper, the wealth holder needs to own…property, real estate, or a business.”
In my view hyperinflation is America’s greatest threat. It is the natural consequence of what is called “big government” by some and “fascistic government” by others (including me). The federal government is out of control, spending money it does not have and has no prospect of ever obtaining. Through its subservient central bank, the Federal Reserve, it is creating money out of thin air, thereby putting all Americans at risk because politicians’ thirst for money to meet their boundless spending aspirations is destroying the dollar.
In his “Economic Consequences of the Peace” John Maynard Keynes wrote: “Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily and, while the process impoverishes many, it enriches some. The sight of this arbitrary arrangement of riches strikes not only at security, but at confidence in the equity of distribution of wealth. Lenin was certainly right. There is no subtler, no surer means of overthrowing the existing order of society than debauching the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
When I lived in South East Asia thirty-five years ago the farthest thing from my mind would be recommending that Americans create their own last plane account. However, I have seen in my six decades on this earth how things can change. I think having a last plane account is basic common sense.
– I imagine that many readers are wondering how to go about creating a ‘last plane account’. I cannot advise you on that. But clearly, while a US bank can create a last plane account for South East Asian businessmen, it is obviously not going to offer that service to US citizens. So you need to work with a non-US institution, but it is becoming increasingly difficult for US citizens to open an account at any financial institution outside the United States. That fact makes having a last plane account even more important.