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Stones and glass houses, offshore tax haven edition

One of the week’s more amusing stories takes us to the sun-kissed shores of the Cayman Islands, scuba diver’s paradise, magnet for hedge funds and – until very recently – world-beating tax haven.

The financial crisis has not been kind to the Caymans. Hundreds of hedge funds have collapsed and global banks have slashed jobs. As if this was not enough, President Barack Obama in the spring launched a crackdown on tax havens that forced a number of Caribbean islands, including the Caymans, to embrace greater transparency – after a fashion.

Things are so bad that the government of the Cayman Islands is facing a $82m revenue shortfall in the budget. Local officials say they need a big loan or the government risks bankruptcy.

However, the British government – which oversees the islands – last week vetoed the loan. Chris Bryant, the British Foreign Office Minister, said he would not approve any new lending until he was convinced the Caymans had their house in order. He even suggested the islands might have to introduce – horror of horrors – income taxes in order to make ends meet.