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Luxembourg’s Bold Move into Space Mining

By Doug Messier
Parabolic Arc
February 3, 2016
Filed under , , , , , ,
ESA's Asteroid Impact Mission is joined by two triple-unit CubeSats to observe the impact of the NASA-led Demonstration of Autonomous Rendezvous Technology (DART) probe with the secondary Didymos asteroid, planned for late 2022. (Credit: ESA - ScienceOffice.org)

ESA’s Asteroid Impact Mission is joined by two triple-unit CubeSats to observe the impact of the NASA-led Demonstration of Autonomous Rendezvous Technology (DART) probe with the secondary Didymos asteroid, planned for late 2022. (Credit: ESA – ScienceOffice.org)

By Douglas Messier
Managing Editor

Luxembourg’s announcement of its space resources initiative provides three things that companies like Planetary Resources and Deep Space Industries (DSI) need to make their dreams of mining asteroids a reality.

Legal Recognition. The United States is alone in the world in recognizing space property rights. There is some dispute over whether the law violates the 1967 Outer Space Treaty.

Luxembourg plans to “set out a formal legal framework which ensures that private operators working in space can be confident about their rights to the resources they extract, i.e. rare minerals from asteroids.”

Luxembourg also plans to work with other countries to get establish an international legal framework for these rights. The country’s location in Europe — a major space power — and as a member of the European Union are assets in this effort.

Investment. Luxembourg plans to invest “invest in relevant R&D projects and consider direct capital investment in companies active in this field.” The nation’s R&D investment will be channeled through its contribution to the European Space Agency (ESA).

This is win-win. Mining companies will need a lot of money to pursue their plans. And Luxembourg can use its investment to attract space mining companies to locate in the grand duchy.

“DSI, which is focused on collaborative efforts to harvest space resources, laid the groundwork for a European presence in the founding of its Luxembourg based Deep Space Industries Europe subsidiary last year,” DSI said in a press release. “The company, whose first test spacecraft is due to fly in the next year, already has active partnerships with Canadian, Dutch, Latvian, and Luxembourg based teams.”

Tax Haven. Luxembourg’s favorable tax laws have attracted major international companies eager to shield their profits from tax authorities.

“Luxembourg’s tax system allows hundreds of U.S. corporations to store massive chunks of their business outside their home countries, which cuts billions from tax bills,” according to Ivestopedia.

Luxembourg has a corporate tax rate of 21%, significantly lower than that of the U.S.,” the website reports. “In addition to low corporate tax rates, Luxembourg charges foreign corporations an extremely low tax rate to send money into and out of the country. Corporations that funnel profits through Luxembourg are charged around 1%.”

Of course, Luxembourg is not the only tax haven in the world. But, it appears to be the only one offering significant investment in space mining at the moment. And even if the Grand Caymans offered a legal framework for space property rights, who would really care? Having Luxembourg do so is far more significant.

Planetary Resources is backed by investors such as Richard Branson and Google’s Larry Page and Eric Schmidt who well understand how to structure companies to avoid taxes through off-shore companies.

Schmidt is particularly proud of Google’s efforts at avoiding billions in taxation. “It’s called capitalism,” he declared.

38 responses to “Luxembourg’s Bold Move into Space Mining”

  1. GreenWyvern says:
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    International tax laws are badly in need of reform in this age of globalization.

    The solution is very simple – income generated in any country should be taxed in that country. This is not difficult to implement, but obviously global corporations are strongly opposed to any system that will force them to pay fair taxes.

    • ThomasLMatula says:
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      The problem in practice is that when you have operations across many nations it is easy using cost accounting internally to place your costs in the high tax nations, minimizing your tax burden there, while maximizing you profits in low tax nations.

      • Douglas Messier says:
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        The unfortunate result is that the cost for all the public infrastructure and services required for these companies to function in a modern society is pushed ever more on individuals who are increasingly at the mercy of having their jobs outsourced overseas or in sourced with imported labor on visas. Or replaced by automation.

        The gap between rich and poor becomes larger. And corporations are so powerful they can literally write their own legislation to perpetuate their own power. The problem becomes worse with the sort of campaign finance laws we have where there’s an almost unlimited ability to fund elections.

        I fear the long-term consequences of these trends on our nations and body politic.

        • Tom Billings says:
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          These trends result from the lack of limitations on governments in the first place. Their concepts of “fair” taxes reek of class bigotry. Then, they use the laws that class bigotry among their populations supported to wring contributions out of these self-same corporations.

          Even 50 years ago, in California, the Speaker of the House, Jesse Unrhu, was already giving the class bigot laws their proper name, …”milker bills”. They would be passed with full knowledge they would make industries unprofitable. Then “Big Daddy” Jesse would sit back and wait for the lobbyists, with full full briefcases of cash, the mother’s milk of politics, to show up, to negotiate a way for these industries to survive by Big Daddy’s House quietly changing strategic parts of the original class bigot law.

          Small businesses cannot do this. So, the biggest companies survive, and gobble the small under their protection. By now the people doing startups are moving elsewhere. The result is the appalling economic future of California today.

          The simple unwillingness to be victimized by politically organized thugs is not a negative in an organization. That is what they *should* be, …unwilling to be the political funding udder of some elected progressive thug.

          • ThomasLMatula says:
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            And this is of course the danger here. The type of international regime likely to result from this effort by Luxembourg, even if it’s not a Moon Treaty one, will only favor the corporations with political connections. This is the basic problem of creating of what would essentially be mining leases. Those with connections will gain them and then just sit on them blocking others from developing the region.

            The CSLCA Act avoids this by just allowing firms to owns the resources they obtain without such exclusive. The non-interference provisions of Article IX of the OST only apply if you have hardware on the site. And even then the area would be very limited. If NASA policy on protecting government artifacts on the Moon is a guide it would only be a couple hundred meters around a site, not hundreds of square kilometers as a lease would be.

            I see nothing good coming out of this effort from Europe.

            • JamesG says:
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              The Lexembourg statement is much to vague to draw that conclusion IMO. If their intent is to actually foster “startups” to use their friendly legal and financial institutions as mechanism for accomplishing goals vs. simply being another tax blind for multinationals. Think of it as the maritime “flag of convenience” that ship owners small and large use.

              As for how claims would “pan out” that will probably have to wait until we see how the market and physics of it develop. Might not be an issue at all if there is plenty for all, or if you have robot prospectors fighting each other on little floating rocks, how you legally adjucate this is going to depend on the details and where and who is doing the judging…

          • Douglas Messier says:
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            The Republican approach in recent decades has been equally great. Launch a war (or two), send the all-volunteer military to go fight it, fatten up the military industrial complex and well connected contractors like Halliburton, not only refuse to raise taxes even during wartime but cut taxes further, put it all on the credit card. allow corporations to offshore almost everything, let Wall Street do whatever it wants until its enormous greed and amoral avarice sink the economy, leave our infrastructure to rot away, and then develop a sudden aversion to deficits and deficit spending needed to keep the economy from collapsing once they no longer control the White House.

            That pretty much sums up the Bush the Second Administration .and Republican policies over the last seven years.

            • ThomasLMatula says:
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              Yes, instead of bailing out Wall Street that money could have been used to bail out main street by investing in fixing the nation’s infrastructure.

              • Citizen Ken says:
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                Heh. If we hadn’t bailed out Wall Street the systemic failure in the financial system would have been huge. Many, many, many FIRE (Finance, Insurance, Real Estate) firms would have gone out of business and a huge amount of GDP would have evaporated. Derivatives were poised to unleash a cash call of biblical proportions, and only the huge amounts of money we the taxpayers threw at them provided sufficient liquidity for firms to settle derivative contracts in an orderly manner and prevent (postpone?) a catastrophe.

                Look at it like this. Company X has a $100Mn debt that was supposed to be for “investing in the company” purposes, but was actually used to pull future dividends into the present and cash them out to shareholders. Since this was such a smart move, the holders of Company X debt decide to buy a Credit Default Swap (CDS) on the debt so that if Company X doesn’t pay the bond/loan, the CDS counterparty will. Since the counterparty is confident that Company X will pay their debt, they decide to sell a few more CDSes just for good measure and to plump up the current period numbers. (bonuses are coming!)

                So $100Mn of debt has $1,000Mn in insurance on it. Company X decides that bankruptcy provides the best return to shareholders in the current environment (because they can shed debt; Jubilee!), which filing automatically triggers a default on the debt. So now counterparty has to come up with One Billion Dollars!

                Counterparty can’t marshal that level of cash by the settlement date, it defaults not only on those contracts, but also cross-defaults on any other derivative contracts and/or (depends on the language) corporate debt. These now must all be settled, requiring that counterparty pay/receive cash on all its other contracts.

                If any counterparties of counterparty can’t settle, they then cross-default, and have to settle all of their contracts. If any of the counterparties’ counterparties can’t settle, wash, rinse, repeat.

                Huge, huge risk. Oh, and derivatives get special treatment in bankruptcy. (I’m hugely sorry that it was a Texan that helped arrange that) Therefore, debt holders will scream very, very loudly if anything upsets the derivatives apple cart.

                Therefore, the apple cart will not be upset, and that’s going to cost the taxpayers. The alternative is many multiples of those amounts being lost in wealth value. Sure, that wealth is held by an increasingly few, but they run things and you don’t, it’s part of why they’re special and better than you. The money proves it.

                I remember when I first joined the private investment bank back in the early aughts, one of the types of secured debt I was researching was secured infrastructure-related debt. I seem to remember reading reports back then that the country needed, at bare minimum, at least $40Bn in infrastructure funding just for things like adequately-safe bridges and tunnels. Way more was needed to actually improve the situation. Of course, little has been done.

                I’m actually okay with Luxembourg’s efforts, especially since it was the Isle of Man that did a lot of the pathfinding. I got to do a Model EU in Luxembourg in 1992, and the country is beautiful. And rather wealthy to boot; didn’t see a single car over three years old when I was there. Hmm, I wonder if they need any Moon experts…

              • ThomasLMatula says:
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                I agree it would have been ugly if Wall Street hadn’t been bailed out and the worst financial crisis in history, but the way it was done only postponed the day of reckoning and made a future financial crisis worst by both concentrating the industry more when banks like Wells Fargo and Bank of America used their TARP money, which they claimed they didn’t want, to buy out other big banks and because it created the expectation the government will bail out the industry again in the future encouraging more risky behavior.

                As this Forbes article from two years ago notes the basic problems that caused it were not addressed and still exist.

                http://www.forbes.com/sites

                “Financial reform didn’t work. Banks today are bigger and more opaque than ever, and they continue to trade in derivatives in many of the same ways they did before the crash, but on a larger scale and with precisely the same unknown risks.”

                But you are right, they run things and so will do their best to put off their day of reckoning.

                In terms of infrastructure, it has gotten much worst. The American Society of Civil Engineers estimates that $3.6 Trillion is needed to fix the problems.

                http://www.infrastructurere

                Granted they have a vested interest and so it is probably a high estimate since their members would manage the projects, but I feel that the problems of Flint, MI and Porter Ranch, CA are just the tip of the iceberg on infrastructure that has been neglected for decades.

                Luxembourg may be a nice country and a tax haven, but what worries me is they are part of a very tight economic union with Belgium and the Netherlands, two Moon Treaty nations, tight in terms of sharing custom agencies, laws for intellectual property, etc. They even have a common name for it, Benelux.

                Given this political and economic relationship it is difficult to see how they will be able to avoid dragging the Moon Treaty into any international legal framework. That is the danger I see. The Isle of Man by contrast is part of the UK in terms of foreign policy which is not a Moon Treaty nation. Quite honestly I would be much happier if it was the Isle of Man leading this effort.

            • JamesG says:
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              You give the Republicans far too much credit for some sort of mischievous plan. The truth is that both parties, and in fact the entire political system, pursues myopic political interests with little regard for long term and side consequences.

        • ThomasLMatula says:
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          Good observation. The result is a system that rewards political connections instead of innovation and economic progress. Henry Ford’s genius was not just applying mass production to the automobile but also recognizing the importance of creating a market for it by paying the workers enough to buy it. That insight is missing in most of today’s industries.

          • windbourne says:
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            Oh, it is not missing. THe problem is that one of the executive orders put in place after the great crash was to forbid executives to own stock in their industry. It was shown that over and over, that executives would put THEIR short-term profits via stock manipulation over the long term needs of the company. reagan rolled that back which was one of several items that really has sent America backwards and destroyed us.

        • Aerospike says:
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          It really isn’t a US national trend/problem. The same is happening in Europe and pretty much globally…

        • Michael Vaicaitis says:
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          Thanks Bernie. Good and correct comments as ever.

      • windbourne says:
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        re-read what she said: income generated in any country. And if a company like GE wants to move their operations to CHina and sell in America, then they should pay the corporate tax on all of the income generated here.

      • Kapitalist says:
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        Tax evasion is not a problem. It’s better that the money is used for industrial investments, than wasted by government robbing and paying them to rich powerful special interests. All tax payments is pure costs and lost from society. Where I live the tax cost is higher than the sum of all other costs in society. Every household is threatened by brutal violence from the robbing government if they do not obey order to promptly pay them cash more than they pay for housing, transportation, energy, food, clothes, education, healthcare, media, children, pensions et cetera.

        • Michael Vaicaitis says:
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          “All tax payments is pure costs and lost from society.”
          Exactly the opposite is true. And the key word here is “society”. No-one stands alone, no-one works alone, no-one gets rich alone. Everyone excels or suffers within the system of society.

          “housing, transportation, energy, food, clothes, education, healthcare, media, children, pensions et cetera.”
          None of these would exist if it were not for society. NONE of these would exist if it were not for SOCIETY. And society would not exist if it were not for government and taxation.

          • ThomasLMatula says:
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            What I always find interesting is that the 1950’s are regarded as mostly a golden decade when there was rapid progress in technology, the standard of living increased rapidly, folks moved to the suburbs and the Interstate Highway system was built. U.S. corporations were seen as the best managed in the world and U.S. manufacturing stood for productivity and progress. It was a time of optimism and progress as shown in the recent movie Tomorrowland.

            Yet during that entire decade the national debt ratio to GDP was as high if not higher than it is now and the top marginal tax rates were in the 90 percent category versus the 39.6% it is now. Makes you wonder…

            • Michael Vaicaitis says:
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              Trickle down of the eighties era (and beyond) has done profound damage to the social structure of many countries – one of the worse affected, perhaps the worse, is the US. Using the taxation system to preferentially transfer wealth to the greedy has also had the affect of transfer power to those same unpleasant people.

              The general idea of a legal system is to stop people do harm to other people – this is regulation of behaviour to protect the freedoms of all. It makes sense to regulate commerce in a similar fashion. And to tax the most, those who have benefited the most from society. Even for the most deserving amongst us, i.e. those with the most talent and/or the hardest workers, would not reap the benefits of their talent and hard work if it were not for the existence of the society of which they are a part.

          • Kapitalist says:
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            Noi, you are wrong. I talk about society,i.e. the voluntary cooperation between human beings. You talk about government, i.e. the violent robbery of a few against everything good in society (only the good things are profitable for government to loot and destroy, because only the good things in society produce things of value for the politicians to loot). You simply mistake the naming of those two opposite phenomena. You say “society” when you actually talk about the “government”.

            Who invented electricity? A governmental bureaucrat? Or railroads? Government produces nothing. The only things a gov has is what it steals from the slaves in the territory it occupies. A government physically consists of a handful of bandits. What imaginations did you have about what a gov actually physically consists of? God? have the fraudsters fooled you so deeply since your childhood? Is it hard for you to get out of the sect and realize the reality?

            • Michael Vaicaitis says:
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              When I say society, I am talking about ALL people – we are to some extent or other dependent on all other people. We cannot achieve anything of note with a regulated society.In order to become successful, to benefit from one’s talent or hard work, one requires a regulated social framework, i.e society. Factories, clothes, roads, food, water, electricity, cars, bricks, electronics, ploughs, tractors, medicine, etc.. If none of these things existed then we would be hunter gatherers wearing animals skins and none of these would exist without a regulated social framework – a governed society. Your argument against this most obvious and unavoidable of facts is quite bizarre.

              Who “invented” electricity: people who benefited from a regulated society. It wasn’t cavemen living in small family groups.

              You seem to have some irrational paranoia and/or hatred of the the services that government provides. Let’s list some of them: collection of taxes, a civil and criminal legal system including policing, protection of the nation’s citizens from other nations via military services, etc..
              The opposite of a governed society is anarchy and so no society, no industry, no factories, no infrastructure, no electricity, no hospitals, no police, no military, no houses, no roads, no laws, no rockets, no spacecraft. It is the job of government to provide and regulate the framework of society – quite literally to provide society.

              • Kapitalist says:
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                I’m simply against violence. My moral is that it is wrong for ANY human being to use force against any other human being, for whatever temporary subjective purpose you happen to see fit in your dreams. Ruthless tyrants like you argue for the use of violence as long as it in your imaginary religion is violence used by the holy God “the government”.

                Without exception in all of history in all of the world , your advocacy of violence against innocent humans, in your greedy ambition to rob out as much quick cash as you can from the society (tax), has always devastated society. The anti-libertarian advocate, like you do, that all money and all power of violence should be concentrated to the half a dozen or so mega-Führers (mostly inbred like Bush, Clinton, Bush, Bush and Clinton, obviously randomly picked from the 300,000,000 individuals their propaganda lies that they “represent”). And your whole brain closes its only eye in order to deny the horrific consequences which this your etatistic religion has led to.

                Your propaganda lie here, about how terrific Joseph Stalin was because he murdered and robbed everyone he could reach with his violence, in order to “finance” sending nuclear bombs to US cities, just reveals how evil and completely out of touch with reality you are. And how dangerous it is to all human beings that idiots like you are fooled by, and propagate, the handful of shortsighted greedy psychopaths, out which the Government consists, whom you adore like your Gods. Evil and total failure seems to be nothing you care about, you only care about concentrating more money and more violent power to as few hands as possible, i.e. “the state”. The eternal mass murder.

              • Michael Vaicaitis says:
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                I hesitate to replay as you’re clearly working through some issues. However, I do think that the project of building civilisation is worth while. Certainly, corruption is to be abhorred, but that does not in any way detract from the principles of justice, freedom, cooperation and mutual benefit.

                I am curious, if you are so against an organised society for the benefit and protection of all, what is your alternative plan for the continuation of homo sapien.

    • Andrew Tubbiolo says:
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      They probably wont go until they 1 ensure a steady income of government money to the enterprise. 2 obtain a government backed insurance policy. 3 ensure that profits are not taxed. It’s the typical formula for any corporation, socialize the risk, privatize the profit. It’s not going to change in our lifetimes.

      • Douglas Messier says:
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        Virgin Galactic is a private company, but then it got Abu Dhabi to put up $390 million through its sovereign wealth fund and New Mexico taxpayers to build them a $225 million spaceport. That’s $615 million for a company that hasn’t flown anything to space in 11 years.

        Virgin’s not the only one to get government funding, but the amount they’ve received an enormous amount of it without really delivering anything. Far more than XCOR or its competitors. SpaceX has received a ton of government money, but most of it in the form of contracts. And it’s delivered on a lot of it.

        • ThomasLMatula says:
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          But that of course has always been Sir Richards secret to success, his ability to use other peoples money, or in this case, governments, to work in industries he knows nothing about. In mature industries this is acceptable as experienced managers are easily found and you have off the shelf technologies and business models to use.

          The problem of course, as VG illustrates, is when you do that with a emerging industry you are not able to simply apply existing technology to start up the business, as with an airline. Nor are there experiences managers or proven business models. Instead you have to actually have a grasp of the technology involved and be willing to make the hard decisions.

          In VG’s case this decision would have been replacing the hybrid engine with a liquid one that worked. But Burt Rutan didn’t understand rocket engines and Sir Richard didn’t have the technical knowledge of an Elon Musk or Jeff Bezos to recognize this. The result has been VG simply drifting without leadership for over a decade.

          • Andrew Tubbiolo says:
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            VG has leadership. Using all the best techniques of modern leadership to keep he suckers engaged and loving you. On that front, their leadership is a stunning success.

        • Andrew Tubbiolo says:
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          When you see the kind of naked stupidity you describe it really calls into question the notion that top leadership positions are filled by analytical well educated calculators of how best to use money. When what it really looks like is a bunch of personality cult types and their followers. If these people were members of the middle class, their wives would leave them and we might think they have a gambling problem and suggest going to see a psychiatrist. Put them in a suit and tie, and give them a high ranking title and they can get away with anything, and we love them for it.

    • Citizen Ken says:
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      It’s not that simple. There’s a concept known as ‘transfer pricing’, whose intent is to capture the value created at each step in a process. This concept is thoroughly gamed by companies, who ‘show’ that large amounts of value are added in low-tax areas, and small amounts of value are created in high-tax venues, irrespective of what actually happens.

      In my international business classes it was usually covered at the same time as “tax avoidance” vs. “tax evasion”.

  2. P.K. Sink says:
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    I once read where the Shackleton head honcho said, more or less: “We’re ready to go to the Moon right now. All that we’re missing is the technology and the financing.”

  3. mlmontagne says:
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    I have to admit I’m not familiar with either of them. Could you explain what you mean by that?

  4. Tom Billings says:
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    Gee, Thomas, why should a shell company, or “place marker”, place satellites in orbit, as Planetary Resources has done? Indeed, they are placing yet another technology test satellite up this year. Now DSI, not having the pull of Peter Diamandis in the the financially well off computer industry through his founding of Singularity University, has harder times raising capital, but not an impossible problem, as Luxembourg has just demonstrated. There is no selected target for either of them, and they have laid out quite cautious business plans. That does not make them anything other than serious, ….just people with a *long* hard road ahead.

    I’ve noticed over the years that any group not doing things as you would do gets panned by you to a ridiculous extent. Why should we not think this is yet another example of that?

  5. windbourne says:
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    I trust that NASA will quit spending any money on these companies, or sharing our tax-payer funded tech with them for free.
    It does not make sense to helps these companies, only to have them pay their taxes elsewhere.

  6. windbourne says:
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    You might want to re-read what PK wrote.
    He was referring to the Shackleton lunar company, not the adventurer.

  7. JamesG says:
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    That won’t be the Luxembourgian’s or Kim Jong-Un’s fault. The people entrusted with safeguarding your financial well-being sold you down the river a long time ago.

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