There is something very troubling to me about the Bernie Madoff scandal. At first, I couldn't quite put my finger on it. Then, after a few days, it started to sink in. The initial reports indicated that the fraud he perpetrated exceeded fifty billion dollars. That's fifty thousand million dollars to you and me. A huge amount of money. Enough to buy all of the big 3 automakers, lock, stock and barrel. We hear big numbers all the time now, so this one should not come as a surprise.
What is surprising is the fact that he was able to swindle the very wealthy using a very base criminal device, a Ponzi scheme. You can wiki Charles Ponzi to get an idea of what happened here. The nutshell version is he told his investors that they would get a big return, and then paid them later with money from newer investors. This could have gone on forever undetected as long as there was an influx of greedy new investors. Ponzi schemes are not new.
What is new, is the use of leverage by a Ponzi scheme. Madoff managed about seventeen billion or so in real dollars, but leveraged them to about 50 billion. Complicated and dangerous, but he had solid credentials. People like to invest in this guy.
What is most troubling to me is that many of his investors are heavy hitters. They are the super wealthy. In addition, many of them had to know that his reported returns were too good to be true. Never a down quarter. Never a monthly loss. Never. Yet these wealthy investors gave him their money anyway. Why? Chances are good that they thought he was insider trading or somehow cooking the books to his clients benefit. So in other words, they were so greedy that they figured a criminal like Madoff would make them more money than an honest broker (as if there is such a thing). And now, already there is talk of a government bailout for these "poor" investors. Do not let this one happen.
Friday, December 19, 2008
Saturday, December 6, 2008
The Tail Of The Tiger
As you have no doubt heard, the "Big 3" are the next industry that has been anointed worthy of being bailed out by the government. On Monday, there should be motions in place for a speedy passage. I expect that the first payments will be virtually immediate to GM.
This is bad business. It reeks of organized corruption. It ensures that the American tax payer will be held liable for future business failures. It is the antithesis of everything democracy and free enterprise are supposed to stand for.
It should be duly noted that the Big 3 are putting this "crisis" clearly on the shoulders of the shattered economy in the USA and around the world. They seem to take no responsibility for their actions over the past decade. The "no one could have predicted this series of catastrophic financial events" excuse just seems a bit too convenient. If you think this is the end of corporate bailouts in this round, I think you may be surprised at what comes next.
Obama is already talking about a "New Deal" style plan that will create millions of jobs building and rebuilding infrastructure. The areas being targeted are roads and bridges (oh how I hate the word bridges), and of course, the ultimate cash grab, the Health Care industry. Expect the hundreds of billions of dollars worth of infrastructure costs will fall squarely on YOUR shoulders. These costs will not be borne by the wealthy, or by corporations. YOU will pay. Your children will pay. Your grandchildren may even get it paid off before the next wave of crisis arrives.
If you go to hunt a tiger, you need to be adequately armed and equipped. If you jump in quickly with out the right gear and preparation, and grab him by the tail, do not be surprised by the tiger's reaction. After all, you knew what he was when you grabbed his tail.
This is bad business. It reeks of organized corruption. It ensures that the American tax payer will be held liable for future business failures. It is the antithesis of everything democracy and free enterprise are supposed to stand for.
It should be duly noted that the Big 3 are putting this "crisis" clearly on the shoulders of the shattered economy in the USA and around the world. They seem to take no responsibility for their actions over the past decade. The "no one could have predicted this series of catastrophic financial events" excuse just seems a bit too convenient. If you think this is the end of corporate bailouts in this round, I think you may be surprised at what comes next.
Obama is already talking about a "New Deal" style plan that will create millions of jobs building and rebuilding infrastructure. The areas being targeted are roads and bridges (oh how I hate the word bridges), and of course, the ultimate cash grab, the Health Care industry. Expect the hundreds of billions of dollars worth of infrastructure costs will fall squarely on YOUR shoulders. These costs will not be borne by the wealthy, or by corporations. YOU will pay. Your children will pay. Your grandchildren may even get it paid off before the next wave of crisis arrives.
If you go to hunt a tiger, you need to be adequately armed and equipped. If you jump in quickly with out the right gear and preparation, and grab him by the tail, do not be surprised by the tiger's reaction. After all, you knew what he was when you grabbed his tail.
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