The New York Times looks at a microcosm of the damage caused by the Bernard Madoff scandal: a Palm Beach country club many of whose members woke up to find their world turned upside down. It’s one thing to be poor and find yourself poor. It’s another to go to sleep rich and wake up to find everything gone.
One man, who entrusted his life’s savings of $11 million to Madoff said “‘I’m taking care of my sick mother-in-law. My wife has cancer. I just can’t deal with it,’ Mr. Spring said, only barely choking back tears. ‘I’m cooked.’” And he was not alone:
In a world where worrying publicly about money was verboten, a worker at the country club said he was surprised recently that some patrons were asking about the prices of certain things on the menu or for certain golf course services. … Mr. Leamer told of several friends who were aghast when a friend offered to take them out to dinner and he took them to a pizza parlor rather than the swanky spot they were used to going.
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Some of those who escaped ruin may have owed their survival to crass skepticism. Despite Madoff’s long record of producing returns one country club member refused to participate because Madoff would not explain his methods. In a world that ran on trust, he impolitely insisted on evidence.
Madoff remained above suspicion in part because he knew how to exploit the allure of exclusivity. He did not seem anxious to take just anyone’s money. You almost had to ask him to take it. The New York Post explains “He had a closed fund, which is why people put more money into it, instead of diversifying … you couldn’t just come in off the street and plunk down $100,000.” Lawrence Leamer adds, “He didn’t take just anybody. He turned down all kinds of people, and that made you want to give the man even more of your money. When he took your fortune, he told you that he would tell you nothing about how he achieved his returns. He was a god. He had the Midas touch.”
The Soviet KGB knew knew how to exploit the informal lines of authority which vied — and often superseded — the formal reporting hierarchies within organizations. They knew what power boyhood friendships, social cameraderie and the Old School Tie exercised and ruthlessly used it. Trust opened many more doors than was commonly supposed. The notorious Philby spy ring could worm its way into the heart of British officialdom precisely because it was socially above suspicion. The abuse of networks of trust is remains one of the most effective ways of bringing down a system.
The Cambridge ring gained its notoriety not only from its exploits of espionage, but also because of it seemingly unlikely cast of characters—upper class, well-schooled, British citizens who fit well into the “old boys” network that dominated the British civil service. Their social credibility helped them gain access to the nation’s top secrets.
Treachery is often more embarassing to the betrayed than the betrayer. Some of those who lost money to Madoff would like to keep it secret and not simply out of embarassment. For many, betrayal will hurt more than the financial loss. EM Forster movingly — yet I think foolishly — argued that nothing mattered more than our regard for each other, not even the facts. And the sad fact is that for everyone with an open heart and open palm there is another waiting to snatch the coin.
My temple stands not upon Mount Moriah but in that Elysian Field where even the immoral are admitted. My motto is : “Lord, I disbelieve – help thou my unbelief.
I have, however, to live in an Age of Faith – the sort of epoch I used to hear praised when I was a boy. It is extremely unpleasant really. It is bloody in every sense of the word. And I have to keep my end up in it. Where do I start ? With personal relationships. Here is something comparatively solid in a world full of violence and cruelty. … reliability is not a matter of contract – that is the main difference between the world of personal relationships and the world of business relationships. It is a matter for the heart, which signs no documents. … I hate the idea of causes, and if I had to choose between betraying my country and betraying my friend I hope I should have the guts to betray my country.
And much as I admire EM Forster’s leap of faith it will be people like him who will be the first to be betrayed. It is the symbiotic relationship between betrayal and trust that explains why revolutionaries will always choose a Stalin to lead them; and why the generous hearts often find their way to the Ponzi of their time.
Trust networks appear in many settings; even in politics. It would interesting to study to map out how influence was parceled out in the Bush administration — and will be in the incoming Obama one — on the basis of where one belongs. The sad fact is that the more one is trusted, the greater the potential for betrayal. Who better to sell you out than those pledged to save you.
Trust networks are actually much more important in politics than in business. Not to say that they don’t matter in business, just that they are the core asset of political balance sheets.
Obama was elected, IMHO, because voters trusted him on the economy more than McCain. Take a look at the Intrade numbers for the 2008 Presidential election:
http://www.intrade.com/jsp/intrade/intradeTV/
McCain’s peak (and Obama’s general election trough) was on 14 September 2008. On the next day, McCain gave his famous speech in Florida (it would have been perfect if it had been in Palm Beach) stating the fundamentals of the economy were strong:
http://www.youtube.com/watch?v=D1wag6M8_aQ
From that point, McCain steadily fell, and Obama steadily rose. There were other actions that reinforced this move (campaign suspension, the first debate where the economy pushed out foreign affairs, a McCain strength, etc.), but the basic driver was “Who do you trust on the economy?”
Anyway, the point is that enough Americans put their trust in Obama to be a better steward of the economy that he won. Now it appears his solution (ta da!) is to dramatically expand Federal Government spending – $1 trillion and counting, plus healthcare “reform” under Tom Daschle.
Plus, Obama’s not even in office yet, nor had the opportunity to negotiate with Congressional Democrats (I have $1 trillion, that’s $1 trillion, do I hear $1.5 trillion? Thank you, Ms. Pelosi, that’s $1.5 trillion. Now will someone give me $2 trillion? $2 trillion? Thank you, Mr. Obama, I have $2 trillion. $2.5 trillion to you, Mr. Reid. Etc.) Think of $1 trillion as the floor.
The result of all this Federal largess will be much higher unemployment, especially in Blue States, which continue to have structural problems they are unwilling to face (unions, taxes, regulation, bankrupt industries, etc.). A longer and deeper recession in those states, perhaps 5-7 years, leading to a mass migration of businesses and productive citizens to more growth-friendly Red States, who will recover more quickly and bring the US economy as a whole out of recession in early 2010.
Massachusetts, New York, Pennsylvania, California, et. al. are in for a rough ride. Sure, it will be tough here in Texas too, but we didn’t trust Obama to save us. So we won’t be disappointed when he doesn’t.
Who better to sell you out than those pledged to save you?
Indeed.
L3
The members of the Cambridge Ring were already initiated into a world of secrets and deceit not because of their English Public School training in games but by homosexuality.
I think Bush’s fundamental failing is that he trusted people too much. They repaid him with betrayal. Richard Clark, George Tenet, and that awful press secretary all betrayed him for 15 minutes of media adulation. They undermined his presidency and the war effort. Lowly worms, the lot of them.
Several worthy charities are suffering because of this theft. Some people who had worked and saved have seen their savings disappear. For the rest I see wealth moved from rentiers to producers of consumables. Bankruptcy is an essential part of capitalist economics. It is the mechanism by which underutilized capital assets get revalued and redistributed to the benefit of the whole. That is why the automobile companies should be allowed to fail. Madoff is a thief and should be punished. Unfortunately there is little chance of any restitution. In the future people shall learn to hedge more effectively. The securities laws in America make a distinction between “sophisticated” and unsophisticated” investors. Basically if you are worth over $1,000,000 then Good Luck to you, you’re on your own.
What were these folks buying? Not stocks. Not bonds. Just a promise that some guy is going to pay them back a lot more than they gave him. And it ain’t polite to ask questions. And if you ask the question you wouldn’t understand the answer even if you got one. What a social circle.
In the olden days those who lived a life of power and privilege knew that one day they might have to forfeit their lives as a matter of honor and do so without asking questions. Nowadays you forfeit $11 million.
I think we are quickly moving away from the Capitalist system and into a politically centered “patron/client” system. In that system you become the client of a powerful patron and trade your loyalty for their “protection.” So you don’t ask questions. You pony up what is asked and rise and fall with your patron. These are not contractual relationships aimed at achieving a fixed result to the benefit of the contracting parties — relationships that are easily dissolved when the terms are met. It’s more like a blood oath. But don’t worry, there will still be work for lawyers, even though violence and intimidation play an important role in maintaining the system — which is full of “moral hazard.”
One of the features of societies dominated by patron/client relationships is lots of poverty. Our choice.
@hdgreen,
If you had left Bernard Madoff in the study with a loaded revolver in the drawer he would have stolen your checkbook and a rare first edition before sending you away to give more money to his family as the “decent thing to do” and then leaving through the front door.
you can see by Bush’s border policy that when faced with the choice of betraying his family or betraying his country he chose the latter.
One commentator wondered how successful people could be taken so easily. He observed that “of all people, sophisticated investors like Mr. Madoff’s clients should know that if something sounds too good to be true, then it’s not. But they believed it anyway. Why?”
Why? Because they wanted to believe. And the power of social proof seemed overwhelming. Many people don’t take the trouble to figure things out from first principles. They see who else believes, and follow suit.
One of the things that worried me from the first about Barack Obama is how structurally similar his career was to that of a con man. That doesn’t necessarily mean that he is one, but like the man at Madoff’s country club, I get bad vibes about a person who operates out of a black box, offers social proof instead of a track record and who takes umbrage at any efforts to inquire too closely into his promises. Something about a career that’s always moving on to the next and higher level without producing any results at any particular one strikes me as disquieting.
Sixty years ago Winston Churchill promised the British people that he could give them nothing more than “blood, toil, sweat and tears”. Anyone who tried that today would be unelectable. Any candidate who promised the voters ten years of austerity, belt-tightening, longer hours and less consumption in order to save social security and put the economy on a sound footing can kiss his career goodbye. Anyone who promised generations of struggle against Islamic extremism wouldn’t have a hope of being elected.
But if someone promised to stop the oceans from rising, create millions of green jobs, restore America’s respect internationally, cut taxes for 95% of Americans, cancel missile defense, end the threat of terrorism and usher in a world without nuclear weapons, he would be elected by a large margin. He would be so cool that nobody would even dare question it. What was that about Mr. Madoff’s clients being foolish for believing in something too good to be true?
“Trust, but verify.”
Christ those people were idiots. I’ve seen the investments business from several angles – financial advisor, financial product sales, exchange regulator, and as attorney to hedge funds and private equity. And I can’t think of one single example where someone just said “We’re not going to tell you how we do it.” He could have been funding drug smuggling out of Haiti for all they knew. Or just gambling on commodities swings.
But even if you assumed he wasn’t a crook they had no way of knowing what the risk characteristics were. They couldn’t even hedge – what would they hedge against? There isn’t a single person with real sense who would do this. If his investor list got out (even without attached figures) you might as well call it a list of morons.
Naturally I feel bad for Mr. Spring (cited no doubt because he was the most sympathetic investor the NYT found), but in the words of the great Ronald Reagan, “Trust, but verify.” Trust without facts is pure faith, and should be reserved solely for God and your very closest loved ones. Not when that kind of money is on the line.
One commentator wondered how successful people could be taken so easily. He observed that “of all people, sophisticated investors like Mr. Madoff’s clients should know that if something sounds too good to be true, then it’s not. But they believed it anyway. Why?”
Because, speaking from professional experience, the idea of the “sophisticated investor” is mostly rubbish. Plenty of rich guys got that way without acquiring a lot of common sense or financial savvy. Surgeons, family money, athletes, hit musicians, engineers coming off an IPO, etc. They’re probably smart at one thing or another, but that doesn’t mean they know how to invest money, or what questions to ask of the person that does it for them. And they fall for a con because of it, just like the “regular folk.” There’s just more zeros involved when it goes bad.
Yes, Obama is a con man. Note who voted for him: the elite, yuppies, various non-White groups, and single women.
His worship as a living god is troublesome enough. He is like Madoff and likely to leave a bigger bill.
Brock, I have some experience here as well and I think you have it nailed.
I’m especially eager to get a list of the fund-of-funds that had money with Madoff. Those funds typically claim they do heavy due diligence. So they were either lying or stupid – either way they need to die.
Wretchard
Churchill offered the British people hisblood, histoil, histears and hissweat. He was already Prime Minister at the time (May 1940), and his country was already at war.
Nonetheless, I take your point. You can’t offer pain as your election promise.
Didn’t any of these people ever hear of the word ‘diversification”.
Never put all of your eggs in one basket. Just common sense.
It’s very sad that all these people lost so much. But they were easy marks for this con man because either they were foolish or lazy, or a combination of both.
Unfortunately, the American people were just as foolish or lazy or a combination of both in regards to our elected con man in chief Barack Obama.
I know the choice between Obama and Mc Cain was a miserable one, but Obama was the choice of traitors. However, John Mc Cain proved again today, why many of the American people just didn’t trust him when he scolded the RNC for raising appropriate issues about Blago. Mc Cain is a lying , sick, egotistic, cowardly capitulator and has not been the courageous straight talking reformer and Patriot that he pretended to be in the Campaign for a long time. He was a courageous patriot in Vietnam, but that was over three decades ago; he has clearly changed in DC and gone over to the dark side since then.
What the Democrats like Obama fear most is that their true motives will be exposed. Rino’s like Mc Cain and Colin Powell play the role somewhat akin to Stalin’s “useful idiots”; they muddy the political waters and provide sufficient political cover for the traitor democrats so the true picture of the con men like Obama is never clear to the electorate.
We’re told Madoff is $50 Billion down. But we’re also told he had $17.1 Billion on deposit. Who owns the debits on the other $32.9 Billion?
Hmmm? He has to owe somebody.
The rich country club fools who put up the 17.1 will just have to go back to earning an honest living. We live among country club folks, but they’re mostly retired farmers and car dealers who would never fall for this sort of thing. We’ve heard nothing in terms of groaning and bleating. But this is a red enclave in a blue state. Probably hardcore bluestaters have taken most of the hit here, being more gullible and all.
Still the question remains: is the 50bil number a fabrication or is somebody holding IOU’s for 32.9bil? Or is the answer somewhere in between?
Who’s holding the IOU’s?
Those sophisticated investors had a clear (but ultimately wrong) idea about the origins of their extra revenues.
They thought they were dealing with someone who had some kind of inside information and was, up to a point, sharing it, out of friendship and higher class solidarity, with a small circle of acquaintances. The climate of secrecy and “no questions asked” around the whole business only confirmed to them that they were dealing with someone who had access to some very interesting leaks, leaks that would cease as soon as questions were asked or too many people knew about got to know about them.
They thought themselves lucky to be admitted into some kind of conspiracy (a very exlusive club, by the way). Eventually they found out that there was indeed a conspiracy, but of an altogether different kind.
That’s the essence of the con, the conned have to think they are conning someone else.
Wasn’t there some discussion about this here a few weeks ago. About the fundamental part of a con is that the con artist shows that he trusts the mark in some way. “You’re in, just don’t talk about it…” And they all fall over each other to put their necks up on the block.
I’m wondering how many realize that the entire scenario (markers) of “The End of Golden Ages,” are in play (paraphrasing from Volume 20 of the Time/Life 20 Vol Set – “Civilization,” circa 1960′s).
Not being un-politically correct, but, here are a few, but, not necessarily in order…at least after Marker #1
1. About 150 years into the life of a Civilization, women begin rising to positions of “great power,” brandishing their ‘Weapons of Genderbat,’ and, pushing their biological imperative to build safe, secure, healthy, WEALTHY Nests to raise their children, who must never suffer the knowledge of violence. These Nests must be clean, extravagant and exotic, such that all of their friends would ‘die for.’ …Followed by…
2. A Tsunami of Rules, Regulations, Policies, Procedures, Edicts, Decrees, Taxes, Permits, Certificates, and, Fees flowing from an ever increasing number of Agencies, Bureaus, Departments, Offices and Committees granted “Powers” to accomplish or control anything they wish to control…that will be enforced as law without Legislative action or imprimature, without affirmation of Judges, or, requiring permission from anyone outside the ‘group’ (spell that “Zero Tolerance Policy,” etc). …leading to…
3. Imbabalance of trade arising from an ever increasing demand by the now Rich, Noble, or, Aristocratic Ladies flaunting Exotic, Imported Goods that decorate their nests, to enhance bragging rights, and, status in the Community…requiring more gold.
…resulting in…
4. Denigration and flight of Crafts, Skills, Engineers, Artisans, and, or Local Labor.
…followed by…
5. Flight of Capital and Industries to Foreign Ports favored with, and patronized by, the Upper Echelons of Society of the Civilization unaware that it is teetering on the brink. They flee to Foreign Ports where there are few Taxes, Regulations, Policies, Procedures…etc, to interfere with the flow of commerce.
…resulting in…
7. Denigration and pushing away of the Citizen Soldier who fought and won the Wars that consolidated the territory now considered the Heartland of the Empire/Civilization.
8. The Powerful Ladies, surveying their “Queendom” from the Ramparts of their Castles and Palaces, suddenly notice Common Men walking around everywhere with Weapons, in their hands, on their sides and Backs, and, recoil in horror…”We can’t have this,” they proclaim, “the City Guards and our Bodyguards have all the weapons necessary to protect the People. They’ll be fighting amongst themselves, killing each other…it’ll cause Sedition and Rebellion. We can’t have this, we must disarm them for their own good, we must protect the children” …then…
9. Pondering this, the Ladies look at their Bodyguards: men that attended their births, ushered them through Childhood and into good marriages, and see men of violence with Blood on their Swords. They suddenly realize these are men of the People, and, fail to realize that they are generally men of Noble character and integrity who’ve earned their place in society and the Nation, men who worked and fought their way up from the bottom.
Instead, they see men of the common People whose loyalty is ‘to’ the People, and, the Nation they created. They’re correct in one regard, they are (genrally) men who will side ‘with’ the People in a dispute over Power. To correct this, the Ladies take action, lobbying, worrying and bullying their Husbands, Brothers, Uncles, Lords, Kings, Legislatures, and, enyone else their ‘positions of great power’ will allow them to reach, demanding these violent men be sent away to the Frontiers “…to protect the Nation.” They demand this, of course, to “…protect the children from violennce, or, even the prospect, spectre or knowledge of violence” (“…we can’t be too careful”).
In an effort to fill the resulting void and ensure their continuing safety, they begin hiring Mameluks…men of violence with Blood on their Swords, whose only loyalty is Gold. Then, begin happily teaching their sons the ways of non-violence: Poets, Artists, Sculptors, Novelists or TV Producers they’ll become, not crass, common soldiers who’ve been taught violence and know how to defend themselves (“…can you imagine? How Plebian!”).
Paraphrasing and re-numbering to reach the final “Marker #20 of the End of Golden Ages”
…20 The disarming of the Common Man.
Historically, within 20 years of the Banning of Arms for the common Citizen that Civilization will become a Footnote in a dusty Tome nobody reads after an Alexander crosses the Bosphorus. The People (in extremis as a result of rampant Crime assaulting them from multiple levels of Society) welcome him as a savior, and, refuse to fight for those who took away their arms, “We have no arms, you took them away, and, we’ve forgotten how to fight…this is your problem! You handle it.”
hdgreene:
“What were these folks buying? Not stocks. Not bonds. Just a promise that some guy is going to pay them back a lot more than they gave him.”
My understanding is that it wasn’t quite so “black box”. He was supposedly using a strategy known as “split strike conversion” which is a real strategy, but one in which it would be very difficult to achieve his claimed returns. There’s nothing wrong with cutting off the loss side of the equation as long as you understand that you almost certainly must cut off the gain side of the equation as well.
I read somewhere about a former competitor who had been running the same strategy was trying to get the SEC to look into his operation (claiming Madoff’s returns were impossible). After years they finally opened a case, I think in ’05 and then closed it in ’07. No details yet but I think heads will roll at the SEC.
The really stupid thing is that some hedge fund of funds bought into this guy. Not only was his return history suspect, but his auditor was sketchy (3-man shop, where one man was actually a woman who was a secretary). Even more than this, HE WAS THE CUSTODIAN FOR HIS OWN FUND’S MONEY. In other words, there was no third party to execute/oversee the trades and make an accounting of the money in the fund each quarter. This was easy for Madoff because he owned his own broker/dealer which was a whole business unto itself.
The bottom line is that a lot of pros are subject to the same fallacies as everyone else. They trust the group-think for their due diligence.
Was it here or elsewhere that I read that you can’t con an honest man [or woman]?
“It would interesting to study to map out how influence was parceled out in the Bush administration — and will be in the incoming Obama one…”
For the Bush Admin that will be difficult. It will take careful reasearch, analysis and formulation of your own educated opinions.
For the Obama Administration it will be easy. Just send $19.95 plus shipping ($3000). But did you think that was all you were going to get? Order NOW and we will throw in the Ronco Vege-A-Matic! Dices, slices, makes Julian Fries!
After the first year or so Obama will fire his first press secretary and hire Billy Mays.
The chumps sound like they were old wealth guys immunized from common sense. So the shark entered their placid waters of privilege and ate their lunch. Ironically no strong arm guys could get near their isolated world,but a silver tongued devil waltzed right in and took them. Hard to sympathize for me.
Re: Brock #10
Perhaps it should come as no surprise that high achievement in another field does not correlate positively with financial sophistication. If fact, one might even predict a negative correlation. Since few of us are polymaths, reaching the top in any field has required a dedication of time and thought that has left less for other things in life. Maybe a corollary to that idea is that great financial sophistication and success may not have a positive correlation with knowledge in other fields.
lc proposes:
Was it here or elsewhere that I read that you can’t con an honest man [or woman]?
programmer opines:
Honest people are the easiest of all to con. They’re honest, they expect everyone else to be. Course, I’m old and cynical! I would propose that cynicism is one of the tools that is most helpful in this world. However, even cynicism has it’s draw backs. Who can you really trust?
As Brock says above, repeating Reagan, “Trust, but verify”. Or as one of my clients, bearing the responsibility for providing data security in a large, to be unnamed software organization says, “In God, I trust, all others must authenticate and certificate!”
Perhaps Bernard Madoff served as a blank screen on which investors of vastly different fiscal stripes projected their own ROI.
#20, lc, that saying is associated with W.C. Fields. I don’t know if he originated it, but it fits his screen persona. I believe the entire quote is (from memory):
You can’t cheat an honest man. Never give a sucker an even break, or smarten up a chump.
#24, programmer, I’m going to disagree with you here. Honest men are harder to cheat (not impossible) because being honest, they aren’t attracted to the “something for nothing,” inside track appeal of nearly every scam. As has been noted already, cons work because they make the mark think he’s getting a piece of something exclusive and not quite kosher. Your cynic is easy to manipulate, since he’s expecting to find an angle, you show him one – just not the one that’s going to hook him.
programmer #24 and steve skubinna #26
I suppose an honest man, like any other person, could be fooled by a determined con. An honest man, though, with some real-life experience, should be better armed against such a con.
As our excellent host in #8 says:
“I get bad vibes about a person who operates out of a black box, offers social proof instead of a track record and takes umbrage at any efforts to inquire too closely into his promises….He would be so cool that nobody would ever dare question it.”
Steve Skubinna,
Your point is well taken, honesty is a virtue and a protection, in most cases. My knee jerk reaction/comment stems from seeing many older, hard working, honest, unsophisticated (please note, I do NOT mean in any way stupid) people falling prey to the blandishments of smooth con artists because they would never suspect such a “nice acting” young man (or lady) being capable of being duplicitous.
As Wretchard implies in his #8 comment, many a hard working, honest, American has chosen “such a nice young man” to lead us into the promised and hoped for land. And the MSM, in THEIR kneejerk reactions….Whoa, programmer, time to go get a nice cup of tea.
lc,
You type faster (and probably think faster) than I do.
Looks like Madoff was money laundering a few of those “dark pools”.
Cry me a river.
“NEW YORK (JTA) — The Jewish nonprofit world has been rocked by the securities fraud of Bernard Madoff, and the worst may be yet to come.”
Scams come in all varieties. Someone is always selling someone out.
Every society has lots of closed sub-societies, afraid of the dominant culture, and each sub-society will be susceptible to a scam. The Jewish community no doubt has its own dynamics that result in susceptibility to certain kinds of scams.
Dante puts traitors at the bottom of the Inferno. Satan, at the center of the bottom and in ice up to his waist, fans a cold wind that blows over the solid ice of hell (an exact inversion of the opening of Genesis). Hell froze over a long time ago.
Do the number of betrayals/throwings under the bus in the current political scene augur well for a revival of accountability, trust, and faithfulness in the public sphere?
[Each Sunday I encounter a compelling reminder of the tendency of human kind: "In the night on which he was betrayed, . . . ."]
Sixty years ago Winston Churchill promised the British people that he could give them nothing more than “blood, toil, sweat and tears”.
More like 68 years ago. And that wasn’t a campaign statement, either – he didn’t run for office on it. It came out of him when he was newly holding the bag which a decade of very bad British policy had filled with the consequences of actions which he had opposed while no one listened.
Slade,
Pretend that I’m not the financial sophisticate that I am and explain how “dark pools” can be used for money laundering,…for the others, of course.
What’s this nonsense about ‘you can’t cheat an honest man’??????? Is that why the divorce rate is 50%??? Do you actually think the 50% who don’t get divorced are the honest ones, while the ones who get divorced are dishonest?
Honesty has little to do with it. I’ll betcha you can’t PROVE that the ones who fell for Madoff’s story were any more or less honest in the rest of their dealings in life than the ones who passed on Madoff’s story. Honesty is not a magic bullet that shield’s its users from tragedy.
These people all thought they were getting something for nothing. That’s why they aren’t honest and that’s why they got scammed.
@L3: Those that are not a benefit of Obama largesse will pull through much better than those who are.
In Dec 1941, nationawide unemployment was still at 14%. In especially “favored” areas it was still over 20%. No real improvement over Hoover’s 25%.
My West Texas oilpatch was not a favorite even though they voted for FDR. Out there, unemployment was but 6% to 8% even factoring in underemployment.
Best thing folks can do is to tell Obama, Pelosi, Reid to use their “assistance” in lieu of Preparation H. Those people are a lot more toxic than nuclear waste.
“One commentator wondered how successful people could be taken so easily.”
Made-off promised, and delivered for some time, returns of 2-3% per month. Avarice, sloth and vanity strike again. I have NO empathy for his victims. They failed to keep their guard and now they must pay the price of their lack of vigilance. There are no innocents there. If you wish to point out that “non-profit” groups have been ruined, I want to see a full audit of the purportedly “innocent” groups before I will consider changing my mind.
In the meantime, the “victims” must reduce their lifestyles and move out of Palm Beach. Those with health issues should apply for Medicaid ASAP. They will find that their healthcare is no different, in some respects their new status brings greater services, but vanity may cause some to miss the “a–kissing” prior status brought.
On the wall in my office…a gift from a client after a long conversation about the nature of ego.
Programmer – unlike popular myth, syntax is the first to go. The suggestion on CNBC this morning is that the “dark pools” of ill-gotten gains were introduced into polite portfolios via the Madoff scheme – like a piggy-back ride. But thanks for asking.
Like father, like son. St. John Philby betrayed the British Empire on behalf of the House of Saud. Kim Philby betrayed the British Empire on behalf of the Soviet Union.
When will any equivalent of the Philby Ring be discovered within America’s civil service? Would finding such treason be so costly in terms of embarrassment and loss of prestige that word of its discovery would never make it to the public at all? (Or worse, imagine if word would only leak to disreputable media outlets, while the reputable media simply don’t notice the problem.)
wretchard said:
“One commentator wondered how successful people could be taken so easily. … Why? Because they wanted to believe. And the power of social proof seemed overwhelming. … One of the things that worried me from the first about Barack Obama is how structurally similar his career was to that of a con man. That doesn’t necessarily mean that he is one, but like the man at Madoff’s country club, I get bad vibes about a person who operates out of a black box, offers social proof instead of a track record and who takes umbrage at any efforts to inquire too closely into his promises.”
Wretchard’s comment dovetails nicely with the following from:
http://optionarmageddon.ml-implode.com/2008/12/14/do-you-know-where-your-money-is/
Key comment from the above link:
“I just got back from an Obama meeting–a community organizing event organized through Change.gov that’s supposed to have everyone at the ready to implement his ideas, etc. When they went around the room asking folks what they thought we should do, comments went out like ‘give free music lessons at local schools’ and ‘give to local food banks to fight poverty.’ Knowing that I was going to be somewhat of a pariah, I introduced the unsavory concept that we were bankrupt (I live in California so we’re REALLY bankrupt) and that only deep cuts in spending would free up some funds to be used to implement these ideas and keep our infrastructure intact. … I’ll cut to the chase: it was the wrong crowd. … The kool-aid drinkers were still high off the juice and no reality check was going to interfere with that. And then, someone said, ‘the government will just print the money if it needs it.’ And I was dismissed—just like that.”
It’s understood that Obama appears to be distancing himself from the moonbats who were his foot soldiers. However it appears that many of the people who supported Obama also believe that our society’s ills can be cured by inflating the currency (standard operating procedure under a socialist government). Can Obama resist this siren’s call or will he feel compelled by his political base to pursue this tactic.
Depending upon Obama’s decision, our economic survival is hanging by a thread.
Somewhere between $300M and $1B of the Madoff money is “missing” – his cut of the investments. It is presumed to be located in an off-shore account where money-laundering is considered a reputable day job. The suggestion has been made that Madoff wanted a bigger cut and his “investors” refused. I cannot confirm that version, but it has the ring of truth.
Human Nature will never, ever change. NEVER.
Those societies — and their governments — who have an appreciation for this unalterable fact are the ones that will find themselves on more solid footing. Not just because such societies will have fewer upheavals, but also because they know that some upheavals are inevitable and allowances and preparations must be made for them.
I do not see American or Western society today to be that way. Frankly, I don’t see any cultures these days being willing to show such levels of sobernes and discipline.
“I think we are quickly moving away from the Capitalist system and into a politically centered “patron/client” system. In that system you become the client of a powerful patron and trade your loyalty for their “protection.” So you don’t ask questions. You pony up what is asked and rise and fall with your patron. These are not contractual relationships aimed at achieving a fixed result to the benefit of the contracting parties — relationships that are easily dissolved when the terms are met. It’s more like a blood oath. But don’t worry, there will still be work for lawyers, even though violence and intimidation play an important role in maintaining the system — which is full of “moral hazard.” ”
That strikes me as a pretty good working description of feudalism.
slade said:
“Somewhere between $300M and $1B of the Madoff money is “missing” – his cut of the investments. It is presumed to be located in an off-shore account where money-laundering is considered a reputable day job.”
These Wall Street crooks are often allowed to keep their money. For example, Michael Milken was found guilty of six securities and reporting felonies. The convicting judge recommended a 10-year prison sentence but Milken only served about 22 months. When Milken got out of jail, his net worth was still over $1 billion (Who would NOT be willing to spend 22 months in jail for $1 billion?).
When a big time crook is convicted of a felony, he should be stripped of all of his assets (the government does this with convicted drug dealers). When the crook leaves jail, he should be allowed the clothes on his back and enough money for one month’s food and rent.
What Eggplant said. Right now “white collar” crime is being treated with a gentlemanly slap of the riding gloves, when a wink and a bribe won’t suffice. Time to go medieval.
@Alexis: When will any equivalent of the Philby Ring be discovered within America’s civil service? Would finding such treason be so costly in terms of embarrassment and loss of prestige that word of its discovery would never make it to the public at all?
I don’t think it’s possible to define treason anymore. By my accounting, the Democratic party has been treasonous virtually every day of the Bush Presidency. If rooting for the other side in a war is no longer considered treason, what is?
To a certain extent I understand those who were hoodwinked by Madoff. I once bought a significant stake in a company based on no more than the fact that several analysts had buy ratings on it. I trusted the analysts. They had to know, didn’t they? All those “experts” agreeing that it was a buy? In the event the company went bankrupt. Well, these people trusted Madoff, the super expert with a super track record, at least according to word of mouth. This kind of thing will never go out of style in the world of investment. Why? Many investors don’t really know what to look for in a balance sheet or a business report. And many investors are simply lazy, just like me. Those two reasons.
1) You can’t cheat an honest man, for certain meanings of the word “cheat”, but you can steal from him. Some Wall Street scammers are simple thieves.
2) The difference between $17.1 billion and $50 billion? Some of it was paid out as “dividends” to earlier investors (who will now have to give it back if they can be found), the rest is offshore or was paid to Madoff and his employees as salary and bonuses.
3) How many other Madoffs are out there? Time to look. I think the “hedge fund” industry has a lot of rottenness, though Madoff’s ability to cover his tracks by being the custodian of his own trades is particularly unusual.
4) The fundamental commandment many of these investors violated, probably the most fundamental finanicial commandment of all other than “obey the law”, is “don’t put all your money in one place”.
This whole Madoff (pronounced “MADE-off” by the way, as in, “made off with everybody’s money. How’s that for tragicomic Karma?) is another nail in the coffin of public trust. There are more to come:
1) When American cars are built according to the “green” dictates of Congress, and buyers find themselves betrayed and shortchanged
2) When and if the current cooling trend in weather continues for several years and makes people believe (probably correctly, sad to say) that the whole Global Warming thing is a giant multinational scam.
3) When the little guy finds it harder than ever to maintian — or even start — a small business, and realizes that big business and big government are working hand-in-glove like some conspiracy crank’s most fevered dreams.
I have no doubt the list is much longer than that. How destructive will the cynicism and anger be of a people who feel betrayed on so many levels?
“The problem with socialism is that you eventually run out of other people’s money.”
- Margaret Thatcher
And so did Madoff….
peterike said:
“I don’t think it’s possible to define treason anymore.”
Treason is defined in the US Constitution but in such a way that the word “treason” is meaningless. This of course was precisely what the Founding Fathers intended since they committed treason against England when they founded the United States, i.e. “we’ll either all hang together or we’ll hang separately”, B. Franklin.
The damage is done. The word “treason” can not be rehabilitated. However there is the other word “sedition” that can be put to better use. After the Obama process has reached its logical conclusion and after the next 9/11 outrage, we’ll probably find ourselves back in the Middle East killing Islamists. Prior to resuming that activity there should be some anti-moonbat/MSM legislation wrapped around the word “sedition”.
RWE quoted Margaret Thatcher:
“The problem with socialism is that you eventually run out of other people’s money.”
And the problem with our current economic system (the “service economy”) based upon ever increasing indebtedness is that our parents and grandparents (through hard work) only left us with a finite amount of equity. We’ve borrowed against the last dollar of that equity. It was fun while it lasted but now we’re seriously screwed.
How many other Madoffs are out there? Time to look. I think the “hedge fund” industry has a lot of rottenness – Joe Shipman
And all this time I thought the reason hedge fund managers weren’t “tapping the TARP” was because they were so well run.
Discretion just got a more nuanced definition.
Slade, programmer, re ‘dark pools’ –as i understand the sharp diff is that the pools are simply offshore (unregistered) funds of custody-unchained dollars that are concentrating into market-influencing size. Two big ones, operating from the London and the Dubai exchanges (as i have heard & read, very sophisticated ops), did much immediately prior to spot crude’s going to 150 parabolic, to ‘lean-out’ participation in the oil futures mkts (as you know excess volatility drives volumes down, generally) –to the point that on some of the gap-up days there were but 4 or 5 buyers, buying wide open. Then suddenly in mid-July, two weeks before Russia rolled into Georgia, these buyers all hit the exit at once –and i guess, went even darker. Anyhoo, the FBI is supposedly investigating ‘manipulation in the (NYMEX i guess it would be) spot crude trading. what to make of all this i do not know –but that’s just to scratch the surface of the last couple year’s shenanigans. FBI is also investigating the sudden appearance and immediate extreme volumes of a particular type mortgage loan –the “liar loan” –IOW a “ninja” (no income, no job or assets) gone even lower yet. What would THAT be –false I.D.s?
Anyhoo, supposedly FBI is now onto these things. As well as ACORN (remember ACORN?). FBI should be hiring –i don’t mean ‘should’ as in ‘maybe perhaps’ –i mean ‘should’ as in ‘ought-to-be’.
Buddy,
Thanks.
Eggplant:
For future reference, the United States should consider making a formal declaration of war against certain of our enemies such as al-Qaeda. The disadvantage of declaring war against a non-state entity such as al-Qaeda (which would implicitly recognize our enemies as formal belligerents) would be outweighed by cutting out the wiggle room created by a lack of formal declaration of war. The essential reason for a declaration of war is not to actually authorize the use of force against our enemies, but rather to criminalize anti-war activism and punish defeatism.
Our Constitution defines treason in such a manner that a formal declaration of war would allow traitors to be punished quite effectively. Treason against the United States shall consist only in levying war against them, or in adhering to their enemies, giving them aid and comfort. No person shall be convicted of treason unless on the testimony to two witnesses to the same overt act, or on confession in open court. Overtly aiding an enemy during wartime is treason, and Congress has the power to “declare the punishment of treason”. If the September 11 attacks were officially regarded as an act of war, Ward Churchill could be easily convicted of treason. (So could quite a few other people.)
Actually, if the United Nations could be induced to recognize a pre-existing and universal state of war declared by al-Qaeda, such a formal declaration would have its advantages. For that matter, each member state that refuses to reaffirm its full acceptance of the Universal Declaration of Human Rights ought to be expelled from the United Nations. (Any “yes but” would mean no, and ought to lead to the explusion of Saudi Arabia, Iran, Sudan, Egypt, et cetera.) At the very least, it would be useful to discover which nations vote “NO” in the General Assembly against such measures.
i know i sound nertz, but a Dunbar number of the right people technically could set up and then pop all three of the big bubbles that just popped, then go short (and dark) and remake their bubble losses times orders of magnitude, while throwing a US election to a “change” candidate and taking America (capitalism) and the Dollar (global trade duct tape & baling wire) down, to achieve a signal victory in the Great Game.
And this Dunbar number could’ve gotten creamed itself when the resulting panic went global and 1) drove flight-to-quality to USA (tho Dollar is now for several trade days straight slipping sharply), and 2) knocked stocks down 2 or 3 times more than numbers say should’ve (fear destroying the ‘multiple’), and 3) destroyed far more oil demand, and 3) consumer demand, than anyone could’ve imagined.
A James Bond movie we are living? SMERSH we got?
anyhoo, so we need to identify the dunbars and boil them in oil on the North Pole (before it grows too much bigger due to global warming), then bring back the 1950s. right now. faster please.
you know, Murphy’s Law is actually only 5 words: “if it can it will”.
Buddy, contrary to my earlier tongue-in-cheek reference to my financial acumen in my post to Slade, I ain’t got any. However, by the pricking of my thumbs, believing I AM, something wicked this way comes. What better plot for a novel of high intrigue than open warfare waged with economic weapons. Attack, defend, and it all goes on at a level high above the knowing of the average working stiff and stiffette. I really would like to know where the two trillion dollars spent by the Fed went. I know enough about finance (or maybe not) to understand that a lot of the dollars lost didn’t exist except as digital entries on some hard drive somewhere and when entities started asking for hard cash for assets, a lot of programmers found that they didn’t need to allocate any where near as large a data field for storing dollar amounts as they had just a short time ago. But that two trillion dollars was transferred to someone or something(as in another nation). Or is it being used in ways to crater other nations economies and as you suggest, take positions that will advantage the U.S.A when all the smoke clears. I wish!! Years ago, in a far away land called the United States of America, I used to trust the government to end up generally doing the right thing. As I said somewhere else, I have become very cynical.
Buddy – I am in the middle of a Julia Childs Moment but my understanding is that the (relatively) new ICE commodities exchange out of London is in the cross-hairs for speculation mischief. My further understanding is that this exchange was specifically developed to service “custody-unchained dollars that are concentrating into market-influencing size” – which is to say the regulatory constraints don’t map onto the NYMEX rules.
Anyway, your way with words is almost prosaically larcenous (bad pun).
Back to apron duties.
Alexis said:
“For future reference, the United States should consider making a formal declaration of war against certain of our enemies such as al-Qaeda.”
Alexis has hit the nail on the head. Now I ask myself: Why didn’t the Congress declare formal war against al-Qaeda? Was al-Qaeda not being a nation state the reason? Prior to 9/11, al-Qaeda effectively ran Afghanistan. In truth, al-Qaeda was a supra-national organization controlling more reasources than many of the poorest Islamic states (some of them are dirt poor). Was Congress concerned about giving al-Qaeda more stature than they deserved? 9/11 was an impressive stunt! I think that action merited a war declaration. Certainly after a war declaration, al Qaeda’s many friends and allies of convenience within the United States could have been rounded up on treason charges. A war declaration is certainly the appropriate response after the next 9/11 attack (and after Obama goes away). Make it clear within the war declaration that the intention is not only to deal with the external aggressor with with its 5th column as well.
OMG –the pres-elect and his green team are holding a presser that is almost unbelievable –it’s all about the climate change emergency crisis emergency –oh jeez are we ever in for it –no drilling, no nukes, no foreign oil, but ”millions of jobs building windmills and solar panels” –now he’s backing off drilling the OCS –god amighty –they’re doing backflips right now in the Kremlin –the wodka will flow tonight –Carol browner has new vcabinet duty rto coordinate all areas of energy and environment interface –another of his gals (EPA head) says we have to quickly take measures
to protect the chidren.
–o lord –the economy is sooooo screwed –handwriting was on the wall election of 2006. i just wish we weren’t gonna go socially just noble equal poverty (except for civil servants) on something as incredibly dumbass as “climate change” (what happened to “global warming”?) –that’s just embarrassing –just hideously embarrassing –and all those marginally making-it third-worlders out there –better punch some new holes in your belts –no not in front –in back.
“We need to do somethin about those slums. They’re spoiling my view. Bulldoze them. Put the people to work in the kitchen.”
buddy Larsen said:
“o lord –the economy is sooooo screwed –handwriting was on the wall election of 2006. i just wish we weren’t gonna go socially just noble equal poverty (except for civil servants) on something as incredibly dumbass as “climate change” (what happened to “global warming”?)”
This is the beginning of the “Obama Process”. Bend over, take it like a man (pray they don’t use the biggest one they have) and hope there is something left to salvage four years from now.
goodbye John Galt hello Ben Dover
meanwhile, back at the ranch, “…Colombian President Alvaro Uribe today canceled his plans for the summit to monitor rescue efforts involving 200,000 people affected by flooding over the weekend.”
Yeah, right. When you’re OUR friend, you better stay home and ‘monitor’ stuff.
Happy now, Mrs. Speaker of the Hovel –i mean, House?
And Carolyn Kennedy has announced her “interest” in Hillary Clinton’s senate seat.
Climate Change, card check (and other union shenanigans), Universal care, illegal immigrant amnesty, “reconciliation” with the “Muslim world”, Tax Hikes, Socialization of key sectors (and tons more of deregulation) and reduced military budgets (and not doubt a purge of officers too).
There will be nothing to recover in 4 years. We will be on the same level as Mexico or Brazil (that is what “Climate Change” is really about). We wil never get it back.
Goodbye Middle Class, Hello to the new aristocracy.
——-
I see where the GOP is being blamed for the problems with the UAW bailout in the media even though the Democrats have a clear majority on both Houses.
The MSM will never tell the truth. The GOP should just raise funds for a general media ad blitz. they are not that intelligent.
Unless the GOP can man up and get out there and explain this each and everyday, then we are really over as a leading nation.
It is amazing how quickly this has happened.
No world war, nothing like the great depression at all. And none of it has to happen at all, it is all just arbitrarily and artificially created.
I cannot tell you the idiocy I hear these days from well educated, experienced and perfectly intelligent Democrats.
The nation has gone mad, just completely mad. May God help us for we surely cannot help ourselves. History will just laugh at us. It is the spiritual equivalent of lead plumbing.
man, mongoose –a year ago i would’ve ripped into that as defeatist paranoia. Now all i can do is feel some misery-loves-company relief.
Buddy- your “Dunbar” controlled “dark pool” concept scarily makes too much sense.
Since the 2006 election there have been too many monster events that simply defied conventional wisdom of the markets or the functioning of the regulatory bureacracy or both.
The Freddie/ Fannie collapse. There was simply such an extraordinary level of chicanery on so many levels in such an extraordinary volume, with such a extraordinary collapse of oversight and regulatory controls that it defies the imagination.
The spot crude run-up to 147. Market demand by itself didn’t explain it. i remember reading somewhere,maybe it was here, maybe from you, that the run-up in price often occurred the same day of the month in a pattern alien to the way markets function.
Obama’s extraordinary fundraising ability. We know the left got excited, but over a half a billion dollars exceeds by too much anything before him. We still don’t know how he did it.
The Paulsen /Bernacke Bailout grab. The extra -constitutional shock and awe grab of such extraordinary power and money right before an election was unprecedented and something about it feels contrived. – Particularly after we now find out the bailout has not seemingly relieved the credit crunch to any significant extent and that Paulsen is now pushing half the money into the control of the Obama administration. Paulsen and Bernacke’s statements at bailout time don’t jive with their statements just a few months before and it just doesn’t add up that their understanding of the situation could change so drastically in just a few months.
Now we hear we are going to have a trillion dollar stimulus package- seemingly going to all favored Democrat interest groups. That gift of not only money but power is just too big and too much. Few people realize how the Democrats control the big cities- N.Y., D.C., Chicago, LA, – they control too much of the local power pressure points to ever relinquish control. That is what I think they are trying to do at the national level- increase their market share of government control so it is immune to takeover.
File under:
But we thought he was “our” front-running crook!
One Madoff investor, himself a legend, told me that Madoff’s performance “just doesn’t make sense. The numbers can’t be straight.” Another sophisticated Madoff investor actually went through trade confirms in order to reverse-engineer the strategy and said, “it doesn’t add up.”
So why did these smart and skeptical investors keep investing? They, like many Madoff investors, assumed Madoff was somehow illegally trading
on information from his market-making business for their benefit. They didn’t consider the possibility that he was clean on that score but running a good old-fashioned Ponzi scheme.
Victim List
the press conference this afternoon
See if you can square the energy dirigisme with the follow-on Q&A query about OCS drilling. Could our array ever-more-hostile oil exporters design themselves a better US Administration?
Hush little darlin’ go back to sleep, with your sugarplum fairies and cheap gasoline dancing in your sweet little lullaby head. But just wait (the green face witch suddenly jumps into frame, snarling) –just you wait until some crisis (can you say mideast? cackle cackle) hits and quicker’n a cat licks its butt you –and yer little dog toto –get embargo’d –and your military might is matched by an alliance which wants the embargo to stick. what will you DO? cackle cackle –yes as soon as yer belly growls you’ll send your sons to storm a new Omaha Beach! a new Iwo Jima! And they barely made it off the sand LAST time! maybe THIS time they WON’T! What THEN, my little pretty, what then?
Oh (*whew*) sorry –but do take a search on the new czarina and agency directors you just heard speak (if you watched the vid). Then as you wrap your hands around the gin bottle try to think where on earth you can hide. then please post it here, i’m standing by.
unsk, that ain’t the half of it –what about the frankly near-inexplicable SEC rule changes (uptic mainly) allowing multiparty bear raids to one-at-a-time drive our financial institutions to the point of needing nationalization?
why the utter ignoring of illegal naked short selling which literally poured the financial system’s capital into the short’s coffers?
Why, with a FASB change of one sentence in the mark-to-market that could YET let our banks recover merely by going on a perfectly safe and much more reality-reflecting discounted cash-flow mark, haven’t we DONE it?
Why under citizen pressure did the SEC finally agreed to ‘look at’ adjustments –but not until mid January 2009?
Why are we letting the black hole swallow up the economy for half a year after the simple changing of that simple FASB “Enron over-reach” could have stopped the panic months ago? Please search Steve Forbes on this –he has been ever more incredulously exasperated –and he’s far from alone –
Why did a hundred highly-paid lawyers specifically charged with oversight of Fannie & Freddie and NOTHING else, and housed in the same complex for God’s sake, FAIL to report anything wrong until the whole world overheard the booming of trillions of the world’s dollars being systematically fired off like Saturn 5 rockets into deep space never to be seen again?
Cramer –i’m watching him now –is covering the actual, newly-released stats leading up to the collapse crescendo of mid-late November –of the attack on the US banking system. It is unbelievable –the empirical data that now has come into release.
Take a look. Here it is on page two at the bottom of the page under para head “Tyranny of Short selling”.
Yes, this was your national capital –your parent’s life work and your children’s heritage –and on our watch we have let the rats fatten in the seed corn.
Rumors of short-selling by the institutional investment houses were out in late Sept/early Oct but 49% of the trading volume is new.
So I am back to struggling with the numbers. Assuming the investment houses have no missing numbers, wouldn’t their balance sheets be in a break-even position – 50% long and 50% short?
Cramer must have the hide of a water buffalo. I get a kick out of him. I wish this country had more defiance (Give ‘em h^ll NahnCee).
So Kudlow is calling for end of SEC while others call for full replacement staff – with people who take their jobs, their country, and the future of this planet seriously.
And FWIW I’m fully in the “orchestration” camp. I wasn’t in Sept/Oct since I was too far down the learning curve.
It’ll be interesting to see the traction of the carbon issue. The science supporting anthropogenic cause is not convincing to me, but that point is rendered moot by the radicalism of the proponents and their blatant and disrespectful abuse of science in service of policy. Even if AGW is a real phenomenon, the (usually sober) process of formulating an appropriate response mechanism is fully compromised by pre-determined mindsets. Climate science will not be reversing itself – it has become a permanent part of the political landscape. I have no idea what happens next.
Financial analysts raised concerns about
“Why did a hundred highly-paid lawyers specifically…..”
They were not alone. From a news item this morning:
“Madoff’s practices repeatedly over the past decade, including one letter to the SEC as early as 1999 that accused Madoff of running a Ponzi scheme, but the agency did not conduct even a routine examination of the investment business until last week, The Washington Post reported on its Web site Monday night.”
A Few Speculators Dominate Vast Market for Oil Trading
//////////////////////////////////////////////////////////////////
A second turning point came when Congress passed the Commodity Futures Modernization Act of 2000. The law formally allowed investors to trade energy commodities on private electronic platforms outside the purview of regulators. Critics have called this piece of legislation the “Enron loophole,” saying Enron played a role in crafting it.
In the months after the act was passed, private electronic trading platforms sprang up across the country, challenging the dominance of NYMEX.
“Investment banks had been frustrated with the established exchange because they really were never able to get control of it,” said Michael Greenberger, a law professor at the University of Maryland and a former staff member at the CFTC.
The most successful of the private platforms was InterContinental Exchange, or ICE, founded by Goldman Sachs, Morgan Stanley and a few other big brokerages in 2000. ICE soon opened a trading platform in London, allowing its founders to trade vast quantities of U.S. oil overseas without being subject to regulation.
///////////////////////////////////////////////////////
Buddy: You forgot to mention two other actors in this tragedy: Media and Academia (policy think tanks included in the latter).
Slade: I do not see why it has to be permanent. It requires them to be dragged through coals and have their real agenda articulated. Unfortunately, The GOP — the only in place organization at this time that can fight this — is clueless and gutless.
If this nation is so weak as to destroy itself over a complete fraud like AGW, well, maybe we deserve to go down. The West needs to decide if it wants to return to first principles or not, and included in those principles are sound science, engineering and policy. First principles also include the decision as to whether or not we want to be the worlds leading nation and the West its leading civilization. One struggles for a historical precedent to this self immolation that we are hell bent on pursuing.
The Left, and all that they have been up to for the last 70 years have to be examined in a national discussion, and most of it needs to be rejected.
Impossible? well it takes courage, money and, above all leadership, but it can be done. It begins with us all calling things by their real name and doing so in any circumstances that we may find ourselves facing.
We did fight the cold war and ww2. We must come to see that we have enemies within, and that they manipulate us through our one weaknesses (this later is the hard part: Confession of our implication in all of this rot).
It takes national will (and courage and maturity) to turn this around.
But, back to the sciences. I have felt for sometime that “scientists”, particularly in our academies, have been tending towards decadence and chicanery for quite some time, irrespective of AGW.
AGW is not an isolated case, it just appears so due to its import and the repercussions of policy around it. Muticult influence on IQ and genetic studies, spurious conclusions drawn from dishonest usage of mathematics in sociology, psychology and other “soft sciences”, the whole business of string theory in physics and a not a little bit of odd science in astrophysics are, but to name a few, examples of excesses in pursuit of cash, of position and often of concrete results for leftist ideology.
In the main, they have devolved into another special interest group rattling it cup for public monies, and they risk losing there reputation with the public just as school teachers have.
What the chief problem is, it seems to me, is this huge fake world that the Democrat and the Left have created for themselves in our society. They have invaded every institution and set up these interlinked communities that seem to have no goal other than supporting almost aristocratic lifestyles that enable the worst sort of moral, intellectual and artistic posturing and smug self regard. This is the culture of the “expert”, the “avante garde artist”, the policy wonk, the academic and the dubious “professions” (e.g., the lawyer, the MBA, etc). By far and large, most of this is at the expense of the taxpayers, investors or parents. Honestly, if one were just to can two thirds of our university faculties — and this includes science and engineering faculties — we would be better off. Science or engineering would not suffer in the least; indeed they might improve.
The same sort of Ponzi schemes that we are seeing on Wall Street permeate the “intellectual classes” as well. When these schemes blow they will be more damagaing than the current mess on Wall St., and take much longer to fix.
Again, if we cannot throw off the whole constellation of narcissistic delusions and self regard of the Left of Center establishment, we are going down, and not just as a nation.
Now that I think about it there is a recent historical precedent: The decadence of the European aristocracy in the 60 or so years leading up to WW1.
That did not end well: it was a suicide of the grandest proportions.
How could I have forgotten it?
However it was not based on such loony considerations as AGW is; it was based on misguided self interest. Both hideous tides include the same sort of heedless self importance and complete disregard for the consequences of poor judgment and juvenile alacrity.
Events are in the saddle now. This need not be.
Lot to chew on Mongoose, particularly the current state of science in research and academia, of which I know very little. I do recall reading that physicists and mathematicians have “issues” and communicate poorly if at all which was blamed as one cause for the tardy escape from the mind-numbing particle physics research (those pesky little particles seemed to breed in a barn) into the GUT theories which are currently languishing because they can’t be proven and the new CERN hadron collider is down.
I would have to allow that you might be right about the pernicious effects of political ideology on science. I will never forget my solemn introduction to the Precautionary Principle by an environmental scientist who was just pleased as punch that her field had been philosophically validated by codified Principle – one that the advocates never bothered to trace to any logical conclusion.
I actually regard much of the post-modern influence on science to be a temporary aberration, not unlike the Madoff factor, although I may be forced into an abrupt about-face if the carbon issue gains serious traction. I used to think I was as cynical as Programmer describes himself but after this year I now see my faith in the fundamental intelligence of the “gate-keepers” was naively misplaced, in fact, uncomfortably close to stupid.
And that is about all I know. The financial “Thing” is worse than it should have been. The Obama Fix is in. I lost half of my portfolio just a few years out from retirement. What is left of the middle class will pay through the nose and the teeth for this orchestrated course reversal. The poor will stay poor and the rich will stay rich. Left ideology is clearly vulnerable, and the Republican Party just disappeared – poof – gone, but my view is that the political climate homogenized out all distinctions and became a cartoon caricature of corruption, insularity, and, not to put too fine a point on it, stupidity. Blago. Never tap conspiracy until stupidity has been exhausted.
Yes it’s going to be a wild ride. But as the world knows, we’re just a bunch of cowboys.
Anyway, wildly OT with the dreaded sense that the circle is closing fast.
Slade states:
Yes it’s going to be a wild ride. But as the world knows, we’re just a bunch of cowboys.
programmer responds:
We come from good stock.
http://www.youtube.com/watch?v=1csr0dxalpI&feature=related
The Zulu were WARRIORs. The enemy we face today on the left couldn’t even pick up one of their shields. We need to fall back, find/create a strong redoubt, consolidate our fire, pick our targets and start defending. When the attack slows, we can start pushing outwards again. The enemy will melt away. Besides, they don’t understand physics and math. We got that going for us.
Hopefully the gene pool hasn’t been diluted beyond recognition or salvation, Programmer.
Unlike the rest of you, I literally have nothing more to say, about anything, except I’m having a Natalie “Dixie Chick” Manes Moment. I won’t say I am ashamed of my country, but I am damned disgusted right now.
slade says:
…but I am damned disgusted right now.
programmer takes a long swig of coffee, and replys:
Me, too. And maybe later, some cheering up will be in order, but for now…Me, too!
17. Tollhouse:
“That’s the essence of the con, the conned have to think they are conning someone else.
Wasn’t there some discussion about this here a few weeks ago. About the fundamental part of a con is that the con artist shows that he trusts the mark in some way. “You’re in, just don’t talk about it…” And they all fall over each other to put their necks up on the block.”
Madoff is the financial world’s version of Alonzo from Training Day. Unfortunately the Russian mob isn’t in this remake. I bet more than a few people would love to extract a pound of flesh from Madoff. 50 Billion? Make that several pounds…
I don’t consider myself a savvy investor, but I live by two rules:
1) Invest for the long term
2) Diversify
I feel sad for those who lost so much, but they should NEVER have entrusted their life savings to one man.
Every underprivileged investor like me: BELIEVE THE BASICS
mongoose/80 –righteous, brother, righteous. and thanks for the effort to put it down –you write great rally points.
slade/81 –…my solemn introduction to the Precautionary Principle by an environmental scientist who was just pleased as punch that her field had been philosophically validated by codified Principle…. the questions are always the same, and there are but two: “compared to what?” and “at what cost?”
(great to precaution against DDT –but –how many dozens of millions of dead children is the fair price?)
programmer/82 –yep, time to think Zulu, think redoubt, defense, blunting the schwerpunkt and being prepared to do Wellington on the new Old Guard when it finally breaks.
Justin/86 –Unfortunately the Russian mob isn’t in this remake –would you be surprised to be wrong? You wouldn’t, would you.
BTW slade, ”down by half” –me too, roughly, if that helps. which it doesn’t.
the chief problem is, it seems to me, is this huge fake world that the Democrat and the Left have created for themselves
most well put. that’s what it is alright –it looks like real from a distance but up close –where you have to be to hand over your money –you better avert your eyes –else you see something you wish you hadn’t.
wow, a couple of years from retirement and down by half – the downside to risky portfolio management – ya pay yer money and ya take yer chances.
What’s with the tin foil hat stuff? Orchestrated reversal – the liberals have been behind the curtain pull strings with the GOP but window dressing these past bunch of years? riiiiight.
what’s with love for “don’t sell your Bear Stearns” Cramer? Watch him again for fun:
http://www.liveleak.com/view?i=2b7_1205751955
And I have no intent of arguing Diversification 101 with anybody. I (lightly) explained my story at EB back when the bottom broke through 10,000 and I’m not doing it again here because it’s Too Much Information, but suffice it to say that I lost all principal not paper money because I failed to pay attention and assumed a worse-case storm of -20% which I was prepared to weather.
Too steep. Too fast. Too convenient. Too many large and unregulated revenue/currency streams. Too many mysterious rule changes. Too much incestuous complicity vis a vis repeated warnings that never gained traction. And way too much obsession with AGW, the sticky persistence of carbon as an issue of immediate significance, and the refusal to place renewables where they belong – on the back burner – problems to be “worked”. And the careful reader will notice I condemned the political environment not the ideology although I could have done both but I am sick of the stale crap that passes for serious agency, serious policy, and serious science. Our institutions both domestic (State Dept, Pentagon, CIA) and international (UN, IMF, World Bank) are staffed and directed by inbred bureaucrats whose allegiance is either incestuously parochial or nihilistic. Conspirators didn’t create the scenery but I am convinced they maximized their opportunities. (Desert Rat would say they built the scenery as well, that some of which is true would not surprise me at all given the cavalier response to border security.)
And I will not get into a Cramer debate with anybody. I am still not convinced that the general public will ever know what really happened in Jul – Oct of 2008, as per some of Buddy’s posts re the magical appearance of NINJA loans and my posts re the unregulated foreign commodity exchanges such as ICE, set up by the investment houses to escape domestic regulatory burdens. Nobody seemed to know – anything – except the S&P regulators and now the SEC regulators, all of whom should be fired.
Nothing much will help now except digging in and preparing for more of the same except worse in 2009.
on the serious side, mad world is a great song. makes me cry sometimes
ash, watching cramer is reading tea leaves. you assume he’s first of all doing tv and want’s to keep ‘em coming. then you proceed to, they won’t keep coming unless he’s good at market analysis. that leaves you at the Pareto Rule –or fractals of it –20% wrong 80% of the time, 80% wrong 20% of the time, etcetera. As usual in your flattened two dimensional world, if he’s ever wrong at all in any way, boil his ass in oil. and yup –I’m down, but off my high –i’m back to where i was in 2005/06 before i went parabolic and got so full of myself i forgot about “trailing stops”. But all paper losses –no losses booked –”losses” from my all time high were a week or two ago approaching the half mark –but I’m buying again and back a quarter of that paper loss as of today. i’ve still doubled the stake i got from selling my small biz around 03 –and that’s net of living expenses plus two kids in college and me with no salaried job. So i’m no indictment of capitalism, sorry i couldn’t help you, not being miserable enough yet and all.
Back on the orchestration theme, a couple more odd, wot-a-freakin-coincidence factoids for your perusal: Lehman Bros –the one that didn’t get bailed out –was the leader levraging FanFred’s bad paper leverage as hard as it could, apparently running past 40 to 1 –which might be seen as a sort of Kamikaze activity –gonna floorboard it til it throws a rod. George Soros –also remember involved in the boiling presidential election and heavily invested in a Dem win) was buying into LEH heavily as late as mid August 9search soros lehman). Soros was also heavily involved with the gov’t of Georgia, a money and influence (meddling) man –and he may have broken with Shakashvili (search soros shakashvili) before the invasion.
At any rate, needless to say the invasion knocked already weak global markets right onto queer street where they remain today, only just, since the planet didn’t explode in November, now beginning to try to regain some balance. Major selling, with major flight-to-safety (safety being relative, and USA’s)buying likely being all that kept DJA from breaking that 7500 and dropping to the 3000 many bears foresaw (and still foresee). JR Nyquist reflects (inconlusively) on the topic here and (tangentially) here.
DSo what am i wondering here? Am i wondering if elements in the American Democratic party are in touch with America’s adversaries, dare i say ‘enemies’?
ugh –i didn’t proofread –that first-line bad apostrophe feels like a boil on my internet persona’s forehead. speaking of which, i was listening to the furious mayor of Lansing lay it to the pub senators the other day re the auto bailout –and i thot, if i was a reporter covering that, my header would have to be “Mayor of Lansing Boils”
BTW ash, Cramer’s whole ”thing” is to empower the little guy –you libs oughtta love him –after all, ain’t that the Dem project? helping the ‘little guy’? i mean, except for when the little guy wants lower prices and their higher living standards. Then of course, all that union $$$ means you have to have a minor stroke and go numb until the topic passes.
This whole scandal reminds me of Sebastian d’Anconia of d’Anconia Copper from the book Atlas Shrugged by Ayne Rand. In the book, Sebastian ruins his company in order to ruin all his investors and further take down a corrupt society. The similarities are uncanny…
1. Both had rich investors who were completely caught off guard when everything collapsed.
2. Both had family that are dependent on what they were able to produce.
3. Both will add to the already horrible financial crises.
4. Both ran the business into the ground seemingly on purpose.
5. Both were thought to be invinsible.
6. In Sebastian’s case, he wanted to hurt those who he thought were parasites on society (hedge funds, government, unions, etc).
In the book, Sebastian disappears after the last of his wealth and his copper minds are completely distroyed. It will be interesting to see if Madoff does the same. A man of his wealth surely has a ‘plan B’.
Cramer was so certain that “2008 is the year of natual gas”. Well, drop more than 75%….
Buddy – “down by half” – I’m guessing a savvy investor like you lost paper, not principle (and I seem to recall your admitting to some cash conversion in July). My investment strategy was always conservative and diversified. I never needed the lecture (and the “long-term” investors need to rethink that strategy). The employment picture went grim for an extended period of time and the savings disappeared. I got a second chance – scrimped and hurried to reinvest with an emphasis on solid growth/blend funds to compensate for the lost investment horizon.
I gambled and lost big. Had I dithered, dallied, and delayed for 12 months, I could have positioned myself to make a tidy profit.
But no. I was in a hurry.
To Do The Right Thing.
As per all these sanctimonious diversified long-term investment bloggers. Gee, ya think? Who knew?
Black S: as for natural gas, I’m not going to defend Cramer (he can defend himself – you try playing his game and compare scores) it’s still a good technological play – plenty of it stateside and easy to build the cars (no battery obstacles). I think he made a mistake in trying to navigate the alternative fuels arena, which is rife with political shading. I’m guessing he understands that better now than he did earlier this year.
principal not principle (that was my spell checker ::))
But that’s presuming any interest at all. Just for the record.
Slade, the volatility has just been killer –it has driven me to near paralysis on the sell side –too many times getting caught ‘out’ on plays in wanted to be ‘in’ on. the numerous melt ups and melt downs in the corner i was (am) in ultimately derived a strategy of playing the biggest storyy making sense –that is, that “bric” growth would long term reward energy & mtrls –and to make sure and be ‘in’ the issues i liked it would be best to forget ‘stops’ and ignore the violent swings –IOW, don’t time nuthin’ no more –at least not in the core holdings. so 07/08 i had gotten used to laughing through ten percent drops (they always come back, higher highs and higher lows, right?). so when the bottom fell out, here i sat, in front of the trading screen, watching that 10, then 20 (oh, too late to sell NOW) then 30 (oh too late to sell NOW) then 40 (oh, too late to sell NOW) then 50 (oh too late to sell NOW) percent drop, dragging me allaway back to 3,4,5 years ago –the whole boom in my hands cash money only a click away, and pfffffft (*poof*) –gone. too fricken slow on the trigger –flinching like a punchy boxer from trying to trade against them algo quants inhuman speed. so we can sing dem blues together i guess. small comfort. thjing is, tho, it IS the only game in town if you’re an adrenaline junky and enjoy being terrified all the damn time. absolutely MUST always have an exit strategy for every red cent you got in, tho –just as you were saying re your mockery of the long term buy n hold geniuses.
re cramer and natty, i listened and bought, listened and bought, loading up on CHK and XTO and EP and two-three others. of course iyt twernt just cramer, the play was out there in the world to see –but Cramer is a market mover and a confirmer of what one may be –sans cramer –more reluctant to act on. then one day, as i’m down 80% on a for me BIG position in CHK, up pops Cramer saying CHK sux and he wouldn’t touch it. HEY, godammmit! so, do i hate cramer for costing me a buttload of geetus –or do i realize that the guy is getting whipsawed like everybody else, and he’s doing a tv show, and no one is making me listen to him, and he’s by and large a great market man and also a good guy with a clear democratic decent honesty about him –so, what, now i’m a long termer with CHK –maybe my heirs will get the payoff –maybe it’ll be back up to par for me in a year –i dunno –but i ain’t blaming nobody but the old fool in the mirror. natty has great fundy going fwd and you should have some because it’ll turn on a dime and whoosh up on ya and if you get caught ‘out’ your oatmeal is gonna taste like dirt for awhile until you find something worse to agonize over.
That’s exactly right, Buddy, 102 & 103. If I ever become unstunned and unstuck in this amber of horror I am hoping my syntactical and grammatical navigational skills will return. Right now I feel like I’m stuck in a bad Joyce Carol Oates novel – one of Them.
But your description of the sell-or-not-to-sell angst was perfect. What is different – and I don’t think anybody gets this yet, and only recently Cramer – is that, on the eve of multiple “next big” events – energy, nanotech, and biotech – the markets will reflect that, as information barometers, but the changes will be so fast and so chaotic and very nearly unpredictable that day trading or something close to it in the form of active short-term management will be an absolute requirement. What I can’t predict is how the recession will play ot – long and painful as per the Roubini scenario or something less severe courtesy of the suite of TARP interventions that have yet to fully kick in.
I am done complaining now but it was a breath-taking b^tch of a ride. And I never saw it coming.
wretchard wrote a comment at his blog:
Wretchard has three insights in his comment.
“Why? Because they wanted to believe.”
“Once someone you respect went out of his way to grant you access, it would seem almost an ‘insult’ to do any further investigation.”
“believing in something too good to be true”
Obama IS a con man, and in this time and place his effectiveness seems nigh unmatched in history. But why does it work.
Santa Claus Theory. The social Trust-Networking power of an insistence on mutual belief. We teach, we train our children insistently about one thing more than any other. In “Belief”.
Belief in Santa Claus. Belief in yourself, the self-esteem movement. Belief in the team, the team-spirit movement — rec leagues, high school, college, pro sports . Belief in global warming. Belief in government officials, regulation, welfare. Belief in the calculator in Math class. Belief in well presented statistics. Belief in the good sense of the facebook crowd, of the myspace crowd, of Jon Stewart, of Oprah, of the Kennedy clan.
I’m talking about a sense of belief that is utterly, intrinsically defiant of common sense, of being held to account by the sense and applied reason. Magical belief.
Of belief that is substitutional for reality. Belief that is a replacement theology and philosophy, usurping that reality awareness and modeling achieved by honest observation, testimony and reason — that is at odds with it.
A world of the will set to delusion.
The school, the way of, Belief as a way of living cannot tolerate schools and ways based in reality or Truth. As an organized group with strength will such a delusional force of society grow to become view reality-based schools of thought, individuals and groups as mortal enemies. Delenda est. Such thinking must be eradicated.
And comes the Obama.
What I don’t get are the stories of ‘fund managers’ who placed all or most of their fund assets with Madoff. What the hell do you need to pay a fund manager for if all they’re going to do is simply place all the money with another fund manager and then to top it off do apparently zero due diligence?
It’s all madness!!!
phil g – that’s the Hauvard model (see LifeoftheMind post upthread.)
But what more oft, in nations grown corrupt,
And by their vices brought to servitude,
Than to love bondage more than liberty
Bondage with ease than strenuous liberty?
John Milton. (1608 -1674). Samson Agonistes
Buddy, Slade, you two sound like my mother-in-law talking about which slots are hot and not and how the casino is paying these days. Better yet, you sound like an acquaintances mom who is a hard core bingo player – my god the details, the details – this caller is bad, that one good…
I’ve got my beef with the sanctimonious buy and hold folk as well with demographics being the kicker for those considering holding for the next twenty or thirty years but that is a moot argument for someone with a 2 or 3 year horizon.
One thing that’s always bugged me about the stock market is the penchant for analysis and lots of analysis giving you a better leg up as if a stock price HAS to track the underlying business that is being invested in. A relatively successful day trader I met a number of years ago rarely knew what he was buying. He just went in in the morning, stared at the graphs and numbers and hopped on clear trends, both up and down. He had other interests though and he used that money to fund his ‘real’ business, which didn’t fare too well. I wonder what he’s up to now….
Had you pegged as a Hauvard model from the git-go Ash.
Que sera sera.
Be happy.
It’s all good.
You remind me of Gary Coleman.
I’m relatively new to investing in the stock markets having spent the bulk of my effort establishing and running a business.
I’m sorry you didn’t see the mess coming however many did (a 70 year old acquaintance of mine moved all cash in the spring, and I stopped adding new money to the market two years ago and moved almost any US stuff I had out). Maybe staring at the trees a little too closely can be problematic. The problem, though, with looking at the forest is one has trouble identifying decent trees (to butcher the metaphor completely). I’ve had the help of an “investment advisor” but I don’t feel that’s served me well, and no, his advice was to ‘put the money to work’.
p.s. I spent all summer reading the business press lamenting the trouble we were in so, plenty of early warnings to the falls debacle.
For those who had time to spend the summer reading.
And I don’t appreciate the forest-trees speech any more than the diversify buy and hold sermon. None of my “trees” were parked anywhere near real estate forest. Which means systemic rot and dereliction of duty by Congress and regulators.
You need to take your smug Yacht-Boy attitude out for a sail on at least one trip of no-money-no-options-oh-my-god-what-now. Build some character.
Obviously there is more to it then just real estate and the bad mortgages. Maybe a little reading might do you some good.
Here Slade is an interesting nugget worth reading. It isn’t too long and it might give you some ideas as to where things might go in the future.
http://business.theglobeandmail.com/servlet/story/RTGAM.20081211.wreynolds1212/BNStory/Business/
The Bernanke Doctrine
NEIL REYNOLDS
Globe and Mail
December 12, 2008 at 6:00 AM EST
Six years ago, in one of his first speeches as a governor of the U.S. Federal Reserve, economist Ben Bernanke delivered what became an authentic cult classic – simultaneously a rational assessment of the risk of deflation in the modern world and a chilling description of the methods that the Federal Reserve could use to thwart it.
Titled Deflation: Making Sure “It” Doesn’t Happen Here, the speech attracted marginal attention at the time. The global economic meltdown of 2008, however, abruptly ended this obscurity. The blogosphere has made the archival speech famous. As everyone now knows, “It” happens. The Federal Reserve is already facing a potential bill of $8-trillion (U.S.) from its efforts to resist “It.” The questions of the moment are simple. By the strategic standards of the Bernanke Doctrine itself, what’s the Fed doing? And what will it do next?
Well, first, you keep the printing presses running, cranking out dollars for as long as it takes. “The U.S. government has a technology, called a printing press, that allows it to produce as many dollars as it wishes at essentially no cost,” Mr. Bernanke said with refreshing candour. “Under a paper-money system, a determined government can always generate higher spending and, hence, positive inflation.” Status report: Mission well under way.
Second, you force these dollars into the banking system more or less any way you can. “The U.S. government is not going to print money and distribute it willy-nilly,” Mr. Bernanke said, “although there are policies that approximate this behaviour.” The important thing, he suggested, was getting this printing-press money into the economy, not how elegantly you get it there. He noted John Maynard Keynes’s proposal that, in combatting deflation, the government fill bottles with currency and bury them in mine shafts for the public to dig up. Status report: Mission well under way.
Third, you take interest rates down – all the way to 0 per cent. The Federal Reserve has now lowered its federal funds rate nine times in a row, taking it from 5.25 per cent to 1 per cent. Mr. Bernanke observed that people have traditionally thought that, when the funds rate hits zero, the Federal Reserve will have run out of ammunition. Not so, he said.
“A central bank should always be able to generate inflation, even when the short-term nominal interest rate is zero,” Mr. Bernanke said. How? Impose caps on the yields paid by long-term Treasury bills. “[This] more direct method, which I personally prefer, would be for the Fed to announce ceilings for yields on all longer-maturity Treasury debt,” he said – noting that the Fed had successfully engaged in “bond-price pegging” following the Second World War. Status report: Action pending.
Fourth, you control the yield on corporate bonds and other privately issued securities. The Federal Reserve can’t legally buy these securities (thereby determining the yields). It can, however, simulate the necessary authority by lending dollars to banks at a fixed term of 0 per cent, taking back from the banks corporate bonds as collateral. Status report: Action pending.
Fifth, you depreciate the U.S. dollar. Mr. Bernanke cited president Franklin Roosevelt’s devaluation of the dollar against gold (by 40 per cent) in 1933-34, an action accompanied by substantial “domestic money creation” – the printing presses again. “This devaluation and the rapid increase in money supply,” he said, “ended the U.S. deflation remarkably quickly.” Indeed, consumer price inflation, year on year, went from minus 10.3 per cent in 1932 to minus 5.1 per cent in 1933 to 3.4 per cent in 1934. Status report: For use when all else fails.
Sixth, you execute a de facto depreciation by buying foreign currencies on a massive scale. “The Fed has the authority to buy foreign government debt,” Mr. Bernanke said. “This class of assets offers huge scope for Fed operations because the quantity of foreign assets eligible for purchase by the Fed is several times the stock of U.S. government debt.” Status report: For use when all else fails.
Seventh, you buy industries throughout the U.S. economy with “newly created money” – the printing presses yet again. The Federal Reserve thus far has acquired equity stakes only in banks and financial institutions. In this “private-asset option,” the Treasury would issue trillions in debt and the Fed would acquire it – still using money hot off the presses. Status report: Technique tested, full deployment pending.
What happens next? The Fed has mostly done the easy part already. Will trillions of simulated dollars restore the inflationary economy beloved by the Fed? If it doesn’t, we can expect the Fed to adopt much more extreme methods of devaluing the U.S. dollar – ironically duplicating the easy-money economy that did so much to cause the meltdown in the first place. This risks a final, ultimate irony. Mr. Bernanke’s radical cure could well kill off deflation by prescribing a terminal inflation – thus recalling the old aphorism of the successful surgery in which, unfortunately, the patient died.
Maybe a little reading might do you some good. – Ash
Take a flying f^ck to nowhere little boy. When and if you reach my age you can bury yourself in condescending denial you arrogant little punk.
I’m done now folks. Apologies to the polite set.
Interesting the you recognize your “condescending denial” and you use your age to excuse it. Whatever turns your crank.
Being one who can accept, empathize that my freaking over $2.00 misplaced is akin to another’s loss of a million of the same, I can only hope that a reversed empathy one day arises from some number of those going through this right now.. What a wonderful World it would become..
Cyber hugs from North Georgia..
The GOP made Madoff possible. Deregulation at its finest. Thanks for nothing.