• Is Madoff Really A Wall Street Anomaly?

As if the negative news of the past month was not enough to rattle the constitutions of the hardiest bank accounts, a new face has appeared to erase Paulson’s from principal and front-page news coverage. The new face of Wall Street’s meltdown is Bernard Madoff, a well-respected, elusive, disarming, egocentric, and now arrested, financial service executive. Is he really such an anomaly?

Individuals, banks and fund managers of brokerage, hedge, trust, private, non-profit or other capital pools, who made sumptuous donations to Madoff’s coffers are making the headlines for having invested in the genius of 1% to 1.5% monthly returns. Over the coming days and months names will continue to emerge, and so will the dearth of ethics. It is inevitable that some of the nastiness permeating the penumbral netherworlds of investment banking will force the hands of authorities that have ignored many of the egregious abuses of fiduciary responsibilities entrusted in positions of influence and power over money. Wealth destruction of such magnitude required servility and assent from a synchronous multitude.

In the Madoff fiasco, the range of investors already finding light of day includes for example Banco Santander based in Spain with a reported $3.1 billion exposure, and Britain’s Man Group with only $360 million in potential losses. Individual fund managers and financial advisors to the wealthy will also be exposed. For some individuals the nature of the exposure may be more than simply having lost staggering amounts due to their inappropriate allocation of capital to an alleged ponzi scheme.

We may be bestowed the first significant opening to a flood of exposure into the imposture and pilferage that has been too pervasive in the investment and banking industries for a century. It is an industry that has been protected with almost ecumenical solemnity by regulatory agencies and media. Regulators might not be up for it and MSM may be too distant from privacies of collusion. Nevertheless, the doors of the cloisters shrouding indefensible vulnerabilities may open a crack. Perhaps we will be granted insight to a whole range of shamelessly aberrant possibilities that the financial world and its regulators would rather leave undisturbed like a stagnant toxic reservoir.

At the less pernicious end of the seductive a cappella temptations of ripened greed are those who suspected that Madoff was doing something off the main line to deliver such absurdly consistent returns. As is often the case on schemes too good to be true, these investors didn’t really want to know. They invested anyway. Smaller fish begged Madoff to accept their capital for investment, but many were likely directed there by their own financial consultants who received some form of compensation from the virulent fund. This is not to suggest that the whole system is corrupt, however, a considerable portion in the financial consulting and capital management business, have forever acceded to beguilement and dipped their buckets into both sides of an investment transaction.

Nearer the apex of the pecking order are market savvy managers of large capital pools who accost both sides of financial transactions in monastic secrecy and with ascetic prudence. The nature of their game can get complex, and presents a kaleidoscope of diversity. While overseeing funds or pools owned by others worth tens, even hundreds of billions, they manage their own private smaller but nevertheless sizable funds. One can scale down numbers applied to the graft, however the same ceremonial congruity applies. Regardless what long, short or other more eclectic bet is made from the large fund under management, the smaller private fund can be insinuated into the safe side of the transaction between the bid and ask, for example. The smaller private million-dollar insertion will be guaranteed warmth by the bigger trades on behalf of the larger managed funds. Execution can avert prying eyes with or without broker or market maker accommodation, utilizing Byzantine devices such as well nested off shore accounts, although many operate subtly but in full view.

The investment game is prodigally encumbered with inducement for manipulation or corruption, imploring those weak of fortitude, morals and principals to abide to discrepant customs. When managing “someone else’s money” it is too easy to take a piece over and above the agreed-to fees. Rationalizations abound sanitizing the egos of corrupt investment bankers convinced they are the requisite Eustachian tubes of the investment world. Attempt to calculate odds of graft in this industry would accelerate the most complex algorithms into catharsis. We are treated to many great lies, such as “the market never lies,” or “insider trading is illegal,” meant to administer salve to the flock, or anaesthetize the unsuspecting.

What self-respecting investor, broker, market maker, fund manager or general purveyor of financial clout would make an investment without “inside” information? Martha Stewart was jailed for a minor incarnation of that infraction. Occasional immolations are inevitably imposed for the industry’s aesthetics to maintain consecration. Madoff is no recent proselyte to the game, having founded his firm in 1960 and having served as Chairman of NASDAQ, his breadth of experience should deliver unusual enlightenment into the darker corners of his industry during these times of bailouts and deficits. It will then be up to Congress to act on reducing the odds of seduction.

.... Read more!

• WHAT THEY DIDN’T TELL US ABOUT THE BAILOUT

We are about to witness more plundering of the American taxpayer. The 700 billion dollar bailout so quickly rushed through Congress under the threat of complete collapse of the U.S. economy, was slipped by American taxpayers who in majority were against the bailout. Democrats jumped in first, Republicans were slower to rush in. Both parties acted while drenched in fear and anxiety. The taxpayers were right. Obama and McCain were not, nor did they do the right thing right.

Taxpayers were threatened that with credit market paralysis, their jobs would be at risk, they would not be able to keep their businesses afloat, and they would not get loans to finance their lives. Without the passing of the Emergency Economic Stabilization Act, taxpayers would find their whole way of life turned upside down, and the specter of finding solace on a park bench would be just around the corner.

Neither Paulson, nor Congress, provided any real details on some of the critical concerns surrounding the bailout. Even expert analysts didn’t raise objection as to how some of the potentially explosive finer points might in practical terms find implementation. Taxpayers assumed that in such a world shattering moment, on such a historically critical decision, Congress would finally be diligent. Congress, filled with resident and elected lawyers, would understand the fine-print on the legislation. Taxpayers accepted or assumed that someone, somewhere, hopefully someone with talent, would do the right thing, and make sure that the legislation would in turn be subject to industrious and careful execution. Wrong on all counts.

The coming weeks will deliver further anxiety from wildly fluctuating markets, and distressing news that the bailout will finance hundreds of millions of dollars worth of salaries and bonuses. These millions will be paid to incompetent individuals who mismanaged their institutions into becoming beggars standing at the bailout wicket crying for taxpayer handouts. We can expect agreements between executives and their employers to surface, that Congress did not consider during the passing of the legislation. Don't think for a moment that those agreements won't stand. Paulson and his friends at the Treasury and the Fed will not be able to withhold money from those institutions. And that’s just the beginning of the abuse. Lawyers will rush to the trough, and taxpayers will stand-by, helpless, as large amounts of their added debt burden continues to be abused by many responsible for creating this disaster in the first place.

It will also surprise taxpayers that the lending institutions that will receive handouts, will be under no obligation to “lend.” Oops, sorry. Congress also failed on that one. Senators and House Members who rushed this rescue package through, will escape unscathed and untarnished, and one of them will even be rewarded with the Presidency next week. While government cannot be expected to solve all problems that face a nation, it is expected to act with prescience and prudence. Why Congress isn’t, is the real question. Is the mainstream media watching?

Oh, and hiding behind the skirts of PricewaterhouseCoopers and Ernst & Young to “help” in the administration of the bailout should not be accepted as a veil shrouding incompetence, and sanctioning abuse of power.

.... Read more!

• THE ELECTORAL PROCESS - AN URGENT CHANGE IS REQUIRED

American taxpayers are watching their leadership take a stake in the financial engines of their economy, supposedly on their behalf and for their own good. The State is taking equity stakes in banks, healthy banks, solvent banks in need of cash, as well as not so solvent ones. And, as if it matters, Paulson and company are earnestly pointing out that participating companies will have to accept executive compensation limits. Taxpayers have no choice and the compensation limits won’t make the pill go down any more easily. Taxpayers, nevertheless, have front row seats to the biggest show on Earth, and to the historic changes that are shaking the American style of capitalism to its roots.

For taxpayers to be provided the kind of government that will be effective in its supervision and oversight of corporate investments, or general corporate behavior, as well as continued tendencies toward free trade that have built the country and its economy, they will need to demand change in the electoral process. Honest dissection of root problems that enabled the economic turmoil currently being endured by most taxpayers, should lead to an elimination of the organizational, corporate, and special interest funding of elected officials.

How, for example, could Congress, the house Financial Services Committee and the Senate Banking Committee, conduct themselves in a manner befitting the public’s interest when all of them received millions from the financial services industry, including Fannie Mae and Freddie Mac? Independence of thought and deed becomes difficult if not impossible when powerful, almost unlimited forces oil the machine that keeps you elected.

Labor unions, political action committees, corporations, associations and other such bodies, should be prevented from providing dollar contributions, or gifts, to political parties, their representatives running for office or those already in office. Along with changes in corporate governance, there is a need for change in electoral governance.

If this is a government By The People and FOR The People, then the people should demand that the financial clout of special interests be taken out of the equation. It is NOT time to look to Europe for a better form of governance of very much, particularly the economy, as some would suggest. Europe was only remained an envious bystander to America’s technological and entrepreneurial advances achieved over the past thirty years. Don’t turn the clock back a century. Allow as much freedom for innovation as possible, but give teeth to oversight. Get meddling interests out of the electoral process, and allow creativity of get the country out of its current difficulties. Legislators will resist such changes. Don’t let them.

.... Read more!

• THE ROAD TO PANIC – GET OFF

Ten days traveling up and down the West Coast proved to me that the intent of those controlling the Wall Street joystick, with help of many ever-so-willing media pundits, failed to instill Panic and Fear in minds of most Americans. Concerns? Yes. Panic? Not so much.

Taxpayers have been hit with a hurricane of bad news, and have even been threatened with promises that if trillion dollar bailouts were not implemented overnight, the whole financial system of the U.S. and possibly the world, might collapse. The American economy is not failing, and unemployment is at a rate most other countries are envious of.

Since the real problem rests with lenders or repackagers of home loans that can’t be repaid, is anyone telling America’s taxpayers how much these losses really represent in total? No. Is it really almost a trillion dollars, or is it really much, much less? Is anyone asking where all this money went? When a house sold, affordable or not, someone cashed that check. Why are taxpayers told that Treasury Secretary Hank Paulson needs to be given a blank check because only he will be able to do what is right, and he will know what backstops will be needed to provide a soft landing to this calamitous financial unraveling? Did he do what was right when he was head of Goldman Sacks for six years? Is it that he should be respected because he made almost a billion dollars as CEO of Goldman Sacks? His power and dominance continue their trajectory, and if he is given a carte blanche on access to taxpayer’s money, we can expect more abuse. Providing even more latitude to the likes of Goldman Sacks to become banks, is simply a knee-jerk reactive agreement to further consolidation of power.

Congress is not stepping up to the plate and neither are the two Presidential Candidates who are too busy flailing on the stump. If this is really the calamity we are all being led to fear, then all should be in Washington, coming up with immediate solutions. Bailouts are not solutions, just like band-aids are not a cure.

Don’t believe the panic-button pushers. Panic misleads, and it blinds those led to panic from seeing reality, or discerning appropriate action. Panic also leads to extreme swinging of pendulums that create new problems rather than resolve old ones.

It remains that America is a country that billions of people wish they could live in. America is the country that people have confidence in and whose environments they wish could be replicated. Its environment stimulates the entrepreneurial spirit that is further fueled by its creativity. It is also the only country that all capital gravitates toward when it is seeking security. The economic fluctuations, even those such as the ones we are currently witnessing or getting hurt by, caused by abuse or bad management, or even from errors in judgment, are risks accepted by those whose cash is seeking safe harbor. Transparency is one aspect favoring foreign investments in America, however, it is not the principal one. The overriding element is America’s power and international presence.

Whether you are a dictator in Africa, or an oil monarch pillaging your country’s wealth, or a foreign government fund, you will always place a significant portion of your cash where it is safe. America will print more dollars because it can, and it will have a market for them. The doomsayers all make money somehow, somewhere in the game, or just repeat nonsense they’re been fed. There are also those who feint left, then go right. Remember Goldman Sachs’ forecast that oil was heading to $200 a barrel when it was kissing $150? The price immediately caved in following their announcement. Were they looking for fish onto which to dispose of positions? This is no time to panic. Tighten up the belt a little, and save a few dollars. Middle America will ride this out in spite of its Wall Street leaders. However, American taxpayers should make sure their representatives in Washington take action on oversight, and implement some visible house cleaning, punishment on those responsible for the outlandish abuse.

.... Read more!