Up is down, black is white.

[outdrs111]

We live in Lewis Carrol's "Wonderland" ....

Ex-Nasdaq Chair Accused of ‘Epic’ Fraud
NEW YORK (Dec. 12)

A Wall Street powerbroker for nearly 50 years who built
an influential firm has confessed to a massive
fraud scheme that will cost investors at
least $50 billion, federal authorities say.
Bernard L. Madoff, 70, facing a single count
of securities fraud, declined to speak with
reporters after a federal magistrate judge in
U.S. District Court in Manhattan ordered
him released Thursday night on $10 million
bail.

Andrew M. Calamari, associate director of
enforcement in the Securities and Exchange
Commission’s New York office, said
the SEC had filed a civil securities fraud
charge as well and was alleging “a stunning
fraud that appears to be of epic proportions.”
The SEC said it was seeking emergency relief
for investors, including an asset freeze
and the appointment of a receiver for the
firm. A hearing was scheduled for Friday.
If the allegations contained in a criminal
complaint are true, it may be the largest
fraud ever blamed on a single individual.
Nearly all of the allegations stem from an
FBI agent’s recounting of what Madoff told
two FBI agents and three senior employees
of his firm, Bernard L. Madoff Investment
Securities LLC.

It would be a steep fall for Madoff, a former
Nasdaq stock market chairman who founded
his business in 1960 with $5,000 he
earned in part working as a lifeguard on
Long Island beaches.

His firm was a market maker, handling
trades in some of the largest securities on
various stock exchanges, matching buyers
and sellers. Investigators say Madoff’s
crime originated in a separate and secretive
investment-advising business that served
between 11 and 25 clients and had a total of
about $17.1 billion in assets under management.

The criminal complaint signed by FBI
Agent Theodore Cacioppi said Madoff told
at least three senior employees at his Manhattan
apartment Wednesday that the investment
adviser business was a fraud and
had been insolvent for years, losing at least
$50 billion.

Madoff told the employees he was “finished,”
that he had “absolutely nothing,”
that “it’s all just one big lie” and it was “basically,
a giant Ponzi scheme,” according to
the complaint filed in court.
The employees understood Madoff’s admission
to mean that “he had for years been
paying returns to certain investors out of
the principal received from other, different,
investors,” said the complaint, which did
not identify the investors impacted by the
scheme.

Cacioppi said one of the employees told
him that Madoff was “cryptic” about the
firm’s investment advisory business and
kept its financial statements locked up. The
FBI agent said another employee told him
that Madoff last week said clients had
asked for about $7 billion in redemptions
and he was struggling to meet those obligations
but thought he could do so.

Cacioppi said two senior Madoff employees
told him that Madoff said during the
Wednesday meeting that he planned to surrender
to authorities in a week but first
wanted to distribute $200 million to $300
million he had left to certain selected employees,
family and friends.

“Madoff stated, in substance, that he had
personally traded and lost money for institutional
clients, and that it was all his
fault,” Cacioppi said.

The agent wrote that Madoff said he had
“paid investors with money that wasn’t
there” and that he was broke and insolvent
and had decided that “it could not go on”
and that he expected to go to jail.

Defense lawyer Dan Horwitz called Madoff
“a person of integrity” and said he intends
to fight the charge.
If convicted, Madoff could face up to 20
years in prison and a maximum fine of $5
million.

Bernard L. Madoff Investment Securities
LLC ranks among the top 1 percent of U.S.
securities firms, according to the
company’s Web site. In 2001, Barron’s reported that Madoff’s
firm was one of the three top market makers
in Nasdaq stocks and the third-largest
firm matching buyers and sellers of securities
on the New York Stock Exchange.

Shortly after leaving law school, Madoff
founded his firm in 1960. It was one of five
broker-dealers most closely involved in developing
the Nasdaq Stock Market, where
he served as a member of the board of governors
in the 1980s and as chairman of the
board of directors.

In the 1990s, Madoff was viewed as a maverick.
He angered leaders of the New York
and American stock exchanges by taking
away some of their business by paying brokerage
firms a penny a share to route orders
through his system.

Copyright 2008 The Associated Press.

[PineKnot]

This story is like an iceberg. It's bigger than it seems on the surface. According to CNBC, a good number of the mega rich are mega less rich this evening due to this guy. Caterers and gift consultants in Palm Beach and Palm Springs: watch out!

Seems like whatever you tap on these days, there's rot. Keep tapping, more rot. It's like Chinese water torture waiting for the next shoe to drop.

[Lavrans]

Gee, kind of keeps looking like more of our bounty really has been built on a house of cards, eh? Once again the bankers and financial gurus show that they didn't really wear the genius mantle, they just convinced people they had it on.

One of the things I really liked was an excerpt of an interview with Madoff last year where he spent some time stating that it would be impossible for a person to do anything illegal because of how tightly regulated and monitored the financial institutions in this country are. All the while doing exactly what he said was impossible.

Once again, the assurances of the competence and security of the banks, bankers and investors is shown to be false. This happens relatively frequently- and yet people still want to believe that tax shelters aren't possible, that the big companies have to operate legally, that they don't have any motivation to hide profits and losses, etc. etc. etc.

This is not a free market. It's a capitalist market only at the bottom rungs.

[Allan Edwards]

Once again, the assurances of the competence and security of the banks, bankers and investors is shown to be false. This happens relatively frequently- and yet people still want to believe that tax shelters aren't possible, that the big companies have to operate legally, that they don't have any motivation to hide profits and losses, etc. etc. etc.

This is not a free market. It's a capitalist market only at the bottom rungs.

Lav

This has nothing to do with capitalism or free markets or “big companies operating legally”, this was just plain old criminality. Thieves have always been with us and they always will. This was about a bunch of rich folks who did not do their due diligence and stupidly and blindly invested in a hedge fund that had no real returns. People got scammed. And it also had nothing to do with tax shelters, and of course legal tax shelters are really not available to a great extent.

I will say that over on the Boglehead forum Bogleheads they do preach (correctly in my opinion) that Wall Street in general adds very little in value to investors, but does add a lot of unnecessary costs, and that most investors are better off using low cost index funds rather trying to beat the market and achieve higher returns.

[David Meiland]

The more I read Boglehead threads the more I am persuaded. Just get your portfolio into very basic components and keep investing in them every month. I'm glad you made me aware of that site.

[Lavrans]

Lav

This has nothing to do with capitalism or free markets or “big companies operating legally”, this was just plain old criminality. Thieves have always been with us and they always will. This was about a bunch of rich folks who did not do their due diligence and stupidly and blindly invested in a hedge fund that had no real returns. People got scammed. And it also had nothing to do with tax shelters, and of course legal tax shelters are really not available to a great extent.

I will say that over on the Boglehead forum Bogleheads they do preach (correctly in my opinion) that Wall Street in general adds very little in value to investors, but does add a lot of unnecessary costs, and that most investors are better off using low cost index funds rather trying to beat the market and achieve higher returns.

Actually, Allan- it has everything to do with it. This is a former Nasdaq chairman. The financial situation is directly a reaction of the financial institutions acting as they did- which was to take profit where possible. The markets have become the prime meter of the health of the country, and it's quite obvious to anyone not blinded by it's lures that it has been broken for a long time. The market also has many other effects- one that immediately comes to mind is executive compensation. The only reason we don't blink an eye about CEOs pulling compensation packages in the 10s & 100s of millions is because they started out by giving them huge amounts of stock. Then it was fairly easy to increase the dollar compensation, and still ramp up the stock compensation.

I have said quite regularly on this forum that the stock market adds little interest while adding lots of cost, or "taking profit". You have consistently argued with me on that point, what's with the change now? Evidence to the contrary, and validation from another source.

[Allan Edwards]

The markets have become the prime meter of the health of the country, and it's quite obvious to anyone not blinded by it's lures that it has been broken for a long time. .

I have said quite regularly on this forum that the stock market adds little interest while adding lots of cost, or "taking profit".

Not sure what you think is broken, I think the markets are doing quite well and are not broken. Economy is in a slump, but markets are working well and as intended. Maybe you mean something else.

The stock market adds a lot and without it we would have the standard of living of Guatemala. It provides a means for investors to enhance returns and for companies to raise capital.

I do believe Wall Street brokerage companies who manage money and invest other people's assets add an unnecessary layer of expenses, although in a few cases that's the only option for investors. And investment banker's help find capital and investors for start up (and existing) companies that otherwise would not be available.

[Lavrans]

Guatemala? I do believe they have a market.

Name me one company or industry that has been loaned start-up capital by a brokerage company.

What industry or company has been loaned money to start up by an investment banker? I mean a company without a history, started by someone unknown by the bankers or banking industry? They sometimes loan to small companies that are already successful, but they don't loan to people who don't already have a history or relatives. At that point all they do is accelerate a businesses growth, they aren't necessary for it.

IOW, I don't agree that the stock market has anything significant to do with the economic success of a country- almost all countries have markets. Most operate just like ours.

[Allan Edwards]

What industry or company has been loaned money to start up by an investment banker? I mean a company without a history, started by someone unknown by the bankers or banking industry? They sometimes loan to small companies that are already successful, but they don't loan to people who don't already have a history or relatives. At that point all they do is accelerate a businesses growth, they aren't necessary for it.

IOW, I don't agree that the stock market has anything significant to do with the economic success of a country- almost all countries have markets. Most operate just like ours.

I know situations where money has been loaned to start up companies, in fact last year I built a 6 million$ home for someone who was loaned 100 million$. But he had collateral and millions in equity too. They don't loan to companies without a history or well thought out plan, nor should they.

[Lavrans]

They don't loan to companies without a history or well thought out plan, nor should they.

Why not? The guy you mentioned is irrelevant- he didn't need to borrow the money, but it made it easier for him.

You aren't really correct about the history part- Trump, among many others, is an example of a person loaned millions with no history. But then, he did have the company his father gave him as capital to secure the loans... before losing every bit of it. His entire business history started off by being so successful at getting people to loan him money that he was too invested (owed too many millions) to stop investing in. But his business history was not successful, it was abysmal for the first part of his career.

A good plan is a necessity, but isn't likely to get you start-up capital. For that you really need contacts, family and/or friends. With those you don't need a good plan. As proof of that you can look at the majority of the business plans made for the dot com boom, for the mortgage boom/housing bubble.

[Allan Edwards]

Why not? The guy you mentioned is irrelevant- he didn't need to borrow the money, but it made it easier for him.

You aren't really correct about the history part- Trump, among many others, is an example of a person loaned millions with no history. But then, he did have the company his father gave him as capital to secure the loans... before losing every bit of it. His entire business history started off by being so successful at getting people to loan him money that he was too invested (owed too many millions) to stop investing in. But his business history was not successful, it was abysmal for the first part of his career.

A good plan is a necessity, but isn't likely to get you start-up capital. For that you really need contacts, family and/or friends. With those you don't need a good plan. As proof of that you can look at the majority of the business plans made for the dot com boom, for the mortgage boom/housing bubble.

The guy I mentioned did need to borrow the money if he wanted to do his deal.

You're wrong about the contacts, family/friends unless you're talking about loans from individuals. But if you are talking about straight up bank loans family/friends don't help unless they are signing the notes too.

My point is the capital markets are absolutely necessary for business, and much of the capital markets originate with Wall Street. That's not going to change. Banks are useful but limited, investment bankers can provide capital for riskier investments, but borrowers have to give up equity to hedge funds.

[PineKnot]

I have no problem with the idea of capitalism. It's just that it needs to be regulated a lot better than it has been recently. Real regulations with teeth.

I think Kudlow on CNBC made the point the other night that the SEC had actually paid a visit to Madoff in 2007. What did they do, sit and have tea and cookies? It'll all come out, maybe.

What's so ironic is that the same companies and people that were so willing to tell labor to live and die by the market (i.e. the international market for labor), and that the market was "God" and ruled all, were the first to abandon free market capitalism and go crying to Uncle when they got in a jam.

[swbuilder]

You have to admit, that is pretty embarrasing for Wall Street when the former chairman of the Nasdaq pulls this crap. He stills owns a company that is a market maker for many high profile equities. I wonder what will become of that company?

[davenorthup]

You have to admit, that is pretty embarrasing for Wall Street when the former chairman of the Nasdaq pulls this crap. He stills owns a company that is a market maker for many high profile equities. I wonder what will become of that company?

Maybe the employees should take a pay cut to save the company!!!!! ;)

What's so ironic is that the same companies and people that were so willing to tell labor to live and die by the market (i.e. the international market for labor), and that the market was "God" and ruled all, were the first to abandon free market capitalism and go crying to Uncle when they got in a jam.

Bingo.... Back to privatized profits and socialized losses...

[Dick Seibert]

It's interesting that it's the Democrats who want to save the companies to save the jobs, it's the Republicans who want them to go into bankruptcy so they can get out of the labor contracts, except for Southern Republicans, both the German and Japanese car manufacturers built plants in the Southern right-to-work states (Tennessee, Georgia, and Kentucky) to avoid the imposition of tariffs, they want to keep the competition just like it is to protect their low paid constituencies.

No way the U.S. can compete with products from countries where the government subsidizes industry.

Notable Quotes On Japan’s Misaligned Currency

“A sharp appreciation of the yen in November led to comments by a number of Japanese officials...[Official comments on exchange rate policy] may introduce additional volatility in exchange markets, and therefore are unhelpful.”
— Treasury Department Report to Congress on International Economic and Exchange Rate Policies,
December 2007
The Impact of a Misaligned Yen
on U.S. Automakers

U.S. automakers welcome competition from Japanese companies and other international competitors. We believe that competition in a free and fair environment is good for consumers, good for innovation, and good for creating ever safer and more fuel-efficient cars. However, the U.S. government continues to passively accept subsidized imported vehicles from Japanese automakers who are not competing fairly because their government effectively subsidizes its auto industry through the use of an artificially low yen. This policy has led to the skyrocketing levels of auto exports to the U.S. that harm the economy and cost American jobs by giving Japanese automakers an unfair and unearned advantage over American automakers.

The artificially low yen has helped fuel our trade deficit with Japan, which hurts the U.S. economy and gives Japanese automakers an unfair advantage over American automakers. Nearly two-thirds of that deficit, or $56 billion out of a total $88 billion, is exclusively a result of Japanese auto products.

This issue is not trivial or just a technicality. The impact of an artificially low yen on the automotive sector is a major competitive factor in the whole automotive industry: The misaligned yen gives the average imported Japanese car a huge windfall cost advantage over U.S. automakers and other competitors in the market. This 'yen effect' also crosses over to Japanese vehicles made in the U.S. because of the high level of subsidized imported auto parts used in their U.S. plants.*

* http://www.autoyensubsidy.org/