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12月17日 WOW Madoff !!!
For those of you who haven't seen the news, venerable Wall Street veteran Bernard Madoff has been arrested for allegedly bilking customers out of a reported $50 billion in an elaborate Ponzi scheme. Mad Dog Madoff! Wow! I mean just WOW! How did this happen? Allegedly $50 billion in customer money just evaporated. Again I say WOW!! Is every person on Wall Street a crook? I mean this guy used to be the head of NASDAQ for goodness sakes! The Fed's move to a near zero percent stance was widely hailed on Wall Street yesterday, but I can't shake the feeling that all the Fed is doing is postponing the inevitable. Japan took its interest rates to near zero for years without little positive effect to its economy. Are USA making the same mistakes as the Japanese, or making brand new mistakes? In both cases, inflated real estate valuations caused massive losses among the financial institutions. But in Japan the banks refused to mark their assets to market to reflect their true value. This caused a wholesale loss of confidence in Japanese banks and has mired their stock market in a 20-year bear market. Here in the States, the banks have been marking their assets to market. They've been slow in revealing all of their troubled assets, but they haven't engaged in the blatant head burying that the Japanese are famous for. But by bailing out all of the banks, all the Fed has done is reinforce the culture of consequence-free risk taking. We need a new breed of banker. Where is the personal responsibility? Why haven't the management teams from these banks been fired and replaced? Where is the accountability in the system? Look at this guy Madoff. He allegedly robs $50 billion and yet he gets to be out on bail!! If a kid robs a liquor store for 200 bucks, chances are he doesn't get bail (and I am not saying he should). How does a guy who could potentially have stolen more money than anybody in history get granted bail? The inequality of our justice system never appeared more stark. We need fundamental and systematic change to take place or run the risk of fading into economic obscurity. We need a scorched earth policy when it comes to new financial regulation. This doesn't mean more paperwork. It means more actual oversight, more actual verification. How were Madoff's positions never verified by an outside source? Madoff operated under a rule that allows companies to not have to report positions held for less than a month. Small wonder then that his entire pitch was about a strategy involving options that were held less than a month. Should brokerage firms even be allowed to hold customer monies anymore or should all customer funds be held by a central government-sponsored clearing firm? The last eight years between the dotcom frauds and the latest bank excesses have really given capitalism a black eye. It's in times like this that Marxist-based philosophies can flourish. So let's enjoy the rally for however long it lasts, but remember, the piper always must always be paid. All the best PG |
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