In Defense of Bernie Madoff
OK, I am not actually going to defend him, but... How big a difference is there between what he did and what happened at Countrywide, Bear Stearns, Lehman, AIG or even Citibank? Sure there was fraud involved and there were no real gains. But many of his investors must have had a sense that something was not right. Many of them must have suspected that he was front-running his own clearing operation, picking up nickels and dimes, second after second, minute after minute to be producing such consistently profitable results. None of them cared, even though that would have been basically stealing from those making the trades, not to mention illegal. As long as there was sufficient money coming in to cover those making withdrawls, everything was OK. Fundamentally similar things were going on in subprime, MBS and CDO markets. In the case of subprime, so called "liar" loans were made with no due diligence in regards to whether the loan recipient would be able to pay it back ("...it doesn't matter, they can refi or simply sell the house and cash out when the time comes to pay back the loan..." they said) and with mortgage brokers knowingly accept income statements from applicants that they must have known were fiction. This is also fraud and illegal, but I have not seen many mortgage brokers going to jail! Mortgage backed securities were marketed without any due diligence to what would happen if house prices fell (even a little bit). And the rating agencies rated them AAA, all the while collecting big, fat fees for providing these glowing ratings. At the very least a serious conflict of interest. And these outfits were writing CDS contracts without having any reserves to back up any claims. If the insurance companies wrote insurance (which is what a CDS basically is) without maintaining adequate reserves, they would at least be run out of business by state insurance regulators and quite possibly, the executives would be indicted.
But somebody was looking the other way. The SEC surely was because they had been tipped off and even investigated Bernie and taken no action. Someone must have been running interference for him. Maybe it was his buddies from the Nasdaq, maybe somebody's boyfriend, maybe some of the well-connected socialites from the NYC or West Palm Beach scene, who are now horrified that their money has gone up in smoke. But maybe it was all of us (more accurately many of you...) who were perfectly happy to use the house as a piggy bank and lever it up to the hilt to buy another SUV. Or maybe those businessmen who were perfectly happy to break ground on another shopping mall that nobody needed as long as the profits could be collected before the whole house of cards could collaps. Maybe Ben Bernanke and Hank Paulson who tried to keep the whole charade going (and still are...) until their tenure was over and the next guy had to worry about it (hey, btw, where is Alan Greenspan now. I wonder if he had any money invested with Madoff? Such poetic justice is unlikely and rare, but I can dream! Maybe the executives in Detroit who were happy to keep producing overpriced, underperforming vehicles with a workforce that is bloated and over-compensated, as long as the stock options and bonuses keep coming. Maybe it was the state and local officials who were happy to collect the booming property taxes on houses which are now vacant, so that their developer buddies could kick a little of it back their way, maybe? Maybe it was John McCain who said that the fundamentals of the economy are sound? Maybe it was George Bush who encouraged Americans to go out and spend after 9/11? Maybe it was all of those Americans who went out and spent like there was no tomorrow, denying themselves NOTHING while 140,000 young men and women were fighting a war on the other side of the world which most likely cannot be won? In short, until the executives at Countrywide, Fannie Mae, Freddie Mac, Lehman, Bear Stearns, AIG, Citi and officials at the Federal Reserve, SEC and all of the Senators and Congressman who allowed this to happen are imprisoned, it seems almost capricious to lock up Bernie Madoff, while Robert Rubin and Angelo Mozillo, etc. made $150 million plus during the same period, while producing similar losses in their respective organiztions.
Notice the new pic in the profile, though. That is the "docile bull". Because that seems to be the phase the market is in right now. And I emphasize the docile part for a reason. There has been a stealth rally underway for a few weeks now, but it has not been robust. That may be about to change, but it will be key to be disciplined and not chase performance. This is a rally in a secular bear market, which may have years to run. While it may turn out to be impressive or not, it will be key to sell into strength and be wary of buying breakouts because all but the most short-term breakouts will be likely to fail. So pick up some FNM, FRE, AIG, ALU and MOT for a nice trade to capitalize on the January effect, but don't hang around the party too long because once the inauguration and first 100 days are over and the Fed has to start pulling back on its profligate pump-priming, the bear may come out of hibernation again. And what will the Fed have in its arsenal to fight any new crises? Not much. And what if the next crisis is a collapse of the Fed itself? "It can't happen!" you say? "The Fed can always print its way out of insolvency!" Maybe, but maybe not. Maybe with all of the junk that the Fed has bought for its own account, the Fed may show signs of stress. Maybe the US Treasury will have trouble finding buyers for all of the debt that it is going to have to issue (I think that this will take longer than most people would imagine). Maybe the US dollar will lose its reserve status? Maybe it has already happened, but the music is still playing and most people are still dancing to the tune, but some have quietly left the party, never to return? Watch and wait because over the next couple of years (possibly decades, but hopefully more quickly than that) the Federal debt will cause interest rates to skyrocket as it becomes apparent that the US government cannot and will not be able to honor all of its commitments, the US Dollar to collapse and the fractional reserve, fiat money, credit-based monetary system to implode leaving the United States a much weaker and poorer place. And it will be richly deserved because the system is rotten to its core!
But somebody was looking the other way. The SEC surely was because they had been tipped off and even investigated Bernie and taken no action. Someone must have been running interference for him. Maybe it was his buddies from the Nasdaq, maybe somebody's boyfriend, maybe some of the well-connected socialites from the NYC or West Palm Beach scene, who are now horrified that their money has gone up in smoke. But maybe it was all of us (more accurately many of you...) who were perfectly happy to use the house as a piggy bank and lever it up to the hilt to buy another SUV. Or maybe those businessmen who were perfectly happy to break ground on another shopping mall that nobody needed as long as the profits could be collected before the whole house of cards could collaps. Maybe Ben Bernanke and Hank Paulson who tried to keep the whole charade going (and still are...) until their tenure was over and the next guy had to worry about it (hey, btw, where is Alan Greenspan now. I wonder if he had any money invested with Madoff? Such poetic justice is unlikely and rare, but I can dream! Maybe the executives in Detroit who were happy to keep producing overpriced, underperforming vehicles with a workforce that is bloated and over-compensated, as long as the stock options and bonuses keep coming. Maybe it was the state and local officials who were happy to collect the booming property taxes on houses which are now vacant, so that their developer buddies could kick a little of it back their way, maybe? Maybe it was John McCain who said that the fundamentals of the economy are sound? Maybe it was George Bush who encouraged Americans to go out and spend after 9/11? Maybe it was all of those Americans who went out and spent like there was no tomorrow, denying themselves NOTHING while 140,000 young men and women were fighting a war on the other side of the world which most likely cannot be won? In short, until the executives at Countrywide, Fannie Mae, Freddie Mac, Lehman, Bear Stearns, AIG, Citi and officials at the Federal Reserve, SEC and all of the Senators and Congressman who allowed this to happen are imprisoned, it seems almost capricious to lock up Bernie Madoff, while Robert Rubin and Angelo Mozillo, etc. made $150 million plus during the same period, while producing similar losses in their respective organiztions.
Notice the new pic in the profile, though. That is the "docile bull". Because that seems to be the phase the market is in right now. And I emphasize the docile part for a reason. There has been a stealth rally underway for a few weeks now, but it has not been robust. That may be about to change, but it will be key to be disciplined and not chase performance. This is a rally in a secular bear market, which may have years to run. While it may turn out to be impressive or not, it will be key to sell into strength and be wary of buying breakouts because all but the most short-term breakouts will be likely to fail. So pick up some FNM, FRE, AIG, ALU and MOT for a nice trade to capitalize on the January effect, but don't hang around the party too long because once the inauguration and first 100 days are over and the Fed has to start pulling back on its profligate pump-priming, the bear may come out of hibernation again. And what will the Fed have in its arsenal to fight any new crises? Not much. And what if the next crisis is a collapse of the Fed itself? "It can't happen!" you say? "The Fed can always print its way out of insolvency!" Maybe, but maybe not. Maybe with all of the junk that the Fed has bought for its own account, the Fed may show signs of stress. Maybe the US Treasury will have trouble finding buyers for all of the debt that it is going to have to issue (I think that this will take longer than most people would imagine). Maybe the US dollar will lose its reserve status? Maybe it has already happened, but the music is still playing and most people are still dancing to the tune, but some have quietly left the party, never to return? Watch and wait because over the next couple of years (possibly decades, but hopefully more quickly than that) the Federal debt will cause interest rates to skyrocket as it becomes apparent that the US government cannot and will not be able to honor all of its commitments, the US Dollar to collapse and the fractional reserve, fiat money, credit-based monetary system to implode leaving the United States a much weaker and poorer place. And it will be richly deserved because the system is rotten to its core!
posted by Matt Butler at 5:06 PM
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