Links 12/17/08


  1. Peripheral Visionary

    Yves, I hope you’re planning on commenting on Chairman Cox’s statements. On the face of it, the mea culpa is exactly what observers were looking for, a straightforward admission of guilt; but that should be a reason for caution as much as anything else. It should be noted that Chairman Cox likely has little more than a month left in office, and his statements, while casting the blame on the staff, do not see to cast any specific blame on a certain outgoing Chairman of said Commission.

    But even more problematic is that he has made no significant effort to discuss the regulatory environment that allowed this crime to be committed. In fact, I found no effort on his part to highlight the critical weaknesses in securities laws that Madoff exploited, specifically the registration requirements. This confession rather conveniently deflects the focus from any attempt at a discussion of regulatory overhaul; and this from somebody who will very soon be in the private sector, which has strong incentives to maintain the regulatory structure in place.

    In addition, there was no effort to highlight the source of the problem: the critical understaffing of the Office of Compliance, which has some 750 examiners overseeing 12,000 registrants. It’s obvious that the SEC simply does not have the resources available to do its job, a problem which could have been corrected by Congress under pressure from the Commissioners. The SEC’s size and authority have actually shrunk even as the size of the industry and the magnitude of the problems in it have exploded, but to hear the Chairman tell it, it’s all the staff’s fault for not keeping up.

  2. Al

    Arctic sea ice extent for the month of November was 4,100,000 sq. miles up from 3,880,000 sq. miles in November 2007 vs. the 4,360,000 sq. mile November average between 1979 and 2000.

    Arctic Ice

  3. Peripheral Visionary

    Two more points while I am ranting. The Chairman’s casting of the blame on SEC staff also absolves investment managers who put their money with Madoff of much of their responsibility (as per the Nicola Horlick article–although I do think she is being unfairly picked on, she was just as out of touch as many, many other managers). They can now claim, as Chairman Cox did, that it’s all the SEC’s fault, which rather conveniently distracts from questions about their own due diligence.

    But there is also talk at ClusterStock, as elsewhere, of the Chairman’s statement leaving the Federal government liable for the loss of investors’ funds. It is unheard-of for victims of a scam to be made whole by the government, and if that does happen it will absolutely reek of politics (i.e., investors who are Too Politically Important to Fail), not to mention amounting to a shameless bailout of the money managers who had put funds with Madoff, who would otherwise be fully liable.

  4. tentman

    i think the voxeu article from hans werner sinn is boring like hell.
    blame the lawmakers and regulators, that’s it! that’s too easy i my eyes. it’s not wrong what he suggests but with a “reductionist academic textbook view”, you will not get a sound analysis of this crisis. and a sound analysis is the base for the best possible improvements, i think. for that it is important to look at

    [a] the economic models
    [b] the formal rules/laws
    [c] and the the participants and how they are connected by informal rules and /or joint financial interests.

    what does sinn look at?

  5. lineup32


    Adding more gas in the tank doesn’t improve the life expectancy for an old clunker. Should be quite a show when Citi, and other high profile BB clients have to be nationalized and the taxpayers are left holding the bag.

  6. Anonymous

    It’s not just Nicola Horlick:

    From website of Fairfield Greenwich Group which had half it’s money with Madoff:

    “FGG is introduced to several hundred potential managers in the course of each year. A relevant subset of these leads are pursued and background information on promising potential relationships…”

    So, after reviewing several hundred they say “What the heck, let’s stick with Bernie.” Hopefully some people realize what a con this is, and has always been…

  7. wintermute

    The spiny echidna is a fabulous animal. Cute and extremely rare. One of only 2 mammals which lay eggs.

  8. doc holiday

    Paparazzi, hedgehog, platypus, groupie, or, whatever you want to call these Bernanke worshipers is irrelevant, because the mania has to stop at some point as we re-discover what America is, in terms of a broken ZIRP third-world nation. IMHO, we citizens have to hope that President Obama wont allow Captain Bernanke of Titanic fame to be at the helm of The HMS Britannic.

    Perhaps the process of triangulation makes it easy to assume Bernanke has a clue, because he has gained experience at his post (and remains there, spinning the wheeel and tossing the dice) — but as a captain with a blemished record, a record where he has failed to produce any substantial positive change — one would question why a drunken slob as he is would remain at the controls and have another shot at being even more reckless.

    Here is a man who suggests that he has a great economic education, a tale akin to playing that fantasy canard like a fast-moving card trick that can be shuffled like a pea and shell game — just like the current Madoff story! These abusive financial alcoholics and their economic addictions that are twisted into large scale speculation is pathological at best and thus it remains a massive mystery to me why so many people seem to be remaining in denial about the actions of these criminals. Bernanke as captain is simply another Joseph Hazelwood who doesn’t need the chaos of an ice berg, because he brings about mishaps just by being at the controls! Obama needs to bring about change at The Fed Helm, or we will continue to sink deeper into a darker abyss. God help us all if Obama is blind to reason!

    See Also: The Cunard Line was the direct competition to White Star Line as their fame and success mounted. As a competition piece the White Star Line began construction on their new series, the Olympic class; the Olympic (II), Titanic, and Britannic. While the Cunard Line was famed for the speed of its ships, the Olympic class were designed to be the biggest and most luxurious ships in the world. Britannic was originally to have been much larger than Titanic at one thousand feet and named Gigantic; her name was changed shortly after the sinking of Titanic.[2] The Olympic was the only ship of this class that gave White Star Line a profit. Titanic sank on its maiden voyage, while Britannic sank without carrying a paying customer, as she had been requisitioned by the British government before she was fully fitted, and used as a hospital ship during World War I.

    In 1933 White Star and Cunard were both in serious financial difficulties because of the Great Depression, falling passenger numbers and the advanced age of their fleets, particularly White Star’s. Work had been halted on Cunards’s new giant, Hull 534 (later the Queen Mary), in 1931, to save money. In 1933 the British government agreed to provide assistance to the two competitors on the condition that they merge. The agreement was completed on 30 December 1933.

  9. Tortoise

    Yves and Friends,

    Paul Kasriel usually has excellent insights and I take what he says seriously. If you have not seen his latest missive, where he addresses the deflation versus inflation issue, please read it immediately:

    The crux of the matter is given in the paragraph below:

    “On political grounds, deflation is “not an option.” The U.S. is a net debtor economy to the tune of about $7.1 trillion (see Chart 10). Households are up to their eyebrows in debt (see Chart 11). In a deflation, nominal income growth slows or contracts and the nominal value of assets may decline. But the nominal principal value of debt remains constant. Thus, in a deflation, the real value of debt increases. This is why debtors hate deflation. Although it is true that for every borrower there is a lender, a single lender probably has extended credit to more than one borrower. Thus, it is likely that there are numerically more voters who are net debtors than there are voters who are net lenders. If so, the political pressure on the Fed to inflate will be enormous.”

  10. Richard Kline

    Seattle Times, re: Madoff’s Fakery: “One area Kotz said he will examine is the relationship between a former SEC attorney, Eric Swanson, and Madoff’s niece, Shana, who are now married.

    Swanson was part of a team that examined Madoff’s securities brokerage operation in 1999 and 2004. Neither review resulted in any action against Madoff.”

    Well, we now know a good part of why the SEC neve saw a problem at Madoff’s financial Sweeney Todd statement cutters. Proving who knew what when will take years in the legal systems, but it looks like solid fact that everyone in and around Bernie Madoff was rotten to the bone’s core. This really is a fabulous story.

    A long piece in the NYT on ‘Those Who Have Lost,’ was fascinating, too, in that it showed indirectly much of how Madoff operated: people came _to him_ on recommendations, touts really, from those already ‘in the money.’ And this is key on how and why no one asked any questions. Madoff was known for decades in his particular circle of wealth holders. He ran a legit business with a sizeable presence. It doesn’t look like he solicited key or early clients in so many words; friends of friends were making money, so folks as Bernie if he’d take them on. He said he had a high minimum entry, looked them straight in the eye, said “But I’ll take you” or words to that effect, and the shook hands. And that was it.

    If you or eye went to any of these wealth holders, with good credentials on our wall mind you, and solicited them for a $1-5M entry to our closed fund, they might read the prospectus and ask some questions. It they _come to Bernie_ who has the confidence and stature to do a $20M minimum deal on a five minute schmooz and a handshake, they don’t ask any questions; they feel lucky, even honored to get in the game with a guy like that. . . . And this is how confidence games really work, you get the mark to sell themselves while you just nod sagely while maintaining a pleasant near indifference. What a guy, that Bernie.

    It isn’t getting any press at all in how this plays, but there is another aspect, an obvious one, which it is amazing that no one wants to put in newsprint. His ‘clients’ appear to be heavily, even overwhelmingly, members of the high end wealthy Jewish community of Metro New York and their suburb in Palm Beach, mostly property barons and some investment managers. Bernie quite clearly played on his standing as a member of the tribe to promote ‘confidence’—and they fell for it. Every last one. Amazing, just amazing.

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