On Dec 18, 6:52 am, Doobie Keebler <
kooper...@gmail.com> wrote:
> Who will be the next to fail?
> When will the hedgehogs all succumb to the pressure to go massive
> short on equities?
>
> .-=d00b
> .
>
> Madoff Exposes Double Standard for Ponzi Schemes: Jonathan Weil
>
> Dec. 18 (Bloomberg) -- Bernard Madoff’s amazing Ponzi scheme has put
> him in a league of his own, for now. He shouldn’t be alone for long.
>
> In the end, as with all the great frauds, Madoff’s undoing was that he
> ran out of cash. For years, he paid returns to early investors with
> money he raised from new investors, which is the hallmark of every
> Ponzi scheme.
>
> When the economy got tough, and his customers sought about $7 billion
> in redemptions, Madoff didn’t have the funds. It was around this time
> that he confessed to running a giant scam, the authorities say. The
> losses, by Madoff’s estimate, might be $50 billion. Heaven knows how
> many clients of other money managers could meet the same fate as
> redemption orders pour in.
>
> It’s no great feat to arrest a man who tells a federal agent “there is
> no innocent explanation” for his actions and that he expects to go to
> jail. The Securities and Exchange Commission blew many chances over
> the past decade to uncover his ruse, even after receiving detailed
> tips.
>
> It’s unclear why the SEC failed to stop Madoff, whether because of
> corruption, a lack of smarts, a dearth of interest, or some
> combination. We can say with confidence, though, that many other huge
> frauds are still operating freely today -- and that the government
> might not be inclined to intervene, even when it knows all about them.
>
> Business Models
>
> After all, Madoff’s scheme -- at least in spirit, if not in its
> nefarious intent -- wasn’t much different than the business models at
> some of the nation’s largest failed financial institutions.
>
> Back in May, four months before it collapsed, American International
> Group Inc. increased its dividend at the same time it unveiled plans
> to raise $12.5 billion in capital. Later, when its cash ran out, AIG
> got a government bailout, the size of which has expanded to about $150
> billion.
>
> Whether you call that a Ponzi scheme or something less sinister, AIG
> was paying old investors with money raised from new investors. The
> same could be said of many banks that blew through billions of dollars
> in freshly raised capital the past couple of years, continuing to pay
> large dividends even as their balance sheets quietly imploded.
>
> So why have other Ponzi-esque operators emerged scot-free (so far)
> with taxpayer bailouts, while Madoff gets pinched?
>
> The Cox Theory
>
> Sure, there is Madoff’s own confession, plus the sheer brazenness of
> his conduct. And Madoff’s collapse doesn’t threaten to bring down the
> global financial system, as far as we know. Yet perhaps the best
> explanation can be found in a Dec. 4 speech by SEC Chairman
> Christopher Cox on why the government needs an exit strategy to unwind
> its myriad bailout commitments.
>
> “From the standpoint of the SEC, the most obvious problem with
> breaking down the arm’s-length relationship between government, as the
> regulator, and business, as the regulated, is that it threatens to
> undermine our enforcement and regulatory regime,” Cox said.
>
> “When the government becomes both referee and player, the game changes
> rather dramatically for every other participant. Rules that might be
> rigorously applied to private-sector competitors will not necessarily
> be applied in the same way to the sovereign who makes the rules.”
>
> Cox failed to mention that the SEC already was a toothless tiger under
> his watch, long before this year’s bailouts took root. Give him credit
> for candor, though. The chairman of the SEC is now on record saying
> the government can’t be expected to enforce the nation’s securities
> laws even-handedly at companies where its own financial interests are
> at stake.
>
> Fair Game
>
> He’s right. The government can’t live up to the task, even if it
> wanted to.
>
> Madoff probably wasn’t the biggest Ponzi-scheme artist out there. He’s
> just the first of his size to get nailed during the current bear
> market.
>
> He also knew he was fair game for the government. The people running
> companies with taxpayer bailout money know there’s an excellent chance
> they won’t be. As long as that remains true, this crisis of confidence
> isn’t over by a long shot.
Get out of this stock market. Anticipate it going lower in Jan. 2009.
You can
always get back in if, and that's a big "if', it shows stability. Cash
is KING!
mitch