Made off with $50bn
I am told that "Madoff" is pronounced "made off" - as in "he made off with the money".
That's the end of the jokes.
The supposed $50bn swindle by Bernard Madoff at his hedge-fund and securities trading business is serious stuff.
It's possible that Mr Madoff's $50bn estimate of how much he's evaporated is an overstatement. But there will be losses for investors in his funds, such as clients of Nicola Horlick's Bramdean.
Perhaps more troubling are the implications for the multi-trillion dollar hedge fund industry in general.
This industry is rapidly contracting, as the likes of Morgan Stanley and Goldman Sachs reduce the credit they provide to funds.
And the collapse of Madoff is likely to to accelerate the disappearance of funds - in that it may persuade many investors to demand their money back from even high qualiity funds and funds of funds.
Investors will note that regulators have taken long, hard looks at Madoff over many years, and failed to detect fraud.
Which will make investors fear - however irrationally - that no hedge fund can be deemed wholly safe.
If investors demand their money back, there would be wholesale dumping of assets by hedge funds.
And that would compound losses for them, as the price of assets would fall - and it would prompt demands by creditors for hedge funds to put up more collateral (margin calls), which would lead to further asset sales.
All of which would mean that the moment when share prices, property prices or any other asset prices find that elusive floor would be deferred yet again. Which matters to anyone saving for a pension and for banks' ability to turn on the credit tap again.
Which is why, as I said, it would be unwise to chuckle at Madoff's mad mess.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~52~RS~)
Comments
Sign in or register to comment.
Robert.
I have nothing new to say. And believe me I am not chuckling.
Quote :I blame the media messengers who put these feet of clay statues up there and keep them there. Despite being supposedly intelligent people. The media plays along with a rather dangerous game - yet on other matters lie without hesitation and later apology.: Unquote
You yourself report "Investors will note that regulators have taken long, hard looks at Madoff over many years, and failed to detect fraud"
Said regulators blinded by the light of celebrity perhaps - allegedly?
Complain about this comment
Hedge funds by their very nature cannot
be SAFE.
They are the BOOKMAKERS of the financial
world.
So whats the BIG SURPRISE?????????????
Complain about this comment
Since Madoff has made off, shouldn't someone be pursuing him, freezing his assets and putting him in jail??
Complain about this comment
I don't suppose he has lent it to Flash Gordon, as that would be £50bn less we have to pay back.
Complain about this comment
If this is a pyramid scheme, then every one of his original investors was part of it. Their assets must be seized as the proceeds of crime and used to restore the funds.
I was saying earlier on your colleague Nick Robinson's site that I was involved in sorting out a Balkan problem. In fact, I was financial controller of the force who sorted out Albania after they hit problems due to a pyramid scheme. The way we did that was to be merciless: anyone who was a deliberate part of the roots of the scheme got hauled in quick. We then spent years rebuilding the Treasury regulation which let them get away with it, the Police who took their cut, and the banks who were behind it.
This is identical, and I strongly suggest the bankers resposible for this should be imprisoned in an Albanian prison. That should most certainly encourage good behaviour in the future.
Complain about this comment
it was just management fees and commissions etc
initial charges always have been an unknown variable amount
Complain about this comment
On the 4th November I warned about hedging funds. Click on wakeupbritain to see previous blogs.
Next prediction: physical gold promised will not be delivered, paper gold market collapses next!
Complain about this comment
He is not the only one to be doingwell in this regard today. we have some of our own too
Complain about this comment
One hardly knows what to say--stunned silence often follows when a massive tragedy is witnessed.
Kipling has a few wise words, the conclusion of his poem 'God of the Copybook Headings':
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."
Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.
As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;
And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return.
Complain about this comment
# 4
Don't be daft.
Either flash Gordon has already lent our money to him or AD will promise our money to protect the speculators
Complain about this comment
Oh dear oh dear ... the rot surfaces at last!
Fron reports looks like Madoff fessed up to his employees then the FBI paid a house call.
Couldn't happen in the UK, looks like our plods at SOCA (Serious Organised Crime Amateurs) have been warned off the City.
Politicians will say "Its against the National Interest you know" re Saudi arms "commissions".
When will the UK's financial wizards be brought to book? Never is odds-on!
Broken Britain.
Complain about this comment
The whole financial industry is rotten to the core, thats the publics view.
No matter how good our manufacturing, energy or service industries are, all is ruined by the reckless casino merchants in the City.
Complain about this comment
"regulators have taken long, hard looks at Madoff over many years, and failed to detect fraud."
I really hope somebody with more power then ordinary blogs readers here ask themselves how this was possible.
Complain about this comment
regulators have taken long, hard looks at Madoff over many years, and failed to detect fraud.
hedge funds are like weapons of mass destruction, just because you can not find evidence of fraud, that does not imply it does not exist
Complain about this comment
Robert...
Our entire banking system is a Ponzi scheme of epic proportions. It relies on a continual increase in loans taken out by government, businesses and individuals in order to function.
It grows until it can grow no more, then there is a credit crunch.
http://moneyredeemer.webs.com/links.html
Complain about this comment
My Christmas wish, Robert.
Will you please give me a nice white background (of the sort that you use when you descend and walk amongst us) for my contributions to your blog?
It will make them look important and special.
Complain about this comment
When Captain Bob went for his swim it was reckoned that the fall-out would be five times the sum that was first deemed to have been lost. I don't know if it was but that was small beer compared to this shambles.
This does not look good at all.
Time for the auditors to kick the door in and get to work.
We need to nail all the crooks so that our children and grandchildren can know who destroyed the future.
Complain about this comment
I have long thought that somewhere in this godalmighty mess there would be some criminal activity, either by an individual or by organised crime, the numbers were just too huge and had to tempt someone to have a go.
I should like to make a small wager that before the end of this fiasco the sticky fingerprints of the Mafia or some other crime syndicate are found and I'll bet that it will not be just the profits that have been stolen but the principle sums that were fraudulently advanced in many cases. The criteria for lending were ridiculously loose and would have been just too mind blowingly attractive to ignore.
Complain about this comment
Many ordinary people will be absolutely destitute in 12 months time.
If the likes of Hornby, Mathewson, Goodwin, Crosby, Applegarth et al are not pursued for their assets, it will be a travesty. Limited liability must no longer be allowed for company directors who negligently lead steer their ships onto the rocks, dragging others in their wake.
Not that I would approve, but the Chinese might well have shot them by now.
Sir Tom McKillop apologised, but Goodwin couldn't muster a word. By the way, he is still chairman of the Prince's Trust. Wasn't their original motto "Helping young people help themselves" ? Glad they have a boss who has led by example.
Complain about this comment
I don't think Madoff could have committed a $50 Billion Fraud without help and must have had partners involved.
Complain about this comment
Surely hedge funds can be relatively safe if they actualy hedge and don't speculate.
If I am long £100 in BP and short £100 in Shell (Hedging I believe) then how is this so risky?
If I am just £100 million short then that is taking a punt - or a Madoff Hedge.
So talk us through the role of the regulators and auditors in this sorry mess............
Complain about this comment
Millions are not enough, I'm going to swindle in billions! One for the next Oxford thesaurus; Greed = Doing a Madoff.
Complain about this comment
Robert
This will not be the only sham hedge fund. You only have to look at the growth in new hedge funds which have been efectively sold in the UK by IFAs over the last five years in pursuit of absolute returns. The barrier to entry is quite low. A class B listing on the Gurensey CISX will get you going, a modest amount of seed capital and you are away. Although unregulated funds cannot be marketed in the UK, they can certainly be sold to so called experienced investors.
The funds have really no regulatory oversight and pricing can be very lax. Most have the ability to gate redemptions if there is a rush to get the money back.
As I see it, there is still two large catastrophe risks out there - unwiding the CDS mess and continued buffeting from the Hedge Fund shocks. Let us hope this is not a harbinger of further financial doom.
Complain about this comment
People.
Bubbles burst. they always burst. Every single economic one has burst. They pop. they go bang. they explode.
Hedge Funds, Financial Services in The UK, The UK Housing Market....
Bubbles. Pop. Bang. Gone.
Take a deep breath and try again.
Blow.......................
Complain about this comment
My father in law worked as a director in a FS firm years ago. He noted that the other directors just laughed when the FSA (or equivalent regulator at the time) came in.
They just didn't understand the complexity and didn't challenge answers given to their questions. They just weren't clever enough.
Then again it's not that clever for the mensa City boys to bring the world's economic system to its knees.
Complain about this comment
@15
So they produced the credit card. gave everyone the plastic and took the money.
so when are all these bankers going to prison then?
Complain about this comment
CRUMBS ??
EVEN MORE FALSE GOLD!!!!!!!!!!!!!!!!!
THIS GUY WAS A STAR????
TOOK IN THE GREAT & THE GREEDY.
MILDLY GOBSmacked. . .
Complain about this comment
When Chancellor Gordon gave the BofE independence to set interest rates he simultaneously took away their supervisory role by setting up the FSA.
The FSA was populated by employees whom the other government departments did not want (allegedly) and who certainly had little to no knowledge or experience of the financial services industry.
This gave Gordon the 'leverage' without which he seems to be unable to operate.
The rest is history
And soon to be ours!
Complain about this comment
Hey
ANY body up for getting a FORD MUSTANG
arranged to get one today FAB.
So Obama save Ford cos i will need the
spare parts.
Im no Steve Mcqueen Though.
The Wife is unamused WHOOPS.
Complain about this comment
#17 and #21 #25
Auditors? Regulators!!
Who the Hell do you think approved all the reports and accounts?
Get real.
External auditors are a complete and utter waste of money.
Regulators are even worse. They will accept any garbage and never follow up when given a direct push towards wrong doing.
I was an internal auditor in financial services sacked for telling the truth.
Complain about this comment
Reminds me a bit of what Gordon Brown did with the UK housing / debt bubble since 1997...
Complain about this comment
Real hedge funds take bets against much larger client portfolios. That is where the name comes from. A wealthy investor might have less than 10% of his portfolio in a hedge fund to offset certain foreseeable risks associated with his main investments.
Modern "fashionable" hedge funds are nothing of the sort, they are just mutual funds operating with insane leverage of a level normally only associated with British banks.
In either case, Robert Peston's statement "Which will make investors fear - however irrationally - that no hedge fund can be deemed wholly safe" is bizarre in the extreme. Of course no hedge fund is wholly safe. No investment is wholly safe, ESPECIALLY with leverage! Every investor must by law be provided with a statement to such effect ("significant risk of loss", "past performance does not guarantee..." etc) in the prospectus.
Besides, this scheme was not really a hedge fund. It sounds more like a pyramid scheme pretending to be a hedge fund. Whether that might trigger a crisis of confidence with effects at the next redemption window is unknown, but Peston explained it very poorly.
As for regulation, I am satisfied that "regulation" and "hedge funds" did not appear in the same sentence in this article.
Complain about this comment
#7
You're talking about unallocated gold?
Complain about this comment
just because some hedge funds are corrupt
it does not mean all hedge funds are corrupt
in other words
some (but not all) hedge funds are corrupt
Complain about this comment
Bernard Madoff is a .........
Complain about this comment
Unpopular question. Just how much of the derivatives market is similarly compromised?
Complain about this comment
Hi, Robert:
It is sad that this gentleman is being accused of stealing this much money; and he will make a sweet-heart plea bargain to avoid spending most of his life in prison....
I also, know, that he is been charged and not yet, been convicted of any criminal offence.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
This is just another story that will provide ammunition for all the anti-capitalist ,communist and anarchist nuts.Does anyone remember the Mayday riots that happened a few years ago in London.They tried storming the stock exchange,I always remember the one scene of a terrified couple trapped in their BMW as a gang started to smash their car up.I think its only a matter of time before these events happen again.When you hear stories about our so-called fair society with its free market capitalist economy and people are swindling billions,and bank bosses are being forced to resign with a multi-million £/$ payoff(often for being the architects of failure),is it any wonder people rebel.The question is,when does the revolution start?
Complain about this comment
Yet another example of gullible investors being blinded by reputation and an emperors new clothes scam.
I have said it before and I will say it again. If it looks too good to be true it probably is too good to be true!
People cannot expect huge returns unless either
a) the people behind it are genuises and don't make mistakes. We know that didn't work, remember all the nobel prize winners behind the failed hedge fund in the late 1990's or
b) it is a con and someone will get ripped off.
It appears our American friend is in the latter camp.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
The whole hedge fund industry is imploding. At the peak last year the industry had an estimated $2.5 trillion under management. probably about half that now and should bottom out less than $1 trillion.
They say when the tide goes out you can see who was swimming naked.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
The trouble is Robert, that hedge funds take short as well as long positions. So the great unwinding of these positions will not exclusively make share, commodity or other asset prices go down. They may go up (like the situation with VW last month when headge funds were trying to unwind short positions). The net effect could, well, net itself off.
Just like your scare mongering on the Lehman CDS auction, the fallout from a reduced hedge fund industry could turn out to be a damp squib.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Well all I can say is that I'm very surprised.
I mean, I'd always assumed, like everyone else, that snake oil salesmen could be trusted with billions and billions of other peoples money.
But one thing this crisis is proving is that it is possible that the profession of snake oil salesman is not as reputable as once it was.
Sad times indeed.
Complain about this comment
Does this make him a hedge-hog?
Complain about this comment
Sorry for being thick, but why does it delay the floor being found? Doesn't it just mean the floor may be lower than people thought, but we're still getting there?
Complain about this comment
@9 OldSouth
Thanks for the poem.
The regulators and their long, hard look are a fat lot of use aren't they.
We have got to wise up to the compulsive liars around us. If only we could spot them in the crowd. Wouldn't that be a useful new industry for this country - manufacturing a lie detector that worked! I'd bet my last dollar that the higher up you go in the wonderful scheme of things, the noisier the machine would get.
Complain about this comment
Wealth is a conditional trust, not an absolute possession.
Complain about this comment
Yes.
Not a great surprise, really.
And I wonder how many more hedge funds will soon be shown to have been operating a 'Ponzi' style business.
All this serves to prove is that we need completely new rules for all businesses that deal with just that one special, strange, bizarre product - 'money', and that the traditional capitalist model for banks and other investment companies, which relies on 'trust' - the "don't ask us to give you any details but just take it from us that we are richer than you, we've got lots of money and we know it's safe, and what is more we're giving you much better than average returns" model - is completely bust.
Robert, we need a new concept in banking and financial services based around "openness" i.e. increased transparency.
Why this - well, more and more rules about what you can do here or do there is just going to get too complicated, so we should go back to the only principle that will work.
Throughout the many decades of development of the western capitalist model the one element that, unrelentingly, has improved and increased the efficiency of, the system is.... greater transparency.
We need "open banks", "open investment funds", "open hedge funds" and so on, meaning that company law should be amended (and maybe more relevantly the FSA's regulations obviously) such that if your company is a "money only" business (i.e. you deal in investments, insurance, monetary instruments of any sort) then you have to declare results at a much higher level of detail and transparency, and regularity - quarterly - than a business that deals in non-monetary products - widgets etc (as anyone who runs a normal limited company here has to do) i.e. OK, yes, remove individual's names, but tell us how many contracts you have, what value, what duration, what promises/guarantees were attached etc and that your business is liable for. And for those businesses that are really very very big, if you want to have the protection of the limited liability laws we all accept, then we need to have this information even more regularly - monthly in fact.
Money is a special product, and any company that deals only in money needs to be subject to much greater levels of disclosure than the rest of us who run businesses designing, making, distributing and selling actual 'things'.
Complain about this comment
Talking about Made Off, there may have been an equally scandalous con over a bank merger in this country, with the Government in on the proceedings. You are a fund with a large share holding in a profligate collapsing bank with mountains of toxic debt. You also own a large holding in another bank which has been prudent and has little exposure to that of its rival.
You vote for both banks in the merger, thereby ensuring that it goes through. Hey presto - you have reduced your losses by sharing them with the good bank. All the little shareholders of the prudent bank are stuffed, and presumably can do nothing about it, even though the large shareholders have probably stitched them up.
I have been investing since 1967, and if I ever see my money back from the prudent bank then I will never invest in shares again because I think it is all rigged.
Complain about this comment
I have just finished watching Little Dorrit
Merdle---Madoff 150 years and nothing changes.
Complain about this comment
Any investment wholly leveraged by debt is at risk.
Goodbye, and good riddance, Gordon.
Don't come back.
Complain about this comment
was it a quote honest mistake unquote
Complain about this comment
Madoff should be Knighted ,we need people like him to get money from the sovereign wealth funds .
At least he knew what he was doing unlike our clueless PM
The primary purpose of finance is to separate fools from their money[and share it with the government ] ,so that they can realize that they are double taxed fools ,this realisation is of course much more dificult for "educated " types,and puts the limits of mass education in perspective
In pollytricks and finance every waking moment is for peddling lies ,why is it so dificult for fools to understand that they are fools ?
If Madoff was in Gordons shoes he would of course do likewise and carry on the scam to infinity and beyond .
Surely St Madoff the patron saint of ponzi credit bubbles was only trying to save the world .
Complain about this comment
I sneak on at the end so that the moderator is possibly the only person that will read my comments, mainly because I am not economist or a banker or know anything about the financial world.
But what I do know is that we have seen the future and we cannot figure out a way to avoid it. It’s not that it’s that’s all bad; it’s that it’s going to be different, very different!
So while we wait for that comet to impact and end the world as we have known it and in knowing there’s no way now to dodge it.
How could we lessen the impact?
So with hindsight what we should have done was to pay everybody’s outstanding credit cards bills, personal loans and mortgages.
Don’t confuse morals with economics; I know we should not have borrowed so much, I know we should have saved more, but we didn’t and what would have been the point as the banks went bankrupt!
It may be politically unacceptable (like nationalising the banks), but it could have just saved us from real hurt.
O.K. if that’s hard to swallow; then at least guarantee the loans, yes, by Government. This would also include companies as well as Woolworths.
Will that saves us? No, but it would lessen the impact.
There’s no going back – there’s only the future and the future is going to be very different.
Winging and whining savers!
I didn’t hear a great deal of objections from savers, either corporate or individuals when the returns on their savings were really high due to the credit bubble – did you? It’s the other opposite side to the coin and the credit bubble, so when saver wring their hands together and moan about their returns I ask what did they do with their returns when they were earning on their investments?
Cashed in their gains?
Bought to rent?
Bought foreign property?
Spent it?
Re-invested it?
Thought that their investments would give them a life without money worries?
If you’re earning 1, 2 or 3% above inflation you’re doing well! Interest is not paid on you putting money into a bank and ‘hey presto’ it earns money, it earns money when the bank loans to business and personal borrowers and to home buyers at a higher rate of interest and makes a return, some it skims off in profit and then returns interest in the form of a payment on the money you invest. I know that’s very basic, but in principle that’s what happens.
It not without risk is it? We don’t expect all those businesses, personal borrowers and home owners to go bust!
Ah! But if they did?
It’s just a house of cards.
So here it is! Austerity now or in two years, well I has no more that 15 years to live on average, so I say party now! As we will need at least 30 years to pay off what we have messed up for future generations on the economy, let alone global warming. Sorry for all those to follow, but hey you can blame it all on us!
Complain about this comment
#19 - Sasha, absolutely on your wavelength, destitution is too good for these guys,
Yours Aye,
Graucho
Complain about this comment
well, it was going to happen eventually-truth will out. Although what I saw on the news tonight seemed to suggest he declared his loss before he was found out.
If that was the case, how can u trust his figures? I suspect it's more than stated!
I thought hedge funds were right up there with short selling in terms of risky gambling with other people's money.
Therefore, another rotten, greedy crook notes the dust!
Notice how no one cries over him, nor is surprised?
We know it's going on-when do the Fraud squad get to work here? Oh, I forgot-White collar crime is not high on the list of legal 'must do's'. And all the police's funds are still in Iceland aren't they?
Gordy-watch out, watch out there's a thief about! When will you get caught too?
And just what do you plan to do with the 20/20/20 money?
Ps-anyone spot the US treasury overriding the senate over the car people?!
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
If it look to be too good to be true it is! It always has been, and it always will be.
In history there has never been much difference between financial service companies making huge 'profits' and card sharps. The do not actually 'make' anything they just move money about, generally with the help of inside knowledge. Similarly the miracle investment schemes run by cocaine gangs in South America are in fact money laundering schemes.
Miracles happen in fairy stories, not real life. One man's financial profit is another's loss - this appears to have been the case with what appears to have been a gigantic pyramid scheme in this case.
This window into the World of financial services really ought to be a warning to us, as usual too late, not to rely on financial services as an 'engine' of the economy.
Is it being unfair to characterise the whole city of London as just the same activity? But that is how one feels again and again when the next miracle comes to light! They need to get back to the basics of handling the financial transaction of trade to regain respect. It is after all the City and Financial Services that have destroyed the British and the world economy by destroying liquidity. They cannot be bailed out by the poor and they must reform.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
The whole of the finance industry resembles a wild garden that hasn't been looked after for years.
Wherever you look, whatever stone you lift up there are nasty, vile-looking things that come crawling out.
We are only at the start of the great Global Unravelling.
Complain about this comment
#19 It's been more that 35 years since I had to memorise Law cases for an exam but wasn't there something under case law whereby directors and officers of the company are "jointly and severally" liable for their actions to the full extent of the damage and are *NOT* covered by the limited liability of the company !!
Since I haven't touched a law book in more than 20 years, perhaps someone could refresh my (failing) memory !! Sorry, but it's too full of routines to deal with bits and bytes right now !!
Complain about this comment
#59 "Gordy-watch out, watch out there's a thief about!"
Don't be silly !! He's too busy saving the world !! He's got no time for a petty thief or two !!
And to think many questioned my sanity when I left a well paid job in the City to become a nerd !!
Complain about this comment
My #63 referred to moderators? Why? It observes all your house rules. Come on.
Complain about this comment
Having worked for 10 years in the Hedge fund and fund of funds (fof's) industry some further information should be added at this point.
After the case of the Manhattan fund collapse in 1999 (another fraudulent fund manager) a number of the higher quality fof's (who existed then and were stung by Manhattan) added forensic accountants and private investigators to their payrolls. Due to this most of the better operators knew that Madoff was uninvestable proposition. Only Aksia have come forward so far higlighting their concerns from last year (see the Aksia Madoff news story on the web), more will follow.
In my mind as with the post Manhattan era, the fof's with the strong operational due diligence teams will do well from this mess. They will say that “you really should use us as you can’t carry out the due diligence necessary”, that was the line post Manhattan. Some of the weaker and newer fof’s will fall by the wayside due to missing the patently obvious red flags.
Fortunately for the UK this particular kind of fraudulent problem cannot happen here. This is due to the fact that to raise money in the UK you need an Administrator. An Administator is a 3rd party who calculates the funds Net Asset Value (NAV) based on the securities and cash held by the fund. Interestingly in the US this is not a prerequisite demanded by the SEC! They can make their own NAV up, they only need to bluff their way past the Auditors at year end (which is why Madoff used a rather off track auditor).
With this in mind extra regulation of this industry is not essential for the hedge fund world (and the world) to move forward. Some basic 3rd party validation (an administrator) is needed in the US, stipulated by the SEC like the FSA requires in the UK. Having experienced an FSA audit I know for a fact that extra regulation enforced by more checks and enforcement will not really work, it will just change into a larger game of cat and mouse than it is now.
Finally the hedge industry is contracting and will continue to contract, not due to the Madoff mess, an annual hedge fund collapse is built into the minds of investors already. It will contract due to the poor absolute performance of the funds. In the post dot com bubble years of 200-2003 they market was in free fall but the hedge funds on average (the HFR index is good proxy of this) made between 5%-10%. This performance drove the huge growth in the hedge fund market. This year the performance is different, the average fund will probably lose 16%, no absolute returns this year! Not to mention the really poor performance of the hedge fund titans, I won’t name them here. That alone will drive doubt into the minds of investors that hedge fund managers are masters of the universe.
Complain about this comment
Well well well just another day in the crooked banking/finance sector. What a crook I hope he gets life for what he's done. On another issue Robert, how about doing something on the current Abbey bank scandal. This bank has decided to threaten it's customers with a macho letter about a very convenient clause in some of their customers contracts. Effectively threatening to pull-in their loans at some indistinct point in the future if certain conditions in the mortgage agreements aren't met. Well let's make sure the bank understands quite clear that if they try it we the taxpayer (the government) will refuse to provide any financial help to that bank and that we'll let them sink. How dare the senior management do this? It's about time we had a clear-out of these top managers and an investigation into their dealings over the last few years.
Complain about this comment
No.19
Agree completely. To make bad worse, Hornby is being retained by Lloyds TSB after he resigns from HBOS, on "a consultancy basis". But don't worry: he's only getting £60,000 a month for it. Words fail - the effrontery is simply jaw-dropping.
Some way needs to be found to take away the assets and wealth built up by these people as they impoverished millions and wrecked the economy
Complain about this comment
Isnt it strange that we have the wealthiest financial people in history at the same time as the biggest "bust" in history.
What a coincidence, eh?
Of course no-one would say that under new-labour they have concentrated most of their time filling their own pockets with the publics money, instead of serving the public, and industry.
Complain about this comment
When I learnt a little bit about hedge funds in my MBA, I always thought that schemes like these which involve selected clients and no regulation have potential to become pyramid scams. In my native India, shrewed scamsters with no formal education have managed to swindle gullible and uneducated small investors by get rich quick pyramid schemes, however this scandal proves that the situation is hardly different at the 'uppermost' end of the financial world. In addition to credit crunch, this scandal has further exposed hollowness of so called 'capitalist ethics'
Complain about this comment
i notice that in all the current scams, crises, bankruptcies etc that nobody appears to blame accountants and auditors....yet every company be it Northern rock or bear stearns presumably had their account signed off as being a true and fair statement! time to bring them to account to explain their carelessnes.....
Complain about this comment
is there any difference between the theft, incompetence, malfeasance, misfeasance etc when trading in mortgage backed securities, hedge funds, short selling etc. in the city, as the usual manipulation of our money by the powers that be.
e.g. council charges, speeding fines, parking fines, court costs etc
Complain about this comment
The scandals and the frauds of the age of unregulated capitalism are coming in thick and fast.
This era deserves its own anthem.
I am sure Robert Peston is preparing a BBC special, with the working title SCAM revealing the world of derivatives and hedge funds and how they destabilised the global economy.
As a soundtrack to this programme and anthem to the folllies of this age I suggest
the Bourne Identity theme, Extreme Ways by Moby.
Complain about this comment
america started the corruption trend too
Complain about this comment
Its all just gambling.
The stock market is no longer a place to invest in companies with a view to sharing the profits.
All other valuations are just gambling on a bubble (and as others have noted the Beeb is screening Little Dorrit with the same theme).
Add to that the world economic driver known as the USA ('when the USA sneezes the world catches a cold') and its a dire situation all round.
Just had another of those charming Cahoot (Abbey et al) emails saying that interest on savings is now 2.00% stretching to 3% if over GBP1M. At least they have dropped the line from the previous two emails which said that overdraft rates remain the same.
Since Northern Rock are today advising 3.5% on Silver Saver accounts over GBP1 at least our National Bank is trying.
So it sounds as if Santander really want to close Cahoot which is a pity as at one time they were a beacon for not only good saving rates but also an excellent example of how online banking should be done. It took the demise of the old Northern Rock to sort out their stupid website which was an example of how NOT to do it. I guess they found they needed to go outside the NE to get decent programmers ;-) Ducks for cover......
Complain about this comment
It is surprising that someone like Nicola Horlicks should have fallen for this.
A wise investor should assume that anything that gives an exceptionally good return is also exceptionally risky. After all, if this were not the case why does anyone invest in anything else.
"If it looks to good to be true, it probably is to good to be true."
Complain about this comment
The FSA's standard response to the suggestion that short selling should be banned was it improved liquidity - a rather meaningless response to me.
Anybody worrried that a former chairman of the FSA became the chairman of a big hedge fund short seller in Northern Rock?
Anybody worried about Rothschild "entertaining" OhLord mandy and Osbourne?
Anybody mystified by the lack of regulation of hedge funds?
An investigation by the media into political contributions by hedge fund managers and their employment of former senior politicians and civil servants is long overdue.
Their current "easy touch" having destroyed confidence in UK equities, is sterling-an easy target given this incompetent government and BoE.
Complain about this comment
I'm no economist, in fact I'm an unemployed pig-castrator.
But surely it was only a matter of time before somebody noticed that we no longer make anything, no longer provide services, no longer grow much, nor do we actually seem to have any businesses left which aren't involved in the lending and borrowing of money?
How can ALL these hedge funds promise ever-increasing returns, for doing apparently nothing, investing in companies founded on the investments of other hedge funds?
A snake devouring itself, and it seems as though we we're down to the last bit of "neck".
Complain about this comment
Quote from Bramdean's website
'Robust and thorough due diligence is at the heart of our firm's investment process. Our detailed manager monitoring programme ensures that our clients' investments are subject to on-going and effective governance.'
If the Madoff thing is a Ponzi as alleged and Bramdean didn't spot this then it doesn't say much for them or the rest of the investment "specialists"
On the theme that comes up from time to time on this blog about 'wingeing savers' it would be interesting to hear what these bloggers view as a reasonable view on savings.
Most of us know that there is no REAL return on bank savings taking inflation into account but equally many, like me, never trusted the flash insurance pension schemes but invested in stocks on a long view as well as keeping a bigger percentage in cash. So actually we have done quite well over the years taking the whole lot into account.
I am NOT 'wingeing' about saving rates just voicing the disappointment I feel that prudent savers will be paying for this and the reckless let off scot free.
This is the basis also of the German view of Brown. They will be picking up the tab for the rest of Europe who are taking the Canute approach. Oh and they have some real industry to back them up.
Complain about this comment
well if you invested your money in the scheme, you must be stupid.
the nigerian mentality is if someone is greedy enough to be enticed by the lure of easy wealth, they deserve to lose it.
Complain about this comment
So the rats are starting to leave the ship! Good, let's hope that they take their fleas with them. We are already going to face the Black Death in the coming years that was caused by their greed and contagion.
Robert asked what kind of system we were going to create when this is all over. Let me suggest a TRANSPARENT system. If it's too complicated that you need "experts" to even understand it then it's dodgy. Let's get back to basics and let openness and simplicity rule.
The complicated mess that has been created produced paper wealth for some in the short term andpain for the majority in the longer term. Let's get back to a fair combination of wealth, demand and supply that is understandable by all.
Complain about this comment
BRAMDEAN???
STUCK UP???
Youve got to laugh.
Sick to death of that dreadful woman.
Complain about this comment
69. At 09:37am on 13 Dec 2008, BrokenCapital
Excellent analysis. Totally agree about how this will actually be a help to the stronger HFoF players. I worked in the multi-manager/investment consulting business until recently, and they will be poking this story in front of every prospect. They'll then show how their HFoFs had no exposure to Madoff, showing off the dozens of people committed to Hedge Manager evaluation, highlighting how much more due diligence they do on these products etc etc. Clear message? "You don't have the resources to do this but we do, so out source management of your alternatives asset allocation to us".
More or less agree about the risks in the UK (actually across the EU), though a HFoF could still invest in Madoff via a Modoff collective vehicle, in which case there's no real assets to custody here, just the Madoff Fund shares which, it appears, were underpinned with fresh air. However, you correctly point out some of the "red flags" to prevent buying this kind of stuff. In our business we regarded non-independent calculation of the NAV as an automatic veto. Use of "one-man-and-a-dog" audit firms for multi-billion dollar Funds also tended to attract a veto. And we tracked very closely those Funds that were very slow to calculate and release NAVs for their Funds.
The notion that more regulation will make us all sleep easier at night is just nonsense. The FSA already has 8,000 pages of rules. I don't see a couple of thousand more making a big difference. We need better regulation, which probably means less not more. Every rule is a gaming opportunity to the financial industry.
There's also too much emphasis on how much people get paid, and far too little on their personal risk. The reason why nobody in the industry is complaining is that they're far more worried about having higher potential liabilities put on them personally than having to earn less for a few years. That would have happened anyway after this year's losses. I'd much rather see a loss-clawback requirement in every registered individual's employment contract, so they become liable for losses like the ones we've seen this year. They'd never be able to pay them all, of course, but the risk of losing their entire personal asset base would make them focus more closely on risk to begin with, and be more conservative. It's ironic, but many Hedge Managers do this already, via large personal holdings in their own Funds. Those that do this tend to be a lot more conservative than the ones playing with other people's money only.
Complain about this comment
POST 86
CLAW BACK on earnings FANTASTIC idea.
I would go for making them bankrupt every
time.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
I am becoming extremely disturbed with the reporting methods of the BBC throughout this Credit Crunch. As someone from the construction and development industry I feel quite strongly that the BBC is praying on peoples fear of vulnerability.
Any one who had a 125% mortgage deserves very little sympathy especially as they are a very low percentage of the mortgage market. Now we are told about the Abbey Clause. How many people does this affect? What percentage of the mortgage market? Oh no the BBC cannot report that it is a drop in the ocean. It is all bad news.
When are the BBC move on and investigate the news properly. I believe BBC news is becoming a red top TV programme.
Lets get some perspective out there.
Complain about this comment
The BBC is just a black bleak reflective attitude on society brodcast over the waves.
Why do you worry ..you can always switch it off?
Truth betold Radio 4 is an abys of dispare but some one some where tells them that their missery is worth listening to.
I can honestly proclaim that listening to Radio 4 between 07 and 08 is absolute proof of the BBC's distance from the people and their ease with those who daily destroy this Country.
We in the United Kingdom are a People
yet all we hear are those who destroy us through ineptitude.
Was not Journalism at sometime more to be about finding the truth rather than cuddling culpable?
Complain about this comment
2.
Alex, hedge-funds are the punters, not the bookies.
There is only one failed bookie I've ever known of, he's now on Channel 4 Racing.
I'm sure that not all hedge-funds are run by disreputable crooks.
After all, not all estate agents are slimy and insincere...
OK, well yeah, most hedge-funds probably are run by spivs, as a Scottish bloke who's been keeping a low profile recently said.
Anyway, is the demise of Madoff's hedge-fund
at all related to the recent announcement of job cuts at Conservative central office?
Complain about this comment
Maybe the stock market in its current guise is just one big myth? I make a product and have shares. My output is stable and my order books remain full but one phone call from an uninformed city type and the price goes up or down and the company and its product hasn't changed one iota.
I'm told to keep investing in my retirement fund as my money is buying more shares while the prices are low and when the market turns, I'll have much more. Is this another myth to keep us on board? What other choice do I have?
Maybe someone should look into Berkshire Hathaway?
The US never wanted big government to control the people - now they got what they wanted, an unregulated/uncontrolled market.
Complain about this comment
Today's breaking story (having broken this one yesterday)
Radio 4's report on Abbey National calling in mortgages in negative equity is being referred to the Treasury Select Committee.
The bite-back for banks refusing to respect HMG starts here.
Complain about this comment
Madder and madder.
My contribution # 88 has also been referred to the moderator.
Let's try to get what I had to say in a form that is gnomic.
Madoff is out on bail.
Should he decide to skip bail, guess where he would head for?
Complain about this comment
#90
Your message is schizophrenic: are you protesting or excusing our pessimism?
The viewpoint here, taking the longer term, is that the Chancellor was given some space when this started, although we thought he was doing too little too late. Experience shows we were right, and yet he still wants space he's run out of to do too little too late. He's now in moral overdraft and we're worried he's bankrupted the country, given the hugely reduced value of the asset base.
Some still have faith in the political system, and some think that;s gone by the board as well. It's becoming noticable that Crash is looking more and more like a cross between Cruella Darling Ville and Droopy Dawg as days go by, and is in a world of his own.
Complain about this comment
WHAT'S 50 BILLION AMONG FRIENDS
QUOTE
Furthermore, CNBC reports the hedge fund due diligence firm Aksia found a 2005 letter to the SEC stating that Madoff was running a “ponzi scheme”.
www.econblog.org
Complain about this comment
WHAT'S 50 BILLION AMONG FRIENDS
QUOTE
Furthermore, CNBC reports the hedge fund due diligence firm Aksia found a 2005 letter to the SEC stating that Madoff was running a “ponzi scheme”.
Complain about this comment
Nos4 10,31, 54
Do you agree with my friend that it would only take the lunatics a few hours, or less, to associate the British Prime Minister with Mr Madoff.
Complain about this comment
A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi.[1] A Ponzi scheme has similarities with a pyramid scheme though the two types of fraud are different.
Wikipedia
Complain about this comment
Madoff aopears to have got away with it for so long because he was a respected member of the financial establishment (NASDAQ) He also provided investors with reasonable, rather than excessive returns.However competitors had already muttered about the improbabililty of him achieving such constant returns year after year.Why, even after receiving the Ponzi letter the SEC failed to act, we can only guess. It might having something to do with 50 billion dollars.
Complain about this comment
Gordons promice of fiscal prudence has been replaced by "print it[fig leaves] while you can"which has lead to a massive decline in the pound and losses for foreign investors who held sterling
The fact that the pound is dropping relativly faster than other currencies should make the origin of the piratickle credit ponzi bonfire of the vanities obvious to all but the most educated fooools and old age pensionerds happy at winter fuel payments going up, whilst unconcerned where Robbin g hoods got their lucre from .
All that is now happening has been blatently transparent to the little boys for a decade ,but not the educated types that accepted the mperrors " latest "fasion statement balls as a thing of substance .
Its a pity David Attenborough didnt record the mating game between the City Ostrich with its head stuck in the nearest AAA/s hole and the Labour Peacock with its aye aye ayes holding onto its tail featherrs from from behind and there is no point listening out for the patter of little golden goose webbed feet
Complain about this comment
It does not seem that long ago 50 billion was real money. Now you will not see change out of bailing out a failed car industry and one dodgy bank.
Complain about this comment
Peston, the Toastmaster?
Now Robert Peston is featured in a Christmas fairytale, in the FT.
"Dear Economist: Is the credit crunch suitable for children"? asks Tim Hurford.
"At midnight, Consumeralla missed the first payment on her loan. (The result of over-indulgence, althought some blamed the pronouncements of the Toastmaster, a man called Peston. Consumeralla's credit rating turned into a pumpkin and Rumplestiltskin's spell was broken. He and his Fairy Godmother discovered that their vaults were not full of gold, but ordinary straw".
Robert Peston's fame just grows and grows. To be lampooned (affectionately) by Rory Bremner is an accolade.
Now we can look forward to a huge range of Peston memorabilia, from mugs to party hats, made in China, of course. Not forgetting the film and book rights.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
MunichMadrid7980
YOUVE BEEN A BAD BOY AGAIN.
Hedge funds bookmakers of the financial
world.
Whats wrong with that summary???
Complain about this comment
@ 63
I also, would like to know why, my comments were also removed; since they did not break any house rules.
Complain about this comment
How could he been allowed to steal $50 billion dollars; with the best Financial Security System... [S.E.C.] in the United States and also, being in the State of New York, where the governments of both entities would have done investigations.....
It saddens me, that a former NASDAQ chairman could have done this type of stuff, by, stealing from one party to give to another party....[party i.e. person].
Complain about this comment
On the Madoff article, there is a correction to be made: he did NOT run a hedge fund. Although the article repeatedly refers to him as a hedge fund manager, he was not one.
I understand that the government needs a scapegoat (i.e. the hedge fund industry) to justify its handing out taxpayer money to the banks that precipiated this crisis. There's no need to implicate hedge funds in another scandal in which they have no material role.
Complain about this comment
On Sky News a few minutes ago a crime reporter gave the impression that Madoff's firm was inspected perhaps every three or four years. David Faber on CNBC says the SEC visited the firm AT LEAST once every year.
Also Faber raised the interesting question as to whether investors who recently withdrew funds may now be required to pay the money back. We cannot, therfore, accurately assess howbadlt affected some funds are. Do the fund managers know ?
-----------------------------------
Complain about this comment
I know how much some of you on here love the reward structures in financial services firms. I also know how much you love the Lloyds/HBOS merger. So, just for you, a story that combines both and will get the blood pressure rising.
According to Bloomberg:
" HBOS Plc will fly 100 branch managers and their partners to New York for four days to reward their performance."
Do you think GB was similarly rewarded for his performance with a day trip to Afghanistan?
Anyway, full HBOS story is at:
http://www.bloomberg.com/?b=0
Story entitled: "HBOS Rewards 100 Workers With Trip to New York After Getting U.K. Bailout"
Complain about this comment
#81 "I'm no economist, in fact I'm an unemployed pig-castrator."
I'm sure there are many who would like you to use your skills on some bankers and financial services operators instead? - and subscribe to pay your wages!
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
There's also a story on Bloomberg saying it was actually Nadoff's sons who informed the Feds of their father's alleged fraud.
According to David Voreacos and David Glovin: "Madoff’s sons, Andrew and Mark, turned him in to U.S. authorities on the night of Dec. 10 after his confession, according to Martin Flumbenbaum, an attorney for the brothers."
Complain about this comment
EXTRACT
"Christopher Miller, chief executive of London hedge fund ratings agency Allenbridge Hedgeinfo, said: "Some very big investor names are involved in this. The scheme could only work if enough investors were subscribing for him to pay money out. Some of the world's biggest hedge funds have been hit by this. There will be a monumental impact for the hedge fund industry, it could be larger then Enron.
"Some investors in Madoff's funds face 100% write-downs on the money they invested, they will suddenly be nursing full writedowns in December. When people realise the magnitude of this it will be fizzing around the stratosphere."
David Walker 12 Dec 2008
------------------------
Are hedge fund managers not responsible for 'due diligence'.(If that is the right wording)
Complain about this comment
#107 "It saddens me, that a former NASDAQ chairman could have done this type of stuff"
This is nothing new alas. In 1938, Richard E Whitney, a former president of the New York Stock Exchange was arrested and convicted of embezzlement. He stole funds from the New York Stock Exchange Gratuity Fund as well as from the New York Yacht Club where he served as the Treasurer. In addition, he stole $800,000 worth of bonds from his father-in-law's estate. This was to for what would now be an illegal share support operation in the stock of his own company.
Before his fall he testified before the US senate, arguing that the US government should balance the budget by cutting the pay and benefits of war veterans. His own salary of $60,000, 6 times that of a senator, he thought should not be cut, as it was "very little".
Complain about this comment
the rotten underbelly of american capitalism, and its just the tip of the iceberg. how many other criminals are being protected??.
Complain about this comment
The BBC website, together with other sources, allows the start of a list of Madoff's victims to be begun.
French Bank Paribus
Japan's Nomura Holdings
Zurich's Neue Privat Bank
Spanish Bank satander
Bramdean Alternatves -UK based asset management company.
Hedge funds-Fairfield Greenwich Group
A US chaity has had it's funds seized.
General Electric and Citigroup were "duped".
The sooner everybody declares losses the better. However ,as a previous post suggests, until fund managers etc are certain that they will not have to return recently accessed funds, they cannot declare losses.This will make markets even more jittery.
Complain about this comment
The way things are going you will need an acre of land a shot gun and a few livestock to live off and a little wattle and daub hut to live in.
The truth about white collar crime is clear. It is far more wide-reaching and damaging than the odd serial killer. Bring back the electric chair - if we can afford the electricity.
Complain about this comment
This Madoff discovery may well be the first of several examples of serious fraud being played out on the global financial markets.
The fact that the "regulators" could not detect the scheme suggests that these regulators are not upto their role of providing governance. These ineffective regulators represent a risk to the global economy and need to be addressed head on. The UK's PM Gordon Brown has stated that greater global regulation is required - great sentiment but we need to get concrete structures in place to stop this leaching of financial resources.
The consequence of failing to put in place robust regulation is to leave whole economies, whole industries, major corporations, small to medium sized companies and sole operators at risk of being closed down for factors totally out of their control and to which they cannot insure themselves against. It also provides the international criminal more incentive to expand their selfish thefts on hard working indviduals.
The post Enron clamp down on financial "irregularities" should pale into insignificance when the new global governance structures are put into place for the financial industry.
Complain about this comment
It's not only Madoff who's made off with other people's money, it seems. How about this for splendid use of taxpayers' cash (from Bloomberg):
"HBOS the UK bank that told shareholders yesterday it’s short on liquidity, will fly 100 branch managers and their partners to New York for 4 days to reward their performance ... HBOS agreed in 2007 to send its best performers to New York in March 2009. The winners will also receive spending money".
How nice for HBOS workers as I contemplate placing my small business into administration in Apr 09 as a direct result of this unholy mess. I bank with HBOS.
I hope Gordon Brown realises the amount of pure anger that he is generating among the British populace: he'll pay the price for this at the polls and in the history books. Moreover, if he keeps going like he is, he's doing all the right things to foment civil unrest.
Complain about this comment
Why, is my comments getting referred to the moderators...
How am I breaking the house rules...
Complain about this comment
Some more of Madoff's victims ourtesy of a CNBC video.
Tremont Capital Management
Syz Bank (Private Swiss )
Lombard Odier (" " )
Mexam Capital Management
Palm Beach Country Club
Kingate Global
On top of this private individuals ave been ruined, charities will fold, universities and foundations will be weakened.
Finally it has to be said, in light of the Madoff revelations, that this is hardly the time for George Bush to allow the US automobile industry to collapse.
------------------------------
Complain about this comment
#120 Re the HBOS binge for managers - I wonder what the FSA boss, Sir James Crosby, former CEO of HBOS thinks about it?
I think we should be told.
Complain about this comment
The HOBS action posted by Moray mint is a disgrace. I wiould like to see this more fully investigated by Robert P.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Moraymint-Everywhere I look I see family and friends suffering as a result of "this unholy mess". I understand your anger.
Complain about this comment
Free $1,000 bet when you open an account.
A $10m bet on our hedge fund would pay $90m!
Click here to BET NOW
Complain about this comment
Question:
What was his technique of choice, to take the money from the investors...One source says it was a Hedge Fund and someone else talks about something else...?
Could someone explain it to me!
I am hoping that this will be a lesson for others people that, are looking at this story...Not to do this type of behaviour....
Complain about this comment
If the first reports of this was in 2005, I would have thought the New York State Attorney General Eliot Spitzer [Ex-New York State Governor] would have been informed of the story by the Appropriate Securities agencies in the United States and; would have done his own investigation....
Complain about this comment
Again and again we hear of disasters were professionals in the same comunity advise of problems and nothing is done. Eg recently - Baby P, Harold Shipman and Madoff. The first two are not financial, although I doubt it would be hard to find more financial examples, either leaf through the reports or wait a week or two. (Bob going swiming comes to mind). It is usually the same problem, warning bells ignored. There is the comment essentially that more regulation will turn it into a bigger hide and seek. How is that the case when the lookout message has already been given. If the regulator is not up to the job change the regulator, if the regulator cannot be made good enough then ban the sector or demand securities. The auditors assessment I experienced was more like a scene from Hallo Hallo than anything else. I doubt it is unusual.
Complain about this comment
Thanks to sashclarkson # 123, bishoplatimer # 124 and rodez24 # 126 for your support!
I don't know about you or any of the other bloggers that hit the BBC website, but I really am losing patience with our so-called political "elite".
The past 10 years in particular have seen us ordinary, law-abiding, tax-paying citizens treated with the utmost contempt by the Labour Party in particular, and most politicians in general: national and local.
We've been lied to, patronised, robbed and treated as little more than cash machines for politicians' misplaced notions of social justice, weird and unsustainable economic policies and John-Lewis-List lifestyles that few of us would stand a hope in hell of ever achieving by dint of our own hard work.
I'm sick to death of it! All the main political parties are as bad as each other and it's terribly frustrating trying to figure out how we're ever going to break out of our political malaise.
However, you can rest assured that, like an alcoholic, we're going to have to wake up in the gutter before we realise that it's time to change. The next year or three will see us slide into the gutter - and for that you can thank Tony Blair and Gordon Brown for charting the course, and the Tory Party for a decade's acquiesence.
Complain about this comment
The new PC is Predator Capitalism. Mixing of metaphors here but the Tsunami caused by PC started way back with S&L, built up with LTCM, finally became the Perfect Storm with the Wall Street Debacle. The backwash from which is circulating the globe and hitting the "real economy" and will do so for some time as more and more shonks and their deals are found underneath the rocks exposed by the receding wave.
All erstwhile Masters of The Universe aka Big Swinging Dicks need to have some real pressure applied to that ares of their anatomy. This to extract all the bonuses, profits from insider deals, freebies etc. that they awarded themselves and their henchmen in the exercise of PC.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
Moraymint 131
The way to get out of this mess is to have local primary elections for the right to stand as the candidate for each party.
This will mean that the member will be beholden to his constituents for his seat.
At the moment he is beholden to his party and thus to the leader of the party.
When the MP represents his constituents rather than bowing to the party whip you will get ministers held to account and sensible policies.
At the moment you have mainly career politicians who have worked their way up from being a researcher or a union official and have , in most cases no experience of the real worls at all.
They have to obey the leader to get reselected and to get a higher paying job
Complain about this comment
all investors should demand their money back to identify which funds are short
Complain about this comment
120. Moraymint- I hope Gordon Brown realises the amount of pure anger that he is generating among the British populace: he'll pay the price for this at the polls and in the history books. Moreover, if he keeps going like he is, he's doing all the right things to foment civil unrest.-
Our so-called masters are aware of the rumblings in main-street. It’s just that, at the moment they think they have the situation covered.
As in centuries gone by, they’re counting on an acquiescent and controlled media, pressmen that never ask the most pertinent and obvious questions, investigative journalists that don’t investigate, and a public that seems docile, is easily distracted and only wakes when its whipped into brief and carefully manipulated fits of outrage over celebrity wrong-doing; but not the biggest financial fraud in human history.
And if things get really bad, well, its no coincidence that the government has spent ten years and millions (probably billions) of pounds of taxpayers cash covering the entire face of the British isles in CCTV cameras, stripped away many of our rights and legal protection, introduced conveniently timed anti terror legislation, and has been arming the police with every form of weapon they can think of.
But whatever they do. It won’t be enough.
The future looks increasingly ugly.
Complain about this comment
# 137 maroon3
You're clearly a man/woman after my own heart. I think that the UK's economic situation is done and dusted: a basket case. The consequences will hit us like a steam train in 2009 and beyond.
The real issues facing our glorious political leaders now are the dire social consequences that will result from the disaster they've made of running (ie ruining) the UK economy and dismantling our centuries-old and, therefore, stable political system.
They'll pay the price in due course. What a mess. What a shame. We were indeed once a great nation. No longer, I fear. Well done Tony. Well done Gordon. I hope you're proud of what you've achieved in remarkably little time.
Complain about this comment
Moraymint,
I think the late Peter Finch summed it up best in his Oscar winning performance in the film Network.
"I'm mad as hell and I'm not going to take it anymore."
Complain about this comment
sashaclarkson@123,
Ain't it wonderful!
It is all to do with mutual pocket pissing. For Hank the Paulson, ex Goldman Sachs, is now in charge of the Sweet Shop over there in the USA. He who lead the request to the SEC for a certain five firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1. Instead, the 2004 exemption, only given to these five firms by Chris Cox, a Bush appointee, allowed them to leverage up to 30 and even 40 to 1. And of those certain five, Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley, three went belly up.
Complain about this comment
128 dennisjumior1
It seems he had quite a few operations going on:
" The former chairman of the Nasdaq Stock Market is best known as the founder of Bernard L. Madoff Investment Securities LLC, the closely-held market-making firm he launched in 1960. But he also ran a hedge fund that U.S. prosecutors said racked up $50 billion of fraudulent losses. "
That is a quote from:
http://www.marketoracle.co.uk/Article7769.html
which summarises a lot of the reports.
I wouldn't bet on all his other businesses being pure as the driven snow, or on his being the only ones with imperfections!
Complain about this comment
Even today $50b is a lot of money - so what has happended to it? If Mr Madoff is to be believed, he's down to his last $200m, and if this whole thing is as described, little more than a large Ponzi scheme, then much of the money has probably been used to pay off those who wanted their money back, until nothing was left to me demand from investors for some or all of their money back.
Robert Preston's article last week about the end of roulette capitalism and what replaces it is relevant. People who invest their money, even if they are greedy and don't ask too many questions, don't deserve to be defrauded.
In response to the credit crunch and the recession, Governments internationally have taken action, rightly, to protect the banks, they have also taken action to reduce interest rates and most countries have undertaken some form of fiscal stimulus. They now need to look at regulation which clearly has failed to protect individuals, institutions and the economy as a whole. Regulation needs to be agreed internationally and should be properly resourced, and carried out by properly qualified and motivated people, whose role is act on our behalf.
Complain about this comment
"Experts warned that some of Britain’s pension funds and insurance companies were likely to have invested with Mr Madoff, too. "
Sunday Telegraph 14 Dec 2008
Complain about this comment
Bembassat and Cie- 1.1 billion francs exposure
Benedict Hentsck -56 million francs exposure
Union Bancaire Privee (UBP) -1 billion Swiss francs exposure
EIM group 230 million dollar exposure
From FXstreet .com
Complain about this comment
The Wall Street Journal reported that several funds of hedge funds -- which raise investments for hedge funds -- have taken huge losses.
"I'm wiped out," the Journal quoted Sandra Manzke, chairman of one such company, Maxam Capital Management, as saying.
From Yahoo
Things are , as another poster suggested, going to get ugly.
Especially if a collapsing auto industry rips the heart out of the global economy.
Complain about this comment
stevenpalmer@142
There is that old adage, which applies to....
"People who invest their money, even if they are greedy and don't ask too many questions.." it is
"If it sounds to good to be true...."
These schemes, hedge/Ponzi call them what you like as in LTCM were sold on the premise of great returns with no downside, ever!
The only people for whom there is no downside were the initial packagers of the schemes who took their cut up front and went on their merry way. They plus the ratings mafia who were compliant in the pocket pissing. AIG of course got caught holding the insurance on the packages. BUT the kindly US taxpaying citizen, not the stinking rich of course, via the current US Administration of Fiscally Risible Republicans has coughed up the billions to save AIG amongst others, sorry arse!
Complain about this comment
A charity in Massachusetts that supports Jewish programs, the Robert I. Lappin Charitable Foundation, said it had invested its entire $8 million endowment with Madoff. The organization's executive director said she doesn't expect it to survive.
Other institutions that believed they had lost millions included The North Shore-Long Island Jewish Health System and the Texas-based Julian J. Levitt Foundation.
Hedge funds and other investment groups looked like big losers too. The Fairfield Greenwich Group said it had some $7.5 billion in investments linked to Madoff. A private Swiss bank, Banque Benedict Hentsch Fairfield Partners SA, said it had $47.5 million worth of client assets at risk.
The losses may have extended far beyond the coffers of the wealthy and powerful.
The town of Fairfield, Conn., said it placed nearly 15 percent of its retiree pension fund with Madoff. Officials were scrambling to determine how much of the $42 million remained
From Businessweek.com
Complain about this comment
I want to know where the pyramid has gone?
Complain about this comment
The pyramid has gone to providing a return to the early investors and the perpretrators of the scheme.
It has probably eneded up in large houses, yachts, private planes and less interestingly peoples pensions.
This game is going to go down in history like the South Sea bubble.
Complain about this comment
Re 76 & 103
Part II of Robert (The Toastmaster) Peston's BBC special SCAM documentary, "The humbling of America", will focus on the demise of the US as the global leader of capitalism and the world's reserve currency.
Would you buy a used car from these people, let alone invest your pension fund in the likes of Madoff?
The truth off all these rip-offs and fraudulent financial products called derivatives is that the US has been bust for years. It needed to fund its deficit to maintain its consumer lifestyle and place in the world. Now is clear it chose to do this by foul means not fair.
The truth is out, the Emperor (America) has no clothes.
It is clear that the American century, the 20th, is well and truly over.
Complain about this comment
Morning All.
"It is sad that this gentleman is being accused of stealing this much money;.." #37
dennisjunior1,
The sad/bad part is that no one, whether from the Intelligence side of things [FBI et al] or the money side of things [SEC et al], had any notion of criminal/dishonest behaviour for is it not a confession and his being "shopped" by family which has revealed everything.
The only conclusion to be made then is that the System is broken right to the very top [for that is where all the problems are lodged, with Command and Control] and the System is in Collusion with itself to keep such practices at the top which are criminal and dishonest, and which provide Principals with their excessive Power of Wealth, from View and Scrutiny.
All of which indicates a Lack of Smart Intelligence and an Abundance of Stupid Greed ..... which guarantees the System's Total Collapse unless New Smarter Intelligence puts in Place another System. That means that everything presently done to shore up the present Failing System, is a complete and utter waste of time and effort and nothing more than a fickle and effete invention of/for feeble minds.
And as is always, there are plenty of shenanigans afoot, but Big Business in Dodgy Practices [and boy, does that have some surprising businesses and members] is now running scared of Simply Shared, Greater Knowledge, and that is a Juggernaut/Runaway Freight Train you just cannot stop, even if you were trying and wanted to ....... http://blog.zedray.com/2008/12/09/iousa-%E2%80%93-the-end-of-the-us/#comments
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
As with #30 and a few others.
I'm an internal auditor in the public sector. I could see what was happening in the private sector and looked on in amazement when no one seems to do anything. I also see what goes on in the public sector and although I haven't been sacked I have been hounded, harassed and bullied for producing files and reports that tell the truth. The idea of whistleblowing is great but unfortunately it doesn't protect you as the odds are stacked in favour of the employer. I have a family to support. I am desperately looking for alternative employment so that I can whistleblow on what is going on without fear of losing my job and my family's house. Even if I whistleblow I feel that no one will do anything - the usual story is lots of soothing words are issued and then it's all covered up and no one gets reprimanded in any way. It's awful.
Just look at the baby P fiasco, around 2million people signed petitions and became active in demanding action to be taken before the responsible officers were taken to task and sacked.
I also agree with many of the others about it all being down to people gambling with others' money and losing it. Then governments bail them out. The people running these schemes should all be jailed in a prison and forced to do hard labour. All their assets should be seized and those of their families who can't show that they have bought them from their own funds that they have earned. Then we need to get back to proper banking and financial services. Current accounts, mortgages, savings accounts etc. We the tax payer now own several banks so we can institute this. If others do not operate on the same lines they will fail. We should not bail them out.
Stop the greed, stop the rot.
Complain about this comment
I've had enough of these moderators so I'm referring them to the BBC Trust, as there's gross dissatisfaction on all the blogs. They apply their rules blindly, without any understanding of their subjects, and without using any of the discretion they're allowed. They're welcome to ban me, I'll create another avatar and post under a different name.
Complain about this comment
moraymint post138 from alexandercurzon
HBOS
HELP
YOU
I
LOOK
UP
GOOGLE
IF you need a hand to sort it?
Complain about this comment
babble uk post 153
A fair summary and a good angle on
retribution.
Its time the Pipers PAID.
Houses in Weybridge? theres still plenty
over 2 million up to 10 million.
Many purchased at other peoples expense.
Common place all round greater london and
many other major cities. . .
Complain about this comment
Bonus Culture
Top end houses ie 2 million plus noticed
that many are going under offer for the
XmaS PAYOUTS.
FOR THOSE POVERTY STRICKEN CITY TYPES.
More generousity with our money.
Cheers Gordy on the REDISTRIBUTION OF
WEALTH from poor to the RICH.
Complain about this comment
Great train robbers steal £5M - banks lose £5M, robbers go to jail for 20 years.
Traders take £30 billion in undeserved bonuses. Banks lose > £3 trillion in the chaos that results. Traders pay taxman 40% of their take in income tax and walk away.
Is this the most inefficient bank robbery in history?
Complain about this comment
regulators initial analysis is
they've robbed and gone
gone with all the money
Complain about this comment
"Is this the most inefficient bank robbery in history?" ....#158
A perfect match for Keystone Cops, tom_edinburgh.
And not wishing to avoid answering your question and the question the BBC and Robert Peston should also be asking ..... Yes, it is.
Complain about this comment
105
Alex, I really don't know why the mods objected to 104, it was really tame.
Hedgies are more punters than bookies.
The only failed bookie I've ever heard of is now a prominent personality on British TV, and now presents himself as an authority on betting (vague enough, mods?)
An earlier poster wanted to know where Madoof would go if he skipped bail.
The answer, a mountainous country in central Europe, where no doubt he could no doubt become reacquainted with $49.8 billion, minus some loose change.
You'd probably also find much of the $3 trillion (that we know of so far) that the banks have lost there.
Complain about this comment
You can try looking up Madoffs backside
This comment was removed because the moderators found it broke the House Rules.
Complain about this comment
My 154 has been referred to the moderators for daring to notify you that I have formally instigated disciplinary proceedings against them. That is exactly why I have flipped, they delay relevant postings so long they distort the logical structure of our arguments, they remove valid arguments, they generally foul up much more than they contribute.
It is in the nature of a site like this that there will be a number of adversarial positions. Their role is to simply take the heat out of the debate, and the first step of that is to warn correspondants, not to shoot their postings.
I'm not complaining for myself, but because I see a pattern across all the blogs, cases being destroyed by youngsters who're frankly unqualified to act as editors in the way they are doing. This and the delays they are causing is destroying coherent argument.
My 154 was carefully checked before posting to see that it did not contravene any House Rules other than off-thread, and that one's indefensible because I'm protesting about their interference with the threads.
The point of excluding foreign languages, for instance, is to stop incomprehensible abuse. This is why it's an optional House Rule, but it isn't being applied with discretion. English is itself a hybrid of other languages, and can invent words, see the flexicon thread on Magazine Monitor.
As the moderators can't be bothered to reply privately, then they must defend themselves to their bosses and the Trust.
Complain about this comment
Now on top of everything the CNBC website reveals that General Motors has exposure to the Madoff scam.Let's hope this does not provide a killer blow to the company.
Complain about this comment
@ 158 tom-edinburgh
"Is this the most inefficient bank robbery in history?"
Don't you mean, "the most efficient"?
btw Do you think Madoff is a made-up name that the gentleman concerned dreamed up a long time ago as the final insult?
There are a lot of jokers out there and they appear to work assiduously for many years to achieve their ends.
Complain about this comment
At leasy Madoff has been rumbled. In this country there is an even bigger fraud being perpetrated...the prospect of fat public sector pensions being paid to 60+ yr olds, paid for by people forced to work beyond 60 in the private sector.
Madoff investors had a choice, tax payers don't!
Complain about this comment
#51 "And for those businesses that are really very very big, if you want to have the protection of the limited liability laws we all accept, then we need to have this information even more regularly - monthly in fact."
Monthly information will be meaningless since many of these deals can span months and there may not be any mark-to-market valuation if there is no equivalent market !!
Data for data's sake is a hindrance for the competent and a fig leaf for the incompetent !! Just because 2 legs are good, it does not automatically mean 4 legs are better !! All this does is create data overload for no perceivable benefits !!
What we need is timely *meaningful* information, not masses of meaningless data !!
Complain about this comment
#70 "Well let's make sure the bank understands quite clear that if they try it *we the taxpayer (the government)* will refuse to provide any financial help to that bank and that we'll let them sink."
Strange that you should mention this because I do not think Santander (the owner of ABBEY) is one of those queuing outside No. 11 for a hand-out !!
More threats along the lines of "Flash" Gordon saving the world ??
Complain about this comment
#142 "People who invest their money, even if they are greedy and don't ask too many questions, don't deserve to be defrauded. "
On the other hand, a famous American said, "There's a sucker born every minute !!"
The whole basis of such Ponzi schemes is that it relies on the greed of these people !!
BTW, I watched "The Sting" on TV last night !! How very apt for this day and age !!
Complain about this comment
#157 XmaS PAYOUTS
Who are you kidding?
I doubt there will be much in the way of XMAS payouts, in cash at least this year... maybe some deferred equity scheme... but probably mostly non-existent.
And remember that bonus payouts were taxable so the lack of them means less tax revenue; that has to be made up by the rest of us.
Before getting excited at the thought of rich bankers getting upset at lack of earnings you need to worry at who is going to pick up the pieces after the contraction in GDP that will result from a shrunk City of London.
As for £2M houses... probably foreign oligarchs.. after all £ are pretty cheap nowadays.
Complain about this comment
Do you want to know the secrets of 2009?
You can find out, right now, what's ahead for you.
- plus an overview of all your biggest astrological opportunities.
Be ready for your chances and your challenges! To order your Year Ahead Guide,
Complain about this comment
The whole of the City is nothing more than a glorified bookmakers.
What do people expect?
Complain about this comment
Post 170
Suggest you phone a few agents
Try weybridge esher walton on thames
and virginia water.
Hamptons
Savills
Curchods
Knight Frank
ETC ETC
Theres plenty of activity at the 2 mill plus
end HOME GROWN BONUS i checked it out.
Complain about this comment
Hopefully some top investors will be hit by this loss and preferably those with influence then compensation for the little people such as those from Equitable Life might get their compensation. It seems the regulators now are past caring as things can't get much worse for them and so any form of punishment is futile. Its like talking to teenagers.
When will the financial industry become a mature industry?
Complain about this comment
The Madoff fiasco is just another chapter in the predictable outcome of inadequate regulation of all types of large businesses. I am by no means Communist in my philosophy, nor indeed an ardent Socialist, but any reasonably minded person simply must acknowledge how the lack of control over the charlatans who have been entirely responsible for the world wide economic disaster has been deplorable and continues to be untenable. Sadly, those same charlatans are still running the show and there seems to be neither the will nor the intent to wrest fiancial self-regulation away from such quite criminally despicable and untrustworthy individuals.
For many years, we have been repeatedly informed we must afford these people maximum rewards for their very special competence and integrity. Even though many of us knew what an absolute farce and lie that has always been, it is now confirmed beyond doubt to be so. They are mostly opportunist, self opinionated egotists and they have abused their positions of trust in the pursuit of self esteem, greed and avarice. By their dishonesty, they have succeeded in devastating the lives of millions of 'ordinary', hard working and totally honest people, public and their employees alike. What is unfortunate is that WE have allowed that to continue.
It is a sad human failing that most of us seem to be quite incapable of exercising even a modicum of self restrains and discretion. One has only to visit a supermarket, or a city centre on a Saturday night, to observe how self interest overrides reasonable behaviour. That being so, we essentially have sets of 'rules' by which we are expected to conduct our lives.
The 'captains' of the business world have now clearly demonstrated their incapacity for the exercising of self restraint and discretion, or even basic honesty, so governments must now apply stringent controls upon those placed in positions of such responsibility and trust. However, I doubt very much if than can ever happen because, as Dennis Skinner said in the House of Commons back in the 'Thatcher' years when these abuses became clear for all to witness, "they all have their snouts in the same trough". That, of course, applies to many of our politicians too.
Many people are disinterested in history but very little that affects our daily lives is truly new. All of this has happened before. As far back as the 15th century Florentine bankers unwisely lent massive sums of money to English Edward III for him to wage wars, and he defaulted. That brought about what was possibly the first world financial crisis. Even though we can, we simply do not learn.
Complain about this comment
Sounds like we need M/s Cooper on the job.
The world's too big for Gordon to save but with Yvette Cooper and all her wind they will blow all the problems away.
For another day.
Which hedge fund did Gordon visit before he saw Bush?
Complain about this comment
What a surprise- a fraud in the noddy world of hedge funds- and one that is claimed to be very big even if it is not- what a surprise they do not even know how much money they have stolen.
We are in paradoxical times- hedge funds take on risks greater than the world GDP- Germany and the US discover that they must be able to produce cars- GB discovers that 25% of GDP in financial services is a nonsense- banks want to keep our money and still sponsor major sports and their own lavish parties rather than support their customers- we need to consume less if we are to avoid killing our planet but we have to keep the economy going as before- no painful structural changes that might let us get on to sustainability-supermarkets are worried about their supply chains when they have bullied them into virtual extinction- the pound is falling having been over hyped, who really thought that it made sense for us to be able to shop in New York or Paris and get bargains.
All in all we really do need to get a reality check somewhere- GDP is value added and wealth not consumer spending- investment returns are based on wealth creation not trading- interest rate returns are based on the banks being able to price their lending at an acceptable risk not on what GB tells them.
We are in for a painful correction to our economies- one that is overdue and must take us from excessive consumption to sustainable wealth creation. From what I have read we have been throwing away a staggering % of food and of course most of us have wasted so much money every Christmas. We need to get real but that requires a recalibration of relative asset values and wage levels within our society- and a real world view of what profit is.
I cannot fault what HMG are doing but what they have done for the last 10 years has proved to be the mirage that many of us thought but we were too busy pocketing the cash to care. The next year will be really horrible for an awful lot of people as we are going to have major change- instead of 2m new cars on our roads every year we should probably 1m and that will mean huge job losses but we need to do it.
HMG will need some real courage for the next stage- higher taxes on the better off and public expenditure into skills and infrastructure investment and a complete rethink of how strategic industries are run- let us get rid for example of the nonsense in Utilities- there is no point in thinking of market economies when we talk about energy- it just does not happen.
Sadly I suspect GB will bottle out as he will be desperate to be PM after the next election but then the Tories look pretty pathetic just now so let us hope GB does the right thing for the country- has to be a first time for everything
Complain about this comment
It seems like this amount of money taken out of the economy will cause only a small difference compared to the determental effect of losing our hedge funds. Once investor ask for the money back we may see the same effect as the collapse of northern rock where no one can get their money back and the value of the fund keeps dropping until there is money to retrieve
Complain about this comment
And so it began...
Complain about this comment
Even if Madoff and others are found guilty, jailed and fined. But who have got the $50bn which the investors have lost? Is he not just another stooge like many fraudsters and politicians? Bulk of the lost money is never recovered. It would be interested to see a list of who have NOT lost money.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
alexandercurzon writes that hedge funds are the bookmakers of the financial world. If only they were that financially stable with a similar time-proven business model.
Complain about this comment
His moves might have temporarily gained general acclamation but they would not have passed scrutiny of competent Mornington Crescent players.
Complain about this comment
152, 181
I had suspected that there was something unpleasant and anti-semitic lurking behind this question. Grow up!
Complain about this comment
alexandercurzon
What on earth are you on?
Complain about this comment
post180
50 billion may simply represent the [good]book value of the recycled AAA PERFUMED 4 skins belonging to the baker ,the tinker ,the tailerr and candlestick makerr recycled by their friendly butcherr who decided to make a career in banking .
The farewell state has induced the idea of things being[ risk] free, into the average joe moreon lobotomised with a state education .
Lucifer was believed in the garden of eden and his children are now ruining the financial system by pedling the same lies albeit in the form of credit cards to eve [women]in order to claim what belongs to Adam [his house]
Democracy is the devils plaground and the "THINGS CAN ONLY GET BETTER " advertising is his grafitti,why anyone should have thought that the majority are defacto right without any moral criteria is truly amazing
The primary western debtor nations Britain and USA are now terrified of deflation since it turns historical debt into an unsurmountable mountain [and about time too]
What we now have is a thousand times greater and more delusional than the south sea bubble which relatively speaking now looks a sober investment .
Great Gordon surpassed the Madoff scaaam a long time ago [but hes got a printing press and the brazen saaanta balls to use it to infinity and beyond .]
Despite "woody" Camerons protestations ,English money will be profligately wasted like Scottish oil .
Which is why pollytitians are preparing the nation for canibaaalism through the organ donor legislation sop to the meat packing industry .[remember how the prevention of errorism legislation is used in practice]
Dont say i didnt warn you when you end up canned instead of boxed !
.
Complain about this comment
moraymint post 185
i was offering to help so do a search
on my name? Linkedin google.
HBOS can be troublesome???
Complain about this comment
post 182 kiwi
Bookmakers = gamblers?
Complain about this comment
But can you trust a bookie?!
Bet ID Client Result
4674-7972-21 1558808 Lost
Result date Returns
13-12-2008 14:41:39 £0.00
Bet date Potential winnings
11-12-2008 18:26:29 £99,767.81
Stake
£0.14
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
"It's possible that Mr Madoff's $50bn estimate of how much he's evaporated is an overstatement. But there will be losses for investors in his funds, such as clients of Nicola Horlick's Bramdean."
Don't tell me reputations are on the line here? Poor things. I mean, how was anyone to know that the need for internal financial control, like boom and bust, had not actually been abolished?
Few other than old-school auditors like me cautioned that the stripping of finance departments to save overheads would almost certainly be a false economy. And not many questioned the orthodoxy that having people double-check things was inappropriate because it slowed down the process of making money.
For a number of years, I was so much in the minority that I seriously thought I must have gone loopy. But the spectacular performances of Messrs. Leeson, Kerviel and now Madoff have restored my faith in reason.
Complain about this comment
post 190 stillatery
I didnt get the previous poster antisemitic
JIBE.
Whoever he/she is its all imagination!!
So this crook is jewish does that mean he
cant be a crook??
Complain about this comment
186
'the primary debtor nations Britain and US'
There's only 1 non-debtor western nation, and that one, funnily enough, holds the gains, ill-gotten or otherwise, of all those who lent the money to us...
No taxman can touch it there, and they've each got a nuclear bunker in the garden.
BTW, have you seen how much debt is piled up in Belgium, Italy and yes, Steinbrueck's own country.
This is capitalism itself which is broke.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Comment 193 : MunichMadrid7980
Gordon Brown seems to be completely impervious to the thought that he might look stupid with egg on his face, and if you're similarly lacking in concern, by all means continue promulgating the idea that the relative financial health of nations can be determined solely by comparing the level of their public debt as a proportion of GDP.
Besides the public sector, countries also have households and corporations, each of which has a nett financial position. An outsider assessing the creditworthiness of a country would look at the net debt of the country as a whole - this would be a far more important measure than any of its sectional components.
The fact that Brown has backed his assertion of the UK's financial health only with statistics relating to public-sector debt (as fudged by PFI) means that almost certainly the stats relating to overall national nett debt are less indicative of good health.
Perhaps this is something he should be questioned about?
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Just when you think this crisis cannot suprise you anymore....IT DOES.
A lot more of this corruption will come out in the wash of Q109
Q109 is gona hurt like nothing that we've seen in our lifetime.
I was thinking of investing in a petrol electrial generator this Christmas.
Please note I use the word invest not buy.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
193
Non debtor nations hold increasingly worthless assets in debtor nations ie Norways huge oil wealth fund is in decline ,they should have left the oil in the ground instead they turned it into paper which will ultimately ferment into a much lesser ammount of oil .
Fiat currency has no absolute value and despite comparitavely recent history showing inflation ,deflation is also possible once the base of the pyramid gets swiped out due to credit withdrawal ,thus inturn wiping out the the leviraged class as capital assets deployed to produce product at ever decreasing market price fail to service debt interest and margin calls and get sold at fire sale prices to a new generation.
Deflation is the public eneema number one of the staaataaas quoerrs who do not wish to part with their assets
The Iraqis also are about to have their oil wealth turned into IMPORTED American wallpaper
The oil refining companys opperate a cartel ,if they do not bid against eachother the price cannot rise no matter how much OPEC reduces output .Even enlarged Chinese refining capacity may join in the colusion .
Sorry OPEC thats the way it is
The colapse of spirituality if allowed ,will lead to economic warfare within five years and a massive schism in the new world order about which Gordon Brown is on the right track and we shouldn't tease him for trying to save the world even if he did so much to ruin it
Complain about this comment
167 ishkandar
Thank you for your comment.
I think we agree in fact.
My point is that rather than the FSA announcing new rules on what you are or are not allowed to do as a regulated financial company (which as you say will just end up getting more and more complicated and ridiculous), the best thing would just be to say that you can do largely anything you want, and arrange whatever contracts you like, but you have to declare it all (i.e. the substantial details of the contracts) the moment you contract (say, for example, that you have to put it on your website, and say, it must be within 24 hours of you signing the contract), so that anyone at all can access this and the market can take a view on it.
Surely, that would make a good market would it not. And what downside is there, in the public interest, and for an economy's general good, of insisting on such massive greater disclosure from all financial institutions?
One way of looking at any company (as I'm not quite sure who it was who first postulated this.... er, it's not my idea) is as a set of contracts. Contracts of employment, ownership, purchase and sale etc etc.
For a financial services company, this is in fact an even more relevant a way of looking at things than for an 'ordinary' company
And so if we take this idea and extend it somewhat for these type of companies, and we change company law so that you have to declare each and every contract (with its substantial details) the moment, or within 24hrs of when, you sign it, then this would leave it to the market to determine how strong your bank/hedge fund/etc is, and not rely so much on some dumb, sleepy regulatory authority who is busy collecting data, and can only think (just like how GB ran the Treasury when he was there) of introducing yet more lines of 'you have to do this, and you can't do that, and.....'
You suggest what we need is 'meaningful' data.
My point is.... don't leave it to the FSA to determine what is meaningful, and then analyse this data, simply get the bloomin (to quote RP here) company to make all its contracts public, and then let the market work it out.
Complain about this comment
mrpants666 post 197
So who are you at home??
No knickers??
It will be interesting to see how Bramdean
Horlick gets out of this one.
Who will she blame???
GORDY or BUSH?
Complain about this comment
#190
Enough said
Complain about this comment
195.
So, if I had a mortgage of say 100K, with monthly repayments of 700 a month, my 100K would get added to the national debt picture.
But, if like many continental Europeans I have no mortgage, but have to pay 1000 a month in rent, this monthly obligation (which I can scarcely escape) does not get added to the national debt picture, on which 'creditworthiness' is based?
Add to this the fact that my mortgage interest payments typically get recycled back into the UK (or these days Spanish) economy, whereas many continental rent cheques go to the Franco-German wealthy property-owning elite, and end up in Swiss, or Liechtenstein bank accounts, where they are recycled into, I dare say, gold bars, or fodder for the likes of Madoof.
Personally the British model seems preferable, even if it means we carry more personal debt.
Complain about this comment
194
Kikidread are you either a Jewish banker or a Jewish lawyer ?
198
I see your point ,and so do the moderators
190
You should have thought about that before your blatant display of humourphobia ,remember sighs matters
Complain about this comment
#199 and others talk about 'fiat currency having no absolute value' but what are you suggesting as an alternative - a return to the gold standard? The perception of gold having intrinsic value is based purely on ancient man's susceptibility to its potential to make shiny jewelry - unlike some other 'precious' metals it has limited industrial value. The South Sea Islanders
used cowrie shells for similar purposes and that doesn't strike me as being a sustainable basis for a sound economy either.
Complain about this comment
The good news is that this probably signals the end of investment management personality cults.
Hedge funds are not just for people with lots of money. They are for investors with lots of money AND who understand the hedge fund industry. Madoff used a backwoods audit firm and had no 3rd party fund administrator. Moreover, he cleared and custodied his own trades. In other words, there was no independent financial or operational control. He was free to publish any returns he liked.
My advice to all hedge fund investors is to pull out of every cursed hedge fund that does not use an independent and reputable auditor, administrator and custodian. If you are invested in fund of funds, then demand proof that the FOF manager does not invest with any manager who fails to use independent service providers.
Don't wait for the regulators to wake up. Take matters into your own hands.
Complain about this comment
Shoes thrown at GORDY!!!
Contempt for CONTEMPT.
Complain about this comment
#205 "#199 and others talk about 'fiat currency having no absolute value' but what are you suggesting as an alternative - a return to the gold standard?"
I think you may have slightly misunderstood the point being made? :-)
No currency has an absolute value. Money is just an entitlement to consume goods and services, backed by legislation as to what is legal tender. The value of money depends upon the goods and services it can be exchanged for.
In a well run economy, the backing for the value of money is not useless metal bricks buried in a vault, but the total value of goods and services available in that economy. If there isn't enough money printed, or being spent, you get deflation; if as is more common, you get too much then there is inflation.
The entitlement to consume is always approximate depending upon the behaviour of others. That's why, in "normal" times, it never payed to buy a new car just after the new registration number had been brought in.
Complain about this comment
205 berkshire terrier,although gold will always be a valuable metal ,it would be foolish to use it as the basis of a currency system on account of having to deploy limmited valuable capital resources to dig it up only to bury it again .
However For a decade and more fractional reserve banking was given into the hands of compliant fools ever willing to bail out their political masters and friends who wish to make complete tutts out of themselves .
The natural cycle of seasons is as important in banking as it is in nature ,even daily life starts in the morning [winter]going through the seasons of spring and summer to finish in the evening Autumn .
Attempts by failed polltitians and buisness leaders to preserve their staaataaas quoerrs by pumping credit liquidity into the economy preserved a permanent summer economic environment, lacking regulation ,that only creates the conditions for super dupe err bugs equivalents like Madoff and his political counterparts , that would have been finished off by more regular cycles had they been allowed to weed out bad unsustainable buisiness models .
The credit crunch has come as a shock to the self deluded believers in king canute who have had their saaand caaastles washed away and want the printing press to save their worthless AAA's.
Winter tests the resolve and life force in the seed energy itself which has more fundamental value than any external expression of wealth
What right did Tony Blair and cronies have to access cheap credit, to reputedly own 6 houses when normal couples could not own even one except by purchasing a one way ticket to palookahville .
I am against no one who sustains their wealth through the seasonal economic cycles ,but TB to my mind seemed to be" in the know "about the fractional reserve banking fraud of reamortizing non performing loans to infinity and beyond as if ownership was a divine right separated from sound management .
How much capital resource has been wasted building office blocks to house three card tricksters in their modern form or build warehouses to store product for insolvent BUBBLE spendaholics, when world poverty and environmental issues cried out for funding .
The sheer unprecedented scale of the unfolding ponzi delusion despite universal education only sugests one thing to my mind ,that Christ walks the earth and faith in him has been diverted to faith in Credit bubbles for those unable or unwilling to face the bitter truth about the human condition and repent ,prefering the discredited promices of the Devil[no more boom and bust]
Complain about this comment
#208 Thank you Sasha.
I have probably misdirected my sarcasm at this particular post but have become somewhat jaded at the fractional reserve banking conspiracy theorists going on as if there is a practical alternative.
It has almost put me off reading Peston's column and that would never do!
Complain about this comment
So robert 10 billion euros is the amount the Irish goverment are going to put in to bail the banks out there. a very small ecomony of just 4.4 million people, this amount far exceeds the amount here in the uk. per head of population that is.
And i hear santander in spain have lost 2 billion euros which was invested in Madoffs 50 billion scam. this is surely even worse news for abbey and the other banks here in the uk that santander bought out?
THINGS JUST KEEP GETTING BETTER
Complain about this comment
Comment 203 : MunichMadrid7980
"So, if I had a mortgage of say 100K, with monthly repayments of 700 a month, my 100K would get added to the national debt picture."
Well, not necessarily. If your mortgage is with a UK institution, your liability of 100k will be balanced by the institution's asset of 100k, nett effect zero. However, if your mortgage is with a foreign bank, then the nett effect on the UK's "books" is a 100k liability, i.e. your debt. The asset side will be held in the books of the country of the foreign bank.
So you can see that, as far as the country's creditworthiness is concerned, it matters quite a lot if the household and commercial sectors, combined, are in nett debt or nett surplus on their foreign account.
Complain about this comment
Numerous postings by self explicitly referenced Ponzi schemes/scams over many years.
High-return/interest means HIGH-RISK; why are investors surprised? Just known Santander... will blame 12yo YTS schoolgirls & NOT fund-managers, directors...
It is only a matter of time before those with cash are told to 'invest' in high-employment high-risk projects [e.g., Ford GM Chrysler merger] or face 10% tax [seizure] by USA, UK... Treasury.
Complain about this comment
#210 Nil desperandum! ;-)
"have become somewhat jaded at the fractional reserve banking conspiracy theorists going on as if there is a practical alternative"
Well, there may be a practical alternative, but it needs to be carefully thought out, and widely agreed. The ideas in the "Money as debt" videos are not new. Unfortunately, the videos are so well presented, that some people viewing them might naively believe that they have become experts.
In fact, an alternative theory of banking was developed back in the 1920s by Major C H Douglas and his Social Credit movement. It was quite influential in Canada, AUS an NZ for a while. I came across the ideas in Robert Heinlein's SF novels "Beyond This Horizon" and "For us the living" I'm not sure what I think yet, but I just ordered some of Douglas' books off the internet, and I'm rereading some more orthodox stuff. If I come to any firm conclusions, I'll write to Vince Cable and ask what he thinks. But I want to be sure of my own ground first.
Complain about this comment
so much vitriol against GB !!!
he tried to help the spivs when others wanted him to tax them properly, the result is he is blamed for their excess.
look elsewhere where a crime is not a crime , speeding is optional and not really law-breaking !
speed cameras are a tax when you can avoid payment by keeping to the limits !
we plebs pay tax but if you earn enough tax is optional and voluntary !
let us nail these parasites and see how they moan !!!!!
Complain about this comment
is there a problem ?
Complain about this comment
For all the comments regarding this matter, and for that all the comments regarding the economy, where has all the money gone. Yes there are losers in this mess, but who are the winners. There is a lot of 50 billion lost here and a trillion lost there, but where has this money gone ?, has it been burnt, has it been spirited away to the land of never never ?, where has all this money gone ?. If this money existed in the first place then someone must have it ?, but who are they ?. I am left with the feeling that this money does not exist we are all living in a world that does not exist. We have been fed a fairy tale, now it is time to wake up and face reality, those that have fed us the fairy tale seem to be the ones that have gained the most. Perhaps we should look to them for where the money has gone?.
Complain about this comment
Bloomberg are reporting that Maddof's accounts were audited by a 3-person firm of auditors, of which only one was actually a practicing accountant.
I think a previous poster has pointed out that Maddof's Funds did not have an independent Administrator striking the Net Asset Values on each valuation date either.
Basically, anyone institutional investor who invested in this thing, or professional advisor who advised clients to do so, was simply negligent.
The costs to those covered above will be painful, but for Funds that are properly organised, this is actually pretty good news. They will pick up business on the back of it.
Complain about this comment
HSBC added to list.
From www.ft.com
Financial Times website
HSBC has emerged as one the largest victims of Bernard Madoff's alleged fraud with potential exposure of about $1bn (€747m) to the investment manager's collapsed venture, according to people close to the situation.
-------------------
From BBC website
Spain's largest bank, Santander, said one of its funds had $3.1bn invested in the firm run by Bernard Madoff.
France's largest listed bank, BNP Paribas, estimated its exposure to be more than $460m.
--------------------
Complain about this comment
Another victim
from Yahoo
A spokeswoman for Royal Bank of Scotland (LSE: RBS.L - news) told AFP on Sunday that the bank had "some exposure" to Madoff's company, but declined to give details.
------------------
Transparency is vital in these markets !
Complain about this comment
By the way we still allow the same people who got us into this mess to be bailed out by the great British public to the tune of x billions of pounds, are they going to do a made off with the proceeds?. I think we are all in denial that we can trust such individuals, we know how they live and opporate, trust can no longer be a word associated with these people.
Complain about this comment
There's a list of Madoff investors caught up in this scandal on Bloomberg. The most notable, in terms of scale admitted to, is Bramdean. I just can't comprehend how they could have given this guy 9.5% of their assets under management. It would not be surprising if this doesn't bring Bramdean as a whole down, and there's no doubt their alternatives business will be dead before Christmas.
Link to the story is at:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=agpSPRUVvkKQ
Complain about this comment
Madoff lost a lot of rich peoples money to other rich people, I do not see the problem, a lot of other rich people gained other rich peoples money. The poor people are worrying about it, I find this most bemusing ?.
Complain about this comment
With so many banks contributing to the Madoff benevolent fund ,one can only wonder if it was a front to pay off lax regulators or keep them distracted in bed with company .
Where did not the money go ,Exactly
As they say, only in Americe the land of the fee ,home reppo of the brave.
This credit crunch [ The Madoff brothers a day at the derivatives]is providing more entertainment than the Marx brothers .Aparently it will be hitting broadweay soon .
"Buddy can you spare me 10 trillion dollars"
Complain about this comment
These ruthless and premeditated attacks on our economies are more devastating and destructive than any fundamentalist terrorist attack - the perpetrators should be dealt with as ruthlessly as terrorists and the same legislation used to remove them from our society
Complain about this comment
# 223
You should spend a couple of minutes checking Madoff's client list. A large number are charities. Others are organisations that cater to the mass market (some of the banks and asset management firms), through regular savings plans, pension schemes etc.
If you think this affects only a small number of ueber-rich people, I think you're going to be in for a surprise.
Complain about this comment
Like most people I suppose I am shocked at the scale but not too surprised it was not disovered.
It is not so long ago the Fed discovered a similar fraud with the Mutual Benfits Corp based in Fort Lauderdale.
Part of the problem may be that the regulators too often come from within the industry,believing they know the perpatrators as being honest and upright. Further if there is a problem it is likely that the company being so large can pay any fine and make up any losses if required so not a problem anyway.
A great deal more cynicism and less cronyism in all regulators worldwide is what is required.
Complain about this comment
Nicola Horlick complains about poor regulation! Sorry luv-you put over 9% of your fund in Madoff. You never asked how this investment could return 11% per annum, regardless of what the rest of the market was doing.
If a return seems to good to be true it is to good to be true.
As a fund manager you make a judgement-and have to take responsibility. If you were unhappy about regulation by the SEC why did you invest in Wall street in the first place? Or did you just "take it for granted". Dreadful, and these people are paid to assess risk.
Complain about this comment
# 227
Actually the problem with Madoff's advice business (where the fraud took place) is that it had never been inspected by the SEC at all. I think the biggest problem with financial services regulation is that too much of it is focussed on the wrong areas.
# 228
Totally agree re Horlick. The fact is that had her firm done the bare minimum of due diligence, it would not be in trouble now. Never mind the remarkably consistent returns that Madoff claimed. The simple facts that he had no independent Fund Administrator striking valuations, and his auditor was a 3-person shop with only one active accountant, ought to have been sufficient "red flags" to ensure Madoff was avoided. The fact it wasn't says everything about the esteem in which risk management is held in her shop. There are more like it. Conversely, there are plenty of organisations that did veto Madoff for exactly the reasons I note. They'll now be punting this at clients/prospects, and will do well on the back of it.
Complain about this comment
To: Nicola Horlicks & other fund managers
cc: People with money with the above
I don't have a penny invested with clowns like you because:
1. You can't even out perform the indices (not loosing as much as the index does not count as out performing)
2. You like passing the buck by blaming the regulators, you were attracted by unrealistic returns and greed, is it ever your fault for losing peoples money? People cc'd take note.
3. Too busy trying to create real wealth instead on the back of others to make any further comments
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Bankers need to realise its not their momey they play with and should be personally accountable for funds entrusted to them.
We hear all the time about risk management and how expert the banks are managing our funds only to end up in a mess like present one. Yet at the end of the day not one top banker will lose a penny of their earnings or private assets.
The corporate laws that protect them should be removed to make them more careful in their transactions, ok we will not earn vast amounts of cash from our investments but our funds will be safe.
Within the next 50 years the largest annual payout in the UK should be pensions but that will not happen the money just will not be there to pay out.
And before any banker tells me he has lost millions on dropping share prices in his personal portfolio just remember you got the shares as bonus payments when you was creating the mess
Complain about this comment
Dear Robert,
Can someone explain to me why losing £400 million in this scam can cause RBS shares to rise by 1.78%
Complain about this comment
Quote from BBC website.
'Mrs Horlick said 9% of Bramdean's funds were invested with Mr Madoff, but she said even if the money was written off, the fund involved would be down just 4%'
This quote puzzles me. Why was Bramdean involved with Madoff if the above applies?Or how can the above statement be true?
Come on NH, what are you talking about.
Complain about this comment
It seems to me that the entire hedge fund industry is a legal vehicle for robbery on a grand scale. They should now all be closed down.
Complain about this comment
Re #116. Is global warming responsible for the the tip of the iceberg being a rotten underbelly? I think we should be told.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
# 223. mickthebish
Further to my point at #226 above, check out the following Bloomberg story, listing a sample of the charities affected by this. This fraud does impact rather more than rich people.
http://www.bloomberg.com/news/muse/
Check the article entitled: "Madoff Arrest Forces Nonprofit's Closing, Stirs Worry at Other Charities"
Complain about this comment
@ 52
Surprised you have only just realised it after 41 years. Guess better late than never..
Complain about this comment
Well this does 2 things:
1) It explains what all those nutters on this blog are on about when they constantly talk about Ponzi schemes.
2) It shows that criminality is decided by the rich and shows bias towards them.
This geezer won't get too much, considering he's ripped off $50bn.
If you robbed a securitas depot for that mich money - even if nobody got hurt - you would be looking at a harsh sentence.
The whole hedge fund industry is based on confidence, it matters not if that is true confidence, or false confidence to the Hedgey's - as long as there is some then it will be OK.
So when are the 'regulators' going to start doing some regulation? A lot of people have noted above that these hedge fund managers are put on a pedestal as being 'super intelligent' by the media and the greedy who were benefiting at the time.
It's a shame, people get mixed up between academic intelligence and hot-air intelligence.
This is a case of the latter.....
Complain about this comment
I was absolutely gobsmacked by Ms Horlick's complacency in her interview on Today this morning.
She claimed they couldn't possibly know it was a scam. Sorry, but aren't they supposed to look into where they invest their money? Isn't this called due diligence or something like that? Why on earth do clowns like Horlick get such stratospheric salaries if they can't even show a basic level of competence in doing their job?
And as for saying "we've only lost 4%, so it's still better than other investments", that shows a pretty poor grasp of maths. Investing the money under the mattress would have lost precisely 0%, which is better than losing 4%. And there are even some bank accounts that pay interest, so I'm told.
The scary thing is that if it's so easy to defraud people who are supposed to understand about money, are there more scams waiting to be uncovered?
Complain about this comment
Who where the auditors?
Squeaky bum time if you are an audit partner in this firm?
Complain about this comment
#153
I'm not at all surprised little has been done. I have designed and developed Operational Risk systems and have worked closely with accountants and consultants during this time.
I was at an OpRisk shindig not so long ago and overheard some people from a rival OpRisk development company talking about a course one of our consultants had given.
They (the OpRisk developers) were remarking how simple the course was, they had been quite bored, it was going too slowly. On the other hand, the Risk Managers from those companies implementing OpRisk systems had struggled badly and hadn't been able to keep up!
If this is the calibre of people that FS companies are employing - and I see little or no evidence of quality risk management in the public sector either (having worked on systems for the DWP, too) - then perhaps you should not be surprised.
I don't think whistle-blowing will help, the powers that be have abrogated all responsibility, merely pointing at their Risk managers and announcing gleefully: "It's their fault, not ours!" Much like ministers washing their hands of agencies (too many to mention) that ministers appointed in the first place...
Complain about this comment
I was astonished at Ms Horlick's comment on the Today programme that the US Authorites have failed the investors in Madoff's fund. The light touch regulation, opaque ownership structures and tax advantageous domicile of so many hedge funds are amongst the principle reasons they flourish. It's the law that hedge funds are only for wealthy and experienced investors, that much is in Federal law. Face up to the fact you backed the wrong horse (gambling analogy intended), say you made an error of judgement and learn for the future.
Complain about this comment
I wonder who the auditors are and how they managed to let the wool be pulled over their eyes for so long.
Perhaps there will now be an enormous damages claim against them.
Complain about this comment
# 242 bringbackblair
Do you mean the auditors of Madoff's firm? If so, they're already being investigated. You might like to know, though, that Madoff's auditors were a 3-person outfit with just one active accountant working there. Not what you'd expect to audit a sophisticated advisory/fund management business.
This fact alone ought to have warned everyone off investing in him. That's the question that ought to be put to those entrusted with normal people's money to invest. Why didn't the lack of routine independent oversight of this guy ring any alarm bells?
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
The Israel newspaper "Haaretz" permits more honest discussion of the implications of the Madoff affair (and they stretch far beyond the mere financial) than do the prim old ladies who moderate Preston's blog.
Complain about this comment
Why's he out on bail when he might abscond "abroad"?
Complain about this comment
Now this is just a guess but I bet that we are not only talking about daft investments here.
If I am a fraudster and I have had my drawers investigated by all and sundry while those lovely banks have been investing even more money in me, then my confidence is going to be quite high.
The next thing that I would do is use my worthless balance sheet as security for debt which I would then spend. I would then inflate the value of my assets to cover the hole. I would keep doing this until I could no longer borrow any money. At this point my whole deck of cards would fall.
But in the meantime my creditors would have packaged up my worthless debt and sold it on at highly leveraged amounts; or they would have borrowed against their derivatives of my worthless assets.
Assume a leveraging of 10 and we have $500m; assume 20 and we have a billion. The figures given by the banks today maybe just the tip of an iceberg.
Fantastic.
And for Horlick and co. to say don't worry is frankly BS. Hasn't she heard of due diligence? She has been daft and should admit it, but a far worse scenario is Compound Daftness (a new term for the negative impact of Collateralised Debt Obligations, Hedge Funds and the like).
Madoff has fallen because his credit lines dried up and I bet he got greedy during the last few years of easy money. Let's wait and see how much of the fraud was committed in the last five years.
Even more interesting will be the asnwer to 'How many more crooks have done the same and how many will the current financial mess expose?'
Let's see.
Complain about this comment
#246
"Why didn't the lack of routine independent oversight of this guy ring any alarm bells?"
Because he was offering great returns to greedy people who care only about their bonuses and not about their investors.
Complain about this comment
For the SEC Regulators not to have seen what was going on is serious enough but for party's here to suggest a less regulatory environment is better is mad.
We need in place at the various regulators poachers turned gamekeepers.
What we have are lawyers or bureaucrats or graduates but no working experience professionals, and those who claim they are haven't worked at coal face for so long it shows.
Smart investment banks and hedge fund staff are merely people who know how to either circumvent the system or are very good at being economic with the truth and work 'other peoples' money.
Until the staffing of the Regulators most noticeably the FSA is repositioned to employ those who are prepared to think outside the box this con will not be the last.
It should also be understood that no MP can work in either an executive or non exective roll, even as an advisor or consultant until at least 5 years after retiring form Parliament.
If we want cleanliness and honesty we can not comntinue working with a half baked system that is so open to mistrust and dishonesty.
The system will continue to work and probably better if the "arrogance of ignorance" at the very top was removed from the equation and replaced by those who are prepared to work for a living and not sit back expecting a bit fat salary for one day a months work.
To assume such an arms length approach by directors employed on that basis is for the benefit of any company is a joke.
Will any change happen here? Unfortunately no because the gravy train is too rewarding to those who give and do nothing!!
Complain about this comment
Regarding Nicola Horlicks comments, Auditors etc here is a snipet "Hedge fund investment adviser Aksia LLC warned clients last year not to put their money with Madoff after learning of “red flags” at his company, including that its books were audited by a three-person accounting firm, namely Friehling & Horowitz that included one partner in his late 70s who lives in Florida, a secretary, and one active accountant, Aksia said".
Errrr Hello Nicola...................! Does anyone know what the value Bramdean was pre Madof (say Friday) as she said the fund had been 2.5% up before, therefore as she then said she would be 4% down after (if its all gone) then per se, she has 6.35% of the total fund value in Madoff. A fair chunk considering the Audit trail.
Complain about this comment
Anyone remember the Kings Club snowballing around 15 yrs ago in central Europe ? That pyramid scheme reeked of cheese but operated somewhat different, but it ripped off and hoodwinked alot of people. I believe the organisers are still at large. So Medoff isn't doing anything modern but simply fantastic he's able to milk the system so cleanly during a crisis. It's just the damned system which is supposed to detect these tricksters simply doesn't work. I never had any confidence with any banking system and Medoff's dogs just proved that.
Complain about this comment
Funny how any mention of a particular country is removed by the moderators, especially given the recent history of people fleeing there and being granted effective immunity from the legal systems of the rest of the Western world.
I wonder why this is....
Complain about this comment
# 252. robertdmarshall
Robert,
I'm one of those who thinks "less is more" when it comes to regulation. I still think so even after Madoff has come to light? Let me explain why.
Firstly, the FSA already has 8,000 pages of rules, and it adopts a light-touch regime compared to the SEC (who ought to have been regulating Madoff). The problem with most regulation is that it monitors the wrong things and is very easy to game. The brightest Compliance professionals gravitate towards the regulated firms, not the regulators.
Secondly, and actually of much greater importance, if I go to a professional advisor to whom I pay a fee, I expect them to undertake proper due diligence on third parties with whom they deal. This is already a regulatory requirement, though it's surely simple common sense anyway. If they are reliant on regulators to do their basic due diligence for them, I feel they are failing to do their job. I really don't like the idea of Horlick and others getting away with blaming regulators for the crass incompetence of their own operations.
Consumer protection via regulation of financial services firms certainly has a role to play. However, displacing the normal due diligence that professionals ought to undertake as routine is not the right role for regulators. Rather they should ensure there is a sufficient financial buffer within regulated firms in case such due diligence is not properly undertaken, and they are required to compensate clients. So, proper capital adequacy and mandatory indemnity insurance are a better requirement on the regulated, I think. They are also much easier to monitor.
Having more bodies at the regulators would help, but remember this is paid for ultimately by the consumer. So you have to accept lower investment returns, or higher transaction fees, if you really want the regualtors to micro-manage financial firms.
Complain about this comment
Double-entry book-keeping was invented by Pacioli in the Middle Ages. The idea is that for every asset there's a liability and v.v.
Am I the only person who's wondering how Madoff managed to get around this convention?
Where are the $50-billion on the other side of the balance sheet? Madoff must have lent on the money he raised or bought tangible assets.
Room for a few forensic accountants here.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
So we have children running our banks now who can't tell the difference between rip offs and proper investment. Send them all back to school and get the Govt to impose SATs (Standard bility Tests) for bankers and all the other idiots in finance.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
HedgeFunds were running at 50% redemptions before this happened. I think this will definitely impact the credit lines from the Goldies and JP are giving the Hedgies. Some are converting to Fund Management houses to counter the redemptions!
Complain about this comment
is it in the name - i did some business with a guy called Pillage - didn't go as i expected - enough said!?!
Complain about this comment
212 excellence
Hmm, so all the UK mortgage assets held by Santander are a liability for the UK and an asset for Spain. Not so good for them at the moment, I suppose, but better than putting all your loot in Madoff's fund.
Who owns an asset is hardly a big deal, though, can't really see how it makes much difference if the UK's mortgage assets are owned by martians or cockney sparrers.
The only downside I can see in the UK property-owning system vs the continental renters is the carnage which ensues when house prices rise or fall too fast. Having massive property-based liabilities is no problem if they can be serviced through lean times. But that's the same for property renters as well as mortgage holders, unless unemployed Germans etc like sleeping rough en masse.
Renting a property is also having a liability, except for sqatters.
Complain about this comment
Another thought - why should the UK accept any of this? It's a US problem, the Fed underwrote the exercise, they must pick up the tab.
Complain about this comment
who knew?........
who knew "what"..... this is a much more important question.
to suggest that one person can "move" $50b on his own is ludicrous. obviously there was a machine. the machine consisted of...
"the players"...... the people in the know, the insiders, the "u will make some serious money here contingent"..... (but dont ask too many questions.... trust me, i am guru)
"the admin" ...... the people who would give various parts of their anatomy, just to put their job title on their CV... (as well as receive unbelievable salaries and bonuses).
"the payers"....... (no this is not a typo.... )
the people that dont have the same (length) of experience in this facinating game.
"the players" have cashed in... like u do when the u know the "game" is over, (providing u really are a player... and were given the nod)
"the admin".... a percentage will have all their savings in company shares, and therefore become part of "the payers" (though they did have all those bonuses).
the other percentage will have perhaps had a flutter but had some "gut feeling" that this aint so good.
"the payers"..... well they pay..... hmmmm well, they dont pay either because they manage other peoples money :)
Complain about this comment
I for one am glad Nicola Horlick lost her money. It is her responsibility as 'part of the club' to understand implicitly her investments. If half of Wall Street questioned Madoff's unstackable numbers, whilst she was telling us Madoff was one of the best investors around who's responsibility is it? She wants the city to have free reign but when she makes mistakes she wants the authorities to make a perfect platform for investment.
Peston the lack of insight you bring to anything other than one of your scoops can be a bit anemic. This may be a ponzy scheme worthy of the 1920's but this is far from the biggest piece of accounting that will be seen. If a little hiccup like 2001-2003 uncovered Enron and Worldcom what is the biggest breakdown in the provision of finance going to bring out by february and march. American companies use and abuse off sheet accounting like you and I use an ATM. No doubt British companies do as well. What company is going to go belly up in february and march? 50 billion will look like Woolworths when the next bankruptcies occur.
With all this scoop journalism I want to see some pressure Mr Peston on what legislation is needed. How do you keep the risk in the city and the investment side whilst seperating and injecting safety to the retail side? Do we need Glass Steagall back? I understand politicians can't spook the markets but there needs to be a very mature extended policy formulation before anything is even attempted to be passed.
Why are no business journalists questioning the government on this? The fact none of you are categorically saying that policy in the UK is just buying us time if the US were to bounce again. If it doesn't Brown's policy is bereft of anything that can encourage any comfort even through an extended recession. There is not greatness in Brown's policy, it has been twelve years of us and much of the world booming through the US's boom. A little pressure on Brown to come up with anything that isn't big manipulative government would be nice. Show us the succesful small company that is receiving finance via government policy? A lot of guff and as before on the hedge funds Mr Peston you seem to work the headline and not expose the real problems of enacting or questioning the policy.
Complain about this comment
#214 sashaclarkson
I fear that with Major Douglas's works (I believe they still have their supporters in Canadian Prairies), you will be well on the way to joining the anti-FRB zealots. There is nothing wrong at all with FRB (and it is consistent with a gold standard too if that fancy takes you - this was done for centuries) - the problem has been the ratio of reserves
Complain about this comment
As ever more horror stories emerge about the fraudulent and incompetent behaviour of a small number of people working in the financial markets along with the general misbehaviour that seems to go on there, then the sooner these markets are more tightly regulated the better it will be for everyone not working there.
It is becoming more evident that that there are too many individuals abusing the "light touch" approach towards regulation to get rich quickly by whatever means possible. In doing so they they are wrecking the integrity of the city and finacials markets as a whole.
We alos need to see the regulatory bodies taking much firmer action against some of the incompetents running our major banks and other large institutions, when they fail.
These people are being handsomely rewarded to ensure that our top banks are being well managed and competently run. Not just for the benefit of of top bankers and shareholders.
We need to see postive action being taken against top bankers and managers who fail catastrophic scale either with confiscation of all their assets and wher possible with prison sentences being handed out. Bankers and chief executives need to share the same finacial destitution that many workers and sahreholders have to endure when matters go so wrong because of their management incompetence or decision making. They shouldn't be allowed to walk away with great big grins over their faces and safe in the knowledge that their financial futures are secure.
Complain about this comment
My comment was removed - why? $50 billion theft and the guy isn't even in the nick??????
Complain about this comment
zuckerman is not so good... (on tv) he should have put the "admin" on instead.....
Complain about this comment
I’m not an economist, but in my opinion, the real crisis is still ahead of us. This opinion is based on real data and the fact that we still haven’t drawn the conclusion that we have to correct ourselves. After all, the reason for the crisis is to awaken us toward correction.
For now we’re observing the crisis at the stock market, but it may take another year for it to manifest in the economy. The tsunami wave of the financial crisis has not reached humanity yet. For now all the stock market plunges are mostly assessed by the anticipation of the financial crisis.
How will it manifest? There will be a wave of unemployment, wage reduction, the virtual disappearance of high-tech, a drop in real estate prices, growth of inflation, bankruptcies, nationalization of banks, and annulment of investors’ savings. And this will continue until we recognize the reason for this crisis – us!
http://www.laitman.com/2008/12/the-real-crisis-is-still-ahead/
Complain about this comment
excuse me!... this is not too much traffic...
(unless u awol playing the market).... :P
Complain about this comment
Well now we know, Robert, you don't know the differance between a Ponzi scheme and a Hedge Fund. A Ponzi scheme comes in many forms. Some of them not involved in the finance industry. As Madoff said its based on a big lie. The first one I heard of as a young lad was involved with horse racing. The reason why Robert Peston links the Ponzi scheme with hedge funds is because he has no understanding and is fed information by those who wish to blame the forth coming Hedge Fund crash on Madoff. In the same way that the Bank collapse was blamed on Sub-prime mortgages.
Complain about this comment
Madoff was only trying to keep the show on the road like Great Gordon ,but the wheels came off .
Lets have some christian charity .
Madoffs last words after he was read his rights were reputedly
"any club that would have me as a member wasnt worth beloning to,so i started my own"
Complain about this comment
BBC World News--
I didn't know you were in the business of promoting anti-semitism. You monitor this blog but not your own reporters?!
How totally out of line it was for the story on Bernard Madoff to begin with his being born of Jewish parents in 1938. What the X!?@#$% does his religion have to do with it? Would you have said he was born of Catholic parents, or Christian parents, or Muslim parents or . . . ??
It was an insult to Jewish people around the world and the reporter should immediately delete that portion of the piece.
SHAME ON YOU! Isn't there enough hatred, bigotry and stereotyping without BBC World News playing a role in it?
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
276 stilllitterary , there you go telling the truth again ,how could you have imagined the ministry of truth would pass that one ,since you are not counted amonst the annointed .
You will have to go into naughty corner now ! lol
Complain about this comment
And possibly finally here:
Given the SEC and Fed were asleep at the wheel (or rather, are made up of the same kind of Duke & Duke inside trader that got suckered in the first place), the bell-the-cat question: are there any other sole traders or partnerships which have escaped proper scrutiny thereby in any other areas?
One might start by thinking about audit partnerships...whoops, I think I just broke wind in the lift...
Complain about this comment
Has Robert changed his original posting? stilllitterarty says that Robert cannot tell the difference between a Ponzi scheme and a hedge fund, and yet Robert does not even mention Ponzi schemes.
All Robert seems to be saying is that the Madoff debacle has exposed a failure of the regulation systems in the states, which will cast doubt on the other financial products that it regulates. Hardly rocket science.
Complain about this comment
Inevitably this article reaches the wrong conclusion. This specific fraud has nothing to do with the hedge fund industry and it will not result in the end of hedge funds. That is a ludicrous statement from a journalist who has a lay understanding of economics and a populist touch. Madoff is a fraud and a hugely succesful one at that. If you consider that it took a liquidity squeeze of historic proportions for him to finally give up the fraudulent nature of his business then you must take your hat of to him and what he has managed to engineer. (Personally when this story broke we sat here in amazement at the sheer scale of what he has managed to pull off. The audacity of it and that "nobody invested" managed to uncover that it was a fraud I find absolutely amazing especially when considering that the investors were largely professional offices). This is not to excuse what he has done nor is it correct to use an obviously exceptionally talented individuals pursuit of fraud to colour an entire industry which stands first in the line for mis-representation and abuse at each tightening turn in the current economic malaise.
Turning to your comments regarding the rapid contraction of the industry. That there is a contraction is undeniable, this has been inevitable in as much as the credit squeeze has reduced the apetite for investment across the entire financial landscape. That means less money being invested in the alternative investment community (hedge funds) as much as it means traditional pension fund providers. In essence money has moved from money managers to cash in the bank and in many instances gone under the mattress. For the hedge fund industry in particular this has meant that they are having to return cash and for that portion of the industry which has been investing in illiquid assets the call for cash has been exacerbated by increasing margin terms by the prime brokers. (For a classic case of where this leads you only need to look at Peleton Partners whose fund was liquidated practically overnight by sudden loss of appetite by their financing providers).
What this means for the hedge fund industry though is not an end but a simple evolution away from the illiquid instruments that are dogging the banks as much as it is the hedge funds whose strategies involved them toward the deep and liquid instruments that enable hedge fund managers with the talent, foresight and experience to produce returns for their investors and be perfectly able to return their cash as and when the investor requires it without the restrictions being put up on returning that cash.
That there will be a large number of funds going out of business is to be expected in this climate (for a list of casualties waiting to happen just run up a list of funds who have gated up (ie: restricted the abililty of investors to have their cash back)). What it does not mean however is that the industry itself is dead, it just means that the landscape has changed once again as it has before and doubtless will again. Unfortunately for your article however, Fraud is not some endemic part of that landscape, that is just a part of life for those who seek it irrespective of whether they work in a hedge fund or a fish farm.
Complain about this comment
I agree with you, but i feel this asset dumping of hedge funds is already underway; and this probably can only increase the pace. The problem with hedge funds is very simple; they are built on 'Trust Me' premise.
They are very dangerous for the financial system in the long run as their activity and ability to fulfil on their commitment is not being looked at.
This should change quickly to avert disasters of this nature.
Complain about this comment
A hierarchy of incompetence.
Nevermind the ''investors'', peers or regulators.
Exactly who were the accountants/auditors involved ??
Complain about this comment
Madoff wanted to become the merchant of Venice and must have made sure the regulators had a pound in their pockets on a cold winters night
the regulators pretending to go in with shock horror is pure hollywood along with Madoffs Oscar performance .
Complain about this comment
If we want to remember this event, in order not to see it all again in a few years, we should we use the term "doing a Horlick" to mean throwing money away on con-men and sharks.
Complain about this comment
# 284
Yes. Pretty damning comment on Horlick's attitide to the Madoff issue in todays FT Lex column, link below.
http://www.ft.com/cms/s/1/2f5a7e7c-caa9-11dd-87d7-000077b07658.html
Basically, Horlick is blaming the regulator, and the FT questions this. My favourite quote is right at the end: "When soft-headed savers fall for Nigerian 419 scams, no one thinks to ban the ISPs."
Complain about this comment
286.
The same comment about regulation could be applied to the banking sector's recent love-affair with equally dodgy investments- AAA rated mortgage-backed debt.
Madoff's 50 billion is nothing compared to that 'poncey' scheme, 'cept for that one, we foot the whole bill.
Complain about this comment
Can anyone out there explain why, having made the 'Grand Gesture' of resigning, Andy Hornby has been retained by HBOS as a consultant on, allegedly, £60k per month?
A consultant for what? Is it because he has those very special skills and that experience which we have so often been told to be commensurate with the responsibilities and concomitant rewards of being a company executive? Indeed, those very skills which brought about the financial fiasco we are now experiencing. God help us if we are still relying on the likes of Andy Hornby!
The truth is that big business has been an executives cosy club ever since dear Maggie's halcyon days and, since then, successive UK administrations have slavishly followed in her footsteps by dreaming the Big American Dream, or rather, 'fantasy'.
As another contributor has already suggested, deregulation opened the flood gate for the unscrupulous and dishonest, i.e the Mafia, to hijack the running and control of the financial services sector. What a wonderful opportunity was gifted to them. The Mafia is now so sophisticated it has virtually no need at all to run street-level rackets, especially when rich pickings can be had with the protection of the law, and governments. Indeed, it comes as no surprise that the US regulatory authority failed to adequately investigate Maddof's activities. One does not bite off the hand which feeds one!
This is a quite laughable side comment to all of this. To comply with anti-money laundering legislation, we have been for the past couple of years repeatedly harassed by various financial institutions to verify our identities. In some instances we have held the accounts for as long as 30 years and no account is under 10 years old. Given that these very same companies are now totally in the control of common criminals, perhaps those institutions should be looking closer to home!
Complain about this comment
Really quaydealer, you are either very naive or have a deeply vested interest in justifying the status quo.
The fact is that since deregulation the financial services industry has been wide open to hijacking by the less than scrupulous who very quickly realised a goose had laid its golden egg right in their laps.
Fortunately for society generally, most of us are either scrupulously honest or too terrified to act dishonestly by the fear of being caught out. That does not apply to those of criminal inclination who readily understand their strengths comes from our weaknesses and fears.
Too many 'big businesses', and I include major bank, insurance companies, management consultancies/accountants, legal firms and stock dealers in my listing, have senior executives and partners who are not above manipulation of the rules and regulations or, as has been shown, breaking the law, to further their personal interests. That is exacerbated by those having responsibility for regulation being manufactured in the same melting pot. Poacher turned gamekeeper is the expression I believe.
As long as thing are working in their favour nobody questions what is actually going on, especially governments who are driven more by the next election result than what actually needs to be done. Indeed, the situation is made insidiously worse because senior politicians court these crooks in the perception that there will be very lucrative openings made available to them if they fail to be re-elected and they certainly have no intentions of rocking those boats. (Was it 24 directorships John Major had at the last count?)
On analysis, I cannot envisage how the 'system' can ever be changed because that change can only be brought about either by those charlatans already in the driving seat, or, heaven forbid, a popular revolution.
The latter is highly improbable in the UK and the former is unlikely to come about as long as the miscreants responsible for the fiasco all have their snouts in the same trough.
Complain about this comment
Robert,
Is it true that Madoff Securities' auditors were a small 3 man firm based in Rockland County New York ?
If so how could a 3 man firm properly audit a securities firm worth tens of billions of dollars ?
The short answer is they couldn't but no doubt that suited Mr Madoff's purposes.
The US Treasury and the Certified Public Accountants regulatory authorities should never have allowed such a small firm to carry out Madoff's Securities' audit without their work being examined by external regulators.
Didn't they learn anything from Enron ???
Complain about this comment
Some of this story truely beggars belief.
An audit team consisting of 3 people, one of whom is an octogenerian, professional fund managers from far and wide - and pretty high too - not spotting this was a scam.
This illustrates one thing: people don't care whats happening as long as they are making money. There was seemingly no need to investigate to ensure the returns were real, they were making a mint and didn't WANT to investigate incase they found it was too good to be true.
This is a widespread disease, partially contributed to by the fact that many people in the city don't actually understand what is happening, they follow set patterns and routines, rules of thumb and have not got the big picture to be able to stand back and take a considered view.
Quaysider is a lunatic - what is "the talent, foresight and experience to produce returns for their investors"? Have you never heard of market efficiency? Hedge fund managers only beat the market by luck, any trading strategies and rules are already included in the prices and cannot beat the market. There are plenty of studies that show no fund managers consistently beat the market, those that claim to do so, like Madoff, have something to hide.
Complain about this comment
Amazed at the way that Mr Peston seems to get access so readily to Mr Darling. It seems to be a very "chumy" relationship.
Should we perhaps be wondering how and why these "scoops" are obtained so "exclusively " by the BBC?
A good report, but not very balanced. I was was left wondering whether this was a psudo government party broadcast on how Alisdair Darling saved us all from this "bunch of bankers"
Complain about this comment
Bernard Madoff - the regular day Robin Hood, Steals from the Rich and gives to.....the RICH???
Under house arrest where he thinks it's ok to send his valuables to friends and family because "he didnt think they were covered under the his frozen assets"??
I think enough ignorance has led to this situation, throw him in jail!
Complain about this comment
We can’t chuckle as it will affect most of us directly or indirectly. Many hedge funds will suffer as a result and as well as many pensioners. The problem is just growing as a snow ball rolling down the hill, which we are unable to stop. The scale of this fraud is quite unbelievable, just showing that some people are happy to turn a blind eye if they smell money. It is not an easy time for investors, as stock markets are very volatile, property prices are falling, mortgage lending has shrunk considerably, rental yield is considerably reduced and [Unsuitable/Broken URL removed by Moderator]buy to let mortgages above 75 percent simply don’t exist. Perhaps keeping money under a mattress is a safer option after all (for a time being at least).
Complain about this comment
View these comments in RSS