Thursday, December 11, 2008

Bernie Comes Out of the Closet

Not a year has gone by during the past fifteen that I have not contemplated what Bernie Madoff did (or didn't do) to make his money. Seventy to one-hundred basis-points-a-month. Net. Net. Net. During tempests, earthquakes, panics and crashes - even during the closure of the exchange itself, Bernie apparently minted coin like few others. Even Renaissance and Shaw tripped occasionally. Not Bernie. Yet no one new what he did. It was one of the best kept secrets in the world. Oh yeah, sure, split-strike conversions were the official line. But every skeptical arb trader knew this couldn't be true.

I also never came across an ex-Madoff trader the way one meets ex-Shaw, ex-Moore Cap, or ex-Citadel employees. Resumes are sent in reply to postings and guys have done the rounds, even if they weren't unhappy and making a moral statement. A spouse moves...whatever. Surely there must be disgruntled Madoffians somehwere, right?. Were they ummm underground? I mean, iterally? My friends at a large IB (who were soliciting business from them years ago) who'd been to their offices said it looked the bridge from the USS Enterprise (the Starship - The Next Generation version). Entry to the IM sub was strictly verboten. Uh huh. He said it was a paperless office. No paper trails. Hmmmm. Violators were fired. Weird. No one transgressed.

Whatever he did, he came a long way from arbing the odd-lots that were the reputed foundation of his activities. I knew his shop from London where he was one of the few to make markets in US stocks out of hours, and if my clients for whatever (mostly ill-advised) reason needed to trade instantly, Bernie would make a price. Not necessarily a good price, but a price. But one does so at their peril since the folk with material non-public information are more predisposed to want to trade outside hours, so the pick-off risk was huge. But he never complained.

Next thing I know, he's at the center of electronic trading revolution - an electronic market-maker facilitator at the center of trading universe. Yet even Timber Hill has bad hair days. Volkswagen ord-pref days. Not Bernie. Is he arbing the exchange fee structure? Is he algorithmically scalping cause he's seeing the order flow before it gets to the exchange? Maybe. Profitably? Who knows? But I didn't have a problem with an old jewish guy making markets. This is what we DO. But there are these investment funds - Fairfield Sentry and Kingate, and these are the issue. They are Madoff-only feeders reputed to be $7bn each. Are they funding his market-making? Why does he need so much capital? What the f*ck f*ck f*cking f*ck could he be doing in the equity markets with that muh capital and still keep it a secret AND deliver returns? They say they are doing these split strike conversions but I can't see how the numbers work. Nor can anyone else. The Wall Street Journal raises the red flags, in an article but it's dismissed as hyperbole disseminated by jealous competitors. But thge nagging thing is: there are lots of smart guys out there. More than sixty of them near Stonybrook with Simons focused on cracking the nut faster, better quicker, and this activity and result, I can understand. But there is no sign of such exactitude or intellectual firepower at Madoff. Just 70 to 100 bps per month, secretiveness, and dissonance.

In 2000, I advised a family-office on their alternative investments, and constructed a portfolio on their behalf. I had free rein (thanks! anon). Included in their legacy portfolio was a sizable Madoff position. As a fiduciary - and a conservative one - coming on the heels of LTCM which also lacked transparency and which made it hard for me to raiise capital - I dug, asked every welll-connected equity-finance, prime-broker, electronic trader and HF allocator type I knew and it still didn't add up. The best and brightest still had no more insight than I, though the skeptical shared my suspicions. So, I strongly suggested they "dump it". "One isn't being compensated sufficiently for not knowing, and something just isn't right here. Yeah maybe its OK, but I think it's not". But they liked "it" and they liked "him". "He's always paid", they said. "We've been with him a long time". Old school they were. Trusting. What the fuck did I know anyway?

Well it seemed to me that the "split-strike conversions" were profit shifting bookeeping tools. Money invested in the feeders did obtain split-strike conversion positions on their books that had an implied "yield" equal to their return but it seemed these were pre-arranged combinations that shifted return back to the investment vehicles and were "phontom" positions vs. Madoff securities. In the interim, Madoff presumably has use of the entire pool of capital, to do what he pleased, plus whatever that pool could command in terms of leverage from bank lines and financing sources. It could be in anything and everything. He could be doing mutual fund timing, or mutual-fund market impact trades. Credit arbitrage. Funding coiiup d'etats in Africa. or buying GSCI commodity swaps. More plausibly, he could be doing option and index-option market impact trades since he was ostensibly at the center of market flow, or he could be at the center of a loan-sharking network across America earning 50%pa, and here he was passing a paltry 9% back to investors. Either he was crooked beyond belief or he was an evil contrapreneurial genius. Who would have have thought he was both??!!

Some crimes are too perfect. Some facades too well-painted to be original or convincing. A good hustler knows he must lose sometimes in order to win. THAT is the reflection of reality that makes it believable, and gives confidence to the punter who will shortly be taken out. THAT was what was wrong with Bernie Madoff's ponzi. The people who were taken - like the Family Office and many others investors who in time will go public on their fleecing - wanted badly to believe they were onto to something that was so good that they ignored the most obvious signs of bogusness. It just didn't make sense. It just didn't add up. Even Jim Simons earns it. There is no free lunch.

There is something fitting and just in the timing of this. It is emblematic of America since Reagan and the Great Leveraging. Something for nothing. Thank you Mr Laffer. But as a philosophy and modus operandi it is quite literally, bankrupt and without merit. And Laffer has since been proven to be full of shit. Now, Americans will have to confront this, the premise that greed is good and self-guiding and somehow omnisciently beneficial for it has had repurcussions down to the core of our society and values. "Sorry everyone....what you've been pursuing has all been a lie, a big ponzi, a rat-hole to nowhere....". Re-boot.


Gen Kanai said...

Fascinating. By all accounts, however, Madoff's victims are all well-heeled, so while they were clearly defrauded, they should have known better.

Here's one of the problems. The AP is reporting that, "If convicted, Madoff could face up to 20 years in prison and a maximum fine of $5 million." That's just not stiff enough. Madoff will die in prison as he's already 70 years old, but he has no money to pay the fine. These white-collar financial crimes should be much more strictly punished. Hell, Madoff's bail (at $10 Mil.) is 2X the maximum fine. There's something wrong with that.

Gen Kanai said...

Forgot the URL:

wcw said...

So what exactly does Jim Simons do?

Anonymous said...

He was arrested on a single count of securities fraud. Much bigger charges - and max penalties - to come...

Anonymous said...

Gen Kanai, what stiffer punishment do you suggest than fining him all his money and putting him in prison for the rest of his life? If he hasn't got as much as $5 million, it doesn't make any difference if he's fined $5 million or $5 billion.

Anonymous said...

Wait for a pre-jail heart attack (in the ski lodge - in his wife's name you see). A swift cremation (don't "forget" the death certificate) and he can go and join Kenny-boy in 'paradise' (island variety or maybe the Bush ranch in Paraguay?). Who knows, but they'll 'fix' this somehow. Kenny boy must be dying for some mogul company. Life will be so much more interesting for him now.

Anonymous said...

I think Ponzi is passe - now we have the Madoff Scheme. Call it Madoff Scheme!

This thing is much bigger and he creamed people who should have been diligent. Ponzi just did it to the folks.

Anonymous said...

Wonderful essay. But such a good writer should know it's free rein.

Anonymous said...

Via Bloomberg:
Not everybody was fooled. Jim Vos, investigating on
behalf of potential clients, found that the auditors, an
accounting firm Friehling and Horowitz, occupied a
single room (13' x 18') in Rockland County.

"Cassandra" said...

Gen - I read your musings and enjoy them... thank you.

Since "Trust" trumps "order" in importance in market-oriented democracies, I think transgressions of trust deserve to be dealt with more severely. I've argued before that Japan, while not without its scandals, has a strong sense of "shame" as an effective deterrent, which is absent in USA.

As UK readers will know, They never found Maxwell's body. And Robert Vesco too was never brought to so-called justice.

I am secretly hoping for a Robin Hood twist to this saga... Maybe Bernie didn't spend it at Lutece and run off with it, but instead he funneled it to UNICEF, funded a secret lab to discover a cancer cure for the public domain or perfect cold nuclear fusion for free as well as good charities around the world....

"Cassandra" said...

Woland - I've debated this issue of how to protect proprietary advantage, long into the night. And however you slice it, using Tweedledee as your accounting firm is a big red flag. As Enron and other have shown, the major accounting firms can be bought for "not a whole lot", so why risk raising the audit/ independent admin flags unless there is something nefarious.... ??

Anonymous said...

Madoff was by far the biggest hedge fund. It was obvious he was front-running but i thought he had friends at the SEC, bec. for years people tried to shed light on his so called proprietary trading. now it's revealed to be a sham. I never touched it as it was opaque and too regular. But I know many private investors who were in funds of funds, Access is one of them, Arlington, etc...50 billion worth...Again, who is getting screwed will again be the underlying small investors not the funds of funds who took no risk but commission. This is certainly the end of the hedge fund business. It will be interesting to see which hedge funds are left next year...aside from Paulson? i even know people redeeming from him.

"Cassandra" said...

WCW - Touche! the point was that given the firepower thrown at the problem, RenTech at least has a plausible (which is the operative word) chance of achieving a profitable short-term exploitable forecast and internalizing the infrastructure to execute it. Moreover, RIEF IS transparent and files 13F-HR where as Medallion is HIS and employees money.

Anonymous said...

Cassandra -- Nice write-up, as always.

Gen Kanai -- not all of his investors are well-heeled. He has long-time employees that had their entire nest egg in the fund, and that has now been wiped out. I'm talking about hard working, honest men and women that now have to start over from scratch.

Not to mention the families that had money at local family offices that placed money at Madoff. Many small investors are going to get burned on this.

It is heart-breaking.

Anonymous said...

Great post. As good as it feels to be right about something, I'm not sure you wanted to be THIS right.

Alea ( posted a great nugget about Madoff's operation from Larry Harris' Market Microstrucures for Practioners:

"Many institutional traders would like to trade with Madoff in order to access the liquidity that its dealers offer. The firm, however, will not accept them as clients unless it is convinced that they are generally uninformed traders"

So indulging my imagination, I'd guess his investors just assumed they were getting their little piece of the arb....a pleasant little arrangement consecrated within the walls of Boca Raton Country Club, or some exclusive Palm Beach restaurant and fed out some others "in the know."

This is a shame, in the most literal meaning of the term.

Anonymous said...

Re: Madoff's investors, my understanding from a well-connected source is that he had a large number of investors who had placed money with him but not under an advisory contract, and therefore not reported to the SEC. The official ADV numbers of $17 billion and 15 or so investors may be low, in fact it may be very low. The $50 billion number may be much more accurate, and the list of victims much longer than a handful of super-rich individuals.

Jesse said...

Excellent collection of insight and reasoning. The closing paragraph is priceless.

P.S. Love the avatar, as a long time fan of Stephen Chow.

Anonymous said...

Cassandra, Another great post...up until the last bit: "It is emblematic of America since Reagan and the Great Leveraging. Something for nothing. Thank you Mr Laffer."

It would be entertaining at least if you would try to show any link between Art Laffer and Madoff (or any other part of the recent financial fun & games). And leveraging? Surely you don't need help to find the statistics showing that UK and EU households, banks and financial institutions are far more leveraged than in the US?

john e. walker

Anonymous said...

Crime and greed on Wall Street, THAT'S NOT NEWS!! That is a way of life, to support outlandish, imposibily expensive lifestyles. Don't even try to drag Reagan into this. This Blue state, inbred, Ivy league, we're smarter than you can even imagine, East Coast CORRUPTION.

Anonymous said...

Laffer's not even remotely wrong. There is a point on the marginal tax curve that maximizes income: too low and you leave dollars on the table workers are willing to pay, too high and people engage in massive tax fraud [see Swiss, Russians, Germans, French, et al] and work less, thus denuding the Gov't of tax income.

Unknown said...

"Fascinating. By all accounts, however, Madoff's victims are all well-heeled, so while they were clearly defrauded, they should have known better."


So if they were poor it would have been a bigger problem huh?

You reek of classism. What I find to be most entertaining is that you clearly value money over life.

"Here's one of the problems. The AP is reporting that, "If convicted, Madoff could face up to 20 years in prison and a maximum fine of $5 million." That's just not stiff enough. Madoff will die in prison as he's already 70 years old, but he has no money to pay the fine. These white-collar financial crimes should be much more strictly punished. "

What? Don't believe me? Let me give you an example of how you do: If a poor man robs a liquor store through violent intimidation and gets away with $400 you would argue that a $5mm fine and 200 years in prison would be too harsh. But this man defrauded easily millions and possibly billions of dollars from more people who by your own admission can afford it more easily than a small business owner, and he did so without the threat of death or grievous bodily harm. Yet you demand harsher punishment for a man who has yet to be convicted if a non-violent crime though he probably will be. So it is obvious that you value the money of the rich over the life of the poor, or you think he deserves a harsher sentance because he's rich. Either way you're transparent to me. You're just as shallow and greeding as he is.

That's what I like to call a sacked lunch! I know it tastes salty, hipocracy usually does.

Unknown said...

I meant 20 yrs in the above example, sticky keyboard.

"Cassandra" said...


please - there is really no call for insults here, or less than civilized discourse.

out of the morass (without the insults) comes an interesting moral question:

"Is it less morally egregious ponzi-ing rich people vs. poor people?"

Charles Butler said...

That people would even bite speaks volumes about the pervasiveness of the 'risk vanquished' myth of the last couple of decades. It may, in the end, be seen as splitting hairs to make the distinction between Madoff's fakery and much of the legitimate.

anon 8:40

The Laffer argument on tax revenues and fraud doesn't hold water, btw. Governments don't spend tax rates, they spend tax revenue. If fraud is rampant, rates rise until spending needs are met, tax fraud effectively lowering the nominal rate. The exception would be Argentina at the time of the dollar peg, where revenues never met expectations with disastrous results. But it's rare to find a case like that which starts with expulsion from the Garden of Eden.

Rick Bradley said...

Having seen Medallion from the inside (former employee), I'll say for the record, that not only is it impressive, but also solidly legit. Jim runs a tight ship with great people. They do very well but do have their ups and downs.

As for the newer funds (RIEF especially), those are newer than my time there. I presume they must be run equally above-board, as Jim is a class act and I couldn't imagine him going it otherwise.

Rick Bradley

Anonymous said...

I just ran across this post copied in its entirety at
with no attribution except that the headline was hyperlinked to the original.

Anonymous said...

“Hustlers of the world, there is one Mark you cannot beat: the Mark Inside.”

William S. Burroughs

Anonymous said...

What if Rentech's Medallion was simply taking edge from RIEF AND REFF? Front run every trade and you have a consistent source of revenue no matter the market conditions. No way that would show up in a filing.

Anonymous said...

Very well written and interesting. I was with you all the way to the part about Reagan and Laffer.

The so called Laffer curve is certainly legitimate having been cited for centuries before Art Laffer and Jude Wanniski came along and claimed it for their own (one of my ancestors, John Calhoun, used the concept to argue against a tariff bill on the floor of the US Senate in 1837). There is a lot the supply siders got wrong, but the "Laffer" curve wasn't one of them.

The Great Leveraging is not a new phenomenon and is not related to tax policy and political rhetoric. It is a typical characteristic of a fiat currency and has happend repeatedly throughout history. See the South Sea Bubble, the Mississippi Bubble and France in the late 1700s. In the French experience of the late 1700s, savings fell, debts rose, speculation was rampant and bribery was widespread. The same was true of the two other bubbles. Sound familiar?

The worst thing about a fiat currency regime is its effect on the poor. Inflation is the most regressive tax and while the rich can benefit at first, the poor don't get any benefit. It is inflation that is the source of rising inequality in the US. The two variables which have the highest correlation to wealth inequality are iflation and coruuption. Think about Latin America for a minute.

Madoff's investors are just another victim of the ponzi scheme we call the US economy. It won't end until we go back to a real monetary standard.

"Cassandra" said...

JM - thanks for the heads-up; the nature of the blog is aggregation, and they linked and reprinted. Not ideal, but they are not commercial and information yearns to be free. That said, formal attribution is nice, but linked is acceptable substitute to outright thievery.


Thanks for the measured comment. I should have been more precise, for I do believe I understand the nature of the Laffer curve and accept that there are rates beyond which revenues fall. That said, I do not believe the theory upon which "less is more" was borne out in the US experience given what was little more than tinkering in comparison to others experience at the extreme end of the rate scale all which have since been rolled to levels where it is doubtful there is any sensitivity of the type posited (Mark Thoma makes some good comments here).

If one accepts that levels are within the range of insensitivity (and this is not a stretch) one can begin to see Laffer as a justification (and a disingenuous one) to have something for nothing, to spend without offsetting revenue, consume without saving, borrow from the future to consume today. In and of themselves, there are merits and drawbacks at various points in time to each of these undertakings, but it is dishonest to cloak them in theory that has little bearing on the prevailing reality. And this IS a slippery slope. I see the mentality that dishonestly "sold" this, meeting the wishful thinking which "bought it" (for parochially selfish reasons) as quite similar to Madoff and his investors, hence the analogy.

Laffer IS an optimist. And this has uses to be certain. Maybe he believed it, but most economists understood there was never much chance revenues would be requited with the revenue loss. For the physics of finance are agnostic, and wishful thinking is fraught with delusional danger.

Anonymous said...

Great post, Cassandra--this is what's great about the web. I have access to people who have an inside scoop which will not appear in the MSM---ever!

"Cassandra" said...

As for Medallion, I (along with everyone involved in some form of quantitative investment strategies) have wondered the same. But the pieces have always fit together and made sense. They've reportedly lost money when they should have, and have learned the hard way (as their record and Dr Simons early experience suggests. Seeing their 13Fs
one can infer some of the alphas and anomalies they are pursuing, and these too make sense. Madoff NEVER made sense...

"Cassandra" said...

Major Point: I do not have an inside scoop....merely a closer peripheral view, but it is still peripheral. But "If those walls could talk..."

Anonymous said...

I had a friend who was taking a look at the Madoff product about 3 years ago and he gave me the basic description of the strategy and asked me what I thought and I said, "in my experience, pretty much everything that sounds too good to be true is too good to be true". And that was the one-and-only time I'd heard of this Madoff guy until now.

Dr. Andrew Lo of MIT has done a lot of interesting work statistically showing that hedge funds with incredibly stable, positive return series are almost certainly gaming the system in some fashion, though I think Lo's work emphasized "marking-to-model" and the not-really-reliable valuations given to completely illiquid holdings rather than gross investment fraud.

Btw, am I the only one thinking that the hedge fund industry has gotten a free ride off the trust generated by the 80% of the investment business that's highly regulated and audited at great cost? It seems to me that people (rich, supposedly knowledgeable investors no less) wouldn't be nearly so quick to give large sums of money to completely unregulated hedge fund managers on such illiquid and not-very-transparent terms unless there was an overriding sense of complacency created by . . . . . . well, created by something, anyway.

Just wondering?

Anonymous said...

"As UK readers will know, They never found Maxwell's body." Bloody Hell: who did they bury in Israel then?

LetUsHavePeace said...

Cassandra: Neither Professor Laffer nor Professor Thoma has been able to reach President Reagan's understanding of tax rates and their effects on enterprise and government revenue. That is hardly surprising; as academics both of them have had economic lives that involve steady and guaranteed pay checks. What the Mr. Reagan knew from direct experience is that "ordinary" (sic) people and businesses who live outside of government have incomes and revenues that fluctuate as wildly and as often as asset prices do. When the government tries to establish "fairness" by having progressively higher tax rates on income and estates, in good years the taxpayers look for and find legitimate and illegitimate shelters for their income and assets. Once this habit of tax avoidance is established, honest and dishonest cheating becomes the default setting. As a result the government collects less money than it would have if rates had been kept flat and at a rate no greater than government's share of the total economy. That part of Professor Laffer's thesis is indisputable. President Reagan knew this to be true from his direct observation of how people in Hollywood were as dependent on the artful tax dodges of lawyers and accountants as they were on the studios. What Reagan also understood - but no one in academia or government seems to have even considered - is how much more money could be collected if marginal tax rates were regressive, if the Costco approach to pricing were applied to income and estate taxes. If people knew they would pay a smaller share of each successive bracket of income, tax cheating would largely disappear; and enterprise would flourish. If, in addition, tax rates were consistent across entity classes - if corporations, individuals, estates and trusts were treated identically - and double taxation of income streams was eliminated, revenues to the government and net after-tax income to the citizens would skyrocket. This may seem like alchemy, but it is really just common sense. I wasted several decades of my life as a tax lawyer here in California, and I can assure you that the mass of "dark matter" of unreported, under-reported and mischaracterized income and expenses is truly enormous. It is hoarded capital, and like all hoards it provides neither investment nor income for its owners or the society at large. It is a tragedy. Thank you for your wonderful blog.

Anonymous said...

Oh please. Greed is good, as long as the rules of the game are reasonable and as long as the rules are enforced.

There are only two kinds of people in the world who don't get this: Liberals, and Alan Greenspan.

Yo! Alan! Your philosophy is not flawed, it was your implementation of the philosophy that was flawed. Making YOU highly flawed!

donna said...

No, because greed is about violating or getting rid of the rules to profit yourself.

Greed is not natural, and it is not good. Nature punishes greed.

Anonymous said...

Cassandra, thanks for this post, and for your blog in general.

The existence of a Laffer curve, with at least one global maximum, is a matter of simple mathematics (well, okay, simple calculus).

Where we "are" on the curve, where we "should be", and the implications of trying to move, are certainly valid topics for debate (preferably over a beverage or three).

Anonymous said...

dierieme asks: "They never found Maxwell's body." Bloody Hell: who did they bury in Israel then?"

Is Cassandra implying that Mossad nuked Maxwell (a la Litvinenko) and then substituted the body?

Gen Kanai said...

I go to sleep and overnight this thread is on fire. :)

Wikipedia had no entry for Madoff when I posted my first comment on this post. They do now.

Anonymous: "Many small investors are going to get burned on this."

At first that was not apparent. I stand corrected. My main point with this comment is to say that larger, wealthier investors have the wherewithal to research and investigate their investments whereas smaller ones generally do not.

Jack: "So if they were poor it would have been a bigger problem huh?"

It is a larger problem when a smaller investor is wiped out completely vs. a large fund that takes on additional losses for one year. If that's "classism", then I'll happily wear that mantle.

Gentlemutt said...

Cassandra is absolutely correct on Laffer to the extent she refers to his role as an avatar of the objectivist madness risen to power and then general acceptance. When the WSJ stops printing his op-ed pieces he will no longer serve as such.

Let Us Have Peace, thank you for the succinct and dead-on analysis of what is now becoming fashionable as 'behavioral economics.'

Someday, maybe soon, we will appreciate what my old academic friends find to be the odd self-restraints of the Victorian age --- they knew a heart of darkness lay within.

Gen Kanai said...

Madoff was ex-chairman of the NASDAQ board and had decades on that market. That someone of his stature and experience and connections chose to use a Ponzi scheme for his vehicle says volumes. Madoff was better connected and informed than 99% of the people on Wall St. He could have done things traditionally and should have still done well, perhaps not as consistently but certainly not illegally.

Anonymous said...


Thanks for your response. I've read Thoma's takedown on the WSJ editorial and its certainly convincing, but there are a lot of disagreements on the shape of the curve and effective rates versus stated rates and so forth. Personally, I'm in the camp that says there is a multiplier effect from tax cuts that is probably greater than the one for spending, especially when the spending starts from a point of large existing indebtedness, but we weren't far enough to the right of the curve in the late 70s for tax cuts to pay for themselves. In other words, those tax cuts would have been fine if we had also cut some spending to offset the loss of revenue rather than running up the deficit. There is no doubt in my mind that the tax cuts had a positive effect on growth. Its taken this long for the debt to build up to a point where tax cuts and spending increases are losing their effectiveness as growth stimulators. We don't seem to disagree much on the curve itself.

My larger point is that the large deficits wouldn't have been possible without a fiat currency. You are right that the influence on the culture from hearing our "leaders" tell us that deficits don't matter had an effect. We have a whole generation who grew up believing debt isn't a big deal. Ironically, they may ultimately be right. In a fiat currency world, it is a good bet that eventually whoever has control of the money supply will crash the currency and you get to pay back that debt in devalued money.

I just love history, especially economic history, and it amazes me that the same things have to happen over and over again. I know everybody thinks that if you favor a gold standard (or some kind of commodity standard) you must be nuts, but for most of history it was those who favored paper money that were considered nuts. And every time fiat money has been tried in the past, it has failed exactly as it is failing now. Excessive debt and speculation. Low savings. High levels of wealth and income inequality. The something for nothing attitude.

I guess what I'm saying is that Laffer is a convenient scapegoat, but he isn't the problem. He and Kudlow and all the others are a symptom of an unsound monetary policy. Central planning of the money supply doesn't work any better than any other type of central planning. Too many variables and too much room for error. And the errors always favor the wealthy over the poor.

I don't want to hijack the thread so I'll stop now. Your post was great and I'm glad there are those like you who take your job seriously enough to know when something doesn't smell right. Madoff was just another John Law scamster playing with pretend money.

"Cassandra" said...


Thanks for the Maxwell reproach. It's strange that I have no recollection of the recovery of his body being a news junkie with a reasonable memory. Oh well, Must be reading too Private Eye. Mea culpa...

Unknown said...

For the record, I know a few investors who got burned in this thing and they are not all rich. Many invested in this in pooled accounts, partnerships and other investment entities. My best freind's parent's are 70 years old, long retired and lost everything they had spent their entire lives working long and honest hours to save. Their only remaining asset is their house, which they are now preparing to sell. No punishment is even remotely severe enough.

Anonymous said...

Jake. I love this commentary. This isn't a new phenomena. One can point to history or a curve, but in reality it comes down to the greed and fear that lies within. In the years to come we will find several such headlines. "Money manager hid losses. Attempted to hide them. Bet to make up for them until he had nothing left." (See Bearings Bank) The only difference between this "financial genius," and most of the poor folks in Vegas, gambling their paychecks away in hopes of that one great hand to make up for their mounting losses, is that this guy had unlimited funds to cover losses. There have been several stories like this. Blame the SEC for being in bed with the lot!

Anonymous said...

madoff tip of a huge iceburg...
there is one big fish out there and
the dominoes will start to fall big

KitchenSlut said...


In a single episode so much about the world has been summarised

Anonymous said...


Mauldin's latest letter appears to lift some points from your post. No attribution, of course.

Anonymous said...

All in all very sad. Worst even is how stupid are all those Financial Professionals that were promoting and szelling this story. By now the only way out of this crisis will be through a period of darkness and a return to ethics.

Anonymous said...

Madoff Made Off with the Sheckels

Here come the Chosen People
falling on our heads
toppling from heights
their pockets lined with lead.

Where once they parted seas
and muttered Yahweh's word,
the smartest money drifted
to short the goyim herd.

The gold was largely fiction.
The calf, a grim charade
--another slaughtered spectacle
along the Heeb parade.

"Cassandra" said...

Anon-1102; I suppose being a best-selling author allows one to do that...

Anon 1216; Please cut the insidious anti-semitic crap - it has no place here; Or if you wish to voice it, be brave take personal attribution on your own soapbox; You undoubtedly will have some fractions of your overlapping "identities" that one can associate with some generalized unsavouriness - "coward" being an example you've displayed here.

emantheman said...

Is it possible precious metals will emerge as the leading asset class once again? Nothing like having a real, tangible investment.
If the investors that bought this fund, or bear stearns for that matter, had owned gold this would not have happened. Of course one could argue gold was sold down the river years ago as well.

Anonymous said...

«My best freind's parent's are 70 years old, long retired and lost everything they had spent their entire lives working long and honest hours to save.»

The liberal viewpoint:

fortunately there is collective insurance and there are safety nets and they will not be totally ruined no matter what.

The libertarian viewpoint:

good riddance to some sore losers! Buyers beware, winners get the spoils, losers end up in the gutter.

Anonymous said...


Why is it that when someone speaks the truth about the "chosen people" is taxed as anti-semitic?
Is the "chosen people" so above the rest of us that they cannot take criticism or FACE THE FACTS?

LetUsHavePeace said...

Gentlemutt: I hope you can persuade your academic friends in experimental economics that a study of marginal tax rates and their effect on capital creation might yield some profit. I have tried, without any success, to interest members of the professoriate in undertaking such an experiment. I don't know what a test would show, but it has seemed to me worth the trouble to investigate whether a unitary, reward-based rate structure might create more government revenue AND more private savings and investment. I have even been foolish enough to offer money to pay for such an experiment. It will not surprise you to learn that I have found no takers. I did receive a polite refusal from George Mason's Nobel Laureate but from others, nada, not even questions about how much I might be willing to spend. A kind, tenured (but not in economics) acquaintance at Berkeley explained to me why I have failed in my quest. My willingness to pay for the studies proved that the idea of unitary, reward-based rate structure is without merit. "If the idea were really any good, you would have an academic credential to prove it; and you would be asking for money, not offering it." Of course, he is right. But this misadventure has answered one question. It used to puzzle me why even the most temperate of the American revolutionaries - Franklin and Washington, for example - developed such a bitterness towards the Tories. To be dismissed out of hand, even when you are willing to pay for an audience with the King's anointed, is galling, especially when one is trying to do something to solve the country's problems and not one's own. Thanks for the kind words. All the best.

"Cassandra" said...

Anonymous 104 - your arguments are fallacious, and possess no more truth or fact to face than the statement: all humans are assholes, because you're an asshole.

This is not a forum for those things you are apparently fixated upon and as such, you are not welcome here so long as you wish to continue to with such off-topic provocation.

jonathan said...

Cassandra, please edit out anti-semitic comments. I for one refuse to read any blog which chooses not to moderate out slurs like heeb, which is like calling a black person a nigger. If you choose to leave these comments up, then you contribute.

Anonymous said... put up arguably the best post in your blog's history and you end up being drawn into arguments with anti-semites and defenders of the Laffer curve.

Not exactly positive reinforcement. I'll gladly take my mediocrity, thank you.

Anonymous said...

Too many comments to verify whether this was mentioned or not, but the difference between Medallion and Madoff is that a huge chunk of Medallion's money is Simons and the partners and not outside money...

Also, Madoff was in no way a hedge fund. This will put a black-eye on the industry no doubt, but at the end of the day it's for the best to not allow incompetents (i.e. those who are now "contemplating" getting out) into the business.

Should have thought about that 2 years ago. Now the opportunity set is unbelievable and you want out. A fool and his money are easily parted.

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

what i find disturbing is that pretty much his "investors" suspected all along that he was doing insider trading but they did not lose sleep over it. (this shows the ethics in the high rollers circle).
secondly, as it is the case with greenspan "advising" paulson&co (the hedge not the treasury), i find disturbing that former top of the top insiders are allowed to play the game. sec is definitely a useless entity.
greenie goes in berlin and starts shouting that economy is tanking. world is still listening to greenie. paulson&co is short, very short. greenie advises paulson and gets $ from him. now you put 2 'n 2 together. sec cannot do it. heck, fbi should do it.

so yeah, ethics are gone, people are not outraged that "investors" were basically fine with the thought they were making money with madoff by trading on insider info. what a hypocrite society we are. keep your money close people, everybody is trying to steal from you, the gov first, then the wall street, then your friends, family, etc. crazy times...

Anonymous said...

John Maudlin must read your blog ... or are you John Mauldin, Cassandra?

Anonymous said...

Can'r believe the anti semitic comments allowed on this blog. I am a teacher and my husband and I were recommended by a friend to join this investment firm 20 years ago. We have just lost 300,000 dollars and can't imagine why this firm wasn't overseen more closely by the SEC. When it was investigated several years ago it basically came out clean so we thought we had no reason to be concerned. Wrong! Now we're struggling to plan for the next phase of our lives, and our children's. Not only the Madoff firm but the SEC should be held accountable for this fraud.

"Cassandra" said...

Some things to consider:

(1) I have a life. This is free. There is no moderator, or editor except me, and I will deal with idiots when and where I find the time. Something that is outrageous is... well...outrageous and should be viewed as such - particularly where delivered by an incoming anonymous. As such, neither I, nor the mostly other decent readers are accountable. While possibly offensive, taking into account the aforementioned, get over it.

(2) My instinctual reaction is to delete parsimoniously. This is particularly true for opposing points of view - however much I disagree. I value diversity of opinion, and prefer to challenge folk in he realm of ideas - but only where it is respectfully and considerately argued.

And while I do not wish to provide a platform for hate or those predisposed to disrespect, it is my opinion that almost all intelligent people know juvenile hateful idiocy when they read it, and most of us just shake our heads at the shameful waste of a life, the way one might do when witnessing a skunk that has been made roadkill car.

All that said, I am busy and while I enjoy the comments and debate, I have little time, and even less energy, to engage sociopaths. So in short, on-topic, contra-views are certainly valued; but I will delete OT rubbish at my absolute will and discretion (as I have done here to the last of anon0508s post)

Anonymous said...

Your point on sociopathy is well-taken albeit perhaps unintentionally. As Henry Blodgett has suggested, there is every likelihood that some of his more 'sophistocated' investors knew Makoff was cooking the books, but that the exploitation was on the market-making side and he was bringing the ill-gotten gains home to be shared by them. As it turned out, they were the dupes.

Yes, this like a pinball arcade of sociopathy alright. A market reliant on trust but awash in greed is no market at all.

Anonymous said...

Madoff should be taken to a dumpster and shot in the head...why would he ever get bail? Society is coming to an morals, no ethics, all that matters is money. SEC should all be shot too. Why does the uptick rule remain? Why are there not 50 CEO's of all these moneygrubbing companies also in jail. The mesiah Obama is coming and his friends are all going to Hell around him. Pray for our children, and sorry for the rant...a bit off topic, but Madoff is a puke and not worth the hundreds of hours of air time this story has got...if we could just get Dexter on real problems instead of murderers, rapists, and other Florida riff-raff.

Kratoklastes said...

On the whole "ponzi the poor vs the rich" debate, it's really very easy to make that call: diminishing marginal utility of money gives you the answer.

In a world where money has diminishing marginal utility, taking 10% of the wealth of a rich person causes them a smaller proportionate loss of utility than taking 10% of the wealth of a poor person.

It's a bit like the CARA versus CRRA approach to risk aversion in portfolio allocation - but I don't think you can reasonably argue that the marginal utility of money is non-monotonic.

On Laffer - like the Phillips Curve, took a moderately sensible idea and tortured it until it fit his paymasters' prejudices. Used a plausible local property of MEB analysis and pretended that the property held over a wider range of tax rates than is plausible. Typical of any economist that works for one or other side of the political parasite spectrum - he turned into a shill.

One final thing - a MYC chum mentioned the idea that perhaps this is a 'scam scam'; that the money - with the full knowledge of the fund participants - has been spirited to parts unknown and everyone will now line up to be reimbursed by the Taxpayer Anal-Reaming Project.


GT's Market Rant

Kratoklastes said...

Mitchelli: shooting is too good for them. Feed the fuckers to the pigs.

I would include Cheney and the rest of the neoTrots as well. and of course Alan Greedspan - the root cause of the bubbles (and a moron, as I have shown on numerous of the nest being MagooRant: "That" Chart" which shows Greenspan's value as a contrarian indicator).


GT's Market Rant

Anonymous said...

I wonder about the SEC. The organisation is utterly discredited. In this case, it may well be criminally negligent. Can the SEC be sued? Can its senior officers be prosecuted?

Anon 6.08 has lost $300K yet had SEC inspired confidence in these investments. An SEC investigation turned up 'nothing'. What is going on? Why isn't there an outcry against this miserable 'regulator'?

M.G. said...

It is likely that at the end of the day US as well will get on Helicopter Ben and print money against deflation. No alternatives to the economics for Joe the Plumber. The future of the dollar is not bright!

The Coach said...

1. What he did was a crime.
2. How is he different than Warren Buffet?
3. Auditors? Shareholder review? Transparency?
4. Who can you trust?
5. Don't we all want the best return? (greed)
6. Shouldn't we all be careful? (fear)
7. Ponzi games happen on so many levels, types, etc. that for someone not to be educated about them is a shame.
8. He had GREAT credentials... and wonderful results....
9. Would he have even been caught but for the crash?
10. Will they get the $200-$300 million back from the family? It would tell us a lot about the family if they gave all the money back-- I feel for them, no matter what.
11. I had money in 3-4 different mutual fund companies, including Janus, and some others a few years ago -- and even with their controls, people market timed -- cheated me, and everyone out of money. They were caught, the money paid back... and who knows what happened to them... I think execution for stupidity comes to mind... it was like something from Superman Movie with Richard Pryor stealing a few pennies from everyone's checks... but greedy and stupid, and someone caught them.

Do I still have money with Janus? No. Even though I was made "whole" who can recover from that kind of failure of trust?

The point? In the Ponzi sequence, the scam will end, and a lot of people will be without their investment... don't expect to get more than 9% a year? -or- understand WHY you are getting more.

12. Someone who knows about why W. Buffet's BRKA does so well can explain it to me, perhaps... :)

13. I read a great book on the history of scams in this country, and cannot remember the title -- but would recommend it if I could, if I do remember, it will be on the blog below...

As for Buffet, or Bogle, I feel much safer considering buying some when he's down MORE than the market, and I think I can see why -- the companies he's got shares of are luxuries -- no one is buying. They will be down.


Not to say I understand everything, but it follows... they are publically traded, and the audits are available.

Still, $50 billion in loses vs. $68 billion company -- wow.

It is overwhelming experiences in life that lead me to just stand back in awe -- and thanksgiving I didn't get hit by that bus...

and this is part of what leads me to write music which is (mostly) free :) at this website,; I'd love your feedback on it, and enjoy.

Anonymous said...

To those wishing Madoff seriously ill... you want him to live long enough to list off the buddies in the SEC and elsewhere who helped him pull this off.

It's when they drop dead quickly and their cohorts/partners in crime/enablers remain in circulation that's the real tragedy.

Anonymous said...

1. The 'calling in of the children' which gets duteously reported in every press release is so clearly a mirage to take a hit for the family.

2. It will be shown that Schuler intervened to have the SEC go easy on his benefactor. This will create unprecedented intra-tribal rancor.

3. The larger investors knew it was too good to be true. It was a 'don't ask don't tell' Ponzi scheme where the inference was he was padding his returns by playing games in his market-making business. Thus from the big guys at least, crocodile tears.

Anonymous said...

from the Guardian:

"There had been whispers that Madoff was illegally "front running" - using knowledge of future activity by his brokerage clients to make money for investors. But few suspected the true depth of his fraud."

They didn't care about the depth of his long as the depth was pointed elsewhere.

Anonymous said...

Wonder what Wm. Ackman is doing at Pershing Square. This is another one that seems to good to be true.

More regulatory action is obviously required.

jonathan said...

Thank you for you note regarding how you moderate. I appreciate it.

Anonymous said...

unlike enron and others, this "scandal", or more exactly this madoff guy, made off with really rich people's dough so i won't lose sleep over it. mortimer is old enough to know better. and when you see him on mclaughlin group on pbs, all smiles and grins when the mkt is tanking, telling us what's gonna happen (to his credit he said for a long time that the unemployment will rocket) then you cannot feel bad for him. and hey, what's a few hundred millions when you have a few billions stashed away and you are 60-70? c'mon, it's not bad. my only hope is that bernie gave away the cash to poor people around the world (palestinians included). the next time a mistery benefactors approaches you with a crisp $100 bill in goodwill store (it's a second hand store for those of you who read this and are bernie's "victims") think it might come for bernie. and don't scream "thief" too loudly, it might come around and chase you as to where you got your cash in the first place. you want sec protection and hand holding now, but when bernie was "the jewish bond" and handed you 10% yr no matter what, you wanted sec to stay away so that if bernie was doing some insider trading nobody bothered him. well, you can't have it both ways. and for people unaffected who are screaming on the forums against bernie, get a life, "the victims" don't care if you lose your tens of thousands in life savings, don't lose sleep over their tens of millions in losses.

Anonymous said...

to the anonymous person who wrote:

"secondly, as it is the case with greenspan "advising" paulson&co (the hedge not the treasury), i find disturbing that former top of the top insiders are allowed to play the game. sec is definitely a useless entity. greenie goes in berlin and starts shouting that economy is tanking. world is still listening to greenie. paulson&co is short, very short. greenie advises paulson and gets $ from him. now you put 2 'n 2 together. sec cannot do it. heck, fbi should do it."

from whatever little I know: greenie is just on the advisory board of paulson and does not interfere with paulson's trade. yes, greenie does share his opinions, but that's what members of advisory boards are supposed to do. paulson's trades are independent of greenie's external speeches and activities.

Kratoklastes said...

@ the two 'Anonymi' who are all a-flutter over that hack Greenspan's 'advisory role'...

If his clients aren't using him as a contrarian indicator then they will go out of business.

The only guy in the public spotlight whose businesses fared WORSE than Greenspan's: G W Bush.

And Greenspan's two big market calls (just before he sunk his fangs into the public teat in order to stave off starvation) are noted in the post I mentioned above (MagooRTant: "That" Chart).

Greenspan was and is a hack parasite, and nothing more (I have been saying this since 1997 in case you think I am a convert).

For him to add value to an investment process, the process itself would have to be hackier than he is, which is impossible: I don't think I could make decisions as bad as Greenspan's if I was deliberately trying to ruin myself.

So if someone is prepared to pay him a consulting fee so that they can ask the doddering old wanker to call in a favour, so be it. That's just US kleptocracy and cronyism - we're all used to that. But if I was a client of any firm that used the frothy old crabber to make INVESTMENT decisions, I would redeem IMMEDIATELY.


GT's Market Rant

Anonymous said...

Great post Cass, palpable emotion. One thing I think needs to be raised is what the f#ck all those FOHFs were doing? Í have a fundamentally low opinion of them anyways, but if they cannot even do proper due diligence for the additional layer of fees then why are they still here?
Have been doing some boating and thinking to myself about tidal changes exposing unmentionables...
Cheers, JL

Anonymous said...

Fascinating. How in the hell do you hide 50bn??. its like trying to hide 10 oil tankers in lake Okeechobee.

Anonymous said...

not as much but close....

Eighty-Seven Billion dollars ...

It is 100 feet tall, 250 feet long, and 125 feet wide. A stack of singles would be 28,998,000 feet, or over 5,492 miles, or a round-trip between Washington DC and Los Angeles, California. (2,650 miles, one-way). A Boeing 737-200 jet is 100 feet long. You could fit 2 of those jets nose to nose along the length of this pile, and have room to spare. If we spread the $87 billion over an American football field, we would not be able to see much of the game. The players would be buried in 55 feet of money. $87 billion is more than all of the states' current budget deficits, combined. $87 billion is more than twice the amount we're spending on Homeland Security.

Anonymous said...

Why have the markets reacted so little to the Madoff thing when they panic at far smaller problems such as LTCM?

"Cassandra" said...

LTCM was deleveraging, and it was the fear of the asset sales into the market thus impacting the mark-to-market P&L of others' similar positions that struck fear into the heart of those who owned the similar positions and the regulators (Fed) who would be forced to pick-up the pieces if things went awry.

In this case, it is simple: money that people thought they had, they don't. There ARE NO POSITIONS TO UNWIND so its like an ugly car crash that is off the road, and doesn't affect traffic except for rubber-necking. The asset side of balance sheets of rich people, nigerian capital flight parked at swiss banks, and pension funds will be reduced. Some parents will need to move in with their kids (payback for those nights out drinking with the gang and crashing Dads car), and some pensions may look less-well funded than before, but it's NOT a market crisis.

It IS however, a TRUST crisis. It's like shock-horror of finding out that Priests have been fondling little boys, yet some people seemingly KNEW (the boys certainly?), and of the even more of those who didn't know but suspected , it came as no surprise and closed the so-called loop of understanding. "So THAT was it....THAT explains it!!! I knew it!!!

Kratoklastes said...

Also (re "Why isn't it a bigger deal?") we are now in a Glorious Socialist Future where the government will kiss any booboo and make it all better.

The market became infantilised while Greenspan was chief apparatchik of the Money Politburo - the market learned to look to authority figures for guidance, even if those authority figures were complete f#ckups in their own efforts at private enterprise.

The bond market now has the collective intelligence of the audience of Gossip Girl (ZBs at 135?) and equity participants are much much dumber.


GT's Market Rant

PS... yes I am annoyed at the long end of the curve right now - shorted several points lower and am bleeding from the sphincter. Longs on EC, AD and GC saved me from total humiliation.

Anonymous said...

Yep Cass.

The something for nothing attitude only showed up when Reagan was sworn in. good one.

I suppose Bernie Cornfeld took a time capsule, committed his fraud during the Reagan era and rushed back to the 60's.

"Cassandra" said...

j - Say what you want and be as sarky as you like, it will not change the fact that the Great Leveraging began fro the post-wwII debt lows of the Carter admin. High interest rates have a way squezing leverage out of the system

Change happens slowly and incrementally, but there is a distinct starting point and you can point to it. I can tell from your tone, the possibility of its reality angers you....what ....did you canvass and vote for the Gipper?!?!

The Japanese had ZIRP for years - yet everyone there is still trying to pay DOWN their mortgage rather than tap HELOCs oe refi with withdrawals. Some thing would be useful to unerstand what and why as it may be useful.

Anonymous said...

What angers me is the nonsense your spouting that somehow it was Reagan's fault. Your wrong.

The leveraging process occurred primarily because of interest targeting and the Feds behavior over this decade.

Reagan actually wanted to go back to the gold standard and one stage.

It would be good if you were able to stick to the economics rather than trying to blemish Reagan's name.

What no leveraging in Clinton's time then or are only GOP presidents the "leveragers'?

Anonymous said...

High interest rates have a way squezing leverage out of the system

Huh ha. And what exactly do you think happened during the first two years of Reagan's fist term?

didn't overnight rates go to 21%?

"Cassandra" said...

J -
Politics are inherently intertwined with economics. There is no understand in separation.

Clinton and Blair both rode the coat-tails because it suited. I do not dispute that. But there was no miraculous conception of the "something for nothing" mentality I juxtapose with the Madoff affair. It has roots. And in my opinion the roots began in earnest with post- Volcker "The Great Leveraging", and were built upon the foundations of woolly policies whereby The State set the example for The People that fiscal responsibility is irrelevant. Think back to the derision in 1984 with which Mondale was greeted when he dared suggest revenues should requite expenditures. There is a word for preying upon the [ill-informed] desires of the The People with half-truths (e.g. cutting taxes will INCREASE revenues) and its called demagoguery. Did Reagan create it or merely feed such whims? I'd argue it merely fed them to retain power in order to perpetuate an ideological agenda. That's not meant pejoratively - but to explain and try to understand the evolution of subsequent policy and societal choices.

jc - The Great Leveraging began precisely from these embers. Reagan was a decent guy and had decent sensibilities (though no one is perfect). However, even at the time, there was no shortage of eminent economists who thought what I termed demagoguery, was just that.

The denoument during the past eight years combined what I see as the worst of prior demagoguery for power retention, with more a nefarious political agenda, including global geopolitical aims, with abnegation of oversight responsibilities for parochial gain. Of course, Congress (and Dems bear repsonsibility here too). Uou are of course free to disagree, but rather than be destructive, you are most welcome to voice your alternative view of its genesis.

Anonymous said...


the new administration is talking about spending $1 trillion. The Dem congress is going to be his enabler. the dems make the GOP look like kids in comparison.

And it's not true that Mondale was the only good guy around.

Gingrich's republican congress ran on a 10 point plan part of which that was to balance the budget. Clinton ran a surplus on their coat tails.They lost out in the late 90's primarily because of a spending cut issue that Clinton fought them on when they threatened to close down the government.

Anonymous said...


I am J and JC.

Anonymous said...

It is very sad we allow criminals to run America. What will happen to the tax payer when they can't pay the tab? I really can't help but feel for these charities that lost a great deal of money. I feel the fiduciary should have done a better job like your thoughts, it boils down to people being greedy, even if it's for charity.

"Cassandra" said...


You are too close too see it. Pause, get some altitude, then look down from high above. You too are also looking at it through a rather partisan lens. I am not positing that Repubs are bad and Dems are good. But you are being defensive as if I were. I am saying there was a genesis and evolution of The Great Leveraging and the baggage that came with it. It had a beginning. And post-Mondale (who BTW I never suggested was the only good guy) , most elected officials in the western world saw which way the electoral wind was blowing and devised ways to NOT make the same "mistake" as WM. This (along with a bond market not yet neutered by Chines and Japanese intervention) acted as a strait-jacket upon policy. And as you point out, Gingrich too was spat-out and rejected after brief glory, despite a reasonable amount of fiscal sense - primarily because he parsed the same "something for nothing" debate as a spending problem and wanted to take away what little services The State afforded taxpayers. Admittedly, Americans had it [something for nothingism] worst, but in the UK, new-labour engineered smoke & mirror asset sales, privatized monopolies, PFIs, and all manner of unsustainable ways to borrow from the future to keep present taxes lower than they needed to be support desired expenditure, rather than have the frank and open debate about priorities and ability to pay without the divisive partisan SS and medicare hyperbole. This like Laffer rationales before is sheer pandering for the sake of power retention. It wasn't necessarily a left-right thing, but it was a tacit vote for a something-for-nothing thing. People WANTED to believe they could maintain services without paying for them - or put off paying for them tomorrow, borrow on credit, and roll-it indefinitely, or as it happens invest with superior-returning wundermeister without risk. The leaders who used to sleight of hand to let the people believe they were getting something for nothing without actually getting it (e.g. Germany where they may have cut income taxes, but raised energy and consumption taxes) had a greater sense of civic and leadership responsibility than those that demagogically pandered. Fortunately for the former, people don't truly fathom what "regressive" tax-regimes really mean, or viewed the value proposition of Their State as sufficient and reasonable. But in the US, we got particularly poor value for our money since the lion's share went to defense which only circulates indirectly, rather than direct service provision, transfer payments or capital investments (as, say in France or Germany or elsewhere in central & northern Europe).

So I don't argue Clinton (adn associated Congreses) missed the opps to apply stricter regulation to the Credit Creation industries and tax energy and consumption which while sacrificing some growth, would have created more sustainable fiscal finance and household balance sheets, but it would have given broad scope to pay down debt further, make societal capital expenditures, provide universal single-payer healthcare, or lower marginal rates.

Nor, do I argue that something-for-nothingism is not alive and well today (as it seemingly will be tomorrow - at least for the immediate moment). The difference is, marking my words as a "Cassandra", is that for the first time in 25 years, reality will confront something-for-nothingism and something-for-nothingism will lose - either by mega-crisis, destagflationession or by a resurgence of double-digit inflation. All will, through market force, result finally - after a torturous and circuitious route - in public policies and individual actions that are more sustainable than they've been in the past two-and-half decades.

Anonymous said...

"Nor, do I argue that something-for-nothingism is not alive and well today (as it seemingly will be tomorrow - at least for the immediate moment). The difference is, marking my words as a "Cassandra", is that for the first time in 25 years, reality will confront something-for-nothingism and something-for-nothingism will lose - either by mega-crisis, destagflationession or by a resurgence of double-digit inflation. All will, through market force, result finally - after a torturous and circuitious route - in public policies and individual actions that are more sustainable than they've been in the past two-and-half decades."

It's a great comment, they all are from you. Trouble is, will we be able to rebuild at all by then? We were drinking in the last chance saloon already as a genuine global resource crisis overwhelms us (yes, I know oil is at 40 devalued dollars tonight, but wait a year)...

We did not have the luxury to make these kind of mistakes. The only worse mistake we could have made was a global war. The end result may not look much different.

When we 'come out' of this, the ceiling in global, liquid hydrocarbon production may already be 60-70Mbpd, and falling irreversibly by 3-4% a year. How do you then recover, and move forwards when most of your efforts and resources have to be directed to crisis management and fending off (and failing) mass starvation, even in the 'developed' world?

(I don't ask easy questions, and you are a Cassandra, after all).

I hope I'm wrong, but this is not so far-fetched.

Anonymous said...

I was a clerk for broker/dealer 0739 for 10 years and taught myself how to trade when, as and if issued stock splits with a 90% success rate (of any 10 trade pairs, 9 pairs gained, 1 pair lost). Various portions of government kept close enough tabs on ME to audit 5 separate returns. If they can "know" when a $20k/yr clerk is "up to no good" earning an extra $3k/yr, do I have to ask why it was so hard for them to keep Madoff on the radar?

Anonymous said...

RE: 8:01 12/15, it's NOT a market crisis.

(thought I sent this but did not go up on the board)

Thanks for the explanation. It's good its not a crisis. We've had too many crises to deal with lately. But a sudden disappearance of $50 billion it would seem has to have an affect on the economy longer term if not immediately. Wikipedia shows M1 at 1.5 trillion in 2005. A 3% drop seems significant. Maybe the 50 billion would not be considered M1 money, but probably many of the victims think of it as such. Their immediate cut backs will have a compound effect through the system.

When the priest sex scandal broke out of the bag and the trust was broken, I left the church (and religion for that matter) in disgust. I imagine many others did too. But where will we all go with our investable wealth? There is by design a need for some level of trust in all human dealings. The system would come to a grinding halt if it were not for trust. JP Morgan was said to have based his dealings largely on trust. Its interesting that to this day, his name stands as a trademark of integrity in banking circles. His reputation was more important to him than his networth. From under the wreckage of this financial disaster, some money people are going to remain standing because they have always valued their reputations more than their wallets.

Anonymous said...

You have a job!
Now do tell, what is it??

Anonymous said...

Thanks ur information

it very useful

Anonymous said...

Way too many people give credit to Reagan. VOLCKER...he's the one who laid the groundwork for all the growth that Reagan got credit for.

Anonymous said...

Cassandra: I loved your post. I'm sorry I don't have anything perfectly appropriate for the occasion, but I offer something related to a topic raised here, by you, and mentioned by Collie O'Donnell.

I pity the millionaires who got fu**ed by Madoff, but he is just the tip of the sh*tberg. Who are all the angry, unemployed factory workers and laid off service industry drones going to kill when they discover Papa Capitalism isn't going to carry them cradle to grave?

A Crisis of Trust

It is interesting that the idea of God was not the basis for a crisis in trust in the Church, nor the edicts against homosexuality, but only acts of homosexuality, acts involving mostly teenaged boys. For an organization that lies about everything, to have its believers find the bottom, so to speak, is astonishingly absurd. I am not a pathological atheist, but the question must be asked: are these people even capable of something called trust given they believe in reams of ritualized garbage? They believe in anything, even shameless contradiction, and this leads one to seek an explanation as to why this particular instance almost rocked the Church off its foundations. Maybe it tells us that pedophile panic is the only true religion these days, an article of faith that comes before the catchecism.

If the doomsayers are right, and the economy tanks, keep an eye on the sex offender registry and pedophile politics. The Times has already issued propaganda about terrorists being pedophiles. How long until the pedophiles become terrorists in the mouths of the propagandists? And then what?

An edge is hardening within a liberal system that has, since the Holocaust, righteously pronounced itself beyond the pogrom. This is a dangerous belief. A hard edge can shatter in all sorts of terrible ways, particularly when economic stresses add to governments already weakening, leading them to mine public sentiments against concocted enemies to maintain legitimacy. This is nothing new. In a period of pathetic crisis for the DOJ:

"My personal goal is to turn the tables on pedophiles – to chase down these people who hunt our children like prey, and to bring them to justice."

"Now it's personal!" Nothing could be more absurdly dangerous than for the power of the state to be at the disposal of hardwired revenge instincts. This is precisely what the justice system is supposed to _dissipate_.

But there will be no respite from the establishment left. There will be no lobby promoting a careful distinction between bad predators and good pedophiles. The war on pedophiles is even more unhinged, and less rational than the war on terror.

See comment by Quartz

Obama's brand of Democratic progressivism declares "Yes We Can Kill The Pedophiles!" with laws so overbroad they would authorize the execution of men who merely chat online. Here Left meets with Right.

We are witnessing an almost unidirectional cultural shift that rarely hits a wall of Constitutional law, only to skid a bit and resume its trajectory. It is a _dangerous destiny_. This is _my_ crisis of trust, a precipitous collapse of faith in the political and economic institutions of the liberal West that have until lately distinguished us from the barbarian hordes.

Thank you for letting me say my piece.

Anonymous said...

Cassandra, great piece (which I stumbled across through another article I've already forgotten that linked here).

I'm curious as to whether you read Arvelund's article in Barron's in 2001. For me, the existence of the article really drives home the idea that Madoff was supplying a real market demand: dreamily consistent returns to those who were content to stick their heads in the sand.

Dr. Tantillo did a short post on his marketing blog when this story first hit, explaining how Madoff's success can be attributed to knowing his Target Market (not that he condones his behavior...).

"He knew not to promise sophisticated people unsophisticated (read “extravagant”) returns. In other words, he knew people would walk away if he promised them the sun and moon, but 10 to 15% seemed about right. He was also reportedly very selective —not everyone could become a client— and that kind of exclusivity, if exerted by a credible party (like Madoff seemed to be), can have real power."

This article is one of the more interesting ones I've read on the matter, reminding us that cons, like violence, are disproportionately 'intra' rather than 'inter' - perhaps because it's easier to target the market that we know best (those most like ourselves)?

This article is one of the best I've read just for how broad it is (it's long!).

"Cassandra" said...

anonymous 9:58 12/28/08

I read Arvelund's article - or rather was pointed to it by some more astute allocators who were my first stop in the due diligence process. It was sufficient to suggest blind faith was not enough on this one.

Delicious said...

Or, as Holinshed said, in 1577, But what is that in all the world which avarice and negligence will not corrupt and impair?

Anonymous said...

Thanks u r information

bollywood girls said...

i like your blog ....

Anonymous said...

The pork filled stimulus plan will help no one....

Anonymous said...

辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣
辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣辣妹美女㊣ 辣妹美女㊣辣妹美女㊣ 辣妹美女㊣ 辣妹美女㊣辣妹美女辣妹美女㊣ 辣妹美女㊣辣妹美女㊣ 辣妹美女㊣ 辣妹美女㊣ 辣妹美女㊣ 辣妹美女㊣ 辣妹美女㊣辣妹美女㊣ 辣妹美女㊣ 辣妹美女㊣

web design company said...

Thanks for this post

Anonymous said...

初音ミク網頁設計会社設立グループウェア探偵浮気調査コンタクトレンズ腰痛名刺作成留学矯正歯科インプラント電報ショッピング枠 現金化クレジットカード 現金化ジュエリーおまとめローン格安航空券電話占いワンクリック詐欺カラーコンタクトクレジットカード 現金化多重債務国内格安航空券債務整理債務整理薬剤師 求人葬儀 千葉フランチャイズフランチャイズ幼児教室個別指導塾経営雑誌経済雑誌似顔絵ウェルカムボードCrazyTalkCloneDVDCloneCDクレージートークフロアコーティング 川崎フロアコーティング会社設立埼玉 不動産フロント 仕事治験お見合いインプラントキャッシング東京 ホームページ制作別れさせ屋システム開発サーバー管理育毛剤育毛剤不動産渋谷区 賃貸

花蓮民宿 said...
This comment has been removed by a blog administrator.
SITL said...

It was a pretty well written articl until the author decided that it was "blame it on Reagan" time. If you can find any instance where Reagan advocated "something for nothing" let me know and I's send you a bottle of whiskey. Madoff has been just another crook fleecing the unsuspecting wealthy who did not know how to make money on their own.