Sunday, December 21, 2008

Is Bernie Madoff the Only Cockroach?

Evidence of misconduct by Bernie Madoff, who admitted to stealing $50 billion from clients, including numerous charities and foundations, stretches back to at least the 1970s. The SEC received plenty of warnings and missed plenty of red flags about Madoff.

Unfortunately, the ripple effect of Madoff's deception will be much larger than most scams, due to so many charities entrusting their money to Madoff. The Jewish community lost between $600 million and $1 billion from Madoff's Ponzi scheme. One victim, Holocaust survivor and activist Elie Wiesel, reported it lost $15.2 million, nearly all of its assets, and Yeshiva University lost about $110 million, or 10% of its endowment, and that's just to name a few.

Yet a wide swath of foundations and philanthropies entrusted significant portions of their portfolios to the secretive Madoff. Several were run by prominent Jewish families who were socially connected to Madoff and his children, often through common memberships in country clubs and boards.
Madoff's strategy dwarfed market in trades 'never done'. The trading strategy he claimed he used "would have required at least 10 times the contracts that trade on U.S. exchanges". Obviously Madoff never did this...in fact, it would have been impossible, hence, it's possible that he was the one and only cockroach. However, even if he was the "only" player, it's very clear that he was not the only one claiming to be on the job when he was not. He had help in the form of disengaged "regulatory" bodies, who missed the elephant sized cockroach sitting on their desk.
Madoff’s marketing documents said he used a “collar” strategy, which limits gains and reduces potential losses. New York-based Fairfield Greenwich Group’s Fairfield Sentry fund, which invested exclusively with Madoff, reported an average annual return of 11 percent and no down years since 1990, according to data compiled by Bloomberg.
"The U.S. economy has yet to feel the worst from the financial turmoil", according to Bank of Israel Governor Stanley Fischer, who feels just as investors "were lulled into complacency by his consistent returns", he says, "those who piled into mortgage-backed securities were aided by AAA ratings that proved as flawed as forecasts of rising house prices."

One thing for certain, Bernie Madoff is not the only cockroach, as bailed out bank executives on the verge of failure, collected $1.6 billion in salaries, bonuses, and other benefits last year.
Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management.

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