MonkeyBusinessBlog

Fore!

Markets got you down? Oh maybe it was a mistake in the markets that got you down? Well, when the going gets tough? Go golfing! That's what I'm gonna do! Yep. I'll be playing away while many fret and worry about their stock holdings. The charts are still Ok. Now next week that might be different but for now the only thing I'm analyzing is my birdie putts. You know, like Tiger. Enjoy.

So Much Going On and All I Keep Coming Back to is Bernie's Penis.

I swear I have been sitting here for at least 90 minutes starting and stopping on at least three important topics.  The culprit for my lack of productivity and focus?  This Madoff Lover Stuck With Him Because of His Tenderness, Her Lust  

Here I am reading, about the sell off in China, the FDIC's plan to try to clawback some upside on the deals they are currently striking with buyers of stricken banks and Warren Buffett's Op-Ed on the huge risk posed by deficit spending and Fed quantitative easing The Greenback Effect.  However, like staring at a car wreck on the side of the road, I keep coming back to this horrific Bernie Madoff story.  Haven't we had enough?  

• The economy is in the crapper.
• Our "leaders" in Washington seem to have split themselves into two neat camps.  Self-interested pussies and self-interested obstructionist idiots. 
• Hurricanes seem to be forming in the Atlantic at about one every three hours. 

And yet we are now subjected to this book from Sheryl Weinstein, Bernie Madoff's mistress.  It's horrible! I can't get the picture out of my head of two, late-middle age, physically and emotionally ugly people doing it.  And if you haven't read the story yet, here's the best part that will ruin your day like it has ruined mine;

By the time they reached the Willard, Weinstein writes, she had learned that Madoff was a great kisser, a bad tipper, a name dropper, and a narcissist who may have obsessive-compulsive disorder or Tourette’s syndrome. At the Willard, Weinstein writes, she learned one of his many secrets that they discussed by telephone a few days later.

“Bernie had a very small penis,” she writes. “Not only was it on the short side, it was small in circumference. That he was now pointing it out to me was telling. It clearly caused him great angst. I wanted to be careful how I responded. Men and their penises have a strange and unique relationship.”

Still, she said: “I liked this man and didn’t want to emasculate him. His tiny penis hadn’t prevented me from climaxing.”

There are two things at issue here.  The first is something we can't, in hindsight do much about, the size of Bernie's penis.  I bet if we commissioned a study (and I'm sure in some Congressional Omnibus Bill we already have for the cool price of $45 million!) on men who have tried to destroy the world we would find that they had this size problem.  We already know Hitler was missing a testicle.  I'm sure Stalin and Mao were "tiny".  Unfortunately there's not much we can do because by the time the guy is blowing up the world, he's not letting you anywhere near him to check.

However, to spare us all can't we just pay this Weinstein woman to go away.  How about, "Here's $5 million.  Burn all existing copies of your book, cancel all the interviews and just go away."  That would be $5 million very well spent in my opinion.

Here Comes the "Madoff 10"

Ahhh there's 10 people on the "list" attached to Bernie Madoff and his merry excrement. As in, 10 people that are "people of interest" to the prosecution. If you think Bernie pulled this off all by his lonesome, I can sell you some swampland in Vegas. Mr. Madoff cooperated with no one and now he gets 150 years in the fun house. However, Frank Dipascali, who will not be confused with Frank Pentangelli from the Godfather II, is going to sing. See in Godfather II,  "Frankie 5 Angels" didn't squeal on his bosses, killed himself, and his family was taken care of. Mr Dipascali, who was finance chief under "Uncle Bernie", has been charged with securities fraud and other nifty criminal things just now. He was offered bail BEFORE his sentencing which is usually a tell-tale sign that he is singin like a canary (technical term). Which is nice for some. Not so nice for others.  

I wonder if Vegas has posted odds as to who the first person on this list of 10 gets to go to Club Fed too? My money is on one of the kids. Don't bend down for the soap! Stay tuned cause this oughta be entertaining.

  

Welcome To The Boiler Room.

Great piece yesterday from David Reilly over at Bloomberg News Barney Frank, Chris Dodd Do Banking Back Flip

Congress can’t make up its mind. First, legislators pushed to let banks take a rosy view of the value of some hard-hit holdings. Now, two key committee chairmen claim banks aren’t being realistic enough about the values of some loans.

The allegation by House Financial Services Chairman Barney Frank and Senate Banking Chairman Christopher Dodd that banks are holding some loans at “potentially inflated values” should trouble investors, since it came just days before institutions like JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. are due to report second-quarter results. If some loan values are “inflated,” that again calls into question the quality of banks’ results.

Why, after arguing for banks to have more leeway, is Congress now pushing back? Because many government responses to the financial crisis are more about manipulating prices -- and behavior -- than truly getting markets back on their feet.

Forgive them David, they know not what they do......or do they?  Let's think about what has gone on here with regard to how the health of our major banks was presented to the world and investors.  In the first half of 2009 the industry, Congress and the Obama Administration;

Relax Fair Value Accounting Standards, thus allowing certain "legacy assets" to either be written up or not written down.

Roll out a "Legacy Asset Removal Plan" that promises, as dim-witted as it was, to solve the "toxic-assets-clogging-the-bank-balance-sheet-issue.

Allow some of our sickest and biggest banks, Citi and BofA to convert billions of preferred equity capital to common.

Allow or make AIG write down their CDS books to nuclear winter levels and unwind their positions with some of our biggest banks, resulting in monster trading gains.  Can I prove this? With my limited resources, no.  However, the circumstantial evidence is there.  AIG took a fourth quarter 2008 loss of $61 billion.  That earnings announcement came out in early March 2009.  I have a very strong feeling that the mark down of AIG's positions went from unrealized to realized in Q1 2009 as AIG unwound the trades with their bank counterparties, thus giving those bank counterparties huge Q1 gains.  On the same day that AIG announced their $61 billion loss, they got an additional $30 billion from Uncle Sam.  Uncle Sam, in my opinion, used AIG as a conduit to pump nice trading gains into AIG's bank counterparties.

Create and hype up the vaunted Federal Reserve bank "Stress Tests", that proved to be anything but stressful and showed that 14 of the 19 major financial institutions were well capitalized.

Utilizing all of these smoke and mirrors, our banks were able to raise $ billions of capital in the second quarter from institutional investors under the guise that the banks were in good shape and the situation was improving.  This capital raising threw huge investment banking fees to our friends at "Goldie Mac. It helped greatly that equities went on a rapturous rally in Q2, mostly based on the belief that the banks were coming back.Sounds like the old "pump and dump" to me, on a MASSIVE scale.  The kind of scale America's favorite new prisoner Bernie Madoff would be proud of.

Now however, the government has a problem.  President Obama wants to know why the big banks aren't helping him with his loan modification program.  Enter "Ass" (Dodd) and "Hole" (Frank).  They write to senior bank regulators that the big banks aren't modifying loans because get this;

 "We are concerned that the loss allowances associated with these subordinated liens may be insufficient to realistically and accurately reflect their value.”

Well duh?  You let these guys keep $billions and $billions of first and second lien mortgages marked near par.  If they go to modify a large percentage of "at risk" loans they are going to have to;

• Take losses as they reduce principal on borrowers first mortgage
• Either get permission from the second lien lender to essentially wipe them out OR if they are the second lien lender, wipe themselves out!

As Bloomberg's Reilly reports (with regard to the second liens), "Many banks have marked down these loans only by 3 percent to 4 percent, said Paul Miller, bank analyst at Friedman Billings Ramsey & Co. These loans in many cases would likely fetch about 40 cents on the dollar if sold in today’s market. The losses are “a big part of the toxic asset issues facing banks,” Miller added.

Woops. Clean up in aisle two!  Just FYI, when all the lawsuits start from investors who helped recapitalize the banks based on the rosy picture the government painted, Richie and I are available as expert witnesses!

 

Here's to You Bernie....Leaving You Far Behind!!!!

So long Bernie!

Ruth Madoff = Connie Corleone? Maybe Fredo??

Ah, now Ruth Madoff has broken her "silence" on that no-good husband of hers. She is sorry and ashamed. For some reason when I think Ruth I think of Connie Corleone, sister of Michael.  Remember at the beginning of Godfather II on Lake Tahoe where Connie brazenly busts in on Michael with her boy-toy Merle?  She tells Mike that she and Merle are getting married, she's going to continue to ignore her children and party with the likes of Merle 24/7.  When Mike objects, Connie says, "You're not my father!"  So Mike says, "So why do you come to me then?"  Connie's answer, "Because I neeeeeed moneeeeeeeeeeey!!"

Well I couldn't find that exact clip, but I did find this one which may actually be better.  It's after Momma Corleone dies and Connie comes back to Mike on bended knee and kisses the ring.  Connie was no dope. She realized that with Momma gone, there was no more restraint on Michael.  He would cut her off at the knees. Then of course, there's Fredo, who is now a dead man with Momma's passing.  Watch Mike look at Al Neri as he embraces Fredo.  Fredo's time has run out.  Ruth and her sons may be Fredo too! You make the call.

Bernie: "150 Years? I Can Do That Standing On My Head!"

I've been watching CNBC all morning as they covered the Bernie Madoff sentencing.  During the phase where the victims get to air it out to their tormentor, I kept hearing different commentators saying over and over again, "He (Bernie) is just staring straight ahead at the judge, showing no emotion, no sense of remorse."  I kept saying to the TV, "He is a sociopath! He has no remorse because he feels he did nothing wrong.  He regards us all with scorn and revels in the fact that he was able to rape and pillage for DECADES while the financial and social community lauded him for his brilliance and elbowed one another out of the way for the privilege of giving him their money!  Anything he says to the judge or to the court is a lie like anything else!"

Then he got his 150 years and it made think of a Sopranos episode, the one where Christopher was dead for a few minutes and he thinks he went to Hell.  Check out this scene with Chris and Paulie (Both fantastic sociopaths!).  Bernie of course is Paulie;

It's Bernie's Big Day! Have We Learned Anything?

Today Bernard Madoff faces the music.  Today one of history's greatest psychopaths faces some of his thousands of victims and gets sent to the big house, probably for the rest of his natural life.  Bernie is hoping for a twelve year sentence, most probably because anything over thirty years means that he will likely spend his remaining years in the hell of a maximum security prison.  Wherever he goes I have no doubt that Bernie should start bamboozling his fellow inmates out of their canteen money inside of three months.  So look on the bright side Bernie, it will be a whole new challenge for you!  Ripping off honest, hard working people that considered you their friend and benefactor had to become old-hat at least twenty years ago.  Fleecing the WASPs was probably becoming boring too.  This new group of suckers will be like trading advance crossword puzzles for expert level Suduko.  Enjoy!

Seriously though, I was looking through our "Bernie Madoff" category on the blog to see what we were thinking back when this first went down.  The piece that caught my eye was this one from December 14 Not Sure if We've Hit the Bottom for Stocks But Maybe We Can Call the Top of the B.S. Market.  It's a good piece (in my humble opinion), check it out.  Here is how I ended it;

Anyway, maybe this is it.  Maybe this is the event that finally brings an end to a three-decade run of advancement through bull-sh*t.  Maybe the "Madoff Fiasco" will finally reorient our senses and enable us to dig our way out of this mess.

Now we are almost in July and I ask the question, "Did we hit the top of the B.S. market back in December?  Have we reoriented ourselves?"  I'm afraid the answer is a across the board....no.

• Unrealistic and naive housing rescue plan - B.S.
• Delusional bank recapitalization Plan - B.S.
• Financial Regulatory Reform - B.S.
• Fiscal Stimulus Plan - B.S.
• Detroit Rescue - B.S.
• Administration Appointments to key government financial posts - B.S.
• Cap and Trade - Gonna be B.S.
• Health care Reform - On its way to B.S.
• Monetary Policy of Quantitative Easing - DANGEROUS B.S.
• Assigning costs to firms who have greatly benefited from tax-payer bailout money - Un-Godly B.S.

I can go on but you get the point.  If you read this blog for a while, I think we have been pretty good at putting forth our own prescriptions for each of these points (except Cap and Trade, which I only found out what it means three weeks ago.....and I guess Health care too because all I really know about that is....I need it.).  Maybe our popularity ratings would be in the 40's as opposed to President Obama's 70's, but we would be on the right path.  Unfortunately, it seems like the only thing we are doing is trying to get ourselves back on the same destructive path that violently threw us into the ditch in the first place.

Monkey Business Has a New Hero!

It took a tough guy from New York City to sum up everything that we've been thinking about regarding the SEC for the last year!  While the SEC was tracking down evil short-sellers and rumor mongers that were destroying such solid institutions like Lehman, Wachovia, AIG, etc etc...they were sitting on a bow-tied present from Harry Markopolos that detailed the gargantuan ponzi scheme that was Bernie Madoff.  Check this out.

"Don't Lie" From Wow Wow Wubzy.

Keeping with this afternoon's theme, here's something that they should play in Bernie and Blago's cell 24/7!

Bernie's Inspiration!

TIMBER!!! Another $ Multi Billion Fumble With Bernie!

From Bloomberg News;

Jan. 5 (Bloomberg) -- Harley International Ltd., a hedge fund run by Cayman Island-based Euro-Dutch Management Ltd., invested all its assets with Bernard Madoff, the financier arrested last month in an alleged $50 billion fraud, a person familiar with the matter said.

The fund managed $2.76 billion as of Oct. 31 and returned an average of 10.9 percent annually since April 1996, according to a monthly update sent to investors. Jamie Moss, a New York- based spokeswoman for the fund, declined to comment.  Madoff, 70, was arrested in New York last month after confessing to employees that his investment company was “a giant Ponzi scheme,” according to an FBI complaint. Investment firms including Tremont Group Holdings Inc. and Fairfield Greenwich Group also set up hedge funds whose assets were overseen by Madoff.

Euro-Dutch’s directors are Anthony L.M. Inder Rieden and Dawn Davies, according to the firm’s 2007 financial statement. Rieden is a former director and Davies a retired deputy managing director of Fortis Fund Services. Fortis Prime Fund Solutions Ltd. is the administrator of Harley International, the report to investors shows.  Fix Asset Management, which has managed portfolios since 1984, provides research and data services to Euro-Dutch, according to the person, who asked not to be identified because the firm is private.

Fix Asset Management “is shocked by Madoff’s complex scheme,” the company’s Web site said. “In the wake of this collapse, the affected funds serviced by FAM are committed to aggressively pursue the recovery of all assets related to Bernard L. Madoff Investment Securities."

Complex scheme eh? 

• You gave your money to Bernie without asking or understanding what he was doing with it,
• Bernie paid you with other people's money and ,
• Bernie paid other people with your money.

 Complex?  Not so much.

Explaining The Bernie Madoff Phenomenon As Only Dr. Seuss Can!

Ever since the Bernie Madoff scam unfolded I have been struck by the very dark comedy of it all.  Originally, to get fleeced by Bernie you had to belong to the inner circle of American-Jewish universities, philanthropies and country clubs.  Like any close knit ethnic and religious organization, this relatively tight knit community was formed because just a couple of generations earlier, the Jewish members of finance and education were not allowed to play with their Protestant or Catholic counterparts around the world.  Therefore, they formed their own exclusive groups. You had to be in one of these exclusive groups to give your money to Bernie in order to get his fantastically stable and relatively high returns.  The ethnic makeup of the original victims, in this case Jewish-Americans, is a classic symptom of a scam.  The predator, Madoff, preys on the fact that his victims trust him because he is of the same group that they are.  The necessary wall of skepticism that they would give to an "outsider" is lowered because Bernie was "one of them."

Eventually, the institutional "old-money" power circles that had historically excluded the Jewish money circles from their clubs now wanted into the most "exclusive" Jewish money club, Madoff Investment Management.  They wanted in BAD.  Looking back, Madoff must have found it so amusing to watch all this "old money" that just a few decades ago wouldn't have let him anywhere near their clubs and institutions, now practically begging to give him their money.  Luckily for the "old money", there were "feeder funds" and "fund of funds" firms now set up (earlier in the decade) to take the "old-world money", for a fee of 1%-2% (as well as a performance fee).  These funds and "private banks" climbed over one another to give Madoff their money, paying steep fees just for the privilege!

The rest is history.  As it turned out, Bernie was an equal opportunity thief.  He stole from Jew and Gentile alike.  In fact he had just recently started fleecing Arab investors and was making his way to Asia when the scam finally blew up. If you have time, check out Dr. Seuss "The Sneetches" starring as Bernie Madoff is "Sylvester McMonkey McBean".  Part I and Part II.

Here Comes the Lawsuits- Fairfield Greenwich Funds Sued

From Bloomberg News Fairfield Greenwich Funds Sued Over Madoff Losses.  No surprise here.  Fairfield Sentry Fund put SEVEN POINT THREE BILLION of investor funds with Bernie Madoff, earning many millions of fees.  As we said earlier, funds that put investor money with Bernie were either; 

1. Dumb and greedy.
2. Negligent, lazy and greedy.
3. Knowingly participating in a criminal conspiracy...and greedy.

Take your pick Walter! (Walter Noel, Fairfield's founding partner).  Richie and I can't tell you how many times we've been in meeting rooms or "events" with the like's of these "Masters of the Universe".  These guys acted like they got their intelligence from the Almighty himself.  Now its all over.  Greedy, lazy pigs.  So long ass-clowns.

Swiss Bank Justifies Investing With Bernie: He Was Cheating

Finally, an institutional investor, Union Bancaire Privee, gives a no bull-sh*t answer as to why they thought Bernie Madoff's uncanny returns were real, Bernie had a "perceived market edge".  The Financial Times writes this morning Madoff had "perceived market edge."

It's pretty simple folks.  Feeder funds and private banks sent investor money (and charged nice fees to play a fancy game of post office between the investor and Bernie) to Madoff because they were either;

1. Dumb and greedy.
2. Negligent, lazy and greedy.
3. Knowingly participating in a criminal conspiracy.

In a letter to investors on December 17, UBP stated that they believed Madoff could successfully implement his "split-strike options strategy because;

"We were assured that he had some visibility as to the momentum of the markets due to his significant volume size as a broker/dealer.  The perceived edge was Madoff's ability to gather and process market-order flow information and use this information to time the implementation of the split-strike strategy."

Ahh "market-timing".  Others might call that "front-running" customer orders and trading on inside information.  The Swiss used to be so discrete.  Now?  They put in writing that they were sending funds Bernie's way because they assumed he was trading illegally.  I've asked this before and I'll ask again, "What the hell happened to the Swiss?" 

Where Were All Of Bernie's Trades?

Bloomberg asks a question that we have been wondering about, "If Bernie Madoff was doing the volume of trades he needed to do to generate his returns over the last decade or so, wouldn't he have literally BECOME the exchange traded equity option market?  Madoff Strategy "Dwarfed Markets" In Trades Never Done.

“It was never done,” Michael Schwartz, chief options strategist at Oppenheimer & Co. in New York and a trader since 1965, said of the strategy. “If he did it on an exchange, we would have heard about it, and if he did it over the counter, the person he bought it from would have hedged it on an exchange.”

This "phenomenon" has been apparent throughout this entire financial debacle.  It hasn't just been Bernie Madoff.  Every Wall Street bank assured its investors and its regulators in 2007 that "they hedged" the mortgage credit crisis in one way, shape or form.  A few bloggers and a few fund managers like David Einhorn, came to the conclusion that;

1. Either the "hedges" they were talking about were impossible to do with out moving the entire market against themselves, or; 
2. They had layed off the risk in the over-the-counter derivative market to entities that were dramatically "over-rated" by the ratings companies, or;
3. The only hedge for the risk was to sell the damn position because it was unhedgeable!

Risk gets transferred from one party to another.  It is very rare that the risk goes away forever.  It either appears in the exchange traded markets, or like in the case of AIG, it shows up when the counterparty who provided the hedge can't pay up.  This is common sense that's easy to lose when everybody is making money and happy.  As we go forward with a new regulatory and risk management regime we have to remember to follow the hedge and/or follow the deal flow.  In the case of Bernie Madoff, trying to follow the deal flow would have resulted in the quick conclusion that these trades just weren't being done and hence the business was a mirage.

In the future we have to follow the advice of the late Mark Felt ("Deep Throat" from Watergate)...."Follow the hedge....follow the hedge."

How My Fund of Funds Manager Destroyed My Investing Pleasure.

Here's a great little tale.  The actual title is "How She Destroyed My Fishing Pleasure".  However, I think we can apply it to a lot of "Fund of Funds" managers after the "Madoff Fiasco".

Saturday morning I got up early, dressed quietly, made
my lunch, grabbed the dog, slipped quietly into the garage to hook the
boat up to the truck, and proceeded to back out into a torrential down
pour.  The wind was blowing 50 mph. I pulled back into the
garage, turned on the radio, and discovered that the weather would be
bad throughout the day. I went back into the house, quietly undressed, and
slipped back into bed. There I cuddled up to my wife's back, now with a
different anticipation, and whispered, 'The weather out there is
terrible. My loving wife of 20 yrs replied, 'Can you believe my
stupid husband is out fishing in that sh*t.

I still don't know to this day if she was joking, but I
have stopped fishing.

"What Would You Say....You Do Here?"

Tremont Group Holdings may have $3.3 billion of exposure to Bernie Madoff.  Tremont is a New York based funds manager that up until yesterday was one of the better names in the business.  Bloomberg News has reported that one Tremont fund, Rye Investment Management, had practically ONE-HUNDRED PERCENT OF ITS CAPITAL WITH MADOFF.  Rye Investment is reported to have $3.1 billion with Bernie!  What the hell were these guys doing other than collecting a fee from the investor to shovel ONE HUNDRED PERCENT of their money into a "strategy" that no one could fully explain or replicate!

You want a picture of what these guys, and a lot of other hedge funds were doing with regard to taking investor money and giving it to Bernie?  I'll do one better.  Here's a video.  Think of poor Glen as the hedge fund manager (especially a "fund of funds" manager), think of the soft-ware engineers as Bernie and the "customers"  are the investors;

Not Sure if We've Hit Bottom in Stocks But Maybe We Can Call The Top Of The B.S. Market

In 1998 America was enthralled as two charismatic baseball players, Mark McGuire and Sammy Sosa took aim and destroyed Roger Maris's 1961 single season home run record.  Our eyes told us that both men had put on about thirty to forty pounds of muscle each over a relatively short period of time, but we wanted to believe that these guys were for real.  We wanted to believe so bad that we disregarded what our eyes were telling us, that Sosa and McGuire were bull-sh*t.  In 2004 I sat with my sons in Camden Yards as Barry Bonds strode to the plate during a interleague Orioles-Giants game.  Barry Bonds deposited a long home run onto Eutaw Street.  I turned to my oldest son and said, "Nicholas, remember that you saw the greatest home run hitter of all time hit a home run."  I said this despite having watched Barry Bonds grow from a sleek all-around great ballplayer to a monstrous slugger with a head as big as a basketball, inside of a decade.  I knew he was bull-sh*t but I wanted to believe something else, so I did.

In the late 1990's and the early 2000's there was a company that was so respected and feared that nobody doubted their genius.  Business periodicals rated this company the top company in America.  The problem is no one was really sure what they did and how exactly they made such staggering profits.  That company was Enron.  Three quarters or more of what Enron considered its core business was complete bull-sh*t.  During the same time we watched the "dot.coms" and telecom companies soar to amazing heights based on assumptions that went beyond fantasy.  Their business models were like  ancient temples made to worship bull-sh*t.  Now of course we are sitting in the middle of one of history's greatest financial debacles.  We have learned that many of the things that drove finance, like the "Yen Carry" trade, massive trade and budget deficits, negative savings rates, home purchases five to six times the buyers annual salary, AAA rated risk underwriters leveraged fifty to one, etc, etc., were complete and utter bull-sh*t.  Bull-sh*t has proven it can last a long long time and make a lot of people very rich.  However, history proves to us time and time again that eventually reality or the laws of nature take over and the bull-sh*t gets shown for what it is...bull-sh*t.

Now we have the "Madoff Fiasco".  I honestly did not know who Bernie Madoff was until Thursday night.  I really thought I had seen everything but this disaster is just astounding.  I've seen the scam before but the size of it and the length of time that it went on is just amazing.  What's not amazing is the amount of hedge funds that put nearly all their money into Madoff.  I have always wondered why investors in a hedge fund wouldn't be a little pissed off to know that the "expert" they gave their money to just handed it over to another "expert" and still charged them two & twenty management fees.  Personally, I have to think that a lot of professional investors (not all, because there's an awful lot of dopes managing money) thought that Bernie was making his nice steady returns by front running big orders from his market making operation and/or operating on other inside information.  Bernie wasn't a black-box guy.  He somehow managed to buy stocks, sell calls and buy puts and make money no matter what the environment, year after year.  Smart guys had to know that these returns were impossible without some hanky-panky.  Unfortunately for the smart guys, it wasn't the hanky-panky that they thought it was.

Madoff has to be the greatest con of all time.  As the stories unfold, a picture is painted of a man who used every facet of his being to build his bull-sh*t.  He has to be some sort of sociopath that just divorced his everyday life from what he was doing to his family, his friends, his charities, his business partners, his country.  When you look at his operation you see all the makings for fraud.  He was virtually unaudited and unregulated, he was his own custodian and trustee, and his earnings were solid and completely non-volatile.  It's almost as though he studied prior frauds, like Charles Ponzi and improved on their faults.  Who the hell knows, maybe he did!  What you do hear from his many victims is they uniformly seemed to love Bernie and they convinced themselves that what he was doing was real.  A close look or a close sniff should have set the bull-sh*t alarms off, but no one really wanted to look or sniff.  They wanted to believe, just like we wanted to believe in Sammy Sosa and Mark McGuire.

Anyway, maybe this is it.  Maybe this is the event that finally brings an end to a three-decade run of advancement through bull-sh*t.  Maybe the "Madoff Fiasco" will finally reorient our senses and enable us to dig our way out of this mess. 

Bloomberg Provides List of Investors Taken by Bernie.

Bloomberg News has compiled a list of investors who have lost money with Bernie Madoff.  Investor List .   I have a question.  When they released Bernie on a $10 million bond, who's money did he post? 

*Banco Santander is reporting that it's investment services hedge fund unit had approximately $3.1 billion of investor money with Madoff.  Aye carumba! 

**Uh-oh. BNP Paribas has exposure of $468 million to Madoff.  From Bloomberg;

BNP Paribas is exposed to Madoff “through its trading business and collaterized lending” to funds of hedge funds that did invest with Madoff, the Paris-based company said today in an e-mailed statement.

Clusterstock.com Shows How Bernie Could Have Lost $50 Billion.

Check out this little explanation of how Madoff could have managed to lose $50 billion.  I knew his investors were big institutional guys but apparently Nomura was issuing notes that got you into Bernie's funhouse three-times levered!  Here's Clusterstock's piece How Bernie Could Have Lost $50 Billion.

Apparently Fairfield Sentry LTD was little more than a feeder fund for Madoff.  Nomura was issuing notes that gave you Fairfield Sentry LTD returns X three.  Sentry by the way means someone who provides you security.  Nice.

You really have to wonder how Madoff slept at night waiting for the feds to come knocking on his door at any moment.  Although the way the SEC and any other regulator has looked lately, maybe he didn't worry so much.  I wonder how it started.  At first he was probably juicing his returns for real by skimming profits off his market making revenue and offsetting any losses in his "fund".  Then as the money started pouring in from every Harvard, Yale and Princeton to take advantage of Bernie's magical can't miss formula (I can't help making fun of this especially because I didn't even know who Bernie Madoff was until yesterday) of buying stocks, writing calls and buying puts, the excess revenue from the market making wasn't enough anymore.  That's probably when he just went to straight ponzi 

What's really scary is, think about how many times you heard this conversation in 2001-2006;

"Hey, you remember John Doe, the guy who worked on the credit derivative desk when we were at XYZ bank?"

"Yeah, he was kind of a dope right?"

"Yep.  He just started his own fund!  He raised $500 million to start and Tremont is going to give him another $250 million."

"You're kidding right?"

"Nope, the guy is huge now."

There was a time where just about anybody could call themselves a hedge fund and collect money.  And for years, nobody withdrew money.  How many guys you think did a variation of Madoff's scam?  Madoff hopefully is the biggest but I really doubt he's the last.

Great Blog Post Regarding Madoff

Here is a great post on Madoff from "Cassandra Does Tokyo".  Definitely give it a read.

Bernie Comes Out of the Closet

Different field, same game, same horrific outcome.  When it's too good to be true, it always is.  It's like Joe Jett making $300 million of riskless arbitrage by stripping Treasuries!

**Here's a sign of how things are these days.  My wife and I just had to explain to our two older sons (8 and 11) what a ponzi scheme is!  And they got it!

Bernie Madoff. Good Lord This is Bad....And I Thought I Knew What Bad Was!

When I was about twenty-three years old (1987), I was a bank-examiner with the Federal Home Loan Bank of New York (now the Office of Thrift Supervision).  My superiors felt I was doing a good job so they gave me my first "Examiner in Charge" (EIC) job.  I was to lead a examination of Larchmont Federal Savings and Loan.  It was supposed to be a very easy job because the thrift had been rated very highly just one year prior.  I drove up to Larchmont and did the first thing you are supposed to do as the EIC, read the Board of Director minutes from the prior exam to the present.  I started reading the minutes and it read like a great action movie.  Essentially, the thrift had engaged in three relatively large real estate development deals and all three, for various reasons, were kaput.  I tallied up the losses (that they hadn't booked yet), compared it to the thrift's stated capital and realized that they were insolvent.  Stunned, I walked up to the president's office with the minutes and said, "Mr {can't remember last name} are these losses accurate?"  The president essentially said to me, "Yes, I was wondering when you guys were going to come get me." 

Now, I am paraphrasing that last conversation a bit, but it's a true story.  Throughout my twenty years in this business I have seen the S&L debacle, the Bankers Trust scandal, the Freddie Mac situation and our current mortgage mess up close and personal.  I thought I have seen it all until this Bernie Madoff thing.  FIFTY BILLION DOLLARS!  It's just unfathomable.  The scheme is certainly fathomable, but the size of it?  I pray that Mr. Madoff is off the rails and is embellishing the number.  Unfortunately my gut tells me it's probably the right number and may be worse.  Here is the kicker from the indictment filed yesterday by the FBI in New York.  These are the sworn words of FBI Special Agent Theodore Cacioppi;

On December 11, 2008, I spoke to Bernard L. Madoff, the defendant.  Upon identifying myself, Madoff invited me in, and the FBI agent who accompanied me, into his apartment.  He acknowledged why we were there.  After I stated, "We're here to find out if there's an innocent explanation."  Madoff stated, "There's no innocent explanation."  Madoff stated in substance that he had personally traded and lost money for institutional clients and it was all his fault.  Madoff further stated in substance that he, "paid investors with money that wasn't there."  Madoff also stated that he was "broke" and "insolvent" and that he decided that, "It couldn't go on", and that he expected to go to jail.

Now we have to figure out whose money he lost.  From what I've been reading or hearing it sounds like a relatively small list (ten to twenty institutional investors).  Bloomberg is reporting at least two hedge funds, Fairfield Sentry and Kingate Global.  The only thing that I can compare this to, outside of finance, is when the FBI busted Robert Hanssen in 2001!  Hanssen had been the FBI's head counter-intelligence officer and he had been spying for the KGB for over twenty years.

What's really something is what one of our friends sent me last night.  Check out this little bit of blog traffic in OCTOBER 2003. http://www.elitetrader.com/vb/showthread.php?threadid=61866   You will see that someone was wise to Madoff five years ago.  Look at how that bit of intelligence was poo-pood by the "elite traders."