Sunday, January 04, 2009

The Pain Wall Street, the SEC, and Hank Paulson Have Put Us In ...

A good article in the New York Times about how loused up we are. It opens with a reflection on the ex-investment wizard Mr. Madoff:

... [C]onsider the strange story of Harry Markopolos. Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. Mr. Madoff’s investment performance, given his stated strategy, was not merely improbable but mathematically impossible. And so, Mr. Markopolos reasoned, Bernard Madoff must be doing something other than what he said he was doing.

In his devastatingly persuasive 17-page letter to the S.E.C., Mr. Markopolos saw two possible scenarios. In the “Unlikely” scenario: Mr. Madoff, who acted as a broker as well as an investor, was “front-running” his brokerage customers. A customer might submit an order to Madoff Securities to buy shares in I.B.M. at a certain price, for example, and Madoff Securities instantly would buy I.B.M. shares for its own portfolio ahead of the customer order. If I.B.M.’s shares rose, Mr. Madoff kept them; if they fell he fobbed them off onto the poor customer.

In the “Highly Likely” scenario, wrote Mr. Markopolos, “Madoff Securities is the world’s largest Ponzi Scheme.” Which, as we now know, it was.

Harry Markopolos sent his report to the S.E.C. on Nov. 7, 2005 — more than three years before Mr. Madoff was finally exposed — but he had been trying to explain the fraud to them since 1999 ...

So here is a guy, Harry M., who nailed the Madoff thing years ago, and the S.E.C. pretty much blew him off and proceeded to drop the investigative ball.

And now we have Hank Paulson, blood-brother to Mr. Madoff, taking tax dollars and flinging them at some chosen Wall Street companies that he's deemed "too big to fail."

Well, neat. If a company is "too big to fail," maybe it shouldn't be so big. Or maybe we should just bite the freaking bullet and let if fail anyway. Because I'm damned if I know what this through-the-looking-glass fustercluck we're now in has to do with free markets and/or free enterprise.

For the record, I called all of my elected congress persons back in October and urged them to vote NO on any bailout bill. Fat lot of good it did, since the bailout went forward swimmingly as soon as Paulson yelled: Pass this now NOW NOW or we're all going to diiee!"

Also for the record, I think we'll wade through this, with a lot more debt, with a lot of inflation three or four years out. But we'll get past the swamp. Eventually.

I urge you to read both articles attached to the link above. Yes, it's financial rather than cartoony, but it helps clarify the corporatist world we live in, and how we got here. And since we all have a stake in this debacle ... like it or not ... it's useful to educate ourselves.


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