Madoff Story Smells Funny - page 2

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From the news:

Madoff Group was considered one of the most stable and profitable investment funds in the USA. New clients were willing to invest in Madoff despite that some experts pointed out such concerns as:

- Low volatility of the firm.

- The lack of open financial information of the firm.

-The fact that it is impossible to maintaint such profits on such ammounts of money troughout the entire history of the firm (as far as I know a client got 12 to 13 % profit on his investment, a year I guess).

-Madoff investment Securuties trouout their history never opened their accounting books to SEC, because at the end of each period they transformed all of their funds in to plain money.

-Madoff never offered their clients online access to their accounts, all they did was send out printouts by regular mail (wich is strange, because Madoff was one of the first to computerize the entire document flow in his company).

So, what do we have. We have a firm, that was acting suspicious, but made good profits. The size of the profits made the suspiciois behavior unnoticeable.

We also have SEC, wich allows funds to keep their accounting closed, if all of their funds is transformed to money at the end of accounting period (I guess this happens by US law).

I think the reason for all this happenening and people loosing money, Is the same reason there is a crysis now in the economical system. People just want to get rich by any means, and If this means taking unreasonable risks - then it's ok, as long as the profit is good enough.

The sad thing is that this behavior is tolerated and stimulated by the government. SEC indeed is a funny organization. If you read Michael Lewis book "Liars poker", there is a part where he writes abouthow " that to boost the American mortgage market, the US government allowed (trough SEC) investment funds and commercial banks to trade mortgage bonds without accounting them in their books". So the mortgage bonds wouldn't be seen on the company's ballance. This allows to boost of the speculation on this financial instrument. May i remind you that mortgages was one of the reasons the crysis started this summer.

 

Ravique, well written man. Very interesting perspectives from you.

 

Scorpion, to be honest it was badly written (mistake wise), I somehow managed to write "ass" instead of "all". I guess its not wise to write posts at 7 am in the morning

OilFX, there is no single reason to the crysis. Everyone made their share, funds, central banks, commercial banks, private persons. I agree that most of it is because of the credit expansion, and mortgage is a type of credit, and a mortgage bond is a credit on a credit, is basicy it states my point. =)

Sure the government and the CB are responsible, because it is one of their functions to manage the ammount and type of risk the companies in their countries take.

 

He he, you must be an avid crysis playa. It's crisis?

 

More like a crisis victim than a playa It is fun living in Latvia now. The crisis crushed the economy (wich by the way was growing just because of cheap mortgages), Latvia borrowed a hell of a lot of money from the International Monetary Fund, stuggles to keep the national currency stable, raised the taxes from 5% to 21% (nice one) and nationalized one of the banks. Prices on real estate dropped 40% last year, the ammount of people out of work, bankrupcies and unpayed credits is rapidly growing. In three words: fun, fun, fun.

 

Yeah man, same here where I live. Price of real estates has fallen about 60%, yet the demand is still very low, and supply is very high. Here, the credit crisis has just started, as most people here borrowed a lot of money to invest in real estates, and right now they cannot sell a damn thing to pay back the loans. I guess banks will have to write off a lot of loans pretty soon.

I sense an impending doom for banking industry here.

 

Yep, same here. There were two "golden cows" here in Latvia. Building and real estate and cargo transportation (Latvia is a sea country, between russia and europe - an ideal transportation point). And both of the busineses are now stopped. And the banks have problems, because those two businesses were highly creditised (mortgages for real estate and car leases on trucks for transportation companies). So now the situation is sadly commical, there are companies with a balance of half a million dolars seeking for a credit at least 10 000 $ to manage their credit payments.

I don't know about doom of banking in latvia, because most banks represented here are parts of large european banks, wich have access to large ammounts of capital, and wich will be supported y the government in a dangerous situation, but I know for a fact that it will be hard to get any credit here for at least two - three years.

Another sad thing is that by the year 2008 the real estate market was doubling each year in Latvia, and many ordinary people (by that I meen pople not involved in finance and investments) decided to invest their savings in the real estate (by the principle: Everyone is doing it, then it must be good). and many of them did. Now their investments are down 30%-40%. I feel most sorry for theese people.

Anyway, we went a little offtop on the Madoff topic. =)

 

For some weird reason all people I saw complaining being ripped off were Jewish.

So my question is, why did he only rip off Jews ? Was he kind of part of Jewish asset management associations ?

 

No, not just Jews were scammed. Banks and mutual funds around the world are into this. A lot of people in Saudi Arabia and UAE were investing heavily in Madoff.

 

Thx for the clarification scorpion.

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