The whole Madoff story is suspect....
Discussion
THE MADOFF DOUBLE-BLUFF
By M. Rafeeq (18/12/2008)
At first sight it was extremely refreshing. A white-collar financial crook raising his hands and pleading guilty to his financial crime. Th is has to be almost a first. Usually financial criminals when caught in the most obvious of wrong-doing plead 'not guilty'. The criminal can be caught boarding the plane, with a suitcase containing US$100mn of someone elses cash, with his mistress holding on to his arm, he will look into the camera with his most genuine 'Tony Blair look of sincerity' and say "What we have here is a misunderstanding.... " You make up the rest of the excuse, there is a million of them.
So yes, an outright confession, "It was me, I chopped down the apple tree" is so against the current socio-political culture it was almost too good to be true. Especially given the pedigree of this perp, the CEO of one of the busiest and most prominent financial exchanges in the world. After his confession the world goes into shock, especially the Jewish world, since affluent members of this community had previously flocked to his door, seeking his world famous high returns. Since his arrest the press is full of people extolling his virtues as a decent human-being and "who would ever of believed it?". It would be so easy for this man to deny any wrongdoing because he could bring out an army of good character witnesses and he could just point at some suspect-looking goy in his hedge fund organisation to lay the blame on.
So a truly heartwarming confession. And it was apparently made to his 2 sons, both of whom who worked for the fund and who had absolutely no idea that this fraud was being perpetrated, until such time as this astounding confession.
But then I started to look more closely at the mix of investors who have lost money. About half of them are professional investing institutions. Look at this quote from the UK's Daily Mail newspaper (online http://www.dailymail.co.uk/money/article-1096228/L...
"Full details of the exact losses are yet to emerge. Hedge funds and banks have so far admitted to having around £16billion with Madoff - only half of the total that is reckone d to have been lost. Some of the biggest casualties are Swiss private banks, which have taken hits amounting to about £2.5billion. Spanish bank Santander had £2.1billion of client money with Madoff. HSBC has admitted to lending about £600million to funds who wanted to use debt to gear up their positions with Madoff. RAB capital, the hedge fund that lost huge sums on investing in Northern Rock, has revealed that it is exposed to Madoff to the tune of around £6million."
Now the confession does not look right at all.
It is possible to accept the idea of a Ponzi scheme be played on members of the public, who are ignorant of how such schemes are worked, in fact the schemes are targetted specifica lly at such people. Yet Madoff would have us believe that he managed to convince professional investment companies to put their funds with him without any due diligence being performed. This is clearly nonsense.
I have a cted as a professional consultant to major EC and US financial institutions on corporate and institutional credit risk and the idea that anyone in HSBC or Santander could authorise large investment without the internal checks and controls being employed is almost impossible. To try and believe that EVERY institution that invested in Madoff circumvented their internal control procedures IS impossible.
Why is this important? Simple. If someone approaches the HSBC credit risk team, for instance, with a view to making a loan or investing a sum as large as £600m to what is ultimately a single institution (therefore a single counterparty credit exposure) a significant number hoops would have to be jumped through. Firstly there is the credit officer competence limit, which is the maximum amount that a single credit officer may be allowed to authorise. More than his/her limit must be referred up the credit approval food chain. In an institution like HSBC or Santander etc, £600bn or US$1bn will have been referred to the very top of the food chain, the banks' credit committees at the board level. This is an enormous sum and no lacky is going to be able to approve this by themselves, ever.
When the credit committee are called together to review an application, everything is ready prepared for them, so they can cut to the chase . The lower levels of the credit approval process will have prepared a summary of all the application documentation, included in the meeting bundle, with the strengths, weaknesses, and other important credit risk points. This application will usually contain a set of audited accounts going back a minimum of 3 years and most likely 5 years. There will be a full credit breakdown of the investment profile of the business, Madoff's hedge fund, looking at how the fund obtains its returns; investment assets and investment methodology. After the committee is satisfied that all the issues and concerns have been addressed they will vote on the approval or otherwise.
So there is no way that Madoff could have been pulling a scam. It would have stood out as clear as day to professional financial analysts, whose only job in life is to examine the management of companies and their reports and accounts, to make sure that all is in order. Its their job, its what they do. They are the world experts in spotting anomalies. The idea that all these professionals in all these companies were all duped is absolute nonsense. It is highly improbable that one such evaluation process could have been fooled, but all of them, never. A Ponzi scheme is easy to spot when you have the audited accounts and the full range of investment assets and investment metodologies employed.
Also, this scam avoided the attention of all the funds employees; accountants, traders, auditors and the US regulators, all of whom are also financial professionals.
This again is absolute nonsense. A ny company that I have ever worked for would have known internally that such business was being done, because they are all involved. For instance, a trader goes on buying equities from the worlds stock exchanges that go down in price for 5 continuous years, but the company just keeps giving him more money to top up the trading, continues paying his salary and even annual bonus. Absolute rubbish. But assuming this actually did happen, the market risk team would have been watching these losses, as would have the accountants. It is not possible to hide things like this internally for very long, months at the most; 20+ years, NEVER.
So why plead guilty? The answer is simple. Look on the net and you will see that because this case is being labelled a fraud, it would appear that investors are going to be able to claim their investment back under the US government's financial fraud protection scheme. A judge has already given his approval in principle for compensation, w ithout any evidence having been presented and financial fraud being demonstrated in a court of law. And it would appear that there will never be such a demonstration in a court of law. Why? It would appear that all the funds financial records are mostly "missing" (rather like Dov Zakheim's US$1.4tn) and those few records that do survive are in a terrible mess.
However, since the guy has pleaded guilty we do not need to demonstrate the fraud, because he says he is guilty.
And look further on the net and you will see that these "victims" have also been told by the US tax authorities that they will probably also be entitled to claim back some taxes on these defrauded sums.
Rather than saying this hedge fund has gone bust, due to its choice of investment assets and investment methologies, a scenario which is highly probable in the current financial paradigm, since all the professionals are predicting that at least 30% of all hedge funds are about to fail, more than 700 of them, the CEO chooses to fess up to fraud. If the CEO admits the fund has gone bust, then all those wealthy members of the Jewish community get nothing, but if the CEO admits to fraud they get their money back as compensation from the US tax payer, just as they are also drawing money back from the tax payers with the other hand.
And, as can be seen at the Daily Mail link above, the investors in this fund only get to litigate the fund directors against Lloyds insurers in London for even more compensation. Done properly the compensation could end up paying out far more than the original fund returns (yes this is sarcasm, it was bound to creep in eventually in yet another swindle like this).
Would that I could believe that Madoff were a good guy who slipped and then became repentant. But given the facts, this simply cannot be true.
By M. Rafeeq (18/12/2008)
At first sight it was extremely refreshing. A white-collar financial crook raising his hands and pleading guilty to his financial crime. Th is has to be almost a first. Usually financial criminals when caught in the most obvious of wrong-doing plead 'not guilty'. The criminal can be caught boarding the plane, with a suitcase containing US$100mn of someone elses cash, with his mistress holding on to his arm, he will look into the camera with his most genuine 'Tony Blair look of sincerity' and say "What we have here is a misunderstanding.... " You make up the rest of the excuse, there is a million of them.
So yes, an outright confession, "It was me, I chopped down the apple tree" is so against the current socio-political culture it was almost too good to be true. Especially given the pedigree of this perp, the CEO of one of the busiest and most prominent financial exchanges in the world. After his confession the world goes into shock, especially the Jewish world, since affluent members of this community had previously flocked to his door, seeking his world famous high returns. Since his arrest the press is full of people extolling his virtues as a decent human-being and "who would ever of believed it?". It would be so easy for this man to deny any wrongdoing because he could bring out an army of good character witnesses and he could just point at some suspect-looking goy in his hedge fund organisation to lay the blame on.
So a truly heartwarming confession. And it was apparently made to his 2 sons, both of whom who worked for the fund and who had absolutely no idea that this fraud was being perpetrated, until such time as this astounding confession.
But then I started to look more closely at the mix of investors who have lost money. About half of them are professional investing institutions. Look at this quote from the UK's Daily Mail newspaper (online http://www.dailymail.co.uk/money/article-1096228/L...
"Full details of the exact losses are yet to emerge. Hedge funds and banks have so far admitted to having around £16billion with Madoff - only half of the total that is reckone d to have been lost. Some of the biggest casualties are Swiss private banks, which have taken hits amounting to about £2.5billion. Spanish bank Santander had £2.1billion of client money with Madoff. HSBC has admitted to lending about £600million to funds who wanted to use debt to gear up their positions with Madoff. RAB capital, the hedge fund that lost huge sums on investing in Northern Rock, has revealed that it is exposed to Madoff to the tune of around £6million."
Now the confession does not look right at all.
It is possible to accept the idea of a Ponzi scheme be played on members of the public, who are ignorant of how such schemes are worked, in fact the schemes are targetted specifica lly at such people. Yet Madoff would have us believe that he managed to convince professional investment companies to put their funds with him without any due diligence being performed. This is clearly nonsense.
I have a cted as a professional consultant to major EC and US financial institutions on corporate and institutional credit risk and the idea that anyone in HSBC or Santander could authorise large investment without the internal checks and controls being employed is almost impossible. To try and believe that EVERY institution that invested in Madoff circumvented their internal control procedures IS impossible.
Why is this important? Simple. If someone approaches the HSBC credit risk team, for instance, with a view to making a loan or investing a sum as large as £600m to what is ultimately a single institution (therefore a single counterparty credit exposure) a significant number hoops would have to be jumped through. Firstly there is the credit officer competence limit, which is the maximum amount that a single credit officer may be allowed to authorise. More than his/her limit must be referred up the credit approval food chain. In an institution like HSBC or Santander etc, £600bn or US$1bn will have been referred to the very top of the food chain, the banks' credit committees at the board level. This is an enormous sum and no lacky is going to be able to approve this by themselves, ever.
When the credit committee are called together to review an application, everything is ready prepared for them, so they can cut to the chase . The lower levels of the credit approval process will have prepared a summary of all the application documentation, included in the meeting bundle, with the strengths, weaknesses, and other important credit risk points. This application will usually contain a set of audited accounts going back a minimum of 3 years and most likely 5 years. There will be a full credit breakdown of the investment profile of the business, Madoff's hedge fund, looking at how the fund obtains its returns; investment assets and investment methodology. After the committee is satisfied that all the issues and concerns have been addressed they will vote on the approval or otherwise.
So there is no way that Madoff could have been pulling a scam. It would have stood out as clear as day to professional financial analysts, whose only job in life is to examine the management of companies and their reports and accounts, to make sure that all is in order. Its their job, its what they do. They are the world experts in spotting anomalies. The idea that all these professionals in all these companies were all duped is absolute nonsense. It is highly improbable that one such evaluation process could have been fooled, but all of them, never. A Ponzi scheme is easy to spot when you have the audited accounts and the full range of investment assets and investment metodologies employed.
Also, this scam avoided the attention of all the funds employees; accountants, traders, auditors and the US regulators, all of whom are also financial professionals.
This again is absolute nonsense. A ny company that I have ever worked for would have known internally that such business was being done, because they are all involved. For instance, a trader goes on buying equities from the worlds stock exchanges that go down in price for 5 continuous years, but the company just keeps giving him more money to top up the trading, continues paying his salary and even annual bonus. Absolute rubbish. But assuming this actually did happen, the market risk team would have been watching these losses, as would have the accountants. It is not possible to hide things like this internally for very long, months at the most; 20+ years, NEVER.
So why plead guilty? The answer is simple. Look on the net and you will see that because this case is being labelled a fraud, it would appear that investors are going to be able to claim their investment back under the US government's financial fraud protection scheme. A judge has already given his approval in principle for compensation, w ithout any evidence having been presented and financial fraud being demonstrated in a court of law. And it would appear that there will never be such a demonstration in a court of law. Why? It would appear that all the funds financial records are mostly "missing" (rather like Dov Zakheim's US$1.4tn) and those few records that do survive are in a terrible mess.
However, since the guy has pleaded guilty we do not need to demonstrate the fraud, because he says he is guilty.
And look further on the net and you will see that these "victims" have also been told by the US tax authorities that they will probably also be entitled to claim back some taxes on these defrauded sums.
Rather than saying this hedge fund has gone bust, due to its choice of investment assets and investment methologies, a scenario which is highly probable in the current financial paradigm, since all the professionals are predicting that at least 30% of all hedge funds are about to fail, more than 700 of them, the CEO chooses to fess up to fraud. If the CEO admits the fund has gone bust, then all those wealthy members of the Jewish community get nothing, but if the CEO admits to fraud they get their money back as compensation from the US tax payer, just as they are also drawing money back from the tax payers with the other hand.
And, as can be seen at the Daily Mail link above, the investors in this fund only get to litigate the fund directors against Lloyds insurers in London for even more compensation. Done properly the compensation could end up paying out far more than the original fund returns (yes this is sarcasm, it was bound to creep in eventually in yet another swindle like this).
Would that I could believe that Madoff were a good guy who slipped and then became repentant. But given the facts, this simply cannot be true.
skinner05 said:
Care to summarise?
If it's true, then the decision makers at the large banks that invested their money with Madoff didn't bother to run proper checks and just threw their money in his general direction. Massive amounts of money at massive risk (single investor). So they are either being run by incompetents or ignored their own regulations, either way big investigations need to be carried out at those banks to find out how they could be duped so easily and invest so willingly.Len Fisher in a reply to the above article said:
Madoff's Willing Partners
By Len Fisher
Saturday, December 20, 2008; A17
There seems to be little doubt that Bernard Madoff is a cheat. His apparent Ponzi scheme, in which capital from new investors would have been used to pay "dividends" to earlier investors, ultimately cost the participants many billions of dollars. But was it all Madoff's fault? I contend that the losses would have been less severe, and might not have occurred at all, if many of the Madoff's investors had not been cast from the same mold that Madoff was.
The facts should have been enough to make anyone suspicious. Madoff's accounts were only perfunctorily audited, and his statements were printed with a dot-matrix printer on lightweight copier paper. Above all, his business returns were consistently good -- too good -- and he never reported a down month, let alone a down quarter or year. Let's be honest; such oddities had to have set off alarm bells. So why did so many professionals continue to invest with him?
Only one answer makes sense. Some of those investors must have suspected that he was a cheat but continued to invest because they thought they were benefiting from that cheating. In other words, they took him for a different sort of cheat from who he was -- one who was using information gained from his market-making operation to earn illegal profits rather than one who was operating a breathtakingly audacious Ponzi scheme.
And by continuing to invest with Madoff under this belief, those institutional investors became complicit in that cheating. In fact, they became cheats themselves but without being aware of all that can happen once two parties become involved in a mutual cheating game.
Those consequences can be explained through game theory, a system for examining the "best" strategies that others might use to further their interests (in normal life as well as on Wall Street) to determine the "best" strategies to use in response. It sounds simple, and it often is -- so long as you can be confident in your assessment as to which strategy the other party will use.
The most difficult "game" situations are those that present the actors with a choice between cooperation for mutual benefit or going it alone. If the other party can be trusted to use a "cooperative" strategy that will benefit both of you, then you, too, can cooperate, having confidence that you will do better than you would have on your own. That may be the choice Madoff's investors made, believing him to be acting for their mutual benefit and thus "cooperating" by continuing to invest with him.
The downside of this approach is that one or both sides may conclude that they can do better by cheating on the cooperation. Mutual cheating, though, leads to a series of classic dilemmas (brilliantly exposed in the late 1940s by game theorist John Nash, a Nobel laureate in economics) in which both parties end up worse off than if they had continued to cooperate.
Madoff and his investors got trapped by such a dilemma. The principal way to escape from such dilemmas is through mutual trust.
Social psychologist Robert Cialdini has identified six "weapons of influence" that we use to gain trust, including returning favors; commitment and consistency; being an authority figure; and being liked. The trouble is that all of these can be faked, which is just what Madoff did. Game theory suggests a stronger solution, which is for each party to demonstrate "credible commitment" to prove that it can be trusted.
If Madoff's investors had looked for this sort of proof of commitment, in the form of proper auditing and a transparent portfolio of investments whose value could be checked, they would not have been caught out in so spectacular a fashion.
Why did they fail to look? It can only have been because they thought that they would do better by not looking. By colluding in the cheating that they thought was going on, the investors who did so provided an example of one of game theory's most important and least heeded lessons: Cheats can prosper, but only when the other side isn't cheating as well.
Len Fisher is the author of the recently released book "Rock, Paper, Scissors: Game Theory in Everyday Life."
By Len Fisher
Saturday, December 20, 2008; A17
There seems to be little doubt that Bernard Madoff is a cheat. His apparent Ponzi scheme, in which capital from new investors would have been used to pay "dividends" to earlier investors, ultimately cost the participants many billions of dollars. But was it all Madoff's fault? I contend that the losses would have been less severe, and might not have occurred at all, if many of the Madoff's investors had not been cast from the same mold that Madoff was.
The facts should have been enough to make anyone suspicious. Madoff's accounts were only perfunctorily audited, and his statements were printed with a dot-matrix printer on lightweight copier paper. Above all, his business returns were consistently good -- too good -- and he never reported a down month, let alone a down quarter or year. Let's be honest; such oddities had to have set off alarm bells. So why did so many professionals continue to invest with him?
Only one answer makes sense. Some of those investors must have suspected that he was a cheat but continued to invest because they thought they were benefiting from that cheating. In other words, they took him for a different sort of cheat from who he was -- one who was using information gained from his market-making operation to earn illegal profits rather than one who was operating a breathtakingly audacious Ponzi scheme.
And by continuing to invest with Madoff under this belief, those institutional investors became complicit in that cheating. In fact, they became cheats themselves but without being aware of all that can happen once two parties become involved in a mutual cheating game.
Those consequences can be explained through game theory, a system for examining the "best" strategies that others might use to further their interests (in normal life as well as on Wall Street) to determine the "best" strategies to use in response. It sounds simple, and it often is -- so long as you can be confident in your assessment as to which strategy the other party will use.
The most difficult "game" situations are those that present the actors with a choice between cooperation for mutual benefit or going it alone. If the other party can be trusted to use a "cooperative" strategy that will benefit both of you, then you, too, can cooperate, having confidence that you will do better than you would have on your own. That may be the choice Madoff's investors made, believing him to be acting for their mutual benefit and thus "cooperating" by continuing to invest with him.
The downside of this approach is that one or both sides may conclude that they can do better by cheating on the cooperation. Mutual cheating, though, leads to a series of classic dilemmas (brilliantly exposed in the late 1940s by game theorist John Nash, a Nobel laureate in economics) in which both parties end up worse off than if they had continued to cooperate.
Madoff and his investors got trapped by such a dilemma. The principal way to escape from such dilemmas is through mutual trust.
Social psychologist Robert Cialdini has identified six "weapons of influence" that we use to gain trust, including returning favors; commitment and consistency; being an authority figure; and being liked. The trouble is that all of these can be faked, which is just what Madoff did. Game theory suggests a stronger solution, which is for each party to demonstrate "credible commitment" to prove that it can be trusted.
If Madoff's investors had looked for this sort of proof of commitment, in the form of proper auditing and a transparent portfolio of investments whose value could be checked, they would not have been caught out in so spectacular a fashion.
Why did they fail to look? It can only have been because they thought that they would do better by not looking. By colluding in the cheating that they thought was going on, the investors who did so provided an example of one of game theory's most important and least heeded lessons: Cheats can prosper, but only when the other side isn't cheating as well.
Len Fisher is the author of the recently released book "Rock, Paper, Scissors: Game Theory in Everyday Life."
10 Pence Short said:
Seems to be an anti-semite issue in the article, too.
Madoff is Jewish. Fact.Most of the people claiming they were duped are Jewish or Jewish owned companies.
International finance is dominated by Jewish interests (Rothschilds et al). Fact.
No anti-Semitism. Just read the article, mull it over, rationalise the facts, see how it makes sense and then worry about underlying sentiments.
Blib said:
I've just noticed the the original article appeared on Rense.com, a Jewish conspiracy website.
The author writes under the pseudenym M. Rafiq
Merry Christmas.
Rense also talks about UFO's, Bigfoot and little green men in his back garden. The author writes under the pseudenym M. Rafiq
Merry Christmas.
Rense links to many things and topics. Some are anti-Seimitic, some are downright absurd. It doesn't mean he is he originator of particular pieces of work.
I tend to look at the message rather than the messenger. It's a philosophy that hasn't failed me yet.
Schermerhorn said:
Blib said:
I've just noticed the the original article appeared on Rense.com, a Jewish conspiracy website.
The author writes under the pseudenym M. Rafiq
Merry Christmas.
Rense also talks about UFO's, Bigfoot and little green men in his back garden. The author writes under the pseudenym M. Rafiq
Merry Christmas.
Rense links to many things and topics. Some are anti-Seimitic, some are downright absurd. It doesn't mean he is he originator of particular pieces of work.
I tend to look at the message rather than the messenger. It's a philosophy that hasn't failed me yet.
It must be rotten being as paranoid as you obviously are. All that resentment and hate. It's not good for your health you know.
I shall leave you to your lunatic mindstorms.
Edited by Blib on Monday 22 December 19:24
hornetrider said:
What a cracking read, and if true, what an amazing scam. Madoff taking a fall to save s
tloads of financial institutions billions.
What's the betting he does a Maxwell? He's out on bail, isn't he?
It is true. How can it not be? How can enormous financial institutions FAIL (repeatedly so) to carry out typical, normal, regulatory and STANDARD checks on who they lend money to. If I wanted to borrow £100,000 they'd check my entire financial history. If I asked them to invest £1,000,000,000 into a company I was setting up, it's going to take more than a pretty lady with a nice smile behind a desk-counter to make such a decision. We're talking about entire boards of committe members, financial analyists, risk assessors and the like to make such a decision.tloads of financial institutions billions. What's the betting he does a Maxwell? He's out on bail, isn't he?
We're not just talking about one or two companies who failed to properly vet or check where their monies were going but we're talking about hundreds if not thousands. THAT is the crux of the matter and why the entire thing stinks something rotten.
Blib said:
Schermerhorn said:
Blib said:
I've just noticed the the original article appeared on Rense.com, a Jewish conspiracy website.
The author writes under the pseudenym M. Rafiq
Merry Christmas.
Rense also talks about UFO's, Bigfoot and little green men in his back garden. The author writes under the pseudenym M. Rafiq
Merry Christmas.
Rense links to many things and topics. Some are anti-Seimitic, some are downright absurd. It doesn't mean he is he originator of particular pieces of work.
I tend to look at the message rather than the messenger. It's a philosophy that hasn't failed me yet.
It must be rotten being as paraniod as you obviously are.
I shall leave you to your lunatic musings.
I, like any other rational person, weigh up the facts, use a little bit of common sense and hope it leads me to the truth.
If that makes me a 'lunatic', then a lunatic I am. Sorry to have scared you.
Schermerhorn said:
Blib said:
I've just noticed the the original article appeared on Rense.com, a Jewish conspiracy website.
The author writes under the pseudenym M. Rafiq
Merry Christmas.
Rense also talks about UFO's, Bigfoot and little green men in his back garden. The author writes under the pseudenym M. Rafiq
Merry Christmas.
Rense links to many things and topics. Some are anti-Seimitic, some are downright absurd. It doesn't mean he is he originator of particular pieces of work.
I tend to look at the message rather than the messenger. It's a philosophy that hasn't failed me yet.
It does make you ponder how such large sums can be invested in his funds without due diligence . I can understand private investors but large financial institutions.
I'll freely admit that i have no knowledge how large financial transactions work but can someone explain how this is allowed to happen without anyone batting an eyelid?
I'll freely admit that i have no knowledge how large financial transactions work but can someone explain how this is allowed to happen without anyone batting an eyelid?
There is nothing in the finance world that is not driven by either greed or fear. Greed is obvious, fear is that others are on to a good thing they may miss. There is nothing new in people wishing to create a conspiracy because the truth is too mundane. There is nothing new in massive incompetence.
Schermerhorn said:
10 Pence Short said:
Seems to be an anti-semite issue in the article, too.
Madoff is Jewish. Fact.Most of the people claiming they were duped are Jewish or Jewish owned companies.
International finance is dominated by Jewish interests (Rothschilds et al). Fact.
No anti-Semitism. Just read the article, mull it over, rationalise the facts, see how it makes sense and then worry about underlying sentiments.
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