Sunday 14 December 2008

Madoff - Could it happen in the UK?

Madoff, a name few on this side of the Atlantic will have heard of until the last few days. For those who have not read this amazing story; effectively a top wall street firm has been found out to be a Ponzi scheme. $50 billion has been lost to investors, and maybe much more as the investigation is only just starting.

Mr Madoff contributed a lot to politicians and even was an adviser to the SEC, the US regulators. Over the weekend, the victims are being announced. Many already stricken banks and hedge funds who will now face possible disaster in the coming week. Santander has said its clients have lost $3.1 billion. Bramdean, run by high profile city slicker, Nicola Horlick, has lost hundreds of millions and the share price will no doubt be pummelled further tomorrow.

The story is amazing and another sign of the height's to which Wall Street excess had been allowed to reach. Madoff's company had been on the SEC list for a check, but they had not round to it.

So could it happen in the UK? The answer is yes. There are many similarities here with Northern Rock. A business with a flawed model, totally unable to operate in a market. The staff all working hard not knowing the true crisis at the business. The Finance Director resigned and nothing was done. The auditors ticked all the boxes, the FSA looked on without taking any real action.

Yes, the FSA regulator has sacked the staff and tightened up its act now. But how much more could come out in the future? The reviews they do are on a 3 yearly basis. Hopefully nothing on the scale of Madoff will come out here, but the world has turned up some pretty strange stuff in recent months.


Anonymous said...

All banks operate "Ponzi" schemes by creating money out of thin air, and then charging interest on the self created 90% of their "Raw material."
Banks however are immune, being licensed by the Gov.
They get to keep the profits, and obscene bonuses, while taxpayers suffer the losses.

Good, ain't it?

What would you say about a company that was able to obtain 90% of its raw material, for nothing, and still manages to make enormous losses? And then proceeds to give the public, and corporate clients "financial advice", having been bailed out by the taxpayers?

You couldn't make this stuff up!

Time for a TOTAL monetary rethink!
And criminal proceedings!

The case in point shows the total moral collapse of the financial "world" and the rank lies of all investment vehicles that claim "due diligence" on behalf of their clients.
Rapacious greed coupled with non-existent oversight guarantees more shoes to fall.

"The outgoing tide reveals those swimming naked."

CityUnslicker said...

Anon - there are problems with fiat currencies which are now being exposed.

However, those under 'arrest' should be the governments who allow it, not market participants following the rules.

Anonymous said...

"However, those under 'arrest' should be the governments who allow it, not market participants following the rules".

I absolutely agree.

Majority of politicians and responsible authorities have been bought by the beneficiaries if fiat.

The whole area never occurs in formal education syllabus, at any level.

Comex authorities have now warned the gold shorts on the December contracts of a coming short squeeze and advised them to exit their positions.

Is this a rigged market or...?

The traditional shorts on Comex are operators who know the positions and price points of the participants.

It goes far deeper than the issues surrounding fiat currencies.

Current Fiat problems go back to a residence called "Red Shield", and prior to that the Vatican, with a sprinkling of royalty.

This entire global situation has been decades in the planning, and follows exactly the game plan in smaller nation take-downs. The thing is, the players have never sought to conceal their plans, and yet belief is still scant.

The G20 have proven themselves to be hot-air, and now we have a distinct lack of international co-ordination.

Collapse is proceeding far faster than authorities realize.

Eventually a cascade into.......

Steven_L said...

Speaking as someone who works in regulation, I'd have thought that the first thing

(and probably only thing given the fact they are only allowed to market theselves to the mega-rich or institutional investors)

that financial regulators should do with hedge funds is check that they are not ponzi schemes?

This boom has hidden so much incompetence, there needs to be a full, independent enquiy (once the politicans have finished saving the world of course).

AntiCitizenOne said...

Banks create credit, not money.

When the loan is paid back or defaulted then the back monetises this.

In a default the money is decreased, in a profit the money is increased.

Basically the money is sterilised by economic growth or contraction. The problem has been that the bank reserve ratios have not adjusted by the regulator in response to credit creation, and this has caused the boom/bust.

The problem is one that the government has managed its currency monopoly badly. Fractional Reserve banking is not the problem, the goverments mal-regulation is.

Anonymous said...

Fractional Reserve banking is not the problem, the governments mal-regulation is.

Yen carry trade, soon to be many-others-carry trade, offshore hedge funds levered at christ knows what.....reporting to whom? Dark pools of offshore exchanges deliberately reporting to no oversight.
Toxic waste spread everywhere, CDS explosions, deliberately designed to circumvent insurance/asset laws.

The fractional-problem is bigger than national govs., as are other problems.
This situation IS DELIBERATE, part of, and an evolution of, THE GREAT GAME, at a financial level.

Oh, and banks create DEBT, not money, and charge interest on created DEBT, that did not exist anywhere, prior to a contractual signature.

Basically the money is sterilised by economic growth or contraction
Very basically!
Increasing incremental injections of DEBT into a fiat system create advantage to those nearest the source of the DEBT, and less and less system-wide incremental GDP, (poor quality of debt services, real estate etc) until eventually GDP turns negative (using true statistics) and the whole kaboosh goes belly-up, errrm contracts violently.
EG, extract debt growth and true inflation from supermans lies, errr, statistics and there's nowt left.

All gov off balance sheet PFI liabilities show corruption starts at top

I hate to put a date, or figure, on the state of the UK standard of living once everything unwinds and the re-set is over.

lilith said...

Would you invest with someone whose name is pronounced Made-off?

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