Wednesday, December 17, 2008

Bernard Madoff and the $ 50 Billion blowout!

Pictures: Bernard Madoff, Steven Spielberg and Alan Greenspan; and......the HSBC bank towers in Hong Kong (with Standard Chartered bank in the background); and HSBC Bank futuristic building in Brazil; Royal Bank of Scotland UK; all emptied out?

Big news, bad news, on media "front pages" also feature the "who's who" who we know, and the "who's who" we don't. Frankly, I am not one for big Wall Street investment; one thing, the omnipresent (not any more) American dollar costs a hell of a lot, and it's big game for big fish.

So never heard of Bernard Madoff, the guy who has come out last week with his ponzi scheme bust, has lost $ 50 billion to people and institutions, and charities(!!!); we common folks know the great director Steven Spielberg of 2001 A Space Odyssey fame, and iconic banks- HSBC, The Royal Bank of Scotland, BNP Paribas of France, and people we guys down under have vaguely heard of, Fred Wilpon, owner of the New York Mets baseball team. And who doesn't know Alan Greenspan, at one time, after President George Bush, the most visible face on TV- did he push up interest rates too high that partly led to all this?- the economic recession in the US.

Now, whilst we were just wondering how a huge amount of US $ 35 billion was being held like a carrot's stick, like a suspended toy over a baby's cradle, over those giant car auto makers GM, Ford and Chrysler, here, we have an individual who swindles some 50 billion dollars from big names and small investors, like a retired couple who had placed all of their one million dollars savings with him!

I would not just blame an individual who can manage this, but the system.........the world's free economy is full of holes, riddled with so many contradictions, so much confusion, conman ship, pirating, money sharks, loan sharks, plastic money................why, those enemies of the free world, won't they laugh all the way to the bank........oops, sorry, laugh all the way to their automatics muzzles!

Just look at this, China, with its brand of free market communism, has gone least it seems like that, I am doubtful if some huge loophole or heist in their money market would not become known to us. So it seems it was right, all along, to have some sort of controlled economy.

Lehman Brothers, Citibank, Merill Lynch, Bank of America, Ford, GM, Chrysler, GE Capital..................what's this, these are certainly not bad companies.

Recently, I asked a young friend, a Certified Chartered Accountant, working for a reputed audit company, an international firm, I asked him if they continue to look at Reserve Funds in a client's Balance Sheet, during the audit overview, represented by strong assets and cash surpluses ............he blinked, and said no!

Cavalier and arrogant attitudes that present day young managers and regulators flaunt, especially in the western world, has got us all into this mess.

In my time, up to the 1970s/80s, a bank manager, for example, diligently scrutinised all papers and documents put up for a house or car loan, with pre conditions set by the bank owners and government regulators...........a certified salary statement as well as tax paid proof, valuation of the house by an approved valuer had to be topped with proof of municipal council completion certificate of the home, the property title is verified, a letter from the employer certifying the applicant's permanent status in the employer's company...............

Now, with finance companies competing for getting people to take loans, expecting to stash in on interest revenues, frantically chasing people and putting sops for attracting more to go for loans, unmindful of risks, has done exactly that- risks ignored during evaluation of a person's capability of paying back a loan became risks that stare them in the face...........the domino effect of this, and more, has brought down the proverbial house built on cards!

Joe takes a house loan, he can hardly afford, from a finance company.....Joe's loan is fore closed, the finance company can't pay back its loans from the bank.........the bank faces credit crunch so Joe's employer has to pay higher rates for loans, Joe's assembly line product costs more......... business declines, Joe loses his job......he can't pay bills ......his super market, electricity and telephones, gas companies all start to feel the crunch.........recession sets in............Joe's investments are with just one big investment company which was doing a home, no money........

I want to keep adding to this post...........THE FOLLOWING TRENDS VERY DISTURBING:

Greed, unbridled greed, led to throwing common sense and caution out of the window. Add to this the very sad inclination of "main street" investors' blind trust in Wall Street.

What else can explain why retired people, small time investors, people who run charities, even the super rich, putting all their savings and/or surplus cash with one investor, and doing that without gathering prior information on where their money is being invested.

Before signing away their hard earned, or otherwise, savings and surpluses with an investment company, does it take a lot to see where the money is being invested......something like $ 10 million in auto industries, $ 10 million in shipping, $10 million in software companies,etc etc etc., and this financial info release certified by a Certified Accountant, with dated updates to the last financial quarter.

Besides, I am perplexed of people putting their investments with just one investor/investment company.
It would be wiser placing anywhere between 25% to 35% of your money safely in the best bank with a proven record, of several years, of safe 100% guarantee of immediate withdrawals, (see the bank's financial statements to be sure a goodly amount is in reserves as cash and/or solid assets......consult a friend or professional consultant,)-ofcourse in the present circumstances this is, ironically, risky as well.........25% or more invested in gold, and the rest with investment companies where a great deal of your money is likely to face unforeseen risks of too, place your money with more than one company..........opt for companies that invest in a wide range of businesses. Ofcourse, all this after Joe gets some money in his hands again.

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