The “Why” Behind the Madoff Fraud

Okay, I finally got to read a little as to WHY Madoff did what he did. From today’s Wall Street Journal ($):

Mr. Madoff did shed some light on why he started the fraud and whether he knew he would get caught. He said when the fraud started in the early 1990s, he felt “compelled” to give institutional investors strong returns despite the weak stock market and national recession. “When I began the Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme,” he told the court. “However, this proved difficult and ultimately impossible.”

He didn’t explain how he invested clients’ money before the 1990s or why the recession of the early 1990s would cause him to suddenly stop investing on behalf of clients.

Mr. Nierenberg, one of the investors in the courtroom, challenged the government on why it didn’t charge Mr. Madoff with being part of a conspiracy, saying the scale and complexity of the fraud had to involve others. Prosecutors said they are investigating others in the case.

In his statement to the court, Mr. Madoff didn’t address the issue of whether anyone else knowingly helped him carry out his fraud, though in the past he has said he acted alone.

I wondered about that. I wondered if he “meant” to get started in it or not. It doesn’t matter because he had to have known that it was wrong in the first place. He also lived off the scam for nearly 20 years. The guy deserves to live the rest of his life in a REAL prison.

The next thing I want to know is whether or not it was a conspiracy. I think it might have been. There was simply too much money being given to Madoff to invest and almost NOBODY investigated his business over the years. Either that or Madoff’s reputation as a good guy helped stave off investigations.

What do you think?

Jim Cramer is for Entertainment Purposes Only

This is interesting…

There is some “bad” language so listener beware.

Jim Cramer’s show exists for one reason and one reason only…ENTERTAINMENT! I don’t watch Cramer’s show because I find him incredibly annoying. Every once in a while he’ll say something worth listening to. The rest of the time it’s just noise.

I tried embedding the video but it didn’t work correctly. You can see the videos (there are several of them) here.

Some Comments Just Need to Be Highlighted!

This blog has nearly always been blessed with awesome commenters. Some of my favorite commenters are Kitty, Stacey, Foobarista, Sam (there are a couple of “Sam” commenters. The “Sam” I am referring to has been reading this blog for years), Miguel, and many others. Although I write this blog as a way to share my thoughts with others, I really like reading the thoughts and opinions (even if they don’t agree with me) of others as it makes this blog much more entertaining.

One comment that was left this morning by someone named Rabbit, caught my attention. It follows:

I get tired of all of the blame being heaped on the regular folks who bought these houses that they are now having trouble affording–and that we should leave them to suffer economic ruin of their sole creation. I believe in personal responsibility, but there is plenty of blame and responsibility to go around here, not just the homeowners.

When someone applies for a mortgage, they are not alone. There are two parties–on one side is a regular person (a school teacher, fire fighter or chef), and on the other side is a finance “professional” whose job is to decide the terms of a person’s mortgages. These “professionals” made loans with little regard to actual prospects for long-term payment on the theory that since house prices were rising, the borrower could always sell or refinance.

That wasn’t the person buying the house’s decision; it was the judgment of people who were professional mortgage-offerers. The “professionals” got lazy at this point, because they were easily and quickly selling off these mortgages as securities. There were no consequences to them if the borrower could not pay.

There really is plenty of blame to go around here (greedy house fippers, negligent banks, the bond dealers, lazy regulators, the Fed, etc.), but I think the smallest amount of blame here would be some school teacher or business owner who decided to basically trust that the financial services professionals and government regulators knew what they’re doing.

I think it Obama’s housing plan is a good idea for a bad situation and will really help middle class Americans.

Fair enough…there is plenty of blame to go around and we have done that on this very blog. I have blamed mortgage brokers, banks, brokerage firms, and anyone else I can think of. True, no party acted alone.

My problem with this comment is the last part of the last sentence, which reads:

…but I think the smallest amount of blame here would be some school teacher or business owner who decided to basically trust that the financial services professionals and government regulators knew what they’re doing.

Sorry, but that’s just not right. The BULK of the blame has to be placed on those who signed that mortgage agreement. Buying a house is a very important decision and people should not have trusted anyone but themselves in making that decision. People should have known that the broker, real estate agent, banker, and everyone else DID NOT have their best interest at heart and it’s very naive to think so.

Just because that handsome mortgage broker tells me that I can afford something doesn’t mean I can actually afford it and I’m an idiot if I believe him. It’s sad but true.

I think we could go along way in preventing future problems of this sort by requiring first-time homebuyers (or maybe EVERYONE) read or watch a video on the homebuying experience. A video that walked through all the steps of buying a home and choosing a mortgage and how to budget for a home would go a long way in helping people understand what it is they are about to do. Sure, some people would ignore the help but many others would embrace the information.

Thomas Friedman’s Thoughts on the Credit Crisis and Why I’m Angry

I like Thomas Friedman even though I don’t agree with his politics (that’s food an post). I read Friedman’s thoughts on how to fix the credit crisis in today’s Houston Chronicle. I like what he had to say. I especially liked the (most of) first point (emphasis mine):

First, to get out of a crisis like this you need to let markets clear. You need to let failed companies, or homeowners, go bankrupt, unlock their dead capital and reapply it to thriving entities. That is how the dot-com bust ended, and out of that carnage emerged a whole new set of companies. The problem with this crisis is that A.I.G., Citigroup and General Motors — and your neighbor’s subprime mortgage — are not You let the market clear them away, and we could all be wiped out with them. Therefore, the president has to find a way to punish bad financial actors without setting off another Lehman Brothers domino effect.

Yes, that is exactly what needs to be done!

This whole thing makes me angry. Angry because people were so stupid in the first place to even get into this mess. Angry because companies that were in trouble, took government money and then proceeded to pay their employees BONUSES. Whether those bonuses were warranted or not is debatable. All I’m saying is it just doesn’t look right. Kind of like that episode of Everybody Loves Raymond when Ray and Debra give Robert $1,000 because he’s hit a rough patch and Robert takes the money and decides to go to Vegas. It just doesn’t look right.

I’m angry because our government’s actions to bailout companies opened the door for bailing out individuals. I mean if we are going to bailout companies, don’t we have to bailout people too? I don’t think so but lots of people (at least those who are losing their homes) do.

I’d like to see those who are getting their homes bascially given to them, out picking up trash, cleaning up the parks, and taking personal finance classes. We are doing something for them, they should do something for us.

The Dow Was Up Nearly 400 Today…Will It Stick?

Dow Jones Industrial Average (March 10, 2009)

The Dow Jones Industrial Average was up 379.44 points today.

Will it stick or was it what is known as a bear-market rally?

I would love to think that it’s the beginning of something better but I just don’t think the economy can support much of a rally. Don’t get me wrong, I’m an optimist for the long-term. It’s the near-term I’m wondering about.

Question of the Day – Card Check

I’ve been reading a lot lately about the labor unions’ desire for something called “Card Check,” which would end secret ballots in unions. In other words, union voting would no longer be private.

I had a conversation about Card Check with a local union member. He HATED the idea.

What’s the point in voting if it’s not secret? I always felt the purpose of voting was to let the majority make the decisions. If the union needs to see how individual people vote, then there’s no point in voting. Right? Am I missing something? Let’s face it, the union only wants to see how people vote as a way to strong-arm people into voting the union’s way.

I would be willing to bet that if the Card Check proposal goes through, we will see an increase of people voting the same way on union issues. All the sudden, the union voice becomes much more united.

So what’s your opinion on this issue? Can you see a legitimate purpose for Card Check? If so, please share because right now, I’m not getting it.

What’s So Bad About Foreclosure?

No, I would not want to have my house foreclosed upon. But, I still think the process makes sense. From today’s Wall Street Journal (no link. It was just a short piece on A4):

Hundreds of houses went to the highest bidder at an auction of foreclosed homes Sunday at the Jacob K. Javits Convention Center.

About 1,000 people were in attendance, and more bidders particpated online.

Sunday’s sale, the second New York City sale featured more than 350 condos, single family houses and duplexes…

At the end of the article it stated that one lady bought a house for $340,000. She had been looking at it since October of last year.

I know foreclosure is tough on those who are losing their homes but to those who can ACTUALLY AFFORD A HOUSE, it’s a good thing!

Housing prices, just like everything else, are based on supply and demand. If prices come down enough, there will be buyers. The sooner we get buyers for these homes, the better. Foreclosure, rather than trying to help people afford the unaffordable, is the ONLY way to go.