A thought crossed my mind as I was reading that the U.S. House of Representatives passed legislation to better regulate the financial services industry this week: Why on earth do we bail out companies like AIG, Morgan Stanley, and Citibank that supposedly are too big to fail without requiring that they be broken apart as part of the bailout deal? The only entity that I want to be too big to fail is the federal government. Anyone else is being given a free pass to gamble with my money.
12 December 2009
3 October 2009
The New York Times reports that the court-appointed trustee responsible for recovering assets for victims of Bernard Madoff’s Ponzi scheme has sued four members of Madoff’s family for almost $200 million they received over the years.
Who are these four people? Brother Peter Madoff and his daughter Shana, both lawyers, who were chief compliance officer and compliance director, respectively, in a business that was in blatant non-compliance with all kinds of securities trading laws and sons Mark and Andrew Madoff, co-directors of trading for a business that never really executed the trades it claimed.
Does the trustee allege they were co-conspirators with Bernard Madoff? No, just stupid. His legal theory in not-so-legalese: These people shouldn’t be allowed to profit as a result of being dumber than a box of rocks, if that truly was the case – recognizing, of course, that willful ignorance is not ignorance at all.
If only it were always true that people were not allowed to profit from being dumb ….
29 September 2009
Last week the New York Times published yet another article about the decline in university endowments. The second paragraph of that article is just plain scary:
But as the schools, one by one, disclose their numbers, the managers of these endowments are indicating their continued support for a diversified portfolio chock full of alternative investments like hedge funds, private equity and real estate — the very things that have caused so much trouble.
None of these managers would want me on their Boards of Trustees. In my humble opinion, the goals of non-profit investing should be to ensure that the corpus is maintained, while making a conservative return. Why? Well, Harvard University and Yale University, as well as West Virginia University and Marshall University, are just too important to have their endowments (our donations!) frittered away on high-risk, high-reward options, even if the returns generally will be higher over the long term. Non-profit higher education institutions also need consistent revenue, not obscene profits. These high-risk strategies should be considered breaches of fiduciary duty.
5 September 2009
I hate to provide the opponents of government with a good argument because I generally believe government to be good, not bad. I must say, however, that the Security and Exchange Commission’s Inspector General’s report on the failure of multiple SEC investigations to uncover the Bernard Madoff Ponzi scheme reads like a Three Stooges comedy skit.
After reading the report, you will not want to put government officials in charge of anything – even though there’s really no choice if we’re going to try to protect innocent investors from crimes like Mr. Madoff’s. Had Madoff investigators done the most basic thing – verifying that allegedly profitable trades actually occurred – the Ponzi scheme would have unraveled years earlier. But none of the SEC investigators – except one who just ignored the results – did this most basic thing.
I did not have a lot of confidence in the SEC before this report; now I have virtually none. This country’s financial regulatory system needs a serious overhaul.
26 August 2009
The New York Times published yet another interesting article about high-frequency market trading on Sunday. These articles all center around the arrest and prosecution of Sergey Aleynikov, a former Goldman Sachs employee accused of stealing software code. The proprietary code supposedly helps Goldman buy and sell stocks in milliseconds and profit from tiny price discrepancies.
No big deal, right? An eighth or sixteenth of a penny here or there couldn’t add up to much? Just $8 BILLION across the industry, estimates one market research firm. And from whom was the $8 BILLION taken? Average investors like you and me.
Is the criminal arm of justice going after Mr. Aleynikov to protect you and me? No, it’s going after him to protect Goldman Sachs.