The Strange Case Of Bernie Madoff

The biggest financial fraud in history continues to slowly unravel in an unusual way. The strange case of Bernie Madoff becomes only more bizarre with each passing day.

This strange case actually started with Bernie Madoff outing himself. As a result, there is no sense in talking about the $50 billion dollar Madoff Ponzi scheme as an "alleged" fraud, when the main allegations about the crime actually come from the person who will eventually be the defendant in the case.

Soon after his arrest, Bernie Madoff's bail was set at $10 million dollars with the requirement of 4 co-signers on the bond but Madoff could not get four people in the entire world to sign his bail bond.

So, he did not meet the conditions of his bail. However, his punishment for not making bail has certainly been strange. Madoff was not sent to jail but only confined to his palatial apartment at 133 East 64th Street.

As a result, its very odd that while the U.S. Congress and prosecutors sort out the greatest financial hoax in history, the mastermind of the Ponzi Scheme continues to enjoy a life of luxury made possible by his fraud.

Its also strange that while the government searches for an accounting of $50 billion missing dollars, that Bernie Madoff has the ability to continue to access personal records and computers that may become important to the fraud investigation.

Madoff's Ponzi scheme ripped off widows and orphans, philanthropies, rich people, global banks and hedge funds. It is strange that one man managed to steal $50 billion dollars for decades from some of the most sophisticated financial people and institutions in the world within the confines of the regulated environment of financial investments.

Certainly, it is strange that starting in 1992, federal regulators on at least eight different occasions examined various aspects of Bernard Madoff's business operations and never turned up anything about the $50 billion Ponzi scheme that led to Madoff's arrest last month.

Bernie Madoff showed up last week at a bail hearing wearing a bullet proof vest. The bail hearing was called because Madoff was in violation of a condition of his bail agreement not to dispose of any of his assets.

Sadly, it was discovered that sixteen watches, including diamond-encrusted timepieces from Tiffany and Cartier, four diamond brooches, two sets of cuff links, and an emerald ring were sent to Madoff's sons and brother. The value of the jewelry was estimated to be more than one million dollars.

The result of the bail hearing once again did not send Bernie Madoff to jail. He was again ordered to return to the comfort of his $7 million dollar penthouse apartment. Even though it may be hard to believe, this story is not bad fiction. Unfortunately, the strange case of Bernie Madoff is reality TV.

Americans Need A Bailout From Government Taxes

Benjamin Franklin once said that nothing is certain but death and taxes. Today, he may have altered his famous quote to say that its certain that government is taxing people to death.

American taxpayers will pay 1.2 trillion dollars in federal and social security taxes in 2008. They will pay $101.6 billion per month in personal income taxes and $65.6 billion per month in FICA taxes.

However, the total tax burden on Americans is far greater when state, local, sales, excise and property taxes and fees are considered. Since the Congress is bailing out bad mortgage loans, hedge fund ponzi schemes and the United Auto Workers, with American taxpayer dollars, how about a bailout of the actual American taxpayer?

A 2009 payroll tax holiday would be the best place to start but here are several tax initiatives that are such bad ideas that the American taxpayer needs an immediate bailout.

Can you believe that farms or ranches with more than 25 dairy cows, 50 beef cattle or 200 hogs may soon be required to pay an annual fee of about $175 for each dairy cow, $87.50 per head of beef cattle and $20 for each hog?

The executive vice president of the Wyoming Farm Bureau Federation, Ken Hamilton, estimated the fee would cost owners of a modest-sized cattle ranch $30,000 to $40,000 a year.

These new fee's are a tax on the gas emissions of farm animals. Its a tax apparently designed to reduce green house emissions and save the planet from global warming. It will result in bankruptcy for many farms and significantly raise the price of meat. Global climate change has more to do with the hot air of Washington politicians than with the gas of cows.

A loaf of bread needs a a bailout. The government imposes 30 different taxes on bread . They are federal income taxes, state income taxes, state and local property taxes, federal payroll taxes, sales taxes, capital gains taxes, unemployment compensation taxes, workmen’s compensation taxes, retailers’ excise taxes, business license taxes and fees, utility taxes, and state wheat farmer checkoff taxes. Enough is enough, government needs to give bread a break.

If you live in Alabama, North Carolina, or Nevada and possess illicit drugs, you should have already purchased a stamp that registers tax payments on those drugs. To pay the illegal drug tax, visit your Department of Revenue and pay a small fee for a stamp that is to be placed on the container of the drugs. The stamp serves as evidence that you paid your tax so after you get arrested for illegal drug possession, you won’t be fined an increased amount based on not paying your illegal drug tax. Whoever actually pays that tax has also been seen staring at frozen orange juice because it said concentrate.

Did you realize that every time you get on an airplane you are paying a $6.00 Immigration User Fee and a $2.00 Agricultural Inspection Fee, in addition to a $12.40 Arrival Tax, and a $12.40 Departure Tax? Its just amazing there is not a tax for a passenger's actual travel time in the air.

The amusement tax works like this: the government taxes the owners of places that offer “amusement” and in return those businesses pass those taxes on to us. You're not amused? I didn't think so. Paying taxes for amusement is certainly no fun.

Some areas of the country levy a 0.5 percent tax on all take-out food. Chicago and Washington, D.C. both have enacted a tax on fast food, purportedly to pay for the removal of litter often accrued with the purchase of burgers and dogs. This tax applies to everything take-out, from egg McMuffins to late night cheese steaks. Take-out of the tax code is the appropriate action for this strange idea.

New York Gov. Paterson, is very concerned with obesity. In fact, he is so concerned that he is considering taxes on non-diet soft drinks. If the tax passes, ice cream or anything containing sugar or fat could be taxed next. Fat chance that a hefty tax on non-diet soft drinks does anything to reduce obesity.

Congress Spends Billions Without A Coherent Plan

It has been pretty obvious to the Stock Market every time he appears. Treasury Secretary, Henry Paulson usually holds a press conference in the middle of the trading day. Soon after he starts speaking, the Dow Jones Industrial Average will begin a steep descent.

The market knows that the Treasury Secretary is a man with 700 billion dollars of taxpayer money that does not have a real economic plan. The Troubled Assets Relief Program (TARP) was originally rushed through Congress as money that was going to save the economy from disaster by buying distressed mortgages from consumers.

However, the TARP plan now seems to have evolved into a huge bailout of selected firms in the financial services industry. Of course, TARP was passed with extensive Congressional oversight but half of the taxpayer's money has already been spent and much of the oversight provisions have not been enacted.

The only ongoing review of the TARP program is headed by Elizabeth Warren. She is the the chairwomen of a new Congressional panel that was set up to monitor the bailout. Recently, (New York Times) Ms. Warren was quoted as saying that "the government still does not seem to have a coherent strategy for easing the financial crisis, despite the billions it has already spent in that effort. The government instead seemed to be lurching from one tactic to the next without clarifying how each step fits into an overall plan."

Meanwhile, the Treasury has just bailed out Citigroup in the last week. It was a financial services company that was "too big to fail". The Citi was not sleeping well since it had billions of dollars of bad loans on its balance sheet and its stock price had reached the status of a penny stock.

The TARP was used to bailout Citi and now billions of those toxic loans will be the responsibility of the United States taxpayer to guarantee. In addition, Citi was given billions of taxpayer dollars to shore up the liquidity on its balance sheet.

Someone may ask what did Citi use all that new taxpayer cash for? Well, Inner City Press is reporting that Citi is sponsoring a Congressional junket to the Caribbean and spending over seven billion Euros to buy the highway business of Spanish construction firm, Sacyr Vallehermoso. Seems like the taxpayer's money could have been spent better, doesn't it?

This week the automakers are back in town requesting a bailout from the United States Congress. A few weeks ago the Big 3 flew in on private jets to attempt to get a piece of the TARP pie and were rejected. The reason given by Congress was that they didn't have a coherent business plan.

So, the automakers did not present a coherent business plan to obtain money from a 700 billion dollar government program that does not have a coherent plan. In the real world this would be considered absurd, but its just business as usual inside the beltway in Washington D.C.

The Citi Never Sleeps In Making Bad Loans

The monetary estimate of bad decisions on Citibank's balance sheet is indeed staggering. The bank that advertises itself as the financial firm that never sleeps, certainly must have worked around the clock to accumulate nearly 3 trillion dollars of bad assets.

Of course, the underlying problem at Citi was greed without any apparent understanding of risk. The problem was summed up in the following quote from a recent New York Times article.

"Many Citigroup insider's say the bank's risk managers never investigated deeply enough. Because of longstanding ties that clouded their judgement, the very people charged with overseeing deal makers, eager to increase short term earnings and executives multi million dollar bonuses failed to rein them in, these insiders say. While much of the damage inflicted on Citibank and the broader economy was caused by errant, high octane trading, and lax oversight, critics say, blame also reaches to the highest level of the bank."

The problems at Citibank were common at many other major financial institutions as well. The truth is that the Fed, the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Office of Thrift Supervision were all negligent in not doing their job of financial oversight.

Meanwhile, the ratings agencies added to the problem and gave all these bad mortgage loans their highest (AAA) rating. It may be a result of corruption or just plain incompetence. Some rating agencies may have even assumed that the national average house price would not decline.

In fact, Citibank has a long history of making bad mortgage loans. In the early 1990s the company nearly went under thanks to taking on lots of real estate risk in the wrong markets. Last week, the firm was on the brink of the financial abyss once again.

After Citi's shares plummeted 60% amid mounting concerns about its viability, the U.S. Treasury and the Federal Deposit Insurance Corp moved to save the firm. The terms of the bailout provided protection against the possibility of "unusually large losses" on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate, which will remain on Citigroup's balance sheet.

The Treasury will also inject another $20 billion in capital into Citigroup through the Troubled Asset Relief Program, receiving preferring stock that will yield 8%. Under the terms of the deal, Citigroup will absorb up to $29 billion in losses on the $306 billion portfolio of risky property-related assets; the government will eat 90% of any further losses, with Citigroup shouldering 10%.

The Citi never sleeps in making bad loans and it is apparent that they were not alone. Unfortunately, the American taxpayer will now pay a very steep price. In Sweden, the total bailout cost to solve a similar problem was twenty percent of GDP. That makes the 700 billion dollar taxpayer funded bailout bill passed by the United States Congress, a quarter of what will eventually be needed for our national financial repair.

The Way To Help The Big 3 Automakers

All three CEO's of the nations major automakers, Rick Wagoner of GM, Alan Mulally of Ford, and Robert Nardelli of Chrysler just flew into the nations capital in their luxury corporate jets to speak to Congress about getting a 25 billion dollar slice of the taxpayer bailout pie.

The automakers arrived in Washington after spending millions on a coast to coast advertising campaign that warned of the impending disaster to the economy if the Congress did not come through and help them with a loan.

The truth is that if the Congress does grant the automakers any type of bailout, they will not have not helped their dire situation in the long run.

Instead, Congress and the taxpayer will have become a a short term enabler to the three largest car makers in the domestic automobile industry. There is a distinction here that is crucial.

Helping is doing something for someone that they are not capable of doing themselves. Enabling is doing for someone things that they could, and should be doing themselves.

Detroit created its own problems by relying too much on trucks and SUVs. They have not built the fuel efficient cars that Americans need and want. Meanwhile, the unit cost structure of the Big 3 automakers remains far to high and it is simply not competitive in the global marketplace.

The United Auto Workers (UAW) have to accept cuts in pay and benefits. Then, the automakers need to make the fuel efficient cars at a competitive price that the country wants. Their current business model does not work, so all current management needs to be fired by their boards.

Taxpayer dollars invested in this industry in its current form is a bad investment. Congressional enabling of the automobile industry with a loan or bailout will not solve their problem but only postpone their day of reckoning while costing the taxpayer billions in the process.

Congress can help the automobile industry by sending a clear message of no taxpayer bailout. Those begging CEO's should head back to Detroit and begin to do their jobs.

Getting rid of the luxury airplanes and the rest of their executive perks would be a very good place to start.

For More Read: The Long Road Of Bankruptcy For General Motors on eworldvu.com

Bailing Out Of This Government Bailout

It is hard to believe that the United States Congress has given the Treasury Secretary control over trillions dollars of taxpayer money without any current oversight.

Henry Paulson controls assets equal to the 19th largest global economy and he is not even an elected official.

Of course when the Treasury Asset Relief Program (TARP) was passed, oversight that taxpayer's money would be spent wisely was a Congressional assurance given to a skeptical public.

So is the money being spent wisely? Nobody really knows, but Bloomberg News is at least trying to find out. They have requested details of Federal Reserve lending under the U.S. Freedom of Information Act and filed a federal lawsuit on Nov. 7 seeking to force disclosure. Give Bloomberg News credit, they are doing actual journalism in the real world.

Unfortunately, the same cannot be said for the rest of the media. MSNBC, is currently running promos that say: "Barack Obama, America's 44th president. Watch as a leader renews America's promise." People Magazine 's Cover "The Obamas' New Life!" will not win any Pulitzer for investigative journalism either. U.S. Weekly goes with a new Obama quote for its latest edition: "I Think I'm a Pretty Cool Dad." Meanwhile, the Chicago Tribune opines that Michelle Obama "is poised to be the new Oprah and the next Jacqueline Kennedy Onassis combined!" for the fashion world.

So, 350 billion of taxpayer's money has already been spent and nobody knows where it went and only Bloomberg News really cares enough to find out under the Freedom Of Information Act. The New York Post calls all the current Presidential media hype and attention, "BamALot" and if it continues, it is going to cost the average American taxpayer "QuiteALot".

Now, consider that the need for the remainder of the bailout bill was brought into question last week. Treasury Secretary Henry Paulson changed direction on the need for the money. He announced that the government would not use any of the $700 billion to buy toxic mortgages and other bad assets from banks. That had been the centerpiece of the bailout plan when Paulson and Bernanke first pitched it to lawmakers two months ago.

Meanwhile, CNBC, has been keeping a running tally of the total amount of spending the federal government is doing due to this financial crisis as well as all its other bail out commitments. The amount as of November 13, 2008 is reported to be $4.28 trillion dollars. About sixty eight percent of the sum falls under the Federal Reserve's umbrella, while the another 16 percent is under TARP, as defined under the Emergency Economic Stabilization Act, signed into law in early October.

As a result of the lack of transparency and the staggering dollar amount, Senators, James Imhofe and Bernie Sanders, now plan to introduced legislation to bailout Congress from the 350 billion dollars that remains to be spent on TARP.

The truth is that the entire regulatory regime of the US financial community will require the largest overhaul since the Great Depression. Many regulations that have been repealed need to be put back into place.

However, since so many new financial instruments have been developed, the whole system is in need of review. This should include the Fed, Treasury, SEC, FDIC, the GSEs, and the governmental housing agencies (GNMA, the FHA).

In the meantime, bailing the taxpayer out of this government bailout has become a priority for everyone before all the money is gone and nobody knows what happened, except for a few insiders in the beltway in Washington, D.C.

The Crisis Presidency Of George Walker Bush

President George Bush said in his televised speech to the nation last night: "We are in the midst of a serious financial crisis and the federal government is responding with decisive action."

Of course, the decisive action he is talking about is trying to convince skeptical members of Congress to give away 700 billion taxpayer dollars to bailout the financial services sector.

The problem for George Bush is credibility due to the fact that the word "crisis" has appeared in his speeches very frequently during the last eight years.

There was the crisis of the terrorist attacks of September 11, 2001. The crisis of Osama Bin Laden and the Taliban leading to the war in Afghanistan. The crisis of weapons of mass destruction that were never found in Iraq. The crisis of an internal civil war in Iraq that could have lead to American failure. The crisis of the subsequent troop surge in Iraq to prevent the crisis of failure in that country. The crisis of Iran and their acquisition of a future nuclear capability that apparently will not be handled under this Administration's watch.

Indeed, the list goes on and on: The crisis concerning the handling of Hurricane Katrina, the economic crisis of deep recession that led to those tax rebate checks drawn from the Federal Treasury several months ago, and now finally this serious financial crisis involving sub-prime mortgage loans.

The Bush solution to all of these crisis events is usually the same. Throw billions and billions of taxpayer dollars at the problem and try and make it all go away. Unfortunately, it is the solution of the reactive manager, not the proactive planner.

In retrospect, many of these crisis could have been avoided. The war in Iraq lacked proper planning ( See : "There never Was An Iraq Exit Strategy" on eWorldvu.com) and the success of the troop surge confirmed that there were not enough "boots" on the ground from the beginning. Afghanistan is a mess and soon will become the next crisis, because it was left to an ineffective NATO and subsequently ignored.

Today's financial crisis and the problems of Hurricane Katrina were really failures of government oversight and leadership. Henry Paulson was hired to lead the Treasury from Goldman Sachs two years ago but never saw this crisis that would lead us to the brink of the financial abyss.

Also, Paulson's reaction to this crisis over the last several weeks has been to guarantee a bailout of Bear Sterns, refuse to bail out Lehman Brothers,and then to bailout Aig, Fannie Mae and Freddie Mac. Finally, with his 700 billion dollar plan , he now wants the taxpayer to bail out everyone. It certainly can be argued that Paulson's erratic policy led to so much confusion and uncertainty in the Financial markets that confidence in the Treasury was lost.

In addition, it was only one week ago that John McCain said he would fire Securities and Exchange Commission Chairman Christopher Cox and accused government regulators of being "asleep at the switch'' during this market turmoil. It should be remembered that Cox took over from the previous SEC Chairman Harvey Pitt. Both Pitt and his predeccesor, Arthur Levitt were in charge of the SEC during the Enron fiasco of several years ago.

We need to remember that a Senate investigation would accuse the SEC and Wall Street research analysts of allowing "the greed of a few" at Enron to go "unchecked and unchallenged. The investigation revealed a story of "systemic and catastrophic failure, a failure of all the watchdogs to properly discharge their appointed responsibilities". This is the SEC that Cox would inherit in 2005. It doesn't really seem to have changed very much , does it? Only now the scale of the problem may be much larger.

An effective President should hire the people necessary to set a proactive, agressive tone in managing the day to day business of the federal government. A reactive firefighter to put out the latest crisis is not what this country needs in the Oval office.

A President' slogan like any competent executive should be that the best crisis is the one that you can manage to avoid.