Y
Of all the commentary I have read on the
Madoff scandal, the below is the most interesting.
The main point is that since Madoff’s plea of
guilt to fraud is being accepted, US investors will be compensated by a federal
program, even to the extent of the taxes they paid on phony profits. Thus such
people need not worry.
If this picture is correct, then Madoff is
just the fall guy in a caper that will end up costing US taxpayers generally.
Why would he agree to be the fall guy? Why did Jack Ruby
murder Lee Harvey Oswald under circumstances where a murder conviction was a
certainty? It turned out he had terminal cancer.
http://www.sunniforum.com/forum/showthread.php?t=41361
THE MADOFF DOUBLE-BLUFF
by Muhammad Rafeeq (18th-Dec-08)
At first sight it was extremely refreshing. A
white-collar financial crook raising his hands and pleading guilty to his
financial crime. This has to be almost a first. Usually financial criminals
when caught in the most obvious of wrong-doing plead ‘not guilty’. The criminal
can be caught boarding the plane, with a suitcase containing US$100mn of
someone else’s cash, with his mistress holding on to his arm, he will look into
the camera with his most genuine ‘Tony Blair look of sincerity’ and say “What
we have here is a misunderstanding...” You make up the rest of the excuse,
there is a million of them.
So yes, an outright confession, “It was me, I chopped
down the apple tree” is so against the current socio-political culture it was
almost too good to be true. Especially given the pedigree of this perp, the CEO
of one of the busiest and most prominent financial exchanges in the world.
After his confession the world goes into shock, especially the Jewish world,
since affluent members of this community had previously flocked to his door,
seeking his world famous high returns. Since his arrest the press is full of
people extolling his virtues as a decent human-being and “who would ever of
believed it?” It would be so easy for this man to deny any wrongdoing because
he could bring out an army of good character witnesses and he could just point
at some suspect-looking goy in his hedge fund organisation to lay the blame on.
So a truly heartwarming confession. And it was apparently
made to his two sons, both of whom who worked for the fund and who had
absolutely no idea that this fraud was being perpetrated, until such time as
this astounding confession.
But then I started to look more closely at the mix of
investors who have lost money. About half of them are professional investing
institutions. Look at this quote from the UK’s Daily Mail newspaper (online http://www..dailymail.co.uk/money/art...-lawsuits.html)
“Full details of the exact losses are yet to emerge. Hedge funds and banks have
so far admitted to having around £16billion with Madoff - only half of the
total that is reckoned to have been lost. Some of the biggest casualties are
Swiss private banks, which have taken hits amounting to about £2.5billion.
Spanish bank Santander had £2.1billion of client money with Madoff. HSBC has
admitted to lending about £600million to funds who wanted to use debt to gear
up their positions with Madoff. RAB capital, the hedge fund that lost huge sums
on investing in Northern Rock, has revealed that it is exposed to Madoff to the
tune of around £6million.”
Now the confession does not look right at all.
It is possible to accept the idea of a Ponzi scheme be
played on members of the public, who are ignorant of how such schemes are
worked, in fact the schemes are targetted specifically at such people. Yet
Madoff would have us believe that he managed to convince professional
investment companies to put their funds with him without any due diligence
being performed. This is clearly nonsense.
I have acted as a professional consultant to major EC and
US financial institutions on corporate and institutional credit risk and the
idea that anyone in HSBC or Santander could authorise large investment without
the internal checks and controls being employed is almost impossible. To try
and believe that EVERY institution that invested in Madoff circumvented their
internal control procedures IS impossible.
Why is this important? Simple. If someone approaches the
HSBC credit risk team, for instance, with a view to making a loan or investing
a sum as large as £600m to what is ultimately a single institution (therefore a
single counterparty credit exposure) a significant number hoops would have to
be jumped through. Firstly there is the credit officer competence limit, which
is the maximum amount that a single credit officer may be allowed to authorise.
More than his/her limit must be referred up the credit approval food chain. In
an institution like HSBC or Santander etc, £600bn or US$1bn will have been
referred to the very top of the food chain, the banks’ credit committees at the
board level. This is an enormous sum and no lackey is going to be able to
approve this by themselves, ever.
When the credit committee are called together to review
an application, everything is ready prepared for them, so they can cut to the
chase . The lower levels of the credit approval process will have prepared a
summary of all the application documentation, included in the meeting bundle,
with the strengths, weaknesses, and other important credit risk points. This
application will usually contain a set of audited accounts going back a minimum
of 3 years and most likely 5 years. There will be a full credit breakdown of
the investment profile of the business, Madoff's hedge fund, looking at how the
fund obtains its returns; investment assets and investment methodology. After
the committee is satisfied that all the issues and concerns have been addressed
they will vote on the approval or otherwise.
So there is no way that Madoff could have been pulling a
scam. It would have stood out as clear as day to professional financial
analysts, whose only job in life is to examine the management of companies and
their reports and accounts, to make sure that all is in order. It’s their job,
it’s what they do. They are the world experts in spotting anomalies. The idea
that all these professionals in all these companies were all duped is absolute
nonsense. It is highly improbable that one such evaluation process could have been
fooled, but all of them, never. A Ponzi scheme is easy to spot when you have
the audited accounts and the full range of investment assets and investment
methodologies employed.
Also, this scam avoided the attention of all the funds
employees; accountants, traders, auditors and the US regulators, all of whom
are also financial professionals.
This again is absolute nonsense. Any company that I have
ever worked for would have known internally that such business was being done,
because they are all involved. For instance, a trader goes on buying equities
from the worlds stock exchanges that go down in price for 5 continuous years,
but the company just keeps giving him more money to top up the trading,
continues paying his salary and even annual bonus. Absolute rubbish. But
assuming this actually did happen, the market risk team would have been
watching these losses, as would have the accountants. It is not possible to
hide things like this internally for very long, months at the most; 20+ years,
NEVER.
So why plead guilty? The answer is simple. Look on the
net and you will see that because this case is being labelled a fraud, it would
appear that investors are going to be able to claim their investment back under
the US government's financial fraud protection scheme. A judge has already
given his approval in principle for compensation, without any evidence having
been presented and financial fraud being demonstrated in a court of law. And it
would appear that there will never be such a demonstration in a court of law.
Why? It would appear that all the funds financial records are mostly “missing”
(rather like Dov Zakheim's US$1.4tn) and those few records that do survive are
in a terrible mess.
However, since the guy has pleaded guilty we do not need
to demonstrate the fraud, because he says he is guilty.
And look further on the net and you will see that these
“victims” have also been told by the US tax authorities that they will probably
also be entitled to claim back some taxes on these defrauded sums.
Rather than saying this hedge fund has gone bust, due to
its choice of investment assets and investment methodologies, a scenario which
is highly probable in the current financial paradigm, since all the
professionals are predicting that at least 30% of all hedge funds are about to
fail, more than 700 of them, the CEO chooses to fess up to fraud. If the CEO
admits the fund has gone bust, then all those wealthy members of the Jewish
community get nothing, but if the CEO admits to fraud they get their money back
as compensation from the US tax payer, just as they are also drawing money back
from the tax payers with the other hand.
And, as can be seen at the Daily Mail link above, the
investors in this fund only get to litigate the fund directors against Lloyds
insurers in London for even more compensation. Done properly the compensation
could end up paying out far more than the original fund returns (yes this is
sarcasm, it was bound to creep in eventually in yet another swindle like this).
Would that I could believe that Madoff were a good guy
who slipped and then became repentant. But given the facts, this simply cannot
be true.
Michael Santomauro's e-mail identifies the author as a
Jewish convert to Islam.
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