The Slow Slide Continues and the Strange Affair of Bernie Madoff
By Simon Davies and Donald Hunt
The markets last week saw alarming signs of global deflation. Oil prices continued their fall, closing the week down 7% in dollars and 11% in euros. The three-month U.S. Treasury bill closed the week with a negative yield (-0.01%). The gold/oil ratio closed at a startling 19.53, significant because it reflects gold's role as money gaining ground on its role as a commodity. For a while, gold and oil moved in tandem, but not recently.
We are told the reason oil is dropping so sharply is plummeting world demand. World demand is plummeting because the bottom is falling out of the world economy, which until recently was propped up by massive amounts of unsustainable debt.
The Madoff affair seems to us just too scripted and convenient to be true which leads us to speculate as to what is really going on.
United States
California housing prices dropped 38% in November compared to a year ago. That translates to a drop in the median price from $414,000 to $258,000.
The U.S. retail sales this holiday season, already weak, has been dealt a further blow by severe winter storms over the past week and a half.
A U.S. auto industry bailout plan was agreed upon last week as General Motors and Chrysler will get $13.4 billion of emergency government loans in exchange for "substantially restructuring their business". The plan stinks, one aspect being linked to the banking rescue plan know as TARP although the connection can only be political, while Bush focused much of the blame on the workers who as a result are expected to suffer severe pay and benefit cuts. Workers will also see their retirement fund being funded 50% by their employer's shares; a structure that has proved disastrous for millions of workers across the US.
It emerged in Canada that employees of General Motors and Chrylser are expected to face a cut in their hourly wages of between C$15 and C$25.
In an example of just how much deflection is going on in the US media, one commentator was moved to see the political battle over the bailout as being a North vs South struggle, claiming that southern politicians are keen to see the US firms collapse so as to advantage the Japanese, Korean and German owned factories in the south.
It seems to us that the target in the struggle over whether and how to rescue or restructure the US auto-industry are the workers, their retirement and health benefits and the unions that represent them. Most American's do not understand that employment terms in the US are among the worst in the developed world, many being so egregious as to be illegal in the European Union. That the long term aim is to remove even the limited rights and benefits that US workers have is quite possible. This is "badtux" on the topic:-
In a classic reflection of the narrowness of perspective developed through years of education and work within the existing system, a French economist said, "You need some big symbolic measure to break the circle of pessimism among manufacturers and households." There is no mention of reality, of how to help people survive, of changing the system, no, what is needed is a "big symbolic measure", damn these people are heartless and stupid!
France will officially be in recession in 2009; French car-makers are already cutting jobs and idling plants even after receiving €779 million of government loans to their financing units and €220 million in sale incentives on new cars from the government; the government itself is already discussing expanding the €26 billion "stimulus package" even as it is set to borrow a record €145 billion in 2009 with a projected budget deficit of €79 billion.
In its continued expansion in global nuclear power France's EDF, having paid ₤12.5 billion for British nuclear power producer British Energy Group plc, looks set to buy half the nuclear power business of Constellation Energy Group Inc of the US. It is ironic to note that Nicloas Sarkozy has established a fund to protect French companies from predations similar to those being practiced by EDF. EDF itself needs no such protection being 85% stated owned already.
In unrelated but interesting news Britain sold the remaining one third it owned in its own atomic weapons manufacturing and maintenance facility Atomic Weapons Establishment (AWE). AWE is now owned 1/3rd by Lockheed Martin, 1/3rd by Serco plc and 1/3rd by Jacobs Engineering. The British government now has no ownership interest in the production and maintenance of its own nuclear weapons. The technology used by AWE is primarily from the US, most notably the Trident missile system. It remains highly questionable whether such arrangements are legal or in fact demonstrable and flagrant breaches of the Nuclear Non-Proliferation Treaty obligations of the US and UK.
The UK Post Office is to be part privatised, through a sale of a 1/3rd stake to Dutch group TNT, as part of new EU rules opening local postal delivery to competition; yet another public service being sliced and diced for the benefit of large corporations.
In one of the more spectacular pieces of political theatre the leader of the Conservative party in the UK, David Cameron, has called for bankers to be held responsible for their part in the financial crisis. He does not of course mean the bankers that run the UK and pay for him and his cronies, he means a few of the smaller fry, the "bad apples" that those in power find so expendable at times like these. No doubt there are those in the UK who remain so inured in the myths of party politics and class divides that they will be satiated with the blood of a few city bankers while the real criminals will remain in firm control of the country and David Cameron.
Angela Merkel is starting to look like she will toe the line and buy into the EU bailout package but clearly not enough as a new opinion poll showed her "popularity slumped last week amid criticism that the leader of Europe's biggest economy is doing too little to stem the country's slide into recession."
Further east, the Czechs seem to be a sensible bunch as their enthusiasm to join the Eurozone is waning; Belarus may devalue its currency as it seeks a $2 billion IMF "rescue package"; Latvia is said to have reached 'broad agreement' with the IMF on "an international aid package"; and Russia is reporting a cash shortage such that wage arrears doubled in November.
Oil
With the oil price looking more reasonable for those that use it but not so rosy for the profits of the corporations that control it nor the revenues of the countries that own it, OPEC restated its commitment to record cuts in production with the intent of pushing prices higher.
Just how far oil producers wish to push the price has not been stated but Brasil's Energy Minister believes "Oil prices must rebound to about $75 a barrel to maintain the investments in petroleum production needed to provide adequate supply to world markets." How this fits with a research paper that says spare production capacity will more than double through to 2012 remains to be seen.
It seems China is applying advanced capitalist dogma with it's announcement of an eight fold increase in fuel-oil consumption tax "to conserve energy use."
Banks and Banking
According to Bloomberg financial firms worldwide are seeking to raise a staggering $900 billion. In this context the $700 billion allocated to the US banking sector and the $2 trillion in other 'aid' should raise some eyebrows at the very least.
The Bank of Japan has been busy trying to keep the Japanese economy functioning amid a shortage of cash in the economy and an ever strengthening currency. It reduced its benchmark interest rate to 0.1% and expanded the ways it is using to pump cash into the financial system including lending directly to large companies, what it called an "exceptional step taken by a central bank". It also plans to buy up to ¥20 trillion ($223 billion) of shares held by banks so as to increase bank capital and support the stock market. Amidst all this propping up of the "free market" it was also announced that the Japanese government is expected to borrow $1.27 trillion in 2009.
Similarly, the Fed is using its balance sheet as a monetary policy tool buying all manner of bank assets including $200 billion of consumer and small business loans and $600 billion of Mortgage Backed Securities. The details of these asset purchases remain shrouded in secrecy as the Fed is refusing, despite its legal obligations, to divulge the details. It should be causing a global uprising that central banks across the planet are using the same methodology yet claiming to be independent; it is blindingly obvious that they are acting in concert and to a plan that they are not divulging.
The news for the big banks was not good this week. In a long overdue move, Standard & Poor's rating agency cut the ratings of many leading banks citing expectations that banks face more uncertainty in funding markets and a higher level of stress than in a "typical business-cycle trough.", rating agency speak for "the financial crisis still has a long way to go". Among them Goldman Sachs whose rating was dropped two levels and remains on "negative outlook". Goldman Sachs also reported losses of over $2 billion in the last three months and fired ten percent of its staff last month.
HSBC had its rating maintained but placed on "negative outlook"; perhaps one of the motivations behind news that the bank may seek to raise $14 billion, most likely through the issue of shares, to strengthen its balance sheet. Other unhappy news for HSBC is that it may lose $1 billion in the Madoff affair while Christen Schnor, it's head of insurance for Europe and the Middle East was found hanged in the closet of a five star hotel in west London a short distance from his apartment.
In Japan, Daiwa Securities plans to raise as much as ¥100 billion ($1.1 billion) in fresh capital, Nomura is seeking ¥410 billion and the banking sector is set to raise nearly $40 billion in total.
In further surprise news, reflective of just how tight the market for bank capital is at present, Deutsche Bank failed to exercise its right to "Call" or early redeem €1 billion of its Capital Bonds. It is expected that banks will exercise these "Call" rights so Deutsche's action has rattled the markets being described as, ".. a setback for the stabilization of banking markets and is likely to increase funding costs for banks generally". One of the world's biggest investors saying that it won't buy any new bonds Deutsche issues in the future.
By now it is obvious that corruption is the rife throughout the financial system so it should come as no surprise to us when yet another banker has to resign having been caught up to no good. So it was that Sean Fitzpatrick, chairman of Anglo Irish, an Irish mortgage lender he built from a tiny lending operation to a very substantial bank in the course of 25 years, resigned having been caught hiding loans from the bank to himself totaling €87 million. He took the CEO down with him too as the trick they used, while technically not a breach of the law, was a flagrant violation of its principles.
In an example of the interconnectedness of people within the various Circles of Power, Fitzpatrick has also resigned from his non-executive roles in Smurfit Kappa Group Plc, Greencore Group Plc, Aer Lingus Group Plc, Experian Plc and Gartmore Irish Growth Fund Plc.
In October Irish billionaire Sean Quinn, whose family bought a 15 percent in the Anglo Irish in July, stepped down as chairman of Quinn Insurance Ltd. after the regulator fined the company for making a 288 million-euro loan to a related company without disclosing it.
The Markets
The Madoff Affair
The Madoff Affair developed some interesting features this week. Jerry Reisman, a prominent New York lawyer, described Madoff as, "utterly charming. He was a master at meeting people and creating this aura. People looked at him as a superhero."
"People didn't want to know what he was doing. If it's too good to be true, it isn't true. But people didn't care. They were greedy."
The extent of this greed is all too apparent as leading European and Japanese banks seem to have not bothered with the normal "know your client" requirements (these are the myriad questions and checks that we all have to submit ourself to when doing business with a bank) instead preferring to lend to funds that "fed into" the Madoff money machine. They didn't even check who his auditors were; so desperate were they to get a slice of the action, for themselves and their clients, that was Bernie Madoff. It is notable that at this stage there is not one single US bank on the list of losers.
"Feeder Funds" are typically created to circumvent rules or to allow for far greater returns for investors. They are essentially a means for smaller investors to invest where they otherwise wouldn't be allowed and for all investors to achieve higher returns as the funds borrow as well as take the investor's money so that the size of the bets taken by the investor are effectively multiplied. The idea works well in a market where the fund manager makes money but are disastrous when they lose money.
Needless to say there are conflicting reports all of which add to the surreal nature of the entire episode. There is obviously a lot of paperwork, or lack of it, to go through, one report suggesting it would be six months before any solid details were known. They say a week is a long time in politics but a day is a long time in finance so the prospect of a six month hiatus will certainly have made for some nervous investors and lenders. Now we are told that Bernie himself will be providing US regulators with "a verified written accounting" of his firm's records by New Year's Eve.
Regulators have already found "evidence of misconduct stretching back to the 1970s". As reported in the UK's Daily Telegraph:-
It seem that even Bernie's bail conditions have been morphing also. The original bail bond was $10 million which was to have four bond signatories and be secured against Madoff's Manhattan apartment, valued at $7 million. By mid-week it was reported that Madoff had been unable to meet these conditions and was therefore under house arrest. The court subsequently accepted new bail provisions with just two bond signatories, Madoff's sons it seems being unwilling to co-sign the bail bond.
Technically, US law requires investors who have made money from fraudulent schemes to repay their gains to compensate the victims so it is going to be a long and fascinating battle to see how this aspect of the Madoff affair plays out.
Side benefits
As we have stressed in the past, the New Economic World Order is seeking new powers for the multilateral agencies, in particular the IMF and World Bank. Under the umbrella of developing a new economic model, at the peak of which will be the IMF as titular head, we are to be inundated with new regulation. This new regulation, as always, will be justified as the righting of a wrong or the prevention of crime but will actually be aimed at ever greater control of ordinary people. It should not surprise us then that we read in Bloomberg:-
We should also acknowledge that there were and there remain numerous 'names' on Wall Street that any SEC investigator knows are to be left alone for to seriously investigate such people would be career limiting at best and quite possibly terminal at worst. With two decades of seeming invincibility and untouchability behind him, Bernard Madoff might well be one of those 'names'.
Tying up the loose ends?
The Madoff scandal is a true life crime of immense proportions. Like all crimes there is a need for a detective, so let us play that part for a while, let us, in the fine traditions of Agatha Christie, Sherlock Holmes and Columbo, speculate a little. Here are the facts so far:-
Madoff managed to run a multi-decade fraud of considerable complexity covering numerous investor accounts with billions of dollars successfully accounted for, albeit entirely falsely yet has no apparent accomplices.
Madoff could easily have jumped a plane to Israel where he would have been afforded a high level of protection. Yet he confesses to his sons who don't flinch for an instant, immediately calling the police. This just doesn't compute so it must be that Madoff meant to stay in the US and meant to confess and that everything we are seeing was planned.
The overall structure of how so many banks and funds were lured into the Madoff trap, the exclusivity, and particularly the fact that few investors were allowed to invest directly with Madoff but via "funds of funds" so missing out essential due diligence, smacks of true charlatanism and the actions of a man who knew exactly what he was doing. The lack of US banking names in the list of 'victims' suggests that many others also knew what he was doing.
The question that come to mind is this - is it possible that Bernard Madoff's entire operation, from the outset with his $5,000 seed money, was closely linked to some other party or parties with whom he worked or to whom he answered? As a vast but highly secretive money churning operation, with numerous client and trading accounts Madoff Investments would have made the perfect money laundering operation. It is also a near perfect means to facilitate wholesale theft; money that was stolen years ago by all manner of people operating the funds that made investments through or with Madoff is now conveniently accounted for, "oops, sorry we lost your money, Madoff you know", case closed.
The next strange thing is the timing. Madoff just popped up and confessed smack bang in between the presidential election and the swearing in of a new US President. There is some very obvious tidying up and tying up of loose ends by the Bush administration at present. Notably, the extremely convenient plane crash that killed Michael Connell who was about to make a full public disclosure relating to the vote rigging in the 2000 and 2004 US elections. We are also seeing the last desperate grasping of banking and corporate America for taxpayer dollars as the sun sets on the Bush Reich. Where does Bernard Madoff sit within all this? Experience tells us that we can be sure he is connected and most likely a big piece of the puzzle. But which piece?
The last eight years have demonstrated to all but the most deluded that US foreign policy and much of the domestic agenda is controlled by and for the benefit of the state of Israel. This has in fact been the case since Woodrow Wilson but these last eight years have made a mockery of every illusion that it is otherwise.
Madoff is a committed Zionist and can therefore be safely assumed, given his wealth and influence, to be part of the inner circle of American Zionists that call the shots in New York and Washington. He is therefore not a man working alone; his business was made on electronic trading and advanced computerization, an area where Israel is a world leader; his business is a perfect money laundry, a service that Mossad has great demand for, as do the Bush family and their criminal associates as a result of their narcotics income; he seems to have spirited away a vast sum of money that must have gone somewhere and could have been used to pay for all manner of nefarious activities including whole mercenary armies and weapons systems, not to mention the funding of innumerable politicians; and last but certainly not least he made no attempt to run but confessed just six weeks before the new President takes office. The idea that this is another loose end being tidied up and tied off before the new administration takes office, an administration that will be just as infiltrated as the last but from different sources and by different agents, certainly seems to fit the facts as we see them today.
That many of Madoff's fellow Jews seem to have been victims of his scam does not mitigate against our speculations, for Zionism and its practitioners have been the real enemy of the Jews for a very long time indeed. That Zionists have made victims of Jews in order to profit both directly and indirectly is well established in history although much of that history is of course "off limits".
We should also be very wary of falling for the whole "Ponzi Scheme" explanation given by Madoff as part of his confession to his son's and police. It is highly probable that this is deliberate misdirection and misinformation. The mainstream media have of course picked up the Ponzi scheme theme and are running with it as hard as they can, with pretty diagrams and all. There will no doubt be books found in Madoff's offices that support the Ponzi scheme thesis and his explanation to be provided to police by year end will match perfectly with those books. We would not be at all surprised to hear, after a suitable investigative period, that it was indeed a Ponzi scheme but that it is impossible to trace the funds etc and all is effectively lost. This is just too convenient, too smooth and just too much of a set up to be ignored. It will be ignored of course as that it the deliberate intent of the minds behind the Madoff affair.
If Bernard Madoff disappears before standing trial or at anytime before serving a serious amount of time in prison, particularly if it is through ill health or even death, we should all smell the obvious rat. He will have served his purpose or purposes, being spirited away to live out the rest of his days in anonymity.
The markets last week saw alarming signs of global deflation. Oil prices continued their fall, closing the week down 7% in dollars and 11% in euros. The three-month U.S. Treasury bill closed the week with a negative yield (-0.01%). The gold/oil ratio closed at a startling 19.53, significant because it reflects gold's role as money gaining ground on its role as a commodity. For a while, gold and oil moved in tandem, but not recently.
We are told the reason oil is dropping so sharply is plummeting world demand. World demand is plummeting because the bottom is falling out of the world economy, which until recently was propped up by massive amounts of unsustainable debt.
The Madoff affair seems to us just too scripted and convenient to be true which leads us to speculate as to what is really going on.
United States
California housing prices dropped 38% in November compared to a year ago. That translates to a drop in the median price from $414,000 to $258,000.
The U.S. retail sales this holiday season, already weak, has been dealt a further blow by severe winter storms over the past week and a half.
A U.S. auto industry bailout plan was agreed upon last week as General Motors and Chrysler will get $13.4 billion of emergency government loans in exchange for "substantially restructuring their business". The plan stinks, one aspect being linked to the banking rescue plan know as TARP although the connection can only be political, while Bush focused much of the blame on the workers who as a result are expected to suffer severe pay and benefit cuts. Workers will also see their retirement fund being funded 50% by their employer's shares; a structure that has proved disastrous for millions of workers across the US.
It emerged in Canada that employees of General Motors and Chrylser are expected to face a cut in their hourly wages of between C$15 and C$25.
In an example of just how much deflection is going on in the US media, one commentator was moved to see the political battle over the bailout as being a North vs South struggle, claiming that southern politicians are keen to see the US firms collapse so as to advantage the Japanese, Korean and German owned factories in the south.
It seems to us that the target in the struggle over whether and how to rescue or restructure the US auto-industry are the workers, their retirement and health benefits and the unions that represent them. Most American's do not understand that employment terms in the US are among the worst in the developed world, many being so egregious as to be illegal in the European Union. That the long term aim is to remove even the limited rights and benefits that US workers have is quite possible. This is "badtux" on the topic:-
So what's the endgame?Europe
That's a question asked below. What's the endgame of the current plan of our most evil oligarchs to turn America into Mexico North, with a small handful of filthy rich people (them) and the rest of Americans being impoverished peasants in the mud? And why don't our oligarchs realize that they'll be poorer if they impoverish the rest of America?
Well, my answer there is threefold: a) Some oligarchs don't care, because impoverished peasants will give them a servant class to relieve them of the burdens of child care, dressing themselves, cooking for themselves, etc. and the fact that they'll have only 1/10th the money after the Mexico North plan succeeds... well. They already have 100 times the money that they really need to live a good life, so why should they care? b) Some oligarchs (the majority) are simply stupid. They got their money the old fashioned way -- they inherited it. Paris Hilton is the smart one there, she at least figured out a way to make a few bucks of her own by being famous for being famous, but most of her compatriots haven't a clue. And c) Some oligarchs simply enjoy cruelty and feeling superior to other people, and don't care whether they're poorer under the Mexico North plan than they currently are.
The problem with Mexico North is that it's not a stable situation. People do not willingly starve to death. And with most arable farmland controlled by megacorporations today, it's impossible to send them off to be subsistence farmers. If you look at the real Mexico, you will see the instability. The only reason Mexico has not completely collapsed is that so many Mexicans fled to the U.S. and sent remittances home to keep their relatives from starving to death. But now that the U.S. economy is slowing, Mexico is disintegrating - the drug gangs are taking over and executing judges and police officers and buying army brigades and threatening school children and even kidnapping kidnapping experts. And if you think Americans are too fat and lazy and complacent... well. When they're starving on the streets and desperate for their families' survival, when they have nothing to lose, they'll do the same things. And like the Roman aristocracy once the supply of grain to feed the masses of Rome was cut off, the aristocrats will be the ones who end up hanging from the neck amongst the ruins of American civilization.
So anyhow, that is why the goal of economic policy has to be close-to-full employment. Idle hands are the devil's workshop. And that's why the U.S. must have a thriving middle class rather than the Mexico North situation of a few super-rich and tons of impoverished people -- as I've pointed out previously, that's the only way to get sufficient consumption to keep everybody employed. Mexico North simply does not work if your goal is to create a stable wealth-creating society. You can prop it up with petrodollars for a while, as Saddam did, as Mexico did for many years, but the U.S. doesn't have petrodollars anymore... meaning that the Mexico North plan is not only bad for the majority of Americans. It's bad for the people who are trying to put into place. But will they see that? Probably not. They've never had to work for a living, they've never been hungry a day in their lives, they simply have no clue. So it goes...
In a classic reflection of the narrowness of perspective developed through years of education and work within the existing system, a French economist said, "You need some big symbolic measure to break the circle of pessimism among manufacturers and households." There is no mention of reality, of how to help people survive, of changing the system, no, what is needed is a "big symbolic measure", damn these people are heartless and stupid!
France will officially be in recession in 2009; French car-makers are already cutting jobs and idling plants even after receiving €779 million of government loans to their financing units and €220 million in sale incentives on new cars from the government; the government itself is already discussing expanding the €26 billion "stimulus package" even as it is set to borrow a record €145 billion in 2009 with a projected budget deficit of €79 billion.
In its continued expansion in global nuclear power France's EDF, having paid ₤12.5 billion for British nuclear power producer British Energy Group plc, looks set to buy half the nuclear power business of Constellation Energy Group Inc of the US. It is ironic to note that Nicloas Sarkozy has established a fund to protect French companies from predations similar to those being practiced by EDF. EDF itself needs no such protection being 85% stated owned already.
In unrelated but interesting news Britain sold the remaining one third it owned in its own atomic weapons manufacturing and maintenance facility Atomic Weapons Establishment (AWE). AWE is now owned 1/3rd by Lockheed Martin, 1/3rd by Serco plc and 1/3rd by Jacobs Engineering. The British government now has no ownership interest in the production and maintenance of its own nuclear weapons. The technology used by AWE is primarily from the US, most notably the Trident missile system. It remains highly questionable whether such arrangements are legal or in fact demonstrable and flagrant breaches of the Nuclear Non-Proliferation Treaty obligations of the US and UK.
The UK Post Office is to be part privatised, through a sale of a 1/3rd stake to Dutch group TNT, as part of new EU rules opening local postal delivery to competition; yet another public service being sliced and diced for the benefit of large corporations.
In one of the more spectacular pieces of political theatre the leader of the Conservative party in the UK, David Cameron, has called for bankers to be held responsible for their part in the financial crisis. He does not of course mean the bankers that run the UK and pay for him and his cronies, he means a few of the smaller fry, the "bad apples" that those in power find so expendable at times like these. No doubt there are those in the UK who remain so inured in the myths of party politics and class divides that they will be satiated with the blood of a few city bankers while the real criminals will remain in firm control of the country and David Cameron.
Angela Merkel is starting to look like she will toe the line and buy into the EU bailout package but clearly not enough as a new opinion poll showed her "popularity slumped last week amid criticism that the leader of Europe's biggest economy is doing too little to stem the country's slide into recession."
Further east, the Czechs seem to be a sensible bunch as their enthusiasm to join the Eurozone is waning; Belarus may devalue its currency as it seeks a $2 billion IMF "rescue package"; Latvia is said to have reached 'broad agreement' with the IMF on "an international aid package"; and Russia is reporting a cash shortage such that wage arrears doubled in November.
Oil
With the oil price looking more reasonable for those that use it but not so rosy for the profits of the corporations that control it nor the revenues of the countries that own it, OPEC restated its commitment to record cuts in production with the intent of pushing prices higher.
Just how far oil producers wish to push the price has not been stated but Brasil's Energy Minister believes "Oil prices must rebound to about $75 a barrel to maintain the investments in petroleum production needed to provide adequate supply to world markets." How this fits with a research paper that says spare production capacity will more than double through to 2012 remains to be seen.
It seems China is applying advanced capitalist dogma with it's announcement of an eight fold increase in fuel-oil consumption tax "to conserve energy use."
Banks and Banking
According to Bloomberg financial firms worldwide are seeking to raise a staggering $900 billion. In this context the $700 billion allocated to the US banking sector and the $2 trillion in other 'aid' should raise some eyebrows at the very least.
The Bank of Japan has been busy trying to keep the Japanese economy functioning amid a shortage of cash in the economy and an ever strengthening currency. It reduced its benchmark interest rate to 0.1% and expanded the ways it is using to pump cash into the financial system including lending directly to large companies, what it called an "exceptional step taken by a central bank". It also plans to buy up to ¥20 trillion ($223 billion) of shares held by banks so as to increase bank capital and support the stock market. Amidst all this propping up of the "free market" it was also announced that the Japanese government is expected to borrow $1.27 trillion in 2009.
Similarly, the Fed is using its balance sheet as a monetary policy tool buying all manner of bank assets including $200 billion of consumer and small business loans and $600 billion of Mortgage Backed Securities. The details of these asset purchases remain shrouded in secrecy as the Fed is refusing, despite its legal obligations, to divulge the details. It should be causing a global uprising that central banks across the planet are using the same methodology yet claiming to be independent; it is blindingly obvious that they are acting in concert and to a plan that they are not divulging.
The news for the big banks was not good this week. In a long overdue move, Standard & Poor's rating agency cut the ratings of many leading banks citing expectations that banks face more uncertainty in funding markets and a higher level of stress than in a "typical business-cycle trough.", rating agency speak for "the financial crisis still has a long way to go". Among them Goldman Sachs whose rating was dropped two levels and remains on "negative outlook". Goldman Sachs also reported losses of over $2 billion in the last three months and fired ten percent of its staff last month.
HSBC had its rating maintained but placed on "negative outlook"; perhaps one of the motivations behind news that the bank may seek to raise $14 billion, most likely through the issue of shares, to strengthen its balance sheet. Other unhappy news for HSBC is that it may lose $1 billion in the Madoff affair while Christen Schnor, it's head of insurance for Europe and the Middle East was found hanged in the closet of a five star hotel in west London a short distance from his apartment.
In Japan, Daiwa Securities plans to raise as much as ¥100 billion ($1.1 billion) in fresh capital, Nomura is seeking ¥410 billion and the banking sector is set to raise nearly $40 billion in total.
In further surprise news, reflective of just how tight the market for bank capital is at present, Deutsche Bank failed to exercise its right to "Call" or early redeem €1 billion of its Capital Bonds. It is expected that banks will exercise these "Call" rights so Deutsche's action has rattled the markets being described as, ".. a setback for the stabilization of banking markets and is likely to increase funding costs for banks generally". One of the world's biggest investors saying that it won't buy any new bonds Deutsche issues in the future.
By now it is obvious that corruption is the rife throughout the financial system so it should come as no surprise to us when yet another banker has to resign having been caught up to no good. So it was that Sean Fitzpatrick, chairman of Anglo Irish, an Irish mortgage lender he built from a tiny lending operation to a very substantial bank in the course of 25 years, resigned having been caught hiding loans from the bank to himself totaling €87 million. He took the CEO down with him too as the trick they used, while technically not a breach of the law, was a flagrant violation of its principles.
In an example of the interconnectedness of people within the various Circles of Power, Fitzpatrick has also resigned from his non-executive roles in Smurfit Kappa Group Plc, Greencore Group Plc, Aer Lingus Group Plc, Experian Plc and Gartmore Irish Growth Fund Plc.
In October Irish billionaire Sean Quinn, whose family bought a 15 percent in the Anglo Irish in July, stepped down as chairman of Quinn Insurance Ltd. after the regulator fined the company for making a 288 million-euro loan to a related company without disclosing it.
The Markets
The markets this week
| Previous week's close | This week's close | Change | % change | |
|---|---|---|---|---|
| Gold (USD) | 820.50 | 838.60 | 18.10 | 2.21% |
| Gold (EUR) | 613.60 | 602.88 | 10.72 | 1.75% |
| Oil (USD) | 46.28 | 42.94 | 3.34 | 7.22% |
| Oil (EUR) | 34.61 | 30.87 | 3.74 | 10.81% |
| Gold:Oil | 17.73 | 19.53 | 1.80 | 10.16% |
| USD / EUR | 0.7478 / 1.3372 | 0.7189 / 1.3910 | 0.0289 / 0.0538 | 3.86% / 4.02% |
| USD / GBP | 0.6693 / 1.4941 | 0.6706 / 1.4912 | 0.0013 / 0.0029 | 0.19% / 0.19% |
| USD / JPY | 91.125 / 0.0110 | 89.310 / 0.0112 | 1.815 / 0.0002 | 1.99% / 1.82% |
| DOW | 8,630 | 8,579 | 51 | 0.59% |
| FTSE | 4,280 | 4,287 | 7 | 0.15% |
| DAX | 4,663 | 4,697 | 33 | 0.71% |
| NIKKEI | 8,236 | 8,589 | 353 | 4.28% |
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The Madoff Affair
The Madoff Affair developed some interesting features this week. Jerry Reisman, a prominent New York lawyer, described Madoff as, "utterly charming. He was a master at meeting people and creating this aura. People looked at him as a superhero."
"People didn't want to know what he was doing. If it's too good to be true, it isn't true. But people didn't care. They were greedy."
The extent of this greed is all too apparent as leading European and Japanese banks seem to have not bothered with the normal "know your client" requirements (these are the myriad questions and checks that we all have to submit ourself to when doing business with a bank) instead preferring to lend to funds that "fed into" the Madoff money machine. They didn't even check who his auditors were; so desperate were they to get a slice of the action, for themselves and their clients, that was Bernie Madoff. It is notable that at this stage there is not one single US bank on the list of losers.
"Feeder Funds" are typically created to circumvent rules or to allow for far greater returns for investors. They are essentially a means for smaller investors to invest where they otherwise wouldn't be allowed and for all investors to achieve higher returns as the funds borrow as well as take the investor's money so that the size of the bets taken by the investor are effectively multiplied. The idea works well in a market where the fund manager makes money but are disastrous when they lose money.
Needless to say there are conflicting reports all of which add to the surreal nature of the entire episode. There is obviously a lot of paperwork, or lack of it, to go through, one report suggesting it would be six months before any solid details were known. They say a week is a long time in politics but a day is a long time in finance so the prospect of a six month hiatus will certainly have made for some nervous investors and lenders. Now we are told that Bernie himself will be providing US regulators with "a verified written accounting" of his firm's records by New Year's Eve.
Stephen Harbeck, president of SIPC, said Mr Madoff had left behind a trail of "falsified" and "unreliable" records, and it could take at least six months to "get a handle" on the situation, while the entire liquidation process - including collection of any remaining assets - could take "several years".Harbeck is also quoted:-
Mr Madoff kept "several sets" of books and false documents and provided false information involving his advisory activities, according to Christopher Cox, SEC chairman, who this week admitted the regulator had not responded to "credible and specific allegations" of alleged wrongdoing dating back to 1999.
"We do not seem to be dealing with a traditional Ponzi scheme alone,"The story of the regulators keeps morphing. Last weekend it was being claimed that the SEC hadn't "dropped the ball" while this weekend we are told that "investigators have been on Bernard Madoff's case for nearly a decade".
"The length of time we are dealing with - which by Madoff's own admission is at least a decade but probably more like two - is just incredible. A Ponzi scheme might usually last a year or so, but it is usually impossible to keep it going for long periods of time."
Regulators have already found "evidence of misconduct stretching back to the 1970s". As reported in the UK's Daily Telegraph:-
As long ago as 1999, an independent investigator, Harry Markopolos, concluded that Madoff's success could not be legitimate. In 1995, he sent the US Securities and Exchange Commission (SEC), the financial watchdog, a 17-page statement: "The World's Largest Hedge Fund Is a Fraud".This investigation is 2005 occurred while Eric Swanson was a senior compliance official at the Securities and Exchange Commission. Swanson later married Madoff's niece who was a compliance officer at Madoff Investments. The SEC naturally denies any connection.
Two years later, the commission found no evidence of fraud after an investigation that seems to have involved little more than asking Madoff whether he was a crook, and accepting his answers.
It seem that even Bernie's bail conditions have been morphing also. The original bail bond was $10 million which was to have four bond signatories and be secured against Madoff's Manhattan apartment, valued at $7 million. By mid-week it was reported that Madoff had been unable to meet these conditions and was therefore under house arrest. The court subsequently accepted new bail provisions with just two bond signatories, Madoff's sons it seems being unwilling to co-sign the bail bond.
Technically, US law requires investors who have made money from fraudulent schemes to repay their gains to compensate the victims so it is going to be a long and fascinating battle to see how this aspect of the Madoff affair plays out.
Side benefits
As we have stressed in the past, the New Economic World Order is seeking new powers for the multilateral agencies, in particular the IMF and World Bank. Under the umbrella of developing a new economic model, at the peak of which will be the IMF as titular head, we are to be inundated with new regulation. This new regulation, as always, will be justified as the righting of a wrong or the prevention of crime but will actually be aimed at ever greater control of ordinary people. It should not surprise us then that we read in Bloomberg:-
Madoff's case will be at the center of planned congressional hearings on reforming the SEC, a senior Senate official said this week, declining to be identified. Obama said yesterday the scandal "has reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets."The SEC is obviously destined for an early grave as it is also the chosen whiping post for those outraged at its apparent failure to regulate Wall Street bonuses. The reality is that the SEC was deliberately and systematically emasculated to ensure that it could not regulate.
We should also acknowledge that there were and there remain numerous 'names' on Wall Street that any SEC investigator knows are to be left alone for to seriously investigate such people would be career limiting at best and quite possibly terminal at worst. With two decades of seeming invincibility and untouchability behind him, Bernard Madoff might well be one of those 'names'.
Tying up the loose ends?
The Madoff scandal is a true life crime of immense proportions. Like all crimes there is a need for a detective, so let us play that part for a while, let us, in the fine traditions of Agatha Christie, Sherlock Holmes and Columbo, speculate a little. Here are the facts so far:-
- Bernard Madoff, long time fraudster, woke up on Thursday 11th December, met his sons at his Manhattan apartment and decided to confess to them that his world renown investment business is "a lie", a giant Ponzi scheme. His son's, being good citizens, then called the New York Police and had their father arrested.This is all just too convenient. Madoff is a very prominent New York Zionist who, as we speculated last week, is highly likely to have a relationship, and probably a close one at that, with the foreign policy wing of the Israeli government, Mossad. He works with his brother and his two sons who it seems are the most senior people in his companies.
- Madoff confessed to the police that he had defrauded investors of $50 billion. He will no doubt have been read his "rights" so this confession is admissible in court. This was immediately reported to the regulators and the international media where, naturally, a storm broke over such an immense fraud. This is truly bizarre; think about it, think about how the US legal system works and ask yourself if a man in Madoff's position, a man who must be facing the rest of his life in prison, is going to confess!
- The necessary court hearings took place at which bail was set with conditions.
- Investigators moved into Madoff's offices where they found that the financial records are in disarray and that there are multiple sets of books. So far no comment has been made as to whether one or any of these books show the operation of a Ponzi scheme.
- Within a few days Madoff couldn't meet his bail conditions so these were adjusted and he was placed under house arrest.
- By Friday 18th December the total of all parties claiming to have been defrauded by Madoff, or as part of the interconnected web of loses, reached $28.1 billion, $21.9 billion short of Madoff's total of $50 billion.
- Some of the biggest names in European and Japanese banking find themselves exposed via their lending to funds that invested with Madoff directly or via other funds that invested in Madoff. Amazingly there is not one US bank in the list.
- Have you noticed how few photos there are of Bernard Madoff? This is a man who headed one of the most successful investment businesses in the world, was treasurer of a Jewish university in New York, gave to numerous charities, and head the Nasdaq exchange yet do a google search and you find just 7 photos of the guy.
Madoff managed to run a multi-decade fraud of considerable complexity covering numerous investor accounts with billions of dollars successfully accounted for, albeit entirely falsely yet has no apparent accomplices.
Madoff could easily have jumped a plane to Israel where he would have been afforded a high level of protection. Yet he confesses to his sons who don't flinch for an instant, immediately calling the police. This just doesn't compute so it must be that Madoff meant to stay in the US and meant to confess and that everything we are seeing was planned.
The overall structure of how so many banks and funds were lured into the Madoff trap, the exclusivity, and particularly the fact that few investors were allowed to invest directly with Madoff but via "funds of funds" so missing out essential due diligence, smacks of true charlatanism and the actions of a man who knew exactly what he was doing. The lack of US banking names in the list of 'victims' suggests that many others also knew what he was doing.
The question that come to mind is this - is it possible that Bernard Madoff's entire operation, from the outset with his $5,000 seed money, was closely linked to some other party or parties with whom he worked or to whom he answered? As a vast but highly secretive money churning operation, with numerous client and trading accounts Madoff Investments would have made the perfect money laundering operation. It is also a near perfect means to facilitate wholesale theft; money that was stolen years ago by all manner of people operating the funds that made investments through or with Madoff is now conveniently accounted for, "oops, sorry we lost your money, Madoff you know", case closed.
The next strange thing is the timing. Madoff just popped up and confessed smack bang in between the presidential election and the swearing in of a new US President. There is some very obvious tidying up and tying up of loose ends by the Bush administration at present. Notably, the extremely convenient plane crash that killed Michael Connell who was about to make a full public disclosure relating to the vote rigging in the 2000 and 2004 US elections. We are also seeing the last desperate grasping of banking and corporate America for taxpayer dollars as the sun sets on the Bush Reich. Where does Bernard Madoff sit within all this? Experience tells us that we can be sure he is connected and most likely a big piece of the puzzle. But which piece?
The last eight years have demonstrated to all but the most deluded that US foreign policy and much of the domestic agenda is controlled by and for the benefit of the state of Israel. This has in fact been the case since Woodrow Wilson but these last eight years have made a mockery of every illusion that it is otherwise.
Madoff is a committed Zionist and can therefore be safely assumed, given his wealth and influence, to be part of the inner circle of American Zionists that call the shots in New York and Washington. He is therefore not a man working alone; his business was made on electronic trading and advanced computerization, an area where Israel is a world leader; his business is a perfect money laundry, a service that Mossad has great demand for, as do the Bush family and their criminal associates as a result of their narcotics income; he seems to have spirited away a vast sum of money that must have gone somewhere and could have been used to pay for all manner of nefarious activities including whole mercenary armies and weapons systems, not to mention the funding of innumerable politicians; and last but certainly not least he made no attempt to run but confessed just six weeks before the new President takes office. The idea that this is another loose end being tidied up and tied off before the new administration takes office, an administration that will be just as infiltrated as the last but from different sources and by different agents, certainly seems to fit the facts as we see them today.
That many of Madoff's fellow Jews seem to have been victims of his scam does not mitigate against our speculations, for Zionism and its practitioners have been the real enemy of the Jews for a very long time indeed. That Zionists have made victims of Jews in order to profit both directly and indirectly is well established in history although much of that history is of course "off limits".
We should also be very wary of falling for the whole "Ponzi Scheme" explanation given by Madoff as part of his confession to his son's and police. It is highly probable that this is deliberate misdirection and misinformation. The mainstream media have of course picked up the Ponzi scheme theme and are running with it as hard as they can, with pretty diagrams and all. There will no doubt be books found in Madoff's offices that support the Ponzi scheme thesis and his explanation to be provided to police by year end will match perfectly with those books. We would not be at all surprised to hear, after a suitable investigative period, that it was indeed a Ponzi scheme but that it is impossible to trace the funds etc and all is effectively lost. This is just too convenient, too smooth and just too much of a set up to be ignored. It will be ignored of course as that it the deliberate intent of the minds behind the Madoff affair.
If Bernard Madoff disappears before standing trial or at anytime before serving a serious amount of time in prison, particularly if it is through ill health or even death, we should all smell the obvious rat. He will have served his purpose or purposes, being spirited away to live out the rest of his days in anonymity.
Labels: Deflation, Madoff, oil price drop
posted by Donald Hunt at 9:40 PM
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