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Madoff Investors Deserve Sympathy, Not a Bailout
"A consistent 15% return over 25+ years, without any losses, is impossible without some illegal advantage..."
On my own blog, the phrase, "without any losses," is emphasized.
Last week, a letter to the WSJ talked about a plan similar to yours. You may want to read it and post a link here for everyone's benefit.
Dick Kovacevich on Banks and This Financial Crisis
I said, "Today, they are $610 billion. When our merger with Wachovia (WB) is completed, we will be nearly $1.5 billion." It should be $1.5 trillion, with a "t."
As Senator Everett Dirksen once said, "A billion here, a billion there, and pretty soon you're talking real money."
Don't Be Scammed by Madoff Investor Sob Stories
Madoff's investors could _not_ have reasonably believed that they were receiving 10 to 15% every year without some insider information. Madoff's position as a Nasdaq chairman probably convinced investors they had access to something no one else did. See link below for more:
finance.yahoo.com/tech...
At the end of the day, Madoff's investors should have diversified or at least attempted to do more due diligence. Their failure to follow the well-known and cardinal rules of investing--diversify and buy only what you understand--is the sine qua non of their current situation.
Most important, most of Madoff's investors were _not_ unsophisticated investors--most were educated, English-speaking, and affluent. This is why Madoff slept soundly at night--in his mind, even if someone invested a million dollars with him, most had plenty of money left over. He may have even believed himself to be a modern-day Robin Hood--stealing from the rich to give to the poor and the charities.
At the end of the day, the blame belongs on Madoff and the fiduciaries of charities and other entities who failed to diversify donors' money. Rather than excuse negligence, Madoff's investors should serve as an example to those who fail to diversify or who do not question impossible returns. Bailing them out would result in the following:
1. It would tell the world America will print money and devalue the dollar when its citizens--especially the rich and well-connected--make avoidable mistakes. If the Japanese, Chinese, Swiss, and British begin to question the U.S. dollar's integrity, it will be the beginning of the end for our entire country. We have major deficits and are currently dependent on foreign investors to finance our expenditures. When we have a surplus, we can afford to be generous. Right now, we can afford to be sympathetic only with our hearts, not with our wallets.
2. It would weaken faith in our country's sense of fairness. Anytime a government gives money away arbitrarily, others not part of the largess rightly cry foul. What about all the other victims of investment fraud, like the Baptist Foundation of Arizona or Sunrise Equities Inc.? What about the mortgage brokers who ripped off ordinary Americans by submitting mortgage applications with false income information? (And where's the perp walk for those people?)
To those of you who say I have no sense of compassion or morality, let me say this: if anyone ought to receive taxpayer money, it should be the families of Americans who were slain in Iraq. They are also victims of government inaction and negligence and have lost more than just money. The list of more deserving victims is endless, but if we go down that path, we will transform America into a land of sympathy-seekers, not strength. For a country that has been the symbol of hope for so many people worldwide, such an image shift is unacceptable.
Although I opposed the auto and bank bailouts, they will help hundreds of thousands of ordinary Americans who had little power to avoid their current situation. Auto workers themselves did not cause their current financial mess--the banks, their unions and the Big Three did. In contrast, Madoff's investors failed to do due diligence, failed to diversify, and/or must have believed Madoff had inside information. As a result, they do not have clean hands.
Any regulation that occurs should require nonprofits and other charities to fully disclose to the public (preferably on a website) not just basic P&L statements or budgets, but where they are holding their donations, and what specific investments they have bought. As long as taxpayer money is not involved, some good may come of this yet.
Don't Be Scammed by Madoff Investor Sob Stories
If Madoff's investors had diversified or at least done adequate due diligence, most would have paid taxes on their capital gains at some point. As it stands, with around 50 billion dollars of wealth evaporating, the average citizen/taxpayer has lost a major source of tax revenue, because no gains actually occurred, so no taxes will be paid.
The evaporation of so much wealth also caused harm because of the lost opportunity cost. Wealth invested in non-IPO stocks is taken out of the economy. For example, when I choose to invest long-term in Coca-Cola stock, I reduce my disposable income. Assuming I would have spent the money I invested, everyone from local retailers--which might have increased hiring to handle higher demand--to local government--which won't get any sales taxes--loses. The tax code recognizes that, and requires a tax to be paid when an investor recognizes a gain. Here, we have around 50 billion dollars that will never provide tax revenue. In short, Madoff's wealthy investors not only punished themselves by their inadequate due diligence, but local governments, schools, universities, fire departments, and police departments. Most people understand that taxpayers pay for all the aforementioned services, and voters are loathe to lay off teachers and police officers; thus, at some point, taxes will be raised, or the dollar devalued. Assuming neither higher taxes nor a devalued dollar is desirable, Madoff's investors have harmed all American taxpayers.
Don't Be Scammed by Madoff Investor Sob Stories
1. You said, "[W]here do you get the idea that any of the investors are looking for a bailout. This is nothing more than your own guessing." Actually, Madoff's investors have already asked for a taxpayer bailout:
"[S]ome government aid is a very logical request," said Robert Schachter, [who] is representing several Madoff victims. "If we're bailing out Wall Street and the auto industry, maybe these individuals should be bailed out too."
sg.news.yahoo.com/ap/2...
2. You said, "Madoff was not a hedge fund." Main Street could not invest with Madoff--they had to go through a hedge fund, or, in some cases, through personal connections with wealthy investors.
3. You said, "[M]any people continued to reinvest their gains and therfore [sic] lost ALL of their investment." You admit these investors failed to diversify; therefore, they violated the #1 rule of investing.
4. The problem is that the SIPC does not have enough money to cover all the Madoff claims. As a result, if you favor full reimbursement, the money must come from taxpayers. It is possible--though not likely--that private brokerage insurance may have the money to reimburse all of Madoff's investors. In any case, once Madoff's investors--most of whom are wealthy--record a loss for tax purposes, all taxpayers will suffer.
Don't Be Scammed by Madoff Investor Sob Stories
A Madoff bailout would be particularly harmful to capitalism as a whole, because it would pervert it into a tool for the rich and well-connected.
I called the WSJ article propaganda because it focused not on the investors who made substantial returns over the 25+ years of investing with Madoff, but on charities and the elderly. Thus, it was deliberately designed to pull on our heart-strings for a class of people who are generally well-off.
The real victims are non-Madoff investors who will suffer diminished returns from their mutual funds. Their mutual funds hold companies like UBS and other entities that invested with Madoff. No one will be bailing out these Main Street investors, but they are the real victims. Yet, all the attention is being given to Madoff's investors, who are a highly exclusive group of hedge fund investors and investors who failed to diversify their investments.
In the end, a bailout is wrong because it would cause the transfer of wealth from people America should support rather than penalize. Basically, rather than reward people for making wise decisions or providing utility to others, a Madoff bailout ensures that Main Street will continue to suffer for bad decisions made by the rich and investors who failed to diversify.
If we wish to serve as a non-exploitative economic model for the rest of the world, we must allow some failure. We must not allow well-connected investors to make bad decisions and then escape the consequences because of their friends in Congress, on Wall Street, and in the Dow, Jones & Company publishing firm.
More important, if we want the U.S. dollar to continue being the world's reserve currency, then we must ensure the rich as well as the poor suffer the slings and arrows of bad decisions. The alternative is printing more money, which will lead to inflation, and reduced stature.
Gold Prices: Little Correlation with Its Utility
I don't disagree with the ultimate end of the gold bugs, which is to establish a hard currency. But once central banks moved away from gold and into fiat currency, gold was no longer an agreed-upon unit of currency. If we return to the days of hard currency, then gold will have value because of its utility in determining currency. Until that day, its value seems to be linked to consumer demand and perception only rather than utility.
Other people argued that almost no other products have prices relating to their inherent value, citing beachfront property; Mona Lisa; and Apple stock. Those examples are somewhat inapt.
1. Beachfront property has value because it is something that is necessary--shelter. It can also be used every day. Gold is not necessary, while shelter is required for most people.
2. The Mona Lisa has value because it is a unique historical artifact. Unique historical items tend to be valuable, despite their lack of utility, because history has value to most human beings. Therefore, I have no logical hangup with a historical painting connected to Leonardo da Vinci and the Renaissance having value. The Mona Lisa's value is inherent in its existence, which links it to a specific time period that will be studied as long as human beings exist.
Other paintings, however, such as modern art, may have no value in the future. I would never buy a MoMa painting.
3. Apple stock is a harder one to analyze. It has no utility at first glance, because it does not pay dividends. (Many value investors avoid non-dividend paying stocks, because they don't see any definite return.) Yet, Apple stock has utility because it is easily traded, like currency, for other things, which do have utility. Gold is _not_ easily traded for cash all over the United States. Apple stock, on the other hand, once liquidated, will buy a farmer in a rural area as well as a NY banker in a big city *immediate* utility. Therefore, its utility lies in its quick, convenient conversion into a unit that confers utility.
Problems That Detroit Bailout I Doesn't Address
willworkforjustice.blo...
Big Three Bailout: Not Like Japan's Automakers in the 90s
Foreign Debt Holders and U.S. National Debt
The Shallowest Generation
seekingalpha.com/artic...
Visa's First Annual Shareholder Meeting a Non-Event
Notes on VMWare's Special Shareholder Meeting
Notes on VMWare's Special Shareholder Meeting
Notes on VMWare's Special Shareholder Meeting
What's interesting about Intel owning so many VMware shares is its access to VMware's source code. Intel has recently stated it wants to compete in the same area as VMware.