It is almost unfathomable the tenor of the news barrage of late. In fact, the news out of either the markets or the government is starting to sound almost tabloid-like: so bizarre that it borders on unbelievable. Unfortunately, the stories have true meat to them rather than being founded on the miasma of innuendo and insinuation of tabloids.
The Maddoff story is very unsettling and is yet another in a series of stories of how Wall Street players have violated the trust of those who handed over their money. We have investment bankers asking for rules changes to increase their levering; create toxic products that they sell to investors looking for yield--and then bet against them for profit; have noxious terms in auction rate securities terms that penalize issuers; fail to allow investors to withdraw money even though the lockout period has passed, AND, to add insult to injury, continue to charge them a fee; write credit default swaps without havin even a slice of the capital needed to pay on such swaps in the event of default. I'm sure there are more, and perhaps more caffeine will bring some to mind. But isn't that enough already?
Any ONE of those things is story enough to rock one's confidence---a confluence of those stories almost numbs one to any further surprises. Like the infomercials, we have a "But wait there is more...." Enough already we say....but that doesn't help. Now we are told that one of the stalwarts of the industry, Maddoff--innovator, entrepreneur--is really only a trickster par excellence. Form Maddoff's website:
I suppose his name on the door will be supplanted by a number on his prison jumpsuit. You can be transported to the website by clicking on the above graphic. If you want to see Madoff's investments as of 09.30.08 you can find them here.
If hedge funds thought they had any opportunity to argue against regulation, then that has been lost. Personally, I feel that any in a fiduciary capacity should be subject to some oversight. There out to be adequate controls, REAL transactions and some accountability for funds. That's not to mean that the HF manager doesn't make bad investments. But folks ought to know how much leverage is used, and ought to be able to embrace the comfortable thought that while their investment might evaporate from haphazard investment choices and overleverage, their money is never used to fund a Ponzi scheme--large or small.
Perhaps the lesson to be learned is that the market is really nothing more than a gigantic Ponzi scheme.