Madoff's other Victims

1 - Last Thursday morning, I attended a breakfast briefing in Atlanta with Tony Crescenzi Tony Crescenzi, executive vice president of PIMCO and author of the newly-released book Beyond the Keynesian Endpoint Beyond the Keynesian Endpoint. He discussed the European Union economic agreement that had been reached the day before. In the deal, Europe agreed to guarantee the debt issued by European banks, sort of like the FDIC does in our country. But while he praised the spirit and depth of the agreement, he pointed out that it is as yet disturbingly short on details. Crescenzi went on to describe the three major areas of concern for investors: (1) Europe, (2) the possibility of a renewed recession, and (3) the US deficit negotiations. Thursday's agreement went a long way toward alleviating the first worry, and the rising stock market and other indicators have somewhat reduced the second -- although both continue to be real threats. The third is a wild card, with the deadline for an agreement falling on November 23 -- the day before Thanksgiving.

2 - Last night's edition of the CBS news broadcast 60 Minutes opened with an extensive story about Bernard Madoff's wife and remaining son Andrew (the other son, Mark, hanged himself a year after his father's crimes were discovered). If you believe them (which I did, for what it's worth), the biggest Ponzi schemer in history deceived them just as completely as he did everyone else. The interviews were haunting, difficult to watch -- one might even say devastating -- and Sharon and I sat in stunned silence for several minutes afterward. Not only did Madoff ruin his own life and those of his many clients, he also caused one son to commit suicide and shattered the existence of his formerly loyal wife and remaining son. While many viewers understandably will have little sympathy for them, considering their many years of wealth and luxury at the expense of innocent investors, I couldn't help but feel the pain of such an unthinkable betrayal. And the saddest part is this: Madoff left hundreds -- perhaps thousands -- of other, equally shattered victims in the wake of his crimes.

3 - Here's why some people are so pessimistic about our national policymakers' ability to come together on a budget-cutting solution. USA Today reports in a recent article that members of the Congressional deficit reduction committee can't even agree on a proposal to replace the $1 bill with a $1 coin. The switch, which has been considered for years and would save taxpayers $5.6 billion, is the subject of competing lobbying efforts from mining and vending companies (on the side of the coins) and paper and ink producers (in favor of the bills). This issue may be the proverbial canary in the coal mine: if members can't agree on it, how will they come together on the really big ones?

4 - If you love kids, come to downtown Tryon this afternoon at 4:00. There will be hundreds of costumed children (and their parents) collecting goodies from local businesses. If you call Millard & Company after 4:00, don't be surprised if you are asked to leave a message -- we'll probably be with the kids!

Check out our website, www.low-stress-investing.com, for the video on Madoff's other Victims that will leave your head spinning. Have an outstanding week!


-Andy

Playing on Fear in the Marketplace

This week's blog is on video. Take a look:

Mad at Madoff

You may be aware of the current efforts in Congress to reform our financial system. You might want to pay particular attention to how the lawmakers treat the enforcement of financial frauds, because up to now, investors appear to have enjoyed very little protection from financial crooks.

I recently listened to the audiobook No One Would Listen: A True Financial Thriller by Harry Markopolos. It tells the story of how Markopolos and a small team of investment professionals discovered the Bernard Madoff fraud and reported it to the Securities and Exchange Commission (SEC) repeatedly, beginning as early as 1999. But, as the title suggests, no one at the SEC would listen.

Madoff, as you know, is the man who pulled off the largest Ponzi scheme in history, and is estimated to have robbed investors of upwards of $60 billion. The lives of thousands of innocent investors were turned inside out by this charming monster of a human being.

Markopolos describes himself as a “quant,” a math whiz who is able to recognize patterns and relationships in numbers that most of us can’t. He worked for a Madoff competitor, and his employer tasked him with discovering—and replicating—the secret to Madoff’s too-good-to-be-true returns. It didn’t take Markopolos long to discover that Madoff’s claimed returns were mathematically impossible to achieve.

Despite repeatedly laying out a clear case to regulators, Markopolos was routinely ignored or treated as a pest by SEC investigators. While the SEC jealously protected its turf and shuffled papers, Madoff managed to reel in sucker after wealthy sucker as he funded a lavish lifestyle that included making many apparently generous charitable donations. At the same time, in a cruel irony, Madoff was accepting massive deposits from many charitable foundations. He was certainly aware that he was guaranteeing the eventual bankruptcy of every foundation that invested with him.

The only thing that brought Madoff to justice was the tumbling stock market of 2008. As investors withdrew their money to pay for other obligations brought on by the national financial crisis, Madoff quickly ran out of money (he had spent it all, of course) and abruptly turned himself in to the FBI.

In appearances before Congress and on 60 Minutes following the debacle, Markopolos excoriated the SEC for its arrogance and incompetence. The agency suffered well-deserved national humiliation, and has promised to reform itself. That possibility may be out of its hands, however: Congress may well restructure the SEC, or possibly replace it with an entirely different organization.

Stay tuned, and have a great week!