Posted on 12/14/2008 2:28:59 PM PST by CutePuppy
Panicked investors scrambled desperately yesterday to determine whether their life savings had been wiped out after a Wall Street legend allegedly admitted blowing as much as $50 billion in what is emerging as the largest Ponzi scheme in history.
Among several big-name investors who trusted former Nasdaq Chairman Bernard L. Madoff with their cash were New York Mets owners Fred Wilpon and Saul Katz, who may have lost as much as $500 million in the scheme, sources said.
New Jersey Sen. Frank Lautenberg also confirmed he had invested money from his charitable organization through the 70-year-old Madoff's company, though he did not say how much.
While the scope of countless other investors' losses remains unclear, it appears that most of the victims reside in New York and South Florida and were among Madoff's closest friends and business associates.
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The scandal - set off when his own sons turned him in to authorities - marks a dizzying fall from grace for Madoff, who lured investors with a reputation as a financial genius.
Working the so-called "Jewish circuit" of well-heeled Jews he met at country clubs on Long Island and in Palm Beach, and through his position on the boards of directors of several prominent Jewish institutions, he was entrusted with entire family fortunes.
"The guy was totally respected. He was a heymishe Jewish guy. He had sweet old ladies and he let their children in," said a Manhattan lawyer who invested with Madoff.
"This guy was dealing with all the rich Jews in Roslyn and the rich Jews in Palm Beach. This was passed down from family member to family member because he wouldn't open up to new people."
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(Excerpt) Read more at nypost.com ...
What’s even more astounding is those people with $5M or more could have reaped even higher profits over the last 8 years if they’d just put it into physical GOLD instead, which has outperformed all of the indexes.
The Liberals and their nauseating poseur "caring" for the little guy, had their special little exclusive investing club, because they were consumed by greed. And now they lose it all. Perfect Justice for these phoneys.
It's a government run Ponzi scheme. The earliest participants enjoyed a large benefit from a large and growing base of "contributors". They took far more than they "contributed". We're reaching the end of the party as the ratio of "contributors to beneficiaries" winds down from 10:1 at the start to 1:1 around 2018. Game over.
The end is coming sooner as the politicians have been spending all the money "contributed" in excess of the ongoing obligations. That slush fund will be gone very shortly.
I actually have a little first hand information about this.
My mother (CPA) had a client (older man passed last year) who was invested in this fund for years.
She says that it was a very strange fund. The end of year documents were literally hand written 1099s with a printout of buy/sells. The worst part for her was that they sales didn’t have the cost basis included. At some point she told the client, it just isn’t worth the aggravation.
So they found a 3rd party who specialized in creating the reports necessary for doing tax returns specifically for this fund.
Anyway, she always thought it was strange that the accounting materials didn’t conform to normal trading reports. She even questioned the legitimacy of the fund.
Here is the kicker though. The fund didn’t report ridiculous returns. She remembers it as 12-14%. Also, she thinks most, if not all, of the “trades” were treasury bonds. The returns were plausible.
Anyway, my parents live in Palm Beach and know that a lot of the limousine libs they know are personally hurt. Someone I know, who is a born into wealth Obama nut told us last night her family may have lost everything.
Personally, I expect a bailout. It sounds stupid, but it wasn’t just individuals who invested in this thing. It was colleges, other funds, hospitals, etc. The downstream impact is going to hit a lot more people than some wealthy left-wing nuts.
I want to be clear that I don’t want a bailout. But, I would bet one will happen. ‘Tis the season.
You are right about front running, which is illegal. The stories I linked to in first post don't say this, but the previous ones by NY Post do mention this (though they "tactfully" don't call it front running).
In the thread I Knew Bernie Madoff Was Cheating--That's Why I Invested with Him , my post #8 cites the link to NYP article MADOFF'S STRATEGY WAS JUST TOO GOOD TO BE TRUE.
From that article: Madoff used what's called a "split-strike conversion" investment strategy, in which Madoff's firm bought a basket of stocks found in the Standard & Poor's 500 index.
The strategy tied nicely with Madoff's main business of making markets in S&P 500 stocks and benefiting from the "bid" and "ask" - essentially the highest price a buyer will pay for a stock and the lowest price at which a seller is willing to part with a stock.
In simple terms, Madoff's split-strike trade consisted of buying S&P 500 stocks and selling a "call" option above the price of the market and buying a "put" option at the price of the S&P 500 index. The trade, also known as a "collar," is meant to limit any swings in price.
For Madoff, the strategy essentially would have captured any money made on the bid-ask spread, said Jon Najarian options expert and co-founder of OptionMonster.
Najarian estimates that at best Madoff would have generated 5 percent or 6 percent annual returns. Factoring in the costs associated with the strategy, Madoff likely broke even at best.
That's a polite way to describe front running by a market maker or a specialist. They didn't pay mucho money for a seat on the exchange, did they? When exchanges went to a penny spread, MMs profitability took a big hit.
In the end, Bernie had to fold because he couldn't survive his investors' calls asking for redemptions from fund, i.e. the "run on Madoff bank".
12 to 14% on Treasury Bonds? Might have been reasonable in the late 70’s or early 80’s, today I don’t think so.
Considering the fact that Lautenberg has been an absolute ‘lout’ trying to grab American citizen’s guns, if a con man grabbed Lautenberg’s money, more power to him.
As for the newsie who was also ‘shorn’, does anyone know if she was a Liberal or not? I suspect she had ties to the Poynter bunch, but would appreciate any data if any FReeper has such knowledge.
According to the article, the poor ickle newsie was quoted as follows:
“ “We were very philanthropic. Those days are over.”
A month ago I told you this was coming.
Not that I would argue with such assessment then, but I don’t remember. Are you sure it was me, not some other canine?
“12 to 14% on Treasury Bonds? Might have been reasonable in the late 70’s or early 80’s, today I don’t think so.”
The way she related it he was trading bonds, not holding them.
Bingo! Bernie was front running and his poor clients probably knew it and thought it was a slam dunk. The Najarian brothers are pretty sharp in options.
I wonder if Bernie’s front running scam was working pre-decimalization when you could drive a truck through the spreads. When it went to 1 or 2 penny spreads - the strategy did not work. His transaction costs were probably close to zero. If he could generate 4 to 5% returns - it may have been how he could have been able to run the scam so long. It probably could have gone on for decades.
The hilarious part is his donations to Dems did him in. Obamabi and his CRA lawsuits to force Citi to make bad loans followed by his Alinsky moles at Fannie & Freddie spreading the virus caused this nightmare. He funded people who blew up the financial system which caused mega redemptions and for his scam to be exposed.
PS: There is no freaking way his kids and others were not in on this. Too many checks coming in and going out, trade confirms, bookkeeping etc etc.
His whole family were in on this.
You are not wondering alone. See links to posts by FReeper Liz on another thread, at post #32 - http://www.freerepublic.com/focus/news/2148724/posts?page=32#32
Also, some of the money may have found its way to Obama campaign, with all the untraceable "small" donations. In many ways it would not be much different from money laundering into Hillary's campaign by Norman Hsu's "investment vehicle", only slicker and on a much grander scale.
At the time, WSJ and LAT (and to some extent WaPo and NYT) were covering the Norman Hsu story and political connections to Hillary campaign. For now, it seems only WSJ and NY Post are covering Madoff's extensive connections to prominent and rich Democrats. Wonder if this aspect of Madoff's fall will make it into major media. It's not as sexy as Blago's scandal, but the real impact is really bigger than just another corrupt Illinois Democrat politician.
Actually, the returns Madoff was reporting weren’t all that big, they were just very abnormally consistent. It was regarded as a very safe and moderately high-yielding investment, not a way to chase super-high returns.
It doesn’t tell us anything about the real purpose of Lautenberg’s foundation. The tax effects of setting up the charitable foundation would be the same if he had all its money invested in CDs.
Virtually all charitable/philanthropic foundations, university and private school endowments, pension funds, etc, are invested in hedge funds and private equity funds, along with more traditional investments. Smaller foundations and endowments are more likely to be heavily concentrated in a handful of funds because the minimum investment amount for the really good funds is quite high.
The traders worked for the market-maker, not the asset manager. By all reports, there was basically no contact between the two. One guy posting at Dealbreaker Friday said he worked for the market-making operation for a few years, and never met a single person who worked in the legendary asset management business, even though it was supposedly housed in the same building. It actually IS possible that Bernie was running it all himself. I won’t be surprised if it turns out one or both of the sons were in on it, but it is by no means impossible for one man with Bernie’s expertise and connections to have pulled this off alone, especially given that he obviously had unfettered access to the infrastructure of the broker-dealer/market-maker.
That’s the weird thing about all this. He COULD have gotten those returns by cheating, so one has to wonder why he didn’t. Maybe he imagined the regulators would catch him — except that he WAS a regulaor, and should have known they wouldn’t bother investigating him seriously, no matter how many red flags his trading sent up.
Which is why I don’t watch TV “news” or commentaries. At best, they are meaningless or irrelevant, mostly celebrity-driven, and there is not any news. At worst, I don’t like to feel that people on TV are either stupid or deliberately lying to me.
If I want to (hopefully temporarily) lose some brain cells or IQ points, I at least can find ways to enjoy the experience.
He was supposedly parking in treasuries between trading in and out of the S&P 100.
“Actually, the returns Madoff was reporting weren’t all that big, they were just very abnormally consistent. It was regarded as a very safe and moderately high-yielding investment, not a way to chase super-high returns.”
Yea - the guy was a genius in keeping the returns within reason. My only point was that it was still a guy...and not much more than his word on things. Yet, the people that I referred to didn’t need those extra yields, unless they HAD to have that piece of art.
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