December 16, 2008

Couldn’t Help But Comment (121608, Morning)

SOX First has a timely post about Bernard Madoff that makes a few good and/or under-reported points, but may have missed several others:

  1. Madoff registered his investment advisory unit in 2006. Okay, but in the absence of prior improprieties in his other companies, it’s possible that Madoff’s hidden losses piled up only in the past couple of years. It’s even conceivable, given the markets’ recent steep declines, that the vast majority of his losses only occurred in the last 3-6 months (in an out-of-whack hedge fund, things can go downhill at an exponential rate). But if Madoff should have been registered earlier and wasn’t, that’s a whole ‘nother ballgame.
  2. Madoff had a very small outside CPA firm as auditor. If my guess in Point 1 about the losses only being very recent is correct, the CPA firm could actually be off the hook. Otherwise, they’re in fatally serious trouble.
  3. The SOX First post says that the SEC’s failure to inspect Madoff’s new investment advisory business is “scary.” Maybe. But if, as I suspect, the losses are predominantly recent, that ain’t so. I suspect the SEC gets thousands of these registrations a year. If my guess about the recency of the losses is right, any 2006 or 2007 “inspection” would have been routine.
  4. Following up on Point 3 — If this is a government failure, it is NOT of too little regulation, it’s of too little oversight, as is all too typically the case. There’s a big, big difference. If the regs are adequate but the oversight isn’t, you improve the oversight. All too often, oversight failures instead lead to even more convoluted regulations, accompanied by no improvement in oversight. The problem is that improving oversight is boring, while imposing new regs, no matter how redundant, costly, or useless, leads to chest-thumping photo-ops.

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A Madoff lesson: Don’t have all of your money with one adviser, especially a long ranger who has control over generating account statements.

A corollary: Employers should NEVER use lone rangers to manage their pension and 401(k) funds, and should instead use only established firms with enough employees to spread the responsibility and controls around.

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Post-election, John McCain has frequently acted like a jerk: Example 1; Example 2, which should be nicknamed “Leggo His Blago.”

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Worth revisiting, via Hot Air:

….. minimum wage (laws) do not achieve the main goals set forth by their supporters. They reduce employment opportunities for less-skilled workers and tend to reduce their earnings; they are not an effective means of reducing poverty; and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital.

Minimum wage laws hurt teenagers and the least skilled the most. The least skilled tend to have disproportionately high minority representation, even though they are supposedly the people most loved by the Democratic Party. That does not (logically) compute.

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This is an odd and awfully polite statement to make while the Japanese auto makers continue to take market share from Detroit’s Big Three:

“There is absolutely no way in my view that the Big Three’s woes can work as a plus for the Japanese automakers,” said Tsuyoshi Mochimaru, analyst for Barclays Capital in Tokyo.

Right. Broke and desperate competitors going out of business couldn’t possibly help Toyota, Honda, or Nissan (/sarc).

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7 Comments

  1. The lesson of the Madoff story is: Don’t buy stock.

    Or hasn’t the Dot.com explosion, and the recent 14,000 to 8,000 avalanche on the DOW sunk in yet.

    “established firms”….you mean, like, Lehman Bros?

    Also…interesting comment about minimum wage. When the wage is raised, it’s worse for those earning it. You know, hard to grasp on to “logic” like that.

    Comment by The Reverend — December 16, 2008 @ 10:57 am

  2. #1, aw rev, get a grip.

    Money in Lehman-managed 401(k) accounts didn’t disappear, because they are separate accounts representing real investments in the investor’s name. Lehman had controls in place to prevent 401(k) plunder, and none to my knowledge occurred. Lehman went broke trading in its own account.

    Let’s say that the min wage raised wages by $20 a week or so for maybe 7 million people, tops. Is that worth an extra million or so unemployed, coupled with slightly higher prices? I don’t think so, but maybe you’re happy with wasted time and talent.

    Comment by TBlumer — December 16, 2008 @ 1:08 pm

  3. Bernard Madoff — yet another victim of the POR economy! Had the Dems not tanked the economy, the markets wouldn’t have collapsed, and Madoff’s house of cards wouldn’t have fallen apart. POR — taking down both the bad guys and the good guys. /sarc

    BTW, do you honestly believe it’s even remotely possible that whatever the Democrats did/did not do could be responsible for the -5% (or more) annualized GDP print we’re going to see for Q4. The only honest answer is “no.”

    Comment by Invictus — December 16, 2008 @ 6:37 pm

  4. #3, You’re right and wrong.

    You’re dead wrong that “the only honest answer is ‘no.’”

    You’re right that the answer isn’t “yes.”

    The correct answer is: “Heck yes.” What the Democrats did/did not do bears the vast majority of the responsibility for the -5% (or more) annualized GDP print we’re going to see for Q4, if that indeed occurs. The case, as outlined here, is virtually airtight.

    Comment by TBlumer — December 16, 2008 @ 9:58 pm

  5. When I first found your blog, Tom, I actually took you seriously. That ship has now sailed. You are obviously governed by an ideology that clouds your judgment on, well, just about everything. How was it I looked at the same economic data as you and got the big picture right while you got just about everything wrong? I’ll give you a hint: It has nothing to do with ideology, but with an ability to go where the facts took me while you chose simply to blame Democrats, CRA, and whatever else you could come up with that wouldn’t tarnish your golden ideology. Well, your ideology is now in shambles (as is the economy), and trying to blame — as you repeatedly do — on “POR” is laughable in a very sad way. I almost feel sorry for you, but not quite. I do, however, believe that in your heart you know better than the nonsense you spew.

    Comment by Invictus — December 17, 2008 @ 5:11 pm

  6. #5, My eyes are wide open pal. Yours aren’t.

    Comment by TBlumer — December 17, 2008 @ 5:15 pm

  7. [...] my speculation that irregularities involving Bernard Madoff go back only a few years was incorrect. It was a guess [...]

    Pingback by BizzyBlog » Madoff Upate — December 18, 2008 @ 8:02 am

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