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03/18/2012
What Can be Learned from Past Crises
Always when government has massively intervened in the economy, the crisis was prolonged and worsened.
03/17/2012
Iran Cut Off From Global Banking System
_The Belgium-based Swift, the world's largest electronic payment system will disconnect 30 Iranian banks from their system.
03/14/2012
Iceland Considers Adopting Canadian Dollars
_Iceland’s Prime Minister Jóhanna Sigurðardóttir said in a speech that the country will opt for the euro or another currency, probably the Canadian Dollar.
03/12/2012
Germany: Labor Office Fears Debt-Crisis-Refugees
Because immigration into Germany may "become a bottomless pit", the German labor office cancels all welfare to foreigneres who are jobless for less than three months.
03/11/2012
Immoral Temptations
The story about bailed-out Nobel prize winners, the central bank, the SEC and how one bailout changed the whole banking sector.
03/05/2012
Ireland Is Seeking Haircut
An Irish member of government said that a reduction of the debt would influence the upcoming referendum on the European Stability Mechanism (ESM).
03/25/2012      share:derubg
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Immoral Temptations Modern Shamans The Central Bank as "Bad Bank"

Short Summary of the Bernie Madoff Scandal

This text was excerpted from: Moderne Schamanen, Roland Seuhs, BoD-Verlag, 2011 (de)
      chapter 17.4,17.5: "Bernie Madoff und die staatliche Kontrolle"

Bernie Badoff has run the biggest private pyramid-scheme which encompassed about 65 billion dollars. How was it possible for that to happen?

Madoff was involved in creating NASDAQ, a stock exchange for technology assets, and was for a time also it's boss. Madoff was part of the establishment and in the 1960s and 1970s he (probably) was not involved in illegal business, but that would change.

The company Avellino & Bienes was closed in 1992 for running a pyramid-scheme by the Securities and Exchange Commission (SEC) and the investigation revealed that this company entrusted Madoff with the money. But instead of liquidating the company as would have been usual, the investors were allowed to exchange their assets at Avellino & Bienes into assets from Madoff - from one pyramid scheme to another. Although Madoff was obviously involved with Avellino & Bienes, there was no further investigation of Madoff.
In 1999, Harry Markopolos was instructed by his employer, who like Madoff was trading with options, to find out how Madoff could achieve such high returns. Within a few hours, Markopolos has concluded that Madoff was a fraud.

Markopolos tried tirelessly to inform the SEC and the public about Madoff's fraud, but without success. After countless e-mails, phone calls and meetings with the SEC, which were all unfruitful, he published in 2005 the article The World's Largest Hedge Fund is a Fraud in the Wall Street Journal, the best-known, biggest and most-read financial newspaper in the world. ( Does the SEC read the Wall Street Journal? ) But also many clues from other sorces that were given to the SEC and even internal SEC-documents all show that the SEC and many on Wall Street knew about Madoff's frauds or at least suspected them.

Finally the SEC started an investigation in 2006. Although Madoff lied during the investigation (which could have been punished with up to 5 years in prison, but the SEC preferred to ignore it), he was only forced to register as an investment advisor (which probably generates fees for the SEC - so it does not go home empty-handed). In 2007, the SEC finally concluded that there are no signs of fraud.

The failure of government control

Whether one sees corruption or incompetence as the reason for the SEC's behaviour does not really matter in the end. Fact is that the SEC, which is a government-institution, has not only failed completely but even helped Madoff to perpetuate his pyramid-scheme in 1992 and certified legality in 2007.

It is logic and straightforward that exactly those people who are controlled by a government agency will do most of the lobbying to influence these government agencies - quite literally their income depends on it. On the contrary, the average citicen will hardly be interested in these control agencies, because they don't play a large role in his life.

On what "side" will these government agencies be? On the side of those who they are controlling and who are giving them fine dinners, invitations to company tours and many other conveniences or on the side of the average citicen, who is not interested at all in what they do?

There is only one person who is able to effectivly control investments and that is the investor himself.

If investors would have trusted the SEC less then his pyramid scheme would have collapsed much earlier and they would have lost a lot less money.
series: Modern Shamans >
1Short summary of Keynesianism
2The central bank and the economic crisis
3The gross domestic product (GDP)
4Manipulation of the market basket and economic growth figures
5Economic Growth and Wealth
6Why the Banks Are Unstable
7Inflation and Deflation
8The Course of a Typical Inflationary Bubble
9John Law's Prototype of a central bank: 1716-1720
10The forgotten crisis: USA 1920-1921
11Summary of the Great Depression
12The Stagflation of the 1970s
13The crisis in Japan since 1990
14The Dot-com Bubble
15What Can be Learned from Past Crises
16Why there cannot be a perpetual boom
17Immoral Temptations
18Short Summary of the Bernie Madoff Scandal
19The Central Bank as "Bad Bank"
20Can we lie ourselves out of the crisis?
21How the Stock Exchange Works
22Why Funds Cannot Work in the Long Run
23The Government and Subprime-Mortgages
24Why One Should Not Buy Bank-Stocks
25The Purpose of Banks
26Bullet Loans

Moderne SchamanenRoland Seuhs10/27/2011de
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