Friday, December 12, 2008

Wall Street's Latest Ponzi Scheme

The "Legendary" Bernard Madoff, and the firm that bears his name, has just been implicated in the biggest swindle of investor money in the history of Wall Street.  

There will be others.

Here's the deal.

Ego maniac, schmaltzy, big shots living in $10 million apartments and taking helicopters to their beach house in the Hamptons cannot cut their personal overhead as quickly as the market can cut the revenues and their net worth down to size.  In order to keep up appearances they are forced to steal money.  At first, I am sure, it was just a "loan", then a couple of mis-marks for the books, then they try to trade their way back.  Unfortunately, these guys confused brains with a Bull or Bear market, and then find out they really aren't as smart as the last market direction was making them look.

Too bad for their investors.

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The market today seems unhappy that the Government is holding the Big 3's feet to the fire.  If you were buying stocks thinking that this bailout was going to save the day, you are sorely disappointed.  If you are trading, you better be very disciplined, and overnight risk should be concern number 1.

BTW, the Big 3 will need to be restructured in bankruptcy... the only question is will it be a prepackaged bankruptcy or not?  The average American taxpayer does not have a healthcare package and retirement package anything like the average Auto worker - it will be politically untenable for Senators outside the of the Great Lakes region.

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NO ONE is going to continue to pay on a mortgage that will take 5, 10, or 15 years to get to positive equity.  NO ONE.  Not your local Boy Scout Leader, Priest, Police Chief, Piano Player in the local whore house...  NO ONE.

Deflation will not yield to inflation until the housing market bottoms.

Good Luck!

Mentatt (at) yahoo (d0t) com



7 comments:

bureaucrat said...

As my office's only democrat, I will tell you all plainly. Under no circustances will Obama and the democrat Congress allow the automakers to be in bankruptcy for any length of time. GM & Chrysler will stick it out a few more months, and by the end of January, this problem will go away. It is in the democrat heart to favor labor and spend whatever it takes to keep the party going. This time is no exception.

Sean said...

It's funny that the phrase Kunstler used all along ("Ponzi scheme") is now what Madoff is admitting to.

Greg T. Jeffers said...

Bureaucrat:

No power on earth can stop these companies from failing.

Not even your gang

Sean said...

Greg is right; bankruptcy is the only option. And it's the fairest option: why should I subsidize people who have better retirement plans and healthcare than I do? GM was, is and has been a shitty company for at least 30 years-- it's time for them to take their knocks like everyone else has to.

bureaucrat said...

The overpaid GM employee, very much like the overpaid government employee (like me) buy a LOT of stuff and pay lots of taxes. We keep a lot of people employed, feeding their kids and helping them to keep doctor appointments. Europe has subsidized everything for decades, and they are better off than we are (up until this year). GM isn't going to go bankrupt. They will keep making vehicles (which aren't all that bad).

Greg T. Jeffers said...

Not the point.

The point is, the world has the capacity to produce 100 million cars, and the market is only interested in buying 50 million, and I think that that number will decrease over time.

The same is true of the housing industry.

THIS is what is creating the very inflation you have been talking about!

Now that the deflation in housing/autos has overwhelmed the inflation in the commodity sector, we are going to be in this mess until that deflation has run its course.

I thought that the Fed would be able to overwhelm the deflation... WRONG!! The banks are in control of the money supply in truth, and they are not lending.

Dan said...

Not that bad? The model A Ford got 30MPG, 76 years later they can’t beat that without expensive untested hybrid technology!