Madoff: Lessons from a Disaster April 29, 2009
Posted by dogmatix76 in Uncategorized.Tags: Frauds, Madoff, Ponzi, Scams
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Amid the wreckage and recriminations, investors are left wondering what might warn them of the next mega-fraud
On Mar. 12, victims of Bernard Madoff’s Ponzi scheme finally had one of their wishes come true. After a judge denied bail, Madoff is going directly to jail, and he isn’t passing “go.” But Madoff’s victims still want answers.
They want to know where the money went. They want to know who else was involved. And they want to know how they got scammed.
At the courthouse, many victims said there were no warning signs and Madoff himself, in his courtroom statement, backed them up on at least one count. “The clients receiving trade confirmations and account statements had no way of knowing by reviewing these documents that I had never engaged in the transactions,” Madoff said during his guilty plea.
Maybe not. But to Harry Markopolos, the risk manager who alerted the SEC to Madoff’s fraud in 1999 to no avail, the foul play seemed obvious. Madoff was supposedly using a complex trading system to generate returns, a strategy he dubbed the “split-strike conversion strategy.” He would buy stocks in the Standard & Poor’s 100 and sell options to reduce volatility. But Markopolos’ firm was running a similar strategy and couldn’t match the returns. A look at the returns was all it took for Markopolos to know something was up.
What good are economists, anyway? April 22, 2009
Posted by dogmatix76 in Economy, Subprime Crisis.Tags: Credit Crisis, Economists, Financial Failures
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Peter Coy, BusinessWeek | April 21, 2009
Economists mostly failed to predict the worst economic crisis since the 1930s. Now they can’t agree how to solve it. People are starting to wonder: What good are economists anyway? A commenter on a housing blog wrote recently that economists did a worse job of forecasting the housing market than either his father, who has no formal education, or his mother, who got up to second grade.
“If you are an economist and did not see this coming, you should seriously reconsider the value of your education and maybe do something with a tangible value to society, like picking vegetables,” he wrote on patrick.net.
Take that, you pointy-headed failures! Go jump off a supply curve!
To be fair, economists can’t be expected to predict the future with any kind of exactitude. The world is simply too complicated for that. But collectively, they should be able to warn of dangers ahead. And when disaster strikes, they ought to know what to do.
Beyond Survival: Winning in a Global Recession December 21, 2008
Posted by dogmatix76 in Economy.Tags: Economy, Recession
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Unfortunately, we’re all in this economic downturn together. But there are strategies to help your business emerge on top
I spent much of November meeting with executives of 18 companies in seven countries: France, Germany, Italy, China, India, Japan, and Brazil.
I don’t take notes at such meetings and I don’t carry a tape recorder. The conversations are confidential. But I can tell you that, without exception, the CEOs I met are all feeling our pain, because our pain, they made clear, is their pain. Little happens in a vacuum any more. In today’s interconnected world of globality, where the destiny of companies and the economic fortunes of nations are more tightly bound than ever, what happens in one country affects many, many others.
As I write this, the European Union, Japan, and the United States are all clearly in recession. Even Hong Kong and Singapore, two of the so-called Four Tigers of Asia, are in recession. But the downturn is in fact universal. Every country and almost every company has been touched. Customers are slowing payments to conserve cash; companies are delaying payments to suppliers; and so on down the line. As demand falls, prices fall. The hurt is widespread.
The World’s Most Influential Companies December 21, 2008
Posted by dogmatix76 in Uncategorized.Tags: Brands, Companies
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In a year of loss, they’re building market share, upending their industries, and changing consumers’ lives
By Jena McGregor
December 11, 2008, 5:00PM EST
“Power lasts 10 years,” goes an old Korean proverb. “Influence, not more than a hundred.”
In a year that brought the mighty to their knees, some of the biggest players in business have seen their power whittled away. The once-venerated Lehman Brothers filed for bankruptcy in September. American International Group (AIG) now bows to government officials after nearly collapsing under a web of risky bets. Even the blue-chip General Electric found itself going hat-in-hand to Warren Buffett.
As the proverb points out, influence has a shelf life, too. And it’s probably getting shorter as the cycle of change accelerates. Companies that once wielded a seemingly unshakeable hold over their industries—General Motors (GM), Sony (SNE), Microsoft (MSFT)—now find themselves following the lead of more nimble players such as Toyota (TM), Apple (APPL), and Google (GOOG). “There’s no standing still,” notes veteran strategy guru Gary Hamel. “Influence is like water, always flowing somewhere.”
Everything We Learned about the Financial Crisis, Again December 20, 2008
Posted by dogmatix76 in Uncategorized.Tags: FInancial Crisis
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The nation’s top accounting guru gets back to basics with a list of financial lessons we must remember not to forget.
Tim Reason and Marie Leone, CFO.com | US
December 9, 2008
At the last big accounting industry conference of 2008, Robert Herz, chairman of the Financial Accounting Standards Board, reiterated what he has been saying all year: It was not fair-value accounting that worsened the credit crisis, but rather a capital markets house of cards built on complex and risky securitization structures linked to subprime mortgages.
Though Herz’s speech to the American Institute of Certified Public Accountants was not entirely new (he first rolled out a version of it September), it represents a significant review of what went wrong with the nation’s economy from the perspective of the nation’s top accounting standard setter. And while peppered with the FASB chairman’s trademark dry wit, the speech is a serious one. “I hope I don’t offend anyone with my frank assessments,” Herz began, before condemning the behavior that led to the current crisis — as well as much of the finger-pointing that occurred afterwards. Few players were spared criticism, which he leveled at investors, regulators, credit rating agencies, boards of directors, bankers, Wall Street, and even some of FASB’s own accounting standards.
The Financial Crisis: What Drucker Would Have Said October 25, 2008
Posted by dogmatix76 in Subprime Crisis.Tags: FInancial Crisis, Peter Drucker
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Peter Drucker would have had plenty to say about the recent turmoil on Wall Street, beginning simply with: “I told you so”
Peter Drucker didn’t have a whole lot of nice things to say about those on Wall Street, at one point likening them to “Balkan peasants stealing each other’s sheep.”
Given the magnitude of the latest crisis to grip Fannie Mae, Freddie Mac, American International Group, Lehman Brothers, and their friends, one can only imagine what kind of acid analogy he might have used today.
Or perhaps he would have simply said, “I told you so.” After all, so much of the trouble that has befallen these giants of the investment banking, mortgage, and insurance sectors—and that threatens to “undermine the financial security of all,” as President George W. Bush put it—comes from a foolish disregard for the kinds of fundamental lessons that Drucker taught about risk, reach, and responsibility.
Some prefer to complicate things. Indeed, there is a temptation, in certain quarters, to fuzzy up what has happened here—to mask the basic management failures that are at the root of this disaster by pointing to the intricacies of credit-default swaps, “naked shorts,” and other arcana.
Market Overview: Survival of the fittest October 24, 2008
Posted by dogmatix76 in Capital Markets, Financial Markets.Tags: FInancial Crisis, Wealth Management
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Source: IBSJ Wealth Management Supplement – November 08
The recent market turmoil has obviously had some form of impact on the wealth management sector, but what other changes have taken place recently and how have these impacted the industry?
The recent headline announcements of the type that UBS, the world’s largest wealth manager, is cutting 2,000 jobs may imply a crisis in the wealth management sector. Behind the headlines it can be seen that those cuts are apparently being made to other UBS lines of business, such as commodity trading and investment banking. But the turmoil in the world’s financial markets has impacted the wealth management world.
One direct impact has been the fall in the equity markets. Ian Cookson, advisor to the executive committee at EFG International in Switzerland points out that ‘the fall in equities market has meant two things: one is that the value of the assets under management has taken an enormous hit. And the other is that trading volumes have gone down.’ As asset management charges/custody fees are based on the value of assets under management then ‘this hits you in the pocket’. Lower trading volumes have also reduced fee income.
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Analysis: Sovereign Wealth Funds – Wealth of nations October 24, 2008
Posted by dogmatix76 in Capital Markets.Tags: Sovereign Funds, Wealth Management
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How do governments invest their own wealth and why is it such a controversial area, asks Don Brownlow
Source: IBSJ Wealth Management Supplement – November 08
Middle Eastern and Chinese investment into the US banking system has been widely reported. How have those investments faired during the current banking turmoil, where did the money come from and who are behind this type of government investments?
Back in 1960, when Kuwait placed some of its newly found oil-wealth into an investment fund and called it the Kuwait Investment Authority, it didn’t know that it had just created one of the first international Sovereign Wealth Funds. Depending on how they are counted and which are included, there are now around 40 of these state investment vehicles. By conservative estimates, at the end of 2007, they controlled $3.3 trillion – more than the total amounts in hedge funds and private equity combined. Of the 40 or so funds out there, twelve have been formed since 2005. Governments are now controlling an increasing share of international wealth.
Although some of these funds are new, many of these state investment vehicles have been around for a lot longer than the term Sovereign Wealth Funds (SWF) which was coined to describe them. There are still on-going scholarly debates as to a definition of exactly what constitutes an SWF, but John Nugée, managing director, State Street Global Advisors, offers a simple working definition: ‘SWFs are sovereign-owned asset pools that are neither traditional public pension funds nor reserve assets supporting national currencies’. There are many other definitions but most allude generally to ‘special purpose investment funds owned by governments’. Nugée told a briefing earlier this year that ‘some funds don’t want to be known’ as an SWF ‘because of the bad press’.
How the Credit Crisis Could Forge a New Financial Order October 19, 2008
Posted by dogmatix76 in Subprime Crisis, Wall Street.Tags: FInancial Crisis
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Published: October 15, 2008 in Knowledge@Wharton
In the middle of a battle, it’s hard to know what the landscape will look like after the smoke clears. But as the government wrestles with the credit crisis, economists and finance experts are starting to make some predictions.
Individuals and businesses will have a harder time getting loans in coming years, but also may be less eager to take on debt. There will be “more” financial regulation or “better” regulation, but definitely not less regulation. There will be intense efforts to see what is going on inside previously opaque areas like hedge funds, derivative markets and subsidiaries set up to evade restrictions. Instruments like credit default swaps, which helped bring down AIG and other big financial institutions, are likely to become more standardized, allowing them to be traded on centralized exchanges so that values will be easier to fix.
“We have to design a system where participants cannot threaten the safety of the American economy,” says Wharton finance professor Richard Marston. “I think this crisis is bad enough that it has rung some alarm bells, and there’s a better chance of doing something right … than there has been for decades.”
Financial Crisis: How to Stop the Panic October 12, 2008
Posted by dogmatix76 in Subprime Crisis, Wall Street.Tags: Credit Crisis, FInancial Crisis
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It is possible to calm the waters, but it’ll mean unlearning our post-Depression lessons
The world’s governments are shocked and dismayed by their inability to stop the increasingly grave financial crisis. Nothing they have attempted has gotten lending flowing normally. Profitable companies are cut off from borrowing. Confidence is shot. Through Oct. 7 the U.S. stock market had its worst five-day performance since 1932 on fears of a severe economic downturn. Says Stephen Jen, currency economist at Morgan Stanley (MS) in London: “The choices for the real economy are between a recession and a depression.”
Can anything be done to halt this panic? As a matter of fact, yes. It won’t be quick or easy. But the prerequisite for a new approach is unlearning doctrines that were developed in the aftermath of the Great Depression, the last time financial conditions were worse than this. The world has changed in the intervening seven decades, and what worked to quell the financial crisis then may not work now—as anyone trying to borrow money can see.
