Saturday, December 13, 2008

IT'S DEJA VU ALL OVER AGAIN

The sudden and devastating collapse of Bernard L. Madoff's investment firm has Wall Street abuzz. As the financial world ponders how someone could lose an estimated $50 billion I think it's safe to say that what blew the cover off of Madoff's "ponzi" scheme wasn't Madoff's confession to employees this past week, a lack of private "due diligence," nor enough federal oversight. While all of these played a role, what really brought Madoff down was the market's collapse.

Jittery investors, worried about continued exposure to a collapsing economy, began asking Madoff to take their money out of the market. Madoff was forced to face reality: he was running a scam operation. Madoff was using investors like regular folks use credit cards in today's economy - one was being used to pay off the other. In a collapsing market, with credit and investors drying up, he could no longer call on a once dependable line of investors, nor find a line of credit to keep his game going.

What's really disgusting is that Madoff was making plans to pay partners early bonuses this December. After that he was going to distribute the $300-400 million in assets he thinks he has left to family and friends who invested with him.

Investors are now getting lawyers and will try and sue Madoff, hoping they can get at the $300-400 million he has left. Some may get pennies on the dollar. Others will be left with nothing. Then they will, no doubt, demand reform and regulation.

Didn't we already do this before? And, no, I'm not talking about Enron or WorldCom . . .

- Mark

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