Unless you had something invested with Bernie Madoff, what’s not to like about the current situation?
As of this writing, impeachment is being initiated in Illinois against the governor, who hails from the same sordid Chicago political machine as our president-elect. With the embattled governor showing no intention of resigning, this mess could actually continue for months. Where that puts the Illinois senate seat is anybody’s guess. In theory, a law could be passed proscribing Gov. Blagojevich from appointing a senator, but even if he did, who would want the appointment now?
One of the more absurd statements coming out of this scandal, other than the “shocked, shocked…” reactions heard from politicians is from federal prosecutor Patrick Fitzgerald, the guy who nailed Blago. Fitzgerald opined that Blago’s “…conduct would make Lincoln roll over in his grave.” That’s probably true, but not the way our dogged prosecutor meant it.
According to Lincoln biographer David Donald, Lincoln was the master string puller in Illinois politics. One feat was to convince the Illinois legislature to spend more than $10 million of infrastructure improvements—none of which were ever finished. Much of the money was stolen, and the state was deep in debt for years.
When Honest Abe (a moniker often used sarcastically) got up to the presidency, one of his first acts was to work on the Pacific Railroad bill, which resulted in the huge Credit Mobilier scandal. According to Thomas DiLorenzo:
Lincoln benefited personally from this legislation which gave him, the president, the right to choose the eastern starting point of the government-subsidized transcontinental railroad. He chose Council Bluffs, Iowa, where he had recently purchased a large parcel of real estate that is known to this day as “Lincoln’s hill.” Many of Lincoln’s Republican Party luminaries, from Thaddeus Stevens to Justin Morrill and Oakes Ames, and even General Sherman, accumulated fortunes through graft and patronage that was created by Lincoln’s Pacific Railroad Bill.
In reality (if that’s the correct word) any rolling in the grave on Lincoln’s part would be in reaction to how crude and stupid an operator Blago was. Besides, Fitzgerald may have run afoul of Justice Department guidelines that prior to trial a “prosecutor shall refrain from making extrajudicial comments that pose a serious and imminent threat of heightening public condemnation of the accused.”
Then there’s Bernie Madoff, who is being charged with the biggest financial scandal in history, and it’s nothing more than a giant Ponzi scheme—to the tune of $50 billion. According to the SEC (previously asleep at the switch), at some point in 2005, Madoff’s investment advisory business…
…morphed into a Ponzi scheme, taking new money from investors to pay off existing clients who wanted to cash out. Madoff reported that the business had $17.1 billion under management in January 2008. As the market got worse this year, Madoff continued to report to investors that his funds were up—as much as 5.6% through the end of November.
Note that for the same period, the Standard & Poor’s 500, where Madoff supposedly did most of his trading, had dropped a weighted average of 37.7%.
When Harry Markopolos was a competitor of Madoff’s in 1999, he fired off a letter to the SEC that concluded “Madoff Securities is the world’s largest Ponzi scheme.” But Markopolos wasn’t the only one. A hedge fund adviser, Aksia’s Jim Vos, investigated Madoff’s accounting firm and discovered that is was housed in a strip mall, and had just one accountant.
“If the SEC didn’t come in and inspect (the Madoff hedge fund), then they have a hell of a lot to answer for,” said James Cox, a Duke University law professor and securities law expert. The SEC’s Boston office has been accused in the past of brushing off a whistle-blower’s legitimate complaints, in a case that brought the resignation of the head of that unit in 2003.
“The agency can’t help but look bad,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “It does raise questions … about the quality of the enforcement division generally. It’s obviously something that the new (Obama) administration has to get to the bottom of.”
But then, the SEC has always been able to ferret out the easy cases. It’s the hard ones that really rip-off many people that they’re not so good on.
At some point, though, individual investors have to take some responsibility. If it seems to good to be true, it probably is, and Madoff’s scheme was no exception. People want to believe, and many people did get hurt.
For the rest of us, That’s Entertainment!