Ponzi vs. Ponzi?

Chicago derivatives consultant Janet Tavakoli once again valiantly suppresses the urge to bite her tongue:

The Wall Street Journal missed a golden opportunity (“Top Broker Accused of $50 Billion Fraud,” December 12, 2008). It wrote that if Madoff’s alleged losses exceeded $50 billion, it would “dwarf past Ponzi schemes.” Yet, Madoff is a piker.

The largest Ponzi scheme in the history of the capital markets is the relationship between failed mortgage lenders and investment banks that securitized the risky overpriced loans and sold these packages to other investors — a Ponzi scheme by every definition applied to Madoff. These and other related deeds led to the largest global credit meltdown in the history of the world...

Schadenfreudically speaking, one of the larger “victims” of Madoff’s plundering is, according to various news reports, J. Ezra Merkin. His Gabriel Capital Group’s Ascot Partners hedge fund had “substantially all” of its $1.5 billion or thereabouts riding on Madoff, resulting in “major losses” for Merkin “as one of the largest investors” in Ascot, according to his tear-stained investor letter.

Among Merkin’s hobbies (so far): chairman of GMAC LLC, the all-but-bankrupt Cerberus-GM finance subsidiary currently, and to date unsuccessfully, grovelling for bank holding company status that would allow it to gorge at the taxpayer-financed troughs so freely offered mostly to institutions whose failure would inconvenience Goldman Sachs (GS). GMAC, of course, ranks high in the, admittedly long, list of nominees for Ground Zero of “the largest Ponzi scheme in the history of the capital markets.”

Madoff Deserves Lots of Company
by Janet Tavakoli
Tavakoli Structured Finance Dec. 13 2008

For Madoff investors, big* returns trumped concerns
AP via Chicago Sun-Times Dec. 12 2008

* At the risk of being even more of a pain in the ass than usual, NakedShorts would like to point out to the grown-up meejuh in general, and specifically its headline writers, that “big” returns were not the point. The con credibility factor was the — cough — incredibly consistent, non-volatile, returns.

Fund Fraud Hits Big Names
by Robert Frank, Peter Lattman, Dionne Searcey and Aaron Lucchetti
The Wall Street Journal Dec. 13 2008

Comments

[Nikola:]

I think of all the people who get picked on the most undeservedly is Mr. Ponzi himself.

Had Mr. Ponzi lived in our time, he would have been the Chairman of Nasdaq or at least the CEO of Lehman.

At least Mr. Ponzi will remain remembered in history, while Mr. Madoff, and what's the name of that wanker CEO of Lehman?

2008 Dec 15 06:02 AM

[WMBANZAI7:]

MADOFF THE WALL STREET FAKIR
(Rudolph the Red Nosed Reindeer)
WilliamBanzai7

You know Vesco and Boesky, and Keating and Milken,
Leeson and Mozer, and Ponzi and Wiggen,
But do you recall, the most famous securities fraudster of all?

Madoff the WALL STREET FAKIR
Had a GIANT PONZI SCHEME,
And if you ever saw it,
You could say it was Wall Street's own worst dream.

All of the other Wall Street fakirs
Used to laugh and call him names;
They never believed poor Madoff
Made a legitimate Alpha trade,

Then one shaddy Wall Street trading eve,
Madoff spilt his own beans to the SEC
"Madoff oh your scheme's so bright,
Won't you go to jail tonight?"

Then how the Wall Street fraudsters loved him
As they shouted out with glee,
"Madoff the WALL STREET FAKIR,
You’ll go down in securities fraud histoooooory."

Q: Whats the difference between Bernie Madoff and the CEO of a bulge bracket Wall Street investment bank?

A: Madoff is not asking for a bailout.

2008 Dec 15 07:54 AM

[Gedankonomist:]

"Social security" is the biggest Ponzi scheme.

50 Trillion in IOU's, Dr. Ron Paul has estimated.

2008 Dec 15 10:06 AM

[ussmls7:]

You forgot to add the Fed & the GS,JPMs that are as just as bad!

2008 Dec 15 10:21 AM

[xmplary:]

This is a pathetic case. He stole $50 billion, and the punishment is $5 million and 20 years in jail, which he will probably buy out of the money he made. We should make the punishment more appropriate to the crime, such as the return of all the money, and life in prison. If this were the case, these crooks will think twice before committing a crime like this.

2008 Dec 15 12:31 PM

[axelrod608:]

Not even close. The biggest Ponzi scheme is the US Federal government.

2008 Dec 15 01:42 PM

[John Lounsbury:]

The following is exerpted from a comment I left for Robert Nabloid's article: seekingalpha.com/artic...

"In a stable system, fractional reserve debt is used to invest in assets to produce tangible and/or consumable things. The debt is repaid through proceeds from sale of things produced and the money disappears from circulation until another loan is made. In the past couple of decades loans have been used to finance derivatives of financial instruments. These derivatives have been used as "reserves" to create more layers of financial leverage (psuedo-fractional reserve banking), without regulation by auditors. This has been referred to as a house of cards. It has also been called a Ponzi scheme. It is both. This complex financial structure (now collapsing) was not constructed to enable production of things that could be used or consumed. It was constructed to produce more financial paper. The payback of the "loans" was not in U.S. currency, but in the new financial paper. In other words, the payment to the original investors depended on the ensnarement of new investors. This is the classical definition of a Ponzi scheme. An effective audit system could have prevented this."

2008 Dec 15 01:59 PM

[John Lounsbury:]

The link is seekingalpha.com/artic...

Sorry.

2008 Dec 15 02:01 PM

[henarl:]

I vote for the CDS game, combined with the securitization, phony rating, and pedaling of large chunks of worthless mortgages. Taken together, they make Madoff look like a saint

2008 Dec 15 04:31 PM

[Burton A. J...:]

Social Security is the biggest Ponzi Scheme in the History of Civilization.

2008 Dec 15 05:15 PM

[Nathan Kema...:]

perhaps you've identified the reason that Mr. Paulson has so artfully managed to avoid attending to the original purpose for the TARP funds; He's busy shoring up the assets of institutions to whom Goldman has some cleverly shrouded counterparty risk. His agenda will be confirmed if he shows up again as a senior Goldman officer about 12 hours after the inauguration is complete in January. It will be little wonder why he has no interest or intention in devising schemes to assist mortgage holders and even less in considering the automobile industry as targets for the governmental charity; these must have no immediate effect on Goldman Sachs portfolio ristk.


On Dec 15 07:54 AM WMBANZAI7 wrote:

> MADOFF THE WALL STREET FAKIR
> (Rudolph the Red Nosed Reindeer)
> WilliamBanzai7
>
> You know Vesco and Boesky, and Keating and Milken,
> Leeson and Mozer, and Ponzi and Wiggen,
> But do you recall, the most famous securities fraudster of all?<br/>
>
> Madoff the WALL STREET FAKIR
> Had a GIANT PONZI SCHEME,
> And if you ever saw it,
> You could say it was Wall Street's own worst dream.
>
> All of the other Wall Street fakirs
> Used to laugh and call him names;
> They never believed poor Madoff
> Made a legitimate Alpha trade,
>
> Then one shaddy Wall Street trading eve,
> Madoff spilt his own beans to the SEC
> "Madoff oh your scheme's so bright,
> Won't you go to jail tonight?"
>
> Then how the Wall Street fraudsters loved him
> As they shouted out with glee,
> "Madoff the WALL STREET FAKIR,
> You’ll go down in securities fraud histoooooory."
>
> Q: Whats the difference between Bernie Madoff and the CEO of a bulge
> bracket Wall Street investment bank?
>
> A: Madoff is not asking for a bailout.

2008 Dec 15 07:56 PM

[WMBANZAI7:]

PALM BEACH GOT RUN OVER BY MADOFF'S PONZI REINDEER
(Grandma Got Run Over By a Reindeer)
WilliamBanzai7

(chorus)
Palm Beach got run over by Bernie Madoff's Ponzi reindeer
Just two weeks before Christmas Eve
You can say there's no such thing as a Wall Street scamster
But as for we in America, we believe

He'd been chalking up bogus Alpha
So the SEC said he had to go
And as he waltzed out of his lair on Third Avenue
Defiant as he was, he said, "Positive returns, hell no!"

When they woke up yesterday morning
It was clear the Palm Beach clique had been attacked
May as well stick a note to their own foreheads
Saying, "Oh Lord, please give us our money back!!"

(repeat chorus)

Now we're all so proud of our regulators
They've been taking this so well
See them crammed in Madoff's office
Knowing that SEC Chairman Cox will soon be sent to pink slip h-e-l-l

It won't be a Merry Christmas thanks to Madoff
Nor a Happy Hannukah as well
And we just can't help but wonder
Dosn't all of Wall Street have that pungent Ponzi smell?

(repeat chorus)

Now that Madoff's books are on the table
See all the other asset managers dance a jig (Ah!)
And the bogus billion dollar earnings
That not surprisingly had been rigged!

Be forewarned all you rich country club investors
Better watch out for yourselves!
You should not be dreaming of serial Alpha
With hedge fund goofs who play golf better than yourselves!

(repeat chorus)

2008 Dec 16 09:11 AM