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Matthew Rafat  

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  • Don't Be Scammed by Madoff Investor Sob Stories [View article]
    To "Phil the Victim": I did _not_ favor the corporate or auto bailouts; however, I recognize that the auto bailout helped thousands of Americans who suffered because their unions and irresponsible boards made poor decisions. That's the difference between Madoff investors and the auto workers and lower level banker employees: one group (Madoff investors) could have diversified or chosen to do better diligence before investing, while the other group (lower level corporate and auto employees) had little power or say in any substantive decisions.

    With power comes responsibility. You had the power not to invest in a certain fund or investment. Instead, you apparently delegated power to a mutual fund manager, who failed to do due diligence and invested with Madoff. You admit this when you wrote, "We were in a general partnership, [and] none [of us knew] how our money was invested."

    The general taxpayer had no involvement in your decision to invest with your mutual fund or other investment vehicle, which then apparently chose to over-invest with Madoff. Given the lack of general taxpayer involvement or culpability, it is difficult to see any rational reason taxpayers should bail you out. The appropriate recourse is with your mutual fund manager, Madoff, or insurance (SIPC), not with the general taxpayer.

    You mention you have lost your life savings and are in your 70's. Medicaid, Medicare, and Social Security income will prevent you from being impoverished. Thus, the general taxpayer is already assisting you and protecting you from dire poverty. You appear to want the general taxpayer to provide you with more of their money because you failed to diversify your investments. To paraphrase Barry Goldwater, a government that is big enough to help you avoid all your mistakes is also big enough to tell you exactly how to live your life.

    You appear willing to hold other Americans and the general taxpayer responsible because you and your mutual fund manager/trustee made a mistake. Your mistake should not hurt responsible Americans, the overwhelming majority of whom diversified their investments, still lost thousands of dollars, and won't get a bailout.
    Jan 25, 2009. 12:09 PM | Likes Like |Link to Comment
  • Public Pensions: Rotting from Within [View article]
    Reddleman: I am not anti-teacher. I actually favor increasing teacher salaries, as long as their benefits are similar to what private sector employees receive.

    Since you brought up teachers, Chuck Thompson has two funny paragraphs about them in his book, _Smile When You're Lying_:

    "And, yes, poor unappreciated teachers. I did say sweet deal. American public school teachers have the world's best PR operation going. Whining every chance they get about how demanding their jobs are, how many 'extra hours' they put in, how little they make, how much of their own money they have to spend just to do their jobs, how noble they are working this job that nobody ever asked them to do--welcome to the f**king world...

    You think you got it tough? You don't got it tough. American teachers would crumble if they ever had to work the real hours of a cabbie, doctor, bartender, fisherman, truck driver, small-business owner, hotel clerk, mechanic, architect, janitor, musician, surveyor, accountant, or the million other jobs that don't observe weekends, much less every city, county, state, and federal holiday on the docket, almost three months' paid vacation a year, and pension programs funded out of the public trough. How is it we go through school painfully aware that half our teachers are lazy or incompetent or pathological control freaks, then turn around and let them convince us what a bunch of saints they are as soon as we become taxpayers?" (p. 100)
    Jan 14, 2009. 09:26 PM | 2 Likes Like |Link to Comment
  • Public Pensions: Rotting from Within [View article]
    To "Socialism cannot compete": Nowhere did I say that if we "put government workers on Social Security, that would fix SS." You somehow managed to mis-read my entire article, which is against public pensions, not 401k plans or other private accounts. Public employees should have the same retirement options as the average American--which includes 401ks (i.e., the sister 403(b) plan) and IRAs. The American taxpayer should _not_ be faced with ever-growing, indeterminate financial obligations in the form of public pensions and lifetime medical benefits. I hope this clarifies your misunderstanding of my article.
    Jan 14, 2009. 05:03 PM | 1 Like Like |Link to Comment
  • Madoff Investors Deserve Sympathy, Not a Bailout [View article]
    SJACOBS: read the first line of the article again:

    "A consistent 15% return over 25+ years, without any losses, is impossible without some illegal advantage..."

    On my own blog, the phrase, "without any losses," is emphasized.

    Last week, a letter to the WSJ talked about a plan similar to yours. You may want to read it and post a link here for everyone's benefit.
    Jan 6, 2009. 01:18 PM | Likes Like |Link to Comment
  • Dick Kovacevich on Banks and This Financial Crisis [View article]
    Oops, the line above should be "$1.5 trillion," not "$1.5 billion":

    I said, "Today, they are $610 billion. When our merger with Wachovia (WB) is completed, we will be nearly $1.5 billion." It should be $1.5 trillion, with a "t."

    As Senator Everett Dirksen once said, "A billion here, a billion there, and pretty soon you're talking real money."
    Jan 3, 2009. 04:20 PM | Likes Like |Link to Comment
  • Don't Be Scammed by Madoff Investor Sob Stories [View article]
    Tesa, you said, "You seem to believe that 10%-15% return should have flagged a ponzi scheme." You are correct that a 10-15% return doesn't reveal a Ponzi scheme; however, a consistent 15% return over 25+ years, _without any losses_, is impossible without some illegal advantage, like inside information.

    Madoff's investors could _not_ have reasonably believed that they were receiving 10 to 15% every year without some insider information. Madoff's position as a Nasdaq chairman probably convinced investors they had access to something no one else did. See link below for more:

    At the end of the day, Madoff's investors should have diversified or at least attempted to do more due diligence. Their failure to follow the well-known and cardinal rules of investing--diversify and buy only what you understand--is the sine qua non of their current situation.

    Most important, most of Madoff's investors were _not_ unsophisticated investors--most were educated, English-speaking, and affluent. This is why Madoff slept soundly at night--in his mind, even if someone invested a million dollars with him, most had plenty of money left over. He may have even believed himself to be a modern-day Robin Hood--stealing from the rich to give to the poor and the charities.

    At the end of the day, the blame belongs on Madoff and the fiduciaries of charities and other entities who failed to diversify donors' money. Rather than excuse negligence, Madoff's investors should serve as an example to those who fail to diversify or who do not question impossible returns. Bailing them out would result in the following:

    1. It would tell the world America will print money and devalue the dollar when its citizens--especially the rich and well-connected--make avoidable mistakes. If the Japanese, Chinese, Swiss, and British begin to question the U.S. dollar's integrity, it will be the beginning of the end for our entire country. We have major deficits and are currently dependent on foreign investors to finance our expenditures. When we have a surplus, we can afford to be generous. Right now, we can afford to be sympathetic only with our hearts, not with our wallets.

    2. It would weaken faith in our country's sense of fairness. Anytime a government gives money away arbitrarily, others not part of the largess rightly cry foul. What about all the other victims of investment fraud, like the Baptist Foundation of Arizona or Sunrise Equities Inc.? What about the mortgage brokers who ripped off ordinary Americans by submitting mortgage applications with false income information? (And where's the perp walk for those people?)

    To those of you who say I have no sense of compassion or morality, let me say this: if anyone ought to receive taxpayer money, it should be the families of Americans who were slain in Iraq. They are also victims of government inaction and negligence and have lost more than just money. The list of more deserving victims is endless, but if we go down that path, we will transform America into a land of sympathy-seekers, not strength. For a country that has been the symbol of hope for so many people worldwide, such an image shift is unacceptable.

    Although I opposed the auto and bank bailouts, they will help hundreds of thousands of ordinary Americans who had little power to avoid their current situation. Auto workers themselves did not cause their current financial mess--the banks, their unions and the Big Three did. In contrast, Madoff's investors failed to do due diligence, failed to diversify, and/or must have believed Madoff had inside information. As a result, they do not have clean hands.

    Any regulation that occurs should require nonprofits and other charities to fully disclose to the public (preferably on a website) not just basic P&L statements or budgets, but where they are holding their donations, and what specific investments they have bought. As long as taxpayer money is not involved, some good may come of this yet.
    Dec 25, 2008. 04:17 PM | Likes Like |Link to Comment
  • Don't Be Scammed by Madoff Investor Sob Stories [View article]
    I suppose I need to clarify this earlier comment: "In any case, once Madoff's investors--most of whom are wealthy--record a loss for tax purposes, all taxpayers will suffer."

    If Madoff's investors had diversified or at least done adequate due diligence, most would have paid taxes on their capital gains at some point. As it stands, with around 50 billion dollars of wealth evaporating, the average citizen/taxpayer has lost a major source of tax revenue, because no gains actually occurred, so no taxes will be paid.

    The evaporation of so much wealth also caused harm because of the lost opportunity cost. Wealth invested in non-IPO stocks is taken out of the economy. For example, when I choose to invest long-term in Coca-Cola stock, I reduce my disposable income. Assuming I would have spent the money I invested, everyone from local retailers--which might have increased hiring to handle higher demand--to local government--which won't get any sales taxes--loses. The tax code recognizes that, and requires a tax to be paid when an investor recognizes a gain. Here, we have around 50 billion dollars that will never provide tax revenue. In short, Madoff's wealthy investors not only punished themselves by their inadequate due diligence, but local governments, schools, universities, fire departments, and police departments. Most people understand that taxpayers pay for all the aforementioned services, and voters are loathe to lay off teachers and police officers; thus, at some point, taxes will be raised, or the dollar devalued. Assuming neither higher taxes nor a devalued dollar is desirable, Madoff's investors have harmed all American taxpayers.
    Dec 25, 2008. 12:33 AM | Likes Like |Link to Comment
  • Don't Be Scammed by Madoff Investor Sob Stories [View article]

    1. You said, "[W]here do you get the idea that any of the investors are looking for a bailout. This is nothing more than your own guessing." Actually, Madoff's investors have already asked for a taxpayer bailout:

    "[S]ome government aid is a very logical request," said Robert Schachter, [who] is representing several Madoff victims. "If we're bailing out Wall Street and the auto industry, maybe these individuals should be bailed out too."

    2. You said, "Madoff was not a hedge fund." Main Street could not invest with Madoff--they had to go through a hedge fund, or, in some cases, through personal connections with wealthy investors.

    3. You said, "[M]any people continued to reinvest their gains and therfore [sic] lost ALL of their investment." You admit these investors failed to diversify; therefore, they violated the #1 rule of investing.

    4. The problem is that the SIPC does not have enough money to cover all the Madoff claims. As a result, if you favor full reimbursement, the money must come from taxpayers. It is possible--though not likely--that private brokerage insurance may have the money to reimburse all of Madoff's investors. In any case, once Madoff's investors--most of whom are wealthy--record a loss for tax purposes, all taxpayers will suffer.
    Dec 24, 2008. 12:00 PM | Likes Like |Link to Comment
  • Don't Be Scammed by Madoff Investor Sob Stories [View article]
    I've read all of your comments with the hopes that our outrage will prevent another ill-advised bailout. Carnegie Mellon economist Allan Meltzer once said, "Capitalism without failure is like religion without sin." In other words, capitalism doesn't work unless we allow losers. Having losers creates two positive outcomes: one, it shows others what doesn't work (in this case, not diversifying or not doing due diligence when investing); and two, it creates shame--a powerful motivator--by warning others that bad actions lead to real consequences.

    A Madoff bailout would be particularly harmful to capitalism as a whole, because it would pervert it into a tool for the rich and well-connected.
    I called the WSJ article propaganda because it focused not on the investors who made substantial returns over the 25+ years of investing with Madoff, but on charities and the elderly. Thus, it was deliberately designed to pull on our heart-strings for a class of people who are generally well-off.

    The real victims are non-Madoff investors who will suffer diminished returns from their mutual funds. Their mutual funds hold companies like UBS and other entities that invested with Madoff. No one will be bailing out these Main Street investors, but they are the real victims. Yet, all the attention is being given to Madoff's investors, who are a highly exclusive group of hedge fund investors and investors who failed to diversify their investments.

    In the end, a bailout is wrong because it would cause the transfer of wealth from people America should support rather than penalize. Basically, rather than reward people for making wise decisions or providing utility to others, a Madoff bailout ensures that Main Street will continue to suffer for bad decisions made by the rich and investors who failed to diversify.

    If we wish to serve as a non-exploitative economic model for the rest of the world, we must allow some failure. We must not allow well-connected investors to make bad decisions and then escape the consequences because of their friends in Congress, on Wall Street, and in the Dow, Jones & Company publishing firm.

    More important, if we want the U.S. dollar to continue being the world's reserve currency, then we must ensure the rich as well as the poor suffer the slings and arrows of bad decisions. The alternative is printing more money, which will lead to inflation, and reduced stature.
    Dec 23, 2008. 05:26 PM | 2 Likes Like |Link to Comment
  • Gold Prices: Little Correlation with Its Utility [View article]
    I appreciate all of your comments, but the only one that makes sense to me is Albert Ling's. He says that expensive products are expensive precisely because of their lack of utility. Although he doesn't expand on his hypothesis, it makes sense. The low utility of products, including gold, reveals an important trait--namely, that their buyer can afford useless objects, confirming the buyer's high disposable income, and therefore status.

    I don't disagree with the ultimate end of the gold bugs, which is to establish a hard currency. But once central banks moved away from gold and into fiat currency, gold was no longer an agreed-upon unit of currency. If we return to the days of hard currency, then gold will have value because of its utility in determining currency. Until that day, its value seems to be linked to consumer demand and perception only rather than utility.

    Other people argued that almost no other products have prices relating to their inherent value, citing beachfront property; Mona Lisa; and Apple stock. Those examples are somewhat inapt.

    1. Beachfront property has value because it is something that is necessary--shelter. It can also be used every day. Gold is not necessary, while shelter is required for most people.

    2. The Mona Lisa has value because it is a unique historical artifact. Unique historical items tend to be valuable, despite their lack of utility, because history has value to most human beings. Therefore, I have no logical hangup with a historical painting connected to Leonardo da Vinci and the Renaissance having value. The Mona Lisa's value is inherent in its existence, which links it to a specific time period that will be studied as long as human beings exist.

    Other paintings, however, such as modern art, may have no value in the future. I would never buy a MoMa painting.

    3. Apple stock is a harder one to analyze. It has no utility at first glance, because it does not pay dividends. (Many value investors avoid non-dividend paying stocks, because they don't see any definite return.) Yet, Apple stock has utility because it is easily traded, like currency, for other things, which do have utility. Gold is _not_ easily traded for cash all over the United States. Apple stock, on the other hand, once liquidated, will buy a farmer in a rural area as well as a NY banker in a big city *immediate* utility. Therefore, its utility lies in its quick, convenient conversion into a unit that confers utility.
    Dec 23, 2008. 04:45 PM | 1 Like Like |Link to Comment
  • Problems That Detroit Bailout I Doesn't Address [View article]
    Great article--here's another take on the bailout ("An Auto Bailout is Unjust"):

    Dec 11, 2008. 12:06 AM | Likes Like |Link to Comment
  • Big Three Bailout: Not Like Japan's Automakers in the 90s [View article]
    Thornton: despite all evidence to the contrary, you've somehow interpreted my article as support for the $800 billion banking bailout. In fact, Congress's bailout of the financial companies is what created the slippery slope allowing the Big Three to demand taxpayer money. Sadly, it appears we are following in the footsteps of Japan, which may cause our own "lost decade."
    Dec 10, 2008. 04:02 PM | Likes Like |Link to Comment
  • Foreign Debt Holders and U.S. National Debt [View article]
    Smarty_Pants' comment directly above is right on. I couldn't have said it better.
    Nov 3, 2008. 04:44 PM | Likes Like |Link to Comment
  • The Shallowest Generation [View article]
    If you like this article, check this out out--A Nation of Debtors:
    Nov 1, 2008. 07:21 PM | Likes Like |Link to Comment
  • Visa's First Annual Shareholder Meeting a Non-Event [View article]
    Art Rimbaud: the annual shareholder is the one time ordinary investors can directly question a company and gain insight into their culture. Companies, like countries, have their own culture. I favor open, humble corporate cultures, because the more open a company is to criticism, the less likely it is to end up like Enron (just view Skilling's response to an analyst in the documentary, _The Smartest Guys in the Room_). Your comment on the number of shares I own is irrelevant, because it is precisely a company's attitude towards small investors that indicates how open it is. In addition, your comment is based on the premise is that public companies should only pay attention to institutional investors or large investors and that small investors have nothing to add. Your premise is incorrect and fails to recognize the importance of Regulation FD and the role of the small investor in keeping companies honest and responsive to the public. Recent events should demonstrate what happens when only large players are involved in decisionmaking, or when large players are insulated from public feedback.
    Oct 20, 2008. 12:50 AM | Likes Like |Link to Comment