Posts Tagged ‘bernie madoff’

Bernard Madoff and the Art of Financial Self-Delusion

July 1st, 2009 Comments off

In the aftermath of the Madoff scandal and the implosion of his $65 billion ponzi scheme, many interpretations have been offered as to its historical significance. The financial establishment and oligarchy will seek to portray the Madoff phenomenon as merely a single bad apple who was appropriately punished  for his crimes. More cynical commentators will present Madoff as a by-product of unregulated casino-style capitalism run amok, a harbinger of the credit default quicksand that ultimately sank the American economy and unleashed the Global Economic Crisis. For myself, I find the victims of Madoff more instructive than the sordid criminality of the con artist himself.

Among the multitude of Madoff clients who were literally picked clean of their life savings, I was struck by the  contradiction between their apparent intelligence and acute naiveté. Many of those now dispossessed of their lifetime of financial achievement by the sinister chicanery of Madoff were businessmen and businesswomen, accomplished in their respective fields, and apparently savvy at the competitive game of entrepreneurship. Yet, so many of these same admirable human beings literally knocked down the doors to invest with Madoff, in effect throwing almost all their net worth into his hands, without even a modicum of due diligence. This is self-delusion on steroids, a phenomenon not new to the American experience, especially when it involves the rarefied world that comes under the pedestrian rubric of “financial planning.”

As the United States evolved into the leading  industrial and financial force in the global economy, an ethos with a powerful mythology evolved; invest with a “money manager” with a genius for picking the right stocks and bonds, and one will embark on the true path to prosperity.  Among the earliest victims of Madoff’s precursors was former President and Civil War hero Ulysses S. Grant, who lost his life’s fortune to a Wall Street swindler he had been persuaded to invest with by  his son.

In the period leading up to the stock market crash of 1929 and the subsequent Great Depression, the voices of those sober enough to see what was coming were drowned out by the much louder rhetoric of the supposed wizards of Wall Street. Surprisingly, the Federal Reserve, so complicit with our current global financial and economic crisis, was actually a voice in the wilderness prior to 1929, warning of the danger of Wall Street speculation  and the looming disaster that would ensue from unregulated purchasing of stocks on margin. An economist at Princeton, Joseph Stagg Lawrence, published a widely acclaimed book prior to the `29 crash,  “Wall Street and Washington,“  in which he condemned the Federal Reserve in the harshest terms as a conglomeration of bigoted, illiterate provincials who had the  effrontery to question the genius of Wall Street. It was the voices of those such as Lawrence who dominated the conversations about the stock market prior to its collapse. Any dissenting viewpoint  was not only ridiculed but marginalized and quarantined. In the words of Professor Lawrence, “the world’s most intelligent and best-informed judgement on the values of the enterprises  which serve  men’s needs“ populate the hallowed suites on Wall Street. No wonder so many upper and middle class Americans were so heavily invested in the stock market when it crashed in 1929, destroying  much of their accumulated wealth.

Madoff was an accomplished criminal, and probably will not be the last to exist in the field of money-management. However, there also exist many operators on Wall Street who may not necessarily have criminal intent, but who exist within a compensation model that provides irresistibly massive rewards for short-term gains, often at the expense of the long-term financial interests of investors. We have already seen irrefutable evidence of ratings agencies and  analysts adjusting their opinions to reflect the interests of their major clients. Among the army of stock brokers and financial planners who rely on such “research, “  few have demonstrated sufficient independent judgement to preserve their clients` net worth.

Then there are the investors themselves, who all too often have succumbed to the metaphysics of supposedly ingenious money management. The thousands of shattered lives, with their golden years transformed into an impoverished  retirement as a result of uncritical trust in Madoff, are another tragic monument to the powerful art of financial self-delusion .


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Ben Bernanke Heavy On Quantitative Easing: Is The Federal Reserve Unleashing Hyperinflation?

March 17th, 2009 Comments off
A vast television audience undoubtedly tuned in to watch and listen to Federal Reserve Chairman Ben Bernanke’s profile on the CBS Sunday news show 60 Minutes. And despite the reputation that 60 Minutes has garnered and claimed for itself as a vigilant investigative reporting arm of CBS News, the program actually broadcast comprised some of the most self-serving propaganda ever to appear on television. When the super-secret Federal Reserve “acquiesced” to having its Chairman interviewed, it should have been apparent what the agenda was; Bernanke wanted a highly visible platform to communicate a deliberative (and unchallenged) message. The management of CBS and producers of 60 Minutes were only too happy to oblige.
The message to the American people and indeed the whole world being impacted by the Global Economic Crisis was: A) Boy, is Ben Bernanke brilliant! And B) The Fed Chairman knows how worried the American people are about the prospects of unemployment and personal bankruptcy, in fact he is one of them! Bernanke is just one of the common people, not a lackey of Wall Street, so we must trust him when he tells us he has to bailout out the bankers and financiers to save the rest of the American economy. Otherwise, economics is too complex for mere mortals to comprehend, so we should just all have blind faith is his intuitive genius to “fix” the financial system. Besides, a lot of the bailout money is not coming from the American taxpayers but rather from the Federal Reserve. And yes, the Fed is generating the capital through its printing presses, but please don’t ask any more question about this, just trust us.
As ludicrous as this may sound, that was exactly the essence of the 60 Minutes portrayal of Ben Bernanke. It was classic public relations messaging, almost devoid of any real content. But not entirely.

The brief reassurance from Bernanke that the Fed’s printing presses were contributing most of the bailout money being injected into Wall Street as opposed to taxpayers was the single most important revelation from the otherwise monotonous propaganda broadcast on 60 Minutes. For those familiar with technical terminology as applied to monetary policy, Ben Bernanke was indirectly conceding that America’s semi-private central bank was engaging in quantitative easing, on a massive scale.

What is quantitative easing? In essence, it is printing money. In other words, the Federal Reserve, by virtue of the congressional legislation that led to its establishment in 1913, has the sole power and authority to print U.S. currency, at will. At any time. Without congressional or even presidential supervision or consultation. In unlimited quantities. There are some of us that believe that the power to engage in unregulated quantitative easing by the Fed amounts to nothing more than legal counterfeiting. Yet, that is exactly what is going on at the Federal Reserve, and Ben Bernanke confirmed it, though the meaning of his admission was probably rendered opaque to many viewers due to the saturation of praise heaped on the intellectual acumen of Chairman Ben Bernanke.

Largely unseen by the American public, their nation’s Federal Reserve is engaged in a massive expansion of the U.S. money supply. No one outside the Federal Reserve knows all the details, probably not even President Barack Obama. But it must be in the hundreds of billions of dollars, and perhaps in the trillions.

Not only is this manufactured money being used to recapitalize Wall Street firms and cover AIG payments to counter-parties; it may be the means by which the Fed and Treasury Department collaborate in covering the cost of America’s massive and never-ending budgetary deficits. As foreign sources of credit dry up in the midst of the Global Economic Crisis, the Treasury Department seems to be working with the Fed to monetize the debt. This is in essence a Bernie Madoff form of national finance. The U.S. Treasury Department sells its Treasury bonds to the Federal Reserve, and in return receives the output of the Fed’s printing presses.

What is so dangerous about the path that Bernanke seemed to hint at during the 60 Minutes profile of him is that the inevitable outcome is hyperinflation. In fact, behind the scenes, a growing number of expert economists are suggesting that the accumulating national debt of the United States will be so titanic in scope due to the multi-trillion dollar annual deficits the Obama administration is planning for years to come, the only means of rendering such a debt burden sustainable will be to use inflation as a tool to significantly erode its real value.

This approach, in a word, amounts to hyperinflation. It is a road to fiscal calamity, being cheerfully mapped out by Ben Bernanke and company. If anyone still thinks Bernanke’s path will lead to economic recovery, just look at the German Weimar Republic of the early 1920s or Mugabe’s Zimbabwe of today, to comprehend how bad an idea this really is.

Perhaps it would have been best not to have had Ben Bernanke and the Federal Reserve propagandized on 60 Minutes. Far from being reassured as to the competence and skill of the men of destiny leading the U.S. economy, I am even more convinced that the outcome that awaits the U.S. economy is not a happy one. Perhaps this is what Chinese Premier Wen meant when he suggested at his recent news conference that he was worried about the safety of China’s investment in U.S. Treasuries. If the Fed is planning to engineer hyperinflation through quantitative easing and debt monetization, China’s trillion-dollar investment in U.S. public debt could loose most of its value. However, China won’t be alone. As history has shown time and again, a nation’s middle class and many of its wealthy citizens stand to loose much of the real value of their assets denominated in currency undergoing quantitative easing.

Does anyone serving in the U.S. Congress actually understand what the Federal Reserve is planning for the U.S. economy?