Madoff Investor Commits Suicide; Krugman Says Hell Is Here

December 24th, 2008 - by: danny

It’s down to the holiday wire and the market is still down, way down.

Wall Street stumbles on economic data, retail anxiety

NEW YORK (Reuters) — Stocks fell in thin trading on Tuesday on further deterioration in the housing market, while worry over weak consumer spending hurt retailers in the final stretch of the Christmas shopping season.

General Motors (GM.N) fell hard for a second day as investors worried if last week’s $17.4 billion aid package from the U.S. government will be enough to keep Detroit’s big automakers from bankruptcy. GM, which helped drag the Dow to its fifth straight daily decline, dropped almost 15 percent and has lost a third of its value since Friday, when the bailout was announced.

Meanwhile, in the ponzi news – please read, Ponzi Democracy by Rory O’Connor, my partner at Mediachannel.org about the very late but still present CARLOS PONZI, the man for whom this phenomena was named.

The Madoff Scandal may have claimed its first suicide — get this — by box cutter:

NYPD: Madoff investor commits suicide in office

AP: NEW YORK — The founder of an investment fund that lost $1.4 billion with Bernard Madoff was discovered dead Tuesday after committing suicide at his Madison Avenue office, marking a grim turn in a scandal that has left investors around the world in financial ruin.

NEW VICTIMS: MORE CHARITIES, ROLEX WATCH COMPANY

WAS MADOFF A LONE FINANCIAL ASSASSIN OR DID HE HAVE CO-CONSPIRATORS?

Rene-Thierry Magon de la Villehuchet was found sitting at his desk at about 8 a.m. with both wrists slashed, New York Police Department spokesman Paul Browne said. A box cutter was found on the floor along with a bottle of sleeping pills on his desk. No suicide note was found.

WSJ: INSURANCE DEALS POSE GLOBAL THREAT

PARKES, Australia — In this town of 10,000 in what Australians call “the bush,” administrator Alan McCormack has a headache. The county council is poised to lose millions of dollars if more U.S. companies succumb to a deepening recession.

Ten thousand miles away, at New York investment firm ICP Capital, hedge-fund manager William Gahan is reaping big gains on Mr. McCormack’s predicament.

The fortunes of the two men are connected through an investment known as a “synthetic collateralized debt obligation.” Between 2005 and 2007, the Parkes local council put more than A$13.5 million ($9.3 million) of its savings into synthetic CDOs. The investments offered an attractive income and a gold-standard credit rating — in return for providing a sort of insurance on the debt of hundreds of mostly U.S. companies.

As a result, synthetic-CDO deals are poised to trigger a massive transfer of wealth from investors such as Parkes to hedge funds and the trading units of big U.S. investment banks. By various estimates, the amount of money set to change hands could be anywhere from tens of billions to hundreds of billions of dollars.

NYT – April 12, 1998 | The Ghost of Christmas Past: America Is Prosperous and Smug, Like Japan Was by David Sanger

COMPARING Japan’s raw hubris in the late 1980′s and America’s in the late 90′s has become the latest international parlor game. To economic forecasters, dispensers of global-sounding sound bites and nervous investors — and who isn’t nervous? — the eerie similarities are a reminder of what can happen when boom times beget a boom psychology. First, Americans were sounding more and more like the Japanese did in late 1989, just before they reached the mountaintop and blindly stepped into the void. Now, by some measures, Americans are beginning to act like them too.

The America of 1998 is similarly a place of boundless confidence and rationalizations for ever-rising markets. It is also a place where many economic red flags — in this case, low savings rates, income disparities, rising trade deficits — are often lost in the din of the boom. And when Citicorp and Travelers Group explained the merits of their mega-merger last week, there were echoes of Japan’s old logic — bigger, the new partners said, meant more global.

It’s a matter of debate whether America’s boom is inflating such a bubble of overconfidence.

… the chairman of Sony would warn, as he did recently, that the Japanese economy is ”on the verge of collapse.”

Amid all the American triumphalism about the demise of the Japanese model, though, there’s a lot of politics under way in Washington that sounds familiar to anyone who has hung out in the corridors of the Japan’s once-mighty Finance Ministry.

[Volker] noted the irony last week that Congress is under pressure ”to weaken our traditional barrier [Glass-Steagall] to combinations of commerce and banking, precisely the practice in Asia and elsewhere that we rail against as a major source of institutional weakness.”

Japan is a testament to the risks of getting the mix wrong. Its banks rose on their holdings in the Japanese stock market, which emboldened them to lend money for wildly overpriced land deals. Then the stock market collapsed, the real estate market followed, the loans went bad and the banks ceased lending — putting the Japanese economy into a seven-year-long deep freeze.

The Japanese Government is now pumping in taxpayer money to help the banks get rid of $600 billion in bad loans. It spent untold billions last month trying to buck up the stock market, and just announced a $76 billion emergency spending program that is probably not enough to revive the moribund economy.

So maybe, amid Washington’s celebrations, it’s worth getting some Congressional testimony from a laid-off Japanese bank executive or two. They certainly have time on their hands.

Watch a 5:44 minute video from March 2008.

JAPAN PROPOSING MARSHALL PLAN FOR AMERICA: Bloomberg News Reports:

Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.

The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said…

The U.S. budget deficit may swell to at least $1 trillion this fiscal year as policy makers flood the country with $8.5 trillion through 23 different programs to combat the worst recession since the Great Depression. Japan is the world’s second-biggest foreign holder of Treasuries after China.

The U.S. government needs to spend on infrastructure to maintain job creation as it will take a long time for banks to recover from $1 trillion in credit-market losses worldwide, Mikuni said. The U.S. also needs to launch public works projects as the Federal Reserve’s interest rate cut to a range of zero to 0.25 percent on Dec. 16. won’t stimulate consumer spending because households are paying down debt, he said….

NakedCapitalism.com: MORTGAGE CRISIS TO GET WORSE

Sudden Upsurge in Demand for Mortgages May Not Be Met With Supply

Mortgage applications are up sharply as homeowners try to take advantage of low 30 year fixed rates. But tighter lending standards means that a fair number will be disappointed.

Moreover, the surge in mortgage applications is for refinances rather than new home purchases. And while refis will indirectly help the economy by increasing consumer discretionary income, the newly low mortgage rates do not yet appear to be stabilizing the housing market.

From the Financial Times:

Applications for home loans more than doubled in the two weeks after the Federal Reserve said it would buy mortgage bonds to help stabilise the market, prompting mortgage rates to fall by more than three-quarters of a percentage point.

With average rates for a 30-year, fixed-rate mortgage now at about 5.2 per cent, growing numbers of borrowers have an incentive to refinance to bring down their mortgage costs.

HEADLINES:

• NYT: HELL IS HERE SAYS PAUL KRUGMAN

• INDEPENDENT: RECESSION HITS BRITAIN HARDER THEN EXPECTED

• CNN: WHAT 8% UNEMPLOYMENT [TRANSLATION: 16-24%] REALLY FEELS LIKE

• SHOCKER: Madoff’s Money Trail Leads To Washington

‘Global land grab’ causing alarm among NGOs

MADRID (AFP) – The global food and financial crises have combined to create a new form of colonialism in which countries short of resources and corporations desperate for profits are buying up arable land in emerging nations, NGOs say.

The non-governmental organisations have expressed concern at this “global land grab,” which they say is threatening the survival of rural livelihoods in some parts of the world.

The practice is being carried out in part by countries which have little arable land and have been hit this year by soaring food prices, and by investors who are getting burned in the financial crisis and are tempted by the profits from food products.

A Filipino land reform beneficiary plows a field on disputed farmland planted with rice and sugar.

“On the one hand, ‘food insecure’ governments that rely on imports to feed their people are snatching up vast areas of farmland abroad for their own offshore food production,” said the Spanish-based NGO Grain.

“On the other hand, food corporations and private investors, hungry for profits in the midst of the deepening financial crisis, see investment in foreign farmland as an important new source of revenue.”

The result is that fertile agricultural land is becoming privatised and concentrated.

“Did someone say colonialism was a thing of the past?” Grain asked.

FORBES: Could SEC Have Stopped Madoff Scam In 1992?

An investigation into a feeder fund could have led the agency toward unearthing the fraud. Bernard Madoff

In the unfolding tale of Bernard Madoff’s alleged $50 billion Ponzi scheme, feeder firms have grabbed much of the focus.

They get their name because they marketed the funds that held the assets ultimately managed by Madoff. Lawsuits are filling the courthouses as burned investors attempt to recoup at least some of their losses from the firms. Last week New York Law School sued Ascot Partners, run by GMAC Financial Services Chairman Ezra Merkin, for losing $3 million of its money to Madoff. Other Ascot investors, including Mort Zuckerman, are expected to follow. Ascot reportedly steered $1.8 billion of client money to Madoff.

FT: SIGN OF THE TIMES: Google cuts back year-end bonuses

Google on Tuesday began handing out mobile smartphones rather than cash as a year-end present to its staff, in a move that reflects an effort by the company to pare the cost of its famously lavish employee perks.

TO0 MANY OPINIONS ON THE BUSINESS SHOWS? Jeff Miller questions financial journalism, questions CNBC

In a different place and time, journalists sought to discover information and pass it along to readers. Really good journalists took complex information and helped to explain it. Investigative journalists discovered things the average reader would not have found on his own.

What happened?

Too Many Opinions

Something has gone wrong, seriously wrong. It is an excess of opinion.

Every commentator has so many opinions — strong ones. This is true even among our favorite blog sites. Opinions sell. And if you get on TV, they really want an aggressive position. Wow.

The sites that we admire as gatekeepers regularly feature straight opinion pieces by people who have no expertise on the subject in question. Where are the “Roger Eberts” of the blogosphere?

The News Dissector