Ponzi Scheme:
Ponzi scheme is a fraudulent investment strategy where an existing investor is paid high short term return with the principals flowing from other new investors. So simple in explanation and so vast in its consequences. In order for this scheme to work, there has to have steady flow of investment to the fund, thus more new investors. Such strategy, which has its existance from 1920s, can easily be leveraged by a private fund house, hedge funds which are immuned to regulations.
Who is Mr. Madoff????
"Ex-chairman of NASDAQ, esteemed member of SEC, founder of Bernard L. Madoff Investment Securities, a firm which is outperforming market in terms of steady juicy return to investor in this drowning economy". Not any more.
Madoff's broker-dealer firm has its investment advisory arm which runs a massive fund house (with AUM $17 billion as quoted in public sphere) with a well-known option trading strategy called, "Collar" - that means short Call, buy Put, considered to be safest in capital market fraternity. Such strategy is deemed to suceed provided the strategist has the knack of time - when to get into market & when to come out. Since his fund was performing relatively better in this choppy market, investors(mostly big banks, fund of funds, ultra-rich individuals, charity organizations) were lured to join this exclusive black box of Madoff. With dollar dividends coming at ease, none of the investors ever scrutinized or questioned this man having distinctive background. And now, they all marred in the quagmire of Ponzi. Madoff never disclosed his investment strategy in public media nor explained that in investor reporting. He was equally illusive to regulators with very minimal disclosure, being a private broker-dealer / hedge fund manager. His stature remained tact since his stream of investors are not mass- market individuals, rather exclusive club of luminaries built on his rapport and personal relations (smells hedge fund, is n't it).
Strategy• Build an exclusive club of investors through his circle of friends
• Build the fund house framed on Ponzi structure
• Limited regulatory liability being a private firm (again, hedge fund disclosure doctrines are non-existent). SEC even could not find any clue to possible fraud charge in 2006.
• Exclusivity of investor club and steady return kept fradulent scheme suspicion at bay.
• Maintained utmost secrecy on his investment to his closest executives & employees
All split open when he faced with massive redemption pressure (around $7 billion) from investors and then he starting disclosing the real scheme to his sons- close executives in the firm. Though it is premature to conclude on the whole fiasco, but it does raise eyebrows on certain market players who are really free, arogant- hedge funds, PEs and the regulations they are tied to till now.
• SEC regulations on hedge fund industry is abysmally low - Madoff has thrived because of that. With no information on his investment details, regulators are equally blinded on the whole story.
• Limited disclosure to investors - Hedge funds being considered to possess exclusive investment strategy which are not to be shared openly, investors in those entities blindly believe and rarely questions the nitty-gritty of investment strategy and underlying risk. That's where again Madoff has maneuvered his investor group / family.
• Investor callousness- When dividend outsmarts market in this southward economy, investors were happy to count dollars than questioning the authenticity. Madoff's fund has neither details available at SEC nor Financial Industry Regulatory Authority (FINR).
Friday, February 20, 2009
Thursday, February 12, 2009
Do not blindly ape the Western culture but follow our age-old traditions and values!
When someone extends a helping hand, a Westerner will acknowledge it by offering ‘thanks’ and walk away; whereas an Indian will never forget a good deed or a favour bestowed upon him by someone. Parents relentlessly toil for our happiness since our birth and it is next to impossible to repay this debt. That is the precise reason why the parents have been treated as Guru in Indian culture. Indian culture encourages the youth to express their love and respect for their parents by bowing and seeking their blessings every day. We do not celebrate ‘Father’s or Mother’s day’ like Westerners. Present Indian young generation is blindly following Western culture by celebrating ‘Friendship Day’, ‘Valentine Day’, ‘Rose Day’, ‘Jeans’s Day’ etc. Such celebrations do not exhibit true love and gratitude but is an excuse for enjoyment and is just a formality without any meaning. The love shown through such celebration is restricted to a day. Today’s youth should realize that what one owes to his parents can not be repaid by ‘cutting cake’, ‘presenting a greetings card’ or by celebrating a ‘Day’; but the real repayment would be to become an ideal son or an ideal daughter i.e. to become an ideal citizen.
Most of the times, these adolescents indulge in immoral acts under the pretext of 'Valentine's Day'. In a country like Bharat, that is enriched with values, such moral degradation of the youth is indeed a serious social problem.
A short History of Valentine Day
In the 3rd Century, a Roman king named Cloudius II issued an order that 'The youth should refrain from marriage and join the army'. In this regard, St. Valentine, a priest, revolted against the king; however he was given death penalty by the king. While in prison, St. Valentine fell in love with the prison attendant's young daughter. It is sinful for a priest to get attracted to a lady. Why should the people of Bharat, who attach utmost importance to values, cherish memories of a sinful so-called priest?
Various days of the likes of 'Valentine's Day' that have originated from the blind emulation of the western culture are based on materialism. Regular practice of values, festivals, traditions and religious observances as per our own culture helps one acquire a pious state of mind and makes one happy, content and balanced.
Most of the times, these adolescents indulge in immoral acts under the pretext of 'Valentine's Day'. In a country like Bharat, that is enriched with values, such moral degradation of the youth is indeed a serious social problem.
A short History of Valentine Day
In the 3rd Century, a Roman king named Cloudius II issued an order that 'The youth should refrain from marriage and join the army'. In this regard, St. Valentine, a priest, revolted against the king; however he was given death penalty by the king. While in prison, St. Valentine fell in love with the prison attendant's young daughter. It is sinful for a priest to get attracted to a lady. Why should the people of Bharat, who attach utmost importance to values, cherish memories of a sinful so-called priest?
Various days of the likes of 'Valentine's Day' that have originated from the blind emulation of the western culture are based on materialism. Regular practice of values, festivals, traditions and religious observances as per our own culture helps one acquire a pious state of mind and makes one happy, content and balanced.
Wednesday, February 4, 2009
Culprits of Financial Meltdown
The market is heavily manipulated. The driving force behind the meltdown is speculative trade. The system of “private regulation” serves the interests of the speculators.
While most individual investors loose when the market falls, the institutional speculator makes money when there is a financial collapse. In fact, triggering market collapse can be a very profitable undertaking.
There are indications that the Security Exchange Commission (SEC) regulators have created an environment which supports speculative transactions.
There are several instruments including futures, options, index funds, derivative securities, etc. used to make money when the stock market crumbles.
The more it falls, the greater the gains.
Those who make it fall are also speculating on its decline.
With foreknowledge and inside information, a collapse in market values constitutes a lucrative and money-spinning opportunity, for a select category of powerful speculators who have the ability to manipulate the market in the appropriate direction at the appropriate time.
Short Selling
One important instrument used by speculators to make money out of a financial meltdown is “short selling”.
“Short selling” consists in selling large amounts of stocks which you do not possess and then buying them in the spot market once the price has collapsed, with a view to completing the transaction and cashing in on the profits.
The role of short selling in bringing down companies is well documented. The collapse of Lehman, Merrill Lynch and Bear Stearns was in part due to short selling.
Short selling has also been used extensively in currency markets. It was one of the main instruments used by speculators during the 1997 Asian Crisis to bring down the Thai baht, the Korean won and Indonesian rupiah.
Speculation in major currency markets also characterizes the ongoing financial crisis. There have been major swings in currency values with the Canadian dollar, for instance, loosing 10% of its value in the course of a few trading days.
Temporary Ban on Short Selling
Following the stock market meltdown on Black Monday September 15, the Security Exchange Commission (SEC) introduced a temporary ban on short selling. In a bitter irony, the SEC listed a number of companies which were “protected by regulators from short sellers”. The SEC September 18 ban on short selling pertained largely to banks, insurance companies and other financial services companies.
The effect of being on a “protected list” was to no avail. It was tantamount to putting those listed companies on a “hit list”. If the SEC had implemented a complete and permanent ban on short selling coupled with a freeze on all forms of speculative trade, including index funds and options, this would have contributed to reducing market volatility and dampening the meltdown.
The ban on short selling was applied with a view to establishing the protected list. It expired on Wednesday October 8 at midnight.
The following morning, Thursday 9th of October, when the market opened up, those companies on the “protected list” became “unprotected” and were the first target of the speculative onslaught, leading to a dramatic collapse on of the Dow Jones on Thursday 9th and Friday 10th.
The course of events was entirely predictable. The lifting of the ban on short selling contributed to accentuating the downfall in stock market values. The companies which were on the hit list were the first victims of the speculative onslaught.
The shares of Morgan Stanley dropped 26 percent on October 9th, upon the expiry of the short-selling ban and a further 25 percent the following day.
Financial warfare
There are indications that the downfall of Morgan Stanley was engineered by financial rivals. A day prior to the September 18th ban on short selling, Morgan Stanley was the object of rival speculative attacks:
John Mack, chief executive of Morgan Stanley, told employees in an internal memo Wednesday [September 17]: “What’s happening out there? It’s very clear to me – we’re in the midst of a market controlled by fear and rumours, and short sellers are driving our stock down.”’ (Financial Times, September 17, 2008)
Morgan Stanley was also the object of doubts expressed by the ratings agency Moody’s, which contributed to investors dumping Morgan Stanley stock.
Moody’s cited an expectation that “an expected downturn in global capital market activity will reduce Morgan Stanley’s revenue and profit potential in 2009, and perhaps beyond this period”.
In contrast JP Morgan Chase, controlled by the Rockefeller family climbed by almost 12%. JP Morgan Chase and Bank America have consolidated their control over the US banking landscape.
Regulators Serve the Interests of Speculators
The SEC was fully aware that the ban on short selling would serve to exacerbate the downfall.
Why did they carry it out? How did they justify their decision?
In a twisted logic, the SEC, which largely serves the interests of institutional speculators, contends, quoting the results of an academic research paper, that short selling contributes to reducing market instability, thereby justifying the repeal of the September 18 short selling ban
Courtesy: Michel Chossudovsky, Global Research.
While most individual investors loose when the market falls, the institutional speculator makes money when there is a financial collapse. In fact, triggering market collapse can be a very profitable undertaking.
There are indications that the Security Exchange Commission (SEC) regulators have created an environment which supports speculative transactions.
There are several instruments including futures, options, index funds, derivative securities, etc. used to make money when the stock market crumbles.
The more it falls, the greater the gains.
Those who make it fall are also speculating on its decline.
With foreknowledge and inside information, a collapse in market values constitutes a lucrative and money-spinning opportunity, for a select category of powerful speculators who have the ability to manipulate the market in the appropriate direction at the appropriate time.
Short Selling
One important instrument used by speculators to make money out of a financial meltdown is “short selling”.
“Short selling” consists in selling large amounts of stocks which you do not possess and then buying them in the spot market once the price has collapsed, with a view to completing the transaction and cashing in on the profits.
The role of short selling in bringing down companies is well documented. The collapse of Lehman, Merrill Lynch and Bear Stearns was in part due to short selling.
Short selling has also been used extensively in currency markets. It was one of the main instruments used by speculators during the 1997 Asian Crisis to bring down the Thai baht, the Korean won and Indonesian rupiah.
Speculation in major currency markets also characterizes the ongoing financial crisis. There have been major swings in currency values with the Canadian dollar, for instance, loosing 10% of its value in the course of a few trading days.
Temporary Ban on Short Selling
Following the stock market meltdown on Black Monday September 15, the Security Exchange Commission (SEC) introduced a temporary ban on short selling. In a bitter irony, the SEC listed a number of companies which were “protected by regulators from short sellers”. The SEC September 18 ban on short selling pertained largely to banks, insurance companies and other financial services companies.
The effect of being on a “protected list” was to no avail. It was tantamount to putting those listed companies on a “hit list”. If the SEC had implemented a complete and permanent ban on short selling coupled with a freeze on all forms of speculative trade, including index funds and options, this would have contributed to reducing market volatility and dampening the meltdown.
The ban on short selling was applied with a view to establishing the protected list. It expired on Wednesday October 8 at midnight.
The following morning, Thursday 9th of October, when the market opened up, those companies on the “protected list” became “unprotected” and were the first target of the speculative onslaught, leading to a dramatic collapse on of the Dow Jones on Thursday 9th and Friday 10th.
The course of events was entirely predictable. The lifting of the ban on short selling contributed to accentuating the downfall in stock market values. The companies which were on the hit list were the first victims of the speculative onslaught.
The shares of Morgan Stanley dropped 26 percent on October 9th, upon the expiry of the short-selling ban and a further 25 percent the following day.
Financial warfare
There are indications that the downfall of Morgan Stanley was engineered by financial rivals. A day prior to the September 18th ban on short selling, Morgan Stanley was the object of rival speculative attacks:
John Mack, chief executive of Morgan Stanley, told employees in an internal memo Wednesday [September 17]: “What’s happening out there? It’s very clear to me – we’re in the midst of a market controlled by fear and rumours, and short sellers are driving our stock down.”’ (Financial Times, September 17, 2008)
Morgan Stanley was also the object of doubts expressed by the ratings agency Moody’s, which contributed to investors dumping Morgan Stanley stock.
Moody’s cited an expectation that “an expected downturn in global capital market activity will reduce Morgan Stanley’s revenue and profit potential in 2009, and perhaps beyond this period”.
In contrast JP Morgan Chase, controlled by the Rockefeller family climbed by almost 12%. JP Morgan Chase and Bank America have consolidated their control over the US banking landscape.
Regulators Serve the Interests of Speculators
The SEC was fully aware that the ban on short selling would serve to exacerbate the downfall.
Why did they carry it out? How did they justify their decision?
In a twisted logic, the SEC, which largely serves the interests of institutional speculators, contends, quoting the results of an academic research paper, that short selling contributes to reducing market instability, thereby justifying the repeal of the September 18 short selling ban
Courtesy: Michel Chossudovsky, Global Research.
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