Tag Archives: Ponzi scheme

Bernard Madoff serves time incognito

Pnzi scheme financier scam artist in Groucho incognito glassesYou and I fight traffic tickets, Phil Spector fights charges that he put a gun to a woman’s mouth and pulled the trigger, he fights for years. Everyone fights against the long arm of the law, except Bernie Madoff. Does that make sense to you?
 
The biggest economic fraud ever perpetrated by one man, and that man pleads guilty. Hmmm.

We are told that as a consequence, Madoff doesn’t have to tell anyone where he buried the treasure. Meanwhile his accomplices are being charged and are proclaiming themselves innocent.

Okay, I didn’t know that not plea-bargaining means not having to say you’re sorry, or divulge where you took the loot. I didn’t know that when Kenneth Lay died, it meant that because his appeal could then never be exhausted, his wife and family got to keep the money. An appetizing pattern emerges…

Can you imagine a parade of white-collar-criminal bunkmates sidling up to Madoff in prison, hoping to learn the whereabouts of his vanished bullions (who saw that pun coming)? Nor can I. Michael Milken –now a financier and philanthropist–had plenty of business suitors waiting to hire his larcenous consultation when he was released. Paper crimes don’t garner severe prison sentences. Whether Madoff has a felony on his record or not can hardly hinder his future prospects.

Madoff has a very good reason to plead guilty. It’s a bit like the Kenneth Lay play-possum legal strategy. Let’s remember Bernie Madoff couldn’t even afflict himself with jail. He remained out on bail in his luxury penthouse, until his day in court. Since then where has he been? Have YOU seen him? Are you sure he’s where authorities say he is?

I’m convinced that Bernie has a plan to stay out of the penal system. And it doesn’t involve a jury verdict.

I’d guess with just a fraction of his loot, he can pay off the very few administrators involved to handle the paperwork to incarcerate someone in his place. No visitors, no outsiders to know. It won’t be Bernie doing the time, it’ll be a stand in. Maybe as simple as a real inmate, written off as released, but reissued Bernie’s ID. No cosmetic surgery necessary, what’s the probability that prison guards know what Bernie Madoff looks like anyway.

If Bernie had to go back and forth to court, he’d have to do be there himself. Being seen by too many people.

In prison, rather, not in prison, Madoff can live the rest of his years on a private estate, miles from onlookers, his fence-line probably abutting Kenneth Lay’s.

Obama talks of lowering the deficit even as he does the opposite

ponzi-schemeObama sure knows how to talk out of both sides of his mouth at once! And that’s exactly what makes him and the Democratic Party so dangerous to the American people. With the Republican Party of Open Violence everybody knows what’s coming down, but with the Democrats it’s quite different.

Here’s the latest Obama-con as the mass media hits us with… Obama Seeks to Halve Deficit to Half Trillion Per Year by 2013 all timed to hit us with headlines across the nation in the corporate dailies’ Sunday issues today.

So how is Obama, with as corporate loaded a Cabinet as ever was, going to reverse course from his new give outs to the corporate big guys, and now tax them as he says he will? How is he going to cut the military spending even as he sends 17,000 or so new troops into Afghanistan? How is he going to tax corproations more even as he gives out more tax refunds to everybody right away? Barack Obama surely is the guy who can talk out both sides of his mouth at one and the same time, isn’t he? It’s amazing! Slick Willie and his triangulation abacus had nothing ever at all that the duo team of Barack and Hillary we now are stuck with for 4 years can’t match and even double in shenanigans.

We should all be very concerned with this double talk. Barack is setting the deck for a ruling class attack on what the rich call ‘entitlements’, but what we know as social programs… programs like Social Security… for just one example. Yes, General Barack is not going to cut the real billion ton gorilla entitlement program that is known as the US military, but is going to go after social programs, even as he double talks to us about expanding them! We are being scammed. The Democratic Party with Barack Obama at the helm might just be running the biggest ponzi scheme of them all on the American public?

How does it all work? Well just study the cartoon picture that leads this commentary off. Say one thing and do another.

the short end of the stick

hazelwood tally stick It was one of the greatest heists in history. The scene? London, 1660. The perpetrator? England’s King Charles the II. The loot? All the gold he could con out of the country’s goldsmiths, bankers and businessmen. The tool?
 
A tally stick.

Tally sticks were a brilliant invention, but they were also insidious as they formed the foundation for the fiat currency systems we still have today. One where the root of a currency’s value is in a promise from a faceless institution, and not in the actual value of an object.

Put into use about a thousand years ago, they were a common sense solution for a young gold-and-goods economy where gold was scarce. By the time of the heist they were used in everyday transactions.

Here is how it worked. When a loan was made, the debt was carved in a standard fashion on the surface of a small (preferably hazelwood) stick, and then the stick was split in half through the center of the carving. The longer end of the IOU was given to the purchaser, and its handle was called the “stock” — the root of the word’s use in today’s markets.

Even a mostly illiterate public could read the amount scratched into the wood, and the stick would only fit perfectly with its original other half. That way, when the debtor returned with the money (or goods) owed, the sticks would be matched and the debt would be “tallied.”

In that fundamental use, they worked perfectly. But of course, as is governments’ way, the King was tempted to stretch those bounds.

Charles II ruled at a time when royal power was still based on a divine mandate. His government and institutions — and indeed he himself — saw the king as the Chosen One, which was a real shame for him because it bound him to the laws of Christendom. And Christianity at the time still forbade lending or borrowing with usury (interest). When financing several failing wars against neighboring countries depleted royal coffers, Charles II needed some quick cash to continue living in kingly fashion.

King Charles II turned to the trusted tally and the keen idea of selling his (government) tallies (debt) at a discount. That way he could allow his lenders to profit without charging interest — the basis for government debt being sold at a discount today.

And the King could issue advance tallies for emergency spending, an idea that proved all too tempting. He sold the tallies collected by his Exchequer (tax collector), essentially trading future tax receipts to the country’s goldsmiths (bankers) for quick cash.

The tallies were receipts for taxes to be paid later in the year. This is a crucial part of the story: they weren’t trading on the value of the objects being traded, but on the cost of waiting for a return and the government’s ability to collect taxes and stay honest. If the government is not honest, this is an outright Ponzi scheme, one where new debt issue could theoretically pay for passing bills. For a while.

The King realized that he’d stumbled onto something big. He could wage all the war he wanted and pay his bills with the gold he got for hazelwood. The King spent and spent, and the goldsmiths’ vaults filled up with more and more sticks.

Goldsmiths were handing out certificates for fractional gold reserves and inflating the young economy in a con all their own. And since the King played along with their early building of a banking system, they played along with the sticks-for-gold investment strategy.

Over time, the market got wise to the game. Buyers started attaching larger and larger discounts to the King’s debt to offset the perceived risk in loaning money to the King. The discounts prompted the King to issue even more tallies, promising out more future tax revenues just to meet his short-term spending desires. But remember only the discount was changing here. So the mountain of taxes to be redeemed in order to pay off his debts grew in comparison, soon overwhelming the King’s income.

By the time the whole Ponzi scheme came to an end, the King’s sticks were trading at a 10% discount (to put that into perspective, short-term T-Bills are currently trading with discounts of one-tenth of one percent or less). The payments on his newer issues trading at that discount soon outmatched all the Kingdom’s tax revenues, effectively bankrupting his Exchequer and threatening to put the monarchy in the poorhouse.

So with the stroke of a pen, the King simply declared those debts illegal and ceased payment.

With that single stroke he stole most of England’s gold — having already spent it — and forced the young economy to fall flat on its face. The King’s various creditors ended up on “the short end of the stick” and all credit in the country evaporated very nearly overnight.

Pretty scary, huh? I’m glad such a thing could never happen today.