Madoff's Last Straw

It was pretty easy to skip by the stories emerging from Dec. 12 on, regarding Bernard Madoff, former head of NASDAQ, and one of New York's most respected brokers. So he was running his hedge fund as a Ponzi scheme - aren't all hedge funds Ponzis by nature? Pay attention. Madoff lost more than $50 billion for big-name clients like Steven Spielberg and Elie Wieisel, for huge charities that have now seen all their money disappear, and for large international banking conglomerates like Nomura Securities.

European banking officials told PRI's The World Dec. 15 that this single scandal could be the straw that finally freezes up the international movement of currency and commercial paper. Then we can all turn the fingers away from Bush, Paulson, Obama (if you're so inclined), bankers, unions, whomever, and zoom them all in at one pyramid-scheme pusher from Manhattan. While the Securities and Exchange Commission is not tasked with looking at hedge funds, the SEC had two chances to pop Madoff and did nothing.

Three observations: People stupid enough to invest in a pyramid scheme love to blame the victim. Witness the riots against the Colombian government for correctly trying to shut down an outrageous pyramid. Hello dummies, it's your fault. Second, when we hear of children turning in their parents, it's usually with visions of Stalinist Young Pioneers sending mommy and daddy to Siberia. In this case, Madoff's sons did the right thing by busting their father. I wish that we could convince people like the late great civil-war author Shelby Foote that blood should never be thicker than the rule of law. If members of your immediate family are capital criminals, call the cops. Finally, folks usually like to refer back to the crash of 1929 or the post-railroad crashes for similarities to past crashes, but this current financial mess looks surprisingly like the British specie collapse of 1825, and the U.S. real-estate collapse of 1837. See The Birth of the Modern and What Hath God Wrought for more details. See? None of this is new. We just don't learn our lessons very well.

Involuntary Servitude for the Financial Industry?

It was wonderful to see CNN's Situation Room do a short clip Oct. 23 featuring Dennis Kucinich, who wants to launch new legislation preventing those banks who were helped in the bailouts from granting bonuses to key executives. CNN interviewed some asshole economics professor who said that leading financial barons needed to be provided some sort of incentives to stay at distressed banks, or they'd go work for hedge funds or sovereign wealth funds (SWFs). Well, that's assuming that we don't place them in a position of involuntary servitude.

Why not modify the Thirteenth Amendment to say that slavery is abhorrent except when applied to key investment-banking executives, hedge-fund managers, and Nobel laureates in mathematics who work in the financial field? We lock in the financial services industry today, forcing everyone currently working in the industry to remain in place, working for minimum wage. They will be forbidden to switch to SWFs or hedges. Their $40 million apartments on the Upper West Side will be provided rent-free to community non-profits, and they will be given seedy apartments in Alphabet City, which they will be forced to travel to using mass transit. Weekend chain gangs will be led, not by Ben Bernanke, but by Saint Greenspan himself, for continuing to hew to the Ayn Rand/Milton Friedman school, while giving only the mildest of mea culpas. Time for slavery! And no reparations in a century for financial robber barons!

This Man Loves Hedge Funds. Really.

Ever since The Washington Post morphed from pseudo-liberal to neoconservative, it started adding some truly awful pundits. Among the worst was the Brit spoiled Fauntleroy, Sebastian Mallaby. This wanker has given us some wonderful excuses on why it would be beneficial for the United States to assume the Victorian mantle of the British empire yada yada -- at least he's more honest at preferring global dominance than some of his colleagues.
But in the Jan.-Feb. Foreign Affairs, Mallaby has outdone himself, arguing against any regulation of hedge funds. Some of his points on the self-regulation of hypercapitalism may have merit, but he never addresses the central moral problem of hedge funds and super-wealth -- that it is simply wrong for any individual, even a mathematical genius, to make hundreds of millions of dollars a year. Hedge fund managers accumulate much greater personal wealth than investment bank partners or Silicon Valley CEOs, and Mallaby doesn't have a problem with that. Yes, the most obvious problem with hedge funds is the ones that go bad, like Long Term Capital Management and Amaranth Advisors, but the more insidious (and obvious) problem is that at a time of growing income disparity, it is simply wrong for anyone to make that much money from global flows of capital. And Mallaby is morally bankrupt for not recognizing that.
CORRECTION: As of two weeks ago, Mallaby has left the WP to join the Council on Foreign Relations as head of the Greenberg Center of Geoeconomic Studies. Heaven help us all. And thanks to Doug Henwood for pointing this out.