Hedge Fund Blowout on Wall Street

Who can you trust anymore?

There is this Hedge Fund Blowout on Wall Street. A thought to be very trusted guy with a lot of credentials, track record and street experience has been accused of running a Ponzi scam with a projected loss of $50 billion dollars to investors.

The investors appear to be very rich and famous people as well as charitable trusts. Also Banco Santander of Spain appears as of this writing to have a $3 billion exposure and probable loss in this matter.

I wrote something in March entitled Big Bank, as an Ezine Article.

---To a simple person such as myself, big words like derivatives, kind of go over my head. I am reminded of a former bank that I worked for. For the sack of political politeness, let us call this defunct Wall Street dinosaur Big Bank. This is going back over twenty years.

Big Bank started to sell new fangled derivatives to their best customers until their best customers got burned. I remember news through the grapevine said that the CEO told his traders and brokers to go out and find some more big customers to replace the ones they just lost with this new Chinese checker style financing. Guess what. Word was out on the street. Nobody wanted to do strange business with Big Bank anymore.

Big Bank no longer exists. It got sold to a foreign bank that knew how to treat its customers.

What I am seeing on Wall Street these recent days is two things.

One, pyramid or ponzi schemes all eventually fail. You run out of suckers who trust the sell and end up with a terrible loss or pay out.

Two, big banks, traditional and so called investment banks, all are hiding so called assets on their books. Why hide them? Well greed is one answer. If you never report the assets, the government cannot tax the profits.

The recent scenario in banks going belly up is not necessarily the result of deregulation.

The government, a slow lumbering giant, cannot regulate new or hidden forms of so called creative investment.

Now that the Social Security Trust Fund is indirectly bailing out all these marvelously lousy, incredibly stupid, non traditional fiscally irresponsible investment schemes, maybe it is time for big government to call a truce, work out what taxes if any it is willing to put on these new ponzi investment schemes and hedge funds.

The old adage about alcohol and tobacco should be applied. Legalize whatever it is you are doing in secret and tax the sin (hell) out of it!

The truth will set you free.

If you are such good business leaders, why are you hiding your activity? Are these legendary CEO bonuses co-conspirator bribes and not true earnings? Are you legitimate businesses or do you in your hearts fear Rico style investigation of your new global Enron styled accounting enterprises?

Duh!---

Not to pat myself on the back. A lot of people saw this tragedy coming and unfolding.

But nobody listens or learns. Nobody thinks that they can get burnt or get caught.

I assume that the business schools do not teach the History of Business Failure as in John Bunting and First Pennsylvania Bank or the Savings and Loan Scandal caused by deregulation in the late eighties or NOW! They should teach something like that along with their so called “ethics” course.

The irony of this whole thing and I know I might sound dumb saying this - maybe this Madoff guy was doing business the same way Bear Stearns and Lehman Brothers and Merrill Lynch etc. were doing business - the only problem that Madoff ran into with his ponzi scheme - and he probably did not know it was a ponzi scheme - he was just performing the normal way Wall Street has done business for the last thirty years - shell games, three card monty - ?

That the real problem Madoff had in the end was probalby the credit crunch caused by big corporate dinosaurs lying about assets and borrowing, borrowing, borrowing.

The Fed can't keep printing money indefinitely.

I knew the system was broken when they got a little fish - Martha Stewart - for $60,000 profit on insider trading related matters – obstruction of justice.

The whole freaking industry is a nest of good ole boys - insider tips - brokers and bankers skimming the system with fees, commissions and bonuses until the geese that laid the golden eggs - Freddie and Fannie - could not find any more bodies including the ones in funeral parlors to sign off on and buy sub prime mortgages.

Who is going to be honest when commissions and bonues are involved? Do you really think that anyboby will work for a $100K salary and a $50K bonus when you can opt for a $100K salary and a $10 million dollar annual bonus?

Hey! Hello! We are talking about human nature here. The so called free market capitialism B.S. is like Santa Claus or the Easter Bunny - a nice story to tell kiddies or the public but get real - your broker has only one agenda - his/her own!

Oh well!

Si La Vie!

“All the king’s horses and all the king’s men can’t put” - Wall Street back together again.

The Bunting Dequation of Banking

There is not a whole lot on the Internet about late First Pennsylvania Bank which was one of the large regional banks in the sixties and seventies. Being a native of Philadelphia I remember gossip and talk about this institution. There was a dynamic young Turk who was President of the that bank. His ultimate failure in my opinion was in going from local and going global ahead of his time. His name was John R Bunting.

Bunting was not Ivy League but got his degree from the state supported Temple University. I think that the chairman of 1st Pa. brought him to shake things up in the usual Ivy League, Union League thin blooded banking crowd.

To make a long story short let me describe Philly in the late sixties and seventies. Philly used to be a factory town. It called itself the “workshop of the world” because of all his manual nineteenth century steam powered might. After World War II, the factory base changed. The textiles industries went south to find cheaper labor. White flight to the suburbs and across the river to New Jersey left a drain on the general economy.

Some of the big stodgy banks on south Broad Street were investment banks for the trust funds left over from the glory days of Robber Barons in coal and railroads from the nineteenth century. These banks only invested their money in stocks and bonds – money making money.

A bank like First Pennsylvania made its big money from loaning to businesses. And let’s face it business was leaving the city and the profit margins were low on loans to existing businesses in need of modernization like factories.

Talking to a realtor in the middle seventies I was told that First Pennsylvania Bank would not make a conventional home mortgage loan for less than thirty thousand dollars. The average row house in Philly was selling for 10-20 thousand at the time. Thirty thousand was the bottom end of suburban home prices.

One of the things that brought down that bank was easy money. Large origination fees and positive publicity had First Pennsylvania loaning big amounts to the then thought to be future growth market in banking – emerging third world countries. No doubt dinner with the United Nations and State Department crowd and lets not forget those big origination fees made for a long term headache and eventually demise of the largest bank in Pennsylvania and not to mention one of the oldest banks in the U.S..

There was a quasi kind of gentlemen’s agreement with the government to make loans to countries that were in line with the foreign policy goals of the United States. The government was thought to be the unofficial guarantor of such third world loans

The basic Bunting Dequation is this:

Know and keep your local base secure.
– and –
Never assume that the government will guarantee your bad loans.

I think that there will come a time in the next six to eighteen months when the U.S. government will no longer in reality be able to bail out these presently merged toxic loan based mega banks.

The catch phase in 2008 has been something like “they are too big to let them fail”.

The catch phrase in 2009 and 2010 will I think be something like “make some room to let those dinosaurs roll over and die.”