Global Economy

[Nandu]

One more: Major "pedigreed" wealth management firm stands accused of perpetrating $50billion fraud on clients.
http://dealbook.blogs.nytimes.com/2008/ ... g-clients/

[Shivani]

1. Auto bailout seems to be dead until the new Congress. Senate Republicans have rebelled.

Bailout turned into a "failout".

Auto bailout fails

By John Crawley and Richard Cowan

WASHINGTON (Reuters) - A proposed bailout of U.S. automakers failed in the Senate on Thursday night, raising the specter of an industry collapse that sent Asian markets reeling and sparked fears it could deepen the recession.

"It's over with," Senate Majority Leader Harry Reid said of congressional efforts this year just before the Democratic proposal to extend up to $14 billion to the stricken industry fell short in voting on a procedural motion.

Pressure immediately shifted to the White House, with calls for President George W. Bush to consider intervening with emergency financing.

General Motors Corp and Chrysler LLC sought billions in aid to see them through March and have warned of potential collapse if they did not receive a bailout.

"I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight," Reid said.

Markets across the Asia-Pacific region fell more than 3 percent on the development, with Japan's Nikkei average and Hong Kong's Hang Seng both down more than 5 percent. European and U.S. stocks were expected to fall about 5 percent.

Shares of Toyota Motor Corp were off 10 percent and Honda Motor Co fell 12.5 percent on worries about massive disruptions in the U.S. economy if one or more of its automakers collapse.

U.S. crude prices fell by more than $2 to $45.90 a barrel, while the yen hit a 13-year high against the U.S. dollar.

Because of their shared suppliers and vendors, industry observers fear the failure of one Detroit manufacturer could drag down the other two as well as other businesses.

Lawmakers have been among the industry's biggest critics. But Democrats and some Republicans -- and the White House in the end -- scrambled to put together a legislative lifeline because no one wanted to be blamed for a deepening U.S. recession if any of the companies went bankrupt.

Job losses hit a 34-year high in November and the unemployment rate reached a 15-year high.

GM, Ford Motor Co. and Chrysler employ nearly 250,000 people directly, and 100,000 more jobs at parts suppliers could hang on their survival. The companies say one in 10 U.S. jobs are tied to the auto sector, which adds up to several million.

BANKRUPTCY CONCERN

GM and Chrysler both said that in the face of their cash crises, they had hired outside advisers to help them explore possible bankruptcy, which they found had too many drawbacks.

"It's going to be very difficult for them not to file for bankruptcy," Erich Merkle, consultant at Crowe Chizek in Grand Rapids, Michigan, said of the two if they did not get help.

"GM has probably got until January and I would suspect the next step would be that GM will provide a date and say that at this date we will file," Merkle said.

The White House called congressional inaction a breakdown and said it would evaluate its options.

"It has now fallen to the president to take action," said Sen. Carl Levin, a Michigan Democrat who has spearheaded efforts for a month to get help for Detroit.

Bush should "move now," said Republican Sen. George Voinovich of Ohio, adding, "The dominoes are already falling" throughout the United States."

Reid and House Speaker Nancy Pelosi called on Bush to immediately explore short-term financial help, including tapping a $700 billion fund created in October for the Treasury Department to assist the financial services industry.

The Bush administration has so far resisted Democratic appeals to take that step.

A Treasury spokeswoman said after the bailout bid collapse on Thursday that its position remained that the funds were only intended to help the financial sector.

Sen. Christopher Dodd, a Connecticut Democrat, said it was possible Congress could take a "second crack" at a rescue in January when Democrats will have larger majorities in both houses. President-elect Barack Obama favors help for automakers.

'THREE WORDS AWAY FROM A DEAL'

The development followed intense discussions on a possible 11th-hour compromise that participants said fell apart over proposed wage concessions by the United Auto Workers union.

"We were three words away from a deal," said Sen. Bob Corker, a Tennessee Republican who proposed the alternative and led the talks.

Dodd said the main issue of disagreement was the date to require the Detroit autoworkers' pay parity with workers at foreign-owned U.S. auto plants.

The UAW could not immediately be reached for comment.

GM and Chrysler, which is owned by private equity group Cerberus Capital Management, sought billions in immediate aid to see them through March.

The industry's fortunes have plummeted in recent months as the credit crunch choked off corporate and consumer lending. Most car buyers finance their purchases. U.S. auto sales fell 36.7 percent in November and most analysts expect the downturn in sales to deepen in 2009 under the financial crisis.

GM said in a statement it would "assess all of its options to continue our restructuring" and to "obtain the means to weather the current economic crisis."

Chrysler said it would continue "to pursue a workable solution to help ensure" the company's future viability.

Ford, in a better cash position, had asked for a hefty line of credit. It had no immediate comment.

The three have been cutting thousands of salaried and hourly workers and closing plants in North America due to those market share losses, driven in part by slack demand for big gas-guzzling sport utility vehicles that had driven profits.

An industry that pioneered large-scale assembly line production and was the backbone of industrial America for most of the past century was unable to persuade enough senators to support the rescue effort. Republicans are concerned the companies were not restructuring fast enough and the bailout would become a bottomless pit for taxpayers.

SUPPORT COMES UP SHORT

The House of Representatives on Wednesday passed its version of a Democratic-sponsored bailout that was virtually identical to the measure that fell in the Senate. Democrats hold a razor-thin majority in the Senate, which voted 52-35 in favor, short of the 60 votes needed to advance the measure.

"These companies could be saved. I've said I think they are bloated, their management is bloated. These companies either already failed or are fading and that is a shame," said Alabama Republican Richard Shelby, who has opposed any bailout.

Though nearly three dozen senators rejected the rescue, some of the most vocal opponents were senators with foreign auto plants in their states, including Alabama and Tennessee.

Years of market share losses to Japanese rivals such as Toyota and Honda have weakened the Detroit companies.

Polls show Americans split on bailing out Detroit, widely criticized for fighting tougher fuel efficiency standards and poor model designs that have left the companies gasping with a stable of products losing popularity with consumers.

The lack of a bailout also leaves vulnerable U.S. auto parts suppliers with deep exposure to the "Detroit Three" such as American Axle and Visteon Corp.


(Additional reporting by Ross Colvin, Matt Spetalnick, Kevin Drawbaugh, Kevin Krolicki, Julie Vorman, Tom Ferraro, Jeremy Pelofsky, David Bailey, Donna Smith; Editing by Eric Walsh)

FACTBOX: Senators detail snags in auto bailout talks

WASHINGTON (Reuters) - Senate Democrats blamed conservative Republicans for rejecting a compromise to lend the Detroit auto industry $14 billion.

But Sen. Bob Corker of Tennessee, a lead negotiator for Republicans, said the collapse in negotiations occurred because Democrats were unwilling to adopt a 2009 deadline for union worker concessions rather than a 2011 date.

"We are three words -- maybe two, maybe four, somewhere in that range -- away from having what I believe is a landmark piece of legislation," Corker said of negotiations that lasted well into Thursday night. Also involved in the Capitol Hill talks were representatives of the United Auto Workers union, General Motors, Chrysler and Ford Motor, and corporate bondholders who participated by telephone.

Democrats said they agreed to the following concessions in an unsuccessful attempt to win enough Senate support for passage of the aid package:

• Changing language in the bill to clarify the bankruptcy option.
• Adopting language sought by the White House that the restructuring plan must require Detroit automakers to meet federal fuel efficiency and emissions laws, not stricter state laws.
• Agreeing to a Republican demand that debt holders of the automakers convert two-thirds of their debt to equity.
• Agreeing to require half of automakers' contributions to a United Auto Workers trust fund entity be made in stock.
• Agreeing to immediately eliminate the UAW's jobs bank.
• Agreeing that pay for union workers had to be competitive with that of employees at foreign-owned U.S. auto plants.

(Reporting by Julie Vorman; Editing by Eric Walsh)

[Philip]

Great idea going back to the tresdmills of old by the japanese.Imagine how much power Indians could produce in mall footfalls and in stations/airports ,etc!

http://www.telegraph.co.uk/earth/energy ... steps.html

Japan harnesses energy from footsteps
Train stations in Tokyo are harnessing the energy of legions of commuters to power advertising hoardings and ticket machines.

By Julian Ryall in Tokyo
Last Updated: 10:45AM GMT 12 Dec 2008

Commuters at the Tokyo station walk on a piezoelectric sheet which generates electricity when pedestrians step on it Photo: AFP/GETTY IMAGES
Experiments have started this week at two of the Japanese capitals' busiest stations, with special flooring tiles installed in front of ticket turnstiles. Every time a passenger steps on the mats, they trigger a small vibration that can be stored as energy.

Multiplied many times over by the 400,000 people who use Tokyo Station on an average day, according to East Japan Railway, and there is sufficient energy to light up electronic signboards.

"We are just testing the system at the moment to examine its full potential," said Takuya Ikeba, a spokesman for JR East, adding that the tiles are constructed of layers of rubber sheeting, to absorb the vibrations, and ceramic.

Deeply dependent on imported fuel to power its industries, Japanese companies are at the forefront of research into clean and reuseable energy sources.

On the other side of Tokyo, a remarkable 2.4 million people pass through the sprawling Shibuya Station on an average week day, with many of them now treading on Soundpower Corp.'s "Power Generation Floor."

"An average person, weighing 60 kg, will generate only 0.1 watt in the single second required to take two steps across the tile," said Yoshiaki Takuya, a planner with Soundpower Corp. "But when they are covering a large area of floor space and thousands of people are stepping or jumping on them, then we can generate significant amounts of power."

Stored in capacitors, the power can be channeled to energy-hungry parts of the station, he said, including the electrical lighting system and the ticket gates.

[Nandu]

Madoff is also ex chairman of Nasdaq. Stunning.

[ramana]

Madoff is also ex chairman of Nasdaq. Stunning.

is it too much to ask the reference/context or is it ment for private comment onlee?

[vsudhir]

Not that itrs news anymore but still, here's from drudge
Most big US banks maybe 'bankrupt'

[Satya_anveshi]

Madoff is also ex chairman of Nasdaq. Stunning.

There are so many dead in the closets and that is why there are not isolated but reflective of something massive. What I found very amusing is the way he came out himself (?) with this fraud.

BoA came our declaring 35K layoffs over the 3 years. Mind you the same can be reported or twisted as saying "no layoffs announced for now but the company is agressively looking for cost measures and may involve layoffs".

I am amazed at the whole media infrastructure that US has to twist any news to suit the agenda of the day and tilt the market. The same news one day can be painted in the most dipressing way but other day as nothing significant.

Ramana,

It was in the context of Nandu's earlier post. please read.

[Nandu]

Madoff is also ex chairman of Nasdaq. Stunning.

is it too much to ask the reference/context or is it ment for private comment onlee?

Sorry, I assumed context was known, but I see I hadn't mentioned Madoff directly when posting the story:
Major "pedigreed" wealth management firm stands accused of perpetrating $50billion fraud on clients.
Here is an update on it.
http://news.yahoo.com/s/nm/20081212/bs_nm/us_madoff_6


Seriously, if the Chairman of the Nasdaq is running a ponzi scheme on clients, one has to wonder about the soundness of the stock market structure itself.

[ss_roy]

Forecaster: Negative Q4 GDP in China

ISI's Ed Hyman is telling clients that he expects GDP growth in China at a 2% annual rate in Q3, and negative 1% in Q4 2008. This is far below most forecasts!

Hyman also lowered his Q4 U.S. GDP forecast to a 6% decline. Last month Goldman slashed their Q4 GDP forecast to minus 5%.

Q4 is definitely going to be an ugly quarter!

His forecast is not all negative: Although Hyman is forecasting a 4% U.S. GDP decline in Q1 2009, he thinks the economy will probably bottom mid-year 2009 (based on a substantial stimulus package from Obama), followed by a very sluggish recovery in the 2nd half of 2009, and slightly below trend growth in 2010. He thinks the stock market might have already bottomed.

http://calculatedrisk.blogspot.com/2008 ... china.html

[John Snow]

The economic contractionhas started, you will see that in Indian economy, with IT jobs cutting and salaries adjusting downwards, IT folks credit frozen or denied....

you get the drift.

watch this space

[Div]

Junk Silver or Junk Bonds?

[Philip]

This why the world economy is in shit street,because of US con-men like this scumbag who should be publicly hanged.We should avoid investing in the US at all costs if this is the kind of scum who rip trusting investors off.

http://www.telegraph.co.uk/finance/fina ... n-con.html

Celebrated Wall Street trader arrested over $50bn con
Bernie Madoff, a former chairman of the NASDAQ stock exchange has been accused of potentially the biggest fraud in corporate history.

By Tom Leonard and James Quinn in New York
Last Updated: 6:56PM GMT 12 Dec 2008

Bernie Madoff, former chairman of the NASDAQ stock market Photo: AP
Even by the standards of New York's recent financial turmoil, the charges levelled at Bernard Madoff are eye-watering – a $50 billion (£33.5 billion) swindle perpetrated by one of the most celebrated traders on Wall Street.

Mr Madoff, 70, a former chairman of the NASDAQ stock exchange and a supposed pillar of the financial community, has been accused of defrauding hedge funds of billions with a fake investment scheme called a 'Ponzi'.

In the fraud outlined by the government, Mr Madoff allegedly promised huge returns to early investors in his asset management business, only to lose their money on the markets. He then paid them back with money put in by later investors, rather than from revenues generated by any real share trading, prosecutors claim.

The news has rocked the hedge fund world as investors faced losing all their money in a scam that, if confirmed, would have what one expert described as a "monumental impact" on the $1.6 trillion (£1 trillion) industry.

Prosecutors say Mr Madoff ran his fraudulent operation for years secretly from a separate floor of the Manhattan offices of his trading firm, Bernard L Madoff Investment Securities, keeping its financial statements "under lock and key".

They believe his scheme unravelled earlier this month after clients – who include hedge funds, banks and wealthy individuals – wanted to redeem some $7 billion (£4.7 billion) and Mr Madoff realised he could not find the money.

In a criminal complaint filed by the FBI and the US Attorney's office, Mr Madoff allegedly told colleagues earlier this week that his investment advisory business was "all just one big lie" and that his firm was "basically, a giant Ponzi scheme".

He said he was "finished" and resigned to going to prison, say prosecutors who arrested him on Thursday after – according to the Wall Street Journal – he was turned in by his two grown-up sons.

Mr Madoff has been charged with a single count of securities fraud and faces up to five years in prison and a fine of up to $5 million (£3.3 million).

He also faces a separate civil lawsuit filed by the US Securities and Exchange Commission which accuses him of defrauding his clients in an ongoing $50 billion (£33.5 billion) fraud.

"Our complaint alleges a stunning fraud that appears to be of epic proportions," said Andrew Calamari, the associate director of enforcement at the SEC's New York office.

According to the SEC's complaint, Mr Madoff told an FBI agent there was "no innocent explanation" and that it was his fault that he had "paid investors with money that wasn't there".

Mr Madoff has been released on $10 million (£7 million) bail, said his lawyers.

"Bernie Madoff is a long-standing leader in the financial services industry. He will fight to get through this unfortunate set of events," said Daniel Horwitz, one of his lawyers.

Christopher Miller, chief executive of Allenbridge Hedgeinfo, a hedge fund ratings agency in London, told the Wall Street Journal that "some very big investor names are involved in this" and said it would have a "monumental impact for the hedge fund industry".

He blamed the "credulousness" of investors who failed to question how they got such big returns on their investments and predicted the case – if proved – was likely to lead to tighter regulation.

Mr Madoff founded the investment firm that stills bears his name in 1960 with $5,000 (£3,000) he earned working as a beach lifeguard on Long Island.

Joined later by his brother, Peter, they took advantage of American moves to increase stock market competition and built their firm into a business that last month was managing some $17 billion (£11 billion) in assets.

The firm's website boasts how clients know that Mr Madoff "has a personal interest in maintaining an unblemished record of value, fair dealing and high ethical standards".

Madoff Securities International Ltd, a London-based business in which Mr Madoff was a major shareholder, stressed yesterday that its business activities were not involved with the American asset management firm under investigation.

[vsudhir]

Poison Ivy

Univ endowments at elite Ivy leagues take an unprecedented hit.

[Shivani]

Laurence Leamer: Bernard Madoff and the Jews of Palm Beach

Bernard Madoff is a member in good standing of the Palm Beach Country Club, the exclusive Jewish club on the North End of the island. When I would talk to friends and acquaintances who were members, they often chatted about good old Bernie. The 70-year-old Madoff had been the chairman of the NASDAQ stock exchange. He was a brilliantly successful money manager who may well have handled the assets of a majority of the 300 members as well as that of those of a largely Jewish clientele across the eastern United States and a number of wealthy WASPS.

Bernard and Ruth Madoff bought their home on North Lake Way in 1967, and are among the most long standing members of the club. The Palm Beach Country Club is the ultimate symbol of the Jewish ascendency. Unlike the WASP clubs, to join you have to have made major charitable contributions. You also have to have made your fortune in clean ways. There are no garbage magnates, no slum lords. You have to be a person of character. And there was no one more revered and honored than Bernard Madoff.

Earlier this year I gave a talk at the club about my forthcoming book, Madness Under the Royal Palms. There were people in the room who are in my book and I avoided talking about them or anything that I thought might irritate or offend. I've been doing this sort of thing for years and I can take a few amusing anecdotes and strung them together into something that's not too painful and generally brings smiles if not laughter. But this afternoon there was dead silence. Nobody found anything I said amusing. In retrospect, I realize that these people had come to a bastion of anti-Semitism where Jews could not even enter the Breakers Hotel until 1965, and they had made the island theirs. And here I was to their minds mocking this world they had made their own. They found it profoundly unsettling.

People in Palm Beach sort themselves out into the group in which they belong based largely on how much money they have. Even the poorest of the islanders seem to have everything yet joy proves elusive, even for the country club members, because there is always someone richer or better socially connected. Joy is driving out of your 35,000-square-foot mansion in your Bentley and tooling up to the entrance of Mar-a-Lago for your fifteenth ball of the season, the valet parkers salivating at the chance to take your car and the prospect of a twenty-dollar tip. Joy is having a wife younger and thinner than any of the other wives at your table. Joy is subtly announced during dinner that your hedge fund scored 33 percent last year, while that of the arrogant son of a bitch across the table with the fat wife scored only 17 percent.

Those with the biggest financial gains generally had their money managed by Madoff. It was an honor having him handle your fortune. He didn't take just anybody. He turned down all kinds of people, and that made you want to give the man even more of your money. When he took your fortune, he told you that he would tell you nothing about how he achieved his returns. He was a god. He had the Midas touch.

Yesterday Madoff was arrested and accused of running what probably will prove the greatest Ponzi scheme in the history of the world. He may have dissipated as much as fifty billion dollars into nothing. For the elite Jewish world, it is a curse of almost biblical proportion. I was at a dinner party last night and one of the guests called on his cell phone a man whose money Madoff had managed. I know the man and he is a generous, kind person who recently gave away over a hundred million dollars. He said that both his company's retirement plan and his charitable foundation had been handled by Madoff. He was preparing to fly back to his Boston home to walk among the ruins. It's a story told scores of times yesterday. Bankruptcy. Despair.

There was one largely Jewish charity event last evening. "It was like the Titanic," one attendee said. "The ship was sinking, and people were crying, 'I lost this and that.' And everybody was drunk. The Titanic was going down and we might as well carry on."

There is a feeling of incredible shame, embarrassment, of exposure, as if their whole world has been exposed as jerry built. This evening the synagogues in Palm Beach will be full. And there will be men and women listening to the truths of a great and ancient faith as they have never listened before.

Bernie Madoff's Scam "Larger Than Enron"
Why Hedge Funds Got Played for Suckers by Madoff

[Philip]

Tx Shivani.Anyone who has been suckered in rushing after a pot of gold,knows the feeling! As the old adage says,"love of money is the root of all evil".In these days of acute liquidity,except for those too big to allow to fall abd are the lucky recipients of billion dollar bailouts,the attendence in synagogues,churches,temples,mosques,etc., are up from before.

[Nandu]

A Visual Guide to the (History of the) Financial Crisis

http://blog.mint.com/blog/wp-content/up ... risis2.jpg

[svinayak]

Poison Ivy

Univ endowments at elite Ivy leagues take an unprecedented hit.

We have to still understand all the illiquid assests

The creator of the Yale model is David Swensen, who was persuaded by James Tobin, a Nobel-prize winning economist, to become the university’s chief investment officer in 1985, when the endowment stood at just over $1 billion, and increased it by June of this year to $22 billion. As Mr Swensen explains in his influential book, “Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment”, which was published in 2000, the “permanent” endowments of universities (and of some charitable foundations) meant that they could be the ultimate long-term investors, able to ride out market downturns and liquidity droughts.

By investing heavily in illiquid assets, rather than the publicly traded shares and bonds preferred by shorter-term investors, an institution with an unlimited time horizon would earn a substantial illiquidity premium. By 2006, Yale was aiming to invest a staggering 69% of its endowment in illiquid alternative asset classes such as hedge funds, private equity, property and forests. Others followed. According to “Secrets of the Academy: The Drivers of University Endowment Success”, a new study by Josh Lerner, Antoinette Schoar and Jialan Wang in the Journal of Economic Perspectives, Ivy League endowments increased their allocation to illiquid assets from 9.3% to 37.1% between 1993 and 2005. On average, universities raised their allocation from 1.1% to 8.1%.

Until this year, the strategy paid off handsomely. For the 1,300 endowments studied, the median annual real rate of return was 6.9% between 1993 and 2005, while the 20 best performers generated average real annual returns of more than 9%. That was better than most other institutional investors. Between 1996 and 2005, about 5% of university and college endowments did better than the top percentile of American corporate pension funds.

[vsudhir]

One Third of Hedge Funds Face ‘Wipe Out’ After Slump

Some Madoff related Drudge headlines...

Madoff fallout spreads; Banks report potential losses of $10B...

Investors May Get Protection From Government...

Charities hit hard...

Charities, eh? JuD among them by any chance?

[svinayak]

http://clusterstock.alleyinsider.com/bernie-madoff

[paramu]

We have to see if this action spreads to other countries too....

Ecuador May Hit ‘True Monsters’ Harder Than Argentina
Dec. 15 (Bloomberg) -- Ecuador may saddle investors with the biggest losses in a government bond restructuring since at least World War II after President Rafael Correa fulfilled a two-year pledge to default on debt he calls “illegitimate.”

[Singha]

glad to see some long held notions of yahudi probity and financial/maths superiority
bite the dust as side effect of this. all those "nice yewish boy", BSEE from MiT, MSEE from princeton and MBA fro wharton things....

yahudi as inept and crooked as the wasp. should leave running the world to those
most qualified for it - the yindu

I dare say the 14 yr old street smart marwari kids who manage the shop "gaddi"
will run these "hypercompetitive white males" right off the playing field if given
a level playing field and no billy boy bucknor.

[Singha]

WSJ

Put Madoff In Charge of Social Security

By HOLMAN W. JENKINS, JR.

Where was the SEC? Such is the plaint lofted in the wake of the Bernie Madoff scandal.

Huh?

When has the Securities and Exchange Commission ever found a fraud except by reading about it in the newspapers? Anyway, who said the agency was supposed to prevent investors from losing money or relieve them of having to perform due diligence?

Mr. Madoff's many honorable and accomplished clients chose to deal with their man outside the institutional checks that come from, say, a heavily regulated bank or a highly transparent mutual fund, perhaps one whose parent is also publicly traded and doubly subject to the checks of a watchful stock market. That was their choice.

It is common to wax nostalgic for a time when a man's word was his bond, business was done on a handshake, etc. This is poppycock. It has always been a client's job to sort out the dealer who could be trusted from the one who couldn't. Personal connections may give comfort, but are no substitute for true institutional checks or true experience of a man's character, which many of Mr. Madoff's clients seemed not to have.

Instead, they went on "reputation," which is to say they acquired their faith in Mr. Madoff more or less the way people acquire their faith in global warming and many other things, from people equally as ignorant as they.

What makes the Madoff story interesting, though not evidence of systematic failure of the regulatory or legal system, is that Mr. Madoff and some of his clients had dealt on a basis of trust for more than a generation. True Ponzi schemes, in which early investors are paid a "return" out of funds deposited by later investors, tend to falter at the first market downturn. Waning investor enthusiasm dries up new funds required to pay off earlier investors. The scheme collapses.

In all likelihood, Mr. Madoff was not running a pure Ponzi scheme, but had real assets. He was operating a blind pool, in which investors had no real idea what they owned or how it was performing, relying on Mr. Madoff who reported metronomic returns, brooked no nosiness into his methods, and seemed always willing to pay off investors who wanted to withdraw their money.

He may have been casual from the start about what money he used to pay withdrawals. It is almost inconceivable, though, that he could have built a true Ponzi scheme to a height of $50 billion, in which there were never any real assets, just his superhuman 40-year juggling act to ensure new investors were recruited as needed to provide funds to meet withdrawal requests from earlier investors.

If so, he is a genius who should immediately be put in charge of the Social Security and Medicare trust funds.

It was Mr. Madoff himself who apparently applied the word "Ponzi" to his crime, in his distraught confession to his sons. His "$50 billion" in reputed losses also appear to be little more than hearsay, his own tremulous characterization of the long-running disaster he'd wrought.

More likely, his firm devolved into a Ponzi scheme only when serious losses hit and he decided not to level with investors but to gamble on a resurrection. The hoped-for rebound, as they frequently do, failed to materialize. His losses grew. Then came a flood of redemption requests amid the current credit crisis. Mr. Madoff's jig was up.

His decision-making at this crossroads probably wasn't helped by the fact that, in the early 2000s, just as the long bull run was ending, the press began asking questions about the improbable consistency of his reported returns -- making it an awkward moment to stop reporting consistent returns.

Conscious of his standing in the community and seeing jail beckoning, all he could think to do was double down.

There are costs and benefits to everything, including the cumbersome apparatus of firms that subject themselves to intrusive monitoring and conform to standards of transparency. Mr. Madoff's clients chose to avoid those costs. For that matter, they chose to forgo lower but safer returns, as many rich people do, by entrusting their fortunes to T-bills.

The herding automatons of the media can never encounter lawbreaking in the financial markets without concluding that it demonstrates the necessity of more laws against lawbreaking. Congress, now in the process of convincing itself it should run the auto industry, no doubt will see in Mr. Madoff proof that Congress is needed to manage rich people's money and ordinary people's too. Then we'll all be in the same position as Mr. Madoff's clients.

[Singha]

well well well....amirkhans being taught to go cheap. tauba tauba.

http://images.businessweek.com/ss/08/08 ... heap/1.htm

[vsudhir]

Seems the famed yale investment strategy has flopped too. Well, at least it wasn't as much of a fraud as the Madoff thing.

Yale endowment drops 25 pct amid financial turmoil

[Tanaji]

What I dont understand is how come institutional investors like Banco Santander and BNP Paribas were invested with Mardoff? The very reason to invest via a bank is to get the "institutional security" that comes with it, i.e. checks made into the entity that is being invested in. By all accounts Mardoff would have failed these checks since he reportedly ran a "dont ask, dont tell" policy and kept people from looking too closely into his books. So, by rule, he should not have been an invest worthy option

Just goes to show how crooked the entire financial sector is. This means no one can be trusted, not the bank, and not even the currency.

[Singha]

not just banks but univ endowment funds and pension funds like calpers
invested into these hedge fund types and "PE funds" to chase the 30% returns, and make money for superstar faculty hiring and glittering new dorms (residential suites really) and gyms. nothing was too good for the
little moppets of the hamptons and summit NJ crowd.

Madoff apparently kept two sets of books, and showed one set to investors....."double entry book-keeping" in academic terms

meantime even titans like honda and toyota are hurting badly. toyota
atleast has its daihatsu unit with a stable of small cars to peddle in
the souk, honda has very little....the days of souped up 150 hp cars for
family sedans are drawing to a close....its back to 90hp

Honda to develop entry-level car in 2, 3 years

Wed, Dec 17 12:15 PM

Honda Motor Co aims to develop an entry-level car below the Fit model in two to three years to meet demand in emerging economies, such as India, Chief Executive Takeo Fukui told a news conference on Wednesday.

Japan's No.2 automaker plans to delay the introduction of medium to large-sized diesel models in the United States and Japan to concentrate on hybrid and small cars amid a deepening global economic slump.

[Singha]

the painful 30% downward adjustment in living stds for amirkhan is well underway and the shock/pain is seeping in through every crack in the defences now.

alien concepts to the post-1950s generation like paying for stuff in down
cash after saving up for it will have to introduced in the school curricula (after making sure the students are unarmed and sober)

I hope the f****ing idiots dont take the rest of the world down with them its like pakistan threatening to implode if the
world doesnt provide financial support - so long suffering han brother and nippon san continue to buy worthless t-bills at 0.25% interest rate.

[Bade]

glad to see some long held notions of yahudi probity and financial/maths superiority
bite the dust as side effect of this. all those "nice yewish boy", BSEE from MiT, MSEE from princeton and MBA fro wharton things....

yahudi as inept and crooked as the wasp. should leave running the world to those
most qualified for it - the yindu

I know it is haraam to say this in this forum, but this is a well known fact. yehudi-yehudi bhai-bhai and wasp-asp bhai bhai does not translate to yehudi-yindu bhai bhai. Yindoos also have to do yindoo-yindoo bhai bhai wherever they live.

[Satya_anveshi]

I hope the f****ing idiots dont take the rest of the world down with them its like pakistan threatening to implode if the
world doesnt provide financial support - so long suffering han brother and nippon san continue to buy worthless t-bills at 0.25% interest rate.

I hope you correctly interpreted a recent statement that the Fed will use all tools in its arsenal to fight deep recession.

[vsudhir]

the painful 30% downward adjustment in living stds for amirkhan is well underway and the shock/pain is seeping in through every crack in the defences now.

alien concepts to the post-1950s generation like paying for stuff in down
cash after saving up for it will have to introduced in the school curricula (after making sure the students are unarmed and sober)

Dunno if twas coincidence but PBS yesterday evening ran a cute program about... drumroll please... the history of barter. Am sure (or at least I desperately hope) the situ is not so bad as to fall to a barter economy level. Expect war (on creditors) under a host of guises as a way to ride the storm out by creating a counter-storm. War on and persecution of creditors has a long and illustrious history in the western tradition.

[vsudhir]

[vsudhir]

Germany-EU spat fore-runner to the coming China-US one

Germany now has a current account surplus of 7pc of GDP. It is hollowing the industrial core of Latin Europe. Yes, Club Med needs to pull its socks up, but the flip side of the coin is that Germany is in breach of EMU’s implicit contract. The rules of the game are that surplus countries should boost demand. The Gold Standard collapsed in the early 1930s because they – then the US and France – refused to do so. The burden of adjustment fell on deficit states, who had to tighten yet harder.

The downward spiral dragged everybody into depression. Germany and China are today’s violators. Their trade surpluses over the last 12 months have been $283bn and $279bn, respectively. They are exporting excess capacity.

What does all this have to do with China? The reasons I bring this up is because it is, I think, a foretaste of the type of nasty battles that are likely to erupt between the trade-surplus and trade-deficit countries as global demand continues to contract. The overconsuming trade-deficit countries cannot reduce their overconsumption except with a collapse in production (and sharply rising unemployment) if the overproducing countries do not also adjust. Furthermore, fiscal expansion aimed at generating employment in countries with large trade deficits will not be nearly as effective as they might be if they are not matched with programs in trade surplus countries (essentially demand boosting fiscal programs) that prevent domestic demand from bleeding out the trade account.

Interesting article. Worth a read, IMHO.

[Shivani]

Credit crunch a welcome reality check, says Archbishop of Canterbury

Jo Adetunji and Riazat Butt
Thursday 18 December 2008 11.37 GMT



The credit crunch is a welcome "reality check" in a climate of unsustainable greed, the Archbishop of Canterbury, Rowan Williams, said today.

Williams hit out at Gordon Brown's plans to combat recession by boosting spending, which he compared to an "addict returning to the drug".

Speaking on the Today programme, he said the financial sector had been carried away by the "sheer intellectual excitement" and should offer an apology.

The archbishop said the recession gave Britain the opportunity to return to a more voluntary society focusing on the vulnerable and a better approach to sustainable wealth. "I'd like to hear more from governement about how a volunteer society can be encouraged," he said

Earlier, he had reignited the row over the separation of church and state, saying it would not be "the end of the world" if the established church were to disappear.

In an interview published in today's New Statesman, he said there was a "certain integrity" to a church that was free from state sanctions.

Asked on the Today programme whether he wanted disestablishment, he replied: "At the moment, no."I see the case for it, and I certainly don't think that the church would be destroyed by disestablishment, I believe the church exists because of God, not because of the state."

As a teenager, Williams converted to the Church in Wales, a disestablished church, and spent 10 years working as one of its bishops. He told the magazine his early clerical experience had taught him there were advantages to not needing state approval."

Williams said the credit crunch showed that British society had "accepted the message that it's possible to have an endless spiral of accumulating wealth that has nothing to do with producing anything".

Although he said society as a whole had been complicit, he criticised the government for "moving along with the tide" of deregulation of the markets over the last 15 years. He said it was now having to ask "some very tough questions internationally about what sort of regulation is feasable internationally at a time when, clearly, an unregulated financial world doesn't make sense".

Williams criticised the government for encouraging people to spend though the downturn. "I hope people will understand that spending itself is about need before it is about serving the economy in the abstract," he added.

The archbishop warned that there were difficult times ahead for workers affected by redundancies, and an overall approach to "sustainable wealth" and the long-term welfare and basic needs of people needed to be found.

"I think there are some huge moral lessons to be learnt about the nature of accumulating wealth...a lot of people are waiting to hear an acknowledgement of some responsibility for irresponsible behaviour."

The prime minister's spokesman later played down Williams's comments, saying Brown was intent upon "doing whatever we can" to help people through the economic troubles.

"The Archbishop of Canterbury has expressed his views on this and a number of other subjects over the course of the years," the spokesman said.

Asked whether he agreed with Williams's phrases, the spokesman said: "The Archbishop of Canterbury chooses his own words."

Woolworths stores set to close by Jan 5

• Deloitte says 807 stores to close if business not sold
• Closures to start Dec. 27
• Closures mean loss of 27,000 jobs
• Deloitte says still in talks about sale of retail business

State aid talks for Jaguar Land Rover

THE Government has held discussions with Jaguar Land Rover over the possibility of state aid.

In a move that has echoes of the failed £9 billion bid to rescue the three main US car makers last week, Business Secretary Lord Mandelson said state help may be needed to safeguard Jaguar Land Rover's 15,000 UK jobs.

Lord Mandelson said that while he was looking at the sector as a whole, Jaguar Land Rover "argue that they are under particular strain".

He said: "They have owners who are well-resourced, who have the first responsibility for sustaining the companies that they own in existence and in production for the future.

"If we judge that it is not just short-term difficulties but longer-term pressures that are operating in that sector, or in relation to that particular company, then we will consider what measure, what intervention we can appropriately make. But the time for that decision has not been reached."

Lord Mandelson warned there will not be "a great long list of industrial bail-outs", but appeared to indicate car makers might have a case for help.

Terrific opportunity for Tata thanks to Woolworths! Not only should they order UK to finance the acquisition, but also hoard enough cash for the next half decade of operational losses. Else Jaguar and Land Rover manufacturing jobs go to India.

[Shivani]

Bush throws automakers a lifeline

By Jeremy Pelofsky and John Crawley



WASHINGTON (Reuters) - President George W. Bush announced $17.4 billion in emergency loans to faltering U.S. carmakers on Friday in a dramatic step to stave off collapse of the industry and save hundreds of thousands of jobs from falling victim to a deep recession.

Bush, seeking to bolster his legacy and bucking some fellow Republicans who would prefer the car industry to deal with its problems without government aid, said it would be irresponsible in a time of economic crisis to let carmakers die.

The government will offer up to $17.4 billion in loans to the U.S. automakers, reeling from a slump in consumer demand, and expects General Motors and Chrysler LLC to access the money immediately. The White House said the loan agreements had been signed.

Ford Motor Co, the other firm in Detroit's storied Big Three, said its liquidity is adequate for now and it did not need a loan at this point.

"If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers," Bush said, warning that to do nothing would deepen and prolong the U.S. recession.

U.S. stocks rose on the news of the lifeline to the sector, with GM shares jumping 10.9 percent.

Some $13.4 billion of the total package will be made available in December and January from a $700 billion Wall Street bailout fund that was originally designed to rescue struggling financial institutions.

Bush attached a string of conditions to the three-year loans and set a deadline of March 31 for the companies to prove they can restructure enough to ensure their survival or have the loans called back.

Democratic President-elect Barack Obama, who takes over from Bush on January 20 and so will inherit the handling of the deal, welcomed the loan move as a necessary step. But he said he wanted to make sure workers do not bear the brunt of the restructuring.

"My top priority in this administration is to create 2.5 million new jobs and I want some of those jobs to be in the auto industry," Obama said at a news conference.

Obama has been calling for short-term loans to the sector based on steps toward long-term viability.

LABOR TERMS

Other Democrats and the main auto labor union assailed the deal as unfair, saying workers were going to have to concede too much.

One provision in the loan terms on worker pay brought protests from the United Auto Workers union, and then a change in wording by the U.S. Treasury. The Treasury altered the wording of the terms for automakers to seek reductions in wages and benefits to levels "competitive with" Japanese rivals.

Under wording released earlier in the day, the Treasury said it would require reductions to levels "equal to" average compensation paid per hour and employee by Toyota Motor Corp, Nissan Motor Co and Honda Motor Corp in the United States.

The change was described as a correction of a grammatical error by a Treasury spokeswoman.

GM's CEO, Rick Wagoner, said the company would now focus on fully implementing its restructuring plan and was confident of meeting the governnment's requirements.

Chrysler, widely seen as the weakest of the Big Three, said concessions would happen quickly and it would continue to undertake "signficant cost reductions."

Private equity firm Cerberus said in a statement it would use the first $2 billion of proceeds from Chrysler's auto financing arm Chrysler Financial to backstop the government loan allocated to its struggling Chrysler car making unit.

Ford, while not seeking an immediate loan under the program, has said it would like a line of credit from the government only to be used if its finances worsen significantly in 2009.

Analysts noted the automakers' woes were far from over.

"It's a lifeline, but it doesn't get them completely out of the woods. It takes them (GM and Chrysler) forward until March. Basically the next administration has to deal with it." said Erich Merkle, an analyst with Crowe Horwath in Michigan, of the loan package news.

DIRE PICTURE

Some Republicans opposed to bailing out Detroit were dismayed at the loan package.

"I find it unacceptable that we would leave the American taxpayer with a tab of tens of billions of dollars while failing to receive any serious concessions from the industry," said Arizona Repubican Sen. John McCain, who lost the presidential election to Obama on November 4.

The White House presented a dire picture if it did not act, saying that if the auto industry were to collapse, it could reduce U.S. economic growth by more than 1 percent, put about 1.1 million workers out of jobs and cost some $13 billion in new unemployment claims.

The White House moved on its own after Republicans in the Democratic-controlled U.S. Congress stalled a deal last week. That plan followed weeks of negotiations that included desperate pleas on Capitol Hill from the auto chiefs.

The loan conditions included limits on executive compensation. Auto companies must pay back all their loans to the government, and show that their firms can earn a profit and achieve a positive net worth. The automakers would also have to provide warrants for non-voting stocks.

WALL ST BAILOUT FUNDS

Both GM and Chrysler have said a bankruptcy filing is not an option they would chose because of the risk that it would drive more consumers away from their brands. Both have idled plants and laid off thousands of workers across North America.

A bankruptcy filing by one company could topple suppliers and endanger the remaining two companies because of the overlap in their key parts suppliers.

The Treasury said the move to help the automakers had effectively exhausted the initial $350 billion of the Wall Street bailout funds approved by Congress and that it now needs to access the rest of the $700 billion.

The remaining $4 billion in autos aid is contingent on the administration seeking the second half of the Troubled Asset Relief Program, an administration official said.

The loans would have an interest rate of at least 5 pct but could rise to 10 pct if the carmakers default, officials said.

In a ripple from the U.S. autos slump, Mexican conglomerate Alfa said on Friday it was temporarily halting production at its nine auto parts plants in Mexico that supply U.S. carmakers.

No automakers have been spared in the global sales slump.

Japan's Toyota Motor Corp could report its first annual parent-only operating loss in 71 years in the year to end-March, and may issue a profit warning at a scheduled year-end news conference on Monday, Japanese media reported.

Toyota, which declined to comment on the reports, last saw an operating loss in its first year of operation in 1937/38.

Japan's carmakers are also feeling the pinch from a strong yen.

In perhaps the strongest protest since the dollar soared to a 13-year high recently, Honda Motor Co CEO Takeo Fukui warned a strong yen would cripple Japanese industry and trigger mass layoffs, forcing the automaker to shift production offshore if it persisted.

Canadian Prime Minister Stephen Harper was set to announce an aid package for his country's auto industry on Saturday. That aid could amount to several billion dollars.

[Shivani]

Do you speak bail-out?

Peter Mandelson, Britain’s business secretary, is contemplating a bail-out of Jaguar Land Rover. It is hard to imagine a less deserving candidate. The luxury carmaker fails the public interest test on two key grounds.

First, its products are of questionable social utility. For the government to allocate scarce funds to prop up the production of the 4.2 Litre V8 Petrol Supercharged Jaguar is a nonsense. It has a top speed of more than 150mph, emits 299g of carbon dioxide per kilometre and costs about three times the average annual wage.

True, the UK car industry employs 190,000 people directly and supports several hundred thousand more once components and retailing are taken into account. But if Lord Mandelson wants the government to underwrite this £50bn industry, he should harness such public funds as are available to develop the green cars of the future, not pander to vested interests.

The second reason Lord Mandelson should refuse to bail out JLR is that Tata Motors, the Indian company that paid $2.3bn for it, is capable of doing so itself, if it wishes. Tata Motors, let it not be forgotten, is a subsidiary of Tata Group, one of the wealthiest companies on the subcontinent, with revenues of $62.5bn and profits of $5.4bn last year.

The argument that thousands of jobs are at stake is weak: sectors employing many more, such as retail, receive no special treatment. If job protection starts to drive government policy, then the UK would bar Tata Consulting Services, a sister company, from offering the type of business process outsourcing services that have sucked back-office jobs to India in their hundreds of thousands during the past decade. But that would be nutty. Manufacturers are now leaner precisely because they now manage their inventory, process warranty claims and order spare parts through TCS’s offshore centres.

The simple truth is that Tata Motors overpaid for a trophy asset with poor prospects. It must sort it out itself.

I am in complete agreement with the last sentence. Let Ratan dig himself out of this hole. Let the BoD replace Ratan with someone who has common sense and good judgement. He has made two expensive and dumb decisions that should get any person fired: Buying JLR when even the Saudis and Arabs kept away; setting up a factory in West Bengal to manufacture cars.

[Nandu]

While we were out...
Opec announced a 10% cut in production quotas to shore up crude oil prices. The futures market responded by taking the price of oil down another 8% to close at $38 and change, first time below $40 in years. The next day the price went down in the $34 range before closing above $40.
http://www.bloomberg.com/apps/news?pid= ... YEcWlqs6cE

[Singha]

toyota - first loss projected since 1949

Japans november exports down 26% YoY.

[vsudhir]

More Firms Cut Labor Costs Without Layoffs (NYT)

A growing number of employers, hoping to avoid or limit layoffs, are introducing four-day workweeks, unpaid vacations and voluntary or enforced furloughs, along with wage freezes, pension cuts and flexible work schedules. These employers are still cutting labor costs, but hanging onto the labor.

And in some cases, workers are even buying in. Witness the unusual suggestion made in early December by the chairman of the faculty senate at Brandeis University, who proposed that the school’s 300 professors and instructors give up 1 percent of their pay.

“What we are doing is a symbolic gesture that has real consequences — it can save a few jobs,” said William Flesch, the senate chairman and an English professor.

He says more than 30 percent have volunteered for the pay cut, which could save at least $100,000 and prevent layoffs for at least several employees. “It’s not painless, but it is relatively painless and it could help some people,” he said....

At some companies, employees are supporting the indirect wage cuts — at least for now. The downturn hit so hard, with its toll felt so widely through hits on pensions and 401(k) retirement plans and with the future so murky, that employers and even some employees say it is better to accept minor cuts than risk more draconian steps.

The rolls of companies nipping at labor costs with measures less drastic than wholesale layoffs include Dell (extended unpaid holiday), Cisco (four-day year-end shutdown), Motorola (salary cuts), Nevada casinos (four-day workweek), Honda (voluntary unpaid vacation time) and The Seattle Times (plans to save $1 million with a week of unpaid furlough for 500 workers). There are also many midsize and small companies trying such tactics.

Not pretty. Must say am moiself directly affected by the crisis.
And hard to say when things will be 'normal' again when normality is ill-defined.

If you can;t tell who the sucker is...

In Japan, "normal" meant that in 2004 residential real estate prices were roughly 30% of late 1980s or early 1990s prices. In Germany , though nominal prices might be similar in many places to those prevailing two decades ago, the real price destruction would be probably be similar to Japan's. But what is "normal" for economic growth? Or what is "normal" for aggregate US consumption? Or the amount of debt a typical household can sustain? What is the "normal" leverage for a bank, or the normal return on equity o a listed company? What is a normal share of GDP for corporate profits in an economy experiencing deep recession? What is "normal" for sustainable government budget deficits? What is the normal income multiple of a banker or CEO to a policeman, a professional baseball player to a school-teacher or a doctor to a nurse? What is the normal amount of due diligence a bank should do before extending a loan and what is normal for the amount Honeywell Industries will earn per-share in the coming years?

Scary as hell. Am R2I next year (which blissfully is not very far away).

[vsudhir]

Now US credit card companies are lowering credit limits if they don't like where you shop!

Given the prtopensity of massaland to export its experiments (warts and flaws included) to the rest of the copy-catting world, this does raise serious concerns.

Card companies adjusting credit limits

[Nandu]

vsudhir, yeah moi too facing a pay cut. It has been long held management philosophy that laying off people is better than paycuts because layoffs get the disaffected people out of the company, while paycuts leave everybody demotalized. But many companies seem to be rethinking that in this environment. Luckily it is not that big a deal for us because SHQ is in a much more stable industry.

Of course, a lot of people count stock options as part of their compensation in the valley, and they have been facing an unofficial paycut for a while now.