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The down time at Blue Water Partners (http://bluewater.ky/) is always interesting. I dont think that would be too surprising to many people. When men work in high pressure jobs, handling large sums of money, things tend to get a little unpredictable during the breaks. Bond traders are notorious for this sort of behavior. A bond trader will work at warp speeds for hours at a time manning several telephone lines and computer screens simultaneously, and then bam, everything stops, and traders find themselves staring at one another in a minor daze. I knew of one bond trader in New York who caught mice and threw them out the window after making little parachutes for them during the down time. Things get weird. Conversations are often unrepeatable.

The talk the other day centered around the Bernard Madoff scam. It’s hard not to talk about Madoff, or made-off as Ive heard him called recently, as in he made-off with all the money. We started by talking about other scams, the original pyramid scheme of Charles Ponzi in the 1920s to the Nigerian money laundering scheme that still surfaces every now and again. Madoff seems to have the biggest scam to date, at least in terms of dollars. The Albanian pyramid scheme of 1997 was the hands down biggest in terms of the numbers of people involved. It was estimated that two-thirds of that countrys entire population and government were caught up in it. Riots ensued when the whole thing collapsed, and the country still hasnt fully recovered. But in terms of dollars, Madoff seems to have won a rather dubious prize.

Which led to the main topic of discussion – Where is the money?

If the totals that are being thrown around in the newspapers are remotely accurate, Madoff took hundreds of millions, and possibly billions of dollars. Think about that. In these days of billion dollar buyouts numbers get thrown around and lose their meaning. But he may have taken billions of dollars. A million dollars is a lot of money. If you spent a dollar a day for a million days you would have had to begin in the fifth century BC to be broke today. (without interest, of course.)

It was the esteemed consensus of BWP that a single man cannot spend that much money in his lifetime, never mind the forty or fifty years Madoff may have been at it. There just isnt enough time in the day. It would take a foundation with many employees to spend at a fast enough rate. Its a funny idea, not being able to spend a fixed amount of money, a Brewsters Millions sort of fantasy, but think about it. If you stole one billion dollars, you would have to spend ten million dollars a day to make it disappear in a couple of decades. Now think about how much work it would be to spend ten million dollars a day every day for a couple of decades. If you gave it away in huge allotments. far too much attention would be drawn to you. Did he buy an estate a day for a year? A roomful of Picassos? Where are they? What a dilemma! So the question remains, where is the money?

I was reminded of a story I read many years ago. A man in France stole what is the equivalent to one million dollars in quarters. Do you know how much space you need to store a million dollars in quarters? What are you going to do with them? Sell them each for a nickel to neighborhood children? Go to quarter casino machines every day for eight hours? You would draw so much attention to yourself that you would be caught in weeks, which leads me to the what the police chief in charge of the case was quoted as saying,

Stealing this much money is its own punishment.

By Myron Gushlak

Posted by Myron Gushlak at 1:53 PM | Permalink | Comments (0)

I have been writing about sovereign wealth funds on and off for months. I warned about the possible political ramifications of having foreign countries heavily invested in the United States and the political leverage that might lead to. I quoted a New York Times story about the reluctance of the US to press China too hard during the Olympic buildup period for fear of antagonizing a friendly investor. Larry Summers, (who was not the Secretary of the Treasury at the time) shared my concerns, or I should say, I shared his, and he said months before he was to become part of this new administration’s cabinet, that he would keep a watchful eye on that particular situation. (www.huffingtonpost.com/2008/10/27/obamas-treasury-secretary_n_138195.html)

It is beyond ironic to me the way things are turning out. The current bailout has a possible price tag of nearly one trillion dollars. (www.nytimes.com/2008/09/21/business/21draftcnd.html) This at a time when national deficit in the United States is currently ten percent of the GNP. Very little is being said about where that money is going to come from. There is a constant footnote to anything TARP (bailout) related that the cost would be passed on to the American taxpayer. That is all well and good for the long term, but what about the short term? It seems that the US is counting heavily on foreign investments to fund a lot of this recovery money.

But how likely is this to happen? Much was made of China’s investment in Morgan Stanley in December, 2007. (www.iht.com/articles/2007/12/19/business/morgan.php) I am curious to know how much that investment is currently worth to China. I am fairly certain that it is worth at least one third less than what was originally invested. How eager will China be to return to the US for further investment? The situation may be worse in the oil producing countries. Sovereign wealth fund investment in the US by the United Arab Emirates is well into the tens of billions of dollars. With the price of oil under fifty dollars a barrel, (down from a high of nearly $150 a barrel in July, 2008) how eager are those countries to invest in the US? And if they still have full confidence in the strength of the US dollar, where will they get the money to invest?

This is an intriguing turn of events. The United States has gone form a cautionary

be careful of foreign investors

to an increasingly more desperate,

where are the foreign investments?

in one short year. George Washington in his farewell address to the nation warned that a

passionate attachment of one nation for another produces a variety of evils.

http://avalon.law.yale.edu/18th_century/washing.asp . Before the United States relies too heavily on the opinion of the specialists on this matter, I would like to remind them of George Bernard Shaw’s caution that

If all economists were laid end to end, they would not reach a conclusion.

The current financial crisis is becoming more complicated than a Russian novel, and every bit as intriguing.

By Myron Gushlak

Posted by Myron Gushlak at 7:16 PM | Permalink | Comments (0)

There is a sense of anticipation this week as the final days of the Bush presidency are spent. I dont remember in my lifetime such an urgency for change. There is a distinct feeling of being in the midst of history. Without a doubt the combination of the impending Obama inauguration and equally historic financial crisis has marked these days for inclusion in future history books. It is a peculiar sensation, the notion that one is living through history. Of course, one always is, but the realization comes and goes. One gets the sense in these early days of 2009 that the whole world is watching.

I sense an optimism that contradicts the woeful facts of the current financial collapse. I particularly enjoyed the op-ed piece in the New York Times today by Roger Cohen (www.nytimes.com/2009/01/15/opinion/15cohen.html?_r=1&ref=opinion) not just for what was said, but for Mr. Cohens ability to capture this curious contradiction. There is more of a sense of a collective rolling up of sleeves preparing for a tough job ahead, than

a sky is falling panic

. We are leaving a president who failed to utter a single rallying phrase in eight years, even in the wake of 9/11, to welcome a president who has demonstrated an ability to inspire and motivate with words. The contrast could not be more starkly drawn. It turns out that, sadly, we did not mis-underestimate the current president. Despite his plea at his farewell address, there is no trophy for making “the tough decisions,” particularly when an overwhelming volume of first hand testimony show his unwillingness to reconsider a decision once it was made.

It was Gore Vidal who said,

On the whole history tends to be rather poor fiction-except at its best.

These days make for great fiction. The characters have been drawn almost as caricatures- the unimaginative leader, unwilling or unable to adapt to changes; his Machiavellian sidekick secretly attempting to control the workings of the court, and the unlikely rise of a new voice, redefining the way things are done as he goes, mobilizing the villagers on his quest for justice and competency. It is grand theatre that surrounds us. I cant wait to see how it all turns out.

By Myron Gushlak

Posted by Myron Gushlak at 9:41 PM | Permalink | Comments (0)