Thursday, January 15, 2009

More About Madoff and Trustees


I just finished reading another piece on the Internet about the Madoff fraud. In this piece they told how an investigation of the statements Madoff sent out to his clients did not even have the right price at which stocks were purchased on a particular day. This is just one more reason why a foundation, endowment, charitable trust or any other large portfolio of money and securities should have been held in safe keeping with the trust department of a commercial bank. If at the end of each month the statment from the money manager can not be reconciled with the statement from the trust department, then you have a problem. The trust department runs their own statement at the end of every month and uses a pricing system to generate the correct prices of each stock and bond and thus the total portfolio is priced independently of the money manager's statement and pricing. Again I ask, where were the people that sat on the boards of these organizations? How could not one of them ask, how are we reconcilling the money manager's statement at the end of every month? I don't care if Bernie Madoff walked on water, where were the checks and balances for these multi million dollar portfolios?

My next comment is with regards to performance benchmarks. What performance benchmarks was Madoff being measured against? Without specific benchmarks, the performance returns are meaningless. In order to have the correct benchmark, you must have the correct prices and the right securities in the portfolio for that benchmark. Again, where are the trustees?

Conclusion. There are a lot of people sitting on boards that have no business sitting on boards or investment committees. Perhaps it would not be a bad idea for people to pass a test before they took a seat on a board of trustees of a foundation, chartiable trust or an endowment fund. Having a lot of money and nothing between the ears when it comes to investments is a dangerous combination for any organization. Better yet, organizations should stop putting people on their boards if they truly do not know something about investing. Giving lots of money to an organization is fine, but holding on to that money is even finer.

Stay tuned.

4 comments:

LceeL said...

One of two things will happen - either Bernie will just disappear or Bernie will be assassinated by either the Colombians, or the Russian Mob, both of whom got screwed. In either case, Madoff will more than likely never go to jail because there is too much to hide - not by him, but by others.

moneythoughts said...

I have not read about the Russians and Columbians investing with Madoff, but if you are correct about that, then he has something to fear.

I figure he will go to jail, but it will be a Federal prison for white collar crime. He may decide to take his own life, but since he hasn't done that already, he may never do it.

The part about too much to hide, I take exception with. I think the investigators will get to the bottom of this, and I believe that they will find that to pull this Ponzi off for so many years, that it took another pair of hands or two.

winslow said...

I listen to Jim Cramer at times, not for the stock information, but for his general view of the financial system. Jim stated after 8 hours of research, he was able to follow all the shenanigans of Madoff. He espoused why no one else over the years was able to discover malfeasance of this corruption. Where was the SEC?

Cramer's ideas on the uptick rule...how Cox and the SEC should never have rescinded this rule.

Cramer's idea on the new double and triple short ETF's that can decimate ALL stocks and yet not even work as expected (his example showed a sector down 68% for the year and the 2x short ETF was down 50% for the same period).

Cramer's pounding about unethical CEO's that downright lie to their shareholders AND the public....and no one does anything.

My main point here: Why doesn't someone in government listen to Jim Cramer, listen to moneythoughts.....
many of our answers are to be found...very good solutions.

It seems like we are in a circus and no one can change the sequence of acts.

I want to see tough jail time and a loss of all wealth on these greedy executives...when will that happen???

moneythoughts said...

Hell, Cramer has a TV show and they don't listen to him, they certainly aren't going to listen to me.

Winslow, everything you said is correct, but the one thing that you haven't taken into account is MONEY! Remember, money makes the world go round.

In a republic, which is what we have, not a pure democracy, money gets people elected. Wall Street is a huge source of campaign funds. They pay these campaign contributions the way hunters and fisherman pay a fee to hunt or fish. If you paid a big fee to hunt and fish, you would not want someone to come along and take away the barrel with the fish you planned to shoot. Our only hope is that the fish that got shot in the Madoff barrel were some big fish. Perhaps they might tell the politicians that shooting fish in the barrel is not sport.

We need some big and comprehensive changes in the way Wall Street does business. Many in NYC and Washington, D.C. know that the regulations governing the capital markets suck, and needs to be fixed. But, it is a battle to see who wins out, Wall Street or the fish. When some people pay with more than jail time, that may get someone's attention. And that is all I am going to say about that.