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The Madoff Unit: A new metric for the Big Shitpile

[Welcome, Mick Weinstein readers!]

In what I am sure is an isolated incident, Bernard Madoff, former Nasdaq chairman, arrested over alleged $50 billion fraud*.

I mean, it is only in billions.

Then again, there are a thousand billions in a trillion (in America. The Brits have a different view).

So, $50 billion/$1000 billion = 5%, so 20 Madoff Units equal one trillion. That means that 40 Madoff Units equal two trillion.

So, if you had been entertaining the hypothesis that Hank Paulson's two trillion is replacing money that his golfing buddies previously, well, stole, and that's why it's having no visible effect, that would mean that there would have had to be 40 individuals just like Madoff in our financial class, each of whom would have had to steal, on the whole and on the average, one Madoff Unit. Which is absurd. Even in a completely unregulated environment. Right? Right?

NOTE * A Ponzi scheme, apparently.

NOTE The absurdity of the current debate on a loan to the Big Three automakers is that they're only asking less than one-third of a Madoff Unit. Chump change!

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Submitted by jawbone on

Of crucial importance once things even out is knowing the real history of what happened, writes Stiglitz, so that the right corrections can be worked out. History belongs to the victors--so that may affect what we get told, So this piece is important. Of course, this is one view, but from someone who has been pretty accurate so far.

What were the critical decisions that led to the crisis? Mistakes were made at every fork in the road—we had what engineers call a “system failure,” when not a single decision but a cascade of decisions produce a tragic result. Let’s look at five key moments.
No. 1: Firing the Chairman
In 1987 the Reagan administration decided to remove Paul Volcker as chairman of the Federal Reserve Board and appoint Alan Greenspan in his place.
No. 2: Tearing Down the Walls
The deregulation philosophy would pay unwelcome dividends for years to come. In November 1999, Congress repealed the Glass-Steagall Act—the culmination of a $300 million lobbying effort by the banking and financial-services industries, and spearheaded in Congress by Senator Phil Gramm.
No. 3: Applying the Leeches
Then along came the Bush tax cuts, enacted first on June 7, 2001, with a follow-on installment two years later. The president and his advisers seemed to believe that tax cuts, especially for upper-income Americans and corporations, were a cure-all for any economic disease—the modern-day equivalent of leeches.
No. 4: Faking the Numbers
Meanwhile, on July 30, 2002, in the wake of a series of major scandals—notably the collapse of WorldCom and Enron—Congress passed the Sarbanes-Oxley Act. The scandals had involved every major American accounting firm, most of our banks, and some of our premier companies, and made it clear that we had serious problems with our accounting system. Accounting is a sleep-inducing topic for most people, but if you can’t have faith in a company’s numbers, then you can’t have faith in anything about a company at all. Unfortunately, in the negotiations over what became Sarbanes-Oxley a decision was made not to deal with what many, including the respected former head of the S.E.C. Arthur Levitt, believed to be a fundamental underlying problem: stock options.
No. 5: Letting It Bleed
The final turning point came with the passage of a bailout package on October 3, 2008—that is, with the administration’s response to the crisis itself. We will be feeling the consequences for years to come. Both the administration and the Fed had long been driven by wishful thinking, hoping that the bad news was just a blip, and that a return to growth was just around the corner.

Only two Vanity Fair screen pages, but dense with info.

Via Molly Ivors at Eschaton.

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Submitted by elixir on

analysis and depressing in how clear it all seems now. I guess I'm selfish in saying, "I saw this coming", but, I'll say it anyway. How many of us wondered how the hell people were going to pay for things they acquired on credit w/out any cash flow? Probably all of us.

I'm hoping Stiglitz will write the article entitled "How we get out of this shitpile".

Submitted by jawbone on

could possibly continue successfully if the great majority of workers were not even staying ahead of inflation? How could housing continue to sell if the median price kept soaring while the median income stayed basically level or even lost ground? For quite awhile, this was masked by families having two full-time earners.

But that didn't even work, long term. How could everyone keep buying on credit, with wicked high interest rates, etc. That it simply intuitively seemed unsustainable.

But, as someone posted, some economists (rightwad types? Or just well paid?) are confused that people are worried about inflation--when there's some deflation. It's the food prices, stupid.

I was looking for baking supplies and needed walnuts. I nearly went into shock to see them priced at $10 a pound. Good grief! I looked around and found some for $8 a poiund (then at the Indian grocery store found them for 2 lbs for $9--but still! At the regular grocery stores, ten freakin' dollars a pound!

No wonder my mother always used to collect the black walnuts and go through the rather arduous process of getting the tough outer skin off, getting lovely tannin stains on her hands, letting them dry, and then cracking them open and picking out the nutmeat, another time consuming process. Far stronger flavor than the English walnuts available in the stores, and I didn't always like them in some items, but it's what people did. In some recipes, a dynamite flavor! Needed fewer to make a flavor statement.

Now? Where to even find black walnuts! They're considered "dirty" trees bcz the nuts fall and then stain shoes....

elixir's picture
Submitted by elixir on

"wicked high interest rates"... are you from MA?

Iphie's picture
Submitted by Iphie on

The corruption doesn't seem to be hereditary. Apparently, the two senior employees who tipped off the FBI were Madoff's sons:

The complaint did not name the two senior employees. But according to people familiar with the matter, they are Mr. Madoff's sons, Andrew and Mark. Mark Madoff is the firm's senior managing director and chief compliance officer. Andrew Madoff is its director of trading.

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Submitted by amberglow on

Santander reports euro2.33B exposure in Madoff case

Spain's Banco Santander, the euro zone's largest bank by market capitalization, said it has a total exposure of euro2.33 billion ($3.1 billion) to the alleged investment fraud by Bernard Madoff in the U.S.

A Santander fund called Optimal Strategic US Equity had commissioned Madoff to handle investments by some of its clients, the bank said in a statement late Sunday.

Santander said euro2.01 billion of the exposure through Optimal Strategic US Equity were investments by institutional investors and international private banking customers.

The remaining euro320 million, the large majority of which are structured products partially linked to the performance of Optimal Strategic, are part of the investment portfolios of Santander private banking customers in Spain.

Banco Santander said it has a position of euro17 million of its own money exposed to the alleged fraud.


They recently bought Sovereign Bank here, and own a bunch of UK banks too.

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Submitted by amberglow on

Madoff sold influence in Washington --

... The lobbying firm Dow Lohnes Government Strategies filed paperwork on Dec. 12, terminating its lobbying contract with Bernard L. Madoff Investment Securities. That ended more than 10 years of Madoff lobbying in Washington, in which his investment firm spent more than $400,000 to influence the federal government.

But lobbying is just a piece of Madoff’s influence in Washington. His family has contributed nearly $400,000 to political committees. And his niece, Shana Madoff Swanson, who serves as a compliance attorney at his firm, is married to a former high-ranking Securities and Exchange Commission official, Eric Swanson.

Swanson was the assistant director in the SEC’s Office of Compliance Inspections and Examinations’ market oversight unit in Washington. ...

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Submitted by amberglow on
... At one SEC hearing in April 2004 — during the period when Madoff is accused of carrying out his $50 billion fraud — Madoff joked with then-commission chairman William Donaldson about Madoff's own extraordinary profits and teased that he wasn't inclined to provide any advice that might help his business rivals.

... Commissioners laughed openly as Madoff agreed "to take off our selfish hats here and speak for the public good."

As a former Nasdaq chairman, Madoff was an expert sought by Washington regulators who asked for advice on any number of regulatory issues over the years. In 2000, Madoff served on the government's Advisory Committee on Market Information, established to protect investors by ensuring accurate and full public disclosure of information to them. ...