Thread: A note of caution for those with deposits in US Banks

£33 billion fraud 'tip of iceberg'

"Last Modified: 14 Dec 2008
Source: PA News

The investigation into an alleged £33 billion fraud by Wall Street trader Bernard Madoff has been branded "the tip of the iceberg".

The former Nasdaq Stock Market chairman's company collapsed shortly before his arrest on Thursday, leaving investors including Britain's Nicola Horlick worried about big losses.

Mr Madoff, 70, faces a charge of securities fraud following the collapse of Bernard L Madoff Investment Securities. He has been released on bail.

Mr Madoff had a reputation for steady returns which made him popular with investors and led to suspicions from his rivals.

A spokesman for Bramdean Asset Management, of which Ms Horlick is chief executive officer, said: "It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades, while investors have continued to invest more money into the the Madoff funds in good faith."

The Madoff investments represent 9.5% of the Bramdean Alternatives Limited portfolio.

Steven Philippsohn, senior partner of city firm PCB Litigation and chairman of the Commercial Fraud Lawyers Association, said: "This is the tip of the iceberg and an early example of the news that we are going to get very used to hearing during this recession.

From:

Channel 4 - News - £33 billion fraud 'tip of iceberg'

Tip of the iceberg, eh? I predict that further scandals in NY and, moreover, London of this type will dwarf the Made-Off fraud...

More Equador 'monster' misery:

Ecuador May Hit ‘True Monsters’ Harder Than Argentina

By Lester Pimentel and Stephan Kueffner

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.”

The country’s three dollar-denominated bonds, with a total face value of $3.9 billion, fell below 25 cents on the dollar following Correa’s announcement on Dec. 12 that he wouldn’t make a $30.6 million interest payment due today, according to JPMorgan Chase & Co.

Investors expect to recover less than the 30 cents that Argentina paid in a 2005 settlement that was the harshest since the war, according to Arturo Porzecanski, an international finance professor at American University in Washington. Correa said in a Dec. 13 radio address that he wants to force a “big discount” on creditors, a group he referred to a day earlier as “true monsters who won’t hesitate to crush the country.”

Bloomberg.com: Exclusive

The left-leaning government of Ecuador is not popular at all in the USA. Pres. Correa might want to tone down his rhetoric a bit- countries have been invaded for less.

New $3 Trillion Bailout Is Coming to the Masses: Kevin Hassett


Commentary by Kevin Hassett




Dec. 15 (Bloomberg) -- Pollster Frank Luntz asked a large audience at a conference in Washington last week to raise their hands if they had received a government bailout. While they chuckled and rested their hands on their laps, Luntz made an important observation. Bailout money is snowing down in an unprecedented blizzard, and if the moves fail to stimulate the economy, there will be a lot of angry voters.

Perhaps the same realization moved President-elect Barack Obama’s economic advisers to begin considering a bailout for the masses.

If Luntz asks the same question a few months from now, everyone may well lift their hand.

Bloomberg News last week reported that the chairman- designate of the National Economic Council, Lawrence Summers, had been conferring with conservative icon and Columbia Business School Dean Glenn Hubbard about a housing plan Hubbard designed with Columbia colleague Christopher Mayer. Obama’s economic advisers appear to have embraced the proposal, which is already “on a fast track at the Treasury,” according to the story.

The Hubbard-Mayer plan calls for the government to revive the moribund housing market by providing just about everybody with access to a 30-year fixed-rate mortgage with a 4.5 percent interest rate. That’s almost a full percentage point lower than the average national rate of 5.47 percent currently.

Buyers could borrow as much as 95 percent of the value of the home they purchase. The plan might extend to those with existing mortgages, allowing them to refinance and get the same terms. When either type of deal is complete, the lender will place the loan with Fannie Mae or Freddie Mac.

Splitting the Loss

Anyone refinancing with positive equity in their home would be relatively easy to accommodate. For those with negative equity -- meaning the dollar amount of their mortgage exceeds the value of their house -- Hubbard and Mayer recommend that homeowners and lenders split the loss evenly and start over with a clean mortgage reset to reflect the property’s current market value.

With some forecasts for fourth-quarter gross domestic product growth inching toward negative 8 percent at an annualized rate, drastic policy measures are becoming increasingly palatable.

This mortgage plan is radical, and might just be powerful enough to help turn this troubled economy around.

The bottom line: if you have a mortgage, this plan would put extra money in your pocket.

Imagine, for example, that you have a $500,000 mortgage with a 30-year fixed-rate loan carrying an interest rate of 6.1 percent, the average rate for a fixed 30-year mortgage issued this year. Lowering the interest rate to 4.5 percent would reduce monthly payments by about $500 monthly. Someone with a mortgage of $150,000 would save about $150 a month.

Better Than Rebates

These monthly payments changes are different from tax rebates because they would last for many years. For that reason, consumers would be fairly likely to increase their spending. After all, if your monthly housing expenses just dropped by $400, then adding a new car payment of $300 a month might seem a lot less frightening, even in these difficult times.

These subsidized mortgages should increase the number of home buyers and help push property values back up. There are a lot of problems in the economy, but they all began in the housing sector and it seems likely that staunching the bleeding there is a prerequisite for achieving financial stability.
Make no mistake, this remedy will be costly.

$3 Trillion

Last week’s report suggests that the Obama team may be wary of allowing everyone access to this plan, since it costs so much -- $3 trillion by one recent estimate. One constraint being discussed is to disallow refinancing, limiting the program to home buyers.

The restriction will be impossible to impose, however. All that you would need to do to qualify for the 4.5 percent rate would be to find a “bailout buddy” and agree to purchase each others’ homes with the new low-rate loan. You could then either swap the homes back, or agree to rent the homes to each other for the same fee.

Also, the program will have the largest possible effect on home prices, a key target of the policy, only if borrowers expect it to last a long time. After all, if the person you sell your house to in the future has to borrow at a high interest rate to finance the purchase, then he will offer a lower price. That realization should affect the price you are willing to pay today.

Thus, the cost will be steep for two reasons. It will be tough to limit the new mortgage to home buyers, and the program will have to be sustained for a long time.

In the past, steep costs would have killed such a bill. But in today’s environment, it has almost become a political necessity to give voters their bailout too.
Ladies and gentlemen, grab your bailout buddy, help is on the way.

Bloomberg.com: Opinion

^If this plan comes to fruition, this would be the equivalent of borrowing against every asset you have, maxing out an unsecured borrowing facilities you have left and putting it on black and watching the wheel spin...

Originally Posted by bkkandrew

^If this plan comes to fruition, this would be the equivalent of borrowing against every asset you have, maxing out an unsecured borrowing facilities you have left and putting it on black and watching the wheel spin...

Found it!

Andy, good thread.

The other place nearly had me hanging myself. Damn miserable. I've kept in contact with a few of them, but my I've requested my account deleted.

I take-off 31st of Dec, I'll be in BKK New Years Day. Flight price was £150 cheaper than the day before or the day after, got to save money in these times.

Yep, tis' right bad in Blighty. Won't be returning there again.

^Welcome to my thread, I fly on the 28th, so will be hung-over by the time you land, but, regardless, if you are in BKK, a beer would be in order!

Originally Posted by bkkandrew

^Welcome to my thread, I fly on the 28th, so will be hung-over by the time you land, but, regardless, if you are in BKK, a beer would be in order!

Yes indeedy.

I'll PM you contact info at the other place. Think my account has yet to be trashed.

Originally Posted by lom

Originally Posted by bkkandrew

After all, if your monthly housing expenses just dropped by $400, then adding a new car payment of $300 a month might seem a lot less frightening, even in these difficult times.

Lower their monthly housing cost so they can afford another loan..

Economy is such a wonderful theory.
It is allowed to fail and then start over without any change.


Those who are indebted are not free people.

It only money and the government owns the mint. Whats the problem?

Treasury Secretary Henry Paulson urged Congress to release the second half of the $700 billion financial rescue fund after the government exhausted the first $350 billion in less than three months.

Congress, which passed the Troubled Asset Relief Program on Oct. 3, “will need to release the remainder of the TARP to support financial market stability,” Paulson said today in a statement released in Washington.

The Treasury today agreed to lend $13.4 billion to General Motors Corp. and Chrysler LLC, after spending $335 billion mostly to increase bank capital. Lawmakers, who can vote against giving Paulson the remaining funds, have criticized the Bush administration for not using the rescue package to help stem foreclosures.

From:

Bloomberg.com: Worldwide

And, as I correctly predicted, the realisation of the failure of Paulson Plan 1 would bring about dollar collapse. Well we are into that - the next stage is US Soverign Default, which they are currently attempting to avert by cranking up the printing presses. And we all know know where that leads....

^And on this note, Congress is in recess. TARP is all used up, so, if (God forbid) there are any bank failures in the next 30-days then.......

Never mind, I am sure Butterfly will think of something.

so when the collapse is coming ? is it today, tomorrow, last week ?

saying the collapse is imminent every day of the week for the past 6 months is hardly a prediction, more like a desperate attempt to catch up with reality

^If you read the thread in chronological order, you will see that every one of my predictions, from the collapse of Bear/WaMu/Lehmen to AIG and Northern Rock has been made 4-8 months prior to it coming about. I finally came to the conclusion that US debt default was inevitable 5-months ago, be it by debasing of the currency, or simple refusal to pay. I posted as much on this thread at that time.

You would heckle at the sea as the Titanic sank beneath the waves, rather than listen to the danger warnings and opt for a lifeboat.

Originally Posted by bkkandrew

^If you read the thread in chronological order, you will see that every one of my predictions, from the collapse of Bear/WaMu/Lehmen to AIG and Northern Rock has been made 4-8 months prior to it coming about. I finally came to the conclusion that US debt default was inevitable 5-months ago, be it by debasing of the currency, or simple refusal to pay. I posted as much on this thread at that time.

You would heckle at the sea as the Titanic sank beneath the waves, rather than listen to the danger warnings and opt for a lifeboat.

Butterfly is our resident heckler. But by the law of averages hes got to get something right eventually. So far hes been out of luck. Still, he does provide some entertainment.

Hedge funds will be allowed to borrow from the Federal Reserve for the first time under a landmark $200bn programme intended to support consumer credit.

The Fed said on Friday it would offer low-cost three-year funding to any US company investing in securitised consumer loans under the Term Asset-backed Securities Loan Facility (TALF). This includes hedge funds, which have never been able to borrow from the US central bank before, although the Fed may not permit hedge funds to use offshore vehicles to conduct the transactions.

The asset-backed securities to be funded under the programme are pools of credit card receivables, automobile loans and student loans.

The idea is to increase the supply of these loans and reduce borrowing rates by ensuring that the companies that make the loans can sell them on to investors who have guaranteed access to low-cost funding from the Fed.

The TALF is a key plank of the unorthodox strategy set out by the Fed last week as it cut interest rates virtually to zero. Washington insiders expect the programme will be dramatically expanded next year with further capital support from Treasury once the Obama administration takes office.

A senior official in the outgoing Bush administration told the Financial Times it could also be broadened to include new commercial and residential mortgage-backed securities.

The Fed thinks risk premiums or “spreads” for consumer loans are much higher than would be justified by likely default rates, even assuming a nasty recession.

It attributes this to a lack of buying interest in the secondary market where the loans are sold on to investors. By making loans to these investors on attractive terms it aims to increase market liquidity.

Making the scheme open to all US companies is a radical departure for the Fed, which normally supports financial market liquidity indirectly by ensuring banks have adequate liquidity to make loans to other investors.

However, the liquidity the Fed is providing to banks is not flowing through to financial markets, because banks are balance-sheet constrained and risk-averse. So it is channelling funds directly to investors.

The scheme is not designed specifically for hedge funds and a wide range of financial institutions are likely to participate.

Nonetheless, Fed officials hope that hedge funds will be among those investors that take advantage of the low-cost finance to drive down spreads.

The loans will be secured only against the securities and not the borrower. However, the Fed will lend slightly less than the value of the securities pledged as collateral. The Treasury has committed $20bn to cover potential losses.

Since the credit crisis erupted, hedge funds have complained that they cannot get the leverage they need to arbitrage away excessive spreads and meet high hurdle rates of return.

“Demand is there for leverage but not supply,” said Sylvan Chackman, head of global equity financing at Merrill Lynch.

In effect, the Fed will now take on the role of prime broker – the lead bank that lends to a hedge fund – for specific assets.


From:

FT.com / US / Economy & Fed - Hedge funds gain access to $200bn Fed aid

This has to be a joke? Under this scheme Mr Made-off would even be able to nick money from the FED.

Hey, its only funny money they are playing with. The rest of the world will end up paying. So why should they care?

Originally Posted by Panda

Butterfly is our resident heckler. But by the law of averages hes got to get something right eventually. So far hes been out of luck. Still, he does provide some entertainment.

Well, I am glad you two have found each other and fondling each other cock. A pathetic liar and a know-it-all part time tourist, what a lovely couple. Panda, instead of masturbating in public and being the usual total loser, why don't you go jerk off on a tree instead for a change ? Thank you

^Yet another high-brow contribution from the heckler, this time obsessing about male genitalia. Obviously the, ahem, 'enhanced' corner of Nana rejected him for the second night running...

How To Survive The Coming Credit Card Crisis


Plastic is shaping up to be the next chapter in the financial meltdown. What you need to know.


While the economy tumbles and the government rushes to help stop the housing crisis, another danger is lurking--in your wallet.

Credit cards are shaping up to be the next chapter in the financial meltdown, promising to stymie consumer spending, drag on the economy and force a whole new wave of financial difficulty on Americans.

On Monday, Capital One disclosed rising delinquencies and loan losses for the month of November because of unemployment and the weakening economy. Loans at least 30 days past due made up an annualized 4.7% of the portfolio, up from 4.48% in October and loans charged-off rose to an annualized 6.98% from 6.54% in October.

To combat the risks, major lenders like Bank of America (nyse: BAC - news - people ), Citigroup (nyse: C - news - people ) and American Express (nyse: AXP - news - people ) are raising rates on existing balances and slashing credit lines. Meredith Whitney, an analyst at Oppenheimer & Co., estimates banks will cancel $2 trillion of available consumer credit over the next year.

Continued here:

How To Survive The Coming Credit Card Crisis - Forbes.com

Oh dear, some people rely on credit cards apparently...

MADRID (AFP) — The governor of the Bank of Spain on Sunday issued a bleak assessment of the economic crisis, warning that the world faced a "total" financial meltdown unseen since the Great Depression.

"The lack of confidence is total," Miguel Angel Fernandez Ordonez said in an interview with Spain's El Pais daily.

"The inter-bank (lending) market is not functioning and this is generating vicious cycles: consumers are not consuming, businessmen are not taking on workers, investors are not investing and the banks are not lending.

"There is an almost total paralysis from which no-one is escaping," he said, adding that any recovery -- pencilled in by optimists for the end of 2009 and the start of 2010 -- could be delayed if confidence is not restored.

"This is the worst financial crisis since the Great Depression" of 1929, he added.

AFP: World faces "total" financial meltdown: Bank of Spain chief

Ooh-er, he must have been reading this thread!

I thought that it was appropriate to post this for a historical reminder:

In 1720, the South Sea Company was given a monopoly on all trade with South America. In return for this monopoly, the South Sea Company agreed to service the National Debt, which England had incurred during the War of the Spanish Succession.

Creditors could exchange their claims for shares in company stock. As members of the government were involved in the South Sea Company, it was to their benefit to drive up the price of the stock – including through artificial means.

The South Sea stock rose from £170 in February to over £1,000 in June. Speculation ran wild and all sorts of companies appeared, hoping to cash in on the shares mania.

Most of these companies were bogus schemes, selling shares in all sorts of ridiculous ventures, from building floating mansions to manufacturing a gun that would fire square cannon balls.

The most ludicrous of all was “a company for carrying on an undertaking of great advantage, but nobody to know what it is.” In five hours, the owner managed to raise £2,000 – and fled to the Continent the following day.

When asked to commentate the situation, Sir Isaac Newton said: “I can calculate the motions of heavenly bodies, but not the madness of people.” The famous scientist himself lost twenty thousand pounds when the bubble eventually burst in the summer of 1720.

People all over the country lost money, bankruptcies reached an all-time high and suicides became a daily occurrence. A committee was formed to investigate and found widespread corruption and fraud among the directors and their friends in Parliament.

Even King George I became involved. His two German mistresses – the Countess of Darlington and the Duchess of Kendal (aka the Elephant and Castle) – were heavily involved in the South Sea Company and were blamed by the populace as being responsible.

Sir Robert Walpole was appointed Chancellor of the Exchequer and eventually managed to restore public confidence. For this, he became the country’s first Prime Minister and awarded a house at 10 Downing Street.

The question I would ask as we get to the present calamity is where is today's Walpole?

Madoff Victims May Have to Return 6 Years of Profits, Principal

Dec. 23 (Bloomberg) -- Like some of Bernard Madoff’s clients, a Florida restaurant owner was lucky enough to withdraw part of his investment before the money manager allegedly confessed to a $50 billion Ponzi scheme. Now he’s worried he might be asked to give it back.

The 53-year-old investor, who asked not to be identified to protect his stake, took out about $600,000 this year from his $1.5 million account, using some of it to pay down a mortgage. He and other Madoff clients who withdrew funds as long as six years ago may be sued on behalf of other victims to return profits and even principal, securities and bankruptcy lawyers say.

“Right now there are Madoff winners and Madoff losers,” said Lynn LoPucki, who teaches bankruptcy law at Harvard University. “Before this is over there will be nothing but Madoff losers.”

Clients of Madoff had about $36 billion with his firm, according to a Bloomberg tally that may include some double counting. Before his arrest on Dec. 11, Madoff, 70, confessed to employees that his “giant Ponzi scheme” may have cost as much as $50 billion, according to an FBI complaint. His misconduct may have stretched back to at least the 1970s, two people familiar with the government’s inquiry of Madoff said last week.

The Florida investor, who first gave his money to Madoff five years ago, said he had no hint of fraud and would go to jail rather than give up the amount he took out.

Irving Picard, the trustee appointed to liquidate Madoff’s brokerage, Bernard L. Madoff Investment Securities LLC, holds the fate of the restaurant owner and other investors in his hands.

Enough Funds Left?

Picard, who didn’t return a call seeking comment on plans to sue victims to recover funds, said in a court filing yesterday that “there has not been any showing or determination that there are sufficient funds” to satisfy victim claims.

A so-called clawback of paid-out funds in the Madoff liquidation could result in lawsuits against investors such as charities, hedge funds and individuals who redeemed profits and took out principal. Nonprofit institutions such as the Carl and Ruth Shapiro Family Foundation, a foundation controlled by Democratic U.S. Senator Frank Lautenberg of New Jersey, and Yeshiva University relied on funding from Madoff investments.

Lawyers and representatives of the Shapiro and Lautenberg foundations didn’t return calls seeking comment. In a statement, Rick Matthews, a Yeshiva University spokesman, said, “Our lawyers and accountants are in the process of an investigation.”

‘Further Risk’

“Charities are looking at their legal options as regarding their right to recoup money,” said Mark Charendoff, president of the New York-based Jewish Funders Network, whose 1,000 members fund Jewish causes and are assessing losses from Madoff investments. “I don’t know that they’ve been focused on or are aware that they may in fact be at further risk of loss.”

Bankruptcy laws authorize a trustee like Picard to recover money that was distributed as part of a fraud and share it among the victims, LoPucki said.

“The purpose of these laws is to balance the losses among the various investors, but how that balance is supposed to be struck is not clear,” LoPucki said.

Under New York state law, which can be invoked for Madoff recoveries, a trustee can seek redemptions going back six years, said Tracy Klestadt, a New York bankruptcy lawyer.

In a similar case, U.S. Bankruptcy Judge Adlai Hardin in White Plains, New York, ordered investors of defunct hedge-fund manager Bayou Group LLC in October to disgorge profits they’d taken out. Investors were required to pay back any gains they’d redeemed involving “fictitious profits.” Before the fraud was discovered, Bayou paid out more than $135 million, according to court papers.

Bloomberg.com: Worldwide

So Made-Off winners now set to become losers. Oh dear. A boost for the legal sector though!

.

As he famously stated that nothing was untoward in Iceland - he won't acknowledge the position on the ground now:

Iceland ‘Like Chernobyl’ as Meltdown Shows Anger Can Boil Over


By Ben Holland

Dec. 23 (Bloomberg) -- It was the week before Christmas in Reykjavik, and all through the town Eva Hauksdottir led a band of 60 whistle-blowing, pan-banging, shouting demonstrators.

“Pay your own debts,” they yelled as they visited one bank office after another in Iceland’s capital. “Don’t make the children pay.”

When she isn’t leading one of the almost daily acts of protest in this land devastated by the global financial meltdown, Hauksdottir sells good luck charms made from the claws of ptarmigans, a local bird, and voodoo dolls in the form of bankers. She says she expects to lose her home, worth less than when she bought it two years ago, after the amount she owes jumped more than 20 percent.

Unrest following the end of a five-year economic boom is overshadowing the holidays in a country of 320,000 near the Arctic Circle, where the folklore is filled with magic, trolls and elves. Expansion ended with the collapse of the U.S.
subprime mortgage market. The fallout in Iceland may presage civil disruptions elsewhere, as job losses multiply and credit bills come due. Few nations can count themselves safe, says Ian Bremmer, president of the New York-based Eurasia Group, which analyzes political risk for businesses.

“As people have their expectations changed radically, you can have protests come out of nowhere,” even in developed countries, Bremmer said.

‘Maybe Axes’

Riots in Greece this month, sparked by the police shooting of a teenager, became tinged with economic dissension. A group of Kuwaiti equity traders marched on the emir’s office in October to demand the closing of the stock exchange to stem losses. Even in U.S. cities, civil disorder is “conceivable” if unemployment rises above 10 percent from November’s 6.7 percent, Bremmer says.

Hauksdottir, the owner of a Reykjavik witchcraft shop, says over a cup of thyme and juniper tea that only civil disobedience can force banks to stop collecting debts that people can’t pay.

“We’ll use our voices, and then if we have to we’ll use our hands, and maybe axes,” Hauksdottir says.

At Reykjavik’s half-built concert hall, a symbol of the good times that juts from the harbor toward the North Pole, the visitor center is closed to visitors. The principal owner, Landsbanki Islands hf, failed in October. Marketing director Thorhallur Vilhjalmsson says he’s making ends meet on severance pay.

“Iceland right now is like Chernobyl after the blast,” Vilhjalmsson says. “It looks normal, but there’s radiation.”

Kicking Down Doors

The protests may escalate as bills come due and severance pay runs out for those who lost jobs at the three biggest lenders, including Landsbanki, the second-largest, says Stefan Palsson, a historian. He once led the Campaign Against Militarism, opposing NATO bases in the 1960s.

He said he’s surprised ordinary people are backing activists once considered “hooligans.” There was public outrage three years ago when environmentalists poured yogurt over aluminum representatives to protest a new plant.

“Now you have protesters kicking down doors at police stations, and respectable elderly people saying ‘Well, they’re young and full of enthusiasm, and anyway, they’re right!’” he said.

Inflation rose to 18.1 percent this month, and the International Monetary Fund predicts that Iceland’s economy will shrink 9.6 percent next year. The Washington-based global lender of last resort put together a rescue package for the country worth as much as $5.3 billion last month.

Bloomberg.com: Worldwide

I predict a similar article will be published about the UK this time next year... As for the US, well.........

Originally Posted by bkkandrew

Madoff Victims May Have to Return 6 Years of Profits, Principal

Dec. 23 (Bloomberg) -- Like some of Bernard Madoff’s clients, a Florida restaurant owner was lucky enough to withdraw part of his investment before the money manager allegedly confessed to a $50 billion Ponzi scheme. Now he’s worried he might be asked to give it back.

The 53-year-old investor, who asked not to be identified to protect his stake, took out about $600,000 this year from his $1.5 million account, using some of it to pay down a mortgage. He and other Madoff clients who withdrew funds as long as six years ago may be sued on behalf of other victims to return profits and even principal, securities and bankruptcy lawyers say.

Yeah, right.

This is hard to believe. Oh, wait: maybe it is.

I am beginning to think that teaching here in SEA is a solid alternative to returning to the US to work, and try to save and get ahead.

“Right now there are Madoff winners and Madoff losers,” said Lynn LoPucki, who teaches bankruptcy law at Harvard University. “Before this is over there will be nothing but Madoff losers.”

Sounds like 302 million in the US.

All losing.