So, I took off my "the world is falling" hat and found something upbeat to write about today.
Once upon a time, things looked like the victimized investors in Bernie Madoff's trading programs would be completely wiped out. Now, it appears virtually certain that a material recovery of assets is in the offing.
Last month, the estate of Jeffry Picower, an investor in Bernard Madoff's Ponzi scheme, who died last fall, is expected soon to pay at least $2 billion to other Madoff investors burned by the fraud, according to a court order.
The potential recovery from the settlement would more than double the $1.5 billion gathered so far by trustee Irving Picard, who represents investors.
A lawyer for Mr. Picard previously said in court that he might be able to recover as much as $10 billion for investors, or about half the amount they collectively lost from the fraud. Of course, that assumes that the total size of claims is NOT the $50-$60 billion originally estimated, but closer to $20 billion as the trustee maintains.
William Zabel, a lawyer for the Picower estate, previously said the estate would hand over at least $2 billion. That is approximately the amount Mr. Picower and other entities associated with him withdrew from Mr. Madoff's investment firm in the six years before it collapsed, in December 2008, Mr. Zabel said. The trustee has a strong claim to that money under bankruptcy law.
As a result of the virtual certainty that assets will be available to distribute, the free market has now created a mechanism for victims to get liquidity in advance of the final settlement, which still may be years in the offing.
ASM Capital, a firm which makes markets in various contingent claims, is offering either to make an immediate payment of 20% of claims in exchange for the full claim, or make an upfront payment of 16% of the claims, with the investor keeping 33% of future recoveries. For those with claims less than $1 million, the payout could be slightly less, ASM says.
For an investor with a claim of $1 million, for example, ASM will write a check for $200,000 in exchange for the full claim; or the investor could take $160,000 plus 33% of future proceeds ASM receives above that amount. Those sums would be in addition to any $500,000 payouts made by Securities Investor Protection Corporation (SIPC) to investors. Any amounts covered by the SIPC, however, are thought to apply to very few investors and are expected to be limited.
If all works to Mr. Picard's plan, investors might see as much as 50 cents on the dollar. Mr. Picard acknowledges that this is far from certain, but it is giving some investors hope.
ASM says it is working on deals with about a dozen or so Madoff investors, including individuals, charities and foundations.
As for losses, Mr. Picard has said they could top off at $20 billion or less. But, litigation currently under way challenges Mr. Picard's methodology determining which victims of Mr. Madoff should be entitled to claims. So far, a court has affirmed Mr. Picard's view, which yields a smaller pool.
Given these factors, victims could see anywhere from around 50 cents on the dollar (if the recovery is $10 billion and the pool $20 billion) to less than 15 cents (if the pool is considered $60 billion), Mr. Picard says.
Either way, a verified claimant today could receive a guaranteed 20% and forego the timing uncertainty. While this is a far cry from a complete recovery, it is a far better outcome than investors could expect even a few months ago.
Marko's Take
Speaking of Ponzi schemes, there is no one bigger than our very own "Social Security". For a 7-step solution to fix this problem, please visit our latest You Tube video blog, entitled "Social In-Security: The Solution", by clicking here http://www.youtube.com/markostaketv#p/u/0/7Rl6XtobFpE.
Showing posts with label bernie madoff. Show all posts
Showing posts with label bernie madoff. Show all posts
Sunday, June 6, 2010
Thursday, February 4, 2010
Social In-Security: The Problem
While developed by a man named Charles Ponzi, the idea of a pyramid scheme has never been employed on such a large scale as that used by our very own government. That system is known as Social Security (SS)!
A Ponzi scheme is a fraudulent investment operation that pays returns to different investors from their own money or money paid by SUBSEQUENT investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from NEW investors to keep the scheme going.
The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the example of Bernard Madoff illustrates the ability of a Ponzi scheme to delude both individual and institutional investors, as well as securities authorities for long periods. Madoff's variant of the Ponzi Scheme stands as the largest financial investor fraud in history committed by a single person. Prosecutors estimate losses at Madoff's hand totalling $64.8 billion.
Social Security is nothing more than a Ponzi scheme on a massive scale. In its case, it only functions as long as young payees exceed older retirees by a large fraction. When it was created, there were 16 contributors to every taker. Now, that ratio is closer to 2 to 1.
The system is also known as an "inter-generational transfer" - a fancy way of legalizing the theft from young people by old people. Not that old people are thieves, most don't understand the system because the government has repeatedly lied about SS's mechanics. We have been told that a "trust fund" exists. This fund is supposedly related to the amount that all of us contributors put into the system during our working lifetime. That's NOT true.
In reality, SS is no different than that practiced by Bernie Madoff. New "contributors" are needed to fund older beneficiaries. When the system was initiated, the beneficiaries hadn't paid a dime. Over time, as benefits were raised to curry favor among older voters, who represent a powerful voting block, younger people have been saddled with greater taxes.
But the greater taxes that show up on a "contributor's" W-2 is only HALF of what that person is responsible for. In order to disguise the sheer onerousness of the tax, the government has split the "take" between the employee and the employer. An employer must look at the TOTAL costs of adding a body. If an employer figures that adding a new body will cost the company $100,000, the amount of "contribution" mandated for the hiring company to make must be factored into the decision. So, the employer contribution is, in reality, borne by the employee his or her self!
The fraud further continues as it applies to the "budget deficit". SS is only considered in the budget deficit calculation on a "cash" basis, meaning that if more is paid in than is taken out, the cash "surplus" is used to offset the rest of the deficit. For ANY other corporation, the accounting rules would be different. The company would be required to report as a liability the ENTIRE amount of pension it is likely to incur over the employees' lifetime. If that same requirement were applied to Uncle Sam, the National Debt would explode by DOUBLE or TRIPLE its current amount!
Until recently, the SS System was "cash flow positive". However, as pointed out in an article by Allan Sloan of Fortune, that may no longer be true (http://finance.yahoo.com/focus-retirement/article/108747/next-in-line-for-a-bailout-social-security?mod=fidelity-readytoretire).
The SS time bomb has been ignored by lawmakers for years. Now, among all the other problems plaguing our financial system, SS has crept up without much scrutiny and notice.
Tomorrow, in "Social In-Security: The Solution", I'll give it a real Marko's Take-type swipe at steps we need to execute immediately to fix the problem.
If you LOVE SS and want to get your two cents in, you know what to do... TAKE ME ON!
Marko's Take
A Ponzi scheme is a fraudulent investment operation that pays returns to different investors from their own money or money paid by SUBSEQUENT investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from NEW investors to keep the scheme going.
The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the example of Bernard Madoff illustrates the ability of a Ponzi scheme to delude both individual and institutional investors, as well as securities authorities for long periods. Madoff's variant of the Ponzi Scheme stands as the largest financial investor fraud in history committed by a single person. Prosecutors estimate losses at Madoff's hand totalling $64.8 billion.
Social Security is nothing more than a Ponzi scheme on a massive scale. In its case, it only functions as long as young payees exceed older retirees by a large fraction. When it was created, there were 16 contributors to every taker. Now, that ratio is closer to 2 to 1.
The system is also known as an "inter-generational transfer" - a fancy way of legalizing the theft from young people by old people. Not that old people are thieves, most don't understand the system because the government has repeatedly lied about SS's mechanics. We have been told that a "trust fund" exists. This fund is supposedly related to the amount that all of us contributors put into the system during our working lifetime. That's NOT true.
In reality, SS is no different than that practiced by Bernie Madoff. New "contributors" are needed to fund older beneficiaries. When the system was initiated, the beneficiaries hadn't paid a dime. Over time, as benefits were raised to curry favor among older voters, who represent a powerful voting block, younger people have been saddled with greater taxes.
But the greater taxes that show up on a "contributor's" W-2 is only HALF of what that person is responsible for. In order to disguise the sheer onerousness of the tax, the government has split the "take" between the employee and the employer. An employer must look at the TOTAL costs of adding a body. If an employer figures that adding a new body will cost the company $100,000, the amount of "contribution" mandated for the hiring company to make must be factored into the decision. So, the employer contribution is, in reality, borne by the employee his or her self!
The fraud further continues as it applies to the "budget deficit". SS is only considered in the budget deficit calculation on a "cash" basis, meaning that if more is paid in than is taken out, the cash "surplus" is used to offset the rest of the deficit. For ANY other corporation, the accounting rules would be different. The company would be required to report as a liability the ENTIRE amount of pension it is likely to incur over the employees' lifetime. If that same requirement were applied to Uncle Sam, the National Debt would explode by DOUBLE or TRIPLE its current amount!
Until recently, the SS System was "cash flow positive". However, as pointed out in an article by Allan Sloan of Fortune, that may no longer be true (http://finance.yahoo.com/focus-retirement/article/108747/next-in-line-for-a-bailout-social-security?mod=fidelity-readytoretire).
The SS time bomb has been ignored by lawmakers for years. Now, among all the other problems plaguing our financial system, SS has crept up without much scrutiny and notice.
Tomorrow, in "Social In-Security: The Solution", I'll give it a real Marko's Take-type swipe at steps we need to execute immediately to fix the problem.
If you LOVE SS and want to get your two cents in, you know what to do... TAKE ME ON!
Marko's Take
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