June 30, 2009

Monetizing Truth from Fiction: The Madoff Dilemma

Madoff Investors have a right to be mad. Firstly, with Madoff for swindling them. Secondly, with the regulatory authorities for allowing Madoff to operate as he did. And thirdly, with themselves, for either investing in something the was incomprehensible, or for failing to execute their own due diligence.

Madoff investors are now left to contemplate next steps.

One such step is to go after the Federal Government for taxes paid on Madoff based investment income. This is, in my opinion, a very slippery slope. If the Federal Government was the beneficiary to ill gotten gains, the investor would be liable for the retained balance, which would also need to go back into the recoverable asset pool. This is clearly not what the investor who paid taxes would be looking to hear.

Next we get to actual amounts. Assuming Madoff compounded at ~12% per annum (which I believe is about right), and if you take Madoff's self evidenced confession, that it has been a Ponzi since 1993 (this would have to be verified) an investor from 1993 and prior would only be entitled to 29% of today's loss (assuming no damages).

For the Madoff investor to assume more, they would be forced to take the same belief position that got them here in the first place, and they would have to convince the Government as well.
The scope of the losses, while huge, are not 65 billion as reported. Fictitious gains cannot be counted as real losses.

Here is a summary of a due diligence piece I did on Madoff in 2000 for a client. By the way, the client remained invested, because "Bernie has always made us money".

June 9, 2009

The Free Call Option Imbedded in the Public Private Investment Partnership to buy Toxic Assets

I'm posting this link as there is no point in redrawing the cartoon wheel.

The free option of the Private part of PPIP (The Public part gets to be short the put!)

June 4, 2009

Going Green?

On Tuesday morning, I drove myself and my 16 yr old daughter from Princeton to the Philadelphia Airport to catch a flight home to Bermuda.

Living on an Island that only allows 1 car per house assessment, where water is collected off ones roof, and where astronomical electricity rates insure conservative use, I have become more aware of resource use and waste.

I read a lot about the green movement in the USA, the groundswell of support for "change", the tough economic times for labor and the high cost of energy. Sounds like a recipe for resource conservation, right?

I asked my daughter to count the number of cars we passed with 1 passenger and the number of cars we passed with more than one passenger ( I admit I drive fast!). We were travelling towards a major US city at 8AM, so it is safe to assume that the bulk of the traffic consisted of daily commuters.

The results: sample size 100 cars (we could have done many more but it was getting lame in the words of my daughter) 94 Single Passenger Cars 6 Double Passenger Cars 0 greater than Double Passenger Cars.

These results are more or less consistent with similar observations I've made over the last 20 years.

Carpooling is greener, and more economical than hybrid cars. If the US is really serious, they should institute a road tax on single drivers and use the proceeds to lower the enormous debt that threatens to destroy the purchasing power Americans will need to consume all that fuel.