Aren't banks actually a form of Ponzi scheme: borrowing from depositors to lend to others? Of course, everyone knows that's the system, and fractional reserve requirements and the oversight of the Federal Reserve, FDIC, etc., are supposed to protect the widows and orphans by making sure the banks don't overdo it or fake it, but the idea is the same. When everybody wants their money back at once, the bank has to come up with the dough, be bought by another bank or be liquidated.
I remember some of the Enron fellows chalked up the firm's demise to a "run on the bank." In that argument, it was all just bad luck, not malfeasance. Juries didn't buy it, nor should they have.
In the Madoff case, the "depositors" didn't have the assurance of a Fed or FDIC that their returns or lack thereof were the result of that manager's good or bad investment decisions, not the ego of a titanic phony who obviously had issues with with the human reality of losing every now and then.
For those of the Greenspanian ilk who chafe at regulation, this is a big blow to their simplistic mantra of "free markets for free men" if it means "free money for con men." If our financial market regulators were publicly traded companies I'd buy the Fed and short the SEC. Call it investing in a Ponzi scheme in which everybody is in on the joke.
Stock pick update to follow when the market closes.
No comments:
Post a Comment