The "Lipstick Economy"

Dr. Mark Perry has blogged about this before, but since I haven't mentioned it here before, it's worth noting his most recent post on the topic, from his Carpe Diem blog on Sunday, "Happy Father's Day; Welcome The "Lipstick Economy" And Major Jobless Rate and Degree Gaps". Below are the charts Dr. Perry used to illustrate the gender gaps in jobless rates and college degrees, followed by a quote from him.




Dr. Perry speculating on the implications of these trends:

On this Father's Day, we should maybe recognize that we are witnessing what might possibly be a permanent structural change in the labor market and higher education, which will have profound and lasting implications for family roles, career choices, divorce settlements and child custody decisions by family courts, public policy, etc.

For example, just thinking out loud here, would it be possible in the future that a college-educated, professional woman working full-time would pay alimony to her unemployed ex-husband who hasn't found employment since the Great Mancession of 2008, and he might also get primary custody of the children and be paid child support?

The photo above, of the Lipstick Building in Midtown Manhattan, comes from Laura's NYC Tales. Incidentally, this is the building in which Bernie Madoff's ponzi operation was headquartered.

Queens Congressman Rips the SEC

Hat tip to Brian Beutler, who's filling in for Matt Yglesias on Yglesias's blog: below is Rep. Gary Ackerman, Democrat of Queens, NY, going off on a few SEC officials for missing the Madoff fraud, even after Harry Markopolous had pointed it out to them (see "More on Madoff" for Markopolous's letter to the SEC).

Another Madoff Investor: Uma Thurman's Fiancé

This month's Bloomberg features an article about the French fund-of-fund manager Arpad Busson, who happens to be engaged to Uma Thurman: "Uma Thurman No Help to Arpad Busson in Madoff Fraud’s Nightmare". Excerpt:

Arpad Busson is angry. He’s just looked at the latest returns of a hedge fund he used to invest in; it’s down more than 60 percent in the past nine months.

“That a-hole!” Busson says of the New York-based manager, as he walks out of the conference room at the Mayfair offices of EIM SA, the $11.5 billion fund-of-hedge-funds firm of which he is founder and chairman. Though EIM yanked its money out of the fund in April 2008, when it was down only 25 percent, Busson says there are too many like it out there.

“If these managers are not focused on preservation of capital, they should not have the right to manage other people’s money,” he says.

Busson’s opinion matters. Since he launched EIM in 1992, he has been instrumental in luring billions of dollars of public and corporate pension money into his and other funds of funds. The industry, which Busson helped pioneer, allows investors to spread their risk among hedge funds with different strategies.

Busson gets dinged later in the article for allocating a small percentage of his clients' funds to Madoff's firm:

An investment with Madoff was a litmus test for whether a fund of funds did proper due diligence, says Salomon Konig, who invests about $75 million with funds of funds as chief investment officer at Aventura, Florida- based investment firm Artemis Capital Partners LLC. “Whenever a fund had money with Madoff, it raised a red flag,” Konig says. “It meant they were chasing returns.”

It's worth reading the rest of the article for some insight into the origins of the fund-of-fund industry, and for the story of how the enterprising Busson leveraged his connections from an affluent upbringing to become a lot wealthier.

The photo on the top left, of Busson and Thurman, is from Bloomberg. The photo on the top right, is of the French actor Mathieu Amalric, who bears a striking resemblance to Busson. Almaric starred as the villain in last year's James Bond film Quantum of Solace, and was perhaps best known in the U.S. before that for his role as the stroke-paralyzed Elle editor Jean-Dominique Bauby in the French film The Diving Bell and the Butterfly.

"Madoff Scheme Uncovered"

Hat tip to reader S.L. for this.

Madoff Made Off With My State Senator's Money

Hat tip to Cheryl for forwarding me this article from Yahoo! Finance, "NJ state senator loses $1.3M life savings". Excerpts from the article:

TRENTON, N.J. (AP) -- New Jersey Sen. Loretta Weinberg's nest egg had grown to about $1.3 million before investments with disgraced Wall Street investor Bernard Madoff wiped her out.

The 73-year-old grandmother believed she was financially secure until recently, when an accountant phoned a relative to say the Weinberg family's investments -- including the senator's and those of many in her family -- were now worth nothing.

[...]

"I was shocked first of all," said Weinberg, a Democrat representing Bergen County. "I had never heard of Bernie Madoff. My money was invested, along with many extended family members, with a financial adviser in Los Angeles."

The Weinbergs' money manager, Stanley Chais, had invested his clients' IRAs, 401Ks and other funds with Madoff.

[...]

Despite losing her life savings, Weinberg, who makes $49,000 a year as a state legislator, isn't moping.

The liberal lawmaker said she still has the work that she loves and the ability to pay her mortgage.

"I'm really better off than a lot of people around us in our society today," she said. "I may be better off than some of the people who got ripped off in this scandal."

Weinberg's even come up with laugh lines about her predicament.

For example, she's been joking with friends that she's going to earn money by starting a new franchise: Granny's Pizza Delivery. The deliverers will use walkers that have been retrofitted with pizza-warming trays. She laughingly predicts that those grannies, including her, could pull in big tips.

I can't say I've ever voted for the lady, who has been called the most liberal politician in New Jersey (although my father volunteered for her when she was an assemblywoman), but I give her credit for holding onto her sense of humor in the face of this disaster.

The photo above, of Senator Weinberg with President-elect Obama, is from Senator Weinberg's website.

More on Madoff

In a recent post ("Edelheit on the Madoff Scandal") we quoted Aaron Edelheit's three key points on why investors should have been wary of Madoff's fund. Back in 2005, Harry Markopolous sent the SEC a 21-page letter titled, "The World's Largest Hedge Fund is a Fraud". Below, via Clusterstock.com, is that letter, in which Markopolous cited 29 red flags relating to Madoff's fund.

Markopolos Madoff Complaint

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Edelheit on the Madoff Scandal

This excerpt is from one of Aaron Edelheit's more informative recent posts, "Negligence and Culpability":

There are three key points that should have stopped people from investing with good ol Bernie:

1)He held custody of his own money. Every financial fraud of recent memory all had one thing in common, the person committing the fraud had possession of the money. There are simply too many conflicts of interest when the person managing the money possesses the money and there are no safeguards.

2)His auditor was a firm no one ever heard of. Not only that but it had three employees, one of whom apparently worked in a tie die shirt for 15 minutes a day. Not only do I have a big name auditor, who is expensive, but I actually have three different accountants from different firms. One is my auditor, one is my administrator and the other approves whenever I, personally, withdraw money. These are all safeguards for investors, so that they know there are procedures and many eyes making sure everything is picture perfect.

3)Abnormal consistency of his returns. As this year shows very clearly, there is simply no way for an investment strategy to show consistent positive returns [Madoff showed a positive return every month, I believe]. There is always something that throws a monkey wrench in it, even for a short period of time and you should be paranoid by someone claiming to never show volatility.

Great Name for a Hedge Fund Adviser

From the Financial Times's front pager on the Madoff scandal ("Madoff fallout spreads worldwide"):

“This was the train wreck that happened in broad daylight,” said Jim Hedges, a hedge fund adviser who did not place any investors’ money with Bernard Madoff Investment Securities.

A Question about the Madoff Scandal

Why confess now? If you're running a Ponzi scheme, and investors are starting to ask for their money back, why not do what other, putatively legitimate, hedge fund firms have done and announce that you are restricting withdrawals for a few months while you sort out illiquid positions? You'd still have the problem that your actual assets are significantly less than what you have claimed, but, again, why the need to confess the scheme? Let's say that the returns you've claimed imply that you have $50 billion in assets under management, but you only have $15 billion. Wouldn't 2008 be a convenient year to blame the difference on suffering catastrophic investment losses?

I guess Madoff's sense of guilt caught up with him, but it seems like an awful year such as this one would be one in which it might be possible to unwind a Ponzi scheme without getting caught.