So much information about the financial crisis, growing number of scandals and frauds,and financial lives ruined has been cirulating in the news media that it has been difficult for me to keep up, let alone sort through it all. I've revisited articles I've read and looked at some of my previous posts to see if I could make more sense of it all.
As I type this post, the talking heads on CNBC are discussing about potential clawbacks related to the Bernie Madoff situation, and how it has touched the New York Carpenters Union retirement fund.
Charlie Gasparino:
"We deal in the snake pit of snake pits, Wall Street...There are a lot of layers to this story."
Unions were under Federal law to diversify, and some put money in alternative funds. The New York State Carpenter's Union followed this edict, and apparently invested some of the member's money in a fund of funds that in turn invested with Bernie Madoff.
Unions, politions, public pension funds, and Wall Street....
I think I'll have to be more patient. I'm waiting for the movie to come out!
For now, here are some links to visit/revisit:
CNBC
Central NY Business News: Charley Hannagan1/3/09
More Central New York labor unions say they were burned by Bernared MAdoff investments Fact vs.fiction
"The United Union of Roofers Waterproofers & Allied Workers Local 195 in Cicero, Plumbers & Steamfitters Local 73 in Oswego and the Empire State Carpenters Fringe Benefit Funds recently sent letters telling members they lost money in investments in Madoff."
The End of the Financial World as We Know It
(Michael Lewis and David Einhorn's OpEd in the New York Times (1/3/09))
"...on the subject of money even our harshest critics have been inclined to believe that we knew what we were doing. They watched our investment bankers and emulated them: for a long time now half the planet’s college graduates seemed to want nothing more out of life than a job on Wall Street.This is one reason the collapse of our financial system has inspired not merely a national but a global crisis of confidence. "Good God, the world seems to be saying, if they don’t know what they are doing with money, who does?"
"What’s interesting about the Madoff scandal, in retrospect, is how little interest anyone inside the financial system had in exposing it."
Prosecutors: Madoff mailed pricey jewelry, should go to jail (Pallavi Gogoi, USA TODAY,1/8/09)
Madoff Misled SEC in '06, Got Off- (Gregory Zuckerman and Kara Scannell, 12/18/08)WSJ.com
Introducing the Bernie Madoff Ringtone! (Cityfile NY)
"The ringtone features a few phrases from a talk Madoff gave in 2007, set, appropriately enough, to the theme music from the horror movie Halloween."
Listen to the Bernie Madoff Ringtone (you can also download it from this link.)
Note: I don't mean to make a joke about the devastation Madoff caused, but since the theme of this blog is sounds and sights, a mention of this ringtone makes sense.
Thursday, January 8, 2009
Satyam Computer Services Fraud
As the weeks unfold, more news of fraud and inappropriate transactions come to light.
According to an article written by Heather Timmons, of the International Herald Tribune, Ramalinga Raju, of Satyam Computer Services (India), resigned on 1/6/09 because of account falsification.
"Addel Halim/Bloomberg News: "Ramalinga Raju, chairman of Satyam Computer Services, told the Bombay Stock Exchange that he did not profit from the accounting problems he disclosed on Wednesday."
"A huge chunk of the company's finances were fake. Of the 53.6 billion rupees in cash and bank balances that Satyam listed as assets at the end of its second quarter, 50.4 billion rupees, or about $1 billion, were nonexistent, Raju said in a letter to the Satyam board that was distributed by the Bombay Stock Exchange"
"Satyam serves as the back office for some of the world's largest banks, manufacturers, health care and media companies, handling everything from computer systems to customer service. Clients have included General Electric, General Motors, Nestlé, McGraw-Hill and the U.S. government. In some cases, Satyam is even responsible for finances and accounting for these clients."
Although many businesses are run with high levels of integrity, it seems that a few people have succumbed to greed and falsification. If the actions of these few people were limited only to a few others within their circle of business associates, this would not be quite a concern.
Much of the financial decisions made around the world by movers and shakers are based on data that is assumed to be true. We put our trust in our financial institutions and the business related to making our financial world hum.
What does it mean for the bigger picture when large companies willingly put money and sensitive financial/accounting data in the hands of people who falsify information or even intentionally conduct their business in a fraudulent manner?
Each time that I learn of another scandal or fraud related to finance/economics, I wonder how these things could go undetected for so long. I have a few thoughts about how this is perpetuated...
"Success: It is about having your eye on the outcome all the time"
Stephen Ward on Compliance Management
"Compliance isn’t just about reporting, or data management, or training, or having the right technologies; it’s all of these together. The overarching intent of all of these compliance programs is to help enterprises address four key areas: information integrity, process integrity, controlled access to information, and secure information retention."
"Creating value for society is an integral part of our business. We believe that contributing to the well-being and development of society is an extension of everything we do....While we undertake urban transformation initiatives through Satyam Foundation, we touch rural transformation through Byrraju Foundation"
Another example of this is what Bernie Madoff's clients and potential clients read on his company's website:
"The Owner's Name is on the Door"
"In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark."
"A Global Leader in Trading US Equities
"With more than $700 million in firm capital, Madoff currently ranks among the top 1% of US Securities firms. Our sophisticated proprietary automation and unparalleled client service delivers an enhanced execution that is virtually unmatched in our industry."
Who will be the next cockroaches we see scurrying around when the light shines?
RELATED
The Seeds of the Satyam Scandal (Elizabeth Corcoran, Forbes, 1/8/09)
"It was a horrifying turn for a man long considered one of India's self-made success stories--and active philanthropists. Other Indian executives are quick to contend this is an isolated case. Even so, a few quietly note that it's hard to imagine how a publicly traded company, which must comply with U.S. Sarbanes Oxley disclosure rules, could have been mislead for so long by one or even two individuals...Raju had been a one-of-a-kind man, deeply loyal to his family, patriarchal toward his employees, benevolent to the poor. And yet, suggest some who have known him, Raju grew up in an environment that enjoyed gambling and so ran his career with the bravado of a gambler."
Investors raise questions over PwC Satyam audit (Rhys Blakely, Times Online 1/8/09)
"It's hard to miss $1 billion of cash," Dennis Beresford, a former chairman of the Financial Accounting Standards Board, the US accounting watchdog, said...Satyam's bogus accounts had been audited by Price Waterhouse, the Indian-based auditor, which is a member firm of Price Waterhouse Cooper International, since the financial year 2000-2001... The company's balance sheet as of March 31, 2008 was signed off by Srinivas Talluri, a partner of Price Waterhouse in Hyderabad, the southern Indian city where Satyam is based."
Satyam scandal could be 'India's Enron' (Reuters/msnbc 1/7/09)
""If a company's chairman himself says they built fictitious assets, who do you believe here? This has put a question mark on the entire corporate governance system in India," said R.K. Gupta, managing director at Taurus Asset Management in New Delhi."
""It was like riding a tiger, not knowing how to get off without being eaten," Raju said in his letter, adding he was prepared to face up to the legal consequences."
According to an article written by Heather Timmons, of the International Herald Tribune, Ramalinga Raju, of Satyam Computer Services (India), resigned on 1/6/09 because of account falsification.
"Addel Halim/Bloomberg News: "Ramalinga Raju, chairman of Satyam Computer Services, told the Bombay Stock Exchange that he did not profit from the accounting problems he disclosed on Wednesday."
"A huge chunk of the company's finances were fake. Of the 53.6 billion rupees in cash and bank balances that Satyam listed as assets at the end of its second quarter, 50.4 billion rupees, or about $1 billion, were nonexistent, Raju said in a letter to the Satyam board that was distributed by the Bombay Stock Exchange"
"Satyam serves as the back office for some of the world's largest banks, manufacturers, health care and media companies, handling everything from computer systems to customer service. Clients have included General Electric, General Motors, Nestlé, McGraw-Hill and the U.S. government. In some cases, Satyam is even responsible for finances and accounting for these clients."
Although many businesses are run with high levels of integrity, it seems that a few people have succumbed to greed and falsification. If the actions of these few people were limited only to a few others within their circle of business associates, this would not be quite a concern.
Much of the financial decisions made around the world by movers and shakers are based on data that is assumed to be true. We put our trust in our financial institutions and the business related to making our financial world hum.
What does it mean for the bigger picture when large companies willingly put money and sensitive financial/accounting data in the hands of people who falsify information or even intentionally conduct their business in a fraudulent manner?
Each time that I learn of another scandal or fraud related to finance/economics, I wonder how these things could go undetected for so long. I have a few thoughts about how this is perpetuated...
- Marketing tools for financial institutions and related business have become sophisticated over the years. For example, websites are designed so that customers have a feeling of confidence and trust, in order to complete on-line financial transactions. Trust is "earned" by the image that the institution projects via the look and feel of the company's website and the messages that are provided visually and through text.
"Success: It is about having your eye on the outcome all the time"
Stephen Ward on Compliance Management
"Compliance isn’t just about reporting, or data management, or training, or having the right technologies; it’s all of these together. The overarching intent of all of these compliance programs is to help enterprises address four key areas: information integrity, process integrity, controlled access to information, and secure information retention."
"Creating value for society is an integral part of our business. We believe that contributing to the well-being and development of society is an extension of everything we do....While we undertake urban transformation initiatives through Satyam Foundation, we touch rural transformation through Byrraju Foundation"
Another example of this is what Bernie Madoff's clients and potential clients read on his company's website:
"The Owner's Name is on the Door"
"In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark."
"A Global Leader in Trading US Equities
"With more than $700 million in firm capital, Madoff currently ranks among the top 1% of US Securities firms. Our sophisticated proprietary automation and unparalleled client service delivers an enhanced execution that is virtually unmatched in our industry."
Who will be the next cockroaches we see scurrying around when the light shines?
RELATED
The Seeds of the Satyam Scandal (Elizabeth Corcoran, Forbes, 1/8/09)
"It was a horrifying turn for a man long considered one of India's self-made success stories--and active philanthropists. Other Indian executives are quick to contend this is an isolated case. Even so, a few quietly note that it's hard to imagine how a publicly traded company, which must comply with U.S. Sarbanes Oxley disclosure rules, could have been mislead for so long by one or even two individuals...Raju had been a one-of-a-kind man, deeply loyal to his family, patriarchal toward his employees, benevolent to the poor. And yet, suggest some who have known him, Raju grew up in an environment that enjoyed gambling and so ran his career with the bravado of a gambler."
Investors raise questions over PwC Satyam audit (Rhys Blakely, Times Online 1/8/09)
"It's hard to miss $1 billion of cash," Dennis Beresford, a former chairman of the Financial Accounting Standards Board, the US accounting watchdog, said...Satyam's bogus accounts had been audited by Price Waterhouse, the Indian-based auditor, which is a member firm of Price Waterhouse Cooper International, since the financial year 2000-2001... The company's balance sheet as of March 31, 2008 was signed off by Srinivas Talluri, a partner of Price Waterhouse in Hyderabad, the southern Indian city where Satyam is based."
Satyam scandal could be 'India's Enron' (Reuters/msnbc 1/7/09)
""If a company's chairman himself says they built fictitious assets, who do you believe here? This has put a question mark on the entire corporate governance system in India," said R.K. Gupta, managing director at Taurus Asset Management in New Delhi."
""It was like riding a tiger, not knowing how to get off without being eaten," Raju said in his letter, adding he was prepared to face up to the legal consequences."
Tuesday, January 6, 2009
Germany's "Warren Buffet", Billionaire Adolf Merckle, Commits Suicide - Update to the Hedge Fund Drama about Porsche & VW stock options
On October 30th, I posted about my confusion about hedge funds and shared a link to an interesting article in the Economist: "Porche and VW - Squeezy money: How Porsche fleeced hedge funds and roiled the world's financial markets"
Well, I am still confused, and saddened. Much has unraveled since that post. Last month, it was Bernie Madoff and the non-existent funds of philanthropic organizations that must close operations, resulting in negative consequences for many.
German billionaire Adolf Merckle's recent suicide adds to the drama.
Mr. Merckle was known as Germany's "Warren Buffet". He was a well-respected man who was involved in the short squeeze on hedge funds, orchestrated by Porsche.
Here is the initial information, from the Wall Street Journal, via the Associated Press:
Mr. Merckle's money was involved in hedge funds involved in short selling- betting that VW's stock would go down, but lost money when it went up instead.
Update:
'Broken' Billionaire Merckle Killed Self, Family Says
(Bloomberg)
Here is an excerpt from my earlier post about hedge funds, short selling, VW, and Porsche:
"No matter how hard I try, I still don't quite understand hedge funds.
According to an article in today's Economist (10/20/08), "hedge funds sold shares in VW that they did not own." From what I can tell, companies such as Morgan Stanley and Goldman Sachs and the likes might have "exposure" to VW. There is no telling, right?!
I guess if things were transparent, the general public might have a better idea of what is going on, and perhaps have a better chance of making better data-driven financial decisions. Right now, people are third-guessing. What a game the world has been playing!
From the article:
"Adam Jonas of Morgan Stanley warned clients on October 8th of the danger of playing “billionaire’s poker” by betting against Porsche."
That sounds about right.
Yes.
Billionaire's Poker. "
RELATED
Billionaires' lustre dims as crisis grips -Reuters 12/30/08, Via Guardian
Merckle’s VEM Investment Unit Says Bank Claims Frozen (Update2) -Bloomberg 12/30/08
"Adolf Merckle, whose holdings span the cement, machinery and drug industries, was battered by wrong-way bets on Volkswagen AG, a drop in the value of his HeidelbergCement AG stock and increasing debt at his companies. The 74-year-old, whose estimated $9.2 billion fortune put him 94th on Forbes’ list of the world’s richest people, had previously threatened to seek insolvency for VEM if banks didn’t provide financing."
FACTBOX - German billionaire Merckle's business conglomerate - Thomson Financial News 1/6/09
"Porche and VW - Squeezy money: How Porsche fleeced hedge funds and roiled the world's financial markets" (This article is a must-read, along with the comments.)
"Porsche crashes into controversy in the ultimate 'short squeeze'"
""This is the culmination of long-held plans to take over VW. Porsche engineered the squeeze as one of the most brilliantly conceived wealth transfers ever: they've got the hedge funds positioned to pay for Porsche's acquisition of VW. The only thing they underestimated was the scale of the fallout," said an insider."
The Madoff Economy (New York Times Op-Ed, Paul Krugman, 12/19/08)
Well, I am still confused, and saddened. Much has unraveled since that post. Last month, it was Bernie Madoff and the non-existent funds of philanthropic organizations that must close operations, resulting in negative consequences for many.
German billionaire Adolf Merckle's recent suicide adds to the drama.
Mr. Merckle was known as Germany's "Warren Buffet". He was a well-respected man who was involved in the short squeeze on hedge funds, orchestrated by Porsche.
Here is the initial information, from the Wall Street Journal, via the Associated Press:
"BERLIN -- The family of Adolf Merckle said the German billionaire committed suicide after his business empire got into trouble because of the global financial crisis.
A brief family statement Tuesday did not give details on the circumstances of the 74-year-old investor's death. It said the problems his holdings suffered due to the financial crisis "broke" him and "he ended his life."
Mr. Merckle's business interests included drug maker Ratiopharm International GmbH and cement maker HeidelbergCement AG.
The newspaper Die Welt reported that Mr. Merckle was struck by a train near Ulm, Germany and died Monday night."
"Mr. Merckle has recently been in the news with reports that he lost money in transactions involving Volkswagen AG shares when the company's stock surged at the end of October."
—Dow Jones Newswires contributed to this story. Copyright © 2009 Associated PressMr. Merckle's money was involved in hedge funds involved in short selling- betting that VW's stock would go down, but lost money when it went up instead.
Update:
"The plight of his firms caused by the financial crisis, the uncertainties of recent weeks as well as the powerlessness of not being able to do anything, broke this passionate family businessman and he ended his life," a statement said.
Merckle, 74, headed the world's 94th biggest fortune, according to Forbes magazine, with a total net worth last March of $9.2 billion." - Wealth Bulletin'Broken' Billionaire Merckle Killed Self, Family Says
(Bloomberg)
Here is an excerpt from my earlier post about hedge funds, short selling, VW, and Porsche:
"No matter how hard I try, I still don't quite understand hedge funds.
According to an article in today's Economist (10/20/08), "hedge funds sold shares in VW that they did not own." From what I can tell, companies such as Morgan Stanley and Goldman Sachs and the likes might have "exposure" to VW. There is no telling, right?!
I guess if things were transparent, the general public might have a better idea of what is going on, and perhaps have a better chance of making better data-driven financial decisions. Right now, people are third-guessing. What a game the world has been playing!
From the article:
"Adam Jonas of Morgan Stanley warned clients on October 8th of the danger of playing “billionaire’s poker” by betting against Porsche."
That sounds about right.
Yes.
Billionaire's Poker. "
RELATED
Billionaires' lustre dims as crisis grips -Reuters 12/30/08, Via Guardian
Merckle’s VEM Investment Unit Says Bank Claims Frozen (Update2) -Bloomberg 12/30/08
"Adolf Merckle, whose holdings span the cement, machinery and drug industries, was battered by wrong-way bets on Volkswagen AG, a drop in the value of his HeidelbergCement AG stock and increasing debt at his companies. The 74-year-old, whose estimated $9.2 billion fortune put him 94th on Forbes’ list of the world’s richest people, had previously threatened to seek insolvency for VEM if banks didn’t provide financing."
FACTBOX - German billionaire Merckle's business conglomerate - Thomson Financial News 1/6/09
"Porche and VW - Squeezy money: How Porsche fleeced hedge funds and roiled the world's financial markets" (This article is a must-read, along with the comments.)
"Porsche crashes into controversy in the ultimate 'short squeeze'"
""This is the culmination of long-held plans to take over VW. Porsche engineered the squeeze as one of the most brilliantly conceived wealth transfers ever: they've got the hedge funds positioned to pay for Porsche's acquisition of VW. The only thing they underestimated was the scale of the fallout," said an insider."
The Madoff Economy (New York Times Op-Ed, Paul Krugman, 12/19/08)
Saturday, January 3, 2009
John Quiggin's Series on Refuted Economic Doctrines
Ryan Lanham shared a link regarding John Quiggin's series on refuted theories of modern economics and finance. I am sharing this link not to support one doctrine over another, but simply to add the information to my on-going collection about economy and finance.
I know that many people are hoping that if they just cross their fingers and hold their breath, the economy as we previously understood it during the best years of the first decade of this century will return. Things simply will not work the same way as before, in my opinion, partly because of the pervasiveness of this many-layered phenomenon.
It is important for everyone to look at the various plates of economic theory spinning around!
I know that many people are hoping that if they just cross their fingers and hold their breath, the economy as we previously understood it during the best years of the first decade of this century will return. Things simply will not work the same way as before, in my opinion, partly because of the pervasiveness of this many-layered phenomenon.
It is important for everyone to look at the various plates of economic theory spinning around!
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