tag:blogger.com,1999:blog-8607093527751357203.post6093097780426199319..comments2024-03-27T02:19:13.052-07:00Comments on Quiet Highway: Saga of a Gentleman: H.R. 2798: Madoff's Investors Ask for a Congressional BailoutMatt Rafathttp://www.blogger.com/profile/13256519881560435397noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-8607093527751357203.post-39443114190660960582009-07-03T23:58:19.170-07:002009-07-03T23:58:19.170-07:00I agree the SEC should have done a better job, but...I agree the SEC should have done a better job, but American taxpayers shouldn't be forced to reimburse any investor because of the SEC's negligence. The big banks and financial institutions lobbied hard for deregulation, got what they wanted, and then took advantage of the situation. After the Gramm-Leach-Bliley Act, financial institutions had a responsibility to self-regulate. They--not the American taxpayer--failed. <br /><br />You said, "You cannot find one Madoff investor who will support a taxpayer bailout." You are incorrect. Madoff's investors have already asked for a taxpayer bailout:<br /><br />"[S]ome government aid is a very logical request," said Robert Schachter, [who] is representing several Madoff victims. "If we're bailing out Wall Street and the auto industry, maybe these individuals should be bailed out too." <br /><br />http://origin.foxnews.com/wires/2008Dec18/0,4670,MadoffScandalInsurance,00.html<br /><br />You also say, "SIPC is funded by the member brokers. Taxpayers do not pay a dime." This is also incorrect. The SIPC does not have enough money in its fund to pay all the claims. It must tap the U.S. Treasury for money. Where does the U.S. Treasury get its money? From the American taxpayer. <br /><br />The issue is whether the Treasury is charging the member banks a sufficient interest rate or an insufficient interest rate on SIPC loans. If the interest rate is low, the Treasury is basically printing free money for Madoff's investors. Even if the interest rate is reasonable, the U.S. Treasury has to borrow money from American taxpayers to make the SIPC loans. Thus, all roads lead to the American taxpayer. <br /><br />Why should the American taxpayer become the insurer of last resort for wealthy investors?Matt Rafathttps://www.blogger.com/profile/13256519881560435397noreply@blogger.comtag:blogger.com,1999:blog-8607093527751357203.post-39204876807534034212009-07-03T17:54:15.628-07:002009-07-03T17:54:15.628-07:00K Yew - we are on the same page for most of your c...K Yew - we are on the same page for most of your comments. I do not support taxpayer funding for SIPC. Never have. You seem to think that I support it, but I don't. You can't exactly say that Madoff investors went "off the grid" since Madoff was a SIPC member and it is only with benefit of hindsight we learned that his operation was phony. SEC claimed to investigate him 7 times and found nothing out of the ordinary. Now we learned that we cannot trust the SEC, and we all suffer as a result. <br /><br />Madoff's investments were never touted as a sure thing, even though his track record seemed to indicate that. There were plenty of funds around that did significantly better than Madoff purported to, plus in the 1990's the Dow Industrials and S&P beat Madoff almost every year.<br /><br />There is a problem with misinformation out there. You have said several times that Madoff investors want the taxpayers to rescue them or the Treasury. There is nothing further from the truth. We want SIPC to follow its own statutory regulations under the SIPA Act of 1970 and just do what it has done before under similar, if not identical circumstances. SIPC itself, as you correctly recognized, was negligent in not collecting sufficient funds from its member brokers.<br />As to your points:<br />1) American taxpayers are not forced to guarantee to pay anything to any investor. SIPC is funded by the member brokers. Taxpayers do not pay a dime. Just like the FDIC is funded by member banks. If the SEC did its job and did not ignore all the warning signs and have 7 examinations of Madoff that failed to come up with anything, we would not be having this conversation.<br />2) American taxpayers are not going to suffer because SIPC did not adequately fund itself. That is the contention of the blogmaster. The securities industry has to make up the difference, and because they only paid in $150 per comany so that every one of their accounts were insured to the maximum, SIPC is to blame, not the taxpayer, not the investor.<br /><br />You cannot find one Madoff investor who will support a taxpayer bailout. Bailouts in this country are only for the companies who are "too large to fail," the ones who were so greedy that everything they did had no economic benefit to anyone but themselves, and who, in this case knew, they were going to get bailed out.Richardhttps://www.blogger.com/profile/06752115851621648441noreply@blogger.comtag:blogger.com,1999:blog-8607093527751357203.post-32558101775314605362009-07-03T15:08:48.729-07:002009-07-03T15:08:48.729-07:00Richard, I appreciate your comment. I agree the S...Richard, I appreciate your comment. I agree the SIPC needs to have better funding, but from its members, not general taxpayers. It shocked me when I saw that the law only requires the SIPC fund to have 75 million dollars (see 15 USC § 78ddd(b)). <br /><br />Even so, American taxpayers should not be held responsible for the SIPC's failure to have sufficient member contributions. Remember: Madoff's investors and the feeder funds voluntarily went "off-the-grid" to gain access to an exclusive investing club and a unique strategy unavailable to most investors. <br /><br />Madoff's investors could have invested in funds available to everyone else--Vanguard, T. Rowe Price, and so on. Instead, they wanted a sure thing backed by the Madoff mystique. Now that the "sure thing" has turned out to be a scam, Madoff's investors want the Treasury to print money to reward their poor investment choice. This demand--that American taxpayers provide money to a relatively small group of formerly wealthy investors--is particularly galling because Madoff's investors deliberately shunned mainstream investments and basic investing rules, such as diversification. <br /><br />We are left with two questions: <br /><br />1. Why should the American taxpayers be forced to guarantee any investor's choice of financial advisor, especially someone who was unavailable to the average investor and who openly told investors he was using unique investing strategies? <br /><br />Stated another way, if I give all my money to an advisor who then invests it in exotic animals, should the U.S. Treasury give me money if it turns out that all profits from the exotic animal trade were illegal and/or non-existent? <br /><br />2. Why should American taxpayers suffer because banks and other major financial institutions failed to adequately contribute to the SIPC fund? If major financial institutions are responsible for the SIPC fund's insufficient assets, why should innocent taxpayers be held responsible?Matt Rafathttps://www.blogger.com/profile/13256519881560435397noreply@blogger.comtag:blogger.com,1999:blog-8607093527751357203.post-5436411689039337632009-07-03T14:09:58.424-07:002009-07-03T14:09:58.424-07:00You have taken the focus off the guilty parties he...You have taken the focus off the guilty parties here, Madoff for committing the crime, and the SEC for enabling it for decades, and instead focused in on the victims and have vilified them instead. You have thrown out large numbers implying that Madoff investors are going to make out like bandits, rather than researching the facts that thousands of Madoff investors will not receive a dime under the way Trustee Picard has calculated compensation. Most of the others who receive anything at all, will receive far less than the amounts that they were due under existing legislation that Picard is not following. You should be blaming SIPC for collecting for at least a dozen years a mere $150 per company to be able to tell each and everyone of their customers that their investements were safe, up to the maximum limit should their broker fail or if there was theft. SIPC gave the securities industry a virtual free deal for all those years, leaving the investor to think they were protected against the above mentioned items, when in fact they were not. Now SIPC has to turn to a credit line. You seem to turn down the fact that this will be a loan not a "grant" from the U.S. Treasury, and are already complainig about the interest rate before one is even determined. SIPC will pay this money back, with interest, from the increased fees they have been charging since April 1. (.0025 of net operating revenue). Sadly, you have chosen to take a position, and then distorted the facts with fuzzy math and other innuendos in order to support your position. I strongly suggest you start by getting the facts straight first, then come to your own conclusion. <br /><br />If you really cared you would direct your attention to the SEC and SIPC going forward, for it is just a matter of time until the next scandal is uncovered and more Americans are deprived of their life savings.Richardhttps://www.blogger.com/profile/06752115851621648441noreply@blogger.com