On seekingalpha.com's comments board, I've written that investors who invested directly with Madoff ought to get their original investment back from the SIPC, but nothing more. Feeder fund investors who invested indirectly with Madoff should look to their investment fund for recourse, not the SIPC or taxpayer. The SIPC fund was clearly not intended to reimburse mutual fund or feeder fund investors for bad investment decisions or advice. In any case, I assumed that only member banks and brokerages, not the taxpayer, fund the SIPC. I was wrong.
Most writers praised my earlier article, but a few detractors kept focusing on the SIPC coverage. I got curious about the SIPC and did a little bit of research. Guess what? At the end of the day, the SIPC is funded by American taxpayers. In fact, Congress is about to change the law, increasing the SIPC's borrowing limits and enabling the government to print money to give to the SIPC. No wonder the pro-Madoff-investor camp kept focusing on the SIPC--as long as the SIPC received taxpayer-backed funding, Madoff's direct investors would get paid. I naively thought that only private sector financial institutions were contributing to the SIPC fund. Again, I was wrong.
Some of what you will read below is technical. I did not spend more than half an hour researching the law, but I was able to ascertain a lot of information. It is shocking to me that the NY Times or some other major newspaper did not blow the cover off this scheme in early June 2009, when the House of Representatives drafted a special bill--H. R. 2798--for Madoff's investors.
Also, I cannot find anything online about what interest rate the Secretary of the Treasury is charging SIPC members. That number is key. If the interest rate is reasonably high, American taxpayers may eventually make money from SIPC loans; however, if the interest rate is low, then American taxpayers are basically giving Madoff's investors free money. In short, a low-interest-rate SIPC note is tantamount to American taxpayers acting as financial guarantors for Madoff's unconventional investment strategies and investors who voluntarily chose to invest in non-mainstream products.
First, let's cast aside the idea that most of Madoff's investors are going to be destitute. From the WSJ (Jay Miller, 07/02/09):
A total of $2.97 billion in claims has been allowed, including $2.74 billion that exceed the statutory limit of protection.
$231 million has been set aside for claims from victims of the Ponzi scheme, with another $2.74 billion authorized for potential recoveries.
Yes, Madoff's direct investors will divvy up almost $3 billion. If anyone starts talking about how Madoff's investors were poor widows, give them a three word response--three billion dollars--and a link to this article.
On top of the $3 billion, some of Madoff's investors--including the ones who invested through feeder funds--may come out ahead, courtesy of the American taxpayer. After the CPAs and tax lawyers are done exploiting new tax breaks, many Madoff investors will get credits for much more than their original investments. These changes may result in windfalls for Madoff investors. For example, let's assume you invested $5,000 with Madoff in 1975 (we're using smaller numbers for simplicity's sake). By 1995, your $5,000 investment has become $25,000. Then, from 1995 to 2008, your account balance increases to $50,000, which allows you to withdraw an average of $5,000 each year for thirteen years. Thus, even if you lose your entire investment in 2009, you've still gained much more than your original investment of $5,000. In addition, you will submit an SIPC claim for the full $50,000, even though your original investment was only $5,000.
Now, let's discuss the SIPC. The SIPC is basically a government-backed institution similar to the FDIC. Like Fannie Mae and Freddie Mac, the SIPC is not technically a government entity, but operates in a murky zone that's not quite "private entity" and not quite "government agency." (For the lawyers out there, the SIPC is codified in Title 15 USC Sections 78aaa. The SIPC fund is codified in Title 15 USC 78ddd.)
Below is a good summary of the SIPC, from SEC v. GUARANTY BOND AND SECURITIES CORP, 496 F.2d 145 (1974):
The Securities Investor Protection Act was enacted in response to the need to protect the customers of securities brokers and dealers which might fail, thereby jeopardizing the cash and securities that customers had left on deposit with the firm. S.I.P.A. accordingly created the Securities Investor Protection Corporation as a 'non-profit corporation,' not designed to 'be an agency or establishment of the United States Government,' but rather to be 'a membership corporation,' consistent with the self-regulatory nature of the securities industry. 15 U.S.C. 78ccc(a). The S.I.P.C.'s role is primarily one of consultation and cooperation with the self-regulatory organizations which remain subject to the federal securities laws and the rules of the S.E.C. By mandating membership in the S.I.P.C. for certain members of the securities industry and by granting the S.I.P.C. general assessment authority over the members in order to establish an S.I.P.C. fund, Congress accomplished its intention that the cost of providing protection to customers under S.I.P.C. was to be borne by the securities industry itself.
But look at footnote 3:
S.I.P.C.’s first responsibility under the Act was to establish a fund which would consist of all amounts received by S.I.P.C. and from which all expenditures would be paid. 15 U.S.C. Sec. 78ddd(c). If the fund should become insufficient for the purposes of the Act, the S.E.C. is authorized, if necessary for the protection of the customers of brokers and dealers and for the maintenance of confidence in the United States securities markets, to issue notes under certain conditions to the Secretary of the Treasury in an amount up to one billion dollars, which then may be lent to S.I.P.C. 15 U.S.C. 78ddd(g). [emphasis added]
Take a look at this bill, H. R. 2798, referred to the Committee on Financial Services in June 2009:
(b) Increasing SIPC line of credit with the Department of Treasury.—Section 4(h) of the Securities Investor Protection Act (15 U.S.C. 78ddd(h)) is amended by striking out “$1,000,000,000” and inserting “the lesser of $2,500,000,000 or the target amount of the SIPC Fund specified in the bylaws of SIPC”.
Congress wants to more than double the one billion dollars limit to make sure Madoff's investors will be paid in full. But that's not all. Congress also wants to increase the amount of money that the SIPC can directly pay Madoff's investors, from $250,000 to a whopping $850,000. See section (d) of the proposed bill:
(d) Eligibility for direct payment procedure.—Section 10(a)(4) of the Securities Investor Protection Act (15 U.S.C. 78fff–4(a)(4)) is amended by striking out “$250,000” and inserting “$850,000”.
Another section of the proposed bill increases the amount of cash payable to investors:
Standard maximum cash advance amount. For purposes of this Act, the term ‘standard maximum cash advance amount’ means [an increase from $100,000 to] $250,000, adjusted as provided under subsection (e) after March 31, 2010.
Don't let the March 31, 2010 date fool you--this proposed law will help investors prior to March 31, 2010, i.e. Madoff's investors. The language in subsection (e) refers to an "inflation adjustment" provision that gives the SIPC the discretion to increase the direct payment amount more than $250,000 after March 31, 2010.
It gets even better if you're a rich investor. There's practically no legal limit to the SIPC's power to increase the $250,000 cash advance amount. Two of the three factors allowing the SIPC to increase the amount are unconscionably vague. One talks about "economic conditions" and another refers to "potential problems affecting members of SIPC."
You'd think Congress would help non-rich Americans, who hold most of their money in bank accounts. The FDIC, not the SIPC, insures these bank accounts. Congress did pass similar insurance coverage for normal bank account deposits, but the coverage reverts to the old $100,000 limit in 2014. Here is a paragraph from the FDIC's website:
The standard insurance amount of $250,000 per depositor is in effect through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.
In contrast, the proposed SIPC changes have no sunset provision. Rich investors and Madoff's investors should thank House member Michael Arcuri, who represents New York's 24th congressional district, and House member Dan Maffei, who represents New York's 25th congressional district--these two men are the sponsors of HR 2798. They sure have their priorities right, don't they? After all, isn't it Congress's job to pay rich investors for their losses after they voluntarily invest their money with a reclusive financial advisor?
The best part? Although Arcuri's and Maffei's bill is basically a gift to Madoff's investors, it's called "Support Investment Protection for Customers Reform Act of 2009." The second best part? Both Arcuri and Maffei are Democrats. Next time you think there's much difference between Republicans and Democrats, or that Republicans are the party of the rich, just remember these words: "Support Investment Protection for Customers Reform Act of 2009."
Now, who is going to fund all this protection? Well, that’s where it gets confusing. A federal court's website states:
The fund is supported by assessments upon its members. If the fund should become inadequate, the SIPA authorizes borrowing against the U.S. Treasury. An analogy could be made to the role of the Federal Deposit Insurance Corporation in the banking industry.
Then look at 15 USC §78ddd(g) and (h):
In the event that the fund is or may reasonably appear to be insufficient for the purposes of this chapter, the Commission is authorized to make loans to SIPC...The Secretary of the Treasury may reduce the interest rate if he determines such reduction to be in the national interest.
See those words? Secretary of the Treasury? That means the U.S. Treasury, which manages government revenue--otherwise known as the taxes we pay. Have you figured it out yet? Yup, it’s the taxpayers who are going to pay off Madoff's direct investors, because the SIPC doesn't have enough money in the till to make the investors whole. The Treasury may just end up printing money--at a low interest rate--to save Madoff’s direct investors.
I really, really want to know what the interest rate is on these taxpayer-backed SIPC loans. (Where’s the NY Times when you need them?) What’s really funny/tragic is that the SIPC’s members include banks, which are already receiving billions of dollars of taxpayer money. Our government has printed money--to be paid by our children and their children--to give to banks, the SIPC, and Madoff’s investors. You might argue it’s not a giveaway, it’s a loan, but I’m not budging until I see the interest rate charged.
I can’t believe I didn’t see this before. I’m not a securities attorney, so I hadn’t looked at the specific code sections to see how SIPC was funded. (Where are all the articles from securities and tax lawyers? Perhaps they’re too busy figuring out how to make money for Madoff’s investors to do anything for the public interest.)
The way I see it, the American taxpayer has gotten screwed (again), and the rich seem to have a direct line to Congressional lawmakers. Rather than draft legislation that allows the orderly winding down of institutions when complex financial transactions cause multi-party failure, Congress is thinking about how to bail out Madoff's investors. No wonder China unofficially wants a modified reserve currency–our government keeps printing money without rhyme or reason. America’s financial credibility is eroding. Mark my words: unless fiscal discipline makes a comeback, this will end badly.
Update on July 10, 2009: Here is the letter I sent today to the House Financial Committee: http://financialservices.house.gov/contact.html
Dear House members:
I am asking that you vote against H.R. 2798 or decline to submit the bill for a full House vote. The proposed bill bails out Madoff's investors under the guise of shoring up the SIPC. In reality, SIPC members will only be expected to pay $1000 annually (up from $150 annually). This amount is stunningly low, given that credit unions have had to pay millions of dollars to shore up their own version of SIPC, the National Credit Union Share Insurance Fund (NCUSIF). Star One Credit Union, for example, will be assessed a $44.2 million charge to maintain adequate member protection. Thus, a revised annual SIPC fee of $1000 is laughable if consumer protection is the goal.
H.R. 2798 would be even more comedic if the money to expand SIPC protection wasn't coming from taxpayers. Unfortunately, because the SIPC has been woefully underfunded, if H.R. 2798 passes, the U.S. Treasury must issue loans to raise the SIPC fund's available credit from one billion dollars to 2.5 billion dollars. As you know, the U.S. Treasury is basically the American taxpayer, so ordinary Americans and their children will be on the hook for this proposed bailout.
Most tragically, H.R. 2798's proposed penalties for white collar crime are too low at five years' jail time and a $250K fine. Such minimal deterrence will not protect the public against a future Madoff. Approving such low penalties post-Madoff will make voters wonder if white collar criminals have lobbyists. I would not want my name associated with H.R. 2798 in its current form.
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Thursday, July 2, 2009
Khmer Rouge Trial
The prosecution of former Khmer Rouge members is happening now. In case you don't know, the Khmer Rouge was responsible for one of the bloodiest pogroms in recent history. Pol Pot killed over a million innocent people in Cambodia.
http://english.aljazeera.net/news/asia-pacific/2009/06/200962962355898476.html
It's good to know that the people involved in the massacres will be brought to justice. No should get away with engineering a massacre. Trials like these are why so many idealistic law students study international law.
FYI: there is a 1984 movie about the massacre aptly titled, The Killing Fields.
http://english.aljazeera.net/news/asia-pacific/2009/06/200962962355898476.html
It's good to know that the people involved in the massacres will be brought to justice. No should get away with engineering a massacre. Trials like these are why so many idealistic law students study international law.
FYI: there is a 1984 movie about the massacre aptly titled, The Killing Fields.
More on Bernard Madoff
From Reuters: http://news.yahoo.com/s/nm/20090702/bs_nm/us_madoff_sec
Walker-Lightfoot, a lawyer in the SEC's Office of Compliance Inspections and Examinations, sent emails to a supervisor saying information provided by Madoff during her review didn't add up and suggesting a set of questions to ask his firm, the report said. One of Walker-Lightfoot's supervisors on the case was Eric Swanson...Swanson later married Madoff's niece.
My earlier article on Madoff's investors generated numerous comments on Seeking Alpha's website. Here are some quick responses to the comments:
1. Someone wrote, "If you were one of those who lost a lifetime's savings, your article would have a slightly different sentiment." Perhaps you are right; however, I diversify my investments and I buy investments available to the public. I do not and cannot invest in hedge funds or other non-transparent "clubs."
2. Two people have criticized my grammar and spelling--please point out specific mistakes. One person wrote that "investors like you and I could not get Madoff" should have been written as "investors like you and me..." I disagree, but I will check my Strunk and White manual later.
3. An anonymous person implied that I would feel differently had Madoff's investors been of a different religion, more specifically Islam. That's the kind of irrelevant, divergent thinking that Madoff's investors want to avoid if they want any chance of sympathy. People are upset because of perfectly rational factors:
a) Madoff's investors should have diversified their investments;
b) Madoff's investors are receiving special treatment from the government in the form of special tax breaks (paid for by general taxpayers) and more-than-usual government resources;
c) Madoff's investors are seeking to portray themselves as poor widows when most of them are probably still more affluent than 95% of Americans (take a look at Madoff's client list, and you'll see many trusts, private banks, foundations, corporations, and LLCs);
d) most Madoff investors would not have invested heavily with Madoff unless they believed he had an unfair edge or special connections unavailable to the public investor;
e) Madoff's investors believed Madoff was using investment strategies unavailable to the general public (they were right--it just wasn't the strategy they expected);
People are also upset because they see a fundamental shift in values. In the old days, the rich believed they had a duty to the public. They recognized that capitalism necessarily results in winners and losers, and the government could not solve the problems of vast inequality and disparate opportunities by itself. Look at Theodore Roosevelt, John D. Rockefeller, Jr., and John Pierpont Morgan. It's hard to remember now that J.P. Morgan bailed out the federal government, but it really did happen.
I'm not saying all rich persons have lost their moral compasses. Eli Broad, Warren Buffett, Ted Turner, and Bill and Melinda Gates are doing wonderful things, but most of us work hard every single day and will probably never be worth millions of dollars, or even one million dollars.
Most of Madoff's investors got to the financial promised land and squandered their chance at permanent retirement. They did so voluntarily--no one forced them to violate basic investing rules and to invest heavily with Madoff. Thus, it is hard to stomach the general media's sympathetic coverage of Madoff's investors when so many Americans are homeless, out of work, and live paycheck to paycheck.
[The original post is here.]
Walker-Lightfoot, a lawyer in the SEC's Office of Compliance Inspections and Examinations, sent emails to a supervisor saying information provided by Madoff during her review didn't add up and suggesting a set of questions to ask his firm, the report said. One of Walker-Lightfoot's supervisors on the case was Eric Swanson...Swanson later married Madoff's niece.
My earlier article on Madoff's investors generated numerous comments on Seeking Alpha's website. Here are some quick responses to the comments:
1. Someone wrote, "If you were one of those who lost a lifetime's savings, your article would have a slightly different sentiment." Perhaps you are right; however, I diversify my investments and I buy investments available to the public. I do not and cannot invest in hedge funds or other non-transparent "clubs."
2. Two people have criticized my grammar and spelling--please point out specific mistakes. One person wrote that "investors like you and I could not get Madoff" should have been written as "investors like you and me..." I disagree, but I will check my Strunk and White manual later.
3. An anonymous person implied that I would feel differently had Madoff's investors been of a different religion, more specifically Islam. That's the kind of irrelevant, divergent thinking that Madoff's investors want to avoid if they want any chance of sympathy. People are upset because of perfectly rational factors:
a) Madoff's investors should have diversified their investments;
b) Madoff's investors are receiving special treatment from the government in the form of special tax breaks (paid for by general taxpayers) and more-than-usual government resources;
c) Madoff's investors are seeking to portray themselves as poor widows when most of them are probably still more affluent than 95% of Americans (take a look at Madoff's client list, and you'll see many trusts, private banks, foundations, corporations, and LLCs);
d) most Madoff investors would not have invested heavily with Madoff unless they believed he had an unfair edge or special connections unavailable to the public investor;
e) Madoff's investors believed Madoff was using investment strategies unavailable to the general public (they were right--it just wasn't the strategy they expected);
People are also upset because they see a fundamental shift in values. In the old days, the rich believed they had a duty to the public. They recognized that capitalism necessarily results in winners and losers, and the government could not solve the problems of vast inequality and disparate opportunities by itself. Look at Theodore Roosevelt, John D. Rockefeller, Jr., and John Pierpont Morgan. It's hard to remember now that J.P. Morgan bailed out the federal government, but it really did happen.
I'm not saying all rich persons have lost their moral compasses. Eli Broad, Warren Buffett, Ted Turner, and Bill and Melinda Gates are doing wonderful things, but most of us work hard every single day and will probably never be worth millions of dollars, or even one million dollars.
Most of Madoff's investors got to the financial promised land and squandered their chance at permanent retirement. They did so voluntarily--no one forced them to violate basic investing rules and to invest heavily with Madoff. Thus, it is hard to stomach the general media's sympathetic coverage of Madoff's investors when so many Americans are homeless, out of work, and live paycheck to paycheck.
[The original post is here.]
Justice Souter's Farewell
I am going to miss Justice Souter. After 19 years on the bench, he bid farewell to his colleagues and the Court:
I will not sit with you at our bench again after the Court rises for the Summer this time, but neither will I retire from our friendship, which has held us together despite the pull of the most passionate dissent.
Prior to leaving, Justice Souter issued a wonderfully-worded decision supporting students' rights. A school forced a 13 year old girl to show her bra and underpants to see if she had ibuprofen. The Court ruled 8 to 1 in favor of the student, with only Justice Thomas dissenting. See Safford v. Redding (2009). Full decision here (warning, PDF file). The decision is a perfect example of Justice Souter's even-handed, reasonable style:
Savana’s [the 13 yrs old girl] subjective expectation of privacy is inherent in her account of it as embarrassing, frightening, and humiliating. The reasonableness of her expectation is indicated by the common reaction of other young people similarly searched, whose adolescent vulnerability intensifies the exposure’s patent intrusiveness. Its indignity does not outlaw the search, but it does implicate the rule that “the search [be] ‘reasonably related in scope to the circumstances which justified the interference in the first place.’ ” Here, the content of the suspicion failed to match the degree of intrusion...Wilson knew beforehand that the pills were prescription-strength ibuprofen and over-the-counter naproxen, common pain relievers equivalent to two Advil, or one Aleve.
Parents are known to overreact to protect their children from danger, and a school official with responsibility for safety may tend to do the same. The difference is that the Fourth Amendment places limits on the official, even with the high degree of deference that courts must pay to the educator’s professional judgment.
Makes sense, doesn't it? It's sad that we need the Supreme Court to tell us that government officials shouldn't be able to search a girl's private parts for Advil. If the school was that concerned about the girl's safety, why didn't they send her to the nurse's office and wait for her parents to come see/check her?
The Safford decision is a perfect example of Justice Souter's knack for getting past drama and tying the law to common sense. He will be missed.
I will not sit with you at our bench again after the Court rises for the Summer this time, but neither will I retire from our friendship, which has held us together despite the pull of the most passionate dissent.
Prior to leaving, Justice Souter issued a wonderfully-worded decision supporting students' rights. A school forced a 13 year old girl to show her bra and underpants to see if she had ibuprofen. The Court ruled 8 to 1 in favor of the student, with only Justice Thomas dissenting. See Safford v. Redding (2009). Full decision here (warning, PDF file). The decision is a perfect example of Justice Souter's even-handed, reasonable style:
Savana’s [the 13 yrs old girl] subjective expectation of privacy is inherent in her account of it as embarrassing, frightening, and humiliating. The reasonableness of her expectation is indicated by the common reaction of other young people similarly searched, whose adolescent vulnerability intensifies the exposure’s patent intrusiveness. Its indignity does not outlaw the search, but it does implicate the rule that “the search [be] ‘reasonably related in scope to the circumstances which justified the interference in the first place.’ ” Here, the content of the suspicion failed to match the degree of intrusion...Wilson knew beforehand that the pills were prescription-strength ibuprofen and over-the-counter naproxen, common pain relievers equivalent to two Advil, or one Aleve.
Parents are known to overreact to protect their children from danger, and a school official with responsibility for safety may tend to do the same. The difference is that the Fourth Amendment places limits on the official, even with the high degree of deference that courts must pay to the educator’s professional judgment.
Makes sense, doesn't it? It's sad that we need the Supreme Court to tell us that government officials shouldn't be able to search a girl's private parts for Advil. If the school was that concerned about the girl's safety, why didn't they send her to the nurse's office and wait for her parents to come see/check her?
The Safford decision is a perfect example of Justice Souter's knack for getting past drama and tying the law to common sense. He will be missed.
Wednesday, July 1, 2009
Tuesday, June 30, 2009
To Madoff's Investors: Welcome to Main Street
[On July 1, 2009, seekingalpha.com chose this article as an "Editor's Pick." On July 2, 2009, it became the fourth most popular article on seekingalpha.com's website.]
The WSJ is issuing more Madoff victim propaganda. It is interesting to see the WSJ advocating free markets while slyly supporting special treatment for rich investors who failed to follow basic financial advice. Remember: Madoff's investors only lost their life savings if they chose to violate Investment 101's cardinal rule: diversify, diversify, diversify.
In a free market, the rich must suffer when they violate basic investing rules. Otherwise, you don' t have a free market. Instead, you end up with two separate systems--one where the rich get preferential rules and use Congress and the IRS as their own personal insurance policies, and another where everyone else has to suck it up when things fall apart.
As I wrote before here, people who invested with Madoff thought they were buying membership into an exclusive club shielded from the vagaries of the stock market. Middle-class investors like you and me could not get Madoff as our financial advisor. Most of us did not even hear about him until the scandal broke. We were barred from Madoff's circle because we weren't rich and we weren't connected with the elite. Meanwhile, Madoff's investors lobbied hard to gain entrance into Madoff's circle and did so because they believed returns were practically guaranteed. Well, it was an exclusive group, all right--a group of connected, rich suckers who thought they were getting a sweet deal unavailable to Main Street.
Perhaps you think me coldhearted. Don't be naive. If it wasn't for the stock market's monumental, once-in-a-lifetime bust, Madoff's investors would have continued making good, safe, and illegal returns year after year. Madoff's investors would have continued playing golf, donating millions of dollars to charities, and hanging out on their yachts while Madoff wormed his way higher in the NASD's upper ranks. In short, Madoff's investors would have been seen as pillars of their community because they knew Madoff. Meanwhile, the rest of us--not having access to hedge funds or Madoff's exclusive circle--would have had to make it on our own the old-fashioned way: by saving our pennies and diversifying our investments (otherwise known as Investing 101).
What's that? You say not all of Madoff's investors invested directly with Madoff? And not all of them were rich? Fine. Go after the mutual fund companies that failed to do due diligence and violated their fiduciary duties to their investors. Last time I checked, mutual fund advisors get paid millions of dollars in fees to do research on suitable investments, not to find secret investment clubs and then spend the week playing golf. Main Street investors rely on mutual fund managers to check investments and make sure everything's on the up and up. Many people--not just Harry Markopolos--knew something was wrong.
Remember: not everyone invested with Madoff. Many people questioned his too-consistent returns, noticed his small, little-known auditing firm, and went the other direction. By bailing out Madoff's investors, we're punishing smart, ethical people like Harry Markopolos and rewarding unethical rich people who begged to be a part of Madoff's club precisely because it used techniques unavailable to Main Street.
First, let's put all of this in perspective: according to the NY Times (6/29/09), $1.25 billion has already been recovered for Madoff's investors. The WSJ (6/30/2009, A1) cites a similar figure:
Mr. Madoff's attorney, Ira Sorkin, said that Mr. Madoff was a "deeply flawed individual" but maintained that most of the fraud money went to other investors. He added that the $13 billion figure cited by the government as the net losses suffered by account holders since 1995 was overstated, since at least $1 billion in recovered assets will be returned to investors, and perhaps a lot more.
In addition to the to $1 billion, the SIPC has already approved almost $200 million for Madoff's investors:
SIPC has mailed out about $142 million in checks to eligible claimants, out of a total of $188.4 million that already has been approved. [See WSJ (Jane Kim, 6/29/2009, C1)]
The above figures don't include the special tax breaks Congress pushed through for Madoff's investors. Oh, you didn't forget, did you? Congress changed the tax rules to benefit Madoff's investors. (Don't you wish we could do that?) If the test of fair capitalism is whether the rich have to suffer when they make mistakes, America is getting a "D" grade--and I'm being a generous grader.
On top of the tax breaks given to Madoff's investors because of their losses, millions of dollars of taxpayer money is being spent on what is essentially a civil fraud matter. Many middle class and poor Americans suffer fraud at the hands of scam artists. When was the last time you saw local D.A.s and the DOJ spending this much time and effort recovering money for middle-class and poor victims? Where are the tax breaks for small businesses going bankrupt because of the ripple effects from the big banks and hedge funds? I am disgusted by the attention given to investors who were either too lazy to follow basic investing rules or so sophisticated, they had access to special investment vehicles. I am also sorry the WSJ is ruining its credibility by portraying all of Madoff's investors as poor, impoverished souls who bear no responsibility for what has happened to them.
There are no shortcuts. Madoff's investors forgot about that. Now they want us to cover their hides because their exclusive club didn't pan out? Sorry, I don't do handouts to rich people or negligent investors--especially not investors who knowingly violate basic investing rules and look for shortcuts unavailable to Main Street. Non-rich people who invested with Madoff through mutual and feeder funds need to look to the banks and insurance companies for recourse, not the taxpayer. You have my sympathy, but don't push it. Get a job and start saving your pennies like the rest of us. And welcome to Main Street. It ain't so bad.
The WSJ is issuing more Madoff victim propaganda. It is interesting to see the WSJ advocating free markets while slyly supporting special treatment for rich investors who failed to follow basic financial advice. Remember: Madoff's investors only lost their life savings if they chose to violate Investment 101's cardinal rule: diversify, diversify, diversify.
In a free market, the rich must suffer when they violate basic investing rules. Otherwise, you don' t have a free market. Instead, you end up with two separate systems--one where the rich get preferential rules and use Congress and the IRS as their own personal insurance policies, and another where everyone else has to suck it up when things fall apart.
As I wrote before here, people who invested with Madoff thought they were buying membership into an exclusive club shielded from the vagaries of the stock market. Middle-class investors like you and me could not get Madoff as our financial advisor. Most of us did not even hear about him until the scandal broke. We were barred from Madoff's circle because we weren't rich and we weren't connected with the elite. Meanwhile, Madoff's investors lobbied hard to gain entrance into Madoff's circle and did so because they believed returns were practically guaranteed. Well, it was an exclusive group, all right--a group of connected, rich suckers who thought they were getting a sweet deal unavailable to Main Street.
Perhaps you think me coldhearted. Don't be naive. If it wasn't for the stock market's monumental, once-in-a-lifetime bust, Madoff's investors would have continued making good, safe, and illegal returns year after year. Madoff's investors would have continued playing golf, donating millions of dollars to charities, and hanging out on their yachts while Madoff wormed his way higher in the NASD's upper ranks. In short, Madoff's investors would have been seen as pillars of their community because they knew Madoff. Meanwhile, the rest of us--not having access to hedge funds or Madoff's exclusive circle--would have had to make it on our own the old-fashioned way: by saving our pennies and diversifying our investments (otherwise known as Investing 101).
What's that? You say not all of Madoff's investors invested directly with Madoff? And not all of them were rich? Fine. Go after the mutual fund companies that failed to do due diligence and violated their fiduciary duties to their investors. Last time I checked, mutual fund advisors get paid millions of dollars in fees to do research on suitable investments, not to find secret investment clubs and then spend the week playing golf. Main Street investors rely on mutual fund managers to check investments and make sure everything's on the up and up. Many people--not just Harry Markopolos--knew something was wrong.
Remember: not everyone invested with Madoff. Many people questioned his too-consistent returns, noticed his small, little-known auditing firm, and went the other direction. By bailing out Madoff's investors, we're punishing smart, ethical people like Harry Markopolos and rewarding unethical rich people who begged to be a part of Madoff's club precisely because it used techniques unavailable to Main Street.
First, let's put all of this in perspective: according to the NY Times (6/29/09), $1.25 billion has already been recovered for Madoff's investors. The WSJ (6/30/2009, A1) cites a similar figure:
Mr. Madoff's attorney, Ira Sorkin, said that Mr. Madoff was a "deeply flawed individual" but maintained that most of the fraud money went to other investors. He added that the $13 billion figure cited by the government as the net losses suffered by account holders since 1995 was overstated, since at least $1 billion in recovered assets will be returned to investors, and perhaps a lot more.
In addition to the to $1 billion, the SIPC has already approved almost $200 million for Madoff's investors:
SIPC has mailed out about $142 million in checks to eligible claimants, out of a total of $188.4 million that already has been approved. [See WSJ (Jane Kim, 6/29/2009, C1)]
The above figures don't include the special tax breaks Congress pushed through for Madoff's investors. Oh, you didn't forget, did you? Congress changed the tax rules to benefit Madoff's investors. (Don't you wish we could do that?) If the test of fair capitalism is whether the rich have to suffer when they make mistakes, America is getting a "D" grade--and I'm being a generous grader.
On top of the tax breaks given to Madoff's investors because of their losses, millions of dollars of taxpayer money is being spent on what is essentially a civil fraud matter. Many middle class and poor Americans suffer fraud at the hands of scam artists. When was the last time you saw local D.A.s and the DOJ spending this much time and effort recovering money for middle-class and poor victims? Where are the tax breaks for small businesses going bankrupt because of the ripple effects from the big banks and hedge funds? I am disgusted by the attention given to investors who were either too lazy to follow basic investing rules or so sophisticated, they had access to special investment vehicles. I am also sorry the WSJ is ruining its credibility by portraying all of Madoff's investors as poor, impoverished souls who bear no responsibility for what has happened to them.
There are no shortcuts. Madoff's investors forgot about that. Now they want us to cover their hides because their exclusive club didn't pan out? Sorry, I don't do handouts to rich people or negligent investors--especially not investors who knowingly violate basic investing rules and look for shortcuts unavailable to Main Street. Non-rich people who invested with Madoff through mutual and feeder funds need to look to the banks and insurance companies for recourse, not the taxpayer. You have my sympathy, but don't push it. Get a job and start saving your pennies like the rest of us. And welcome to Main Street. It ain't so bad.
Essential Reading
Essential reading, from SmartMoney: "10 Things Your Congressperson Won't Say" (Brigid McMenamin, June 30, 2009)
http://www.smartmoney.com/spending/rip-offs/what-your-congressman-wont-tell-you-20207/
Basically, it's an article about how our legislative branch really works. Cover your children's eyes before clicking on the link.
http://www.smartmoney.com/spending/rip-offs/what-your-congressman-wont-tell-you-20207/
Basically, it's an article about how our legislative branch really works. Cover your children's eyes before clicking on the link.
Letter to Iran
From PARVANEH VAHIDMANESH: a touching letter to Iran's establishment:
http://online.wsj.com/article/SB124623110886766123.html
Ali Khamenei, if you pursue the path you have been following, our people's anger will take a different form. It will turn you and your family, as it did the shah's and his, into forlorn and helpless individuals with the word "exile" stamped across your foreheads.
http://online.wsj.com/article/SB124623110886766123.html
Ali Khamenei, if you pursue the path you have been following, our people's anger will take a different form. It will turn you and your family, as it did the shah's and his, into forlorn and helpless individuals with the word "exile" stamped across your foreheads.
The French and Sex
I read a while back that the French have the most sex compared to all other nationalities. (I think I saw it in Durex's annual sex survey.) Here might be why:
http://www.dailymail.co.uk/femail/article-1195624/French-women-dont-just-tolerate-husbands-affairs--expect-them.html
Seems like a realistic approach. Many marital couples stop enjoying sex frequently, and under the French system, they don't have to get divorced. They just move on and be discreet. But what about STDs?
Anyway, if you notice, in most socialist countries, women tend to be more sexually open. See Scandinavian countries, for example. If Karl Marx had gone with the sex angle, maybe we'd all be red commies today. It does seem that many people compensate for a lack of a good sex life with material possessions. Perhaps that's one reason why capitalism and Puritanism go well together.
http://www.dailymail.co.uk/femail/article-1195624/French-women-dont-just-tolerate-husbands-affairs--expect-them.html
Seems like a realistic approach. Many marital couples stop enjoying sex frequently, and under the French system, they don't have to get divorced. They just move on and be discreet. But what about STDs?
Anyway, if you notice, in most socialist countries, women tend to be more sexually open. See Scandinavian countries, for example. If Karl Marx had gone with the sex angle, maybe we'd all be red commies today. It does seem that many people compensate for a lack of a good sex life with material possessions. Perhaps that's one reason why capitalism and Puritanism go well together.
Monday, June 29, 2009
Matt Miller on Heathcare
Matt Miller on healthcare, from The Commonwealth (June 2009, p. 16):
General Motors famously spends more on health care than it does on steel. And Starbucks spends more on health care than it does on coffee. [Nice margins on coffee, eh?] Workers are left in a situation where, because of the nature of employment and benefits being tied [together], we've got 50 million uninsured and maybe 30 million additional folks [underinsured] in tremendous anxiety. It doesn't work anymore.
According to the same speech, in 1960, healthcare cost 5% of GDP. Now it costs 20%. Did we get completely out of shape in just 49 years? If so, the short time frame indicates no permanent difference, meaning we may be able to change our habits and return to a healthier society. I suspect, however, that the real problem is the way healthcare companies, including hospitals, get paid by insurance companies.
When I was in college, I remember going into the ER for some stomach and head pain--I had slept for about 21 hours in a row and was feeling terrible and nauseous. I'd never slept that long before, and I was afraid something had happened (and no, I did not drink the night before--I have never really liked alcohol because I like sweet drinks, and I hadn't discovered Drambuie yet). An ER doctor checked me out for five minutes and saw nothing wrong. Since I was already there, I asked him to check out a small growth on my calf. The doctor looked at it for five seconds and declared there was nothing serious.
As a student, I was still covered under my dad's health insurance policy, but it refused to pay the bill--the insurance company said my nausea and weariness were not true emergencies, and therefore I should not have gone to the ER. The insurance company said I should have waited until Monday to see my regular doctor, but I didn't have a regular doctor in my college town--I was a freshman, and I rarely went to a primary care physician anyway.
I got the bill from the hospital and was able to see the full charges. In addition to the normal ER fee (which is normally quite high), the doctor had charged me around 200 dollars for the five seconds it took him to check my leg. That's right--the doctor had classified my simple question as a completely new healthcare issue. Even lawyers have to account for their time, so they can't charge outrageous amounts for five seconds of work. I don't want doctors to account for every six minutes of their time, but the current system is too easily manipulated. When I received that separate charge for around 200 dollars--a princely sum for a college student back in the mid-90's--I knew there was something morbidly wrong with the American healthcare system.
There is a happy ending, if my memory serves me correctly. My mom called my dad's insurance company day after day, and I believe it finally paid the bill. I wonder what people do if they don't have a determined person who can call and argue a bill over and over. As a full-time college student, there was no way I could have paid that bill. And what's the point of having health insurance if you can't go to the doctor when you're feeling absolutely horrible and terrified about about a brand-new, sudden problem?
In any case, if you believe healthcare companies won't be forced to change their inefficient ways under an Obama administration, you may want to consider Vanguard Health Care Fund ((VGHCX) and the Vanguard Healthcare ETF (VHT).
Disclosure: as of June 29, 2009, I have no positions in any funds mentioned above.
General Motors famously spends more on health care than it does on steel. And Starbucks spends more on health care than it does on coffee. [Nice margins on coffee, eh?] Workers are left in a situation where, because of the nature of employment and benefits being tied [together], we've got 50 million uninsured and maybe 30 million additional folks [underinsured] in tremendous anxiety. It doesn't work anymore.
According to the same speech, in 1960, healthcare cost 5% of GDP. Now it costs 20%. Did we get completely out of shape in just 49 years? If so, the short time frame indicates no permanent difference, meaning we may be able to change our habits and return to a healthier society. I suspect, however, that the real problem is the way healthcare companies, including hospitals, get paid by insurance companies.
When I was in college, I remember going into the ER for some stomach and head pain--I had slept for about 21 hours in a row and was feeling terrible and nauseous. I'd never slept that long before, and I was afraid something had happened (and no, I did not drink the night before--I have never really liked alcohol because I like sweet drinks, and I hadn't discovered Drambuie yet). An ER doctor checked me out for five minutes and saw nothing wrong. Since I was already there, I asked him to check out a small growth on my calf. The doctor looked at it for five seconds and declared there was nothing serious.
As a student, I was still covered under my dad's health insurance policy, but it refused to pay the bill--the insurance company said my nausea and weariness were not true emergencies, and therefore I should not have gone to the ER. The insurance company said I should have waited until Monday to see my regular doctor, but I didn't have a regular doctor in my college town--I was a freshman, and I rarely went to a primary care physician anyway.
I got the bill from the hospital and was able to see the full charges. In addition to the normal ER fee (which is normally quite high), the doctor had charged me around 200 dollars for the five seconds it took him to check my leg. That's right--the doctor had classified my simple question as a completely new healthcare issue. Even lawyers have to account for their time, so they can't charge outrageous amounts for five seconds of work. I don't want doctors to account for every six minutes of their time, but the current system is too easily manipulated. When I received that separate charge for around 200 dollars--a princely sum for a college student back in the mid-90's--I knew there was something morbidly wrong with the American healthcare system.
There is a happy ending, if my memory serves me correctly. My mom called my dad's insurance company day after day, and I believe it finally paid the bill. I wonder what people do if they don't have a determined person who can call and argue a bill over and over. As a full-time college student, there was no way I could have paid that bill. And what's the point of having health insurance if you can't go to the doctor when you're feeling absolutely horrible and terrified about about a brand-new, sudden problem?
In any case, if you believe healthcare companies won't be forced to change their inefficient ways under an Obama administration, you may want to consider Vanguard Health Care Fund ((VGHCX) and the Vanguard Healthcare ETF (VHT).
Disclosure: as of June 29, 2009, I have no positions in any funds mentioned above.
Sunday, June 28, 2009
Persian Wedding Table
For more information, click here.
The cool frame at the bottom contains "espand," to ward off the "evil eye." The word Espand refers to a class of Zoroastrian Archangels.
Eggs and nuts (fertility symbols); rose water (purify the air); rock candy and pastries (to make the marriage rock solid and to bring sweetness); wheat (a sign of fruitfulness); Koran (God's blessing for the couple); cup of honey (to sweeten life).
Rocky Fans, Rejoice
Ever wonder what a cool USB drive looks like? Here you go:
http://www.engadget.com/2009/06/18/rocky-iii-usb-drives-sadly-missing-burgess-meredith-version/
Hat tip to Bill C. for the link.
http://www.engadget.com/2009/06/18/rocky-iii-usb-drives-sadly-missing-burgess-meredith-version/
Hat tip to Bill C. for the link.
Saturday, June 27, 2009
Stuff We Can't Afford: Credit Card and Public Pension Debt
Nice graphic re: credit card debt:
http://www.mint.com/blog/finance-core/the-descent-into-credit-card-debt
Now I need to go figure out if any of my credit cards have an "inactivity fee."
Also, here's an excellent article (8/20/2007.) on public sector pensions and how to fix them:
http://reason.org/news/show/1006943.html
The argument of generations past, that government must offer greater benefits than the private sector to offset smaller salaries, clearly no longer applies. Today, government employees receive significantly higher benefits and salaries than their private-sector counterparts. According to a 2005 study by the Employee Benefit Research Institute, public-sector employees earn 40 percent higher salaries and 60 percent greater benefits than private-sector employees.
Thanks to Adam Summers for catching this issue back in 2007. Too bad almost no one listened.
http://www.mint.com/blog/finance-core/the-descent-into-credit-card-debt
Now I need to go figure out if any of my credit cards have an "inactivity fee."
Also, here's an excellent article (8/20/2007.) on public sector pensions and how to fix them:
http://reason.org/news/show/1006943.html
The argument of generations past, that government must offer greater benefits than the private sector to offset smaller salaries, clearly no longer applies. Today, government employees receive significantly higher benefits and salaries than their private-sector counterparts. According to a 2005 study by the Employee Benefit Research Institute, public-sector employees earn 40 percent higher salaries and 60 percent greater benefits than private-sector employees.
Thanks to Adam Summers for catching this issue back in 2007. Too bad almost no one listened.
Friday, June 26, 2009
RIP: Mikaeel Jackson aka Michael Jackson
Mikaeel Jackson, your soul was too gentle for this world. May you finally find peace now.
Thursday, June 25, 2009
Defense Wins Games
From today's WSJ (6/25/09), "American Kids Flunk Basketball 101," Michael Beasley laments his lack of defensive prowess:
[A]s concerns build about his...rough transition to the NBA, last year’s No. 2 overall pick, Michael Beasley of the Miami Heat, finally conceded a fundamental flaw: No one, at any level in his basketball career, had asked him to play defense. And especially not in AAU. “If you’re playing defense in AAU, you don’t need to be playing,” he says. “I’ve honestly never seen anyone play defense in AAU.”
AAU stands for Amateur Athletic Union, a national youth basketball circuit. When I coach youth basketball at the local community center, I emphasize defense. Whoever plays harder defense gets more minutes if I have a vacancy. I also reward kids who play defense by praising them every chance I get. Defensive drills are fairly simple. I call them "rebounding and hounding" drills.
No one teaches kids defense anymore, even though you can't win games without it. Michael Jordan was voted defensive player of the year in 1988, and also racked up nine NBA All-Defensive First Team honors. The San Antonio Spurs recently won several titles with their hard-nosed defense. The Boston Celtics didn't win any titles, not even division titles, until after 1957--exactly when defensive stud Bill Russell started suiting up for the team. Defense is key to winning in basketball. The Phoenix Suns have found this out the hard way--although they would score 120 points on a regular basis, they haven't been able to win a title in recent history.
Beasley is talented, but his doesn't seem to have the killer instinct necessary to play defense. He's more of what I call a "pretty boy" player--content to shoot easy baskets and not sacrifice his body for the sake of a play. The opposite of the "pretty boy" mentality? Dennis Rodman and Chris "Birdman" Anderson.
[A]s concerns build about his...rough transition to the NBA, last year’s No. 2 overall pick, Michael Beasley of the Miami Heat, finally conceded a fundamental flaw: No one, at any level in his basketball career, had asked him to play defense. And especially not in AAU. “If you’re playing defense in AAU, you don’t need to be playing,” he says. “I’ve honestly never seen anyone play defense in AAU.”
AAU stands for Amateur Athletic Union, a national youth basketball circuit. When I coach youth basketball at the local community center, I emphasize defense. Whoever plays harder defense gets more minutes if I have a vacancy. I also reward kids who play defense by praising them every chance I get. Defensive drills are fairly simple. I call them "rebounding and hounding" drills.
No one teaches kids defense anymore, even though you can't win games without it. Michael Jordan was voted defensive player of the year in 1988, and also racked up nine NBA All-Defensive First Team honors. The San Antonio Spurs recently won several titles with their hard-nosed defense. The Boston Celtics didn't win any titles, not even division titles, until after 1957--exactly when defensive stud Bill Russell started suiting up for the team. Defense is key to winning in basketball. The Phoenix Suns have found this out the hard way--although they would score 120 points on a regular basis, they haven't been able to win a title in recent history.
Beasley is talented, but his doesn't seem to have the killer instinct necessary to play defense. He's more of what I call a "pretty boy" player--content to shoot easy baskets and not sacrifice his body for the sake of a play. The opposite of the "pretty boy" mentality? Dennis Rodman and Chris "Birdman" Anderson.
NBA News
NBA News: San Antonio picks up R. Jefferson, practically guaranteeing a Conference Finals appearance, while Cleveland adds an aging free throw bricker who couldn't get it done with Nash, Amare, Hill, Barbosa, and J-Rich.
How does San Antonio manage to consistently improve its team at a reasonable cost, while other teams throw a Hail Mary?
Richard Jefferson is going to be a wonderful addition to San Antonio. He's a proven scorer and a stand-up guy. San Antonio's major issue will be keeping players healthy all year. They also need a consistent three point shooter. Bonner is a good shooter, but he's been inconsistent in the playoffs.
How does San Antonio manage to consistently improve its team at a reasonable cost, while other teams throw a Hail Mary?
Richard Jefferson is going to be a wonderful addition to San Antonio. He's a proven scorer and a stand-up guy. San Antonio's major issue will be keeping players healthy all year. They also need a consistent three point shooter. Bonner is a good shooter, but he's been inconsistent in the playoffs.
Finally! Public Pensions Exposed
Thank you, Craig Karmin, for your June 24, 2009 WSJ article, "Group Shines Light on Hefty Government Pensions."
http://online.wsj.com/article/SB124580096328044597.html
Pension funds provide guaranteed payouts, so even though public funds lost a collective $1 trillion last year, their retirees' monthly checks are unchanged. And the funds' solvency is ultimately backed by taxpayers.
By the way, apparently, the California School Employees Association, a union, represents 230,000 public employees. And that's just one union. No wonder public sector unions have so much power in Sacramento.
http://online.wsj.com/article/SB124580096328044597.html
Pension funds provide guaranteed payouts, so even though public funds lost a collective $1 trillion last year, their retirees' monthly checks are unchanged. And the funds' solvency is ultimately backed by taxpayers.
By the way, apparently, the California School Employees Association, a union, represents 230,000 public employees. And that's just one union. No wonder public sector unions have so much power in Sacramento.
Wednesday, June 24, 2009
Gov. Sanford Confesses to Affair
I used to really like Gov. Sanford. I wrote about him previously here. He admitted today that he cheated on his wife with a woman in Argentina. Ironically, one excerpt from an earlier speech he made mentions judging others based on their actions:
[T]he Bible says, “Let your light so shine before men that they may see your good works and give glory to your Father that’s in heaven.“ Hopefully, by the way in which you act. The way in which you make decisions.
Two Republicans have been outed as morally deficient in less than a week (than other man is Nevada's John Ensign). Maybe this is God's way of forcing the Republican Party to stop catering to the religious right and to convince them to return to old-time republican principles: small government, low inflation, personal humility, and anti-unnecessary wars. Or, maybe it's just karma for spending millions of taxpayer dollars going after Bill Clinton.
I hate to smile at anyone's misfortune, but I did manage a chuckle at one of the names given to this scandal: "Don't Cry for Me, Argentina." By the way, Jenny Sanford has issued her own statement. Click here to read her heartfelt words. I predict she'll hold public office someday in South Carolina.
[T]he Bible says, “Let your light so shine before men that they may see your good works and give glory to your Father that’s in heaven.“ Hopefully, by the way in which you act. The way in which you make decisions.
Two Republicans have been outed as morally deficient in less than a week (than other man is Nevada's John Ensign). Maybe this is God's way of forcing the Republican Party to stop catering to the religious right and to convince them to return to old-time republican principles: small government, low inflation, personal humility, and anti-unnecessary wars. Or, maybe it's just karma for spending millions of taxpayer dollars going after Bill Clinton.
I hate to smile at anyone's misfortune, but I did manage a chuckle at one of the names given to this scandal: "Don't Cry for Me, Argentina." By the way, Jenny Sanford has issued her own statement. Click here to read her heartfelt words. I predict she'll hold public office someday in South Carolina.
Random Thoughts
1. Whatever happened to Gorillaz, the innovative band that did the catchy "Feel Good Inc."? I loved their single, and I haven't heard anything quite like it since.
2. I went food shopping today. I always try to find the discounted items, but the grocery stores are getting tricky. I saw one discount of 9 cents--hardly a reason to favor a particular brand over another. Many of the discounts I saw were less than thirty cents. If this keeps up, I am going to have to save lots of coupons and go shopping only when I have lots of coupons.
One item that stores seem to consistently discount is ice cream. If you go in the middle of the week, sometimes you will save 50%. For a big ice cream fan like myself, this is sweet indeed.
2. I went food shopping today. I always try to find the discounted items, but the grocery stores are getting tricky. I saw one discount of 9 cents--hardly a reason to favor a particular brand over another. Many of the discounts I saw were less than thirty cents. If this keeps up, I am going to have to save lots of coupons and go shopping only when I have lots of coupons.
One item that stores seem to consistently discount is ice cream. If you go in the middle of the week, sometimes you will save 50%. For a big ice cream fan like myself, this is sweet indeed.
Jack and Suzy Welch and Grand Canyon Education, Inc. (LOPE)
A seekingalpha.com reader, Catcuffs01, corrected an egregious mistake in this article. Someone also left me a message about my mistake. Thank you. Mr. Welch's new online MBA program is run by Grand Canyon Education, Inc. (LOPE), not the Apollo Group, Inc. (APOL). Here is my response to the astute reader:
Catcuffs01: you are absolutely right. Welch is lending his name to Chancellor University System LLC, not the Apollo Group. He was, however, impressed by the Apollo Group. The WSJ article said that "Mr. Welch says he was initially skeptical of online education, but has been impressed by the Apollo Group Inc.'s University of Phoenix."
Mr. Welch actually lent his name to Grand Canyon Education, Inc. (LOPE). I'd never heard of LOPE before, so my brain jumped to the only online company I know about, which is the University of Phoenix. Thank you for correcting me.
Revised article below:
I've been waiting for an excuse to put up these pictures. The WSJ just had an article on Welch and his new online MBA program. Here is one excerpt:
When he first approached Mr. Welch at the party, Mr. Clifford says the two men argued about the merits of online education. "We were yelling at each other," Mr. Clifford says. Mr. Welch confirms the incident. Mr. Welch invited Mr. Clifford to see him the next day, and Mr. Clifford says he has "hounded" the former CEO ever since.
Seems like an interesting meeting, no? While Welch is going with Grand Canyon Education (LOPE), the largest online education provider is the Apollo Group. The Apollo Group (APOL), which runs the University of Phoenix and other campuses, has a volatile stock. In the past six years, it has gone as low as $33/share to as high as $95/share.
APOL's main issue is credibility. College degrees, at the end of the day, are just pieces of paper. No one will pay tens of thousands of dollars for a piece of paper unless it will lead to a good job and/or higher lifetime earnings. Thus, the real value of most college degrees lies in their ability to connect students to a loyal alumni network. The longer an institution has been around, the higher the value of its degree, because the school will usually have more alumni. Size doesn't necessary matter--little-known, selective Carleton College probably has a stronger network than the much larger UC Riverside.
In contrast to many top tier colleges, the University of Phoenix and other Apollo campuses have not yet established a vast, loyal alumni network. (Readers, please correct me if I am wrong--I'd love to hear about companies that focus on hiring University of Phoenix or Grand Canyon Education grads.) Many Apollo graduates attend night school or may not be particularly loyal to any of Apollo's various universities. Getting an online degree may be faster and more convenient, but numerous factors, including no nationally-recognized sports teams, may impede a strong Apollo alumni network.
The addition of Jack Welch improves online education's credibility, but it is still unclear how Apollo's and Grand Canyon Education's various educational institutions plan to create lasting loyalty. I can think of plenty of famous Harvard, Stanford, Santa Clara (Steve Nash, Gavin Newsom, etc.), and UC Davis graduates (Urijah Faber, Jackie Speier, etc.), but no famous University of Phoenix or Grand Canyon Education grads. (Note: I did a quick online search. Apparently, Shaq and Lisa Leslie have received degrees from the University of Phoenix. It's interesting that Apollo hasn't successfully used their celebrity status as a marketing device.)
I wish Apollo and Grand Canyon Education much success in the future. Our established universities need competition; otherwise, they will keep increasing tuition above the rate of inflation. Apollo and LOPE are like new charter schools trying to gain credibility in a world of established private and public schools. If they succeed, everyone but the establishment benefits. As an investor, however, it may be wise to wait until the companies establish larger and stronger alumni networks before jumping in.
Disclosure: I have no shares in APOL or LOPE.
Catcuffs01: you are absolutely right. Welch is lending his name to Chancellor University System LLC, not the Apollo Group. He was, however, impressed by the Apollo Group. The WSJ article said that "Mr. Welch says he was initially skeptical of online education, but has been impressed by the Apollo Group Inc.'s University of Phoenix."
Mr. Welch actually lent his name to Grand Canyon Education, Inc. (LOPE). I'd never heard of LOPE before, so my brain jumped to the only online company I know about, which is the University of Phoenix. Thank you for correcting me.
Revised article below:
I've been waiting for an excuse to put up these pictures. The WSJ just had an article on Welch and his new online MBA program. Here is one excerpt:
When he first approached Mr. Welch at the party, Mr. Clifford says the two men argued about the merits of online education. "We were yelling at each other," Mr. Clifford says. Mr. Welch confirms the incident. Mr. Welch invited Mr. Clifford to see him the next day, and Mr. Clifford says he has "hounded" the former CEO ever since.
Seems like an interesting meeting, no? While Welch is going with Grand Canyon Education (LOPE), the largest online education provider is the Apollo Group. The Apollo Group (APOL), which runs the University of Phoenix and other campuses, has a volatile stock. In the past six years, it has gone as low as $33/share to as high as $95/share.
APOL's main issue is credibility. College degrees, at the end of the day, are just pieces of paper. No one will pay tens of thousands of dollars for a piece of paper unless it will lead to a good job and/or higher lifetime earnings. Thus, the real value of most college degrees lies in their ability to connect students to a loyal alumni network. The longer an institution has been around, the higher the value of its degree, because the school will usually have more alumni. Size doesn't necessary matter--little-known, selective Carleton College probably has a stronger network than the much larger UC Riverside.
In contrast to many top tier colleges, the University of Phoenix and other Apollo campuses have not yet established a vast, loyal alumni network. (Readers, please correct me if I am wrong--I'd love to hear about companies that focus on hiring University of Phoenix or Grand Canyon Education grads.) Many Apollo graduates attend night school or may not be particularly loyal to any of Apollo's various universities. Getting an online degree may be faster and more convenient, but numerous factors, including no nationally-recognized sports teams, may impede a strong Apollo alumni network.
The addition of Jack Welch improves online education's credibility, but it is still unclear how Apollo's and Grand Canyon Education's various educational institutions plan to create lasting loyalty. I can think of plenty of famous Harvard, Stanford, Santa Clara (Steve Nash, Gavin Newsom, etc.), and UC Davis graduates (Urijah Faber, Jackie Speier, etc.), but no famous University of Phoenix or Grand Canyon Education grads. (Note: I did a quick online search. Apparently, Shaq and Lisa Leslie have received degrees from the University of Phoenix. It's interesting that Apollo hasn't successfully used their celebrity status as a marketing device.)
I wish Apollo and Grand Canyon Education much success in the future. Our established universities need competition; otherwise, they will keep increasing tuition above the rate of inflation. Apollo and LOPE are like new charter schools trying to gain credibility in a world of established private and public schools. If they succeed, everyone but the establishment benefits. As an investor, however, it may be wise to wait until the companies establish larger and stronger alumni networks before jumping in.
Disclosure: I have no shares in APOL or LOPE.
Tuesday, June 23, 2009
Kaveh Alipour
Another government-inflicted murder happens in Iran:
http://online.wsj.com/article/SB124571865270639351.html
Apparently, Kaveh Alipour was non-political and was just waiting at an intersection:
He had been alone. Neighbors and relatives think that he got trapped in the crossfire. He wasn't politically active and hadn't taken part in the turmoil that has rocked Iran for over a week, they said.
This might be the work of the Basij, a volunteer paramilitary force that's similar to Germany's former SS. A significant percentage of Basij are allowed to have firearms, and I think the Iranian government has supplied more of them with weapons since the uprising.
I remember being in Iran many years ago. I was a teenager, and it was a hot day. I lifted my shirt and exposed my chest to the slight breeze. My friend worriedly told me not to do that. Under Islamic law, both men and women must dress modestly when outside the home. I realized later my friend might have been concerned about the Basij bothering us.
http://online.wsj.com/article/SB124571865270639351.html
Apparently, Kaveh Alipour was non-political and was just waiting at an intersection:
He had been alone. Neighbors and relatives think that he got trapped in the crossfire. He wasn't politically active and hadn't taken part in the turmoil that has rocked Iran for over a week, they said.
This might be the work of the Basij, a volunteer paramilitary force that's similar to Germany's former SS. A significant percentage of Basij are allowed to have firearms, and I think the Iranian government has supplied more of them with weapons since the uprising.
I remember being in Iran many years ago. I was a teenager, and it was a hot day. I lifted my shirt and exposed my chest to the slight breeze. My friend worriedly told me not to do that. Under Islamic law, both men and women must dress modestly when outside the home. I realized later my friend might have been concerned about the Basij bothering us.
Financial Morass
And the hits keep on coming. From The Atlantic (July/August 2009):
Operation Iraqi Freedom now ranks second only to World War II as the most expensive conflict in U.S. history. Transforming Iraq has cost roughly $1 trillion, with the meter still running and the job unfinished. Transforming Afghanistan, by any measure an even more daunting task, is likely to cost as much or more. That’s money we don’t have.
I agree with Colin Powell--we broke Iraq, and we have to fix it--but that doesn't mean I like the idea and expense of American troops in Iraq. I can't tell you how many times I wish Americans had demanded clear evidence of an actual threat before invading Iraq. Did we really allow only 19 men/terrorists to pollute our view of the world's 1.3 billion Muslims? Otherwise, how else did we get to the point where so many Americans irrationally viewed Muslims and Arabs as threats and therefore deserving of war and undeserving of sovereignty?
On a more somber note, estimated 100,000 Iraqis have died from violence since the 2003 invasion. Since 2003, over 4,000 Americans have died in Iraq.
Operation Iraqi Freedom now ranks second only to World War II as the most expensive conflict in U.S. history. Transforming Iraq has cost roughly $1 trillion, with the meter still running and the job unfinished. Transforming Afghanistan, by any measure an even more daunting task, is likely to cost as much or more. That’s money we don’t have.
I agree with Colin Powell--we broke Iraq, and we have to fix it--but that doesn't mean I like the idea and expense of American troops in Iraq. I can't tell you how many times I wish Americans had demanded clear evidence of an actual threat before invading Iraq. Did we really allow only 19 men/terrorists to pollute our view of the world's 1.3 billion Muslims? Otherwise, how else did we get to the point where so many Americans irrationally viewed Muslims and Arabs as threats and therefore deserving of war and undeserving of sovereignty?
On a more somber note, estimated 100,000 Iraqis have died from violence since the 2003 invasion. Since 2003, over 4,000 Americans have died in Iraq.
Monday, June 22, 2009
From Iran (June 2009)
Conversation between someone from Iran and myself on June 2009, during mass protests against Ahmadinejad's re-election:
Me: what do you think is going to happen?
Iranian resident: not sure, but maybe Khmene'ei will [be] replaced with some one else
we're so scared. we don't [feel] safe in street
Me: Have you heard of Neda?
Me: what do you think is going to happen?
Iranian resident: not sure, but maybe Khmene'ei will [be] replaced with some one else
we're so scared. we don't [feel] safe in street
Me: Have you heard of Neda?
Iranian resident: yes,
I saw the film about her
she is one of 20 persons that [were] killed
The George Bush of Iran
Ahmadinejad is the "George Bush of Iran": both tortured people, hate government transparency, answer to a shadowy figure (Cheney vs. Khamenei), jailed people without giving them a public trial, stole an election, think God is on their side, and ran the economy into the ground! What more do you need, except the smirk?
If this were a Tom Toles cartoon, the lower right hand portion of the drawing would read, "One person isn't responsible for unnecessarily killing 100,000 Iraqis and 4,200 Americans. Almost a perfect match."
If this were a Tom Toles cartoon, the lower right hand portion of the drawing would read, "One person isn't responsible for unnecessarily killing 100,000 Iraqis and 4,200 Americans. Almost a perfect match."
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