Showing posts with label Madoff. Show all posts
Showing posts with label Madoff. Show all posts

Tuesday, June 7, 2011

The Financial Crisis Reaches Out to the Arts

The tentacles of the Great Recession and financial malfeasance run deep, as evidenced by the demise of one of the great theaters in the area, Florida Stage. While their move to the Kravis Center this year was a positive development, everything else seemed to be a negative for this local, but well-established theater company, its revenues shrinking because of declining contributions (partly due to the aftershock of the Madoff scandal which hit this geographic area particularly hard), reduced interest income, and changing demographics as well. When we first began subscribing to Florida Stage, more than ten years ago, I remember remarking about the average age of the audience, wondering whether succeeding generations will appear to take their (now our) place. It seems like great theater has taken a back seat to Twitter and Facebook in that regard, Florida Stage's subscription base declining from a peak of 7,000 to now only 2,000 (including our prepaid subscription for next season which now will not be).

Florida State was daring enough to put on many original plays and musicals, not content to take the "easy way" as many theaters do in Florida, serving up the pabulum of Broadway revivals or touring companies as a staple. Of course, it is one thing to be daring during good economic times and strong subscriptions, and another to steer that course when the tide is running against you. I thought this season's offerings could have been stronger, maybe they should have served up a classic play or two to appeal to its audience. Ghost-Writer, I thought, was their best play of the season, with their opening play, Cane , the weakest.

All in all, there have been stronger seasons at Florida Stage, but it is doubtful whether that would have saved the company in face of all its other macro adversities. A really tragic moment for the arts and for the West Palm Beach area.

And this eliminates, still, another venue for new plays, one that I've learned firsthand from experience is fraught with difficulties to produce. More than a year ago I began an adaption of four Raymond Carver short stories into a theatrical work, When We Talk About Carver. Florida Stage was very much on my mind as a possible venue but it took me most of the year to negotiate and secure a formal permission for non-commercial, non-exclusive stage rights (just to show the work) with the Carver estate.

I had thought the success of "Gatz" which is a six hour acted reading of Fitzgerald's The Great Gatsby was an encouraging sign that unabridged adaptations of great literature could make great theatre. As Fitzgerald is to the American novel in the 20th century, Carver is to the American short story, and it is time HIS story and magical power of writing should be dramatically told. Also, interestingly, the new film, Everything Must Go with Will Ferrell was based on Carver's short story “Why Don’t You Dance.” The timing might be right for something more significant by and about Carver.

But without a local theatre that would consider a new work, even one which was essentially written by an established writer of Carver's stature, I now begin a search for a company that is willing to take chances as was Florida Stage.

One can only hope that other such companies can survive these hard economic times, one of the many unintended consequences of putting Wall Street ahead of Main Street (jobs) and failing to address a decade of deficit spending. The closing of Florida Stage is not only a loss for our area, it is a tragedy on a larger scale for the Arts in general.

Thursday, February 18, 2010

American Buffalo Soars at Dramaworks

One of the benefits of having a preview subscription to the performances at Dramaworks is the ability to see this uniquely focused regional theatre’s productions before reviews appear. Dramaworks dares to produce mostly classics such as the recent Ibsen's A Doll's House, Frayn’s Copenhagen, O’Neill’s A Moon for the Misbegotten, and one of my favorites, Ionesco's The Chairs, simply serving up the very best in theatre, in a highly professional manner. One has to thank William Hayes, Dramaworks’ Producing Artistic Director, for his vision and his ability to consistently achieve Dramawork’s mission of being “a professional not-for-profit theatre company that engages and entertains audiences with provocative and timeless productions that personally impact each individual.”

And, indeed, American Buffalo is provocative, a nearly two hour run time going by with such pacing and great acting that the evening seemed to be compressed into mere minutes. David Mamet’s play is presented as he probably intended, with a perfect set design of a 70’s junk shop, the microcosmic universe where three small-time crooks, inherent losers, but ones with the needs of everyman for respect, friendship, even love, bungle their way through a botched job of stealing a coin collection from a “mark.” It is darkly humorous throughout.

Mamet’s staccato dialogue, although stark and profane, is pure poetry. It has a cadence that carries along the characters’ interaction and the plot. This is how people talk, and Donny, Teach, and Bobby become vividly real. An amusing sidebar is the fourth character in the play, Fletch, who we, the audience never see, but we join the characters in the play, questioning what kind of guy he might be, first thinking he’s the “brains” and then thinking he is nothing but a card shark and cheat, but then learning he was assaulted and is in a hospital with a broken jaw (ironic as he can’t speak in the play anyhow). It’s an interesting conceit that Mamet employs to bring us, the audience, further into the heart of the play.

And on a smaller scale the play is emblematic of today’s Madoffian barbaric business world, and the collapse of moral values. A constant refrain of the play is “hey, we’re talk’n business here.”

All in all, this is great theatre and if any review is less than excellent, I will be surprised.

Monday, August 3, 2009

Headline Tedium

Bailouts, bonuses and Madoff. Are we getting tired yet of the endless litany of related headlines such as the Wall Street Journal’s recent “Bank Bonus Tab: $33 Billion; Nine Lenders That Got U.S. Aid Paid at Least $1 Million Each to 5,000 Employees”?

The rock star of these “fab” financial “leaders” is Andrew Hall who makes a bundle for himself trading energy contracts for Citigroup's energy-trading unit Phibro LLC, with compensation approaching $100 million for 2008. It is interesting to read Sunday’s New York Time’s front page article on his activities and compensation. No doubt he is a talented individual and I suppose if Citigroup didn’t want his operation’s expertise in “taking advantage of unusual spreads between the spot price of oil and the price of an oil futures contract,” other firms would be lining up to pay his price. That is the American way. We know how to lavish money on our superstars, whether from the media or sports, or in this case, dice-rolling trading moguls.

The Times refers to his compensation as “his cut of profits from a characteristically aggressive year of bets in the oil market.” It also says “the company, for example, often wagers that the price of oil will rise so fast during a particular period, say six months, that it can make money by storing oil in supertankers and floating it until the price goes up. “ Finally, “right before the first Gulf War, Phibro placed an elaborate bet that the price of oil would spike and then go down faster than others were anticipating. The company earned more than $300 million from the gamble.” I emphasize bets, wagers, and gamble, as these words cut to the heart of the matter. Arbitrage and hedging can be a means of controlling risk or it can magnify risk to the point of endangering the entire financial system. Is this what our banks should be doing: betting, gambling and waging? Heads they win, tails the taxpayer loses? I have to wonder what the consequences would have been if Mr. Hall’s trades had gone disastrously against Citigroup. Would he have been personally at risk for the same $100 million he “earned” being on the right side? Do we want our banks, the bedrock of our financial system engaging in such activities – aren’t these the domain of the individual entrepreneur and private capital? To what extent does such “trading” create spikes such as $147 for a barrel of crude oil while there is a glut of the commodity?

Then there is the continuing rhetoric about having to reward the financial superstars that got us into this mess in the first place, or they will “walk.” I like Warren Buffet’s homey comments on this topic so I quote from his 2006 letter to his Berkshire Hathaway shareholders. Although this is aimed at CEO pay in general, which is also absurdly high in many (but not all) corporations, it applies to our banks and other financial service firms as well:

“CEO perks at one company are quickly copied elsewhere. ‘All the other kids have one’ may seem a thought too juvenile to use as a rationale in the boardroom. But consultants employ precisely this argument, phrased more elegantly of course, when they make recommendations to comp committees. Irrational and excessive comp practices will not be materially changed by disclosure or by ‘independent’ comp committee members….Compensation reform will only occur if the largest institutional shareholders – it would only take a few – demand a fresh look at the whole system. The consultants’ present drill of deftly selecting ‘peer’ companies to compare with their clients will only perpetuate present excesses.”

Another mind-boggling headline “Picowers Rebut Suit Tied to Madoff Fraud” is from Saturday’s Wall Street Journal. and The New York Times version of the same “Big Investor Counters Charges in Madoff Case.” According to the Madoff bankruptcy trustee, Irving Picard, Picower’s accounts posted gains of more than 100 percent a dozen times between 1996 and 2007, with one gaining 950 percent, but this counter suit contends the latter was “only” 37.6 percent and none of his accounts earned more than 100 percent “in any single year.” But the $5.1 billion Picower withdrew over the years may have represented a return greatly exceeding any reasonable return during the same period. How a knowledgeable investor (presumably Picower qualifies) could believe that Madoff can “guarantee” steady returns of 10 to 12 percent a year and be satisfied by the statements received from Madoff to bear out those returns is beyond me. I still think the “idea” of creating a new reality TV show, something we seem to be better at than regulating financial Ponzi schemes (either private or government sponsored) might be just the ticket to fund the innocent victims of Madoff.

On the eve of President Obama’s inauguration, I had written the following: “The winners in this economy were not only the capitalists, the real creators of jobs due to hard work and innovation, but the even bigger winners: the financial masters of the universe who learned to leverage financial instruments with the blessings of a government that nurtured the thievery of the public good through deregulation, ineptitude, and political amorality. This gave rise to a whole generation of pseudo capitalists, people who “cashed in” on the system, bankers and brokers and “financial engineers” who dreamt up lethal structures based on leverage and then selling those instruments to an unsuspecting public, a public that entrusted the government to be vigilant so the likes of a Bernie Madoff could not prosper for untold years. Until we revere the real innovators of capitalism, the entrepreneurs who actually create things, ideas, jobs, and our financial system will continue to seize up. That is the challenge for the Obama administration – a new economic morality.”

I haven’t changed my view and I fear that while we bail out banks, insurance companies and their like, leaving present compensation practices in place, we just continue to perpetuate financial risk taking, swinging for the fences, making “bets and wagers” that will just dig us into a deeper future hole. As the headlines attest, the “challenge” remains. A true recovery requires jobs, jobs, jobs – and how are they going to be created – by banks trading energy futures? What happened to the commitment to the infrastructure? Our roads, utilities, and public transportation are falling apart. Alternative energy seems DOA. Aren’t these the areas our financial recourses should be focused on, ones that will create jobs, in construction, technology, and finance, and can lead a true economic recovery we can pass on with pride to future generations?

Wednesday, January 14, 2009

The Bernie Reality Show

What a brave new financial world, one that can produce the confluence of a Bernie Madoff, his feeder funds, the regulatory (that is the lack of regulations) environment where such a Ponzi scheme could thrive over decades, and the eager investors who convinced themselves that their steady “returns” in good and bad markets were an entitlement of their connections and station in life (as Jane Austen might have put it), not to be questioned by them. Now there is the endless media frenzy over Madoff, even including a camera trained on Madoff’s apartment building in NYC. This is the perfect diversion from the more serious financial landscape of trillion dollar bailouts with consequences no one can foretell.

The same society that gave rise to Madoffian cupidity and deception is also addicted to reality shows such as American Idol, Survivor, etc. so here is the idea: give the man his own TV program, such as the one depicted in The Truman Show! That way, Bernie’s every movement voyeuristically can be monitored with all advertising revenue going to the “BMVBF” (Bernie Madoff Victim Bailout Fund). What’s the sense of sending him to prison only to make license plates? After the BMVBF is fully funded, sponsorship can then be diverted to TARP, TAF, TSLF, ABCP, HOPE and all the other bailout acronyms, present and future. Thanks Bernie!

Monday, January 12, 2009

Bailout Math and Implications

In an effort to try to understand the more than $8 trillion guarantee our government has made to bailout our financial mess, I tried to assemble a spreadsheet and before long I was drowning in acronyms and conflicting information that was beginning to remind me of an elaborate shell game a Bernie Madoff might have constructed. How can we manage to make transparency so confusing?

To the rescue, though, is a magnificent, clear summary published by Bianco Research which came to my attention through the From Behind the Headlines blog by Michael Kahn While the details can be seen from what was published in SFO Magazine here is a summary of Bianco's work (figures are in billions):

Measuring the Size of the Bailouts

THE FEDERAL RESERVE (Net Portfolio Commercial Paper Funding,
Term Auction Facility, Other Assets, Money Market Investor Funding Facility, MBS/FHLB Agency in Reverse Auctions, Term Securities Lending Facility, AIG Loan, Primary Credit Discount, Asset Backed Commercial Paper Liquidity, Primary Dealers and Others, Bear Stearns Assets, Securities Lending Overnight, Secondary Credit)
FEDERAL RESERVE TOTAL $5,065.0 Maximum / $1,839.5 Current

THE FDIC (FDIC Liquidity Guarantees, Loan Guarantee to GE)
FDIC TOTAL $1,539.0 Maximum / $139.0 Current

TREASURY DEPARTMENT (Fannie/Freddie Bailout, Spring 08 Stimulus Package, Treasury Exchange Stabilization Fund, Tax Break for Banks, Citibank Asset Backstop, Tem Asset-Backed Securities Loan Facility)
TREASURY DEPT TOTAL $1,803.0 Maximum / $597.0 Current

FHA (Hope for Homeowners) $300 Maximum / $300 Current

DEPT ENERGY (Auto Loans) $25 Maximum / $25 Current

GRAND TOTAL $8,707.0 Maximum / $2,875.5 Current

Here is a translation of how this looks in “real dollars:”

These staggering figures are before the Obama infrastructure / jobs programs get into full swing, so we can be talking about more than $9 trillion. To put this in perspective, according to the Congressional Budget Office GDP in 2009 will be $14.2 trillion, while outlays will be $3.5 trillion and total revenues $2.3, a deficit of some $1.2 trillion.

This assumes we can have confidence in government projections. Looking at the real world in a rear view mirror, this is how the budget deficits have been ramping up the National Debt since the Bush administration took office:

9/30/2000 $5,674,178,209,887
9/30/2001 $5,807,463,412,200
9/30/2002 $6,228,235,965,597
9/30/2003 $6,783,231,062,744
9/30/2004 $7,379,052,696,330
9/30/2005 $7,932,709,661,724
9/30/2006 $8,506,973,899,215
9/30/2007 $9,007,653,372,262
9/30/2008 $10,024,724,896,912
1/8/2009 $10,608,325,323,173

I include the latest figure (more than a $½ trillion increase in only 100 days) from the following handy calculator as it shows a parabolic trend. The extent to which the bailouts work is going to enormously impact the budget projections, both on the revenue and outlay sides of the ledger. Tweaking the former down because of the severity of the recession and the latter upwards because of more bailouts puts us on an irreversible course. It was not long ago that the main discussion concerning the long-term budget centered on the ticking time bombs of Social Security, Medicare, and Medicaid. These threats have not disappeared, but they become even more formable as our precious resources have to be spent on surviving today to wage that war tomorrow.

The foregoing figures come from the Congressional Budget Office. Their published outlook is remarkably pointed:

The Budget Outlook for 2009
The federal fiscal situation in 2009 will be dramatically worse than it was in 2008. Under the assumption that current laws and policies remain in place (that is, not accounting for any new legislation), CBO estimates that the deficit this year will total $1.2 trillion, more than two and a half times the size of last year’s. As a percentage of GDP, the deficit this year will total 8.3 percent (as compared with 3.2 percent in 2008)––the largest since 1945.

The deterioration in the fiscal picture results from both increased outlays and decreased revenues. Relative to what they were last year, outlays will rise dramatically— by 19 percent according to CBO’s estimates. Much of that increase is a result of policy responses to the turmoil in the housing and financial markets—particularly spending for the TARP and the conservatorship of Fannie Mae and Freddie Mac. In addition, economic developments have reduced tax receipts (particularly from individual and corporate income taxes) and boosted spending on programs such as those providing unemployment compensation and nutrition assistance as well as those with cost-of-living adjustments.

Without changes in current laws and policies, CBO estimates, outlays will rise from $3.0 trillion in 2008 to $3.5 trillion in 2009 (see Table 5). Mandatory spending is projected to grow by almost $570 billion, or by 36 percent; nearly three-quarters of that growth results from the activities of the TARP and CBO’s treatment of Fannie Mae and Freddie Mac as federal entities. Discretionary spending is projected to grow by $52 billion, or by 4.6 percent. In contrast, net interest is anticipated to decline by 22 percent as a result of lower interest rates and lower inflation. In total, outlays will be equal to 24.9 percent of GDP, a level exceeded only during the later years of World War II.

Spending for certain other mandatory programs is expected to rise sharply this year. The faltering economy has increased outlays for unemployment compensation and the Supplemental Nutrition Assistance Program. Unemployment compensation is projected to nearly double— from $43 billion last year to $79 billion this year— as a result of increased unemployment and legislation to date extending such benefits. Outlays for the nutrition assistance program are expected to grow by 27 percent— from $39 billion to $50 billion—primarily because of increases in caseloads and benefits (resulting from higher food prices).

The three largest mandatory programs—Social Security, Medicare, and Medicaid—are all anticipated to record growth of at least 8 percent this year. Some of that growth stems from the relatively high rate of inflation recorded early in 2008, which boosted cost-of-living adjustments for retirees and the cost of health care. In addition, rising unemployment will add to Medicaid spending by increasing the number of beneficiaries.

Discretionary spending under current laws and policies is projected to grow by 4.6 percent in 2009. In CBO’s baseline, defense outlays rise by 5.0 percent and nondefense outlays by 4.1 percent. However, most programs are currently operating under a continuing resolution, which holds funding for 2009 at the level provided for 2008. Final appropriations and additional funding for operations in Iraq and Afghanistan may increase outlays for 2009 and beyond, and any stimulus package may raisediscretionary spending further.

Friday, December 19, 2008

Another Ponzi Scheme

Tom Friedman made this observation but here’s some more documentation from the New York Times:

While Bernie Madoff was “making off” with his illegal Ponzi scheme, ignored by the SEC in spite of sufficient smoking guns everywhere, Wall Street, the banking industry, and mortgage brokers, went blithely along with it’s own “legal” Ponzi scheme:
* Borrowing cheap money courtesy of the Fed
* Lending it out with exotic mortgage deals, including nothing down zero interest rate loans, the interest being added to the principal, to borrowers of little ability to pay back the loans, except if real estate values pyramid to infinity
* Packaging these subprime mortgages into CMOs to be sold to gullible investors throughout the world – emphasizing their safety because of “diversification” and AAA debt ratings conferred by rating agencies, based on chimerical insurance contracts issued by under capitalized firms.

Everyone in the Wall Street food chain got rich. As the Times article pointed out, in 2008 “Merrill handed out $5 billion to $6 billion in bonuses that year. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million.” The head mortgage trader for Merrill, Dow Kim, had a salary of $350,000 but with his bonus he “earned” $35 million.

But these riches were based on income that really did not exist, the profits that we, as taxpayers are now trying to restore to our financial system via the bonanza bailout program. Meanwhile, Bernie Madoff is allowed to stay out of jail, putting up “his” Manhattan townhouse as bail, bought with funds of his clients, and Wall Street wiz kids walk around with what is really taxpayer money.

“As a result of the extraordinary growth at Merrill during my tenure as C.E.O., the board saw fit to increase my compensation each year.” — E. Stanley O’Neal, the former chief executive of Merrill Lynch, March 2008

Monday, December 15, 2008

Madoff Bailout?

Why not? Every other deserving group gets one. Too big to fail! And, according to the WSJ, maybe through the Securities Investor Protection Corporation (SIPC) there may be a back door in covering some of the losses, although the SIPC only has $1.5 billion left in its coffers and there will have to be congressional action to increase the kitty.

When the tide goes out the muck materializes. For years Madoff reported steady returns from the firm’s “split-strike” conversion strategy, one of balancing puts and calls around a basket of large cap stocks and, presto, “steady” returns of some 7-9% no matter what the market does. Hint: when it's too good to be true....

Midas Madoff sucked his friends from the Palm Beach Country Club and Fund of Funds from around the world into the scheme (but, unfortunately many charitable and endowment funds as well). As one skeptical research firm, Aksia, reported to its clients concerning Madoff Securities, “We concluded that Friehling & Horowitz (Madoff’s audit firm) had three employees, of which one was 78 years old and living in Florida, one was a secretary, and one was an active 47 year old accountant (and the office in Rockland County, NY was only 13ft x 18ft large). This operation appeared small given the scale and scope of Madoff’s activities.” The entire audit trail consisted of paper transaction confirmations, which Madoff, himself, closely controlled. It finally took a market downturn of the magnitude of this past year, with redemption requests from Madoff’s clients, to finally expose the Ponzi scheme. The SEC couldn’t see this?

According to the Palm Beach Post, “investors needed at least $1 million to approach Madoff [and] being a member of the [Palm Beach Country] Club also helped. But even with those prerequisites there was little guarantee that Madoff would take the client.” Sort of the same deferential respect as demanded by the Soup Nazi in the Seinfield series.

The incident is yet another regulatory failure and another corrupt Joker in our economic house of cards.