Friday, December 12, 2008

Madoff Scheme Reflects Banking Scandal

Bernard Madoff a former chairman of the NASDAQ Stock Market was arrested in a $50 Billion Ponzi Scheme. As the facts of this case come to the surface the public will become aware of the systemic problems buried within the financial services industry. Mr. Madoff, a very respected trader whose firm is a market maker in about 350 NASDAQ Stocks brings into question the intergriety of the NASDAQ as well as the thousands of hedge funds that have been created using the loosen regulatory rules fostered by the Republican Party.

If Mr. Madoff's fund has ripped off $50 Billion, one has to wonder how much money is being heisted through the thousands of other hedge funds throughout the corrupt financial system. Hedge Funds like the one that Mr. Madoff turned into the largest pyramid scheme known to date are manipulating the market on a daily basis and stealing money from spreads and leverage, yet the Feds continue to condone their actions with lax regulatory oversight and deregulation while throwing trillions of dollars into a system riddled with corruption and manipulation.

As the Republican Senators refused to approve a $15 Billion Bail Out for a vital American industry, the details of the $50 Billion Madoff Scheme were being dribbled into the media. The dichotomy of these two headlines, "Madoff Arrested over $50 Billion Ponzi Scheme", and " Republican Senators Block Auto Bail Out", reflect the all too obvious philosophies of the Republican Economic Theory of the rich come first. As the Republican Senators were demanding that working class families make wage concessions, billions of dollars continues to be handed out to the Banking Industry without question. Have the Republican Senators or for that matter the Democratic Senators even bothered to inquiry where the money being given to the banks is going. Each of these multi-national banks with major foreign ownership, most of which is from the Arab World, have similar trading desks as Mr. Madoff under their umbrella and their traders follow similar trading patterns to that of the Madoff firm. How much of the Bail Out Money was used to prop up the continuation of Ponzi Schemes on the trading desks of the Investment Banks that have been handed money from the United States People without question. The United Kingdom also bailed out banks, the difference is that the UK required their banks to show proof that the government money would be used to foster small business loans and they are required to show proof that they have distributed this money in the designated manner. On the other hand, the Federal Reserve and U.S. Treasury Department just handed US Banks money without question. The Senate should be investigating exactly how much of the TARP money was used to pay off Sovereign Wealth Funds that wanted redemptions from the Banking Industry's own version of Mr. Madoff's Ponzi Scheme.

To think that only Mr. Madoff's Company under the leadership of a 70 year old former head of NASDAQ is the only trading firm involved in this kind of activity is both naive and unrealistic. What the Madoff case brings into the Spotlight is that the risky arbitrage and leveraged trading that the financial firms have been engaged in over the last eight years are the systemic reasons that the financial industry has collapsed and caused the U.S. Economic Depression now being experienced by the working and middle class families of America. The fundamental theory of Republican Economics is flawed, a strong economy is built from the foundation up, not from the penthouse down. Until, our Governmental Representatives start to care more about the working class than the leisure class, the American Economy will continue to foster the likes of Mr. Madoff.
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