Madoff's Fraud Is Nothing Compared to the U.S. Treasury's

December 16, 2008

Back in 1989, Forbes Magazine published an article painting Vancouver, Canada as the “scam capital of the world”. As evidence he cited a few debacles which certainly caused investors to lose money, but the amounts are trifling compared to the trillions that have suddenly become part of the daily news lexicon.

In fact, given the hundreds of billions that Wall Street has fleeced investors for in cases of fraud, they are astounding not only in dollar size, but in the duration they run for before they collapse under the weight of their bloated treasuries.

Enron, Tyco, and Worldcom are certainly the household corporate words for fraud on Wall Street. Combined, the estimated take from those three scams was a total of $121 billion in total damages.

But hedge funds are collapsing so fast that they number in the dozens every week, and fully one third of the $1.5 trillion asset class is expected to go up in smoke within the next 24 months, dwarfing the carnage of corporate fraud.

Now along comes Bernie Madoff.

Madoff’s take of $50 billion demonstrates unequivocally that the entire investment industry is essentially one big confidence game, where appearances mean everything and substance is hard to come by. Listening to the petulant indignation emanating from the victims of that fraud who were “professional” investors elicits little sympathy from a public who watches helplessly as the Fed continues to pump taxpayer-backed dollars into the accounts of the biggest financial institutions. That wouldn’t be so bad if we saw some of that cash making its way down into the broad economy, but so far there is absolutely zero evidence of that happening.

Madoff’s fraud, improbable as it may seem, brings to mind another massive financial institution that, if the same standards of evaluation were to be applied as to Madoff, would most likely reveal another Ponzi scheme in progress.

A “Ponzi Scheme” is one where early investors are paid non-existent “profits” with the money brought in by new investors. Ponzi schemes always collapse when no more investors can be enticed into the scheme, and payouts stop. This is exactly what happened in the Madoff case, and unless I am very much mistaken, this is what is happening at the United States Treasury right now, with its accomplice, the United States Federal Reserve.

China is poised to become world's biggest gold consumer.