Tuesday, December 30, 2008

Investors duped by Madoff broke basic investing rule

The media is full of stories about Bernard Madoff, who allegedly lost somewhere between $17-50 BILLION by cheating his investors with a “Ponzi Scheme.” It is a story so similar to the WexTrust issue locally.

While I feel sorry for the individual investors, some of whom were destroyed, they did forget the most basic rule of investing, i.e., ALWAYS have an independent, third party custodian of the client’s assets, who will send statements directly to the investors.

If my mother asked me to manage her money, my first question to her would be “Who is the custodian?”

Friday, December 5, 2008

Supporting auto industry now saves wealth

Yesterday, the highly-regarded economist of Economy.com, Mark Zandi, testified before the Senate Banking Committee that a bankruptcy of the Big Three car makers would be a catastrophe for the wider economy, as well as the stock market. Upon questioning, he thought the $34 billion in loans being requested would be insufficient in the long run, and that they would return in another year or so for more funding. The senator referred to this as “kicking the can down the road.”

Zandi is right! It would be a catastrophe. However, that doesn’t mean we shouldn’t let the car makers take bankruptcy later. So far, economists have estimated $12 trillion of wealth has been destroyed. Is it worth $34 billion now to prevent more trillions of wealth destruction? Absolutely!! There is a time to euthanize the car makers, but it is not now. In a year, our economy will have a much better chance of weathering their bankruptcies.