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Monday, January 05, 2009
Congress Begins Wide-Ranging Madoff Review
Dunstan Prial
FOXBusiness
The House Financial Services Committee on Monday began the first Congressional inquiry into how Bernard Madoff’s alleged Ponzi scheme lasted for decades without being noticed by federal regulators.
Congressman Spencer Bachus, R-Ala., noted that an investment advisor named Harry Markopolos had alerted the Securities and Exchange Commission as long as a decade ago that he believed Madoff’s business was a giant fraud.
Bachus said the U.S. regulatory system needs to be updated if other frauds are to be detected.
“What’s needed is a statutory and regulatory structure for the 21st Century,” he said.
Bachus said frauds like the one for which Madoff has been charged “don’t occur in isolation.”
If future scams go unnoticed, it can only further erode voter confidence, already badly shaken by a sharp economic downturn and now by Madoff’s own reported admission that his scheme may have taken in $50 billion in investment funds.
“Every day brings more news of the devastationg effects of the Madoff scandal,” Bachus said.
Markopolos was scheduled to appear at the inquiry but cancelled due an illness.
David Kotz, the SEC’s inspector general, was also scheduled to testify.
In a statement released before his appearance, Kotz offered a detailed description of his office’s duties and recent completed investigations.
With regard to the Madoff allegations, Kotz said his office is now charged with investigating all aspects of Madoff’s contacts with the SEC, including those with family members.
One of Madoff’s nieces is married to a former SEC official.
Kotz said his office's probe will go beyond specific issues that SEC Chairman Christopher Cox asked him to investigate, adding that it also will examine the operations of the SEC's enforcement and inspection divisions and will make recommendations.
The Securities Investor Protection Corp. and the trustee handling the liquidation of Madoff's firm said Monday they mailed more than 8,000 claim forms to customers on Friday. Besides individuals, others who lost money were big hedge funds, international banks and charities.
Madoff has been released on $10 million bail and is under house arrest at his apartment on the Upper East Side of Manhattan.
On Monday, federal prosecutors asked that his bail be rescinded.
FOX Translator
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Everyone would agree they see more "Made in Taiwan/China/Japan/etc..."tags than "Made in the USA" tags for the past several years. Well, that "Made in _____" tag on your clothing has an economic term sewn into it: trade deficit. A trade deficit happens when one country buys more goods than it sells to other countries.
For example, if the entire United States (all 300
million of us) made only 100 shirts this year, and if all of China made 100 shirts, some of those shirts would be traded between
us- we would sell a few to China, and vice versa. But a trade deficit happens when one country sells more shirts than another.
China, in this example, could sell 85 shirts to America. The U.S. could sell 55 shirts to China. So, in this trade, China
sold more shirts to the United States, 30 more in fact.
Most businessmen and economists believe that most trade deficits
aren't a bad thing; it's just part of trade, and at some point trade between two countries should balance out eventually.
The big exception is the U.S., which buys vastly more stuff than it sells, and has done so for decades.
Why does this matter? Well, in order to buy those shirts, you need money. And if you are buying more shirts than you're selling shirts, you're losing money. If you're a business, you won't be in business much longer.
But, countries aren't businesses. They are, well, countries, and can print all the money they want. People who deal with currencies, or each country's version of money, look at trade deficits as one way to find out how much each country's currency is worth. If you have to print more money, each dollar you print can possibly lower the value of the other dollars out there. Like stocks, you can buy and sell currencies on what's called the foreign-exchange market (or, if you want a buzzword for the office, say Forex market).
Well, because the U.S. has been buying a lot of stuff from China for many, many years, China holds a lot of U.S. dollars. If China were to sell those dollars on the market at some point, well, it wouldn't be very good. The U.S. dollar's value would fall -- making imports and traveling abroad much more expensive.
Trade deficits are usually a good thing, because it shows that the global economy is working. It's just when a trade imbalance gets too high where economists and investors start to become concerned.
