Bernard L. Madoff - the SEC failed to investigate repeated defalcations

Mr. Madoff was a broker-dealer; he held himself out as a sophisticated "genius" at the craft of investing OPM - Other People's Money. The OPM stake was worth billions. It turns out, he simply operated a Ponzi-scheme. He did not craft a brilliant trading strategy, he made no market, and he managed no portfolios in his exclusive floor of a New York skyscraper. He simply took money from people. How smart does anyone have to be to do this?

The SEC had received numerous complaints against Madoff. In spite of documented fraud claims, however, the SEC failed to scrutinize the Madoff securities "market maker" operations which were clearly within its jurisdiction.

The Madoff swindle is in excess of $50 billion. This type of theft at this scale will carve a large hole in the free market, as investors face the fact that hedge fund managers and investment brokers are not "policed" or regulated in any effective way. Thus, we see the debilitation of market entry -- investors now joined with lenders in an unwillingness to place their funds into a "marketplace" overrun by predators. Capital not already in the hands of the pirates, is held hostage or at bay, and no longer available to productive enterprises.

The Business of Crime

On August 9, 2008, Edison International announced that its NET income nearly TRIPLED, from its publicly-announced second-quarter earnings of one year ago. Edison's President, Theodore Craver Jr., who added the CEO title a week ago, said that this eye-brow raising "success" is the result of "being able to realize our substantial growth potential".

Actually, Mr. Craver, it boils down to being able to be a criminal. You are realizing substantial criminal growth potential, and you are doing it under color of "doing business". Let's look at what Edison is actually achieving:

-- Edison is an "international" entity; it is "off-shore". It is taking money from rate-paying citizens who are always domestic, wherever they are.

-- The rate-payer paying for a utility owned by Edison, and which has No Competition at its point of purchase. The rate-payer is under Edison's monopoly.

-- Edison bought the Congress, and wrote its own laws concerning its "utility" services, building a monopoly for itself into the legal infrastructure. Under Reagan, and then perfected under a series of "conservative" administrations, this public utility proceeded to DE-REGULATE itself, while maintaining its market monopoly. We now have, literally, regulated and restricted Statism for the rate-payer (just TRY generating your own power onto the grid), and un-restricted un-regulated monopolist profiteering by Edison.

-- In the same quarter that Edison announced unprecedented gross profits, and NET profit increases, the price of oil had also increased. In other words, even though the cost to generate electricity increased-- Edison had to pay a lot more for their own fuel costs -- they made even more profit.

-- This same profit increase does not even include a claim made by the IRS (which remains the ONLY "regulator" or government intrusion on Edison's practices) concerning a (wait for it) for ONE AND ONE HALF BILLION in unpaid taxes, involving a "complex lease arrangement" made with a wholly unregulated subsidiary company, and with which Edison's lawyers intend to shield Edison further from tax exposures in the future.

-- This profit increase does not include any purchases of pollution allowances -- even though these costs were supposed to be incurred as part of their own pollution reduction compliance plan. For example, their own Edison Mission Group was required to post $48 million to the program. They clearly signal that won't happen. By setting up unregulated subsidiaries, such as Edison Capital, which supposedly invests in energy and infrastructure, Edison International intends to evade the pollution allowances. They see pollution reduction as an "impairment" to their profits.

-- Edison makes no claim that the profit increase is the result of increased efficiency, a better product or service, a new technology, or a market expansion.

-- Edison also announced its intention to increase rates for 2009, 2010, and 2011. It is almost breath-taking to see their interest in their future profit-taking....

-- The bottom line is that Edison has increased its profits by taking more money from consumers in local arenas served by its monopoly on power delivery, while avoiding the taxes and pollution regulations which would be imposed by the respective public agencies. Proposed rate hikes are based on extortion. There is no free market here. The "hidden hand" is not a free and informed market setting the price, it is Edison's off-shore and unregulated subsidiaries taking the benefits while shifting all the costs and burdens back to ratepayers and tax payers.

This is not Capitalism. This is predation. What ENRON got away with, is what Edison is getting away with: Money, taken under the false pretenses of "business". This profiteering enterprise will collapse because it is predation, it is not actually "business". They produce nothing. There is no informed exchange involved in this "profit".

Where you see the profits increase, in the absence of ANY improved product, service, technology or market expansion, you have to ask just what "business" is Edison in?

Disappointing Frauds - the year's top scams

The schemes of Con-artists are flowering here in Orange County. Newport Beach remains the leading "home" outside of Nigeria, for scamming the world. The impunity of the perpetrators continues to parallel the scale of their ill-gotten gains, although the election of our new Attorney General (former Governor Brown) is a huge gasp of fresh air on the prosecution front.

Various "scams": (1) Phone call claims to be from the Red Cross to spouses on behalf of soldiers serving in Iraq, claiming to need information, which is then used for identification theft. (2) "Natural Viagra" with unknown or the same ingredient as real Viagra. (3) Phone call to family members of elderly, seeking identity information, for "emergecy" care. (4) The IRS refund email. (5) Fake foreclosure redeemers, collecting fees to do nothing or falsely collect "rent". (6) Certified checks, which are deposited as "available funds", but not yet cleared. (7) In wildfire areas, fake contractors promising reconstruction or utility restoration. (8) And of course, high returns promised for investments in which there is no real "business" -- actual trade for value-added services or produced goods. Millions of dollars are lost by citizens, and the money invariably going "off-shore", a hidden hemorrage of financial strength facilitated by government agencies run by Bush appointees -- in other words, government agencies that see/ hear/ do nothing.

"Business" has been redefined. Stealing is "business" if you can get away with it, and of course, any idiot can get away with it in todays' environment.

Still, I am so disappointed in the quality of the Frauds this year. Even the smartest MBA's from the best business schools are coming up with the lamest crimes. The frauds are little more than thuggish takings. The smartest guys in the boiler-room turn out to be dumb-nut thugs. QUOTE OF THE WEEK -- "We had a scheme where the rich got richer. I did it, and I feel good about it. But I'm not planning to run for office". Marc B. Wolpow, former Bain Capital director, referencing his former Bain colleague, Mitt Romney. Bain Capital was a "business" which had no legitimate business and engaged in white collar theft. Call it what it is.

What we did not know about the Hidden Hand of the Marketplace

Adam Smith, a professor of Ethics, coined the phrase "the hidden hand of the marketplace" to explain how the price for goods was set. He had observed that the activities of the wealthy were subsidized by the State, while the middle and lower classes were hardly supported at all in their activities, many of which were suppressed. THE WEALTH OF NATIONS. Anyway, the West and East India Trading Company has come a long way since 1776.

While Adam Smith did not actually invent "capitalism" or "socialism", and he did not advocate either a "free" market nor a "regulated" one, his description of the dynamics of human interaction has stood the test of Aristotles' unities -- time, place and action. And it appears now that we will always have both competition and paternalism, and both have their place. However, Adam Smith did not foresee the toll which Marketing would charge on the Market. Today, Marketing is an unrelenting, widespread, brilliant, and ruthless force. And it will have its way with all Sources of information -- it will corrupt the Government purse, violate the trust of Academia, and suck the will out of the Professions -- all on the way to influencing the mass consumer.

For example, Enron produced no product and offered no service, and yet it became the seventh largest corporate enterprise in the United States -- it positioned itself as a "marketing" entity, buying paper choses, artfully driving up the price, and then on the sale of the same thing at a higher price, claiming a "profit" for itself. Or rather, for its inner circle of pirates.

Did any economist remark the rapid, widespread and illegitimate electrical power market distortion? Did a single corporate lawyer report this violation of legal principle -- outright deception, fictitious partnering with fictitious off-shore entities, and fraud are all crimes the lawyers knew were occurring. Did a single government regulatory body -- across municipal, State, and Federal jurisdictions -- strip the pirates of their booty? The demise of Enron occurred as a result of the use of its "cover" to steal, and it collapsed internally. It even sought the protection of "bankruptcy" proceedings -- in other words, using legal cover and pretensions to the very end, to hide its own 60 billion-dollar fraud.

Marketing is wonderful. However, it is no longer "the music man" trumpeting instruments to keep the kids out of pool halls. Now it is bent and smart. Advertising is now a nasty piece of work devoted to taking the "choice" out of choice. For example, the Drug Industry: I used to love Merck. Just think of all those drugs they make that reduce our pain and heal our afflictions. Unfortunately, as the Vioxx litigation has brought to light, the Big Drug companies devote more billions to marketing than they do to developing new drugs. The "new drugs" they are making are not helping us -- they are killing us. Their new drugs are mostly for the side-effects their old drugs are giving us. The best "cough medicine" on the billion-dollar market, provides a little less help than a glass of water for a child with a cold.

So I am just getting to this Prediction: As Marketing takes over the Web, which it is and will, it will actively seek to prevent true facts from emerging. Google anything you want, the sites that will pop up are the ones that pay Google. Search engines will be bought and paid for as marketing tools. Nothing will survive which does not profit someone. This is not about food and shelter, this is about power.