Tuesday, December 16, 2008

Daylight Robbery

In the Valley we are used to large sums of money being made and lost seemingly overnight, so it takes quite a lot to make us sit up and take notice. However, when one bloke manages to burn through $50 billion, even we have to pay attention and doff our caps.

You really have to be pretty impressed with what Madoff (pronounced "made off", as in "made off with a huge wad of other people's money") accomplished. I mean, do you know how hard he, personally, had to work to dump that much? To put this in context, at the end of 2007, the Bill and Melinda Gates Foundation had investments worth around $38 billion. In order to house the necessary staff to handle things like investment management and funds disbursement, these guys are building a downtown Seattle campus on 12 acre lot. Big. Scale. Stuff.

Contrast this with Madoff. Seems this scam operation was run out of one floor of Madoff's New York office building, underneath the two floors dedicated to his other business of market trading. The same article goes on to say that the auditor who had been signing off the accounts is already under investigation. This highly complex task was, it seems, entrusted to an operation comprising one partner, who is in his seventies and living in Florida, and who employs one accountant and a secretary. That's it. Please contrast this with the audit we are currently doing at my company, a Silicon Valley start-up, where we've had a team of 4 variously on site for weeks at a time for a business that's almost 4 orders of magnitude smaller.

While public companies have to live under the broad and heavy yoke of Sarbanes Oxley, the fact that a $50 billion hedge fund can get away instead with using the sort of operation that would struggle to handle the accounts of your local sweet shop, it is clear that something is fundamentally broken at the base of the regulatory framework.

This jerk gets $50 billion free-and-clear to play with while real companies, producing real products (albeit largely crappy ones) like GM and Chrysler, can't even get a civil word, let alone a hand-out, from the very legislators that allowed this whole situation to fester for years unchecked? Fire the bloody lot of them, country-wide, and start again. And by "them" I mean Congress.

Madoff is a complete and utter scam artist, running an obviously illegal pyramid scheme. Congress is a collection of weak and venal politicians who can see no further than their next boondoggle, narrow self-interest,special interest payoff or electoral contest. Against them, it's hard not to prefer Madoff, minor failings like iceberg-scale embezzlement aside.

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