Madoff Fraud Fallout...Emotional, Psychological, & Financial, not necessarily in that order
From Manhattan to Long Island to Greenwich to Palm Beach to Aspen to London to Zurich, high society has lost billions of dollars & an immeasurable amount of faith & confidence. When belief in something gets shattered, it takes time & double the amount of proof to restore it. The Madoff Scam, ponzi scheme, fraud, whatever you want to call it, has destroyed decades of belief in not only mr. madoffs investment operation but in the confidence of the entire investment & hedge fund industry. Only time will tell the consequences of this latest blowup, but this could certainly mark an important point in the financial industry's history.
It harkens back to the great depression period when secretive & profitable Investment Trusts were all the rage & boasted high returns with seemingly little risk. They were designed for & catered to the wealthy, but towards the end of their greatness they opened their doors to all investors. Their demise was a part of the financial collapse of that period.
Today, With fund of funds now getting the regular guy involved in the big guys game & all the major brokerage houses & investment banks having 'alternative investment vehicles' (driving the investor to who knows where) to help smaller investors get access to previously closed hedge funds, most everyone is involved or exposed to the hedge fund world. The hedge fund industry has grown exponentially over the past few years & some have pointed to the possibility of a hedge fund bubble. Who knows, maybe its bursting as we come to the end of 2008?
Whatever the case, it is clear that this is another severe blow to investor psyche & wall streets credibility. With huge losses in most all investor portfolios, adding the revelation that an enormous fraud has been going on at one of the most well regarded & long established investment funds will certainly create further problems.
Investors large & small must question all their financial relationships & investments. Investors must now redouble there due diligence efforts in an attempt to insure & assure that their money is safe. Fiduciaries will be questioned & challenged to provide proof positive that all is well with client investments. Clearly the madoff news proves that nothing can be taken at face value & no investment is safe.
Investors continue to watch small banks fail, while the government injects life preserving capital to the large, too big too fail, banks, which would have failed without the government intervention, questioning the safety & soundness of the financial system almost on a daily basis. Now they are seeing the best known & most highly regarded hedge funds report astounding losses & gating investors from their money. Now this madoff madness. How can investors not question all the belief, faith, & confidence they have in the markets, their advisors, & their investments?
There is amazment & outrage. This is terrible for investor psyche, very very damaging to investor confidence on top of huge loses everywhere, in what investors think & hope are legitimate operations. The next round of redemptions could be multiple times what we have seen through year end. This could be another serious & ominous headwind for the stock market.
And it won't help the economy either. The wealthy are being damaged irreparably by the magnitude of the wealth destruction taking place and it is not going to reverse anytime soon. Whenever the recovery comes, it will not replace what has been destroyed, the money or the confidence.
The economic weakness is going to intensify from the very top. The wealthy will 'withdraw', literally & emotionally, from investing & consuming in a significant way for a significant period of time. The 'trickle down' impact will be devastating to the overall economy. The ripples that are sent out from the from this part of the economy touch many parts of society. The wealthy are industrial consumers & do the majority of the risk taking investing. Damaging their ability or desire to do those things will have far reaching implications. From luxury retail to charitable organizations, the wealthy have an important economic impact. And must, pardon the phrase, maintain their standard of living so that the economy doesn't implode.
From Manhattan to Long Island to Greenwich to Palm Beach to Aspen to London to Zurich, high society has lost billions of dollars & an immeasurable amount of faith & confidence. When belief in something gets shattered, it takes time & double the amount of proof to restore it. The Madoff Scam, ponzi scheme, fraud, whatever you want to call it, has destroyed decades of belief in not only mr. madoffs investment operation but in the confidence of the entire investment & hedge fund industry. Only time will tell the consequences of this latest blowup, but this could certainly mark an important point in the financial industry's history.
It harkens back to the great depression period when secretive & profitable Investment Trusts were all the rage & boasted high returns with seemingly little risk. They were designed for & catered to the wealthy, but towards the end of their greatness they opened their doors to all investors. Their demise was a part of the financial collapse of that period.
Today, With fund of funds now getting the regular guy involved in the big guys game & all the major brokerage houses & investment banks having 'alternative investment vehicles' (driving the investor to who knows where) to help smaller investors get access to previously closed hedge funds, most everyone is involved or exposed to the hedge fund world. The hedge fund industry has grown exponentially over the past few years & some have pointed to the possibility of a hedge fund bubble. Who knows, maybe its bursting as we come to the end of 2008?
Whatever the case, it is clear that this is another severe blow to investor psyche & wall streets credibility. With huge losses in most all investor portfolios, adding the revelation that an enormous fraud has been going on at one of the most well regarded & long established investment funds will certainly create further problems.
Investors large & small must question all their financial relationships & investments. Investors must now redouble there due diligence efforts in an attempt to insure & assure that their money is safe. Fiduciaries will be questioned & challenged to provide proof positive that all is well with client investments. Clearly the madoff news proves that nothing can be taken at face value & no investment is safe.
Investors continue to watch small banks fail, while the government injects life preserving capital to the large, too big too fail, banks, which would have failed without the government intervention, questioning the safety & soundness of the financial system almost on a daily basis. Now they are seeing the best known & most highly regarded hedge funds report astounding losses & gating investors from their money. Now this madoff madness. How can investors not question all the belief, faith, & confidence they have in the markets, their advisors, & their investments?
There is amazment & outrage. This is terrible for investor psyche, very very damaging to investor confidence on top of huge loses everywhere, in what investors think & hope are legitimate operations. The next round of redemptions could be multiple times what we have seen through year end. This could be another serious & ominous headwind for the stock market.
And it won't help the economy either. The wealthy are being damaged irreparably by the magnitude of the wealth destruction taking place and it is not going to reverse anytime soon. Whenever the recovery comes, it will not replace what has been destroyed, the money or the confidence.
The economic weakness is going to intensify from the very top. The wealthy will 'withdraw', literally & emotionally, from investing & consuming in a significant way for a significant period of time. The 'trickle down' impact will be devastating to the overall economy. The ripples that are sent out from the from this part of the economy touch many parts of society. The wealthy are industrial consumers & do the majority of the risk taking investing. Damaging their ability or desire to do those things will have far reaching implications. From luxury retail to charitable organizations, the wealthy have an important economic impact. And must, pardon the phrase, maintain their standard of living so that the economy doesn't implode.
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