December 15, 2008


Wall Street Journal - Banks lined up to reveal billions in potential losses as a result of alleged fraud by Wall Street investment manager Bernard Madoff. The Royal Bank of Scotland - 58 per cent owned by the taxpayer - said L400 million was at risk in the hedge funds invested with 70-year-old . . . Spanish bank Santander, which owns Abbey and the savings business of Bradford & Bingley, said its potential exposure was more than L2 billion. . . HSBC said it believed it had a potential exposure of around 1 billion US dollars. Wall Street Journal - New potential victims emerged of Wall Street veteran Bernard Madoff's alleged giant Ponzi scheme, with international banks, hedge funds and wealthy private investors among those sorting out what could amount to tens of billions of dollars in losses. New York Mets owner Fred Wilpon, GMAC LLC Chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman were among the dozens of seemingly sophisticated investors who placed money on what could prove to be history's largest financial scam. And at least three funds of hedge funds -- which raise money from investors and farm it out to hedge funds -- may have significant losses. Fairfield Greenwich Group and Tremont Capital Management of New York placed hundreds of millions of their investors' dollars into funds overseen by Mr. Madoff. On Friday, Maxam Capital Management LLC reported a combined loss of $280 million on funds they had invested with Mr. Madoff. "I'm wiped out," said Sandra Manzke, Maxam's founder and chairman. The Darien, Conn., fund of hedge funds will have to close as a result of the losses, she said. . . Details emerged Friday of how Mr. Madoff ran the alleged scam, fostering a veneer of exclusivity and creating an A-list of investors that became his most powerful marketing tool. From New York and Florida to Minnesota and Texas, the money manager became an insider's choice among well-heeled investors seeking steady returns. By hiring unofficial agents, tapping into elite country clubs and creating "invitation only" policies for investors, he recruited a steady stream of new clients. During golf-course and cocktail-party banter, Mr. Madoff's name frequently surfaced as a money manager who could consistently deliver high returns. Older, Jewish investors called Mr. Madoff " 'the Jewish bond,' " says Ken Phillips, head of a Boulder, Colo., investment firm. "It paid 8% to 12%, every year, no matter what.". . . Mr. Madoff tapped social networks in Dallas, Chicago, Boston and Minneapolis. In Minnesota, he attracted investors from Hillcrest Golf Club of St. Paul and Oak Ridge Country Club in Hopkins, investors say. One of them estimated that investors from the two clubs may have invested more than $100 million combined. . . Jeff Fischer, a top divorce attorney in Palm Beach, says many of his clients were also Mr. Madoff's clients. "Every big divorce that came through my office had portfolio positions with Madoff," he says. . . Richard Spring, a Boca Raton resident and former securities analyst, says he had about $11 million -- or 95% of his net worth -- invested with Mr. Madoff. "That's how much I believed in him," Mr. Spring said. . . Eric Gibson, Wall Street Jouirnal - We can now add colleges and universities to the list of victims of the financial crisis. The stock-market collapse has badly eroded endowments, forcing schools to suspend capital projects, freeze hiring, rethink need-blind financial-aid policies and cut budgets. The Journal reported this week that Harvard University's giant-killer endowment, which stood at $36.9 billion as of June 30, has lost 22% of its value in the months since and that the university's administration is planning for a 30% decline for the fiscal year ending next June. In a letter to the Harvard community two days ago, President Drew Gilpin Faust announced that the school is "reconsidering the scale and pace of planned capital projects, including the University's development in Allston, and . . . taking a hard look at hiring, staffing levels and compensation." Many private colleges and universities are doing the same thing. In response to falling endowments, some have considered suing their brokers for putting funds into risky investments, while others are trying to get a slice of any future congressional stimulus package. Can clamor for a bailout be far behind? Incredibly, one or two schools have even contemplated making up their shortfalls the old-fashioned way -- by increasing tuition. . . The soup-to-nuts cost (tuition, room and board, extras) of one year at a private college is already in the region of $50,000, bringing the cost of a bachelor's degree to close to a quarter of a million dollars. As one wag has observed, that's like buying a new BMW every year and driving it off a cliff. Moreover, tuition increases have consistently outpaced inflation. Since 1992, inflation has averaged between 2.5% and 3% a year; annual tuition increases have often been as high as 6%. According to the Chronicle of Higher Education, the reason that tuition increases at private four-year institutions kept pace with inflation this year is not that these schools suddenly curbed their free-spending ways but that inflation itself jumped dramatically. The average tuition increase was 5.9%, while the Consumer Price Index rose 5.6% in the 12 months from July 2007. . . In its latest survey, published last month, the Chronicle reports that compensation for private university presidents rose on average 6% in the past year, a figure that represents 50% more than the standard annual merit increase for private-sector employees. The total compensation (salary plus benefits) of three private university presidents for 2007, the most recent year for which data are available, was in the stratosphere: Columbia University's Lee C. Bollinger earned $1,411,894 and Northwestern University's Henry S. Bienen, $1,742,560; Suffolk University in Massachusetts paid David J. Sargent $2,800,461. Washngton Post - Fannie Mae has agreed to let renters stay in their homes even if the owners of the properties have been foreclosed on. About 4,000 renters live in properties foreclosed on by Fannie Mae. The move comes after the mortgage-finance giant came under pressure from a Connecticut legal aid group to end efforts to evict tenants who are able to pay their monthly bills but whose landlords have lost their buildings to foreclosure. Palm Beach Post - Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules. But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money. Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives. Bloomberg - Almost a third of hedge funds will shut or merge after the $1.5 trillion industry posted its worst ever performance this year, according to IGS Group, which advises hedge funds on raising money. . . The number of hedge funds more than tripled in the last decade to a record 10,233 at the end of June, according to Chicago-based Hedge Fund Research Inc. . . Hedge funds typically charge a 2 percent management fee and keep 20 percent of profits. . . Prime brokers, the banks that provide loans and handle fund administration, are cutting off firms they don't expect to be profitable clients, Godden added. Hedge funds will need to manage at least $300 million in assets, up from $100 million a year ago to stay in business, Sullivan said. Reuters - Homelessness and demand for emergency food are rising in the United States as the economy founders, a report said, and homeless advocates cautioned many cities were not equipped for the increase. A survey by the U.S. Conference of Mayors showed that 19 of 25 cities saw an increase in homelessness in the 12 months to October, while four reported a drop and two cities lacked enough data for conclusive results. On average, the cities in the survey saw a 12 percent rise in homelessness, the report said. Although the results do not cover all U.S. cities, homeless advocates said they were in line with anecdotal evidence nationwide. Homeless advocates say families are flooding homeless shelters across the United States in numbers not seen for years, camping out in motels or staying with friends and relatives following foreclosures on tens of thousands of homes during the worst financial crisis since the Great Depression.


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