John Maynard Keynes, 1st Baron Keynes, CB (5 June 1883 – 21 April 1946) was a British economist whose ideas have been a central influence on modern macroeconomics, both in theory and practice. He advocated interventionist government policy, by which governments would use fiscal and monetary measures to mitigate the adverse effects of business cycles, economic recessions, and depressions. His ideas are the basis for the school of thought known as Keynesian economics, and its various offshoots.
In the 1930s, Keynes spearheaded a revolution in economic thinking, overturning the older ideas of neoclassical economics that held that free markets would automatically provide full employment as long as workers were flexible in their wage demands. Following the outbreak of World War II, Keynes’s ideas concerning economic policy were adopted by leading Western economies. During the 1950s and 1960s, the success of Keynesian economics was so resounding that almost all capitalist governments adopted its policy recommendations. In 1999, Time magazine included Keynes in their list of the 100 most important and influential people of the 20th century, commenting that; “His radical idea that governments should spend money they don’t have may have saved capitalism”.
Keynes’s influence waned in the 1970s, partly as a result of problems that began to afflict the Anglo-American economies from the start of the decade, and partly due to critiques from Milton Friedman and other economists who were pessimistic about the ability of governments to regulate the business cycle with fiscal policy. However, the advent of the global financial crisis in 2007 has caused a resurgence in Keynesian thought. Keynesian economics has provided the theoretical underpinning for the plans of President Barack Obama of the United States, Prime Minister Gordon Brown of the United Kingdom, and other global leaders to ease the economic recession.
Keynes is widely considered the father of modern macroeconomics, and by various commentators such as economist John Sloman, the most influential economist of the 20th century. In addition to being an economist, Keynes was also a civil servant, a patron of the arts, a director of the Bank of England, an advisor to several charitable trusts, a writer, a private investor, an art collector, and a farmer. Keynes was bisexual, openly acknowledging the homosexual relationships he had with other men. In 1925, he married the Russian ballerina Lydia Lopokova. Of towering stature, Keynes stood at six foot, six inches.
Keynes: The Return of the Master by Robert Skidelsky
In the current financial crisis, Keynes has been taken out of his cupboard, dusted down, consulted, cited, invoked and appealed to about why events have taken the course they have and how a rescue operation can be effected. Why have we gone back so emphatically to the ideas of an economist who died fifty years ago? There are three main ideas of Keynes’ worth thinking about now. The first is that the future is unknowable, and therefore that economic storms, especially those originating in the financial system, are not random shocks which impinge on smoothly-adjusting markets, but part of the normal working of the market system. The second idea is that economies wounded by these ‘shocks’ can, if left to themselves, stay in a depressed condition for a long time. That is why governments need to have and use fiscal ammunition to prevent a slide from financial crisis to economic depression. The third concerns what he termed ‘organicism’: societies are communities not, as he put it, ‘branches of the multiplication table’. This limited his support for the pursuit of efficiency at all costs. The ideas of John Maynard Keynes have never been more timely.
Bernard Lawrence “Bernie” Madoff (born April 29, 1938) is the former Chairman of the NASDAQ stock exchange and the admitted operator of a Ponzi scheme. In March 2009, Madoff pleaded guilty to 11 felonies and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars. Madoff said he began the Ponzi scheme in the early 1990s. However, federal investigators believe the fraud began as early as the 1980s, and the investment operation may never have been legitimate. The amount missing from client accounts, including fabricated gains, was almost $65 billion. The court appointed trustee estimated actual losses to investors of $18 billion. On June 29, 2009, he was sentenced to 150 years in prison, the maximum allowed.
Madoff founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960, and was its chairman until his arrest on December 11, 2008. The firm was one of the top market maker businesses on Wall Street, which bypassed “specialist” firms by directly executing orders over the counter from retail brokers.
On December 10, 2008, Madoff’s sons told authorities that their father had just confessed to them that the asset management arm of his firm was a massive Ponzi scheme, and quoting him as saying it was “one big lie.” The following day, FBI agents arrested Madoff and charged him with one count of securities fraud. The U.S. Securities and Exchange Commission (SEC) had previously conducted several investigations into Madoff’s business practices since 1992, which critics contend were incompetently handled.
Investment Scandal
Concerns about Madoff’s business surfaced as early as 1999, when financial analyst-whistleblower Harry Markopolos informed the U.S. Securities and Exchange Commission (SEC) that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. He was ignored by the Boston SEC in 2000 and 2001, as well as by Meaghan Cheung at the New York SEC in 2005 and 2007 when he presented further evidence. Others also contended it was inconceivable that the growing volume of Madoff accounts could be competently and legitimately serviced by his documented accounting/auditing firm, a three-person firm with only one active accountant.
The Federal Bureau of Investigation complaint says that during the first week of December 2008, Madoff confided to a senior employee, identified by Bloomberg News as one of his sons, that he said he was struggling to meet $7 billion in redemptions. According to the sons, Madoff told Mark Madoff on Dec. 9 that he planned to pay out $173 million in bonuses two months early. Madoff said that “he had recently made profits through business operations, and that now was a good time to distribute it.”Mark told Andrew Madoff, and the next morning they asked their father to explain how he could pay bonuses if he was having trouble paying clients. They went to Madoff’s apartment, with Ruth Madoff nearby. Madoff told them he was “finished,” that he had “absolutely nothing” left, that his investment fund was “just one big lie” and “a giant Ponzi scheme.”According to their attorney, Madoff’s sons then reported their father to federal authorities. On December 11, he was arrested and charged with securities fraud.
Under 24-hour monitoring and house arrest in his Upper East Side penthouse apartment after posting bail in December 2008, Judge Denny Chin, after accepting his plea, revoked Madoff’s $10 million bail and remanded him to the Metropolitan Correctional Center on March 12, 2009 after accepting Madoff’s plea. Chin claimed Madoff was a flight risk, due to his age, wealth, and the prospect of spending the rest of his life in prison. Prosecutors filed two asset forfeiture pleadings which include lists of valuable real and personal property as well as financial interests and entities.
Madoff’s lawyer, Ira Sorkin filed an appeal, and prosecutors responded with a notice of opposition. On March 20, 2009, an appellate court denied Madoff’s request to be released from jail and returned to home confinement until his June 29, 2009 sentencing. On June 22, 2009, Sorkin hand-delivered a customary pre-sentencing letter to the judge requesting a sentence of 12 years, due to tables cited from the Social Security Administration that his life span is predicted to be 13 years.
On June 26, 2009, Chin ordered Madoff to forfeit $170 billion in assets. Prosecutors asked Chin to sentence Madoff to the maximum: 150 years in prison. Irving Picard indicated that “Mr. Madoff has not provided meaningful cooperation or assistance.”
In settlement with federal prosecutors, Madoff’s wife Ruth agreed to forfeit her claim to US$85 million in assets, leaving her with $2.5 million in cash. The order allowed the SEC and Court appointed trustee Irving Picard to pursue Ruth Madoff’s funds. Massachusetts regulators also accused her of withdrawing $15 million from company-related accounts shortly before he confessed.
In February 2009, Madoff reached an agreement with the SEC, banning him from the securities industry for life.
Picard has sued Madoff’s sons, Mark and Andrew, his brother Peter, and Peter’s daughter, Shana, for negligence and breach of fiduciary duty, for $198 million. The defendants had received over $80 million in compensation since 2001 and “used the bank account at BLMIS like a personal piggy bank.” The trustee believes they knew about the fraud because of their personal investments in the scheme, the longevity of the fraud, and because of their work at the company including roles as corporate and compliance officers. Since 1995, Peter Madoff had invested only $14, but withdrew over $16 million. Mark and Andrew Madoff withdrew more than $35 million from a small original investment.
Affinity fraud
Madoff’s Ponzi scheme preyed heavily on his fellow Jews, destroying the fortunes of numerous Jewish charities and institutions. Affected institutions include Yeshiva University, the Women’s Zionist Organization of America, and Steven Spielberg’s Wunderkinder Foundation. Jewish federations and hospitals have lost millions of dollars, forcing some organizations to close. The Lappin Foundation, for instance, was temporarily forced to halt operations because it had invested its entire $8 million endowment with Madoff.
Size of loss to investors
David Sheehan, chief counsel to trustee Picard, stated on September 27, 2009, that about $36 billion was invested into the scam, returning $18 billion to investors, with $18 billion missing. About half of Madoff’s investors were “net winners,” earning more than their investment. The withdrawal amounts in the final six years are subject to “clawback” (return of money) lawsuits.
Former SEC Chairman Harvey Pitt has estimated the actual net fraud to be between $10 and $17 billion. Erin Arvedlund, who publicly questioned Madoff’s reported investment performance in 2001, stated that the actual amount of the fraud will never be known, but is likely between $12 and $20 billion.
Blowing the Whistle on Madoff
After blowing the cover off Bernie Madoff’s Ponzi scheme, Harry Markopolos, author of “No One Would Listen“, tells Michael Yoshikami of YCMNET Advisors, CNBC’s Karen Tso & Martin Soong to create public awareness on how to prevent this from happening again.
Loading ...