Chris Tomaras / Straight Talk / December 20, 2008

Last week I put the Governor of IL at the top of our list when it comes to corruption. Sadly, he only retained the top position for one week when he was suddenly replaced by Bernard Madoff with his $50B Ponzi scheme. Probably the largest financial scam on record, Madoff makes Blagojevich look like a school child. One big difference however is that in the case of Madoff, wealthy investors have already incurred their losses and Madoff has admitted guilt. With Blagojevich, the intrigue is just beginning with the finger-pointing, the he said she said, the I did not commit a crime, the lawyers running up their fees while looking for the technicality that will get him off, the talking heads reiterating the details at nauseum, and all while the American taxpayers are footing the bills. You’d think when you catch an elected official dead to rights on tape attempting to sell a US Senate seat for millions of dollars, it would be a fairly open and shut case. Not in America with the greatest lawyers money can buy. So get ready for the media circus because here we go again.

Turning our attention to Bernard Madoff, here’s a guy who has been defrauding investors for years. Yet the Securities and Exchange Commission failed to act on “credible and specific” allegations about  Madoff dating back to 1999. Sound familiar? There were those of us on Wall Street who tried to warn those in control at the time, of a future financial meltdown going back to 1998 only to fall on deaf ears.

A few weeks ago, I had a caller by the name of Tony ask whether I felt there was obvious corruption in the stock market and I responded that I felt the SEC was pretty much on top of things with a great deal of oversight and transparency. Well boy was I proven wrong. Tony, if you’re listening this morning, I apologize. Little would I have expected the SEC to not have thoroughly followed up on the allegations following Madoff for years.

Quoting Bloomberg reporters this week, “The SEC, already faulted in connection with the collapse of Bear Stearns Cos. and Lehman Brothers Holdings Inc., faces criticism for failing to detect Madoff.  A House panel will hold a hearing next month.

Madoff’s responses during a 2005 SEC inspection of his brokerage operation should have raised suspicions and prompted further inquiries, said two people familiar with the matter.

Two years later, the agency closed a separate probe into tips and press reports suggesting his investment returns were too good to be true. Money manager Harry Markopolos helped trigger that inquiry by suggesting Madoff may be running a Ponzi scheme or front-running, in which traders buy shares for their own accounts before filling customers’ orders.

Madoff owned a securities brokerage firm, an investment management firm and also the accounting firm that did the audits on the other two businesses. No conflict of interest there. How on earth did Madoff get away with doing his own audits on a $50B securities business and where was the SEC? Can you imagine the improprieties going on between those three companies while creating the perception of them being highly successful businesses? Obviously there will be a lot more information forth coming as the details are further investigated.

All of this corruption relating to Blagojevich and Madoff is ironically surfacing at a time when the nation is shuttering from an incredible economic disaster. When corruption like this is exposed, it just makes you sick, especially in light of the terrible pain that Americans are already experiencing.

In past weeks, I’ve been talking about what our nation and peoples’ lives will look like, if and when we eventually survive this crisis and by the way, I don’t expect that to happen any time soon.

The other day, I heard someone say that we need to stop listening to the television news reporters because they are just too negative and people need to be more positive. While I agree with some of that, let me say that there is no one who is more critical of the press than I am when it comes to their need to focus on gloom and doom and controversy in order to increase their viewership. I mean watching Geraldo Rivera decked out in his recent store bought rain gear, pretending like he’s being blown over by an oncoming hurricane in order to create intrigue. Well, give me a break, it’s laughable…….But here’s the difference. What is reality and what is hyperbole? Right now, with what our country and its citizens are going through, telling them that they need to be positive while their lives are being turned inside out and upside down is ludicrous. People are in shock and grieving over the loss of their homes, their jobs, their investments, their savings and a total lack of stability.

We are in an extremely critical and growing economic crisis where people need to know the truth so they can figure out what to do in order to survive. Having a positive attitude is important but I also believe in the old Russian proverb that says “Continue praying to God but keep rowing to shore.”

This week Warren Koontz, chief investment officer for large-company value stocks at Loomis Sayles & Co. in Boston said “The economic environment isn’t going to change a lot. “We do have to pay penance for the over-living of the past decade.”

So what does it mean when Koontz says over-living? I would tend to relate over-living to over-indulgence and having one’s priorities out of order.

On last week’s show I commented that peoples’ hearts and priorities have to change from the inside out in order to overcome our addiction to the almighty dollar and the only way this can happen unfortunately is through a severe cleansing. Isn’t it ironic that as the weight on our shoulders becomes heavier and heavier, we eventually are forced to our knees and that’s where we need to be, praying for our nation, our leaders and one another.

We have a large and growing division of wealth in America but I really believe what is beginning to happen is that even many of the wealthy are being effected and their lifestyles as they once knew them are having to change. If you talk to some of these people, I’m sure you will find them to be angry and bitter and understandably so, but because they are wealthy, does that make them any more or less important or their pain any worse that someone who is not wealthy? I would hope that in the long run, peoples’ pain will cause a heart-changing experience where ultimately they will be able to relate on a different level and not out of a financial sense of entitlement. We have to change our values and stop keeping score by how much money people have. I heard a wonderful story last week where some fairly well-to-do homeowners in a small community here in Florida are reaching out and helping other less fortunate residents in their community to survive the economic crisis. Just imagine if that could happen in all communities across our country. Now that’s what I call sharing the wealth. We need an epidemic where those more fortunate are helping those less fortunate. Then we wouldn’t have to have bailouts forced upon us.

I have said on many occasions that I am not a proponent of bailouts and stimulus packages. We have dug ourselves into a deep whole making very bad choices and the same people largely responsible for the bad choices are now trying to make the pain disappear by handing out checks saying that they are deeply concerned about the average American taxpayers and their families.  Are they really  concerned and if so, why? Remember this, if we are unable to get the majority of our population spending money, guess what effect that will eventually have on the very wealthy. Think back to how these people became wealthy. As an example, look at what’s happened in the oil industry. The fat cats at the top of the industry have made billions of dollars but when the average consumer can no longer afford a gallon of gas and cuts back on consumption, guess who eventually loses, big time.

The problem now is that we have politicians and government officials performing the work of brain surgeons and I don’t know about you, but to me that’s not terribly reassuring. All these bailouts and stimulus packages have done nothing but line the pockets of the banks and financial institutions with tax payer dollars while creating a horrible situation for our kids and grandkids in the future.

The vicious cycle unfortunately is going to continue with more people losing jobs, causing more homes to have to be sold and until we have to endure the natural consequences of our inappropriate behavior and over-indulgent life style, no bailouts or stimulus packages are going to get rid of the pain. It’s going to take a long time with people and families having to become much more reliant on one another with a greater focus on life’s essential needs and values.

And, ….. hopefully in the end when we get to the other side……we grow to become better human beings and more caring people through what we so painfully learned, experienced and endured.

And that’s this week’s Straight talk.