Richard Spencer

March 11, 2009

My barber just informed me that the economy?s ?going up again? ? which I guess he learned from a 1010WINS report that Citigroup has reported profits and the Dow is bouncing higher. Yippee! But there are always bull rallies in secular bear markets, so I?m not sure how much we should read into this latest up-tick?and I don?t think we should take it as a sign that something has changed fundamentally in the economy.

As for Citigroup?how exactly are we supposed to feel when a company whose losses have been socialized starts to make a profit. Will the government, or ?the people,? get to keep their share of the earnings? I think not. Moreover, I seriously doubt that Citigroup is actually any more solvent than it was in December. The whole ?bad bank? bailout idea floated in London and Washington?in which the government would absorb all the bad stuff and let the banks keeps all the profitable assets?was ultimately derived from existing accounting practices. While the easy-money party was still going, banks would dump all their really toxic debt into unnumbered slush-fund accounts?or even swap the debt amongst themselves like a hot potato?and keep it all safely hidden when it was earnings-reporting time. My guess is that Citigroup is doing more of the ol? accounting shell game?most likely with Timmy and Ben nodding in approval, so that soon Obama can tell the people, ?See, it?s working!?

Another news item in which there?s more than meets the eye is the report that Bernie Madoff is expected to plead guilty to 11 counts of fraud, which might ultimately result in 150 years in the slammer. Is Bernie repentant? Well?  Madoff was always more complicated than your average scam artist. Normally Ponzi schemers promise their victims vast fortunes?the original Charles Ponzi actually offered his clients a 200 percent return in 60 days in real-estate deals (which famously turned out to be in Florida swampland.) Bernie, on the other, took the opposite tactic. His hedge fund?s returns were ridiculously consistent, yes, but then they were also quite modest?the 10 and 12 percent returns Madoff LLC promised year in, year out weren?t anywhere close to the Big Boys’, and they were only slightly higher than most mutual funds’. Moreover, while Madoff is becoming the Ultimate Villain of the financial crisis, it?s also clear that he was not acting alone?his sons and wife surely knew the score, and there must have been many, many more. In some kind of despicable gesture of loyalty, Madoff seems to be taking the fall for others?colleagues in his firm, for sure, but then perhaps some people who are ?high up.? I doubt the Madoff clan is hoarding all the loot.