Sunday, March 29, 2009

Why No Madoff Bailout?

Why No Madoff Bailout?

Bernard Madoff has pled guilty to running the largest fraud, a so-called Ponzi scheme, in U.S. history, having swindled some sixty-eight billion dollars from investors involved in his fraudulent scheme. Over the course of twenty years, Madoff managed to moved over 170 billion dollars through his fraudulent investment corporation, many of his investors being some of the wealthiest people on the planet.

Modoff’s scheme only came to light because of the worldwide financial crisis: “‘The fuel of a Ponzi [scheme] is cash infusion,’ says lawyer Michael Goldberg, Madoff’s undoing was the worldwide financial crisis, which prompted many investors to try to liquidate. He was unable to bring in the funds to meet the redemption requests, and his house of cards collapsed” (The Week, January 30, 2009, p. 11).

Madoff’s scheme resembled a successful investment firm, and was, in many ways, indistinguishable from other high rolling Wall Street investment firms: “Maddof ran his so-called hedge fund like and exclusive club…allegedly paying out some of the money as dividends to maintain the fiction, donating millions more to non-profits, and spending much of the rest on real estate, jewelry, and high living” (ibid.). For all practical purposes, Bernie Madoff was virtually doing business the same way that legitimate investment banks did: taking investors’ money, using the money to do business, and hoping that most of the investors will not demand their money back any time soon.

Madoff’s problem was unlike those of the large banks the federal government has bailed out, banks which, like Madoff, found themselves faced with having too many investors who wanted (or who may soon demand) their money back and not enough money on hand to pay them. But isn’t this very similar to what has happened with the recent financial collapse of companies like Bear Stearns, Citigroup, Bank of America, General Electric, and AIG? The recent federal bailout of so many failed corporations was necessary, so we are told, to insure the stability of our economy.

The recent outcry over bonuses given to (150 billion dollar bailout recipient) AIG executives only points up the fact that the federal government is heartily endorsing the corporate status quo and the taxpayers are bailing out those who live the high life. Unfortunately, our economy is far from stable; even with the recent 8.5 trillion dollar infusion of cash coming from federal taxpayers. Did I say cash infusion? Where have I heard that before? Oh yeah…it’s what Bernie Madoff’s sixty-eight billion dollar Ponzi scheme depended upon in order to remain solvent. It seems to me that perhaps the best thing to do, economically speaking, would be for the federal government to add Madoff’s fraudulent investment company, and its investors, to the growing list of taxpayer funded bailout recipients.

Friday, March 27, 2009

U.S. Raises the Stakes in Ongoing U.S./Mexico Border Crisis.

U.S. Raises the Stakes in Ongoing U.S./Mexico Border Crisis.

The U.S. recently announced that, due to concerns about the ongoing and intensifying violence between Mexican drug cartels and the Mexican government, it will soon be beefing up the many law enforcement agencies working the Texas/Arizona/Mexico border region. The governors of both Texas and Arizona are considering the deployment of their National Guard forces in order to prevent the increasing violence from spreading across their borders.

What’s different this time is that the Mexican government is currently losing its battle with the cartels, thanks in large part to the arms merchants, who, for years, have supplied the cartels with tactical weapons they need to battle government forces, arms which are smuggled into Mexico illegally from the United States. And while U.S./Mexico border issues usually focuses upon the flow of drugs from Mexico into the U.S., now it’s the Mexican government who is trying to stop the flow of illegal arms coming into its country from the U.S.

While the flow of illegal drugs from Mexico to the U.S. is a well known fact, not many people realize illegal arms are being smuggled into Mexico from the U.S. on a regular basis. Since the 1980’s, when the sea route to Florida was effectively closed off by U.S. authorities, the smuggling of illegal drugs from Latin America into the United States, has been concentrated into its most natural place: the expansive desert region of the southwestern U.S./Mexico borderlands. This vast wilderness area, which is very conducive to smuggling, is treacherous, and it is practically as remote from Mexico City as it is from Washington D.C.

I suppose the questions I would put to the U.S. government would be: What are you trying to accomplish by this? And what results do you expect to obtain? I think we can safely assume that the flow of illegal drugs to the U.S. will not cease, and neither will the flow of illegal arms to Mexico. More than likely, the climate of violence, kidnapping, torture, and murder found in the border region will only get worse. By attempting to contain the violence (to Mexico) the U.S. could very well earn the wrath of the cartels. The Mexican government has been fighting the cartels for years, and it’s common (today) to hear of lower level local authorities (such as chiefs of police) in Mexican border towns being murdered...on a pretty regular basis.

Does the U.S. government really expect results any different from this? Isn’t it the cartels way to intimidate, kidnap, torture, and murder local (and higher) authorities…and their families? Fighting insurgents in Iraq and Afghanistan is bad enough without having to fight the wealthy and powerful cartels (i.e., gangs of thugs) of Mexico. In other words, non-conventional warfare is very difficult for large governments to wage, and having one’s family members kidnapped, tortured and murdered can easily cause one to lose the will to fight. This is a war that cannot be won by tightening down the screws of the status quo. Increasing support for a drug policy that is a proven failure is like pouring gasoline on a raging fire.

I have spent a considerable amount of time in the U.S/ Mexico border region. I lived in El Paso, Texas for four years (during the late eighties) and I currently reside in Tucson, Arizona. I have visited many towns along the Mexican border (La Frontera) with the United States: Matamoros, Cuidad Acuna, Presidio, Cuidad Juarez, and Nogales. In the border towns, for many years, it’s been common to see heavily armed military troops and police clashing with the cartels and to expect cartel related violence to erupt at any time. Not to mention the many stories you hear (from the locals) about the latest hits, assassinations, and violent shootouts.

As long as U.S. drug policy goes unchanged, and outlawed substances continue to be bought and sold on the black market, things can only get worse. I hope the U.S. government will one day realize that the control of such substances is better than outlawing them altogether. For example, marijuana is not as harmful as is alcohol, yet the U.S. government considers alcohol to be a substance which people can use responsibly. Can we not at least do the same for marijuana? This would take a very large (and very important) bite out of the cartels’ profit margins, create millions of jobs, and fill government coffers with billions of dollars in revenue. But I suppose that that would make too much sense, right?