• Another form of "climate" change...arbitrage in the news, "aig-ain."
• California here we come!  How about Net's impact...
• "Triple-A Failure" article.  Oil prices. 
  
• USING IRON TO ABSORB CO2:    Iron dust is poured into the sea to supplement the levels reaching oceans on winds from arid areas. Iron consumed by plankton helps photosynthesise carbon dioxide to produce oxygen.   Some plankton is eaten by sea creatures; the rest sinks, sealing its carbon deep in the ocean for decades, centuries or millennia.  The boom is funding various clean energy projects, from developing hydrogen fuel cells to turning algae into fuel and creating synthetic fuels through biological engineering.
  
• Economics 101:  at right, American field no longer to be conserved? 
  
• FOOD one big problem...
• Where the rubber meets the road is another! 
  
• And how about the Fannie and Freddie impact? 
  
• Changing of the guard?  
• Metrics makes news...and hedge funds.  What went wrong?  NEXT:  Bail out banks and TAKE THEM OVER? 
• American car makers?  
• ARTBITRAGE definition from Wikipedia.  
• Berkshire Hathaway PROFIT down, too.  But still making big bucks!  (NOT LOSSES); 
• How about Bernie Madoff's clients? 
  
• How can you "take control" of something you don't know anything about?  Oh, the guy immediately to the left, "Mr. Risk" himself, can tell you how to do that!  Oops!
• Big Ben is link to I-BBC version of how the financial crisis started and has ben going on across the pond...
  

• NEWS
• BAIL-OUT GLOBAL?  NEW MEANING FOR BULL MARKET?
  
• THE WORLD BANK - WHAT DO THEY HAVE TO DO WITH THE CRISIS?  The G20 Summit here;  NYTIMES editorial 3-13-09;  ...outlook for 2010;  the dollar's status;
  
• World view of economies, from I-BBC: http://news.bbc.co.uk/2/hi/in_depth/business/2009/g20/7897719.stm
  
• ...what's with hedge funds?  How about the genious of new instruments for the housing market?  I-BBC explanation in 2007.  NYTIMES from April 2008...around the time of...subprime crisis blow up.  NEW:  How about trade picture at the end of 2009?
  
• Government bond defaults next?  Fannie Mae and Freddie Mac takeover...NYTIMES timeline;
  
• 2007 NOBEL economics prize - "microeconomics" developers.
• Default and subprime lending;
• Inflation?  Retail spending?  Wall Street bonus issue?
  
• Foreign investment: where does this fit into the picture?
  
• Derivatives:  And how about the "house of cards"...leader of the pack, N.Y.TIMES on  A.I.G.?
  
• FARMING;  rice crisis video from I-BBC;
  
• Excellent article explaining U.S.A. position in the world in terms of $$;  in 2009, what is the position of the economy of the U.S.A.?  Unemployment?
  
• CREDIT CRISIS?
  
• BUSINESS GETS IT!   How about  Xerox and partners!
  
• CT Centric Thinking - a microcosm of America, only more so?  The graphic;
  
• Women in business - should they look to global advancement paths?
  
• Read on to article about Intergovernmental Panel on Climate Change: http://www.ipcc.ch/
• Where does communication fit in?  Is the open use of the Internet at risk?
  
• Mother Nature plays a role here - and here.
  
• Oil or lack of it;
  
• Other energy products:  domestic gas...
  
• World trade (infrastructure);  emerging economic giant.
  
• Business education in the 21st century--Infrastructure 101!
  
• Transport:  the Eddington Report in full (link to downloads).
• STERN REVIEW
• Connecticut not ignoring the issue!
• CALIFORNIA LEADING THE WAY;
• What about Southwestern CT - where do we fit in to the global square dance?
  

By Tim Weber, Business editor, BBC News website, in Davos

The regulators are talking, but are the bankers listening?

Everybody at the World Economic Forum is tearing into them, from President Nicolas Sarkozy to investing legend George Soros.

It may be clean good fun (and a great spectator sport), but all the tough talk has a very serious edge.

Slowly, the outlines of a consensus are emerging for far-reaching reforms of the financial sector. The bankers here are fighting a rearguard action - seemingly without realising that they are making their situation even worse.

My colleague Robert Peston reported the astounding comments from a leading banker, suggesting that he and his colleagues can't possibly have been paid too much.

It's exactly these kind of comments that are goading regulators and politicians to get tough.

Angry central bankers

Central bankers don't do public tantrums.

But the measured tones of the European central bankers here in Davos barely hide how angry they are over what they see as being taken for a ride.

We wanted to see sensible behaviour by banks, but we didn't see it, so we need collective action A European central banker

Look at the UK's 50% tax on bankers' bonuses, says one. "This was not designed to generate revenue, but to avoid it. But the banks still paid their bonuses. A better tax rate would have been 100%."

The bankers, he implies, clearly didn't get the message.

Backed by the G20, regulators are currently doing some detailed work on a global regulatory framework - looking at various options and the impact they will have. The framework is scheduled to be ready by the end of the year.

Over lunch, one of the top central bankers guiding the process promised us pretty comprehensive reforms. "The new world will look more like the 'new new', not the 'new normal'," he threatens.

He ticked off a list of potential changes, from new accounting rules to new counterparty arrangements to liquidity buffers.

The central banker particularly dwelled on a plan to introduce "capital requirement charges" to punish banks that don't save money for a rainy day.

Why such drastic action?

"The banks had a great year," he says. "The good results were only driven by the 'for free' insurance that the governments sold to them." But did the banks use the windfall to bolster their balance sheets? No, "everybody is putting it into bonuses and dividends".

And, turning slightly red, he says: "We wanted to see sensible behaviour by banks, but we didn't see it, so we need collective action."

Pitfalls

Bankers are quick to point out what could go wrong.

Too much regulation, too high taxes, and banks could not afford to lend any money at all, even if they would want to. It would be a certain way of choking any economic recovery.

The central bankers acknowledge that, and promise that all the new rules and regulations, the "de-risking" and "de-leveraging" of the banking sector would be slowly phased in.

Everyone is getting a chance to vent in private

"This won't be a one-size-fits-all model," says one of them.

Politicians, too, see the benefits of being tough on banks.

A parade of politicians from around the world here in Davos has lavished praise on the principles (if not always the detail) of US President Barack Obama's plan to reform the banks.

The leader of the UK opposition, David Cameron, reiterated his support for a global financial insurance levy, to make sure it was the banks who would finance the next bail-out, not the taxpayer.

And he loves regulation too, promising to turn the Bank of England into the UK's centralised City watchdog, should his party win this year's general election.

The next catastrophe

Andrei Kostin, chief executive of Russia's VTB Bank, quotes Ronald Reagan: "The most terrible words in the English language are: I'm from the government and I'm here to help" - but acknowledged that the crisis proved this adage wrong.

Rather, says Jean-Claude Trichet, president of the European Central Bank, without government intervention the world would have faced a "catastrophe".

The complaints from bankers that poor regulation caused the crisis is like you have a massive fire, the fire brigade comes in and you blame them for flooding the house John Evans, advisor to the OECD

"In my opinion," he says, "it is currently underestimated that we were very close to a full-fledged depression."

"We need to find a global solution" to fix the "fragile" global financial system, Mr Trichet argues, and warns that merely "local, national solutions" would be a "recipe for [the next] catastrophe".

Some bankers have got the message.

"The relationship between banks, government and society has changed irreversibly," says Peter Sands, chief executive of Standard Chartered bank.

"The bankers," he admits, "have not helped themselves at all. We've been simultaneously tone-deaf and shooting ourselves in the foot."

But he also warns that there is a trade-off between how safe we want to make the banking system, and how efficient and effective it can be to support the real economy.

Still, there's so much blame to go around, it would do more bankers good to accept some of it, says John Evans, who advises the OECD on trade union issues.

"The complaints from bankers that poor regulation caused the crisis is like you have a massive fire, the fire brigade comes in and you blame them for flooding the house."

An arcade game that allows people to vent their anger at bankers has proved so popular the owner keeps having to replace worn out mallets.

Inventor Tim Hunkin introduced "Whack a Banker", which is based on the older "Whack a Mole" game, at his arcade on Southwold pier in Suffolk.

Instead of players hitting pop-up moles with a mallet, within a set time, the target is pop-up bald figures.

Mr Hunkin said the game was "proving very popular".

"I keep having to replace worn-out mallets," he said.

"The bankers are bald and all look the same because that's how I think people see bankers, as faceless."

Players, who are promised a "truly rewarding banking experience", pay 40p to hit as many bankers as they can in 30 seconds.

When a customer wins a voice says: "You win. We retire. Thank you very much to the taxpayer for paying our pensions."

Across the pond, RBS to be "broken up" - how does that affect Stamford, CT operation?

He said there could be three new High Street banks in the UK over the next three to four years as a result.

But the chancellor said he would only sell parts of the banks when "the time is right", to ensure taxpayers get their money back.

There is speculation that buyers might include Tesco and Virgin.

'Clean sheet'

In order to boost competition, the banks' assets will only be sold to new entrants to the UK banking market and not to existing financial institutions.

The new banks will be standard retail operations concentrating on deposits and mortgages.

ANALYSIS Joe Lynam, BBC business correspondent As part of the stipulations of EU state aid rules, the UK was always facing the prospect of having to sell off at least parts of those banks which it bailed out last year. Now it looks as if that sell off process is to begin in earnest. Though the Chancellor says he has not yet decided which brands are to be hived off, RBS, Northern Rock and Lloyds Banking Group (LBG) will now be broken up in some form. This means that individual brands within those banks, such as Cheltenham & Gloucester and the TSB (LBG), as well as Williams and Glyn (RBS), could be sold off. The unanswered question now is whether the Treasury jumped or was about to be pushed by Brussels.

Mr Darling said this was the best way to ensure "proper competition and choice". He said having just "half a dozen big providers was not acceptable".

The new entrants would "have a clean sheet to come in and do things differently", he added.

The chancellor also said the government would be splitting up Northern Rock into two parts by the end of the year, with a view to selling off one part within the next three to four years.

The government had already said it wants to sell off the part of Northern Rock that holds savers' money, carries out new lending and holds some existing mortgages.

He also said the government was keen to divest some of its holdings in RBS and Lloyds.

The government currently holds a 70% stake in RBS and a 43% stake in Lloyds after last October's bail-outs.

'Unnecessary distraction'

BBC business correspondent Joe Lynam says the latest move represents "a gilt-edged opportunity for non-UK retail banks, especially from the US, to get a firm foothold in the highly profitable British banking market for as low a price as could be imagined a few years ago".

The Conservatives said the break up of the state-owned banks had already been "well trailed".

A spokesman added: "We have called for more competition in banking, and for government stakes to be used to strategic effect to that end."

The Lib Dems Treasury spokesman Vince Cable welcomed more competition in the banking sector but said there should be no urgency to the sales.

"We need to be careful that when these split-ups occur, the prime cuts are not offered to private investors and the scraps left to taxpayers," he said.

Treasury select committee chairman John McFall MP said the assets should not be sold off for less than their market value.

"It is important to ensure that we get taxpayer return for this bail-out. I'm relaxed about the timescale. I do not want to sell off [bank assets] at a cheap price, I don't want a fire sale," he told the BBC.

Peter McNamara, former head of personal banking at Lloyds TSB and managing director of the Alliance and Leicester, said that restructuring the banks in the current climate could in fact prove counter productive.

"Half the banks in the UK are suddenly going to be reorganised when you could argue their day job is to support industry and consumers during the recession. Without that support, we are more likely to have a steeper rise in unemployment," he said.

Intense discussions

The government needs permission to break-up the banks from European competition commissioner Neelie Kroes.

She has also set tough conditions on Dutch and German banks receiving state aid and is keen that should only be given in exchange for re-structuring and increased competition within the banking market.

Recent reports have suggested that Lloyds would sell Cheltenham and Gloucester, Lloyds TSB Scotland and Intelligent Finance - an online division of Bank of Scotland.

RBS is understood to be preparing to put its network of around 300 RBS-branded branches in England up for sale, under the Williams and Glyn brand they used until 1985.

According to a source close to the negotiations, RBS is also "near 100% certain" to be putting its insurance division back on the market, including Churchill, Direct Line and Green Flag.

There could be further divestments required of RBS, but these are not expected to include its extensive activities in the US, including its ownership of Citizens Bank.

Rajaratnam to provide SEC with wiretaps

Hedge-funder in stox-scam bust

Dollar At 5 - Month Lows as Safe - Haven Luster Fades

Wilting flower exports hit Zambia By Steve Schifferes Economics reporter, BBC News, Lusaka, Zambia Watze and Angelique Elsinga grow roses for export On the outskirts of Lusaka, Angelique and Watze Elsinga have been growing roses for export for the last 14 years. But now the speed of the global downturn is forcing them to give up the business, threatening the livelihoods of hundreds of workers and their dependents. The sudden collapse of the prices paid for roses in Europe, due to diminishing demand and oversupply, has made their business uneconomic. And they are being forced to sell their farm as they can no longer keep up their loan payments to Barclays Bank, which is demanding immediate repayment. Happy Valentine's Day ENVIRO-FLOR ROSE EXPORTERS 40m roses exported per year 7 hectares of greenhouses 189 workers employed Total Zambia rose exports: 4,200 tonnes worth $40m in 2008 Total employment: 12,000 "It's a sad day," says Angelique Elsinga as she walks round her farm with its eight giant greenhouses - which produced 40 million roses for export last year. "It's cheaper for us to destroy the roses now than send them to Europe." They are shutting off the irrigation pipes in seven of those greenhouses, growing only for the local market and switching some of their production to vegetables. The demand for roses - and the price - normally peaks at Christmas and Valentine's Day. But this year was very different. "We had to shut down production during the two weeks before Christmas, something we had never done before," said Watze Elsinga. "And just before Valentine's Day, our suppliers told us not to send any more roses - their warehouses were full." "We have never seen such low prices." Sudden collapse Abandoned greenhouses mark the collapse of the flower export market Yet just six months before, their business had seemed secure when they signed a long-term supply deal with a leading Dutch wholesaler, Blooms. But in October, the company suddenly told them it was terminating the contract because of falling demand. It was the first sign of the sharp slowdown that has gathered pace ever since. "We have been surprised that this crisis has happened so fast," said Mr Elsinga. "As growers, we cannot control either the prices we are paid, the exchange rate, or many of our external costs, even though we have managed to keep our own costs under control." Social gains CRUNCH TIME FOR AFRICA World leaders will meet next month in London to discuss measures to tackle the downturn. See our in-depth guide to the G20 summit. Only one African country will be represented at summit. This week BBC World News and World Service Radio will be examining how Africa is coping with the crisis, with our blog and reports from the continent Africa faces chill winds For the Elsingas, who came to Zambia from the Netherlands 14 years ago, the farm was a social enterprise as well as a business. They have constructed housing for their workers, and built a community centre and a school for 600 children on the premises. And they have provided year-round employment for nearly 200 workers. Now they will have to lay off all the workers at the rose farm, with only a few finding employment in the vegetable business which they hope to continue at another location. Difficult conditions According to Luke Mbewe, chief executive of the Zambia Export Growers Association (Zega), flower exporters in Zambia face more difficult conditions than their rivals in other African countries such as Kenya, Tanzania, and Uganda. Flower exporters are dependent on a secure supply chain, with the fresh flowers kept refrigerated and disease-free as they are moved quickly from the farm to markets in Europe within 48 hours. But in Zambia, transport costs are higher, because of the higher cost of petrol and jet fuel that has to be imported into this land-locked country. And the lack of a substantial scheduled air freight service has meant that they have had to charter flights to take their flowers to market. They have also faced problems with electricity supply, with Zambia's government-owned electricity company Zesco introducing rolling power cuts throughout the country over the past year. The sharp drop in the value of the Zambian currency has raised the cost of fertilisers, fuel and other farm inputs. Mr Mbewe says he knows of a number of other farms that have gone out of production, and he now fears for the future of the industry. Economic hopes President Rupiah Banda wants to encourage economic diversification Zambia remains one of the world's poorest countries, with more than 60% of the population living on less than $2 a day. Now its prospects for economic growth have been dented by the decline in the world price of copper, which makes up 90% of the country's exports and provides thousands of jobs. Zambia's President, Rupiah Banda, says that the way for Zambia to cope with the global recession is by diversification, moving away from dependence on copper. But the problems of the flower industry show how difficult this could be. To become competitive, Zambia's flower growers will need more, not less aid to improve infrastructure - either from the government or outside sources. But it is still unclear whether any global measures to cope with the downturn, to be discussed at the G20 summit of world leaders in London in April, will reach the flower growers of Zambia in time.

New York real estate crisis?  GASB link - and even a Fairfield County connection!

Madoff: Had 'too much credibility' with SEC
YAHOO
By MARCY GORDON, AP Business Writer
Sat Oct 31, 2009, 6:26 am ET

WASHINGTON – As Bernard Madoff sat in jail a few months after pleading guilty to fraud, he sounded faintly boastful.

The only problem with officials at the Securities and Exchange Commission's Washington headquarters, he said, is that he had "too much credibility with them and they dismissed" the idea that he was scheming people out of billions of dollars.

A document released Friday details a prison interview conducted June 17 by the SEC inspector general in which Madoff says he had the impression that "it never entered the SEC's mind that it was a Ponzi scheme."

Madoff seemed convinced SEC staff did not suspect him, despite the agency's numerous probes of his business. He said in the interview that the SEC examiners "never asked" for basic records to corroborate his operations.

The disgraced financier also confided that he didn't bring an attorney with him when he testified in an inquiry by the SEC's enforcement division because he believed he didn't need one — and he was trying to fool the government investigators into thinking he had nothing to hide.

The details emerged in a summary of Inspector General David Kotz's interview with Madoff at the Metropolitan Correctional Center in New York, released along with hundreds of other documents related to Kotz's extensive investigation of the SEC's stunning failure to detect Madoff's fraudulent scheme for 16 years.

Kotz also issued a statement Friday saying his probe found no evidence to support Madoff's claim of having a "close relationship" with SEC Chairman Mary Schapiro, who previously headed the Financial Industry Regulatory Authority, the brokerage industry's self-policing organization. In the interview, Madoff called Schapiro a "dear friend," saying she "probably thinks, I wish I never knew this guy."

Like the SEC, FINRA made periodic exams of Madoff's brokerage operation, which functioned separately from his investment business hidden from regulators' view. An internal review by FINRA found a regulatory breakdown on the part of the organization in the Madoff case.

As the SEC inspectors carried out probe after probe of his business, Madoff said in the interview he was "worried every time" that he'd be caught. "It was a nightmare for me," he said. "I wish they caught me six years ago, eight years ago."

Madoff, 71, a former Nasdaq stock market chairman, pleaded guilty in March to charges that his secretive investment-adviser operation was a multibillion-dollar Ponzi scheme that destroyed thousands of people's life savings and wrecked charities. It was possibly the largest-ever Ponzi: the classic scheme in which investors are paid with other investors' money rather than actual profits on their investment.

He is serving a 150-year sentence in federal prison in North Carolina.

The new details from Kotz's inquiry came the same day as word that Madoff's longtime auditor is expected to plead guilty next week in a cooperation deal. Prosecutors told a federal judge in New York that accountant David Friehling was expected to offer a guilty plea at a conference Tuesday to revised charges that accuse him of securities fraud, investment adviser fraud, making false filings to the SEC, and obstructing or impeding administration of the Internal Revenue laws.

The charges carry a prison term of up to 108 years, though significant cooperation with prosecutors can bring leniency.

In his interview with Kotz, Madoff said the SEC never asked him about his tiny accounting firm. It seemed incongruous that, with more than $65 billion in private investments he claimed he oversaw for thousands of people, Madoff used what seemed to be a small-time auditor with a minuscule office in suburban New City, N.Y. Authorities say that Friehling appeared to have rubber-stamped Madoff's records.

Kotz's report of his investigation, made public in early September, painstakingly detailed how the agency's investigations of Madoff were bungled, with disputes among inspection staffers over the findings, lack of communication among SEC offices in various cities and repeated failures to act on credible complaints from outsiders forming a sea of red flags.

An inspection of Madoff's operation in 2003-04, for example, "was put on the back burner" even though the exam team still had unresolved questions, Kotz found.

Madoff's former finance chief, Frank DiPascali, is cooperating with prosecutors after pleading guilty in August to helping Madoff carry out his fraud. Madoff was asked in the interview whether he was concerned about DiPascali's testimony. His answer: "No, he didn't know anything was wrong, either."

NYTIMES "Deal Book"
Andrew N. Lerman, a certified public accountant in White Plains, N.Y., argues that the biggest beneficiary of the Bernard L. Madoff scandal was the federal government through the taxes it collected. Mr. Lerman, who is working for several victims of the fraud, has spoken to several United States senators, including Robert Menendez of New Jersey and Charles Schumer of New York.
March 12, 2009, 9:30 am

Over the past two months, Congressional committees have held three hearings to address and investigate Bernard L. Madoff’s fraud. The overwhelming majority of these hearings have been focused on some of the lapses that may have taken place by government regulators and potential changes that were proposed to prevent frauds of this nature.

At the most recent hearing, Harry Markopolos, the now-famous whistleblower, provided his recounting of this historic scam: “There was an abject failure by the regulatory agencies we entrust as our watchdog.” In addition, he concluded “that the S.E.C. securities’ lawyers, if only through their ineptitude and financial illiteracy, colluded to maintain large frauds such as the one to which Madoff later confessed.”

He made several other condemnations as to the government’s failures. What should also be noted and has gone somewhat unnoticed is the fact that Mr. Markopolos had contact with the Securities and Exchange Commission no less than 50 times!

Unfortunately, the hearings have failed to address the depth and gravity of the tax problems created by the Madoff fraud. The single biggest beneficiary of the Madoff Ponzi scheme was and is the United States government. There is no simpler way to state it.

For what possibly could be decades, Madoff investors have been paying taxes to the Internal Revenue Service on the phantom dividends, interest and appreciation gains which were reported to them by Mr. Madoff. Thus, the government has probably received billions of dollars in tax revenue from defrauded investors.

The government cannot ignore the fact that, but for the failure of the S.E.C. to detect this fraud, it would have been deprived of this revenue stream. Federal regulators had the opportunity to stop this scheme and for whatever the reason, did not or were not able to. Should the government be the beneficiary of that?

The question for our lawmakers is simple. Can the government enact policy so that the victims of the fraud are treated fairly and equitably?

There are many technical and complicated tax elements that relate to the Madoff fraud. Suffice to say, there are significant and material questions, among many, that include the proper treatment of previously reported phantom income, the correct deductibility of theft losses, and from which year or years the losses may be deducted.

An administrative compulsion exists for the resolution of the above issues. There are potentially 10,000 or more victims and without a consistent filing procedure, the Treasury will be faced with up to 40,000 — 10,000 for each year — or more claims for 2005 through 2008. These may be subject to 40,000 or more audits, subject to up to 40,000 or more appeals and finally subject to 40,000 or more court cases.

Further, these claims may be filed taking several different technical positions. Does the Internal Revenue Service and our court system have the resources to handle this? Only by providing for an organized and uniform policy will this fiasco be avoided.

Where do we go from here? This can’t be left to a guessing game or chess game for lawyers, accountants and the I.R.S. There is no single right answer. Ambiguity leads to uncertainty and it is in the victims’ and government’s best interests for there to be clarity. The I.R.S. can’t be left to whistle past the graveyard, hoping that no one notices the potentially billions of dollars in taxes that it has collected over the decades on phantom income. The S.E.C.’s impact on this is now well-documented.

Without Congress and the Treasury Department proactively providing a clear and concise means for taxpayers to recoup their tax losses, a very real potential for absolute chaos exists, as the less fortunate, who have nothing left in their lives, would not know what to do or where to turn.

If it is not possible for some victims to be able to receive tax refunds until 2010 or thereafter, there is also the risk that we may have some personal tragedies that we will be reading and hearing about in the media.

We face many critical issues as Americans these days, and all are significant and important. It would be tragic for innocent, hard-working Americans who have been hurt by the Madoff scandal to be further hurt by to the lack of clarity and guidance in our tax system.

This is not about creating a Madoff bailout or recovery fund. It may not be reasonable to think that the government should restore the victims’ investment. Rather, the immediate priority should be to establish procedures and clarity so that victims may deduct the appropriate losses and the taxes that they paid can be refunded without delay.

Hey Ponzi: What’s Your Exit Strategy, Exactly?
NYTIMES
By Catherine Rampell
December 17, 2008, 11:33 am

I have never understood why someone would ever start a Ponzi scheme when, by definition, there’s no way to end it.

The scam works by bringing in new unwitting investors to pay off the old unwitting ones. Since there’s no actual investment involved — just a transfer of money backward, with some portion presumably pocketed by the Ponzi schemer — keeping the scheme going requires an endless supply of new investors. The schemer’s liabilities only get bigger as time goes on, and there’s no way to end the ploy. Other than jail, that is. Or death. Or perhaps faking one’s own death.

Take Bernard Madoff, who, it is said, concocted a $50 billion Ponzi scheme. How could he be financially sophisticated enough to (1) con some of the richest, most financially literate investors around, and (2) build a complex paper trail hiding his investments, but also be (3) financially unsophisticated enough not to realize there’s no way to end such a ploy?

I recently asked a few experts what such Ponzi perpetrators might envision their “exit strategies” to be. They generally fell into four categories:

1) Cut and run. This strategy is usually used by small-time crooks taking aim at lower- to middle-class investors.

These swindlers are the Harold Hills of the world. They walk into Rock Island with the intention of ripping everyone off, changing their identities, hopping back on the train, and then proceeding da capo in River City. (Unless they fall in love with a comely librarian along the way, of course.)

“There’s a certain type of sociopathy to many schemers,” says Mitchell Zuckoff, a journalism professor at Boston University and author of “Ponzi’s Scheme: The True Story of a Financial Legend.”

Few of the big-time Ponzi schemers go this route, though. This is because big Ponzi schemes are almost always based on exploiting the trust of a tightly knit social network. The victims are usually members of ethnic communities, elite country clubs, churches or other social hubs where people are unlikely to do their due diligence because they trust their friend, family member, clubmate or neighbor, and have seen others in the same social circle get rich through the proposed “investment opportunity.” In Mr. Madoff’s case, for example, the victims appear to be primarily rich Jewish investors, whom he met through elite groups like the Palm Beach Country Club. The Foundation for New Era Philanthropy, a notorious Philadelphia-area Ponzi scheme, preyed on Christian religious organizations and charities.

If you’re well-connected enough to create a large-scale Ponzi scheme, you’re probably too well-connected to be able to, or perhaps even want to, cut yourself loose.

Charles Ponzi himself had ample opportunities to disappear back to his Italian homeland unnoticed, Mr. Zuckoff said.

“He was bringing his mother over to Boston, from Rome,” he said. “He set her up here. He was canceling the honeymoon he’d planned to take to Italy with his new wife. He could have taken the money and run, but instead he chose to put down roots. He even invested in local banks.”

2) Turn (or return) the business into something legitimate. Unlike the schemers in #1, these Ponzi architects likely started out with some hope for legitimacy. They wanted seed money to kick off some brilliant investment idea. But then the “brilliant” idea falls through. They are then in the position of having to pay off initial investors. Rather than declare failure, they recruit new investors to pay off the old ones.

They may be stuck in a rut, but they have confidence (or perhaps, self-delusion) that they’re so clever that they’ll come up with another, better idea and strike it rich that way.

This was more or less Charles Ponzi’s strategy.

He had grand plans for arbitrage of international postal reply coupons, a sort of postage stamp that was recognized by post offices around the world. He planned to buy the coupons cheaply in Italy and then resell them in the United States at a several-hundred-percent profit. He couldn’t work out the logistics, though, and ended up collecting more and more “seed money” to finance his brilliant idea. Mr. Zuckoff said Ponzi eventually started looking for another brilliant plan but failed.

“He truly thought he could eventually turn around and go legitimate,” Mr. Zuckoff said.

As in Ponzi’s case, this exit strategy pretty much always fails because the schemers are looking for the big scalp — and there’s never an investment profitable enough to fill that deepening pocket of debt.

3) No exit. These schemers, usually from relatively humble backgrounds, are deeply insecure. They have felt like impostors their whole lives, whether in the country club or on the trading floor. They expect to be exposed for something, sometime, somewhere, which allows them to rationalize fraudulent behavior. They focus on denying and delaying the inevitable for as long as they can — and living well until they get caught.

“They have classic impostor syndrome issues,” said James Walsh, author of “You Can’t Cheat an Honest Man: How Ponzi Schemes and Pyramid Frauds Work … and Why They’re More Common Than Ever.” “It’s a classic case of overconfidence as a mask for underconfidence. It’s Freud 101.”

4) Get elected to Parliament. After scamming millions of Russians in the 1990s, Sergei Mavrodi promised his broke investors that he would get their money back with taxpayer funds if they elected him to the Russian Duma. He was, in fact, elected. And voilà, his election gave him parliamentary immunity from criminal prosecution.

Admittedly, this exit strategy has limited applicability. It didn’t even work for very long for Mr. Mavrodi, whose parliamentary immunity was revoked and who eventually landed in prison.

***

There is more overlap than the simple categories I’ve laid out here would imply; Mr. Ponzi, for example, had other run-ins with the law involving financial dishonesty, so it’s not as if he was exactly hell-bent on legitimacy.

It’s also hard to say, based on the limited information available, where within this array of strategies Mr. Madoff fell (assuming the allegations against him are true). He probably was banking on exit strategy #2, the turn (or return) to legitimacy.

Most Ponzi schemes last a year at most, experts say. (Charles Ponzi’s lasted just nine months.) This indicates that Mr. Madoff, who had been investing clients’ funds since at least 1960, probably started out legitimate or semi-legitimate.

“I don’t know the ins and outs of what happened here,” said Stephen P. Zeldes, a professor of finance and economics at Columbia Business School. “He may have initially had a few bad years, or a few bad quarters, and not wanted to tell that to investors,” Mr. Zeldes said. “Maybe he then pretended that returns were better than they were, thinking he could make it up some future years. Maybe he was thinking he could gamble a bit, get a good return, and no one would ever know.”

In other words, Ponzi schemers don’t necessarily start out as such, and as sophisticated as they are, they may not consciously accept the fact that they’re engaging in a Ponzi scheme. They fool themselves into thinking that the Ponzi scheme is merely a stop-gap measure to hide their losses until they (theoretically) come up with something brilliant.

“I don’t think he originally started thinking he was going to scam his investors,” says Utpal Bhattacharya, a finance professor at the Kelley School of Business at Indiana University who studies financial crime. “His original motive was probably to hide his losses.”

Some of the world's wealthiest private and corporate investors are reported to be victims of an alleged $50bn fraud by Wall Street broker Bernard Madoff.

Mr Madoff is alleged to have confessed to a huge Ponzi scheme (pyramid fraud).  Reports say the main owner of the New York Mets baseball team, Fred Wilpon, and former American football team owner Norman Braman are among the victims.  Others facing losses reportedly include French bank BNP Paribas, Japan's Nomura Holdings and Zurich's Neue Privat Bank.

Prosecutors say Mr Madoff, ex-head of the Nasdaq stock market, has described the fraud as "one big lie".

A federal judge has appointed a receiver to oversee Mr Madoff firm's assets and customer accounts, while the 70-year-old banker has been released on $10m bail.

Shares drop

Hundreds of people are thought to have invested with Mr Madoff, among them international banks, hedge funds and wealthy private investors - who are all trying to find out the cost of the alleged fraud. 

Spanish newspapers said the leading bank Santander had invested with Mr Madoff.

Bramdean Alternatives, a UK-based asset management company run by Nicola Horlick, saw its share value drop by over 35% after it revealed that nearly 10% of its holding was exposed to the New York broker.

One hedge fund, Fairfield Greenwich Group, said its clients had invested $7.5bn with the firm.

'Major disaster'

Lawyers for worried investors fearful that they had lost their savings, attended court on Friday for a hearing on the disposition of Mr Madoff's remaining assets.  The hearing was cancelled after an agreement was reached to appoint a receiver. 

Brad Friedman, a lawyer for some of the investors, said: "There are people who were very, very well off a few days ago who are now virtually destitute.

"They have nothing left but their apartments or homes - which they are going to have to sell to get money to live on," he told the New York Times.

One investor, Lawrence Velvel, 69, told the Associated Press that he and a friend may have lost millions of dollars between them.

"This is a major disaster for a lot of people. You work all your life, you finally manage to save up something ... lots of people are getting fully or partially wiped out."

'Pyramid scheme'

Mr Madoff founded Bernard L. Madoff Investment Securities in 1960, but also ran a separate hedge fund business.

According to the US Attorney's criminal complaint filed in court, Mr Madoff told at least three employees on Wednesday that the hedge fund business - which served up to 25 clients and had $17.1bn under management - was a fraud and had been insolvent for years, losing at least $50bn.

He said he was "finished", that he had "absolutely nothing" and that "it's all just one big lie", and that it was "basically, a giant Ponzi scheme", the complaint said.  He told them that he planned to surrender to the authorities but not before he used his last $200m-$300m to pay "selected employees, family and friends".

Under a Ponzi scheme, also known as a pyramid scheme, investors are promised very high returns on their investment, while in reality early investors are paid with money collected from later investors.

The paradox of thrift

ON THE HORNS OF A DILEMMA

Read full draft text (as of Monday A.M., September 29, 2008) here, courtesy of the New York Post.

Not every country's economy has been affected by the credit crunch Credit crunch: Around the world One year after the start of the global credit crunch, the various regions of the world are experiencing a range of different market conditions. Some countries are struggling to cope with economic slowdown and avoid recession, while others are virtually unscathed. We asked BBC correspondents in key cities to tell us about the most important economic factors in their regions and to give us an idea of the local mood. WALL STREET HOPES: GREG WOOD IN NEW YORK A strange thing is happening on Wall Street. As the first anniversary of the credit crunch approaches, investors have stopped battering financial stocks and started buying them again. Merrill's last set of write-downs were on Thursday, 17 July The share price of Bank of America has nearly doubled in a matter of days. And it's not as though the news coming out of the US banks is getting any better. Last month, Merrill Lynch announced another write-down, this time of more than $4bn, and the sale of all its investments backed by toxic mortgages. According to veteran Wall street trader Teddy Weisberg, of Seaport Securities, "Merrill Lynch is crying uncle," American slang for giving up or surrendering. But by confessing to the full extent of their losses, Merrill and other US banks may, at long last, have succeeded in drawing a line under the sub-prime debacle and moving on. CREDIT CRUNCH: 9 AUGUST 2007 Short-term credit markets freeze up after French bank BNP Paribas suspends three investment funds worth 2bn euros The bank cited problems in the US sub-prime mortgage sector During the following months, US and European banks report losses totalling hundreds of billions of dollars The European Central Bank pumps 95bn euros into the eurozone banking system to ease the sub-prime credit crunch The US Federal Reserve and the Bank of Japan take similar steps Mr Weisberg says: "The banks are telling us: Yeah, we've got problems. But they're under control and we're not going out of business." The revival of financial stocks has been mirrored by a sharp fall in the oil price. Oil is no longer regarded by investors as a one-way bet. Demand in the US has fallen. The market is now on red alert for any signs that China's appetite for oil may be faltering too. And, despite some dire predictions, the US economy has not fallen into recession. It grew at an annual rate of nearly 2% in the second quarter, as exports boomed on the back of a weak dollar. Confidence remains extremely brittle. Another banking collapse or renewed tensions over Iran's nuclear programme could break it in an instant. But the mood on Wall Street has undoubtedly changed. It's not one of optimism. More a sense that - one year on - the worst of the credit crunch is behind us. EUROPE'S FEARS: DUNCAN BARTLETT IN BRUSSELS It is becoming apparent that the effects of the credit crunch on Europe may be even more profound than on the US. The financial sector has been worst hit. Many major European banks had exposure to the US mortgage market and according to the Institute of International Finance, the European banking sector lost more money last year than American banks. In Denmark and the UK, governments have stepped in to stop Roskilde and Northern Rock banks going out of business. The real fear is that is that if one major European bank goes under, others will follow. Peter Spencer, an economist at Britain's Item Club, speaks of the "virus-like" effect of the credit crunch. "We do not know how long the contagion is going to run," he told the BBC. One result of the financial crisis has been a reluctance by banks to lend money to each other and to their customers. The ECB has been applauded for its response to the credit crisis To counter this lack of liquidity, the European Central Bank (ECB) has poured massive amounts of money into the markets to prevent them seizing up altogether. Many European countries now face the threat of recession, particularly the Irish Republic and Spain. Denmark is already in recession. That is not entirely down to the credit crunch. Rising food and oil prices and falling house prices have all had an impact. However, national governments as well as institutions such as the European Commission and the European Central Bank are finding it hard to respond. In fact, they are appealing to the financial and business communities to help. But those sectors have profound problems of their own and are finding it difficult to find the funds or the motivation to come to the rescue of Europe's faltering economy. NEW WORLD ORDER: MATTHEW HEAVENS IN SINGAPORE When Mizuho Financial admitted it had lost more than $6bn on investments in the US mortgage market, the Japanese bank earned the title of Asia's biggest sub-prime loser. But just compare that to the more than $40bn written off by Citigroup, and more than $30bn apiece lost by Merrill Lynch and UBS, and you'll see how unscathed - relatively speaking - Asia's cautious bankers have been by the crisis. In fact, in the financial world, you could say the credit crunch has shaken up the old order in Asia's favour. Mizuho is Japan's second largest bank Plunging stock prices on Wall Street mean the world's top two banks by market value - and three out of the top six - are Chinese. Singapore's investment funds Temasek and GIC have used the turmoil to make massive investments in the Western banking sector. They're now the biggest shareholders of Merrill Lynch and UBS. They are both sitting on big paper losses as values continue to fall, but they will tell you this was a unique opportunity to gain that sort of foothold on Wall Street. And while we are focused on this week's one-year anniversary of the credit crunch, it is easy to forget that other anniversary we were marking last year - 10 years since the Asian financial crisis. The irony of Asian money bailing out Western banks has not been lost on many in this part of the world. A much bigger worry for many Asians, though, is the economic fallout of the credit crunch. The US consumer is still the most important buyer for much of what industrialised Asia produces. Japanese export giants like Sony and Nissan are already feeling the impact as Americans tighten their belts. And the weakness of the US dollar is only making Japanese goods less affordable. In the "factory of the world", the manufacturing heartland of Southern China, they are also feeling the effects of weakening global demand, with plant closures and layoffs. Not all export businesses are in panic mode, though. South Korean exports have been growing at their fastest rate in four years. The likes of Samsung and Hyundai have long been poor relations to their Japanese arch-rivals. But they've been able to win new customers in emerging markets like Latin America, the Middle East and China. According to one estimate, retail sales in China are growing by 20% a year. Perhaps that's been the biggest effect of the credit crunch - to underline how the shape of the world economy is changing. INFLATION SOARS: SHILPA KANNAN IN DELHI India started the year with experts talking about how the country was "decoupled" from the global markets. But now, three-quarters into the year, it’s clear that the problems are more complicated. The country has been hit by three main worries this year - the impact of the global credit crunch, high oil prices and, more locally, rising inflation rates. Inflation in India is running at a 13-year high, driven by the soaring cost of food and fuel. The country’s central bank has been aggressively increasing its key interest rate to try and control the rising inflation rates. While some analysts have welcomed the move, some others feel higher interest rates could cause economic growth to slow further. The price of rice is a heavy burden for many Indians The central bank has also repeatedly lifted the cash reserve ratio (CRR) - the level of minimum cash banks must keep in relation to customer deposits - in an attempt to discourage lending. But manufacturers are already complaining that their profits have slumped as the price of raw materials is soaring, while consumers are simply not spending enough. It has been a turbulent year for the markets as well. The Bombay Stock Exchange's benchmark Sensex has fallen more than 5,000 points and is now at last year’s levels. But many global banks such as HSBC, GE Money and Standard Chartered are turning towards emerging markets like India and China to offset the global losses. Many experts here feel the quality of credit is much better in India. But the global credit crunch has made institutions here more conservative, especially in consumer finance. This is likely to hit Indian consumers, especially those looking to borrow to buy a new car or a new home. Increasingly, there is rising public anger among the country's poor, who are the hardest hit by soaring prices. In an effort to temper price rises, the Government has already cut import duties on edible oils and banned the export of pulses and most types of rice. But with most of South Asia suffering from a food crisis, Sri Lanka and Bangladesh are looking to India for rice imports. This is worrying the Congress-led government, as nearly a dozen states are going to the polls this year and general elections are due by next year. CREDIT BOOM, NOT BUST: GARY DUFFY IN SAO PAULO Not for the first time when it comes to economic indicators around the world, Brazil as a developing country is bucking the trend for a gloomy outlook. Here, the news is less about a credit crunch and more about unprecedented opportunities for people to buy their own home or to purchase consumer goods that were previously out of reach. International investment agencies and magazines have been quick to notice that Brazil has largely escaped the pain of the credit crunch, and have been pointing investors towards Latin America's largest economy as a safe bet. Brazil's economy has remained stable as other countries feel the strain It is "business as normal" in Brazil, as one headline screamed. Foreign investors have taken note and are flooding into the country. Newly-available mortgage finance has undoubtedly opened the housing market to younger home buyers who were previously excluded. "I wouldn't have stood a chance to buy this flat five years ago," says Renato Guidolin, a 30-year-old graphic designer, who is about to close a deal on a new apartment in Sao Paulo. "It is easier to get a mortgage. The economy is a lot more established, which I believe is making buying a lot easier - not only houses, but all sort of goods." There is visible evidence in many parts of Sao Paulo of a booming housing market, with construction work on residential buildings continuing at a furious pace. Sales seem to be happening at much the same speed - it often appears most apartments are sold before the work is completed. TV is awash with advertisements for companies selling electronic goods offering long-term credit deals. Despite the final cost, many Brazilians are choosing to buy more expensive items which, for many in the past, would have been out of their reach. All this is happening against the background of a much more secure economic situation in a country that used to be troubled by crippling inflation. Brazil remains a country marked by great inequality, but the steadily-improving economy has moved many of its poorer citizens onto the lower rungs of the middle class. There is certainly concern about the impact of rising food prices and Brazil is becoming a more expensive country in which to live - but for the moment, the mood is buoyant. BANKING BUBBLE: ANDREW WALKER IN ABUJA While the credit crunch has hit the European and US banking sector hard, in Nigeria the situation is exactly the reverse. Banks are falling over themselves to lend money to people in ways that they have never done before. Millions of Nigerians don't have an account, as in the past they lacked confidence in banks. They used to go under regularly, taking everyone's money with them. But confidence has grown in banks since the government forced them to consolidate three years ago. Now there are fewer, stronger banks and they're expanding rapidly. Even in some of the most remote villages, there are now branches with cashpoint machines. Part of the boom was fuelled by bank share issues which were massively oversubscribed. Banks offered marginal trading loans to people to buy shares in other banks, prompting fears the stock market boom could turn into a bubble. The Central Bank tightened regulations and banks have aggressively marketed personal loans instead. For the first time, individuals have been able to get loans and mortgages - albeit at interest rates of about 24%. The lending market boom was fed by the government selling off thousands of houses it owned at knock-down prices. Unlike Europe and America, the housing market in the capital, Abuja, is booming, with some investors rumoured to have made 400% profits on houses they bought from the government and sold on. But in an economy that doesn't produce much except oil, it remains to be seen if the central bank can prevent future banking bubbles from bursting.

Gas bills 'to top £1,000 a year' Energy bills could rise by more than 60% within the next few years, a report for the UK's biggest domestic energy supplier Centrica has said. It said annual average gas bills could rise from £600 to more than £1,000 early in the next decade. Continuing high oil prices could lead to rises in the cost of both gas and electricity, it added. The energy minister said predictions of huge rises were "mere speculation" and may not prove to be accurate. But Malcolm Wicks told Channel 4 News: "Bills are likely to go up. Certainly that is the case. I agree with the person who said that the era of cheap energy is over." 'Two jumpers' Centrica managing director Jake Ulrich warned that gas prices were likely to continue rising "for some time". "I think it is going to hit people hard," he said. "I do think we will see people change their behaviour, I think people will use less energy and I hate to go back to the Jimmy Carter days in the US, but maybe it's two jumpers instead of one. "I think people will change the temperature they keep the house, they'll be more cognisant of energy waste, they'll buy better appliances." The price of domestic gas is linked to the price of oil Centrica Energy managing director Jake Ulrich warns that gas bills are set to rise He added: "We're part of a world economy and I don't think we can rely on UK production or cheap gas, cheap energy of any sort any more. "I think it's a reality not only in the UK but in Western Europe and North America. Energy is going to become relatively much more expensive in the future." BBC News business reporter John Moylan says some people will wonder whether, by publishing the research, Centrica - which owns British Gas - is laying the groundwork for even steeper price rises in the years ahead. The study - Under the Influence of Oil - was conducted for Centrica by Norwegian-based energy advisers Eclipse. Eclipse managing partner John King said: "This report signals the significant change which the UK will go through over the next few years as the price of the UK gas market becomes influenced by factors across the globe." Declining output The report said that the link between crude oil prices and wholesale gas prices in the UK will get stronger over the next few years as dwindling output from North Sea makes the UK more dependent on imports. "It looks like the era of cheap energy is over" Duncan Sedgwick Energy Retail Association The UK must now compete with European countries for gas transported by pipeline or bid for tanker loads of liquefied natural gas in international markets where prices are correlated with oil. "As recently as 2004 we were entirely self-sufficient, but by 2010, half our gas will come from somewhere else," Niall Trimble, managing director of industry consultants the Energy Contract Company, told the BBC. Oil prices, which hit a record above $147 a barrel earlier this month, have fallen sharply this week to about $133 a barrel but are still twice as high as a year ago. "The gas spot market has risen very, very sharply in the past year and the spot market is driven by oil," Mr Trimble added. Price link The prices of oil and gas have been linked historically because factories used to heat their premises using oil and gas together. Half of the UK domestic gas supply will come from elsewhere by 2010 The contracts they signed for supply of fuel linked these two fuels to regulate price. Suppliers say they are tied by the wholesale market, but consumer groups say the price link between oil and gas should no longer exist. Energywatch described the link as "toxic" and said bills would fall significantly if they were decoupled. "The government is right to say that the link to oil is a cause of the problems but wrong to say there is nothing that can be done," said Energywatch chief executive Allan Asher. "The local impact is so catastrophic it should be leading the international drive to end the hugely damaging and entirely unjustifiable link between the prices of gas and oil. "Rampaging oil prices are a serious and global contagion. That does not mean we should just take to our beds and hope that the fever will pass. "Government can and should act in those areas where it can have an effect. Action to cut to the price link between gas and oil, action to improve the working of the domestic market, action to help those who can least afford to keep warm." But the Energy Retail Association (ERA), which represents suppliers, said a reality check was needed, although it pointed out that assistance was available to customers who were struggling. "Britain is no longer an energy island and we are much more exposed to the global energy markets than ever before," said ERA chief executive Duncan Sedgwick. "It looks like the era of cheap energy is over." Fuel poverty The government estimates that 2.5 million households are in fuel poverty - defined as when more than 10% of household income is spent on fuel bills - but watchdog Energywatch says the figure is more than four million. GAS PRICE RISES IN 2008 Npower: 17.2% rise in January EDF: 12.9% rise in January British Gas: 15% rise in January Scottish Power: 15% rise in February E.On: 15% rise in February Scottish and Southern Energy: 15.8% rise in April The consumer group says that 1,000 a day are being pushed onto more expensive pre-payment meters because they are getting into debt with utility bills. If prices rise as much as this report predicts, that would make many more people fuel poor, campaigners say. Rises of the scale suggested would put one in three pensioner households into this sector, according to Gordon Lishman, director general of Age Concern. "It is totally unacceptable that because of price hikes, many older people may feel forced to cut back on their heating, which could put their health at risk," he said. He said the government should introduce a fuel voucher scheme for the poorest pensioners and introduce mandatory social tariffs to ensure the poorest customers got the best deal. Energy regulator Ofgem has been investigating the electricity and gas markets for households and small businesses since February. It said it had no evidence of anti-competitive behaviour, but was responding to customer worries.