Yesterday, the biggest crook in history Bernie Madoff pleaded guilty on all 11 charges and was brought directly to prison, awaiting his sentencing in June. While it doesn’t give back any, or all of the wealth taken from his 4,000+ clients, it at least signifies an end to one of the worries of this crisis. He may not have a direct effect on the markets, but with so much that need to be fixed, it’s a bit of a breather to see one go down as done. Some say he might face 125 years behind bars but it’s all words. The criminal is in his 70s and whether its 125 or just plain 25, it’s already equivalent to a lifetime in prison. Either way, what would help is for the money fed to his Ponzi scheme by investors, all or part of it, to be recovered.
One is done, another continues. The hunt for Merrill executives and the bonuses they’ve received has received tremendous focus since January when it was unveiled, worsened by the fact that John Thain, former Merrill CEO, spent millions renovating his office. On the one hand, I believe it is necessary to penalize the firm for allegedly misleading the Congress with regard to when the bonuses to be paid were decided (a letter sent to a Congressman in November said it still had to be decided on when in fact decision was made a week earlier). On the other hand, I believe the attorney general is taking this quite far, farther than necessary. It’s like a crackdown on drugs. I somewhat agree with an editorial piece on the Wall Street Journal today. This is a failure of management, not necessarily a crime. But Bank of America trying to conceal things is not really helping it either. The farther this goes, the more criminal this would look.
The U.S. financial and banking system, however, is not a criminal defendant. It has to recover, and the faster the better. The market already has meted out brutal punishment to many who floated too high on the credit mania’s hot air. Attorney General Cuomo’s investigation of Merrill Lynch bonuses, even as Wall Street staggers and bankers quit, looks like opportunism by someone with enough power to make a bad situation worse.
Why the focus needs to be shifted away from the banks, albeit not completely, is because there are bigger issues. The issues faced by financial institutions are the toxic assets and as I’ve said before, compensation makes a small part of the overall issue and fixing it not necessarily helps the confidence in the markets. Just work on toxic assets, the write-downs and everything else non-Bonus related. Those who get gratification from seeing executives who received billions get penalized… I don’t see the point. So they’ve earned more than what they deserved. Doesn’t really remove the toxic assets that are killing them, does it?