Sunday, January 11, 2009
Mad Dog, Genius?
"About two years ago, a little delegation from a major investment bank arrived at my home in Beverly Hills. ... They told me if I invested a certain sum with them, they would make sure that a large chunk of it was managed by a money manager of stupendous acumen. This genius, so they said, never lost money. ... I protested that a perfect hedge would not allow making any money, because money made on the one side would be lost on the other. They assured me that this genius had found a way to spot market inefficiencies and, indeed, to make money off a perfect hedge. I thanked them for their time and promptly looked up Bernard Madoff online. Nothing I saw was even a bit convincing that he had made a breakthrough in financial theory. Besides, this large financial firm was going to charge me roughly 2 percent to put my money with Mr. Madoff's firm. ... I checked with my investment gurus, Phil DeMuth, Raymond J. Lucia and Kevin Hanley. None of us could see how Mr. Madoff could do what his friends said he could do. ... I have never heard of an entity that could make money in all kinds of markets consistently, year in and year out. ... One great advantage of being 64 is that I can remember the early hedge funds of the 1960s. They, too, were supposed to turn water into wine", Ben Stein, 28 December 2008 at http://www.nytimes.com/.
If Stein figured this out, where was the SEC? How much do the investment bankers who peddled this garbage know?