The Taxpayer Bill for Madoff's Fraud
Felix Salmon at Portfolio.com makes an overlooked point regarding the tax implications of Bernard Madoff's massive fraud: because investors losses will be categorized as "theft losses," they will be entirely deductible. Not only that, but these same investors will be entitled to a rebate of all the taxes they've paid on fictitious capital gains over the years (Madoff's supposed trading strategy involved high turnover, thus requiring recognition of capital gains).
These tax benefits won't even come close to making up for the losses Madoff's investors are going to incur, but they do mean that the federal government is going to share in the misery. Salmon writes:
These tax benefits won't even come close to making up for the losses Madoff's investors are going to incur, but they do mean that the federal government is going to share in the misery. Salmon writes:
I haven't seen estimates of the total cost of the Madoff fraud to the US government, but it's surely in the billions, and quite possibly in tens of billions. Which is real money even by government standards.Indeed, it's probably in the same ballpark as the pricetag for bailing out the auto industry.
posted by A.L. at 1:27 PM
20 Comments:
Make the DSCC pay for it out of their own pockets. They were the biggest recipients of Madoff's political "donations" ($100,000 over the last 3 1/2 years).
Yeah, that makes a lot of sense, Steve. $100,000 represents about 0.000001 percent of the amount Madoff took. And he gave to Republicans too. And it was a Republican controlled SEC that failed to do its job and a Republican controlled White House and Congress that fought against every reasonable measure to regulate hedge funds.
The last Republican that he contributed to was Andrew Saul, and the money was returned 5 months later. Before then, it was Vito Fosella in 2000. Since then, and other than Andrew Saul, he's contributed only to Democrats:
Charles Rangel
Charles Schumer
Ron Wyden
Dick Gephardt
Frank Lautenberg
Ed Markey
Martin Frost
Darlene Hooley
Jim Matheson
Jeff Merkley
DSCC
That's since 2001. I love that the tax-challenged Rangel is on that list. How apropos.
And it was a Republican controlled SEC that failed to do its job and a Republican controlled White House and Congress that fought against every reasonable measure to regulate hedge funds.
And it is a Republican controlled SEC that investigated Madoff's alleged crimes, and charged him, isn't it?
And it is a Republican controlled SEC that investigated Madoff's alleged crimes, and charged him, isn't it?
Only after he confessed to his crimes to his sons and they turned him in. Great detection work.
I find it revealing that your first instinct is to try to fit this into your partisan Manichean worldview even though it's not a political scandal.
A.L.,
On a separate note (with you being a litigator you might have some insight on this); Madoff's actions have exposed his company to an avalanche of liability. Could the same be said for any other financiers who directed clients to Madoff? It occurs to me they too might be on the hook for failure to do their due diligence. Having said all that what do you think the odds are that any claimants will actually get paid back for their financial damages?
I find it revealing that your first instinct is to try to fit this into your partisan Manichean worldview even though it's not a political scandal.
And I find it revealing that there is a universal avoidance of partisanship by the media regarding Madoff being a major Democratic donor for the eight years Bush was in the White House. That avoidance of partisanship didn't occur during the Abramoff scandal even though Abramoff and his company was involved with as many Democrats as Republicans, except that the media never reported that part of it.
Andy,
I don't want to get into too much detail because there's some chance I might actually be involved in one way or another with such litigation, but suffice it to say, Madoff's fraud will lead to massive litigation involving investors, counterparties, investment advisors, insolvent funds, etc. It will go on for years. Many of the major players (Madoff's firm, the hedge funds who invested with him) are already insolvent, but there are some players with deep pockets and they will be dealing with litigation for years because of this.
That avoidance of partisanship didn't occur during the Abramoff scandal even though Abramoff and his company was involved with as many Democrats as Republicans, except that the media never reported that part of it.
Sure they did, although Abramoff was WAY more involved with the Republican party than the Democratic party. But surely even you see the difference between Abramoff and Madoff. Abramoff's crimes were all about bribing politicians. He was a lobbyist. It was an inherently political scandal. Madoff is financial swindler who happened to make some side donations to politicians (like most rich people do). There's no political element to his crime.
Sure they did, although Abramoff was WAY more involved with the Republican party than the Democratic party.
Hardly. Again, it was reported as a "Republican scandal", and Democrats involved were conveniently not mentioned.
Madoff is financial swindler who happened to make some side donations to politicians (like most rich people do). There's no political element to his crime.
Neither were Enron, Worldcom, or some of the other scandals of earlier this decade. But, there was enough mention of them being tied to conservatives, Republicans, Bush, etc. (although the heads of those companies were more bipartisan than Madoff). Since political associations were important during the reporting of Enron, et al., why isn't it important as part of the reporting of the Madoff scandal?
Steve
I agree with AL. There is no political component to this latest pageant of Wall Street's greed and stupidity. Enron and Madoff are scandals because of irregular accounting practices. Enron was hurtful to it's own employees- many of whom were wiped out. Madoff is hurtful to a much wider spectrum of people and institutions.
Only in your fevered imagination did any Democrat ever call Madoff "Bernie Boy".
- Bob
Andy
"what do you think the odds are that any claimants will actually get paid back for their financial damages?"
IMHO, Andy, about the same odds that Bush and Rumsfeld and Cheney et al will be dragged in leg irons before the Hague.
- Bob
SteveIL,
IIRC, Democrats were mentioned during the Abramoff news stories, but for whatever reason, none were prosecuted by the DOJ. I also recall that the fundraising they received from the Abramoff firm was not nearly as high.
Abramhoff was active when the Republicans were firmly entrenched in congressional power. Democrats at the national level were shut out of the political process.
So while Madoff has been contributing to democrats since 2000, he's mostly been contributing to people in the opposition party, people out of power. (Since Jan 2007 Democrats have held the House and have basically been tied in the Senate, and there was a short period (May 2001-Jan 2003) when the Jeffords defection turned nominal Senate control to the Democrats.)
We'd have to ask him why he's contributed to the Democrats. My guess is either that he's a Democrat, or that he considered it a form of penance for being such a mega-thief. :-)
IIRC, Democrats were mentioned during the Abramoff news stories, but for whatever reason, none were prosecuted by the DOJ.
I think the most prominent was Harry Reid. Josh Marshal covered the story in detail. The indian tribes Abramoff was bilking were heavy contributors mainly to Democrats before they hired Abramoff who convinced them to give mostly to Republicans. But because they still gave some money to Democrats (including Reid), probably in spite of Abramoff rather than because of him, that money was also labelled part of the scandal in order to make it appear bipartisan. That was back in the day when the standard of fair and balanced was in full effect and a political scandal couldn't be reported at all unless it could be portrayed as entirely Democratic or, at worst, completely bipartisan. That's not as true now since it's a lot safer to kick whichever party is down.
Abramoff was one of the generation of college Republican sociopaths (like Rove and Ralph Reed) who viewed America as a mark ripe for the taking, and were successful for a while. Most of his contacts were Republicans and he operated during the heyday of Delay and the K street project, the object of which was to make corporate lobbying an exclusively Republican funding source. There was also the matter of Susan Ralston, Abramoff's former assistant who became Karl Rove's assistant and Abramoff's connection into the white house. I'm sure there was a Democrat or two involved somewhere in some way, but it wasn't even close to a bipartisan operation.
On the Madoff scandal, was it a scam from the beginning or did it start off as a legitimate operation (as legitimate as these things get anyway) until some highly leveraged trades went bad and he lost a lot of money? That's happened to a lot of hedge funds. I can easily imagine a situation where he decided to fudge the numbers in the hope of making up the losses with no one the wiser rather than fess up and be ruined when the investors pulled out what was left. What probably followed were even riskier trades which also went bad and wiped out everything. Then all he had left was the ponzi scheme until he finally accepted that there was no way to fix it. If this was a scam from the beginning, what was the endgame? Shouldn't he have disappeared to a bungalo in some country without an extradition treaty with some Swiss bank account numbers and/or a few crates of gold bars? Did he really think he could keep it up indefinitely as long as markets kept rising and money kept flowing in?
But because they still gave some money to Democrats (including Reid), probably in spite of Abramoff rather than because of him, that money was also labelled part of the scandal in order to make it appear bipartisan.
If Abramoff and his firm donating to Democrats was covered at all, it was only because it was forced out by revelations from conservatives.
Democrats at the national level were shut out of the political process.
That's patently false. The Democrats had a majority in the Senate from July, 2001 through all of 2002, and had enough Senators between 2003 and 2006 to block legislation, judges, appointments, and so forth. Plus, the media never discussed Democratic obstructions as obstructions, and wholly downplayed Democratic scandals, especially the actions of Reid (and Dorgan) in regards to Abramoff. How do I know this is true? Look who was re-elected as Governor of Illinois in 2006, the Democrats who supported him, all despite the cloud of corruption hanging over Blagojevich's head.
I am in no way implicating Democrats as part of Madoff's alleged crimes. But Madoff is a big-time Democratic donor, and up until this point, the Democrats are keeping his money. That makes this a political scandal.
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Steve - No offense, because I know you mean well and you think there is some legitimacy to the point your raising - But Madoff's political donations have little to do with his crimes.
There are plent of GOP donors (all the Enron clowns etc) who commit crimes and same with Dem donors.
You should drop your infantile partisanship. You are not convincing anyone of anything.
You would be better off recognizing the need for sensible market regulation.
As you know better than most - George W. Bush was just lucky not to be prosecuted for his alleged Harkin insider trading fraud.
Steve - hope you don't this the wrong way, but you are wasting time trying to argue that Abramoff was anything but a GOP scandal.
Arguably, it was a scandal involving South African intelligence, Indian tribe casinos, lobbyists, etc - Bt that was the details.
The Illiad was about the Anger of Achilles, it was not about the ships they sailed in.
The Abramoff scandal was about GOP corruption - the details just filled in the blanks.
If you mean well and are not just a troll, you'll reconsider advancing that argument.
Al - any opinion on why Villehuchet did what he did? He was not the only victim left holding the bag.
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