Tuesday, October 21, 2008

Hedge fund manager convicted in Ponzi scheme

Hedge fund manager convicted in Ponzi scheme.

But don't get excited; this was just a Ponzer who happened to be a hedge fund manager, operating a normal Ponzi scheme outside of the stock market.

But this, from Floyd Norris, the chief financial correspondent of The New York Times and The International Herald Tribune, is exciting:

Minsky, if you do not know him, was an economist who pointed out that stability is destabilizing. Because stability breeds confidence that it will continue, it encourages people to make ever riskier investments, and to take on ever more leverage.

Minsky argued there were three levels of investment as the cycle progresses. First comes hedging, in which investments are made to reduce risk. Then comes the speculative phase, and finally the Ponzi phase, in which the investment can be justified only by the assumption that prices will keep rising, not by the expected income.

So there we have it. If we can get some Minsky savvy lawyers and economists into court, a case can be heard, and judgments can be made on whether the derivative contracts are valid or not.

If not, we will all know that the banksters are not masters of the universe, they are just a lot of very naughty boys.

No comments: