Comments on: How Matt Zames reads Barron’s http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: wgf http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/comment-page-1/#comment-25934 Wed, 20 Apr 2011 03:47:34 +0000 http://blogs.reuters.com/felix-salmon/?p=7953#comment-25934 JD05,
I think you are absolutely correct:

“There’s another possibility here, which is that Zames had received additional information – beyond what he’d read in Barron’s – that convinced him that Madoff was a Ponzi. But, as a cautious and sophisticated person, he knew that it was unwise to reveal his sources. So he played it close to the vest and simply mentioned the one piece of evidence that was already in the public domain. This seems to me like an entirely plausible scenario; if true, then Picard’s case against JP Morgan could turn out to be stronger than it may look now.”

I believe his secret sources were wealthy friends in the Jewish community,…that networking is how Madoff got his clients. Zames may have heard personal stories about the great returns on investments from Madoff. Some of these investors might have been JPM clients and Zames did not want to rock the boat by revealing anything obviously embarrassing to his friends or JPM. Mentioning the Barrons article was merely a safe, publicly available source.

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By: PR1 http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/comment-page-1/#comment-25870 Mon, 18 Apr 2011 15:57:51 +0000 http://blogs.reuters.com/felix-salmon/?p=7953#comment-25870 Maybe Zames remembered the front-running rumors (which I had heard as long ago as 1995) and said Ponzi because he lumped the two concepts together.

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By: samadamsthedog http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/comment-page-1/#comment-25842 Sat, 16 Apr 2011 15:19:21 +0000 http://blogs.reuters.com/felix-salmon/?p=7953#comment-25842 “bankers don’t confine their reading to the literal meaning of what you write. They infer, and extrapolate, and they assume that everybody else is doing that as well”

I thought everybody did that when reading any news article. If not, they should. Blogs, too, by the way. ;-)

90% of the time, there is very little literal meaning to be had. (But maybe not in this case.)

-SATD.

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By: johnhhaskell http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/comment-page-1/#comment-25840 Sat, 16 Apr 2011 11:10:48 +0000 http://blogs.reuters.com/felix-salmon/?p=7953#comment-25840 Epicurean nailed it. Hell, I had dinner with a college classmate in 1998 who told me he thought Madoff could blow up at any moment (without specifically saying he thought it was a ponz). As for GOOGshareholder, someone is offering you a big “management” fee so long as you can’t find anything wrong with Madoff… pushing that task off to a junior guy? I’m surprised he didn’t ask a summer intern to do it.

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By: GOOGshareholder http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/comment-page-1/#comment-25837 Sat, 16 Apr 2011 06:49:04 +0000 http://blogs.reuters.com/felix-salmon/?p=7953#comment-25837 Felix,

This is a very well thought out post. And if financial journalists and finance people interacted more on a social basis, you would’ve come up with an answer that EpicureanDeal gave.

As someone who worked on Wall Street for twenty or so years, I know that anyone amassing an enormous amount of assets from A-list clients and delivering 10% returns every single year for several years in a row is bound to raise suspicion. Its just not possible in our crazy world, unless the guy just buys a long term bond that pays 10% (after expenses) and doesn’t diversify and there are no redemptions.

So, yeah, I think Zames misremembered the Barron’s article as a Journal article and that article was a factor in facilitating discussion, rumor-mongering, and speculation as to how the heck Madoff made his money. Look, if he front-ran, that would have create different returns each year.

One interesting question is what were the rumors Zames and everyone else in Wall Street fixed income was hearing about Madoff if anything? What was said verbally by these JP Morgan risk and business people?

By the way, not surprisingly, once the JP Morgan manager asked another manager to make some junior person look into this (and perhaps all the junior guy did was google “Madoff” and “Ponzi”), any chance of any serious diligence was probably over.

Isn’t it much more effective for the manager, instead of telling another manager to get some junior guy to Google, to instead spend five minutes speaking to Zames to figure out the context and color, and then spend five minutes googling Madoff, and then spend ten minutes telling a junior guy to search other terms that might come up? What were the incentives of the junior person and the managers who delegated down? Are they business people paid if the deal goes through? Or are they risk people who have independence? In any case, it didn’t sound like a very thorough search to me. At the very least, the junior person should’ve called Zames.

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By: ErnieD http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/comment-page-1/#comment-25833 Fri, 15 Apr 2011 17:58:38 +0000 http://blogs.reuters.com/felix-salmon/?p=7953#comment-25833 “The analyst forwarded an article about a proposed change in SEC regulations that would eliminate a loophole in the regulations governing broker-dealers. He speculated the loophole allowed broker-dealers to run “a ‘[P]onzi’ scheme of sorts.””

This was a fascinating statement that seems to have simply slid through. Is it any wonder that our financial system has been operating as poorly as it has if people on Wall Street are looking for loopholes that would allow for “legal” Ponzi schemes?

This analyst should have known that only government accounting and pension funds are legally permitted to set themselves up as Ponzi schemes.

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By: EpicureanDeal http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/comment-page-1/#comment-25832 Fri, 15 Apr 2011 16:25:47 +0000 http://blogs.reuters.com/felix-salmon/?p=7953#comment-25832 Felix — Perhaps you are right, that Zames was basing his opinions on one or more articles in the financial press. But I think it highly unlikely that was the extent of it. People on Wall Street talk a lot, and we base a great deal of our knowledge and opinions on the intelligence, rumors, and speculation we share among ourselves. Very little of that ever reaches the press.

I think it more likely that Zames–like lots of executives on the Street who had done business with Madoff or looked into doing business with him–had developed his opinions more on the basis of rumors and opinions shared with others. After all, it seems there was widespread suspicion that Madoff’s claimed trading results were bullshit, and it is a natural conclusion to draw that they could have resulted from frontrunning, Ponzi-like scams, or other illicit methods.

Reputation matters a great deal on Wall Street, believe it or not, and we all want to know others’ opinions of the people we do business with. Instead of making heroic assumptions about the abilitity of a harried, overworked senior financial executive to draw hidden conclusions from published reports, I think it is more sensible to conclude he developed his opinion of Madoff on little more than rumor and gossip in the Wall Street grapevine.

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By: Christofurio http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/comment-page-1/#comment-25831 Fri, 15 Apr 2011 15:54:23 +0000 http://blogs.reuters.com/felix-salmon/?p=7953#comment-25831 I don’t know that Refco was ever really discovered to be “rotten to the core” in the way that Hogan’s warning suggests. It wasn’t a Ponzi scheme. It was at the “core” an economically rational and productive enterprise. That is why it is such a pity that the core was destroyed by the fraudulent behavior of Phillip Bennett. After Bennett’s schemes started to unravel, there was a run on Refco, which led to its bankruptcy.

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By: bklawyer http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/comment-page-1/#comment-25829 Fri, 15 Apr 2011 15:25:39 +0000 http://blogs.reuters.com/felix-salmon/?p=7953#comment-25829 Isn’t more likely explanation that Zames was mistaken in attributing his knowledge to a Barrons piece that was written 6 years earlier? He may talked to someone after the Barrons piece that gave rise to the Ponzi scheme concerns.

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By: JD05 http://blogs.reuters.com/felix-salmon/2011/04/15/how-matt-zames-reads-barrons/comment-page-1/#comment-25827 Fri, 15 Apr 2011 15:16:36 +0000 http://blogs.reuters.com/felix-salmon/?p=7953#comment-25827 There’s another possibility here, which is that Zames had received additional information – beyond what he’d read in Barron’s – that convinced him that Madoff was a Ponzi. But, as a cautious and sophisticated person, he knew that it was unwise to reveal his sources. So he played it close to the vest and simply mentioned the one piece of evidence that was already in the public domain. This seems to me like an entirely plausible scenario; if true, then Picard’s case against JP Morgan could turn out to be stronger than it may look now.

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