Here’s a recap of the Madoff case, from the Wall Street Journal:

Bernard L. Madoff, a former chairman of the Nasdaq Stock Market and a force in Wall Street trading for nearly 50 years, was arrested by federal agents Thursday, a day after his sons turned him in for running what they said their father called “a giant Ponzi scheme.”

In a separate criminal complaint, Federal Bureau of Investigation agent Theodore Cacioppi said Mr. Madoff’s investment advisory business had “deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars.”

Clusterstock has a pretty comprehensive list of Madoff’s victims. The case is still unfolding, but it’s big. Huge. More massive than Enron.

Not again. Three prominent things came to mind for me:

1. Wikipedia:

He has been active in the National Association of Securities Dealers (NASD), a self-regulatory organization for the U.S. securities industry. His firm was one of the five most active firms in the development of the NASDAQ, and he served as its chairman of the board of directors, and on its board of governors.

No wonder regulators didn’t catch him earlier in his scheme. He was one of their own.

2. The criminal complaint alleges that investors lost $50 billion because of the scheme. He was charged with a single count of securities fraud. Madoff was released on the same day of his arrest after posting $10 million bail.

I feel sorry for the people whose $10 million he used to get himself out of jail.

3. He provided impossibly steady returns, but people kept investing with him anyway.

This gives insight into the nature of greed. Greed isn’t just limited to “I can get more? Great! Sign me up.” Greed is your friends calling you up and telling you that you have to put your money in a certain fund. Greed is knowing that it’s too good to be true, but thinking that fate will exempt you from consequences. Greed is thinking you have an inroad to privileged returns, without stopping to ponder where those returns are actually coming from. Greed goes hand-in-hand with ignorance and laziness. It’s culturally embedded.

No wonder so many people were misled.

“This downturn promises to be the worst since the Great Depression in the 1930s,” said Joshua Shapiro, chief U.S. economist at forecasting firm MFR Inc. “We’ve only just started. I can’t see bottoming out until sometime in 2010.”

Why’d it take them so long to declare a recession? Because tax rebates artificially raised GDP:

Sung Won Sohn, a professor at Cal State Channel Islands, said the economy would probably have shown two straight quarters of shrinking GDP this year if the government hadn’t handed out tax rebates as part of an economic stimulus program.

If the current recession lasts more than 16 months–which it is projected to–it will be the longest slump since the Great Depression. But everyone knows that, too.

I went to the US Department of Labor’s Nov. 7 employment situation summary to find information that wasn’t outdated by about 11 months. Their statistics are shocking:

–Unemployment rate: 6.5%, or 10.1 million people
–By ethnic/population segment, teenagers have the highest unemployment rate, at 20.6%. African-Americans have the second highest unemployment rate, 11.1%; Hispanics have the third highest, 8.8%. Asians have the lowest, at 3.8%.
–4.4 million have lost their jobs and do not expect to return to work.
–2.3 million people have been jobless 27 weeks or more.
–Manufacturing and services sectors posted the biggest losses last month.
–Healthcare, education, mining, and government employment is growing.

The good news: It’s a good era to be a bureaucrat, nurse, teacher, or miner. The bad news: Everything else.

NPR shares news indicating that GM is actually willing to cut costs to preserve itself:

For years, General Motors has been the biggest sponsor of professional football, indeed of professional sports. But this year, the automaker is pulling back. No Super Bowl ad is planned, and GM is cutting back on spending on the NFL for the rest of the season.

“It happens that we don’t have vehicles to launch during that time, so it makes sense not to launch any ads during the Super Bowl,” says Peter Ternes, director of communications for GM in the United States.

The news is both scary and welcome. Scary in that, as the article points out, the NFL is a juicy destination for advertisers. Missing out on the Superbowl treasure trove means that times really have a’changed for GM.

On the upside, GM is willing to forsake an expensive opportunity to cut costs. Management recognizes that there’s no point in spending millions on Superbowl ads when that money is the difference between life and death. This kind of discernment–atypical in light of the Citibank bailout–almost makes me want to support a bailout.

The Financial Times reports an ironic twist for an industry that was in a tailspin just a few months ago:

The biggest US airlines stand to return to profitability next year, a stunning turnround for an industry that appeared to be heading toward the biggest crisis in its history a few months ago.

“We’ve got ourselves well-positioned to navigate through this,” Doug Parker, chief executive of US Airways, told the Financial Times. “The run-up in oil forced the industry to restructure around a much different world.”

Translation: They’re lucky oil prices went down again. And charging for baggage seems to work. This was a narrow escape for the airlines, which struck a balance at a crucial point. One more creative cost-cutting measure (listing aisle and window seats as “Economy Silver” and marking them up $50, for example) and they might have alienated a large customer segment for good.

Nonetheless, it’s refreshing to hear that restructuring still does work, and that at least one major industry is looking alright.

From NPR:

Credit card companies are trying to cut the credit lines of many customers. And they’re looking well beyond payment history — to who holds their mortgage, even where they shop. Customers are outraged, but card issuers say they are simply managing risk in tough economic times.

The rest of the radio show goes something like this: Customers get unwanted letters in the mail, saying their credit limits have been cut. American Express is one prominent example of companies who have been doing this.

NPR highlighted a possible Countrywide Home Mortgage link. They interviewed two people with Countrywide loans who had also received unwanted credit cuts. One of those men also lived in a neighborhood with a high foreclosure rate.

Both men were angry.

Companies say they’re within their rights reducing peoples’ credit limits. They probably are.

However, they’re not within good service standards. If they reduce a credit limit, they should give a customer a warning on their account, along with a chance to appeal. It’s more effort on the company’s part, but is more palatable than simply slashing limits without any other kind of notice.

Not only that–credit profiling is giving companies like AmEx a bad reputation. People will start canceling their cards, which can’t be good business. Angering customers is not a good policy. Especially when you have the power to mitigate the damage before it’s done.

I couldn’t resist the Soup Nazi reference in the title. Here’s the article, from the New York Times:

As people around the country respond to financial and economic hard times by juggling the cost of necessities like groceries and housing, drugs are sometimes having to wait.

Although other forces are also in play, like safety concerns over some previously popular drugs and the transition of some prescription medications to over-the-counter sales, many doctors and other experts say consumer belt-tightening is a big factor in the prescription downturn.

Does this mean Americans will finally start living a healthier, less drug-dependent lifestyle? Not to trivialize the issue, which will undoubtedly be serious for some. But this problem is occurring in a specific setting. Namely:

-A culture of overprescription and half-assed doctor visits.

-A marketing-born medicalization tendency. For example, let’s say a woman experiences intense anxiety for a couple of days, with no discernable source. She sees an ad on TV for a medication targeting this issue. She visits her doctor and asks for the medication. I’m not saying this happens often, but it must happen enough for pharma advertisers to justify their marketing expenses.

-A culture that encourages sedentary behavior. TV can be really good. Or at least really captivating. Why go outside?

-A culture that doesn’t take care of its weakest and sickest citizens. Many of the people cutting back on meds seem to be old and/or have chronic diseases, like diabetes.

This adjustment is tragic in some ways, especially for those mentioned in the last point above. But it surfaces a positive aspect, too, that a number of diseases can be prevented and managed through a healthy lifestyle. I’m pretty sure that people with moderate cholesterol problems can get off Lipitor with enough lifestyle alterations.

I also hope that a solid workaround emerges for people who face real health risks from cutting back on prescription drugs.

In the spirit of scrambling to keep tabs on federal attempts to grease our economic machine, here’s a roundup of the government’s latest news-making moves:

Move #1

Forbes reports that the Fed unveiled the Money Market Investor Funding Facility (MMIFF), which will buy up as much as $6 billion in money market instruments, such as CDs, commercial paper close to maturity, and bank notes. The MMIFF will use private SPVs (special purchase vehicles)–five of them are run by JP Morgan Chase–to buy debt from ten issuers.

Money market funds are chock-full of bad assets. The Fed’s move aligns well with the goals of the bailout bill, which appears to be unveiling the severity of what we know only as the “credit crunch” every time it takes a step forward.

Thoughts:
-Trickle-down economics is far from dead. The Feds just employed JP Morgan Chase to snatch up bad debt. Money, in other words, trickled from the government to private business. Wonder where it will go next? And how much is involved?

-Poor Bernanke.

Move #2

From the Chicago Tribune:

Federal Reserve Chairman Ben Bernanke on Monday conceded that the sagging U.S. economy may need another jolt of billions of federal dollars to ward off a deep and lengthy downturn.

“Such actions might be particularly effective at promoting economic growth and job creation,” he said.

If EconBrowser’s James Hamilton is right in his post, Bernanke can’t be happy about pushing another stimulus package. Another huge stimulus puts the country at risk for excessive inflation, something Bernanke has so far managed to mitigate pretty well.

But that’s the future, a land of increased taxes to pay for the bailout, and potentially a land of great inflation. Right now, the media is fond of reporting that the credit crunch shows “signs of thawing,” as evidenced by an increase in the number of bank-to-bank loans permeating the market.

The most important question remains: Where should the stimulus go? The brunt of our previous checks went to savings accounts, paying off debt, and gas, according to Irwin Keller at MarketWatch. The government knows that, so I question whether we’ll be seeing stimulus checks in our mailboxes anytime soon.

Thoughts:
-Congress has discussed increasing unemployment benefits, increasing Medicaid benefits, and putting money into infrastructure projects that are ready to launch. This kind of stimulus would float people through bad times, leading me to believe that the word “stimulus” is a misnomer for “survival kit.”

-The government is spending exorbitant amounts of money it doesn’t have. The actions taking place now will affect the nation’s next president more than they are affecting anyone today. The next president may well be our generation’s Herbert Hoover, elected in a wave of optimism, but crippled by the economy. I hope this is not the case.

When in doubt, when shaky, you can always turn to one reliable source to get your name out there: The media.

It worked for former nobodies such as Monica Lewinsky and Joe the Plumber. Now, AIG CEO Ed Liddy is using the media to redeem both his company and profession’s reputation.

Liddy has an excellent cause, and a good point. Mad Money talkshow host Jim Cramer is under fire for telling people to harass AIG employees. That kind of talk is so inane that I can’t imagine many CEOs would feel compelled to respond, under normal circumstances.

But these aren’t normal circumstances. Liddy is capitalizing off a priceless opportunity to gain widespread approval. The letter below certainly convinced me of his competency (Allstate experience aside). Here’s the full text, as posted in the Wall Street Journal:

Dear Mr. Cramer,

Edward M. Liddy

Kudos to Liddy for standing up for his failed giant.

Will Cramer apologize? Stay tuned.

Update: He said sorry. Good man.

I often ponder how “Made in the USA” goods can become more marketable. Products made here are often of better quality, but more expensive to buy. To some extent, US-manufactured goods can save our economy.

But what could possibly propel tight-fisted consumers to buy pricier nationally-made goods?

When I saw the Delta crib recall today, it hit me: Danger. “Made in China” has always had its risks, like lead-tainted toys. Now, parents have even more evidence that avoiding Chinese-made goods will keep their tots safe. From Reuters:

China, embroiled in a tainted milk scandal that has made thousand of infants sick, said it took product safety very seriously, especially where children were concerned, after a new report about faulty Chinese-made cribs.

It comes about a year after a massive recall of Chinese toys tainted with lead and sold by Mattel Inc.

Tragic as the situation is, endangered children may provide the perfect impetus for parents–one set of consumers among many–to go American-made. For a list of Made in USA baby products and cribs, check out this website.

Joe the Plumber is doing darn well for a guy from Main Street. While everyone else loses money, Joe is worried about being taxed as a “rich” person.

Joe was John McCain’s new poster child for the all-American small business owner last night. A plumber from Ohio (or a non-Ohio voter planted by Karl Rove? You decide.*), Joe wants to start a small business that will put him in the $250,000+ income bracket.

This makes him a fine symbol of Main Street America for the GOP campaign. Here’s a blue-collar worker who wrenched and puttied his way to a quarter of a million dollar annual income, and he shouldn’t be taxed–

Wait. Hold. I don’t care who Joe is or how hard he worked. What I care about is how a plumber can be worth $250,000/year. That is amazing.

How Do They Make So Much Money?

The US Bureau of Labor Statistics says that on average, people in the plumbing profession (which includes a variety of gigs) make about $20/hour. I have never had a plumber charge less than $75/hour.

Pipelayers, plumbers, pipefitters, and steamfitters are among the highest paid construction occupations. Median hourly earnings of wage and salary plumbers, pipefitters, and steamfitters were $20.56. The middle 50 percent earned between $15.62 and $27.54. The lowest 10 percent earned less than $12.30, and the highest 10 percent earned more than $34.79.

It also says that 30% of plumbers belong to unions. I wouldn’t be surprised if Joe the Plumber is a socialist union member who also doesn’t want to be taxed, thus enjoying the best of both worlds.

But again, the point is that these guys make bank. A small portion of blue collar work offers better pay and perks than your average middle management gig. Politicians–and their fans–need to think about what “blue collar” means when supposed Main Street citizens, who we assume are broke like the rest of us, pop up on TV screens.

Here are a few additional examples of blue collar gigs that earn workers more than many office gigs (again, from the BLS):

Railroad conductor. Mean annual wage: $61,480

Elevator Installer. Mean annual wage: $66,330

Boat captain or other operator. Mean annual wage: $57,210

Joe the Plumber. Annual wage (through his small business): $250,000

Politicians want people to focus on what Joe does, not how much money he makes doing it. He’s a hard-working American guy who just happens to want to start his own business in a fair way. And who happens to be estimating neat profits of $250,000/year.

How many of us can claim that for ourselves?

*Update: New Joe the Plumber facts:

-He is not a licensed plumber.
-He doesn’t want to start the business himself, from scratch. He wants to buy it from someone else.
-He doesn’t make much money now, meaning he’d save more in taxes under Obama’s plan than McCain’s.