Financial Crisis: The Smiles Won’t Go Away…

Just when the mainstream media were trying to persuade us that things might be getting better again, comes the news of the world’s largest ever Ponzi scheme run by the now infamous Bernard Madoff, who (forgive me) “made off” with $50 billion. More victims are coming forward every day. Isn’t it incredible that some of the biggest banks in the world can be scammed?

Well, yes and no. It appears that City and Wall Street financiers had not had found the time to read our page on Due Diligence for Offshore High Yield Investments. On that page we have a 5 point offshore due diligence checklist that could, by all accounts, have saved investors millions in this case. For example, Madoff paid out returns in good times and bad, without ever explaining how he was making the money. As we’ve always said, beware of secrecy – something may be the best investment in the world, but if you don’t understand how it works, you will most likely lose your shirt. And that’s just what all these bankers, plus a lot of individuals and charitable foundations, have just discovered to their cost.

How did Madoff get away with this? Because if people see others flooding in to an investment, they assume it must be good. We call it following the sheep.

CNN, interestingly enough, just prepared their own 5 point due diligence checklist, that puts much the same ideas in a different way. For example, their first rule is “Don’t invest in anything you don’t understand.” Very good advice. I would recommend you go and read that too.

There will be a lot more like this. I am convinced that there are numerous other Ponzi schemes out there, being run by supposedly respectable institutions and individuals. Not to mention the internet based High Yield Investment Schemes known as HYIPs. Ponzi schemes work great while people don’t ask for their money back. In good times, people just roll over and re-invest the returns, so the supposed returns are nothing more than numbers on a spreadsheet.  In bad times, people try to redeem – and a run on the Ponzi scheme leads to its collapse. If news reports are to believed, that’s exactly what happened in the Madoff case.

So if you have your money invested in any scheme you don’t understand or have even the slightest inkling of a doubt about, get your money out now before it’s too late. If in doubt, go back and re-read the due diligence checklists linked to above.

In other news, Ecuador just defaulted on its bonds. The markets had been expecting this for some time, but yesterday it was finally confirmed. Gary Scott, an international investor who spends much of his time in Ecuador, when asked whether this was good or bad, answered:

This is a question much like, “Is the US federal $800 billion bail out, good or bad?”

The answer is yes and no.

First, remember that Ecuador defaulted on bonds once before in 1999.   Everything fell apart. Bank’s shut down. The country ran out of gas.  Times were terrible.

The country remained a great place to live. The cost of living collapsed. Help was easy to get. You could buy real estate for a song. So the answer to “Is this good or bad?” depends on who you are, how much money you have and where it is invested.

Gary showed pictures of smiling potato farmers, people who won’t be directly affected by the crisis, telling us that “the smiles won’t go away.”

Of course, this doesn’t just apply to Ecuador. Ecuador defaulted yesterday, but who knows wat country will default tomorrow, or when the USA will default on Treasury bonds. Probably those who really suffer more from these devaluations are the ones living in ‘sophisticated’ financial service based economies like the USA and the UK. Devaluations aside, people will carry on eating, smiling, living… and they will need places to live. Things like real estate have an intrinsic value that cannot be taken away by devaluations, defaults or financial crisis.

And there are some great bargains around right now in offshore real estate. Of course, there’s little chance of mortgage financing, so you need to pay cash. Then again if you have even $20,000 cash there are some great bargains around just waiting to be snapped up. More on this in the next Q Wealth Report – so if you are not already a member, sign up today!

Q Wealth is with you – your reliable guide through the offshore maze, in good times or bad. Remember, our aim is to help you not just survive the recession, but prosper! For Q Wealth readers, the default in Ecuador is very much good news.

Update:  Catherine Austin Fitts asks:

And we are to believe that one guy could run a brokerage and money management firm with two sets of books and siphon off $50 billion? And no one knew?

This is the financial cover story equivalent of the yarn that a few devout Muslims hijacked two planes that hit skyscrapers that then magically collapsed leaving their passports and a copy of the Koran sitting on the sidewalk.

So…who has the $50 billion?

Hmmm…