Bernie

CNN interviewed Larry Levine who served ten years in prison and is now a consultant for white collar criminals preparing to go to jail. He spoke about what Bernie Madoff

The whole interview is interesting but it really pays a dividend for the last line.

I Love Reports

I'm the kind of guy that likes reading NTSB accident reports. The Hurt report was fascinating but I've just found the best read since the 9/11 report.

It is titled "The World's Largest Hedge Fund is a Fraud" and dissects Madoff Investment Securities Ponzi scheme. Some of it is at a high level which is when my eye start to glaze over but with a start like this it is hard not to be riveted for all 15 pages:

I am a derivatives expert and have traded or assisted in the trading of several billion $US in options strategies for hedge funds and institutional clients. I have experience managing split-strike conversion products both using index options and using individual stock options, both with and without index puts. Very few people in he world have the mathematical background needed to manage these types of product but I am one of them...Due to the sensitive nature of this case, it's dissemination withing the SEC be limited to those with a need to know...As a result of this case, several careers on Wall Street and in Europe will be ruined. Therefore, I have not signed nor put my name on this report. I request my name not be released to anyone other than the Branch Chief and Team Leader in the New York Region who are assigned to the case, without my express written permission. The fewer people who know who wrote this report the better. I am worried about the personal safety of myself and my family.

The author goes on to list 29 Red Flags, including this gem:

Fed Flag #24: Only Madoff family members are privy to the investment strategy. Name one other prominent multi-billion dollar hedge fund that doesn’t have outside, non-family professionals involved in the investment process. You can’t because there aren’t any...

Then the author begins instructing the SEC (over three years ago!) exactly who to interview and even how to interview them:

...the SEC should call: Leon Gross...Leon can't believe that the SEC hasn't shut down Bernie Madoff yet. He's also amazed that FOF's actually believe this stupid options strategy is capable of earning a positive return much less a 12% net average annual return. He thinks the strategy would have trouble earning 1% much less 12% net. Leon is a free spirit, so if you ask him he'll tell you but you'd understand it better if you met him at his workplace in a private conference room and tell him he won't need to have Citigroup lawyers present, you're just there for some friendly opinions. He talk derivatives at a high level, so ask simple "yes or no" type questions to start off the interview and then drill down.

Jeeze, I wish I work for the SEC where citizens did all the work for me.

How rich are you?

See your salary in real time. Warning: May be depressing

Enter your salary any way you'd like, and this site will not only show you how much you make a day/hour/minute/second but it'll start a counter telling you how much you'd made since you clicked the calculate button.

I feel like I've hit it big now that I made it to the penny-per-second threshold.

The Money Game

About three years ago I decided to start saving money. It tripped me out that I was 28 years old and really had no savings and really didn't own anything of appreciable value. I started simple, I just put $100 in a savings account per pay check and then applied whatever I could to my credit cards. Maybe $500 a month. Within a year I had enough money for a trip to Europe and $0 in Credit card debit.

I then upped my savings account to $250 per pay check, started give $100 to my parents and increased my contribution to my 401k. The next year I took a trip to Costa Rica and Peru.

This year I made a wager with a friend of mine. Her roommate was moving to Germany and wanted to save $10k. On a $30k salary. And did it in one year. We decided to challenge each other to pull it off. It would require about $850 a month (a third of my take home salary). I scaled back my 401k savings, and started off well with $1000 in tax return money. At first it was a pain in the ass, I dipped back into the savings once when I overextended myself. But after a while a flow sort of developed, one paycheck was savings and spending money for two weeks and then the other was rent/bills and spending money for the next two weeks.

Another strange thing happened. After a certain point the money in savings sort of became fictional. As if it wasn’t money I could withdraw from a back and count and roll around in, but rather just a bunch of points. It makes it less fun to have the money but probably much safer.

I managed all of this without a significant increase in salary those three years (2% over inflation)

Things that helped me greatly.

• The advice of Andrea for paying off credit cards. Cut up all but one card. Take that card and wrap it up in paper and tap it closed, you can use it if you need to but that layer of paper is a mental barrier. Pay the minimum on each card. On the card with the highest interest rate, pay as much as you possibly can on that card till it is paid off. Then take whatever amount you were paying on that card, and apply it to the next card and so on till you pay them all off. Keep them paid off and keep the one card in paper.
  

• Reading the Money forum on Craigslist. Some good advice from there;
  
• When you get a windfall of money take 10% of it and spend it on whatever you want. Take the other 90% and save it or apply it to credit cards.
• Look at how you spend money and how you can save it. Start with what you really need and see what you can pare down. I’m a cheapskate so there wasn’t much but I did save about $15 a month (or $180 a year on my phone bill).
  
• Take a side job or a hobby that pays. It doesn’t have to be lame, you could be a valet or just do oil changes at a shop on Sundays. $100 a month is over a grad a year.
  

• Reading the Richest man in Babylon. It is a book written in the 20's which dispenses financial advice through a collection of parables set in ancient Babylon. Reading a book of parables to achieve financial independence is pretty low on my list of ‘hip’, but it really did work for me and has for many others. I checked out a copy for the local library and it had been donated by some financial group.
  

• The $10k challenge with Alyssa. This I suspect will ultimately have the largest long term effect on my finances. All of the other activities got my head above water and got me focused on having a stable financial life. But this challenge helped me focus on setting larger, longer term goals. I just recently got a promotion so my goal for 2008 is to save about 75% of my raise in addition to the $10k. That and take another international trip.