BUSINESS

Bernie Madoff Bemoans The Ills Of Modern Finance In CNBC Letter

12/26/2012 11:16 am ET

Bernie Madoff's primary occupation of being a prison inmate has apparently lost its thrill because he's taken up a new hobby: opining on the state of finance.

Madoff, who pleaded guilty in March 2009 to running one of the biggest Ponzi schemes in American history, sent a letter on Christmas Eve to CNBC and "a handful of attorneys and academics he has been communicating with" about the ills of modern finance, CNBC wrote.

Specifically, Madoff's letter addressed the increasing opacity of financial markets, which are dominated these days by flash-trading robots and "dark pools," where big banks place orders far from the prying eyes of other investors and Yahoo Finance.

The dark pools, Madoff notes, are an outgrowth of investors' fears of being fleeced like the cuddly Muppets that they are by banks "front-running" their big trades to make an extra buck.

"Institutions have always attempted to guard this buy and sell information from exposure to the market for fear of being FRONT RUN," Madoff writes, in a letter that demonstrates a real flair for unique capitalization and punctuation. "Certainly they are entitled to have this right of confidentiality. This being said, the more secret this information. The more valuable this information is to those that can obtain it."

Madoff also bemoans the proliferation of hedge funds, because he has apparently traveled back in time to the year 2004 when this was a thing people cared about. These funds milk out so much money in fees that they have to take increasing risks in order to generate any returns for their investors, Madoff weeps. Then humble mom-and-pop Ponzi-scheme operators have to Ponzi-scheme even harder to keep up.

To be fair, Madoff is not entirely wrong, at least not about financial-market opacity. Trades are increasingly hidden from the sight of regulators, making mischief more likely -- and more profitable. High-speed trading robots have overwhelmed markets in the last few years, leading to catastrophic losses for some firms. The problem has prompted meetings by regulators, but plans to truly monitor the trades are in their infancy.

As for hedge funds -- meh, who cares, they're not making any money anyway.

But then, why do we care what Bernie Madoff has to say about this or most other topics? If we want to know how to run a massive Ponzi scheme for years without detection, then we'll ask Bernie Madoff. Otherwise, you could probably throw a rock anywhere below Canal Street in Manhattan and hit somebody with more valuable thoughts about the financial system than this guy.

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