As a privately held company, Modern Evil is not required to publicly report on any of its operations or activities. This blog of the Investment Division is a faint reflection of our interests and opinions. Thank you.

~ Theo K. Mewley, V.P. Investments

"Behind every great fortune lies a great crime." - Balzac


Cocaine Stimulates the Economy

CATEGORY: Banks, Drug Money, Recession Strategy

DIVISION: Modern Evil Investments

As everyone scrambles to recession-proof ground, let's not forget that cash-flow positive stalwart of the global economy: drugs. When times are good the money flows, but when times are bad it's even better. So attention all international authorities - don't be too hard on the drug lords; their business could be the only thing keeping your financial institutions solvent.

U.N. Crime Chief Says Drug Money Flowed Into Banks

VIENNA: The United Nations' crime and drug watchdog has indications that money made in illicit drug trade has been used to keep banks afloat in the global financial crisis, its head was quoted as saying on Sunday.

Vienna-based UNODC Executive Director Antonio Maria Costa said in an interview released by Austrian weekly Profil that drug money often became the only available capital when the crisis spiralled out of control last year.

"In many instances, drug money is currently the only liquid investment capital," Costa was quoted as saying by Profil. "In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor."

The United Nations Office on Drugs and Crime had found evidence that "interbank loans were funded by money that originated from drug trade and other illegal activities," Costa was quoted as saying. There were "signs that some banks were rescued in that way."

Profil said Costa declined to identify countries or banks which may have received drug money and gave no indication how much cash might be involved. He only said Austria was not on top of his list, Profil said.


Finger Pointing at the 25 Meltdown Architects

CATEGORY: Economic Meltdown, Crisis, Responsibility

DIVISION: Modern Evil Investments

EDITORIAL: At last! - It's finger-pointing time! The list of criminals responsible for the global financial crisis is a who's who of high-powered insiders, all of whom have made out like robber barons and will never, ever pay the least penalty. Fantastic! As an S&P analyst wrote, "Let's hope we are all wealthy and retired by the time this house of cards falters." Here are 25 who made it out alive.

Twenty-Five People at the Heart of the Meltdown

The worst economic turmoil since the Great Depression is not a natural phenomenon but a man-made disaster in which we all played a part. In the second part of a week-long series looking behind the slump, Guardian City editor Julia Finch picks out the individuals who have led us into the current crisis.

by Julia Finch, with additional reporting by Andrew Clark and David Teather

Alan Greenspan, Chairman of US Federal Reserve 1987- 2006
Only a couple of years ago the long-serving chairman of the Fed, a committed free marketeer who had steered the US economy through crises ranging from the 1987 stockmarket collapse through to the aftermath of the 9/11 attacks, was lauded with star status, named the "oracle" and "the maestro". Now he is viewed as one of those most culpable for the crisis. He is blamed for allowing the housing bubble to develop as a result of his low interest rates and lack of regulation in mortgage lending. He backed sub-prime lending and urged homebuyers to swap fixed-rate mortgages for variable rate deals, which left borrowers unable to pay when interest rates rose.

For many years, Greenspan also defended the booming derivatives business, which barely existed when he took over the Fed, but which mushroomed from $100tn in 2002 to more than $500tn five years later.

Billionaires George Soros and Warren Buffett might have been extremely worried about these complex products - Soros avoided them because he didn't "really understand how they work" and Buffett famously described them as "financial weapons of mass destruction" - but Greenspan did all he could to protect the market from what he believed was unnecessary regulation. In 2003 he told the Senate banking committee: "Derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so".

In recent months, however, he has admitted at least some of his long-held beliefs have turned out to be incorrect - not least that free markets would handle the risks involved, that too much regulation would damage Wall Street and that, ultimately, banks would always put the protection of their shareholders first.

He has described the current financial crisis as "the type ... that comes along only once in a century" and last autumn said the fact that the banks had played fast and loose with shareholders' equity had left him "in a state of shocked disbelief".


Bill Clinton, Former US President
Clinton shares at least some of the blame for the current financial chaos. He beefed up the 1977 Community Reinvestment Act to force mortgage lenders to relax their rules to allow more socially disadvantaged borrowers to qualify for home loans.

In 1999 Clinton repealed the Glass-Steagall Act, which ensured a complete separation between commercial banks, which accept deposits, and investment banks, which invest and take risks. The move prompted the era of the superbank and primed the sub-prime pump. The year before the repeal sub-prime loans were just 5% of all mortgage lending. By the time the credit crunch blew up it was approaching 30%.

Gordon Brown, Prime Minister
The British prime minister seems to have been completely dazzled by the movers and shakers in the Square Mile, putting the City's interests ahead of other parts of the economy, such as manufacturers. He backed "light touch" regulation and a low-tax regime for the thousands of non-domiciled foreign bankers working in London and for the private equity business.

George W Bush, Former US President
President Clinton might have started the sub-prime ball rolling, but the Bush administration certainly did little to put the brakes on the vast amount of mortgage cash being lent to "Ninja" (No income, no job applicants) borrowers who could not afford them. Neither did he rein back Wall Street with regulation (although the government did pass the Sarbanes-Oxley Act in the wake of the Enron scandal).

Senator Phil Gramm
Former US senator from Texas, free market advocate with a PhD in economics who fought long and hard for financial deregulation. His work, encouraged by Bill Clinton's administration, allowed the explosive growth of derivatives, including credit swaps. In 2001 he told a Senate debate: "Some people look at sub-prime lending and see evil," he said. "I look at sub-prime lending and I see the American dream in action."

According to the New York Times, federal records show that from 1989 to 2002 he was the top recipient of campaign contributions from commercial banks and in the top five for donations from Wall Street. At an April 2000 Senate hearing after a visit to New York, he said: "When I am on Wall Street and I realise that that's the very nerve centre of American capitalism and I realise what capitalism has done for the working people of America, to me that's a holy place."

He eventually left Capitol Hill to work for UBS as an investment banker.

>> Read Full Article


“Everyone Thought They Were Going To Get Rich.”

CATEGORY: Tea Bubble, Speculators, Crash

DIVISION: Modern Evil Investments

NOTE: What's better than greed?! Sex, maybe, but greed is a glorious intoxicant that transforms everyday Joes into cash-crazed speculators. And without speculation and those Joes, there are no investment markets, anywhere, period. But like tulips and Tokyo real estate, when the bubble bursts it's usually the Joes left holding the promises. Greed - It brings out the Real You!

A County in China Sees Its Fortunes in Tea Leaves Until a Bubble Bursts


MENGHAI, China — Saudi Arabia has its oil. South Africa has its diamonds. And here in China’s temperate southwest, prosperity has come from the scrubby green tea trees that blanket the mountains of fabled Menghai County.

Over the past decade, as the nation went wild for the region’s brand of tea, known as Pu’er, farmers bought minivans, manufacturers became millionaires and Chinese citizens plowed their savings into black bricks of compacted Pu’er.

But that was before the collapse of the tea market turned thousands of farmers and dealers into paupers and provided the nation with a very pungent lesson about gullibility, greed and the perils of the speculative bubble. “Most of us are ruined,” said Fu Wei, 43, one of the few tea traders to survive the implosion of the Pu’er market. “A lot of people behaved like idiots.”

A pleasantly aromatic beverage that promoters claim reduces cholesterol and cures hangovers, Pu’er became the darling of the sipping classes in recent years as this nation’s nouveaux riches embraced a distinctly Chinese way to display their wealth, and invest their savings. From 1999 to 2007, the price of Pu’er, a fermented brew invented by Tang Dynasty traders, increased tenfold, to a high of $150 a pound for the finest aged Pu’er, before tumbling far below its preboom levels.

For tens of thousands of wholesalers, farmers and other Chinese citizens who poured their money into compressed disks of tea leaves, the crash of the Pu’er market has been nothing short of disastrous. Many investors were led to believe that Pu’er prices could only go up.

“The saying around here was ‘It’s better to save Pu’er than to save money,’ ” said Wang Ruoyu, a longtime dealer in Xishuangbanna, the lush, tea-growing region of Yunnan Province that abuts the Burmese border. “Everyone thought they were going to get rich.”

Fermented tea was hardly the only caffeinated investment frenzy that swept China during its boom years. The urban middle class speculated mainly in stock and real estate, pushing prices to stratospheric levels before exports slumped, growth slowed and hundreds of billions of dollars in paper profits disappeared over the past year.

>> Read Full Article

The Latest Sucker #749,655,308,912-DMBASS

CATEGORY: 419 Scam, Belief, Buyer Beware

DIVISION: Modern Evil Investments

COMMENT: We see what we want to see and believe what we want to believe - that's how the investment world works. Sure, if something sounds to good to be true then it probably is. But for the other 90% of the population, if something is too good to be true then it's just because they're luckier than everyone else. So let the baby have the bottle! [see: Financial Darwanism].

Leamington Man Loses $150,000 In Nigerian Scam

By Trevor Wilhelm, The Windsor Star

A Leamington man has fallen prey to international scam artists who strung him along for more than a year with the promise of millions in cash, but ultimately bilked him and his family of $150,000.

John Rempel said he quit his truck driving job, lost friends, borrowed money and crossed the globe in pursuit of a non-existent inheritance, after he was contacted by e-mail in what is known as a Nigerian 419 scam.

Rempel said he borrowed $55,000 from an uncle in Mexico and his parents gave him $60,000 on credit to cover fees for transferring $12.8 million into his name.

“They’re in it now because of me,” said Rempel, 22, breaking into sobs. “If it wasn’t for me, nobody would be in this mess. You think things will work out, but it doesn’t. It’s a very bad feeling. I had lots of friends.

“I never get calls anymore from my friends. You know, a bad reputation.”

His troubles began in July 2007. He said he got an e-mail from someone claiming to be a lawyer with a client named David Rempel who died in a 2005 bomb attack in London, England, and left behind $12.8 million.

“They used to come in the mail,” said Leamington police Const. Kevin O’Neil. “Now the majority of these are sent through e-mail. Keeping up with the times, using all the wonderful technology that’s available to them.”

“I was told once that they send out 30,000 e-mails a day, around the world, and they hope for just one or two responses. Once you return a phone call or return an e-mail, these people now have their hooks into you.”

The lawyer said his client had no family but wanted to leave the money to a Rempel. It was his lucky day.

“It sounded all good so I called him,” said Rempel. “He sounded very happy and said God bless you.”

The man then told him he had to pay $2,500 to transfer the money into his name. Then there were several more documents. Some cost $5,000.

He was told to open an account at a bank in London. That required a $5,000 minimum deposit. The crooks later sent him an e-mail with a link to what he was told were details of his new account. Some money had been transferred there for “safe keeping.”

“Everything was good,” said Rempel.

Then he got an e-mail from a government department — he’s not sure which country — saying he owed $250,000 on tax on his inheritance. Rempel spoke to his contact, who told him they negotiated the fee down to $25,000.

Rempel went to Mexico where his uncle owns a farm. His uncle gave him $10,000 cash and money for a plane ticket. He was going to London to make sure it was legitimate.

“I had $10,000 in cash in my pocket and my uncle sent another $25,000 when I was over there.”

In London, Rempel met some people and handed over the $10,000.

They met Rempel the next day with a suitcase. They said it had $10.6 million in shrink-wrapped U.S. bills. Rempel wanted more proof. His new friends pulled out one bill and “cleansed” it with a liquid “formula,” which washed off some kind of stamp. Rempel was told that process made the money “legal tender.”

“I was like holy crap, is that mine?” he said. “They said ‘yes sir, it’s yours.’ It all sounded legit.”

Rempel returned to his hotel room clutching the formula and waited for the others so they could cleanse all his money. They never showed, and later told him they got held up. In the meantime, Rempel dropped the formula. The bottle broke. He called his contact who said he’d get more. Rempel returned to Leamington and waited.

A few weeks later Rempel got a call. They found more formula. It would cost $120,000.

“I thought, ‘let’s work on it, nothing is impossible,’” said Rempel.

His contacts were willing to meet associates in different countries to get cash for the formula. It would require several plane tickets, worth $6,000 each.

Rempel was told they collected $100,000, but still needed $20,000. There was a guy in Nigeria who had it, but another plane ticket was required. The contact later told him he could only get $15,000 and “begged” Rempel for the last $5,000.

Rempel borrowed money. He stopped making Visa and car payments.

They called a week later and said the money was ready to go. They just needed $6,900 for travel costs and to rent trunks to ship the money.

Later, the men called to say they were at the airport in New York. Security stopped them and they needed $12,500 for a bribe. Finally, Rempel had enough.

“I said, ‘no way I’m cleaned out.’”

Rempel, his parents and 10-year-old brother Ike drove to New York. They spent a day searching the airport for the men, with no luck. They returned home and called police.

“I really thought in my heart this was true,” said Rempel.

When A Liar Confesses, Can You Believe Him?

CATEGORY: Satyam Scandal, Embezzlement, Fake

DIVISION: Modern Evil Investments

EDITORIAL: The new twist on confessing investment shenanigans is to say its all gone when really only most of it is gone. Then when everyone is wondering what to do next, quickly make the rest disappear. Madoff is doing it. Widows and business partners are doing it. And so should you!

Offshore Inmates: The Satyam Scandal

The Economist

IN ANY software project, according to an industry adage, programmers think they are 90% done for about 50% of the time. That paradox will be familiar to the owners of Satyam Computer Services, which was once India’s fourth-biggest software and services firm. The scam perpetrated by its founder, B. Ramalinga Raju, and his brother is equally hard to fathom. On January 7th Mr Raju confessed to cooking Satyam’s books for years, and admitted that a $1 billion cash pile did not in fact exist.

But when a liar confesses, can you believe him? Many suspect that even now only 50% of the truth is out. Cash, after all, is hard to fake. Satyam’s books were audited by PricewaterhouseCoopers. According to the Economic Times, an Indian newspaper, the auditor says it verified Satyam’s fixed deposits with the banks that held them. So perhaps the money did exist, but has since been spirited out of the company.

Such tricks are not unusual in India, even if the scale of the Satyam fraud is extraordinary. Indian “promoters” (who include business families and other corporate insiders) still hold almost half of the shares on the National Stock Exchange (NSE). But many family firms are evolving into widely held corporations. The danger is that as the stake held by insiders falls, they have an incentive to rip off other shareholders by siphoning off money.

Some of their favourite techniques were outlined in a report last month by Saurabh Mukherjea, who returned to India from Britain in May to scrutinise stocks for Noble, an investment bank. Managers might, for example, lend to a son’s firm, or overpay for a training weekend and take a cut from the hotelier. Manipulation of accounts in India is “ferocious”, says Mr Mukherjea, and not just by small firms.

Who will stand up for the minority shareholders? In America managers cower before pension funds and other powerful institutional investors. But India lacks a local equivalent. Its occupational pension funds hold assets worth 2.5 trillion rupees, only about 5% of GDP. They are permitted to invest only 15% of their holdings in shares, and actually invest even less.

Some hope that foreign investors might fill the gap. They hold about 10% of the shares on the NSE, more than Indian banks, insurance companies and mutual funds combined. They ought to be wary of inscrutable companies, giving the firms an incentive to change their ways. But foreign investors can only take big positions in the firms they buy. And since half of India’s shares are held by promoters, a foreign fund cannot take a worthwhile position without managers’ acquiescence. So funds are reluctant “to cheese off management too much” by complaining about corporate governance, says Mr Mukherjea.

That complacency has been shattered. Indeed, in the wake of the Satyam scandal, investors have been swift to punish even small infractions. The shares of Wipro, another computing giant, fell by 9% on January 12th after the World Bank revealed it had barred the firm from doing business with it until 2011. Wipro’s transgression was to invite bank officials to take part in an oversubscribed share offering in 2000. Many who did so lost money. “It is a real debate whether it was a benefit at all,” says Suresh Senapaty, Wipro’s finance chief.

Meanwhile Mr Raju, his brother, and Satyam’s chief financial officer are in custody, charged with criminal conspiracy, cheating and forgery. Satyam is in the hands of three directors appointed by the government. If they do not act swiftly, Satyam’s rivals may pick up its most lucrative customers and its best employees. But right now all that its Indian competitors want from Satyam is distance.