I'm going to annotate it as though I am having a conversation with my grandfather. Grandpa Harry was one of the most lovable members of my family. Interestingly, he controlled the laundry rackets in Brooklyn, Queens, and Manhattan with an iron fist from the 1920s until his "retirement" in the late 1950s. Let us just leave it at that, and see what Grandpa Harry would have to say:
From New York Times:
Leveraged notes issued by big banks like JPMorgan Chase (Stevie, never trust a bank unless they are, how do I say this, like us.) and Nomura became conduits through which fresh money flowed from institutional investors' hands into the Fairfield Sentry and the euro-based Fairfield Sigma funds, both run by the Fairfield Greenwich Group — and, in turn, into Mr. Madoff’s hands. (Stevie, Mark my words, this guy sounds like a shyster... He's getting laundered money.) The arrangement worked like this: Investors put up cash to buy the notes from the bank. In return, the bank promised to pay them up to three times the future earnings of the Fairfield funds (Stevie, this is too good to be true. When I loan money, the vig about 50%.) When the notes matured in five years, assuming the funds did well, these investors would get more than if they had invested in the funds directly. The bank collected just under 2 percent in fees, investors said. (Stevie, those Morgan guys must have their hands wet, too. How else could they hedge their bets?) And because the bank had to hedge its entire risk, it put up to three times the face amount of the notes into the Fairfield funds. (I told you, Stevie, and I bet you they will dump their position and not tell the other guys when things get meshugge!) Thus, Fairfield Greenwich got more cash to manage than it otherwise would have, increasing its own fee income. (Stevie, that's called a sweetheart deal!) To reward note-holders for making that possible, Fairfield paid them a so-called rebate of a fifth to a third of a percentage point a year. (Stevie, that's called a kickback!) ...Stevie, did they take your money? Well, don't worry, Grandpa Harry will set everything straight! I'll be back in about an hour.
Leveraged notes issued by big banks like JPMorgan Chase (Stevie, never trust a bank unless they are, how do I say this, like us.) and Nomura became conduits through which fresh money flowed from institutional investors' hands into the Fairfield Sentry and the euro-based Fairfield Sigma funds, both run by the Fairfield Greenwich Group — and, in turn, into Mr. Madoff’s hands. (Stevie, Mark my words, this guy sounds like a shyster... He's getting laundered money.) The arrangement worked like this: Investors put up cash to buy the notes from the bank. In return, the bank promised to pay them up to three times the future earnings of the Fairfield funds (Stevie, this is too good to be true. When I loan money, the vig about 50%.) When the notes matured in five years, assuming the funds did well, these investors would get more than if they had invested in the funds directly. The bank collected just under 2 percent in fees, investors said. (Stevie, those Morgan guys must have their hands wet, too. How else could they hedge their bets?) And because the bank had to hedge its entire risk, it put up to three times the face amount of the notes into the Fairfield funds. (I told you, Stevie, and I bet you they will dump their position and not tell the other guys when things get meshugge!) Thus, Fairfield Greenwich got more cash to manage than it otherwise would have, increasing its own fee income. (Stevie, that's called a sweetheart deal!) To reward note-holders for making that possible, Fairfield paid them a so-called rebate of a fifth to a third of a percentage point a year. (Stevie, that's called a kickback!) ...Stevie, did they take your money? Well, don't worry, Grandpa Harry will set everything straight! I'll be back in about an hour.
If the legal investment world operates like that, I wonder what Grandpa Harry did to set everything right in this imaginary discourse. I'm glad I wasn't there.
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