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Harry Newton's In Search of The Perfect Investment Technology Investor.

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9:00 AM EST, Monday, December 22, 2008: The economy continues to unravel, as ripple-down economics wreaks its havoc. A friend emails this morning "We probably get a Santa Claus rally into year end. I'm not so sure about january--An AWFUL lot of retailers will shut their doors in January when it becomes apparent that XMAS was a disaster and that the economy sucks the big suck." It's amazing to see 70% off sales so close to Christmas Day.

The next shoe to drop: If you missed 60 Minutes on the $1.5 trillion of Alt A and Option ARM loans now re-setting and defaulting, watch it here on YouTube. The second wave.

Why Wall Street will never be the same: Wall Street's job is to make products to sell to you and me. In doing so it makes fees for itself and for its lawyers who craft the increasingly complex products. Many of these "products" are now blowing up. There were two basic problems. First, they were created in haste and desperation -- get the products out the door to a world awash in investment dollars. That means little due diligence. Second, often the deals were hugely complex. The documentation overwhelmed anyone's ability to understand. As a result, the buyer relied on assurances from Wall Street salespeople that everything would be "OK." Whether it would be or not, it didn't matter, they had their commissions and their bonuses. And they weren't obliged to give the commissions and bonuses back if things turned sour later on -- as they did with so many Wall Street "products" -- from auction rate securities to securitized sub-prime loans.

What started me on this track was a Sunday New York Times piece by talented Gretchen Morgenson. Here are some excerpts:

Just Call This Deal Hoosier Baroque

COLLATERAL damage from the credit crisis continues to crop up in the most unlikely places. Consider southern Indiana, where the Hoosier Energy Rural Electric Cooperative, serving 800,000 farm, small-business and residential customers, is under threat.

Unlike many other enterprises today, Hoosier is not in financial distress. It is, in fact, thriving.

What imperils the cooperative is the kind of financial alchemy that has magnified our money mess: an atrociously convoluted deal that Hoosier struck with the John Hancock Life Insurance Company in 2002.

Because part of that deal is now in jeopardy, John Hancock is trying to force a termination payment of $120 million that could push Hoosier into bankruptcy protection. ...

Like most electric cooperatives, Hoosier does not generate significant profits. Any earnings are either kept to offset future losses or returned to members of the cooperative. Its nonprofit status is central to the deal vexing Hoosier today.

The deal was offered to Hoosier as a way for the cooperative to sell tax losses that it couldn’t use to a profit-generating company that could. John Hancock was that company. Known as a “sale-in, lease-out”— SILO for short — the arrangement was fashioned by Babcock & Brown, an Australian investment firm.

Detailed in 4,000 pages of fine print, the SILO was a deal that only a Wall Street contortionist could love. Its components included a sale and leaseback, two credit-default swaps and a tax shelter similar to those that the Internal Revenue Service has since deemed abusive.

In other words: a veritable trifecta of tortured finance.

The investment bankers and lawyers on the deal made out, of course; they generated $12 million in fees, court filings show. ...

“The I.R.S. will certainly deny the tax benefits that Hancock is claiming,” testified Alan Joseph Bankman, an expert witness in the case who is a professor at Stanford Law School. He told the court that the I.R.S. has offered tax amnesty to entities that have struck SILO deals, if they give up future benefits and return 80 percent of deductions taken.

About 80 percent of companies involved in such deals have accepted the I.R.S.’s amnesty offer, the judge said in a recent opinion.

But not John Hancock. Its general counsel said the company believes its deal would pass muster with the I.R.S. It has no interest in unwinding it.

What a web our financier friends have woven around us. Unhappily, it seems that no one can escape its entanglements.

The BIG lesson from the scandal Madoff. It is foolish to concentrate your investments in anything other than your own business. Those Madoff investors who put virtually all their money with him are wiped out. Those who put a small percentage are OK.. Diversification is one thing; concentration is another.

Synagogue of $ufferers. Members of a "posh" Fifth Avenue, New York synagogue lost $2 billion "investing" with Bernie Madoff. The New York Post (a Rupert Murdoch newspaper) had a field day with the cover of its Sunday edition:

Madoff didn't raise the $50 billion all by himself. He had an elaborate collection of sales agents who profited handsomely -- really handsomely. Try this from today's New York Times:

Since Bernard L. Madoff was arrested 11 days ago in connection with a $50 billion Ponzi scheme, the Fairfield Greenwich Group has portrayed itself as an unwitting victim of the fraud, the biggest of Mr. Madoff’s many losers.

Clients of Fairfield, a secretive hedge fund advisory company based in Connecticut, lost $7.3 billion to Mr. Madoff’s fund. But for Fairfield, working with Mr. Madoff was hugely profitable.

Internal documents from Fairfield show that the firm has taken more than $500 million in fees since 2003 alone from the money it placed with Mr. Madoff. Nearly all those fees went to a handful of Fairfield executives, including Walter M. Noel, Fairfield’s founder, who used the money to build a glamorous life, splitting his time between homes in New York, Connecticut, Florida and the Caribbean.

As it raised money all over the world, Fairfield also made detailed pledges about how it would monitor and track Mr. Madoff’s investments, the documents show. Now, investors and regulators are sure to ask whether Fairfield made good on those promises — or whether it was a facilitator of the Madoff scandal as well as a victim.

Similar questions may arise for the dozens of banks and hedge funds around the world that reaped extraordinary fees for steering investments to Mr. Madoff over the last decade. None of them, however, earned more from their Madoff business than Fairfield did during the firms’ 20-year relationship.

Fairfield promised its investors that money could not be moved from its accounts with Bernard L. Madoff Investment Securities without two signatures. It said that it would independently calculate the value of the funds it invested at Mr. Madoff’s firm at least once a week. It promised to reconcile statements from individual trades with Mr. Madoff’s custodial records.

It is not clear what Fairfield did to make good on those pledges.

A spokesman for Fairfield, Thomas Mulligan, offered only a statement characterizing the firm as a victim of Mr. Madoff.

“Fairfield Greenwich Group is in the process of gathering and reviewing all of the factual information relevant to its having been defrauded by Bernard Madoff,” Mr. Mulligan said in a written statement. “It made efforts to verify the information it received from Madoff. Following its review, Fairfield Greenwich expects to be in a position to provide more specifics.”

Mr. Mulligan also said that Fairfield Greenwich, and its partners, had about $60 million invested with Mr. Madoff.

That sum, while significant, is less than 1 percent of the overall amount that the firm placed with Mr. Madoff, and barely 10 percent of the fees that Fairfield reaped since 2003 from its client investments with Mr. Madoff.

DirecTV's high definition signal is seriously great. In the City, I have Time Warner. It's awful, but it's a monopoly -- until Verizon's FIOS gets to me apartment (if ever). But in the country, I have satellite DirecTV high definition. I'm showing it on a 50" $1,069 Samsung DLP. It's a stunning picture. What's most interesting is that BubbleVision (CNBC) shows its normal 4:3 picture on the left and a has a panel of useful information on the right. You don't see that panel in low definition (i.e. normal TV).

Yesterday was the winter solstice, the shortest day of the year. We had a big snowstorm at our country house. It stopped just before sunset. It produced the most gorgeous sunset:

Hanukkah began yesterday and continues for the next seven days. Plenty of time to buy the Rosenbaums a gift.

What is a crèche?
Normally it's the place they put the little baby Jesus. But at this time of year, it's also the sound that a Hanukkah bush makes when it falls over.

I put LED lights on our Hanukkah bush yesterday. I'm told they'll last longer than my grandchildren will -- if I ever get any.

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.