This is a posting to warn you that the financial tsunami is not here yet. I base my findings on the Madoff scandal, some conversations with developers on the Las Vegas Strip, and a recent 60 Minutes story that has the banking community buzzing. In other words, brace your sweet butts. You want uplifting? Sorry, not here not today. But you won’t get this from too many other journalists or analysts.

 

In the TV biz, we talk about getting video of the “perp walk.” Perp is short for perpetrator; the criminal, the bad guy. The actual walk is the ceremony where the perp is paraded out in handcuffs by police to either go to court or lock-up.

 

It’s like the perp’s first sentence – even before he’s convicted. The injustice of the perp walk is that a perp could be found not guilty but the searing image of the perp parade stays in the public’s mind.

 

The perp walk has purpose for the media and police. For the media, it gives us the video we need to tell the story easier. For the cops, the shame of such a stroll could sometimes get a suspect to cooperate. Many times, the cops really don’t have to walk them in front of the cameras.

 

My prediction: expect more perp walks for the crooks in the financial industry. There will be more perps to walk. And an angry public always loves a parade.

 

The Bernie Madoff story is only the beginning. The fund manager lost $50 billion in what he even called a ponzi scheme. In short, Madoff took money from new investors and paid off old ones. The lousy economy finally revealed his chicanery.

 

Madoff was the former head of NASDAQ who either outwitted or was in bed with SEC regulators. His story will reverberate throughout the financial industry and the regulation aftermath for decades to come.

 

Here’s another injustice. Madoff didn’t perform a perp walk. He had enough money to be released on bail. However, he’ll get his ten minutes of perp walk fame soon.

 

What struck me about the coverage of Madoff: the descriptions of Madoff by friends and colleagues. He was such a nice guy, they said. We would have never thought he could do this. Those are similar sound bites you hear on a newscast about the guy who has just killed his wife and kids.

 

In some respects, Madoff did the same. He killed many retirements of elderly folks. He killed careers of his family and colleagues, many of whom will be going to prison for putting investors into Madoff’s funds. Some of these advisors put all of their investors’ money into Madoff’s funds despite clients demand for diversification.

 

So what does the Madoff case mean to you?

 

Let me mix two metaphors. Madoff is the canary in the coal mine that is really a tunnel and before we see that light at the end of the tunnel we need to walk through a lot of toxic air. And still that light at the tunnel’s end may be a locomotive heading our way.

 

How’s that for a confusing metaphor? Trust me, that’s a simple description compared to what’s been done to the financial industry. In short, folks, the worst is not here yet.

 

In fact, Madoff is a low-level criminal in all this. He’s the equivalent of the burglars who broke into the Watergate. The Nixons, Liddys, Haldermans, and Erlichmans right now are untouchable and sitting on Wall Street.

 

I wrote about this in September in a column called “All Running For Cover.” This was my take on why the original bailout bill failed to pass Congress the first time. I quoted the then-director of the Congressional Budget Office, Peter Orszag, who raised an issue that seemed to be ignored. He said.

 

“Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values,” Orszag said in his testimony. “Establishing clearer prices might reveal those institutions to be insolvent.” From the Washington Post 09/25-08

 

In other words, Orszag was saying these financial institutions are not telling us the truth about what is really on their books. The good news is that Orszag has been tapped as Obama’s Budget Director since then, so we should get more honesty out of this Administration.

 

I think Orszag’s comments proved correct over the past few months. Look at what happened once the TARP passed. Treasury was going to buy up all those toxic assets – those mortgage backed securities and the phony insurance instruments called credit default swaps. But then Treasury switched course. Instead, they would just invest in these financial institutions. Why?

 

My guess is this: those toxic assets had lost so much value that many of those institutions would fail immediately and the entire banking system might have collapsed. My other belief is there was so much criminal activity in these financial institutions that we’d be walking so many of these crooks in front of cameras there would be no one to run the financial system.

 

Am I accusing the financial industry of criminal activity? Not yet. I don’t have the proof or the financial expertise. No one does. But it certainly smacks of a cover-up on the part of the current Treasury Department to take care of the guys on Wall Street in the name of saving our banking and financial system while many of us lose our homes.

 

Look what’s happened since the bailout money has been issued. Citigroup nearly failed despite all the money from TARP. None of those institutions are lending that money. Why? My belief: the infusion pales compared to the enormous losses on the books of the past five years.

 

Just yesterday the Fed announced it is buying up long-term credit and those toxic mortgage-backed securities – the same thing the TARP was supposed to do. Notice the media dwelled on the historic cut in interest rates. They missed the important part of the story. Those cuts mean nothing unless banks loan money – and right now they won’t.

Frankly, who can blame them? Why would you lend anyone or any business any money in this environment? Underpinning the economy is the consumer who is tapped out: no credit cards, no equity in the house, and possibly no job.

 

We have a friend who is a local banker. She told my wife yesterday if someone wants a loan for more than $200,000 it will be an act of God. Low six-figure loans are not going to jump-start our economy.

 

Sunday’s 60 Minutes piece on the economy has spooked many local bankers. Go back and watch it. (Make sure you’re sitting down and if you drink have a double.) Experts told 60 Minutes the same thing I’m saying. The wave of mortgage failures so far is nothing compared to what 2009 portends.

 

I have a unique perspective living here in Las Vegas. We lead the nation in home foreclosures. One reason is we had so many speculators coming in and buying investment homes at the height of the bubble. The second reason is this is the land of opportunity where everybody from all over the country either wants to visit, work, invest, or live.

As a result, the nation’s economy comes to us. Las Vegas will be the first to recover since we were the first to go into recession and once the economy improves more folks will come here to spend their money on fun times: it will be cheaper and easier than travelling overseas. That good news, however, is possibly years away.

 

Why do I say years away? I hear one thing from many of the brilliant minds behind Las Vegas that I have near heard before: confusion. They don’t know what to expect. They can’t see the future. It’s way too cloudy. As a result, many projects will remain idle for 2009. Others will fail. This is something we never imagined here.

 

Let me throw in a caveat here. Steve Wynn is about to open Encore, his new resort next to his Wynn Resort on the Strip. They cater to the ultra-wealthy who are apparently immune to this downturn — unless they call Bernie Madoff an advisor.

 

Still, when I see so many other business leaders who cater to the middle class customer shake their heads with fear and doubt, it frightens me.

 

So, let me warn you again. Protect yourselves financially. Hold out as much cash as you can. If you’re going to default on your home, talk to your mortgage holder or bank about another arrangement or a short-sale.

 

And protect yourself physically. People who are not normally criminals may be desperate in these times. With the homeowners left on your block form a solid Neighborhood Watch Program. Remember the elderly who will be the most victimized.

 

But remember, above all, the words of Mother Teresa, be kind. Be kind, even when you watch the perps walk.

 

 

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