Monday, June 16, 2008

Native American Financial Dreams

All of the stockbrokers over the years who have perpetrated fraud, misrepresentation and theft against Native American entities should be enough to fill San Quentin. I have been privy to the carnage for more years and for more incidents than I can stomach starting with the oil and gas carnage in Alaska about 25 - 30 years ago.

The beat continues across Indian Country. With the hundreds of millions still being "managed" to the benefit of the US Government and their Dept. of Interior's, Bureau of Indian Affairs Office and to the detriment of generations of Native Americans ahead the sage continues to play out.

We come across tribes who have millions and millions to invest and we know their leadership shouldn't be allowed access to any source of tribal funds. I see tribal members throwing their precious dollars into negative expectation games at the local casino and their children have no milk. Go figure.

The hedge fund crowd is coming to a tribe near you. Recently we have found tribes that entrust their money to the big investment banks—Citibank, Chase, Merrill Lynch, or Morgan Stanley—which then invest it for them in hedge funds. Funds of funds, the word is on Wall Street, are the next bubble—the next place for financial market professionals to make a killing. You see, registered hedge funds sold by brokers have no liquidity, huge fees, bad to horrorific performance, and they're being sold by brokers who don't know anything about hedge funds. In fact, they are a sophisticated way to lose money, as opposed to the more mundane way of letting the layers upon layers of fees feed the Wall Street chiefs. The key features of these funds are that they trade in eye-watering risk and are barely regulated. The two are related. Because they answer to nobody but themselves, hedge funds have side-stepped regulation and can do as they like. What they like is risk - and their main tool is "leverage" - borrowing to play the markets. It is not unusual for a hedge-fund investor to control $100m in securities with only a $5m down payment. Of course, that means that when a bet goes wrong, it goes spectacularly wrong.
Never forget, when commissions are down, stockbrokers still have bills to pay. For those brokers morally challenged, the pressure is too great. In fact it reminds me of stockbrokers we had in the LaJolla office of Drexel Burnham Lambert whose offices adjoined one another. These commission generators were nicknamed, "Murderers Row"!
Tribes beware, if you want to gamble, buy more slot machines. That's a sure bet.

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