(CNN Student News) -- December 17, 2008
Ripped Off? - Discover the widespread impact of an alleged $50 billion Ponzi scheme.
How it Works - Find out how a Ponzi scheme works and what can cause it to fall apart.
Not Amused - Consider a controversy involving a recent parody of New York's governor.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CARL AZUZ, CNN STUDENT NEWS ANCHOR: Edging ever closer to the weekend, you've hit the halfway mark of the week here with CNN Student News. From the CNN Center, I'm Carl Azuz.
AZUZ: First up, a powerful figure is accused of running a scam to rip off clients for huge sums of money. It kinda of sounds like a movie plot, and there are some investors right now who probably wish it was. But this story is real, and it's unfolding right now. Bernard Madoff, a former chairman of the Nasdaq market, is facing a single charge of fraud. But that one count is related to an alleged scheme worth $50 billion! From international mega-banks to charities, Kitty Pilgrim looks at the widespread impact.
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KITTY PILGRIM, CNN BUSINESS CORRESPONDENT: Duped and deceived. Bigger and bigger names appear in the headlines, including Mortimer Zuckerman, Steven Spielberg's charity foundation, the Elie Wiesel foundation, Norman Braman, former owner of the Philadelphia Eagles football team. Many investors are not returning calls about investing with Bernard Madoff, but CNN has confirmed the victims include Fred Wilpon, principal owner of the New York Mets; U.S. Senator Frank Lautenberg's charity. HSBC, one of the world's largest banks, could lose a billion dollars; Royal Bank of Scotland, $600 million; France's BNP Parisbas, nearly $500 million; and Spain's Banco Santander said clients had exposure of $3 billion. The SEC chief of enforcement said they are trying to investigate as quickly as possible.
LINDA THOMSEN, SEC DIRECTOR OF ENFORCEMENT: We are acutely focused with our colleagues in the southern district of New York and the FBI to figure out exactly what's going on, to pursue the case that we've got, to preserve assets to the extent we are able, and to bring everyone who is responsible for the conduct at the Madoff firm to justice.
PILGRIM: Some question the role of the regulatory authories in all of this, including the SEC.
BRAD SIMON, FORMER FEDERAL PROSECUTOR: They clearly were asleep at the switch. They exist to uncover securities fraud, and here is a $50 billion massive Ponzi scheme, and somehow they missed it. And now, that $50 billion has disappeared, they are scrambling.
PILGRIM: A former prosecutor who worked with victims of another Ponzi scheme says recovering assets is almost impossible at this point in time.
CARL H. LOEWENSON, ATTORNEY, MORRISON & FOERSTER: Based on previous experience with Ponzi schemes, it will likely take years for this to get unraveled. And in the meantime, there is an asset freeze. So, people are looking at years, not months.
PILGRIM: It's money well-heeled investors and charitable institutions will have to do without. Kitty Pilgrim, CNN.
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Word to the Wise
ERIC GERSHON, CNN STUDENT NEWS: A Word to the Wise...
Ponzi scheme (noun) an investment scam that promises large returns at low risk, generating money by signing up new investors.
AZUZ: That is what Bernard Madoff is accused of running. But how does this kind of scheme work, and what are some reasons why it breaks down? Here's Ali Velshi exploring the answers.
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: It may not be the only Ponzi scheme out there. Ponzi schemes tend to collapse when things go bad and people want their money back. But while times were good, Bernie Madoff was offering investors a good return. So, here's how it'd work: Here's Madoff, and he'd have investors -- let's say five of them -- and he was offering them between 10 and 12 percent a year. But he may not have actually been doing anything to generate that return. The way you pay those people their interest every year is, you go to another investor who will provide money so that you pay it off. Basically, that's a Ponzi scheme: You're using new investors to pay off the returns of old investors.
Well, what happens then is that now, he's got more investors, because that one that he got money from is now one of his investors, so he has to go and get more people. This continues to work because what tends to happen is people get a consistent return on their money, so they don't take it out after they get their 12 or 15 percent; they put it back in; they keep on going. It comes apart, and again, you see how this grows, and he's got more people. This is how it was growing. What happens then is that times turn tough. People this year needed their money. They call up and say, "I need to redeem my money." A Ponzi scheme only works if somebody is continually putting revenue into the system. And that's when it breaks down, when it doesn't. So, it's a confidence game; that's why it worked. That's why he was able to pull it off.
GERSHON: Time for the Shoutout! What government agency is responsible for establishing the United States' monetary policy? Is it the: A) Federal Reserve, B) Treasury Department, C) U.S. Mint or D) SEC? You've got three seconds -- GO! The Federal Reserve, or Fed, was created in 1913 to provide a safer, more flexible and more stable monetary system. That's your answer and that's your Shoutout!
AZUZ: The Fed does that, partly, by influencing credit. That's what it did yesterday, establishing a range for the federal funds rate between 0% and .25%. This affects interest rates on things like credit cards, and home and business loans. What this means is that banks, which have been reluctant to lend in a weak economy, can now offer loans interest free.
Teens and Sleep
AZUZ: And ever catch yourself nodding off in class? According to new research, you might not be able to help it. Now that's the perfect excuse. The study says teens need 8-10 hours of sleep per night, and they usually go to bed and get up later than adults. When one Kentucky county started its school day later, the number of students getting at least eight hours' rest jumped 15 percent!
GERSHON: See if you can I.D. Me! I was born in Brooklyn, New York in 1954. I was elected to the New York State Senate when I was 31 years old. Earlier this year, I became New York's 55th governor and the state's first African-American governor. I'm David Paterson, and I'm also New York's first legally blind governor.
AZUZ: Governor Paterson has been a leading advocate for the visually impaired for years. He also has a sense of humor. During his inauguration speech, he actually made a joke about his disability. But when a Saturday Night Live skit did the same thing recently with a parody of the governor, Paterson was not amused. Deborah Feyerick has the details.
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(SCENE FROM SATURDAY NIGHT LIVE) ACTOR: Its bad out there ,Seth. If you don't believe me, take a look at this graph that I've got here. It shows that unemployment in 2008 is...
ACTOR: Uh, governor, it's upside down.
ACTOR: You bet it is!
DEBORAH FEYERICK, CNN CORRESPONDENT: The Saturday Night Live parody covers all bases: the New York governor's extramarital affairs, his drug use years ago, even his accidental rise after a prostitution scandal knocked out his predecessor.
ACTOR: Governor, you're in our shot.
FEYERICK: The skit got lots of laughs. But Governor David Paterson, who is legally blind, says the comedians crossed the line making fun of his disability.
GOVERNOR DAVID PATERSON, (D) NEW YORK: I'm afraid that kind of third-grade depictions of individuals and the way they look and the way they move add to that negative environment.
FEYERICK: A negative environment, Paterson says, in which 63% of people with disabilities can't find work.
WOMAN: OK, you want to stick the cup underneath there.
FEYERICK: At the Helen Keller School for the Blind in Brooklyn, attended by Paterson, former U.S. Air Force pilot Ranson Rhoden was angered by the SNL skit, saying even though he can't see, he still got his computer doctorate and parachutes as a hobby.
RANSON RHODEN, JOB TRAINEE, HELEN KELLER SVCS FOR THE BLIND: The fact when you're disabled, it's not right, because they're thinking everyone blind is stupid.
FEYERICK: Saturday Night Live is off this week, and told CNN no one was available to comment. Frank Primeggia, who runs the school, says those kinds of stereotypes hurt everyone with disabilities.
FRANK PRIMEGGIA, COORDINATOR, HELEN KELLER SVCS FOR THE BLIND: This has now created a more difficult environment, placing someone in the work environment.
FEYERICK: Do you think Gov. Paterson is fair game as a politician?
PRIMEGGIA: Yes, most definitely. But just because of what he says, not because of his physical handicap.
FEYERICK: Though everything for Saturday Night Live, it seems, is fair game.
ACTOR: They don't have to be blind. Maybe somone with a gamey arm, or the giant guns with tiny teeth.
FEYERICK: Deborah Feyerick, CNN, New York.
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AZUZ: Now, Saturday Night Live has been parodying politicians for decades. But do you think this sketch went too far, or is every aspect of a public figure's life fair game for comedy? We want to hear your opinions on this issue. Head to our blog at CNNStudentNews.com, and tell us what you think.
Before We Go
AZUZ: Before we go, did your parents ever tell you not to play around abandoned boxes or refrigerators? This is why. Emergency personnel are anxiously trying to crack open this safe, because inside is an eight-year-old boy! He accidentially got locked in there over the weekend and the guy with the keys, you guessed it, was out of town! Luckily, rescuers pried the door open and got the boy out, with just some minor scrapes and bruises.
AZUZ: We're just glad he made it out safely. We'll see you again tomorrow. You guys have a great day.