CLAWBACKS FOR THEE, BUT NOT FOR ME

It's hard to feel sorry for people who were wealthy enough to invest with Bernie Madoff -- especially the ones who got out early and made money -- but somehow it doesn't seem right that even the ones who had no idea fraud was taking place might have to return some of the money ... while many Wall Streeters who made huge bonuses from the mortgage insanity get to keep their huge bonuses.

Here's what may happen to the Madoff investors:

... even Mr. Madoff's most fortunate clients may wind up having to give back some of their gains....

Jay B. Gould, a former lawyer at the Securities and Exchange Commission who now runs the hedge funds practice at Pillsbury Winthrop Shaw Pittman, said ... New York State law may allow the receiver or bankruptcy trustee to demand that Mr. Madoff's investors return money they received from the scheme any time in the last six years, Mr. Gould said.

Such so-called clawbacks may occur even if the client had no idea that the gains were fraudulent, he said.

"The idea is that the whole thing was a fraudulent undertaking, so nobody should profit from it, and everybody should be put on equitable footing," Mr. Gould said....

Meanwhile, at the big Wall Street firms:

For Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was $350,000, his total compensation was 100 times that -- $35 million.

The difference between the two amounts was his bonus, a rich reward for the robust earnings made by the traders he oversaw in Merrill's mortgage business.

... In all, Merrill handed out $5 billion to $6 billion in bonuses that year. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million.

But Merrill's record earnings in 2006 -- $7.5 billion --- turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly had powered some of those profits plunged in value.

Unlike the earnings, however, the bonuses have not been reversed....

For now, most banks are looking forward rather than backward. Morgan Stanley and UBS are attaching new strings to bonuses, allowing them to pull back part of workers' payouts if they turn out to have been based on illusory profits. Those policies, had they been in place in recent years, might have clawed back hundreds of millions of dollars of compensation paid out in 2006 to employees at all levels, including senior executives who are still at those banks....

AS Paul Krugman said:

So, how different is what Wall Street in general did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply stealing his clients' money rather than collecting big fees while exposing investors to risks they didn't understand.... Still, the end result was the same (except for the house arrest)....